NEWSLETTER EMPLOYMENT APPEAL TRIBUNAL RULES THAT SUSPENDING SALARY SACRIFICE CHILDCARE VOUCHERS DURING MATERNITY LEAVE IS LAWFUL EMPLOYMENT.

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1 NEWSLETTER EMPLOYMENT EMPLOYMENT APPEAL TRIBUNAL RULES THAT SUSPENDING SALARY SACRIFICE CHILDCARE VOUCHERS DURING MATERNITY LEAVE IS LAWFUL During maternity leave, an employee is entitled to all of her usual employment benefits other than remuneration, which is replaced by statutory or contractual maternity pay. Jesper Christensen (Partner) E jesperchristensen@bdb-law.co.uk T +44 (0) Childcare vouchers which are offered as a benefit in addition to salary, with no salary sacrifice involved, amount to a non-cash benefit and must therefore be continued during maternity leave. However, it has been unclear whether childcare vouchers provided through a salary sacrifice scheme constitute remuneration or a benefit. In the recent case of Peninsula Business Services Ltd v Donaldson, the Employment Appeal Tribunal (EAT) has now ruled that this type of childcare voucher scheme amounts to remuneration and therefore does not have to be offered during maternity leave. Peninsula offered childcare vouchers by means of a salary sacrifice scheme. In return for consenting to a lower basic salary, employees received childcare vouchers to the value of their sacrificed salary. This saved employee tax and national insurance contributions on the amount of the vouchers. Mrs Donaldson refused to join the scheme because it required her to agree that during any maternity leave, her entitlement to vouchers would be suspended. Peninsula argued that there could be no salary sacrifice during maternity leave because employees would only be receiving statutory maternity pay. The Employment Tribunal upheld Mrs Donaldson s claim for sex discrimination. It took into account HMRC s guidance which states that during any period of ordinary maternity leave, contractual non-cash benefits provided under a salary sacrifice scheme must Bircham Dyson Bell LLP Broadway London SW1H 0BL

2 2 continue to be provided. On appeal, the EAT overturned the Tribunal s decision. In the EAT s view, the salary sacrifice scheme involves a diversion of salary in order to purchase the childcare vouchers. This means that the vouchers should be regarded as remuneration and may therefore be discontinued during maternity leave without this amounting to discrimination. The EAT also noted that since employees receiving statutory maternity pay do not have any salary to sacrifice, requiring employers to continue these schemes during maternity leave would result in a windfall benefit to employees and an additional cost for employers. Despite concluding that HMRC s guidance was wrong, rather unhelpfully, the EAT also stated that its conclusions were tentative due to the absence of expert tax evidence. Employers should therefore rely on this decision with caution and be aware that the decision may be challenged. The Government has announced a review of the benefits offered by salary sacrifice schemes, although at present it appears that pension savings, childcare and healthrelated benefits will be unaffected. Childcare voucher schemes will be closed to new entrants from April 2018 as a result of the new tax-free childcare scheme which will operate directly between parents and the Government. EMPLOYEE S COMPLAINT ABOUT CRAMPED WORKING CONDITIONS COULD BE A PROTECTED DISCLOSURE A whistleblower will only be protected against detriment or dismissal if they have a reasonable belief that their disclosure is in the public interest. Brian Gegg (Partner) E briangegg@bdb-law.co.uk T +44 (0) This requirement was introduced in June 2013 in order to ensure that a complaint relating to an individual s contract of employment could not amount to a protected disclosure. So far, however, the change has not had the desired effect because many disclosures will inevitably only affect a small section of the public, and complaints by individual employees often relate to matters which could be regarded as being in the wider public interest. For example, in Chesterton v Nurmohamed it was held that a group of 100 employees who were also potentially affected by Mr Nurmohamed s complaint about his commission payments was sufficient to satisfy the public interest requirement. In addition, the Employment Appeal Tribunal (EAT) appeared to accept that his allegation concerning the manipulation of Chesterton s accounts was capable of being in the public interest. In the recent case of Morgan v Royal Mencap Society, the EAT has considered whether an Employment Tribunal was right to strike out an employee s whistleblowing claim on the basis that she had no prospect of success in showing that she reasonably believed her complaint about cramped working conditions was in the public interest. Mrs Morgan brought various claims against her former employer, Royal Mencap Society, including automatic unfair dismissal and detriment

