Employment Update - July 2010

News and Developments

*STOP PRESS* - Government announces plans for the future of retirement

The coalition government has announced its plans for the future of retirement.  This includes  a complete removal of the national default retirement age of 65 (the age at which employers can force their employees to retire).  Further  details on this will follow in next month's update.

Additionally, the government have confirmed that they will be implementing the previous government's plans to increase the state pension age but at a much faster rate.

The state pension age for men is to be raised to 66 by 2016 rather than by 2024, and the date for this to then rise to 67 will also be brought forward.  The pension age for women is already rising gradually, from 60 to 65 by 2020. The government is also considering the option of a possible increase up to 70 over the following decades.

Temporary non-EU migration limit in force and "Limits on non-EU economic migration" Government Consultation

Temporary limit

A temporary limit on non-EU migrants entering the UK for work purposes has been imposed by the government to avoid increasing numbers of applications being made in the run up to new mechanisms taking effect.  The temporary measures set interim limits on highly skilled (Tier 1) entrants and skilled (Tier 2) entrants.

The temporary limit will remain in effect until March 2011, pending the outcome of the government's current consultation on this matter (more details below), where it is expected that a permanent limit will be announced.

In imposing this temporary limit the government are aiming to achieve a 5% reduction on the number of migrants compared to 2009.

Government Consultation

The government has initiated a consultation on the mechanism to be used to limit the number of non-EU economic migrants entering the UK, and has asked the independent Migration Advisory Committee for advice. The policy objective is to reduce the migration of highly skilled (Tier 1) and skilled (Tier 2) entrants, to determine what mechanisms should be used for a limitation, and to find alternatives to migrant labour.

The consultation ends on 17 September 2010. The government is then aiming to announce decisions on the new mechanism and new annual limit by the end of the year, and to implement them by 1 April 2011.

A new mechanism to operate an annual limit

There are two well-established methods of operating an annual limit.  One method is the so-called "pool" system, which uses a points system. Candidates pay a fee to enter a pool of potential candidates and at pre-determined intervals, candidates with the highest point scores in the pool are invited to apply for entry into the UK.  The other method available operates on a first-come-first-served system. The government have indicated that in the future they would prefer to use a pool system for highly skilled migrants (Tier 1) and a first-come-first-served method for skilled migrants (Tier 2).

Other points included in the consultation

The consultation is also seeking views on:

• Raising the criteria for both Tier 1 and Tier 2, on the suggestion that this could reduce the number of applications;
• Whether dependants should be included in the annual limit (however, there is currently no intention of changing the policy for the admission of dependants);
• How to deal with Intra-company transfers ("ICTs") which are used by businesses to bring an existing company employee into the UK, and whether or not they should be included in the annual limit;
• The possibility of widening the responsibilities employers take on when they employ migrant workers, including the provision of health insurance and a practical commitment to up-skilling British workers; and
• On a method to ensure that a migrant employee is not recruited until the local labour market had been tested.

National minimum wage increases

The Government has accepted the Low Pay Commission's (LPC) recommendations and confirmed that the national minimum wage rates are to rise from 1 October 2010.

The new rates will increase from:

• £5.80 to £5.93 an hour for workers aged 21 and over;
• £4.83 to £4.92 an hour for workers aged 18 to 20; and
• £3.57 to £3.64 an hour for workers aged 16 to 17.

Note that the adult minimum wage rate is to be extended to 21 year olds from 1 October 2010. At present it only applies to employees aged 22 and over.

The government has also confirmed that a new minimum wage rate of £2.50 an hour will be introduced for apprentices.  This will apply to all apprentices under the age of 19 and those aged over 19 but in the first year of their apprenticeship.

