Latest News : Employment Bulletin - July 2011

Latest News

Employment Bulletin - July 2011

 11th Jul 2011

Welcome

Welcome to our employment law update for July 2011. The Bribery Act came into force on 1st July, and we explain in our featured analysis how it will impact on you and your business. We also consider some recent developments in redundancy law and consider other recent HR developments. Meanwhile, have you reviewed your working practices for Agency Workers? The Agency Worker Regulations mean that agency workers will have the same rights to basic employment and working conditions (e.g. pay, rest breaks, duration of working time) as those recruited directly by you from 1st October 2011, provided that they have worked for twelve weeks. We are happy to talk to you about the practical ramifications of this groundbreaking legislation.

Neil Andrews

Partner, Coles Miller LLP

Redundancy Issues

Do employers have to hold a selection process if all members of a pool are redundant? Fortunately for businesses, the Employment Appeal Tribunal has said no. Mr Zeff worked for Lewis Day Transport Plc as a manager in the chauffeur department. There was a downturn of business in early 2009 and after a number of meetings with staff a decision was made to close the chauffeur department, so Mr Zeff and the two controllers in the department were made redundant. Mr Zeff brought an unfair dismissal claim and lost. The tribunal agreed with the company that the chauffeur department was the whole 'pool' and Mr Zeff and the two controllers were the only members of the pool. As none of Mr Zeff and the two controllers was needed and all three of them were made redundant, there was no need for any selection, no need for any formal selection criteria and no need for any formal selection process. Mr Zeff appealed, mainly on the basis that there should have been a redundancy selection process with formal criteria. The EAT rejected this argument, saying that there was no question of selection and therefore, no need for matrices or selection criteria. And in a separate case, the Employment Appeal Tribunal has made it clear in Dabson v David Cover & Sons that when assessing the fairness of selection for redundancy, tribunals should not scrutinise the scoring exercise in the absence of obvious mistake or lack of good faith. Mr Dabson complained that he had been unfairly selected for redundancy and a proper consultation had not been carried out, and so his dismissal was unfair. He lost his claim and appealed. The EAT emphasised that what was key was the issue of overall fairness and so tribunals should stay away from close scrutiny of the marking in redundancy unless there was an obvious mistake or bad faith. In Mr Dabson’s case, the consultation was found to be adequate and the failure to consult did not of itself make Mr Dabson’s dismissal unfair.

If You Call It Ex-Gratia, It’s Exactly That

Ms O’Farrell worked for Publicis Consultants UK Ltd in the post of Director. Her contract provided for three months’ notice of termination by either party. She was informed of her redundancy by letter of 14 May 2009, the effective date of termination being the day after. She was paid to 18th May and was provided with statutory redundancy pay and holiday pay. The letter also said,"Ex-gratia Payment - You will receive an ex-gratia payment equivalent to three months’ salary. This payment amounts to £20,625. The payment is free of Tax and NI deductions". Ms O’Farrell then claimed that the company was in breach of contract by failing to pay her notice pay. The company argued that the ex-gratia payment was meant to be a notice payment, but the tribunal rejected that argument and found for Ms O’Farrell. At the company’s appeal the Employment Appeal Tribunal held that the issue was how should the ex-gratia clause in the letter to Ms O’Farell be construed. Did the words mean ‘we are hereby paying you for your period of notice’ or did they mean ‘we are hereby paying you a sum other than the monies to which you would be entitled by way of pay in lieu of notice?’ To an ordinary reader the letter meant that three payments were to be made. The company was legally obliged to pay two of them, the third was a payment "made freely and not under obligation". Nothing in the language used in the letter of 14th May 2009 suggested that the ex-gratia payment was a payment for a period of notice and no background information put forward changed that position. The tribunal's interpretation of the words ex-gratia was therefore held to be correct and the company's appeal was dismissed.

Lawyers at Internal Disciplinary Hearings

The Supreme Court has overturned the decisions of the Court of Appeal and High Court that a music teaching assistant at a primary school should have been allowed legal representation at an internal disciplinary hearing. G has been accused of engaging in indecent conduct with a 15 year old undertaking work experience. He was denied legal representation in an internal disciplinary hearing and was dismissed for gross misconduct. He claimed that his right to a fair trial had been infringed (European Convention on Human Rights, Article 6) because the finding would be likely to mean that he would then be placed on the “barred” list by the Independent Safeguarding Authority (ISA) and therefore permanently barred from his profession. In considering his judicial review application last year, the Court of Appeal held that where employees need authorisation from an external regulator to carry out their chosen profession or occupation and a dismissal could lead to the regulator withdraw authorisation, then the employee should be allowed to bring a lawyer into a disciplinary hearing. However, the effect of the more recent Supreme Court ruling is that employees subject to authorisation by the ISA, such as teachers, will no longer be able to argue that they are entitled to legal representation at internal disciplinary proceedings because of the potential for the ISA to be influenced by the outcome of those proceedings. However, there could still be scope for employees to argue for a right to legal representation at disciplinary hearings in some other cases where their career is at stake, especially in the public sector or where an employer is a “monopoly” employer (as in Kulkarni v Milton Keynes Hospital NHS Trust in 2009 when the Court of Appeal held that the NHS felt into that category). Each case will need to be considered on the specific facts as it may be that procedures create contractual rights for disciplinary matters to be dealt with in a certain way, including the availability of legal representation. Outside the public sector, employees could not rely on the human rights legislation and there are fewer monopoly employers or areas where employees are subject to authorisation but there have been cases that have said that if an employee brings an unfair dismissal claim, rights under Article 6 should be weighed in the balance when a tribunal considers whether the dismissal was reasonable. In particularly difficult or sensitive cases, employers may wish to consider, as an exception to their usual approach, granting a request for legal presence at hearings in order to nullify later arguments from the employee about other alleged flaws in the process.

