Employment Update - April 2009

In last week's budget, Alistair Darling announced that the maximum week's pay for the purpose of calculating redundancy payments, will increase from £350 to £380. This will mean that the maximum statutory redundancy payment available to employees will increase from £10,500 to £11,400, although no date has been set for when this change will come into force.

The figure used to calculate statutory redundancy payment is the same as the figure used to calculate a basic award for unfair dismissal claims. However, the Chancellor of the Exchequer was silent as to whether this figure will remain at £350 or increase to £380 in line with the statutory redundancy payment.

Other changes include the Chancellor setting aside £1.7 billion for Job Centre Plus to ensure that it is able to provide a personal service to deal with the rising unemployment. The Chancellor also pledged £260 million to help young people acquire skills and training.

Young people who have been unemployed for more than 12 months will be offered guaranteed support to return to the labour market. 100,000 new jobs will be funded through local authorities and voluntary sector partners to engage 18 to 24 year olds in jobs that offer high social value.

The Chancellor also announced the introduction of CareFirst which is a funding scheme for employers to encourage young people to work in the care sector. Providers will be subsidised for employing and training 18 to 24 year olds who have been out of work for more than 12 months.

From 6 April 2010, individuals who have a taxable income over £150,000 will be subject to the new top rates of income tax. The additional rate for dividends will be 42.5% and for other income will be 50%. In addition, on 6 April 2010, the trust rate of income tax will increase from 40% to 50%, and the dividend trust rate will increase from 32.5% to 42.5%.

The basic personal allowance for income tax will also be reduced from 2010 for those with an adjusted net income over £100,000. The reduction will be £1 for every £2 over the income limit until the allowance is reduced to nil.

CASE LAW

Employee entitled to legal representation at Disciplinary Hearing due to gravity of consequences

In R (on the application of G) v The Governors of X School & Anor [2009] EWHC 504 the High Court held that article 6 of the European Convention on Human Rights entitled the applicant to legal representation at his internal disciplinary hearing, due to the gravity of the potential consequences for the applicant of a guilty finding at the hearing. This case has been reported as having more general application, but employers will be relieved to learn that its application is relatively limited.

Facts

G was a teacher who was accused of having an inappropriate relationship with a child. The School commenced disciplinary proceedings against G, and G requested legal representation at the disciplinary hearing. If the allegations against G were upheld at the disciplinary hearing, the School was obliged to refer the matter to the Secretary of State who has the power under section 142 of the Education Act 2002 to direct that G be added to the list of people prohibited from working with children in education.

The School refused G legal representation, and G was eventually dismissed for gross misconduct. G applied for judicial review, arguing that his right to a fair trial under article 6 of the European Convention on Human Rights had been breached by the school's decision not to allow him legal representation, and not to allow him to cross examine witnesses.

Decision

The High Court concluded that because of the serious nature of the allegations of misconduct and the severity of the potential consequences of the Secretary of State's actions, then G was entitled to an 'enhanced measure of procedural protection'. G was therefore entitled to legal representation at the disciplinary hearing and appeal, as the usual employment right of being entitled to be accompanied by a trade union official or colleague was not sufficient in this case. Both parties have appealed the case to the Court of Appeal.

This finding was based on the court's interpretation of article 6(1) of the Human Rights Act 1998. The relevant section of article 6(1) states : In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.

Comment

Employees and employers should be careful not to consider this case as creating a general legal right for an employee to have legal representation at disciplinary hearings. Section 10 of the Employment Relations Act 1999 entitles an employee to be accompanied by a colleague or a trade union representative, and this does not extend to legal representation.

The High Court was careful to state that this decision was limited to the facts before it, and was not intended to have wider implications. The present case was therefore only concerned with the Secretary of State's powers under section 142 Education Act 2002. However, the principles of this case could be relevant to employees faced with serious allegations that could lead to grave consequences affecting their ability to work in a particular sector.

Although only public sector employees can directly claim a breach of the Human Rights Act, employees of private organisations could claim that denying them legal representation in an appropriate case renders a dismissal unfair.

