Online Update. Essential Information for Employers

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1 Online Update Essential Information for Employers In the News Employment Tribunal fees The Government has confirmed its plans to charge fees for employment tribunal claims. From summer 2013, it will no longer be free to bring a tribunal claim. Fees will be charged in two stages the first when the claim is submitted and the second once it goes to a hearing. Unfair dismissal and discrimination claims will cost 250 to submit and 950 to proceed to hearing ( 1,200 in total). Other more straightforward claims, such as unpaid wages claims, will cost 160 to issue and 230 for the hearing ( 390 in total). This is generally good news for employers. The fees may discourage speculative claims and encourage early settlement of issues. However, many individuals will be exempt, as those on low incomes will be excused from paying all or part of the fees. In addition, the unsuccessful party will ultimately have to bear the cost, so if the employer loses the case, it will pay the fees. Some applications made by employers will also attract fees, such as a review of a tribunal decision, counter-claims and an application for dismissal of a claim once settled or withdrawn. September 2012 The fees may discourage speculative claims and encourage early settlement of issues. Work experience must employers pay? The Government's "work for your benefits" schemes which encourage the unemployed to undertake unpaid work placements have been ruled lawful, despite some participants arguing they constituted slavery or forced labour. This raises the question of whether employers can offer unpaid work experience and internships or are obliged to pay for such schemes. All workers in the UK are entitled to the national minimum wage. A worker is anyone, apart from someone who is self-employed, who has a contract to perform work or services personally. The contract does not have to be in writing and many individuals undertaking work experience placements will, therefore, qualify for the national minimum wage as workers. This would be the case if the individual was expected to turn up and perform any work or services. In contrast, if the placement does not involve any work but only involves work shadowing or there is no obligation on the individual to turn up, the national minimum wage would not be payable. There are also specific exemptions from national minimum wage for certain specified Government schemes, work experience undertaken by individuals of compulsory school age and placements of less than a year which are part of a UK-based higher education or further education course. Employers offering work experience or internships should consider whether the national minimum wage applies. Failure to pay the national minimum wage could expose the employer to fines of up to 5,000 (plus arrears of pay) and it is also a criminal offence to refuse or wilfully neglect to pay the national minimum wage....many individuals undertaking work experience placements will, therefore, qualify for the national minimum wage... 1

2 Case Watch Employee competition are you protected? The employee was a divisional manager of an information technology consultancy business. He decided to move on and began taking steps to set up a competing business. While still employed, he set up a separate company for which he opened bank accounts and drafted business plans, but which undertook no work. During his notice period, he also had discussions with a former client contact of the employer, who promised to give the employee work once he had left the employer. The employee also had dinner with another existing client contact who offered to help find the employee work from his business once the employee had moved on. The employer brought a claim arguing that the employee had breached his duty of fidelity to the employer. The High Court ruled that, although the employee owed a duty of fidelity, he had not breached it in this case. The employee's discussions with the former client contact had been initiated by the contact, who was also a personal friend of the employee. The individual was not an existing customer of the employer's business, nor was it part of the employee's role to pursue him as a client for the employer. Similarly, the employee had not breached his duty of fidelity by having dinner with an existing client contact. The dinner had not diverted or interfered with any opportunity the employer was pursuing and nothing specific about future work was discussed or promised. While all employees owe an implied duty of fidelity to their employer, there are limits to how far the duty goes. It does not necessarily prevent the employee from taking preparatory steps to set up a competing business nor does it require the employee to disclose all potential business opportunities which might arise with current or former clients. Employers should, therefore, ensure that employment contracts for senior personnel contain appropriate protections. For example, the employer in this case would have been in a stronger position if the employment contract contained an express duty on the employee to act in the employer's best interests at all times and a duty not to divert any business opportunities which he came across during his employment. The employer's position would also have been strengthened if the contract contained posttermination restrictive covenants preventing the employee from setting up in competition and poaching clients after he left. While the enforceability of such covenants can never be guaranteed, they can be a useful weapon in the employer's armoury and should be considered for senior employees, client-facing positions and other employees in key roles. Ranson v Customer Systems plc Employers should... ensure that employment contracts for senior personnel contain appropriate protections. Outsourcing who will transfer? The employer was a logistics company and the employee was a logistics coordinator in its warehouse. The warehouse was organised into two parts, one for "inbound" goods and one for "outbound" goods. The employee worked in the outbound group and spent 100% of his time working for one particular client, along with four other employees who spent between 10% and 30% of their time working for that client. The client decided to bring the logistics work in-house. The employer argued that the employee automatically transferred to the client under TUPE as he spent all of his time doing its work. The client disagreed and the employee was dismissed. He brought an unfair dismissal claim against both the employer and the client. The Employment Appeal Tribunal ruled that the employee did not transfer to the client under TUPE when it brought the work in-house. Although he spent all of his time working for that client, this was more by chance than by design. The employer had deliberately structured the workforce into "inbound" and "outbound" operations but had not deliberately arranged it so that employees worked for any particular client. 2