Implementation of the Bribery Act ­ a Detailed Analysis

The Bribery Act became law on 1 July 2011. The legislation applies to all companies, partnerships and individuals based in the UK, as well as foreign companies and individuals doing business in the UK. The legislation makes it absolutely clear that commercial organisations are responsible for ‘policing’ not only their own garden, but even the remotest areas of their operations to ensure that nothing illegal is taking place, including the third parties with whom they do business. This represents a step change in the level of risk assessment and control. Penalties under the new Act include the possibility of jail for directors and unlimited fines for organisations. On top of that would be legal costs, not to mention incalculable reputational damage associated with a high profile prosecution. The Act defines new criminal offences:

  • offering, paying, requesting or receiving a bribe;
  • bribing a foreign public official;
  • a corporate offence of failing to prevent bribery being undertaken on its behalf.

There is a defence to the corporate offence of failing to prevent bribery if an organisation can show that the directors have put in “adequate procedures” to prevent bribery. There is a degree of flexibility in what “adequate procedures” actually means. Organisations must take a risk based approach and their procedures should be proportionate to the risk posed. Given the growing regulatory pressures on all businesses, boards could be forgiven for viewing the Bribery Act as an additional burden. In fact, it could be a blessing in disguise. The Act provides clarity. Previously the limits of the law were not always clear and that in itself represented a risk. Under the Bribery Act, companies should know exactly where they stand. Perhaps more importantly, the Act may have a beneficial effect on the way UK companies run their affairs and transact with third parties. In forcing companies to examine all areas of their operations, the Act will provide managers with a more accurate view of how business is conducted and risk managed. That will, in turn, lead to far greater operational effectiveness. The Act has the potential to force businesses into reviewing their relationships with third parties and establish a new basis for co-operation and trust. This could be achieved through new contracts, a jointly agreed approach to risk management and controls and potentially the adoption of a common moral culture. There may also be financial benefits. The immediate impact of the Act is almost certainly increased spending on compliance, but longer term, an enhanced understanding of operations could provide an opportunity to take cost out of the business. What’s more, a proactive approach to risk control is good for corporate reputation. That in turn provides a competitive edge. The Bribery Act may impel UK companies to take a far more robust approach to internal and third party risk and in the long term this should be a good thing. What steps should be considered to minimise exposure?

  1. Leadership from the top, taking on board responsibility for the design of an anti-bribery and corruption programme and instilling a culture in which corruption is eradicated. Appointment of a compliance officer will reinforce the importance of a corporate anti-corruption compliance programme within the organisation. Board agendas should include consideration of bribery issues.
  2. A clear and unambiguous code of conduct giving clear guidance on gifts and entertainment, charitable and political contributions and reimbursement of travel expenses as well as the treatment of illegal payments such as facilitation payments.
  3. Effective risk assessment and risk management including consideration of the countries where the business is operating, the types of transactions being undertaken by the business, as well as other potential high-risk issues. Adoption of appropriate risk management strategies, which are business specific and take account of key relationships with employees, third parties acting on behalf of the business and business partners.
  4. Due diligence of business partners and other strategic partners covering examination of their compliance policies and procedures. Where necessary, the right to audit accounts and transactions undertaken by business partners should be included in contract terms.
  5. Financial controls and audit testing should be considered when entering high risk markets or where potential risks have been identified following audit reviews. Internal audit testing of all business locations should include testing of high-risk areas, including cash handling, customs compliance, transactions with third party agents and use of consultants. Audit reports should be reviewed to test the effectiveness of current controls.
  6. Monitoring of practices in high risk countries, e.g. where governments own or control manufacturing facilities or where there are known corrupt practices within specific industries operating in particular countries. Information is freely available from reputable government sources identifying high-risk countries and sectors, e.g. Business Anti-Corruption Portal at http://www.business-anti-corruption.com/.
  7. Implementation of an effective contract review procedure to ensure that payment terms are properly scrutinised and the use of particular types of agreements are reviewed, e.g. consultancy agreements, agreements with sales agents and agreements with lobbyists. Review key contracts and incorporate necessary amendments to contract terms. In particular, consider including: a right of audit of anti-corruption procedures of business partners, a right to terminate a contract in the event of suspected corrupt activity, appropriate warranties and indemnities, obligations for partners to immediately report any corrupt activity of which they become aware and obligations on business partners to comply with your own code of conduct and anti-corruption compliance procedures, if appropriate.
  8. All payment terms should be justifiable on an arms length basis. Ensure payments are not made in cash and are made in the countries where business takes place. All payment terms should be agreed and properly recorded.
  9. Mechanisms should be put in place to encourage staff to seek guidance on potentially illegal transactions and report suspected breaches of anti-corruption policies. Such mechanisms should be highlighted in training given to employees. Review standard wording of employment contracts and amend to ensure that the company’s position is protected in the event of an employee breaching the BriberyAct.

