HR Legal Briefing. July 2003

Transcription

1 HR Legal Briefing July 2003 The House of Lords was presented in June this year with a number of employment cases and we have reported in this issue on a significant decision concerning post-employment discrimination. We have also highlighted three important unfair dismissal cases, relating to the right of accompaniment, fair reasons and the calculation of compensation. This issue concludes with some mixed news from Europe for UK employers. Finally, we can also report that the Employment Appeals Tribunal (EAT) has over-turned the Tribunal decision in the much discussed Barton v Investec case. The EAT decision, which contains useful guidance on discretionary bonus plans and sex discrimination, will be the subject of a separate Briefing to be issued shortly. Caselaw Post-employment discrimination On 19 June 2003 the House of Lords handed down its judgment in the conjoined appeals of Relaxion Group plc v Rhys-Harper, D'Souza v London Borough of Lambeth, and Jones v 3m Healthcare Ltd. The judgment addressed the issue of whether ex-employees can claim to have suffered a 'detriment' for the purposes of the Sex Discrimination Act 1975, the Race Relations Act 1976 and the Disability Discrimination Act 1995 in relation to conduct of their former employer which occurred after the termination of the contract of employment. The House of Lords has ruled, by a majority, that such post-employment conduct can be the subject of discrimination complaints under the above Acts. In Lord Scott's view, 'cases where the relationship between employer and employee is still continuing notwithstanding the termination of employment' should still attract the protection of the anti-discrimination legislation. The result is that various actions which were previously outside the scope of the legislation could now attract claims of sex, race or disability discrimination. These might include a refusal to comply with a Tribunal order of reinstatement, the mishandling of an appeal against dismissal, and the sending of references which are not wholly positive. Right to be accompanied - informal warnings Since 4 September 2000, employees in the UK have had the right under the Employment Relations Act 1999 to be accompanied by a fellow worker or trade union official to disciplinary or grievance hearings. The Act defines a disciplinary hearing as one which could result in a formal warning or the taking of some other action in respect of the employee. The case of London Underground Ltd v Ferenc-Batchelor concerned an employee, Ms Ferenc-Batchelor, who was called to attend a disciplinary meeting after having driven a train through a red signal. The employee was told that she was not entitled to be accompanied at the hearing because it would result only in the giving of an informal oral warning. Ms Ferenc-Batchelor issued proceedings, claiming that the meeting constituted a disciplinary hearing at which she should have been given the right of accompaniment.

2 The Tribunal agreed on the basis that the meeting could have resulted in the taking of some other action, in the form of counselling, training, and so on. The Employment Appeals Tribunal (EAT) also agreed, but for different reasons. The issue, said the EAT, is the degree of formality. Neither training nor counselling was sufficiently formal to constitute action for the purposes of the Act, and it was important in each case to consider the formality/seriousness of the sanction imposed. Since London Underground s procedures required that oral warnings be kept on file for a defined period, during which they could be used as the basis for further disciplinary action, the oral warning clearly constituted action for the purposes of the Act, and the meeting had therefore been a disciplinary hearing. Ms Ferenc-Batchelor should have been allowed to exercise the right of accompaniment. This case could limit severely the ability of employers to deal on the spot with disciplinary issues, since most employers will want to record such informal warnings and be free to use them subsequently as grounds for further action if the misdemeanour is repeated. It also suggests that employers would be wise to train managers to help them determine which sanctions are likely to be sufficiently formal to trigger the right to be accompanied. Unfair dismissal compensation - injury to feelings For the last thirty years, it has been accepted that compensation for unfair dismissal should only be payable in respect of identifiable economic loss. Tribunals have therefore tended not to award compensation for injury to feelings or psychiatric loss which is attributable to an unfair dismissal. However, the House of Lords in Johnson v Unisys Ltd opened the door to the possibility of awards for injury to feelings, reflecting the manner of dismissal and Tribunals have recently been making small awards (normally less than 5,000) as compensation under this head of loss. The EAT in Dunnachie v Kingston upon Hull City Council & Others has rejected this practice on various policy grounds. The EAT pointed out that, unlike discrimination legislation, the Employment Rights Act 1996 does not provide expressly for compensation for injury to feelings; it was also concerned at the costs involved in exploring (often with the assistance of medical evidence) the degree of psychiatric injury or hurt in unfair dismissal cases, where costs are seldom awarded to the successful party. The position now seems to be that a successful Applicant in an unfair dismissal case will only receive compensation for economic loss resulting directly from the dismissal. This might include economic losses resulting from, say, a depression or stigma damages, but it will not include non-economic loss resulting from injury to feelings, humiliation or psychiatric damage. Unfair dismissal - some other substantial reason The Court of Appeal decision in Cobley v Forward Technology Industries Ltd provides some support for the proposition that a reasonable dismissal procedure can be far less onerous for director level employees than for non-executive employees. Mr Cobley was employed as deputy chairman and chief executive of FTI Ltd. In 1998 he led an attempted management buy-out, which failed. An American company call Crest was eventually successful in buying FTI and a resolution was passed removing Mr Cobley as a director. According to an express provision in his employment contract, his employment then terminated automatically. The case was appealed all the way to the Court of Appeal, which held that Mr Cobley had been dismissed fairly, for some other substantial reason, and that the procedure followed had been reasonable (essentially because Mr Cobley knew that if his bid failed he would very likely be removed from the company). Information and consultation on the transfer of a business The EAT in Alamo Group (Europe) Ltd v Tucker & Anor confirmed that liability for failure to inform and consult under either the collective redundancy legislation or the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE), will transfer to the transferee on a TUPE transfer, even if the transferee is not in any way to blame for the default. The reasoning was essentially as follows:

