Personnel FILE - March 2009

In-House News: Brethertons Appear on the BBC Politics Show

Natalie Roach, partner and head of employment at Brethertons recently appeared on the BBC Politics Show along with Local MP Tony Baldry.

The show was looking at how retail is faring in the current economic climate and with redundancy being a hot topic, Natalie discussed live on air employment issues that are effecting local people as a result.

Increase in Tribunal Claims

The Tribunals Service has just published the statistics for Tribunal claims for the period 1 April 2007 to 31 March 2008; some six months late. Despite the delay, the statistics make for interesting reading, with 189,303 claims being accepted in the period outlined above (2007/2008). This is a substantial 43% increase on the 2006/2007 figure of £132, 577 claims and even more of a dramatic increase on the 2005/2006 figure of £115,039.

Surprisingly it was equal pay claims that topped the league and not unfair dismissal claims (which came in third place). It is also clear to see from the statistics that new legislation is proving fruitful with an increase on age discrimination claims from 972 in 2006/2007 to 2,949 in 2007/2008.

It is unclear as to whether the current economic climate will see a further increase on the percentage of claims being brought before the Tribunal, or indeed, whether the financial difficulties redundant employees are finding themselves in will prevent them from bringing claims.

Extension to the Right to Request to Work Flexibly

The Government have now finalised the extension to the right to request to work flexibly.

The original Regulations applied to those employees with children under the age of 6 or those with disabled children under the age of 18 years old. In April 2007 the right to make a request to work flexibly was extended to carers of adults. In November 2007 Gordon Brown announced that the right to flexible working was to be extended further to all parents/primary carers of children. This will now hit the statute books in April 2009. The right is to be extended to those with children under the age of 17, which is anticipated will affect 4.5 million of the working population. We await details of whether the Regulations and the procedure itself will be changed
 

Redundancy – Suitable Alternative Employment 

In the current economic climate, employers may face the need to reduce staffing levels. If you are making employees redundant, one of the requirements is that you must follow a fair redundancy dismissal procedure and keep the individuals affected, and possibly their representatives, informed throughout the restructuring process.

Sometimes, it is possible to avoid redundancy dismissals by offering employees suitable alternative work within the organisation. Indeed, if a suitable alternative post is available and the employer does not offer it to an employee selected for redundancy, the redundancy dismissal will be unfair dismissal, in which case the employee is entitled to claim compensation.

For an offer of suitable alternative work to be valid, it must be offered to the employee before the expiry of their current contract. The offer should show in what way the new job is different from the employee’s existing position and the job must start either as soon as the old contract of employment ends or within four weeks of it ending. Whether or not the job is suitable will depend on a number of factors including the job status, the remuneration level, where the employee is to work, the working environment and the hours of work.

If the employer and the employee reach agreement that the job is not suitable after all, the employee can still claim a statutory redundancy payment (SRP). However, if the employer believes that the alternative job offered is clearly suitable and the employee unreasonably refuses to accept it, he or she will not be paid a SRP. Employers should take care in such circumstances however. The decision as to whether or not an employee’s refusal of suitable alternative employment is reasonable is a subjective one.

In Commission for Healthcare Audit and Inspection v Ward, Ms Ward was offered a new post during a restructuring exercise. She had already survived an earlier reorganisation. This and the way the offer was communicated to her left her disillusioned with the process. She didn’t think the new post was suitable and refused to take up the offer. The Commission considered that her refusal was unreasonable and that she was not therefore entitled to a SRP.

Ms Ward brought a claim to the Employment Tribunal (ET), which judged that although there was a material difference between the old and the new posts, on balance the new job was suitable, though clearly not ideal. However, in its view the fact that the suitability of the new job is marginal may affect whether or not it is reasonable for the employee to refuse it, as can the circumstances surrounding the offer and the relationship of the parties concerned. The circumstances in this case were such that the ET found that Ms Ward had not acted unreasonably in refusing the new role and she was therefore entitled to a SRP.

The Employment Appeal Tribunal upheld the ET’s decision. The ET was entitled to consider the degree of suitability of the alternative role when deciding whether Ms Ward’s refusal was reasonable. Following earlier case law, Ms Ward’s actions must be looked at in relation to the way the facts appeared, or ought reasonably to have appeared, to her at the time she made her decision. It is possible for an employee to reasonably refuse an objectively suitable offer based on their own perceptions. It is for the ET to reach a judgment based on the individual facts of the case.