3 3...THE PUBLIC WOULD BE INTERESTED TO KNOW HOW IT TREATS ITS EMPLOYEES... on the basis that she had made protected health and safety disclosures. The alleged protected disclosures were complaints made to managers about her cramped working conditions which were exacerbating a knee injury and causing her lower back pain. Mrs Morgan believed that her disclosures were in the public interest because Mencap is a charity supported by public money; the public would be interested to know how it treats its employees, and the issues raised potentially affected the health and safety of others. Mrs Morgan s claims were struck out at a preliminary hearing at which only limited evidence was heard, and none from Mrs Morgan. The Employment Judge held that her disclosures were not made in the public interest and that she could not have reasonably believed that they were. However, the EAT allowed her appeal. It considered that it was reasonably arguable that an employee might consider health and safety complaints to be made in the wider public interest, even where the employee is the principal person affected. The EAT also confirmed that the threshold for striking out a claim is high and it is not normally appropriate to strike out a whistleblowing claim without hearing evidence. This case confirms that employers must not assume that a complaint about an individual worker s contract of employment or working conditions cannot be a protected disclosure, despite the fact that this undermines the intention of the legislation. Further clarification will hopefully be provided by the Court of Appeal when it hears the appeal in Chesterton in October 2016.

4 4 WRITING TO EMPLOYEE ON SICK LEAVE ABOUT PERFORMANCE ISSUES WAS BREACH OF IMPLIED TERM OF TRUST AND CONFIDENCE In Private Medicine Intermediaries Ltd (PMI) v Hodkinson, the Employment Appeal Tribunal (EAT) has considered whether an employer breached the implied term of trust and confidence when it wrote to an employee on sick leave setting out concerns about her performance. Ian Wasserman (Associate) E ianwasserman@bdb-law.co.uk T +44 (0) Miss Hodkinson was signed off sick with work-related depression and anxiety after complaining that she had been bullied by her line managers. The CEO of PMI wrote to ask if she wished to raise a grievance and meet to discuss the issues. Miss Hodkinson replied that she was too upset and unwell to communicate properly. The CEO then wrote her a further letter suggesting that they meet and advising her that he had spoken to her line managers to find out what had gone wrong. He also set out six areas of concern which he wished to discuss with her. Miss Hodkinson then resigned and claimed constructive unfair dismissal, alleging that the nature and timing of his latest letter were intended to elicit her resignation. The EAT agreed with the Employment Tribunal that Miss Hodkinson was entitled to treat the latest letter as a repudiatory breach of contract and that she had been constructively dismissed. Although PMI had genuine concerns about Miss Hodkinson s performance, they should reasonably have known that the letter would cause her distress. In addition, some of the concerns raised were not serious and did not need to be dealt with at that stage. Others had already been dealt with and were closed....grievances SHOULD IDEALLY BE DEALT WITH SEPARATELY FROM DISCIPLINARY OR PERFORMANCE ISSUES... This case highlights the problems faced by employers when trying to deal with performance or disciplinary issues whilst an employee is off sick. This can be particularly difficult where an employee is alleging that the employer contributed to their illness. Grievances should ideally be dealt with separately from disciplinary or performance issues. In order to avoid breaching the implied term of trust and confidence, employers should only raise serious or urgent concerns whilst an employee is off sick.