Employment Tribunal Statistics 2009/10

The Tribunal Annual Statistics for 2009/10 have been released. The key findings are as follows:

• In 2009/10 the Tribunals Service received 793,900 appeals, an increase of 26% on the previous year;
• There was an increase of 56% in the number of claims issued in 2009/10 compared to the previous year;
• There was a 14% increase in the number of single claims accepted by Employment   Tribunals;
• There were 126,300 jurisdictional claims associated
• with unfair dismissal, breach of contract and redundancy, which is 17% higher than for 2008/09 and thought to be caused by the economic recession; and
• There was a 22% increase in the number of disposals by Employment Tribunals. However, due to the increasing receipts more than 400,000 remained outstanding.

Case Law

Age Discrimination

In Kraft Foods UK Ltd v Hastie the Employment Appeal Tribunal ("EAT") have held that a cap on a contractual redundancy compensation scheme is not indirect age discrimination and confirmed that the redundancy payment should not exceed the total amount of wages the employee would have received up to retirement.  

Facts

Mr Hastie was employed at Kraft Foods UK Ltd ("Kraft") as a process operator for nearly forty years.  In 2008 he applied for voluntary redundancy, which was available on the terms of an established scheme. The scheme provided that employees receive 3.5 weeks pay for each year of service. The scheme also contained a cap on the maximum redundancy compensation payable, where the redundancy payment should not exceed the amount the employee would have earned if he worked up to retirement age. This meant for Mr Hastie that he had a reduction on his payment of almost £14,000. Mr Hastie issued a claim for age discrimination.

Decision

The Employment Tribunal ("ET") held that there are no significant reasons to justify a cap on the total amount of redundancy compensation payable under a contractual redundancy scheme. As such, the ET held that by imposing the cap Kraft had discriminated against Mr Hastie on grounds of his age.
Kraft appealed the decision.

Appeal Decision

The Employment Appeal Tribunal ("EAT") held that the ET had ignored relevant matters and evidence and held that there is justification for indirect age discrimination arising from a cap in a contractual redundancy scheme. The EAT stated that the general aim of a redundancy payment is a compensation to the employee for loss of his job. Additionally, the EAT found that to maintain this compensation scheme as a whole, a cap is needed to prevent excessive payments for employees close to retirement age. The EAT decided that the argument of Kraft, "to prevent a windfall", is a proportionate mean of achieving a legitimate aim (to maintain the scheme for redundancy payment) and therefore the cap is justified.

Comment

In this case the EAT has confirmed that using a cap in a redundancy scheme to prevent those employees taking voluntary redundancy from receiving excess compensation is a proportionate means of achieving a legitimate aim and is therefore justified. However, employers should ensure that any redundancy scheme operating with a cap needs to be balanced and fair as a whole for the cap to be justified.

Unfair Dismissal - Misconduct cases

In Salford Royal NHS Foundation Trust v Roldan the Court of Appeal have held that in unfair dismissal cases that involve misconduct, the employment tribunal should take into account the seriousness of the consequences of the dismissal for the employee.

Facts

Ms Roldan, an experienced registered nurse, was recruited from Singapore and employed by the Salford Royal NHS Foundation Trust (the "Trust").

In 2007 Ms Roldan was accused by a health care assistant of having mistreated a patient and following an investigation and disciplinary hearing was dismissed on grounds of gross misconduct. During the investigation both Ms Roldan and the health care assistant were interviewed. Full interview notes were taken during Ms Roldan's interview but none were taken during the interview with the health care assistant.

The health care assistant was the only witness to the alleged incident and Ms Roldan denied most of the accusations, stating that she did not mean to offend the patient.  The Trust believed the evidence of the health care assistant and found Ms Roland's recollection inconsistent and vague.

Following her dismissal Ms Roldan lost her work permit and the right to remain in the UK.

Employment Tribunal Decision

The Employment Tribunal ("ET") held that Ms Roldan had been unfairly dismissed, finding that there were doubts about the manner of the disciplinary proceedings and the Trust did not in any way seek to question the reliability of the evidence they relied on. The ET awarded Ms Roldan compensation of over £20,000.

