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• Employment Update September 2007

Employment Update - September 2007

New Legislation in force today!

A quick reminder about legislation which comes into force today. The National Minimum Wage (NMW) will be increasing from 1 October 2007. The Working Time (Amendment) Regulations 2007 (the Regulations) also come into force on 1 October 2007. The regulations increase the rights of all workers to receive statutory paid holiday. Full-time workers will now be entitled to receive an additional 4 days' holiday per year. Full details of these changes can be found in the June Update and July Update. The NMW will increase as follows:

Standard Rate for workers aged 22 and over increasing to £5.52 from £5.35

Development Rate for workers aged 18 to 21 increasing to £4.60 from £4.45.

Young Workers Rate for workers under 18 but above compulsory school age increasing to £3.40 from £3.30.

From today holiday entitlement has also increased:

Full-time workers are now entitled to an additional 4 days' paid holiday per year, increasing from 20 days (including statutory and public holidays) to 24 days. Full-time workers will also become entitled to a further 4 days' paid holiday from 1 April 2009, taking them up to 28 days in total. The maximum statutory holiday entitlement is capped at 28 days, although employers may at their discretion, choose to award more contractual holiday than this.

Guidance on the Statutory Dismissal Procedures

The case of Aptuit Ltd v Kennedy provides some useful guidance on two important aspects of the statutory dismissal procedures.

The Employment Appeal Tribunal ("EAT") held that employers do not need to confirm an employee's right of appeal in writing. The employer will discharge their obligations under the Employment Act 2002 simply by providing a right of appeal. The EAT also overturned the 40% uplift which had been awarded by the Employment Tribunal for the employer's failure to follow the statutory procedures on the basis that the general merits and circumstances of the case were not relevant. The fact that the employer was a large company, there had been limited consultation with the employee and the employee had been treated in a "shoddy" manner were all irrelevant. In exercising their discretion the Employment Tribunal should only have regard to the employer's failure to follow the statutory procedures.

Aptuit Ltd ("the Company") is part of a multi-national business engaged in the supply of clinical products. Mrs Kennedy was employed as a secondary staging co-ordinator and project supervisor by the Company.

Mrs Kennedy was dismissed by reason of redundancy and claimed she was unfairly dismissed. At first instance the Tribunal found that her dismissal was automatically unfair because she had not been notified in writing of her right of appeal. The Tribunal found that this was in breach of the three-step standard dismissal procedure set out in the Employment Act 2002 which is as follows:

Step 1 : The employer must set out in writing the employee's alleged conduct or characteristics, or other circumstances, which lead him to contemplate dismissing or taking disciplinary action against the employee. The employer must also send the statement or a copy of it to the employee and invite the employee to attend a meeting to discuss the matter.

Step 2 : The employer must meet with the employee before any relevant disciplinary action is taken.

Step 3 : The employee must be provided with a right of appeal A representative from the Company's HR department stated that she could not confirm that she had advised Mrs Kennedy of her right of appeal against her dismissal. Mrs Kennedy stated that she knew she could appeal against the decision, but no one had told her who to appeal to, or how start the process. The Employment Tribunal found the dismissal to be automatically unfair on this basis. The EAT held that the Tribunal was incorrect in its decision and stated that the statutory dismissal process does not require notification of the right to an appeal to be given in writing, verbal communication will be acceptable.

Despite this ruling it remains best practice for employers to provide written confirmation of an employee's right of appeal and the process by which such an application should be made. The second key issue arising from this case was the EAT's decision to overturn the Tribunal's decision to uplift the award payable to the employee by 40% due to the employer's failure to follow the procedures.

The EAT held that the Tribunal's approach of considering the uplift on the basis that the Employment Act requires an uplift

of between 10% and 50% was incorrect. The EAT held that an uplift of 10% is required, unless there are exceptional

circumstances, but any uplift between 10% and 50% is discretionary and must be justified as being "just and equitable" in all the circumstances. Further, the EAT held: "it is plain, in our view, that the circumstances in question are those surrounding the failure to complete the statutory procedure".