5 5 SUPREME COURT RULES THAT EMPLOYER WAS VICARIOUSLY LIABLE FOR EMPLOYEE S PHYSICAL ASSAULT ON CUSTOMER An employer may be held vicariously liable for the wrongful acts of their employee where there is a sufficient connection between that conduct and the employee s employment to make it fair and reasonable to impose liability. The scope of this close connection test has recently been considered by the Supreme Court in Mohamud v WM Morrison Supermarkets plc. The issue on appeal was whether there was sufficient connection between the employee s employment and his physical assault on a customer to make the employer legally responsible. Caroline Yarrow (Partner) E carolineyarrow@bdb-law.co.uk T +44 (0) Morrison Supermarkets employed Mr Khan as a petrol kiosk attendant. Mr Mohamud came into the kiosk to ask whether he could print some documents from a USB stick. His request was refused by Mr Khan. Mr Mohamud protested at the rude manner in which Mr Khan spoke to him. Mr Khan then responded using racist and threatening language, and asked Mr Mohamud to leave. Mr Mohamud returned to his car followed by Mr Khan. However, before Mr Mohamud could drive off, Mr Khan opened the passenger door, told him never to return and punched him. When Mr Mohamud got out to close the passenger door, Mr Khan subjected him to a vicious physical attack, despite the fact that Mr Mohamud had done nothing which could be considered aggressive or abusive. Mr Mohamud brought proceedings against Morrisons alleging that it was vicariously liable for Mr Khan s actions. The trial judge and the Court of Appeal rejected his claim. Although Mr Khan s job involved some interaction with the customers who entered the kiosk, it involved nothing more than serving and helping them. The Court of Appeal held that this did not provide the necessary degree of connection between his employment and the assault to establish vicarious liability. However, the Supreme Court has now unanimously allowed Mr Mohamud s appeal and ruled that Morrisons was vicariously liable for Mr Khan s actions....the SUPREME COURT HAS NOW...RULED THAT MORRISONS WAS VICARIOUSLY LIABLE FOR MR KHAN S ACTIONS... The Supreme Court considered two main issues: the nature of Mr Khan s job; and whether there was a sufficient connection between this job and his wrongful conduct to make it fair for Morrisons to be held liable. Mr Khan s job was to attend to customers and respond to their enquiries. His conduct in responding to Mr Mohamud s request with abuse was inexcusable, but interacting with customers was within the scope of the activities assigned to him. The connection between Mr Khan s duties and his employment did not cease when he came out from behind the counter and followed Mr Mohamud onto the

6 6...POTENTIALLY BROAD SCOPE FOR EMPLOYERS TO BE HELD LIABLE FOR THEIR EMPLOYEES, EVEN WHERE ANY WRONG DOING WAS NOT DIRECTLY CONNECTED TO THEIR EMPLOYMENT... forecourt. He was following up on what he had said to Mr Mohamud. In addition, Mr Khan s order to stay away from his employer s premises, which was reinforced with violence, was given on behalf of Morrisons, even though it was clearly a gross abuse of his position. Morrisons had entrusted him to deal with members of the public and it was right that they should be liable for his abuse of this trust. The Supreme Court also noted that Mr Khan s motive for the attack was irrelevant, so it did not matter whether he was motivated by personal racism rather than a desire to benefit his employer s business. The Supreme Court has confirmed that the close connection test is the correct test to apply. It rejected a suggestion that the test should be whether an employee could be considered to be acting as the employer s representative at the time of committing the wrongful conduct. The Court observed that although the close connection test can seem rather vague, this is inevitable given the infinite range of circumstances in which vicarious liability can arise, and the fact that each case must be determined on its own facts. This case highlights the potentially broad scope for employers to be held liable for their employees, even where any wrongdoing was a personal act not directly connected to their employment. This risk can be minimised through rigorous recruitment and assessment procedures and proper management, supervision, and training.

7 7 SUPREME COURT RULES THAT MINISTRY OF JUSTICE WAS VICARIOUSLY LIABLE FOR THE NEGLIGENCE OF A PRISONER WORKING IN THE PRISON KITCHEN Originally vicarious liability applied only to the traditional employment relationship. However, to ensure that victims are properly protected, the courts have increasingly recognised that vicarious liability should be extended to the many other relationships which exist in modern working life, provided they are sufficiently similar to employment. Jamie Henderson (Associate) E jamiehenderson@bdb-law.co.uk T +44 (0) Case law has established that key factors to consider include the degree of control, the extent to which a risk of wrongdoing has been created, whether the wrongdoing was committed as a result of the worker s activities on behalf of the employer, and the availability of insurance. In Cox v Ministry of Justice, the Supreme Court has considered whether the Prison Service, an executive agency of the Ministry of Justice (MoJ), could be vicariously liable for the negligence of a prisoner whilst he was working in the prison kitchen. Mrs Cox worked as a prison catering manager. Her work included supervising prisoners who worked in the kitchen alongside the prison catering staff for a nominal wage. Whilst carrying supplies to the kitchen stores, one of the prisoners accidentally dropped a 25kg sack of rice onto Mrs Cox s back, causing her serious injury. She claimed that the MoJ was vicariously liable for the prisoner s negligence. The County Court found that the prisoner was negligent, but that the MoJ could not be vicariously liable since the relationship between the prisoner and the MoJ was not sufficiently similar to an employment relationship. Crucially, whereas employment was a voluntary relationship, the work undertaken by prisoners was a matter of discipline and rehabilitation, unconnected with furthering a business enterprise. The Court of Appeal disagreed, ruling that the MoJ was vicariously liable. In its subsequent appeal to the Supreme Court, the MoJ argued that its relationship with the prisoner was not one which justified imposing vicarious liability. The Supreme Court held that the MoJ was liable for the prisoner s negligence for three main reasons. First, the activities assigned to prisoners working in kitchens were integral to the operation of the prison, in particular, by providing meals to prisoners, and their activities were for the direct benefit of the Prison Service. Second, the Prison Service placed these prisoners in a position where there was a risk that they might commit a variety of negligent acts whilst carrying out their assigned activities, as recognised by the provision of health and safety training. Third, the prisoner s negligence arose as a result of the activity being undertaken by him on behalf of the prison. The