The Trust appealed. The Employment Appeal Tribunal remitted the case for a fresh ET hearing. Ms Roland appealed to the Court of Appeal.

Court of Appeal Decision

The Court of Appeal held that the ET were entitled to find that the dismissal was unfair, stating that the investigations were inadequate in light of the fact that Ms Roldan had been employed for four years, apparently without complaint, and there was a real risk that the dismissal would have serious consequences for her. 

In coming to its judgment, the Court of Appeal relied on established requirements for a dismissal based on misconduct:

1. The employer must believe in the guilt of the employee;
2. The employer must have reasonable grounds for that belief; and
3. The employer must have carried out as much investigation into the matter as was reasonable in all the circumstances.

In this case the Court of Appeal additionally stated that  allegations of misconduct that constitute a criminal offence must be the subject of the most careful investigation.

Comment

This decision confirms that an employer, when considering dismissal on the grounds of misconduct, needs to fully consider the consequences of the dismissal for the employee. The more serious the consequences are the more careful the investigation needs to be.  In cases where there is conflicting evidence it is even more important that the investigation is carried out attentively and the statements of witnesses fully documented and scrutinised if they are being relied upon when making the decision to dismiss.

Discrimination - Employees working abroad

In Neary v Service Children's Education and others the Employment Appeal Tribunal ("EAT") have provided guidance on employees' ordinary place of residence for the purposes of discrimination legislation.  Although in this case the claimant's claim was unsuccessful the EAT did confirm that an employee can be ordinarily resident in two countries at the same time.

Facts

Since 1991 Mr Neary was employed in various roles abroad as well as having periods of employment in the UK.  In March 2008 Mr Neary applied for a teaching post in Cyprus at a school for the children of Armed Forces personnel.  In August 2008 he was informed that he had not been shortlisted for interview. During this time Mr Neary was living and working in Germany.

On 15 September 2008 Mr Neary issued a claim to the British Employment Tribunal Service, claiming that he had been discriminated against on grounds of age and disability when applying for the teaching post in Cyprus. Mr Neary gave his German address on the claim form.

Decision

The Employment Tribunal rejected Mr Neary's claim, holding that he was not entitled to issue a claim in Great Britain as he was ordinarily resident in Germany at the time of his application.

Mr Neary appealed to the EAT.

Appeal Decision

The EAT considered that when work is wholly done outside Great Britain the Employment Equality (Age) Regulations 2006 and the Disability Discrimination Act  1995 are applicable if:

• The employer has a place of business at an establishment in Great Britain; and
• The work is for the purposes of the business carried out at that establishment; and
• The employee is ordinarily resident in Great Britain (either at the time he applies or at any time during the course of the employment).

Applying this test to Mr Neary, the EAT found that the first two limbs were satisfied as the school in Cyprus was for the children of Armed Forces personnel. The EAT then had to consider whether Mr Neary was ordinarily resident in Great Britain. There is no guidance in the discrimination legislation itself as to the meaning of the words "ordinarily resident", and no previous decisions in a discrimination context, so the EAT looked at case law in other areas, mainly that dealing with income tax law.

The established case law on this point has held the term "ordinarily resident" as referring "to a person's abode in a particular place or country which he has adopted voluntarily and for settled purposes as part of the regular order of his life, whether of short or long duration". The established case law has then applied this to hold that a person may be ordinarily resident in two countries at the same time.

On consideration of all the facts of Mr Neary's case, and applying the established legal principles above, the EAT found that Mr Neary was not ordinarily resident in both Germany and Great Britain at all relevant times, and as such he could not rely on the protection given in the British legislation.  The EAT dismissed the appeal and held that the Employment Tribunal had been right to decide that Mr Nearly was ordinarily resident in Germany at all relevant times.