Controlling shareholders can be employees

The Court of Appeal has handed down its decision in Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld & Anor [2009] EWCA Civ 280, which dealt with the issue of whether controlling shareholders could be considered employees of the company.

The Court of Appeal rejected the view that an individual could not be an employee if they were a controlling shareholder and director of the company.

The claim arose in the Employment Tribunal due to the insolvency of Mr Neufeld's employer. Under section 182 of the Employment Rights Act 1996, where an employee's employer has become insolvent, the Secretary of State may pay the employee an amount from the National Insurance Fund.

The Secretary of State asked the Court of Appeal to clarify the approach that tribunals should take when looking at this question, due to the current conflicting authorities.

The Court of Appeal held that there is no reason in principle why someone who is a shareholder and director of a company cannot also be an employee of the company under a contract of employment. There is also no reason in principle why someone whose shareholding in the company gives him control of it - even total control - cannot be an employee.

The Court stated that the relevant factors to consider were:

1. whether the contract was a genuine contract or a sham?; and

2. assuming the contract was genuine, whether the contract was a contract of employment and not a contract for services.

This decision has clarified the law in this area for tribunals, following the difficulties caused by the previous leading cases.

Although this case concerns payment out of the National Insurance Fund, purchasers of businesses which no longer need the previous director-shareholders of the company, may be liable to them as employees for wrongful or unfair dismissal claims. The purchasing company may therefore require the selling company to enter into compromise agreements with the directors for any potential claims before the purchase can occur.

Clear language needed to compromise claims

In McLean v TLC Marketing Plc UKEAT/0429/08, the EAT has held that clear language is needed in the ACAS COT3 settlement form to compromise future claims. In this case the language used was not sufficiently clear to preclude such claims.

McLean and TLC had entered into a compromise agreement on form COT3 "in full and final settlement of all claims which the applicant may have against the respondent arising from his employment or its termination" following a sex discrimination claim by McLean. TLC failed to comply with the terms of the agreement, and McLean issued County Court proceedings for breach of contract.

TLC complied with the terms of the agreement following a County Court judgment, but McLean issued proceedings in the Employment Tribunal for victimisation. McLean argued that TLC's failure to comply with the compromise agreement was because she had brought a sex discrimination claim against them. McLean alleged that this was a detriment amounting to further discrimination under the Sex Discrimination Act. The tribunal refused to hear the claim on the basis that the compromise agreement prevented McLean bringing such a claim.

The EAT held that the claim was not prevented and remitted it to the tribunal for consideration on its merits. The EAT stated that the wording used in the agreement to exclude claims, as reproduced above, will be construed narrowly, and be deemed to be limited to those claims that are within the contemplation of the parties at the time that the agreement is entered into.

The EAT held that it is possible for a compromise agreement to waive future claims provided that the language used is "absolutely clear and leaves no room for doubt". Unfortunately, the courts have failed to provide us with an example of the language that will pass the judicial test. Employers should therefore be cautious of the language used in such agreements.

Another point to note from this case is that employers should be aware that a failure to comply with the terms of a compromise agreement may be deemed victimisation as well as a breach of contract.

Equal Pay Grievance need not identify a comparator

In Suffolk Mental Health Partnership NHS Trust v Hurst and others [2009] EWCA Civ 309 the Court of Appeal has held that when an employee raises a grievance concerning equal pay, the grievance need not identify a comparator.

The claimants raised grievances concerning equal pay claims which did not refer to specific comparators. The claimants simply reserved their right to name comparators after the disclosure of information or documents by the employer.

The Court of Appeal held that the employees had complied with their requirement to set out their grievances in writing, as they simply need to inform the employer that their claim related to equal pay. They did not need to identify comparators in the grievance in order for it to be valid. The Court of Appeal felt that the requirement to identify comparators would be a substantial obstacle to claims.

LEGISLATION

Equality Bill

The long-awaited Equality Bill has now been published. The Bill is intended to combine all of the existing legislation on discrimination into one single statute.