The other circumstances relating to the dismissal were irrelevant because they did not relate to any failure to complete the statutory procedure.

In the long run this part of the decision may prove contentious because there is no wording in the Employment Act 2002 stipulating that tribunals may not take into consideration the other facts of the case in exercising their discretion.

Directors and Majority Shareholders can be Employees The recent judgment of the EAT in the case of Nesbitt and Nesbitt v Secretary of State for Trade and Industry, reviews existing case law and provides useful guidance in respect of the employment status of directors and shareholders of companies. The EAT held that unless the company is a 'mere simulacrum', the fact that a claimant is a majority shareholder and a director of the company should not necessarily lead a tribunal to conclude that the claimant is not an employee. Tribunals should consider all the facts of the case before making a determination on this issue. The claimants were husband and wife who owned and managed APAC Computer Training Ltd ("the Company") which provided IT training to businesses and local authorities.

Mrs Nesbitt owned 51.99% of shares, Mr Nesbitt owned 48% of shares and Mrs Nesbitt's mother, Mrs Franklyn owned the remaining 0.01% of shares. Mr and Mrs Nesbitt had written contracts of employment with the Company and were both paid salaries. The Company became insolvent and Mr and Mrs Nesbitt (along with other employees) were made redundant by the liquidator. Mr and Mrs Nesbitt claimed redundancy payments and arrears of pay from the Insolvency Service. The Insolvency Service refused to pay out on the basis that Mr and Mrs Nesbitt were not employees. Mr and Mrs Nesbitt subsequently applied to the Employment Tribunal to determine the question of liability. The Employment Tribunal held that as Mr and Mrs Nesbitt jointly controlled 99.9% of the Company's shareholding, they could not be employees of the Company. The Tribunal relied on previous authorities which confirmed that where a claimant could use their beneficial interest in the company to prevent their dismissal, they should not be afforded the protected status of an employee.

Mr and Mrs Nesbitt applied to the EAT who held that their control over the Company should not deprive them of employee status provided that they satisfied all the other criteria for employment. The EAT held that the fact that a claimant is a majority shareholder and a director of the company should not lead a tribunal to conclude that the claimant is not an employee, unless the tribunal finds that the company was a 'mere simulacrum' meaning that the contract between the company and the 'employee' was a just a pretence. The EAT concluded that Mr and Mrs Nesbitt were employees because they both had contracts of employment with the Company, and their relationship with the Company had for the most part been consistent with the existence of an employment relationship. They did not receive directors' fees or dividends, and were paid salaries commensurate with their roles as the senior managers of the business. The EAT therefore held that Mr and Mrs Nesbitt should be awarded employee status and it followed that they wereentitled to all rights flowing from that status.

New law prohibiting Religious Hatred

The Racial and Religious Hatred Act ("the Act") received royal assent in February 2006. The Act amends the Public Order Act 1986 to create a new criminal offence of stirring up hatred against a person on the grounds of religion. The Racial and Religious Hatred Act 2006 (Commencement No. 1) Order 2007 will bring into effect many of the provisions contained within the Act on 1st of October 2007. It is already a criminal offence to use words or behaviour which are threatening and intended to stir up hatred against someone on grounds of their race. The Act will extend this to incitement of religious hatred; that is hatred against a group of people defined by reference to their religious belief or lack of belief.

There are already European-wide regulations banning religious discrimination in the workplace. Should an offence under the Act take place at work, not only will the individuals involved be liable, but the Corporate body will also be liable if it can be shown that the offence was committed with "the consent or connivance of a director, manager, company secretary or similar officer".

