UK: Employment Update

Transcription

1 UK: Employment Update 1 Newsletter October 2013 UK: Employment Update This Briefing reviews possible changes to whistleblowers' protection, the Government's current proposals to amend TUPE, the FRC Consultation on Directors' remuneration and the new name and shame regime in relation to employers who breach national minimum wage obligations. We also review case law that highlights the problems that may arise from a flawed grievance procedure and an employment contract without a governing law clause. Whistleblowers: More change afoot? The responses of the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) to the Parliamentary Commission's Report on Banking Standards (the Report) have recently been published. Whistleblowing is one of the topics addressed in both the Report and the responses. The Report made a number of recommendations aimed at reducing the culture of fear that the Commission considers prevents employees from speaking out about serious wrongdoing in the banking sector. Key issues Whistleblowers: More change afoot? TUPE Reforms: Government response to proposed changes is published Zero hours contracts: Imminent consultation announced Grievances: Lack of impartial appeal can be grounds for constructive dismissal National minimum wage naming and shaming: Implications for internships? The perils of not having an applicable law clause The FCA aims to consult in 2014 on whether additional rules are required to set minimum standards for whistleblowing including the possibility of making a firm's senior management personally accountable for whistleblowing procedures and for protecting whistleblowers against detrimental treatment. The PRA is adopting a similar approach in relation to this recommendation. Clawback: FRC consults on directors' remuneration The FCA also endorses the recommendation that firms must inform it of any successful 'whistleblowing' cases brought by employees in the Employment Tribunal. The PRA and FCA will liaise and consult in relation to the other recommendations that include empowering the regulators to require firms to provide a compensatory payment where a whistleblower is subjected to improper treatment without the individual having to go to the Employment Tribunal. In practice given the short three month limitation period for bringing a 'whistleblowing' claim this measure would not prevent 'holding' claims being lodged. In addition, given that there is no cap on the amount of compensation a tribunal can award, there may not be

2 UK: Employment Update 2 much of an incentive to wait for an undetermined period for an undetermined level of compensation from the firm depending on what the regulators decide. It has also been recently reported that the Home Office will consider the case for "providing financial incentives to support whistleblowing in cases of fraud, bribery and corruption". The Report also made a recommendation that the FCA and PRA undertake research into the impact of financial incentives in the US (under the False Claims Act) in encouraging whistleblowers. The FCA has stated that it has concerns over the impact of incentivising whistleblowers financially; however it will work with PRA and conduct further research with a view to publishing a statement in TUPE Reforms: Government response to proposed changes is published The Government has published its response to the consultation on proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The most significant aspect of the response is the announcement that the controversial plan to repeal the service provision change (SPC) rules in TUPE is to be abandoned. TUPE will continue to apply to in-sourcing and first and subsequent generation outsourcing exercises (subject to the statutory test being satisfied). The Government's decision is welcome as the repeal of the SPC rules would have led to significant uncertainty. It was also have led to the need to assess SPC's on a case by case basis to determine whether the conditions for a 'classic' transfer of an undertaking to which TUPE would apply are satisfied. The Government does intend to tighten up the definition of what amounts to a SPC transfer by clarifying that the activities carried on after the service change must be "fundamentally or essentially the same" as those carried on before it. This simply reflects existing case law and will be fact specific in each case. This amendment will have immediate effect when the new legislation comes into force. Other areas of TUPE that the Government will not change include the following: Transferors will not be able to take the benefit of a transferee's "economic, technical or organisational reason" (ETO) to avoid dismissals that take place prior to the transfer being classified as automatically unfair. For example, if a redundancy situation were to arise at the transferee following the transfer but there was no redundancy situation at the transferor, the transferor will not be able to rely on the fact there will be a posttransfer redundancy situation to justify the dismissal of employees prior to the transfer. The protective award in relation to a failure to inform and consult in accordance with TUPE will remain punitive rather than the emphasis being moved to a compensatory approach. The starting point for protective awards will therefore remain at 13 weeks' uncapped pay unless the Tribunal considers that there are grounds to reduce it. Professional service providers will not be exempt from the SPC rules in TUPE. The requirement to provide employee liability information will not be repealed. The Government is proceeding with a number of proposed amendments: Employee liability information: This will have to be provided by the transferor to the transferee not less than 28 days prior to the transfer instead of the current 14 day obligation.