8 8...RELATIONSHIPS OTHER THAN THE TRADITIONAL EMPLOYMENT RELATIONSHIP CAN GIVE RISE TO VICARIOUS LIABILITY... Supreme Court rejected the MoJ s argument that requiring prisoners to work is for rehabilitation purposes rather than furthering the aims of the Prison Service, and ensures that prisoners contribute to the cost of the prison s upkeep. It also rejected the argument that it was unreasonable to impose liability because any compensation would have to be met out of scarce public funds. It is now clear that relationships other than the traditional employment relationship can give rise to vicarious liability, including workers, agency workers and volunteers, provided there is also a sufficient connection between that relationship and the wrongdoing. Here, the crucial factors were that the prisoner s activities were directed by the prison as an integral part of its operations, and there was a risk of harm arising as a result of those activities. It did not matter that they were not part of a public service or a commercial enterprise, or that he received only a nominal wage. THE DEPARTMENT FOR BUSINESS, INNOVATION AND SKILLS PUBLISHES GUIDANCE ON NEW APPRENTICESHIP LEVY The new apprenticeship levy will be introduced on 6 April 2017 for all UK employers in the public and private sectors whose annual pay bill exceeds 3 million. Tim Hayes (Associate) E timhayes@bdb-law.co.uk T +44 (0) The Department for Business Innovation and Skills has recently published guidance on how the new levy will work: the levy will be charged at a rate of 0.5% of the pay bill, based on total employee earnings subject to Class 1 secondary national insurance contributions (NICs). It will be collected by HMRC through PAYE; employers will have a 15,000 annual allowance to offset against the levy on a monthly basis. Connected employers operating multiple payrolls will only be able to claim one allowance, so will have to decide what proportion of the levy allowance each employer in the group will be entitled to; funding for apprenticeships will be accessed through an account set up with the new Digital Apprenticeship Service (DAS). DAS will also provide details of courses, providers and vacancies; employers who pay the levy will receive a 10% monthly top-up to their DAS accounts; employers who already pay into a levy scheme (for example, in the engineering, construction and film industries) will be consulted on how their existing arrangements will be affected; levy funds can be spent on existing staff or new recruits; funding caps will be set according to the level and type of apprenticeship in order to limit the amount of

9 9 levy funds spent on individual apprentices; funding can only be used to cover the costs of training, assessment and certification; training must be provided by a registered approved provider; and a new statutory, employerled body, the Institute for Apprenticeships, will be established during 2016 to regulate the quality and assessment of apprenticeships and to advise on funding caps. HOUSE OF LORDS APPROVES TRADE UNION BILL AMENDMENTS The House of Lords has voted in favour of several amendments to the Trade Union Bill which had been proposed by the Government in order to soften its impact: Nicholas Le Riche (Partner) E nicholasleriche@bdb-law.co.uk T +44 (0) Requiring the Secretary of State to publish a strategy for the rollout of secure electronic balloting; Excluding workers from the new 40% threshold for ballots in important public services if the union reasonably believes that they are not normally engaged in the provision of important public services at the time of the ballot; Ballot papers will have to set out a summary of the dispute (rather than a reasonably detailed indication ); A ballot in favour of industrial action will remain valid for six months, or up to nine months if the employer agrees; The proposal to increase the notice period for industrial action from seven to 14 days is to be modified so that seven days notice will be sufficient if the employer agrees; New trade union members will have to opt in to the union s political fund rather than opt out.