Although the Bill will no doubt be subject to considerable debate and amendment prior to coming into force, some of the main points to note are that it:

• allows positive discrimination during recruitment in favour of disadvantaged groups when faced with candidates who are otherwise equally qualified;

• reverses Malcolm v London Borough of Lewisham, and abolishes the list of areas in which a disability must impact (eg mobility, manual dexterity, memory or ability to learn, concentrate or understand etc.);

• contains a clause allowing the Secretary of State to order employers with more than 250 employees to publish information about disparities in pay between male and female employees (although it may be that this power will not be used for a further four years);

• outlaws any clauses in employment contracts which impose a secrecy obligation stopping employees discussing their pay package;
• introduces a new duty for some key public bodies to pay due regard to socio-economic disadvantage in making strategic decisions, and extends public sector duties to ensure equality to age discrimination; and

• gives effect to recent European caselaw by outlawing discrimination by association.

Register of Judgments, Orders and Fines (Amendment) Regulations 2009

From 1 April 2009, employers or individuals who do not pay employment tribunal awards will be "named and shamed". The defaulters will be added to the Register of Judgments, Orders and Fines if enforcement proceedings are brought against them in a county court.

Members of the public and credit reference agencies will be able to check the register, which the Government hopes will provide an incentive for timely payment, and give weight to tribunal rulings.

National Minimum Wage changes

The Employment Act 2008 has introduced new penalties for the underpayment of the National Minimum Wage (NMW) by employers, in the same month as the NMW reaches it's 10th anniversary.

Now standing at £5.73 for workers over 22 years old, the NMW has seen a 59% rise since its introduction in 1999, when it was £3.60. NMW also applies to those under 22, with the current rates being £4.77 for 18 - 21 year olds, and £3.53 for 16 and 17 year olds. These NMW rates will increase again in October 2009.

The 6th April 2009, has seen an overhaul of the enforcement procedures for NMW. From this date employers will face a penalty if HM Revenue & Customs (HMRC) discover they have failed to pay the NMW as workers will be entitled to have arrears of wages repaid at current rates. The Act also gives HMRC compliance officers new inspection powers and strengthens the criminal regime for national minimum wage offences.

If a HMRC investigation reveals underpayment, they may issue a notice of underpayment requiring the employer to repay arrears to the workers and to pay a financial penalty to the Secretary of State.

The penalty is set at 50% of the total underpayment but there is a minimum penalty of £100 and a maximum penalty of £5,000. Employers who comply fully with the notice of underpayment within 14 days of service will receive a discount of 50% on the penalty.

It is therefore more important than ever for employers to be familiar with the current wage rates for their employees, due to the increased sanctions that HMRC can impose on those who underpay. Employers are advised to keep proper records of the wages that they pay to their workers and the permitted deductions.

Changes introduced on 6 April 2009 by the Employment Act 2008

Details of these changes were covered in our March 2009 Employment Update

OTHER NEWS

Recruitment Subsidy

From 6 April 2009, businesses will be able to take advantage of up to £2500 recruitment and 'on the job' training subsidies, as an incentive to take on people who have been looking for work for six months or more and have been claiming unemployment benefits. The subsidy is worth £1000 and the company can, depending on location, also access up to £1500 worth of in-work training to ensure that the new recruit has the right skills for the job. Employers should contact Job Centre Plus for further information.

Employment Tribunals Statistics show an increase in age and redundancy related claims

The Tribunals Service has released its figures for the period 1 April 2007 to 31 March 2008 (2007/08), which shows a 43% increase in the total number of claims from the previous year, and a 65% increase on the 2006/2007 figures.

Of the 189,303 claims made to the tribunal, the most popular claims were equal pay claims, which have increased ten - fold in the last 5 years. The amount of age discrimination claims also rose from 972 to 2949.

The provisional Employment Tribunal Statistics for April 2008 to February 2009 show a significant decrease in claims for sex discrimination and equal pay, but substantial increases in unfair dismissal claims and claims arising from redundancy, including failure to inform and consult on redundancy.

Ashfords LLP is regulated by the Solicitors Regulation Authority. The information in this note 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.