Comment

In a globalised world employees often work abroad on behalf of an employer in the UK. Although Mr Neary's claim was not successful, the EAT provided the criteria for the term "ordinarily resident" and more importantly pointed out that it is possible for an employee to be ordinarily resident in two countries at the same time. Employers would be wise to ensure that where they have employees working abroad attention is given to the employer's obligations under UK discrimination legislation in respect of those employees.

Legislation

Equality Act 2010 - Commencement Update

As mentioned in previous updates, there has been speculation regarding the commencement timetable for the Equality Act 2010 (the "Act") following the recent change of Government.  However, this month we have seen the first official step towards commencement through The Equality Act 2010 (Commencement No.1) Order 2010.

On 5 July 2010 The Equality Act 2010 (Commencement No. 1) Order 2010 (the "Order") was made.  The Order brought a number of provisions of the Act into force on 6 July 2010. These provisions enable Government to issue subordinate legislation and guidance in respect of the Act.  Additionally, the Order also brought into force various amendments to the Equality Act 2006 which allow the Equality and Human Rights Commission to issue codes of practice under the Act.

Following the publication of this first Order, the Government Equalities Office has now confirmed that the first stage of implementation will take place in October as planned.   Currently no order has been made to bring the substantive provisions of the Act into force but is expected in due course.  We will keep you updated on developments in this area over the coming months.

The Employers' Duties (Registration and Compliance) Regulations 2010 - Automatic enrolment pension system

The Chancellor, George Osborne, has confirmed that Labour's auto-enrolment pension system will be implemented.

From October 2012 the Employers' Duties (Registration and Compliance) Regulations 2010 (the "Regulations") will set out new duties for employers in relation to pensions, requiring all employers to automatically enrol their employees into a "qualifying pension scheme", subject to employees choosing to opt-out. 

The Regulations will require all employers to automatically enrol employees into a "qualifying pensions scheme".  If the employer has an existing company pension scheme that meets certain criteria this can be used. If the employer does not operate it's own pension scheme, employees will be enrolled into a new low-cost pension scheme being introduced by the Government called the National Employment Savings Trust ("NEST").

Depending on the size of employer, the Regulations will require employers to make a minimum contribution of 3% of each employee's eligible earnings. 

New Duties

Before the Regulations come into force all employers will be contacted by the Pensions Regulator to inform the employer of their new duties and the date the Regulations will apply to them.  Below is a brief summary of the main duties that will be set out in the Regulations:

• Registration - Employers will be required to register with the Pensions Regulator within six months of the Regulations applying to their organisation, and to re-register and re-enrol employees every three years.  Details of employee numbers, auto-enrolment numbers and non-NEST pension schemes will be required for registration; and
• Record Keeping - Employers will be required to keep records for a period of six years, including details of auto-enrolment numbers, opt-in and opt-out policies and contribution levels.

Non-compliance

The Regulations will give the Pension Regulator the power to force employers to pay contributions that are overdue by three months and impose interest to the overdue amount.

Additionally, the Regulations will also extend the Pension Regulator's powers against employers who fail to comply with their duties, including registration and record keeping.  The new compliance process will be as follows:

• First step - Compliance notice issued by the Pension Regulator.
• Second step - Fixed penalty notice of £400 for any failure to remedy a breach.
• Persistent breaches - Escalating penalties of between £50 and £10,000 per day (dependent on the size of the employer).

The Pensions Act 2008

Additionally, employers should be aware of the provisions set out in the Pensions Act 2008.

Important points to remember:

• Employers are prohibited from requiring a prospective employee to opt out of NEST;
• Employers are prohibited from enquiring whether an employee will opt out of NEST (at any time);
• Employers are prohibited from offering financial inducements aimed at employees opting out of existing employer pension schemes; and
• Employers failing to comply with certain key duties will be guilty of an offence which could result in imprisonment and/or a fine.

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.  Links to other sites and resources provided by third parties are included for your information only.  We have no control over the content and accept no responsibility for them.