10 10 AND FINALLY......CONSULTATION WILL TAKE PLACE ON STREAMLINING THE SHARED PARENTAL LEAVE AND PAY SYSTEMS, AND EXTENDING THESE ENTITLEMENTS TO WORKING GRANDPARENTS... Tribunal compensation limits increased on 6 April The maximum compensatory award for unfair dismissal increased to 78,962 (from 78,335) and the maximum amount of weekly pay used to calculate statutory redundancy payments and basic unfair dismissal awards increased to 479 (from 475). The new figures apply to dismissals where the effective date of termination was on or after 6 April Several employment changes were announced in the March budget. Consultation will take place on streamlining the Shared Parental Leave and Pay systems, and extending these entitlements to working grandparents. From April 2018, termination payments which are subject to income tax on amounts in excess of 30,000 will be subject to employer NICs. In addition, legislation will be introduced to ensure that all payments in lieu of notice and certain damages payments are taxed as earnings. The Government is also restricting the benefits which may be offered through salary sacrifice schemes, although salary sacrifice for enhanced employer pension contributions, childcare benefits and health-related benefits will apparently be unaffected. The childcare voucher scheme will, however, be closed to new entrants from April The Treasury has launched a Women in Finance Charter which aims to improve gender diversity in senior positions within the financial services sector. This implements the recommendations of a recent review undertaken by Jayne- Anne Gadhia, the Chief Executive of Virgin Money. The Charter requires organisations to make a member of their senior executive team

11 11 accountable for gender diversity and inclusion; set internal targets for gender diversity in senior management; publish progress against these targets annually on their website; and seek to ensure that the pay of the senior executive team is linked to delivery against these internal targets. After three months, the Treasury will publish a list of firms who have signed up to the Charter. John Cridland CBE has been appointed as the first independent reviewer of the State Pension Age. A requirement to review the State Pension Age during each Parliament was introduced in the 2014 Pension Act. The review will cover changes in life expectancy and wider changes in society, with a view to ensuring that the State Pension remains affordable for future generations. It will also consider whether the current system of a universal State Pension Age rising in line with life expectancy is sustainable....it WILL ALSO CONSIDER WHETHER THE CURRENT SYSTEM OF A UNIVERSAL STATE PENSION AGE RISING IN LINE WITH LIFE EXPECTANCY IS SUSTAINABLE... Acas has published a new guide, Employing Younger Workers, to help employers manage and support apprentices and young workers in their transition from education to work. This includes practical and legal advice on recruitment, induction, training, apprenticeships, retention and employment rights....from APRIL 2017 AN IMMIGRATION SKILLS CHARGE WILL BE IMPOSED ON EMPLOYERS RECRUITING SKILLED MIGRANTS... The Government has confirmed that from April 2017 an Immigration Skills Charge will be imposed on employers recruiting skilled migrants. It will be set at 1,000 per Certificate of Sponsorship per year, with a reduced rate of 364 for small or charitable organisations. Exemptions will apply to PhD-level jobs, international students switching from student visas to working visas, and the intracompany transfer graduate trainee category. The President of the Employment Tribunals has issued a consultation paper on the approach that Employment Tribunals should take when assessing pensions loss. This proposes abandoning the current guidelines and producing new Presidential guidance for two categories of cases: simple and complex. The simple category would include most defined contribution and defined benefit schemes, using the contributions method to assess compensation. The complex category would be for the rare, high-value cases, which would involve more detailed case management, including a separate remedies hearing. Responses to the consultation must be submitted by 20. The Scotland Act 2016 received Royal Assent on 23 March This includes provision for the devolution of Scottish Employment Tribunals to the Scottish Parliament. The Scottish government will also have the power to abolish Tribunal fees, and has indicated its intention to do so. The Information Commissioner s Office has published guidance for employers to help them prepare for the EU General Data Protection Regulation, which is expected to be implemented in mid This will replace the current EU Data Protection Directive on which the UK Data Protection Act is based. The guidance lists areas which should be reviewed in order to ensure compliance with the new requirements. These include consent, processing personal data, subject access requests, privacy notices and data breach procedures.

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