3 UK: Employment Update 3 Changing terms and conditions: TUPE will be amended so that a change to terms and conditions will only be void if the reason for the variation is the transfer itself. The current wording, which provides that changes will be void if they are for a reason connected with the transfer, will be deleted. TUPE will also provide that unilateral changes to terms and conditions in accordance with an existing contractual term will be permissible after a transfer if such changes could otherwise have been made. Terms derived from collective agreements: The restrictions which prohibit variations to terms and conditions derived from collective agreements will be amended so that amendments may be made one year after the transfer, provided that any subsequent variations are no less favourable. TUPE will clarify that a transferee will only be bound by terms and conditions derived from a collective agreement that are in existence at the date of the transfer where the transferee is neither party to the collective agreement nor in a position to engage in the bargaining process following the transfer. Dismissal protection: TUPE will be amended to provide that a dismissal will only be automatically unfair if it arises from the transfer itself; the current provision that a dismissal will be automatically unfair if it is for a reason connected with the transfer that is not an ETO reason entailing changes in the workforce will be removed. In practice there is likely to be some initial uncertainty, requiring judicial clarification, on whether a dismissal is because of, or in connection with, a transfer. Collective redundancy consultation: Transferees will get the benefit of any pre-transfer collective redundancy consultation carried out with transferring employees provided that the transferor and the transferee agree in relation to the collective redundancy consultation and the consultation itself is meaningful. In practice, a transferor may wish to regulate by agreement the nature of the transferee's redundancy consultation to prevent confidential information being disclosed or representations being made that could lead to employees resigning. Direct employee consultation: Micro businesses (that is, employers with 10 or fewer employees) will be entitled to inform and consult employees directly about the TUPE transfer if there are no existing employee representatives or recognised trade unions. Unfortunately there will be no exception permitting direct employee consultation in the case of 'micro' transfers, i.e. where 10 or fewer employees will be transferred, where the transferor has a larger workforce. ETO reasons: TUPE will be amended so that a change in workplace location can be classed as an ETO reason for dismissal so that employees who are dismissed because of a change in workplace location post-transfer will not be treated as automatically unfairly dismissed. Instead the fairness of the dismissal will be assessed in the normal way (i.e. was there a fair reason for dismissal and was the procedure followed fair?). Timetable The Government anticipates laying draft regulations in December 2013 with a view to the new legislation coming into effect in January There will be some transitional provisions where considered appropriate. It is not known at this stage whether TUPE 2006 will be amended or whether there will be a new TUPE Zero hours contracts: Imminent consultation announced No sooner has one consultation come to an end than another is announced. Following much media coverage on the use and abuse of zero hours contracts, Vince Cable has announced that a consultation on the use of zero hours contracts will be launched later this year to "explore how to tackle any abuses, particularly around exclusivity".