3 the right to consultation is an individual as well as a collective right; both contractual and statutory individual employment rights transfer to the transferee under Regulation 5 of TUPE; and to find otherwise would defeat the objective of TUPE where the transferor is insolvent, since employees would be left with a claim against the old, insolvent employer instead of the new employer acquiring the business. This finding highlights the need, in the context either of a business sale or an outsourcing, for the transferee to seek appropriate protection, in the form of indemnities or warranties, in relation to claims for failure to inform and/or consult. News Age Discrimination In what will be one of the most important employment law reforms, the Government has unveiled a consultation document on the implementation of rules on age discrimination. The publication of proposals is a major step in implementing the age discrimination rules required by the EC Equal Treatment Framework Directive (No.2000/78). The key proposals contained in the document include the outlawing of both direct and indirect discrimination on the basis of age in employment and vocational training. It is anticipated that the normal definitions of direct and indirect discrimination will be used. Interestingly, direct discrimination on the basis of a person's perceived age will also be outlawed. Under the Directive any retirement age set for employees will be unlawful unless objectively justified. The Government is seeking views on whether employers should, exceptionally, be able to justify mandatory retirement ages on any of the grounds listed below where it is deemed appropriate and necessary. Views are also sought on the question of whether there should be a default retirement age of 70, after which employees can be forced to retire without the need for justification. There are circumstances in which the Government may allow different treatment on the grounds of age, and these include: health, welfare and safety facilitation of employment planning particular training requirements for the post in question encouraging or rewarding loyalty the need for a reasonable period of employment prior to retirement. On specific issues, it is proposed that recruitment, selection and promotion based on age will be unlawful, unless this can be justified. Employers will also be able to provide pay based on length of service or experience if they can justify doing so. The Government proposes to change unfair dismissal law so that employees can bring a claim at any age, but that dismissal at any justifiable retirement age, or at the statutory default age (should one be enacted), will be a fair reason for dismissal. Some age-related aspects of the statutory redundancy payments scheme will also be changed, although any changes to the upper age limit for entitlement to statutory redundancy payments will depend on the decision regarding retirement ages. The consultation ends on 20 October Draft regulations will then follow with legislation anticipated by the end of The rules will come into force on 1 October 2006, allowing employers, training providers and workers a two-year lead time. Government announces that TUPE will apply to pension schemes The Department for Work and Pensions (DWP) has published an action plan for taking forward a number of the proposals contained in its December green paper on pension scheme reform. Included in the proposals is the long-awaited clarification as to whether the TUPE regulations are to be made to apply to private occupational pension schemes. The Government intends to oblige a transferee to

4 match employee contributions, of up to 6 per cent, into a stakeholder pension or to offer an equivalent alternative. The transferee will not be required to continue to make payments in excess of this or, it would seem, to put into place an equivalent final salary or money purchase scheme to that operated by the transferor. The other main theme of the action plan is to introduce measures designed to protect pension scheme members in the event of their employer becoming insolvent or deciding to wind up the pension scheme on a voluntary basis. A pensions protection fund is to be introduced to guarantee members a minimum level of benefit when a sponsoring employer becomes insolvent. And a new requirement is to be imposed on solvent employers to meet their pension promise on a full buy-out basis (i.e. by buying annuities for pensioners and deferred annuities for members) if they voluntarily choose to wind up their pension scheme. Council of Ministers fails to reach agreement on proposed agency workers directive We have reported previously on the proposed Agency Workers Directive, which would require employers to give agency workers the same rights as permanent staff. At their meeting on 3 June 2003 the EU Council of Ministers failed to reach a political agreement on the proposed directive on the rights of agency workers. One of the particular sticking points in negotiations relates to the qualifying period that would apply. Some Governments, including the UK, are holding out for a oneyear qualifying period instead of the current proposal, which would require the same general conditions from day one and the same salary after six weeks. Speaking after the meeting, Employment and Social Affairs Commissioner Anna Diamantopoulou said: I am deeply disappointed, particularly given the long, hard hours which the Presidency and Member States have devoted to clearing the way for agreement. Until this directive is adopted, temporary agency workers will risk remaining 'second-class' workers, and we have missed a chance to push forward the Lisbon agenda for 'more and better jobs. Consultation document on directors' compensation and severance issued On 3 June 2003 the Secretary of State for Trade and Industry, Patricia Hewitt, launched a new consultation exercise looking at the issue of directors' contracts, performance and severance payments. The purpose of the document, 'Rewards For Failure', is to seek views on whether, and if so how, further measures are required to enable shareholders to ensure that compensation reflects performance when directors contracts are terminated. The consultation document suggests the following options for best practice reform: the reduction of contract and notice periods to less than a year specifying at the outset an amount or a cap on the amount, which a director will receive if he or she is removed from office the payment of compensation in instalments rather than a lump sum, with payment stopping when the former director commences new employment Other options for legislative reform are also suggested, including amendments to the Companies Act 1985 to require compensation payments to be fair and reasonable, to prohibit directors employment with the company continuing for a period of over five years, except with the prior approval of the shareholders, and to prohibit specific covenants for severance payments, separate from compensation for early dismissal. The consultation will end on 30 September 2003.

5 For more information, please contact Christopher Walter or any of the other members of the Employment Group: Hilary Prescott Sarah Herbert Angela Carter Covington & Burling Registered Foreign Lawyers and Solicitors - London 265 Strand London WC2R 1BH Tel: Fax: cov.com This briefing is for information purposes only. Recipients may have their details removed from the mailing list at any time.