3 Where activities are taken in-house by a client (or onwards to a new provider), TUPE will only apply if there is an "organised grouping" of employees whose principal purpose is carrying out the client's work. This case suggests that in order to constitute an "organised grouping", there must be a deliberate putting together of employees for the purposes of the client's work. While the employees do not necessarily need to be structured into "client teams", it is not enough if an employee or group of employees happen to spend the majority of their time on the client's work. When deciding who transfers, employers must therefore consider not only how much time the employee spends on the client's work but also how the workforce is structured. It will also be relevant to consider the terms of the commercial contracts in place and what they say about the scope of the work and how the work is organised. Employers who wish to ensure their workforces are structured according to client work should perhaps make this clear in documentation to employees and in internal notes about business structure, although what happens in practice will be equally important. In contrast, employers who are in-sourcing work or taking over a contract from another service provider could rely on this case to avoid taking on staff from the outgoing supplier by arguing that they do not constitute an "organised grouping" for the purposes of TUPE. However, whether employees constitute an "organised grouping" will always depend on the facts of the case. Our experience indicates that a different tribunal could easily take a different view of very similar facts. Seawell Ltd v Ceva Freight (UK) Ltd Holiday and sickness The employee was a clerical officer who was absent on sick leave for over 15 months, which straddled three holiday years. She was dismissed on grounds of ill-health and, on termination, was paid in lieu of unused holiday for the most recent holiday year only. She claimed payment for her unused holiday in respect of the previous year (she had been paid full sick pay for the first holiday year and so did not claim this). The employer argued that, as she had not asked to take holiday that year, she lost any entitlement to it at the end of the holiday year under the "use it or lose it" principle. However, the Court of Appeal ruled that an employee who is unable or unwilling to take their holiday due to sickness does not lose their entitlement at the end of the leave year, even if they do not ask to take their holiday or carry it forward. The holiday entitlement is automatically carried over to the following leave year. Accordingly, the employee should have been paid in lieu of any unused holiday for both leave years on termination of employment. Normally, a worker who does not ask to take their statutory holiday within the leave year loses any entitlement to that holiday at the end of the year. However, this case confirms that a worker who is unable or unwilling to take their statutory holiday due to illness automatically has their entitlement carried forward to the following leave year, whether or not they have asked to take it or carry it over. The ruling creates particular problems for employees on long-term sickness absence that spans several years, such as those in receipt of payments under a permanent health insurance (PHI) scheme. Unless the employee takes their holiday each year, their statutory holiday entitlement will continue to accrue and the employer will be liable to pay for several years' accrued holiday on termination of employment. Employers in these circumstances have the following options: The employer could remain silent about holiday and, on termination of employment, pay in lieu of accrued holiday for the final year of employment only. However, following this case there is a risk that if the employee challenges this, the employer would also be liable to pay for unused holiday from previous years. When deciding who transfers, employers must therefore consider not only how much time the employee spends on the client's work but also how the workforce is structured....a worker who is unable or unwilling to take their statutory holiday due to illness automatically has their entitlement carried forward to the following leave year... 3