4 UK: Employment Update 4 Over the summer BIS conducted a review of the use of the Zero Hours Contract and highlighted four key areas of concern that will be addressed in the consultation: Exclusivity: Zero Hours contracts generally do not guarantee any minimum number of hours of work, however, some also provide that the individual may not work for any other company even during times when they are not working under the Zero Hours Contract. Transparency: There is no legal definition of what amounts to a Zero Hours Contract and it can cover a range of working arrangements leading to confusion and lack of understanding of the individual's rights and obligations. Uncertainty of Earnings: Because the rate of pay is linked to the number of hours worked, and there are no guaranteed hours, individuals on Zero Hours Contracts cannot calculate their earnings. Balance of Power in the Employment Relationship: The BIS review found that people perceived they would be penalised if they did not take the hours offered even if they were offered at short notice; which led to a climate of fear that such people would be less likely to be offered regular work if they failed to accept the hours on offer. Grievances: Lack of impartial appeal can be grounds for constructive dismissal Employment contracts contain an implied term that the employer must not without reasonable and proper cause conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between employer and employee. This is commonly referred to as the "implied term of trust and confidence". Breach of the implied term of trust and confidence may provide grounds for an employee with not less than two years' service to resign and claim constructive unfair dismissal. To succeed with such a claim the employee will have to demonstrate that the conduct of the employer breached the implied term of trust and confidence and that the resignation was because of the act or omission in question. In addition, the employee must not: (i) delay too long before resigning or (ii) subsequently affirm the employment contract. Recently the Employment Appeal Tribunal (EAT) has examined whether the way in which a grievance appeal was conducted could provide grounds for claiming constructive dismissal. C raised a grievance about health and safety issues in the workplace, naming two specific individuals in his grievance. Aldi had a written grievance procedure which provided for the grievance to be dealt with initially by the section manager unless the grievance was about the section manager in which case it should be dealt with by the logistics director. If an employee wanted to appeal any grievance decision then the next level of management had to be notified, there would then be a meeting and a final decision would be made. One of the individuals named in C's grievance was the section manager. Under Aldi's grievance procedure C's grievance should have been heard by the logistics director, however, as there was no logistics director the grievance was dealt with by the regional managing director, H. H held a number of meetings and spent a considerable time exploring C's grievance before setting out his findings in writing. C appealed H's grievance decision so an appeal meeting was convened. The appeal meeting was, however, conducted by H and lasted a mere 20 minutes. C subsequently resigned.

5 UK: Employment Update 5 The EAT referred to the ACAS Code of Practice on Disciplinary and Grievance Procedures which specifically states that an appeal "should be dealt with impartially and wherever possible by a manager who has not previously been involved in the case". Aldi's own grievance procedure embraced this approach in writing, however, in practice it had not been followed. The EAT held that a failure to adhere to a grievance procedure was capable of amounting to, or contributing to, a breach of the implied term of trust and confidence. The EAT stressed that the Employment Tribunal must assess on a case by case basis whether non-compliance breaches this implied term, as breaches of grievance procedures may come in all shapes and sizes. It gave the example of a grievance procedure setting out a truncated timetable that is not complied with; it considered that the fact that such a timetable is not met will not necessarily contribute to, still less amount to, a breach of the term of trust or confidence. On the other hand it considered that there could be a wholesale failure to respond to a grievance and that could clearly constitute a breach of the implied term of trust and confidence. The EAT held that the right to appeal a grievance is an important feature of an employer's grievance procedure as incorporated into the ACAS Code of Practice. It could not see why an organisation the size of Aldi could not provide for an impartial hearing by a manager who was not previously involved in the dispute. This case illustrates the importance of an employer's grievance procedure meeting the standards set out in the ACAS Code and, as far as possible, being strictly adhered to. Whilst deviations from an employer's procedure may not always be problematic, failure to comply can in certain cases, either on its own or in combination with other behaviour, constitute behaviour that breaches the implied term of trust and confidence permitting the individual to resign and claim constructive unfair dismissal. Careful consideration should therefore be given to whether a grievance procedure (and indeed a disciplinary procedure) can be strictly adhered to and, if not, why and whether this is capable of constituting unreasonable conduct. Planning ahead should help reduce the risk of non-compliance, for example assessing who will be available to conduct the grievance at each stage. In some cases where it is not possible to comply with an internal procedure, the way in which the deviation is managed can help to reduce the risk of the employee asserting that the deviation has breached the implied term of trust and confidence. For example, if the procedure has become delayed, informing the employee of the delay, the reasons why it has occurred and advising them of the revised timetable are all advisable actions to take. [Blackburn v Aldi Stores Limited] National minimum wage naming and shaming: Implications for internships? On 1 October changes to the Government's scheme for naming employers who flout the national minimum wage (NMW) came into effect alongside changes to the NMW civil and criminal enforcement regime. Under the NMW legislation 'workers' are entitled to be paid the NMW (currently 6.31 an hour for workers aged 21 and over) subject to certain limited exceptions. If an employer pays a worker less than the NMW the individual can pursue an unlawful deduction of wages claim in the Employment Tribunal and/or complain to HMRC who can in turn initiate an investigation and issue a Notice of Underpayment. Such a notice sets out the amount of the underpayment to be paid and imposes a penalty for non-compliance. The penalty is calculated at 50% of the total underpayment subject to a minimum of 100 and a maximum of 5,000. HMRC can also bring criminal proceedings against employers in cases of persistent non-compliance and refusal to co-operate.