Don’t wait until the Bribery Act becomes a problem for your business. Make sure you put adequate procedures in place now.

Negligent Misstatement

The High Court has handed down judgment in McKie v Swindon College. The employee in that case brought a case against a former employer, Swindon College. An email was sent from the College to his then employer, six years after he had stopped working for Swindon College. The email suggested (wrongly) that there had been serious concerns about his behaviour as an employee. The employee was dismissed as a result of the email. Whilst he had been employed by Swindon College, he had been promoted and had received bonus awards. When he had left, he had received a glowing reference. The court found that Swindon College had been negligent towards the employee. It had owed the employee a duty of care because it was foreseeable that the employee could lose his job as a result of the damaging email, that there was sufficient closeness between the College and the employee, that it was fair just and reasonable to impose a duty of care and that there was a link between the sending of the email and the damage that the employee suffered. The court was dealing with liability (i.e. whether Swindon College had to pay compensation), and will assess the amount of compensation on a future date if the parties cannot agree a figure. This case reminds employers of the need for care when communicating about current or former employees, whether they are writing formal references or not. Whilst this will not work for all companies, some employers make it a disciplinary offence to provide references or make statements about ex-employees without first running the reference past HR.

Flexible, Family Friendly Employment?

In line with the Government’s other proposals for the reform of employment tribunals and the resolution of workplace disputes, the Department for Business, Industry and Skills has launched a new Consultation called ‘Consultation on Modern Workplaces’. The proposals include:

  1. an extension in the ability to request flexible working - this would extend the right to request flexible working to all employees, not just those with children under 17 (or 18 for parents of disabled children). It would allow employers to prioritise competing requests, allow more temporary changes to terms and conditions as well as permitting more than one request in a 12 month period. This will not be a right to work flexibly - requests could still be turned down by employers.
  2. flexible parental leave to be introduced in April 2015 - this would keep 18 weeks' maternity leave for mothers to be taken in a continuous block around the time of the birth and would retain the current statutory maternity pay and maternity allowance arrangements and two week’s paternity pay and leave. The remaining maternity leave would be reclassified as 'parental leave' and could be taken by either parent or both. There is also a proposal to allow employers and employees to agree for parental leave to be taken in blocks, or on a part-time basis. The government seeks employers’ views on extending the age limit for taking unpaid parental leave beyond the existing limit of the child’s fifth birthday and giving fathers the right to unpaid leave to attend antenatal appointments.
  3. an amendment to the Working Time Regulations to comply with European law - this will require annual leave to be carried over in situations where annual leave has not been taken because of sick/maternity/parental leave and where the leave cannot be rescheduled in the current leave year. The proposal limits carried-over holiday for sickness absence to the four weeks' compulsory paid leave under European holiday laws (i.e. the employee would not be able to carry over the extra 1.6 weeks they receive, above the European entitlement, under the UK holiday laws). The government is also considering proposals to allow employers to 'buy out' that extra 1.6 weeks or to require employees to defer that leave until the first six months of the following leave year if this can be justified in terms of business need.
  4. equal pay - in situations where an employer is found by an employment tribunal to have discriminated against women in contractual or non contractual pay cases the tribunal would have the power to order the employer to carry out an equal pay audit.

See the Consultation here. The Consultation runs until 8 August 2011. We will keep you informed of its outcome.

Emails Sent From Personal Computers Outside Working Time

Mr Gosden was a care worker working with drug users inside Moorland Prison. He sent an email containing offensive comments, accompanied by images of naked women, from his home computer to a work colleague’s home computer, outside working hours. The email concluded: "It is your duty to pass this on!" The colleague forwarded the email to another colleague who worked at the prison. The email chain came to the attention of the prison, which instituted an internal investigation. Mr Gosden’s co-worker then forwarded the email on to another colleague at the prison and so the email entered the prison service's system. Mr Gosden was dismissed following a disciplinary hearing but argued that the dismissal was unfair because he had sent the email from his personal email address outside of working hours. The tribunal disagreed. Although he sent the email from home, it clearly stated that it should be passed on and so he should reasonably have expected it to have been forwarded. The tribunal concluded that a reasonable employer would be entitled to conclude that Mr Gosden had committed an act of gross misconduct that could damage the company’s reputation or integrity and so the decision to dismiss was therefore within the band of reasonable responses. In view of the increasing use of social media and to avoid debate over privacy issues, employers should ensure that internet usage policies make it clear that employees should not send offensive emails, or similar communications, inside or outside the workplace and that disciplinary action could result if they do.

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