4 The employer could encourage the employee to take their holiday during the relevant holiday year while off sick. Employees who have used up their sick pay entitlement may agree to this on the basis that they will receive additional pay. The advantage is that the employer would avoid an accruing liability for several years' holiday pay on termination. For employees on PHI, the employer arguably only has to "top up" the PHI payment to full pay if taken during the relevant holiday year instead of paying the full amount on termination. However, this approach requires the employee's agreement; the employer cannot force employees to take holiday during sickness. The employer could attempt to make a payment in lieu of the holiday entitlement during the holiday year to avoid the liability accruing on termination. However, it is unlawful to pay in lieu of holiday entitlement, except on termination, so there is a risk this would not work and the employee could still claim the full entitlement on termination. As reported previously in Online Update, the Government is planning to amend the rules on statutory holiday during sickness absence. One proposal is to place a time limit on holiday carried forward due to sickness, which would prevent employees on long-term sickness and PHI accruing several years' holiday. Employers should perhaps hold off making significant changes to their policies until the Government's position becomes clear. An announcement is expected this year and Online Update will report any developments. NHS Leeds v Larner New Law National minimum wage On 1 October 2012, the national minimum wage will increase from 6.08 to 6.19 an hour for workers aged 21 and over. The national minimum wage will remain at 4.98 an hour for workers aged 18 to 20 and 3.68 an hour for workers aged 16 to 17. The Government's decision to freeze the youth rates is designed to encourage recruitment in the current climate. The national minimum wage for apprentices under 19 or in the first year of apprenticeship will increase from 2.60 to 2.65 an hour from 1 October Pensions auto-enrolment will you be ready? Employers will be required to enrol their UK workers automatically into an occupational or personal pension scheme. This will be phased in, starting with the largest employers (ie those with at least 120,000 workers on the largest payroll) in October 2012 and affecting all existing employers by the end of a "staging" period ending in April There will be a new national pension scheme called NEST that employers, for example those with no existing pension arrangements, may participate in if they wish. Workers can opt out of membership once enrolled, but may not be incentivised to do so. For workers with earnings over the personal income tax allowance (currently 8,105 per annum) employers will have to: contribute at least 3% of their gross earnings between 5,564 and 42,475 per annum (on current figures, subject to future increase) these compulsory contributions will be phased in, beginning at 1% in 2012 and increasing to 2% in 2017 and 3% in 2018 or offer a suitable defined benefit scheme or make alternative contribution arrangements satisfying certain minimum requirements. Employers will be required to enrol their UK workers automatically into an occupational or personal pension scheme. 4

5 Employers can delay enrolment of new workers until they have been employed for three months, although the worker can choose to opt in earlier. If you have any queries about pensions auto-enrolment, please speak to your usual Employment department contact, who can put you in touch with our Pensions team. Watch This Space New employment tribunal rules Following a Government-commissioned review, Mr Justice Underhill has proposed a new set of employment tribunal rules, which are designed to be simpler and more accessible. The proposed new rules also aim to make the employment tribunal process more efficient. Key recommendations include: a new "sift stage" where an employment tribunal judge would review all claims and responses to assess what directions are required for hearing and whether the claim or response should be struck out as having no reasonable prospect of success a new power for tribunals to award costs above the current limit of 20,000 (but, as is currently the case, costs will only be awarded in certain circumstances, eg where a party has acted disruptively or unreasonably in its conduct of the proceedings) a new rule allowing tribunals to set timetables for oral evidence and enforce them strictly, eg by cutting short a witness's evidence a new rule that when an employee withdraws their case, it would be dismissed automatically (currently the employer has to apply to have the claim dismissed unless the matter has been resolved through ACAS) and a provision for the President of the tribunal to issue guidance on matters of practice to help users understand what is expected and promote consistency across tribunals. The Government intends to carry out a formal consultation on the proposed new rules later this year, but has not given any indication of when the new rules might come into force. Our Work Since the last edition of Online Update our work has included: advising on immigration issues relating to a business being acquired by a client where employees were coming over under TUPE advising a client on legal issues surrounding the relocation of their Head Office and around 200 employees across London advising on the extent to which different salary sacrifice arrangements (pension, childcare, cycle2work) are impacted by different forms of leave (maternity/paternity/parental/adoption and sickness) preparing a Social Media policy for a client advising on the tactics relating to the removal of a client's CEO whilst negotiating service agreement terms for the incoming replacement presenting a session on family friendly rights at the Butterworth's Oxford Employment Law Summer School. 5

6 If you have any queries on this edition of Online Update, please contact any member of the Employment Department Partners: Andrew Lilley, Siân Keall, Tim Gilbert, Ed Mills Anna West, Richard Searle, Adam Rice, Kathryn Renahan, Glendon Salter, Adam Wyman Alex Fisher, Alice Heatley, Christopher Thomas, Charmaine Pollock, Jenny Clayton If you have a colleague, or a contact in another organisation, who would like to receive Online Update, please send contact details to brenda.goodhew@traverssmith.com Travers Smith LLP 10 Snow Hill London EC1A 2AL T: +44 (0) F: +44 (0)