6 UK: Employment Update 6 The Government also operates a scheme where employers who are in breach of their NMW obligations are named. Under the pre 1 October naming regime, employers had to meet one of seven criteria plus a financial threshold before they could be named. The revised scheme however applies to any employer that is investigated by HMRC and issued with a Notice of Underpayment from 1 October. If the notice is not appealed, or appealed unsuccessfully, the employer's name will be automatically referred to BIS for automatic naming. An employer can only be excluded from automatic naming in three circumstances: 1. Naming by BIS carries a risk of personal harm to an individual or their family. 2. There are national security risks associated with naming the employer. 3. Other factors that would render it contrary to the public interest to name the employer. HMRC's revised approach to naming and shaming has implications for those firms who make use of unpaid interns who are in fact eligible to be paid the NMW by virtue of their status of 'worker'. There is no legal definition of 'intern' and organisations operating internships need to be alert to the fact that: an intern may be eligible for paid annual leave or payment in lieu on termination of the internship; the intern may be eligible to receive the NMW; the intern could render the organisation vicariously liable for the acts of discrimination and harassment against the organisation's own employees; the organisation may be vulnerable to an Equality Act discrimination claim by the intern; and the intern may be privy to, and able to disseminate, the organisation's confidential information. Whether an intern is an employee or a worker, or neither, will be dictated by the nature of the arrangement with the organisation. Organisations should therefore clarify the legal nature of the relationship and the legal rights and obligations that arise from it and ensure that the appropriate arrangements and paperwork are in place before it commences. [National Minimum Wage: Policy on HMRC enforcement, prosecution and naming employers who break national minimum wage law]. The perils of not having an applicable law clause A recent decision of the Court of Justice of the European Union (CJEU) highlights that where an employee's duties bring them into contact with a number of different jurisdictions, the absence of a governing law clause in the employment contract could produce an unintended consequence: the contract may not be considered to be governed by the law of the country where the employee has habitually worked for many years because it is regarded as being more closely connected with another country. In the case under consideration, B worked for FAS, a company established in Germany. She worked in Germany for some 15 years and then worked for over 11 years in the Netherlands after which time she was invited to take up a role back in Germany because the Netherlands' role was to be abolished. As a consequence of the proposed role change, B pursued a number of actions in the Dutch courts and claimed

7 UK: Employment Update 7 that Dutch law was the law applicable to her employment contract. FAS however, argued that the contract was governed by German law. Because the contract did not have a governing law clause, the provisions of the Rome Convention on governing law (to which all Member States are signatories) had to be considered by the CJEU. This provides that where no governing law has been chosen then the governing law will be that of the country where the employee habitually carries out his work, or in the absence of such a country, the place of business through which the employee was engaged. This is the case unless it appears from the circumstances as a whole that the contract of employment is more closely connected with another country, in which case the law of that other country will apply. In essence, the issue before the CJEU was whether the fact that B had worked in the Netherlands for more than 11 years without interruption (i.e. the Netherlands had been her habitual place of work) outweighed the fact that a closer connection with Germany was suggested by the circumstances as a whole and in particular the fact that the employer was a German company, remuneration and social security was paid in Germany, pension arrangements were with a German pension provider, the fact that B resided in Germany and that her travel costs from Germany to the Netherlands were reimbursed. The CJEU ruled that the Rome Convention does require a court to disregard the law of the country where an employee habitually carries out their employment duties for a lengthy period if it appears from the circumstances as a whole that the employment contract is more closely connected with another country. However, when assessing whether there is a closer connection with another country the CJEU stressed that simply because there are a number of factors connecting the contract with another country this does not mean that the contract is more closely connected with that other country; the weight of each of those factors must be assessed. It considered that significant factors suggestive of a connection with a particular country include: where the employee pays tax on his employment income, where he is covered by social security and pension arrangements, sickness insurance and invalidity schemes. This case concerned the Rome Convention because the employment contract was concluded prior to 17 December The Rome (I) Regulation (on the law applicable to contracts) applies to contracts concluded on or after 17 December 2009; it contains similar provisions and the court's analysis is equally applicable to it. This case illustrates that an employer should always include a governing law clause in the contract of employment to avoid uncertainty. Employers must however be mindful that where the contract is performed in an EU member state, specifying the law of contract will not allow it to circumvent any mandatory rules that apply to the individual in the country in which the contract is performed. [Schlecker v Bodecker] Clawback: FRC consults on directors' remuneration The Financial Reporting Council (FRC) has published a consultation on whether to amend the UK Corporate Governance Code (the Code) to address a number of issues relating to executive remuneration. This closes on Friday 6 December Last year the FRC announced its intention to consult after the Government s legislation on voting and reporting on executive remuneration had been finalised (this came into force on 1 October) (see our recent client briefing). The FRC is now consulting on three specific proposals: clawback arrangements;