The Gender Pay Gap Widens

A recent survey conducted by the Chartered Management Institute and Remuneration Economics which interviewed over 42,000 managers and executives has revealed that women are being promoted more rapidly and are more likely to receive a bonus than their male counterparts. However, the survey concluded that women are still receiving lower pay than men overall and the gender pay divide is widening. Last year's statistics showed that on average female managers received 11.8% less than their male counterparts. This year, these figures have increased to 12.2%. For female directors, last year's figures showed a pay gap of 19.8%. This has now increased to 23%. The study has also revealed that despite female employees being more likely to receive promotions and bonuses, on average bonuses were £2,783 less than those given to male employees.

''Despite the weight of legislation and the reality that reward should match responsibility, gender bias seems to be getting

worse, not better." commented Jo Causon of the Chartered  Management Institute (Financial Times 5 September 2007).

New Minimum Wage for London?

The Institute for Public Policy Research ('IPPR') is calling on Ministers to introduce a higher minimum wage for London of £6.50 per hour. The report by the IPPR which will be published in October 2007 indicates that the gap between the lowest paid workers and average wages in the capital is wider than anywhere else in the country.

The "London Living Wage" (published annually by Ken Livingstone) currently recommends that a minimum of £7.20 per hour is needed to avoid poverty. The IPPR is now calling on the Government to "recognise the exceptional circumstances in London with a specific minimum wage rate for the capital''. However the IPPR are recommending that it should reject a full scale regionalisation of the National Minimum Wage.

Watch this space for further developments.

Guidance on what constitutes "Personal Data"

The Information Commissioner's office ('ICO') has recently published guidance in order to aid Data Protection Practitioners with the sometimes difficult issue of correctly identifying what is 'personal data' for the purposes of the Data Protection Act 1998 (DPA 1998). Only data falling within the definition is subject to the rules of good information practice imposed by the Act. The guidance note is a user-friendly form, comprising flow charts with numbered questions, and illustrative answers. It is available to download from the ICO's Website: http://www.ico.gov.uk/about_us/news_and_views/current_topics/what_is_personal_data.aspx.

15% increase in Employment Tribunal Claims

The ETS has just published the Employment Tribunal and EAT figures from 1 April 2006 to 31 March 2007.The total number of claims made were 132,577, a 15% increase on last year. However, this increase can in part beattributed to the large increase in the number of Equal Pay Act claims against local authorities.Unfair dismissal remains the most popular claim (44,491),followed by unauthorised deductions from wages (34,857),sex discrimination (28,153) and breach of contract (27,298).

The number of cases disposed of by the Employment Tribunal increased by 19%. The average tribunal award in claims of unfair dismissal was £7,974; race discrimination £14,049; sex discrimination £10,052; and disability discrimination £15,059. Respondents were twice as likely as claimants to be awarded costs. The average costs awarded were £2,079. During the 6 month period between 1st October 2006 and 31st March 2007, 972 claims of age discrimination were received. This is lower than predicted and significantly lower than the number of claims received relating to other strands of discrimination such as sex discrimination (28,153 claims), disability discrimination (5,533 claims) and race discrimination (3,780 claims).

And finally.....

Facing up to Facebook

The TUC has published guidance for employers on the issues surrounding social networking at work in response to the surge in popularity of websites such as Myspace and Facebook. Many employers have responded to the problem of employees accessing these sites during working hours by totally blocking access. The TUC considers this to be an overreaction to the problem and recommends that the best way of tackling the issue is to establish and publicise a policy on what is, and is not acceptable use. TUC General Secretary, Brendan Barber gave the following comment: "Simply cracking down on use of new web tools like Facebook is not a sensible solution to a problem, which is only going to get bigger. It's unreasonable for employers to try to stop their staff having a life outside work, just because they can't get their heads around the technology. Better to invest a little time in working out sensible conduct guidelines, so that there don't need to be any nasty surprises for staff or employers."

The website also tackles some interesting questions such as whether employers can refuse to appoint an employee because of their Facebook profile and how employers should approach issues of personal conduct on online social networks. "Facing up to Facebook" can be downloaded in pdf format from the worksmart website www.worksmart.org.uk.

If you would like further information on employment matters please contact us.

Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.