8 UK: Employment Update 8 whether non-executive directors who are also executive directors in other companies should sit on remuneration committees; and what actions companies might take if they fail to obtain at least a substantial majority in support of a resolution on remuneration. At present, unless they are subject to the Remuneration Code, there is no obligation on quoted companies to operate either clawback (where monies are recovered from individuals) or 'malus' (where unvested remuneration is withheld). In January 2012 the secretary of state for BIS stated that it would ask the FRC to require all large public companies to adopt clawback; as it was felt by some that all quoted companies and not only financial services companies should be required to operate clawback. In the FRC consultation a series of questions are posed including whether the Code should specify the circumstances in which payments could be recovered/withheld. The FRC has not yet taken a decision as to whether any changes to the Code are needed and it hopes respondents to the consultation will take account of (i) the GC100/Investor Group guidance on the new reporting regime and (ii) the FCA's consultation on changes to the reporting regime in the Listing Rules. The FRC states that it does not intend to revisit matters that have been addressed in the Enterprise and Regulatory Reform Act 2013 and new reporting regulations, but it does ask for feedback on e.g. any areas of overlap. Finally, the FRC asks a more general question regarding whether the Code continues to address the correct broad areas in relation to remuneration. If any changes are ultimately proposed, they will be the subject of a further consultation in Q and apply to accounting periods beginning on or after 1 October [Directors' Remuneration Consultation Document] Contacts Chris Goodwill Partner Imogen Clark Partner Mike Crossan Partner Alistair Woodland Partner Tania Stevenson Senior Professional Support Lawyer T: +44 (0) F: +44 (0) To one of the above please use: firstname.lastname@cliffordchance.com This publication does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. Clifford Chance, 10 Upper Bank Street, London, E14 5JJ Clifford Chance LLP 2013 Clifford Chance LLP is a limited liability partnership registered in England and Wales under number OC Registered office: 10 Upper Bank Street, London, E14 5JJ We use the word 'partner' to refer to a member of Clifford Chance LLP, or an employee or consultant with equivalent standing and qualifications If you do not wish to receive further information from Clifford Chance about events or legal developments which we believe may be of interest to you, please either send an to nomorecontact@cliffordchance.com or by post at Clifford Chance LLP, 10 Upper Bank Street, Canary Wharf, London E14 5JJ Abu Dhabi Amsterdam Bangkok Barcelona Beijing Brussels Bucharest Casablanca Doha Dubai Düsseldorf Frankfurt Hong Kong Istanbul Kyiv London Luxembourg Madrid Milan Moscow Munich New York Paris Perth Prague Riyadh* Rome São Paulo Shanghai Singapore Sydney Tokyo Warsaw Washington, D.C. *Clifford Chance has a co-operation agreement with Al-Jadaan & Partners Law Firm in Riyadh.