Brethertons’ view:

“This case illustrates that the manner in which the redundancy process is conducted is important. Whether or not an employee’s refusal to accept suitable alternative employment is reasonable is a subjective judgment and so the way they are treated is key. To avoid problems, take advice before you take any action if you face having to make staff redundant.”

Protecting Business Interests

When an employee leaves to go to work for another organisation, their employer may wish to have in place safeguards to protect sensitive information relating to the business, to prevent it from falling into the hands of a competitor.

One possible way of doing this is through a post-termination restrictive covenant, but this will only be enforceable if the ex-employer can show that it is reasonably necessary to protect his legitimate business interests, which include trade secrets or confidential information and customer information. A restrictive covenant that goes beyond what is reasonably necessary to protect these interests will not be enforceable. However, a restrictive covenant that is widely drafted may be reasonable in the case of senior employees, depending on the individual circumstances involved.

In addition, all employees have a duty to serve their employer with honesty and fidelity. Company directors owe a fiduciary duty to act in the best interests of the company, as do employees who hold a senior position within the organisation. Employees who become shareholders may also be bound by the terms of any shareholder agreement entered into.

In Kynixa Ltd. v Hynes and others, Mr Hynes, Ms Preston and Ms Smith had held key roles working for Kynixa, a specialist provider of rehabilitation and case management services for people who have suffered an injury. Over a period of time, all three resigned and went to work for a competitor company, without informing Kynixa of their intentions or the identity of their new employer.

The High Court found that all three ex-employees had breached their duty of fidelity by positively misleading Kynixa as to their true intentions. In addition, Mr Hynes and Ms Preston were found to be in breach of their fiduciary duties because they had not informed Kynixa of their negotiations with a competitor. The two also held shares in the company and were found to be in breach of restrictive covenants, contained in the shareholders’ agreement, which ran for one year from the date when they ceased to be connected with Kynixa. Mr Hynes and Ms Preston argued that this was too long a period to be enforceable but the Court judged that although the post-termination covenants were very wide, in the circumstances they were reasonable to protect the legitimate interests of the business and were therefore enforceable. Kynixa operated within a small, fiercely competitive market and the disclosure of trade secrets to a competitor could be particularly damaging to its business. Furthermore, Mr Hynes and Ms Preston had a choice as to whether or not to enter into the shareholder agreement and they had both chosen to do so for (potentially) substantial gain.

As a result of this ruling, substantial damages will be payable to Kynixa by the three ex-employees.

Advocate General Supports Default Retirement Age – If Justified

We have previously reported that Heyday, an organisation for people in or nearing retirement, has challenged the Government over the inclusion in the Employment Equality (Age) Regulations 2006 of a mandatory retirement age of 65 or over, on the grounds that this means that the Regulations do not fully implement the EC Equal Treatment Framework Directive 2000/78. The Directive outlaws age discrimination in employment and vocational training. Heyday wants the UK legislation amended to give workers over 65 the same protection from discrimination as younger workers. In order to settle the issue, the matter was referred to the European Court of Justice (ECJ).

The Advocate General has now delivered his opinion, which is that:

• a rule in national law, which permits employers to dismiss employees aged 65 or over if the reason for dismissal is retirement, can in principle be justified under the Directive if that rule is objectively and reasonably justified in the context of national law by a legitimate aim relating to employment policy and the labour market and it is not apparent that the means put in place to achieve that aim of public interest are inappropriate and unnecessary for the purpose; and
• the Directive permits Member States to introduce legislation providing that a difference of treatment on grounds of age does not constitute discrimination if it is determined to be a proportionate means of meeting a legitimate aim. It does not, however, require Member States to define the kinds of differences of treatment which may be justified.

The New Equality Bill

The Government has published a White Paper entitled ‘Framework for a Fairer Future – The Equality Bill’. The Bill is expected to be introduced in the next Parliamentary session, commencing in November 2008.

When enacted, the new law will replace nine major pieces of discrimination legislation and around 100 other measures that have been introduced over the last forty years to protect people from unfairness and discrimination on grounds of race, gender, religion, age, sexual orientation and disability. The Government’s aim in consolidating the existing legislation is to make the discrimination laws simpler to use and to provide more consistent anti-discrimination legislation.

The Equality Bill contains measures to:

• impose a new ‘Equality Duty’ on public bodies to tackle discrimination and promote equality for age, disability, gender, gender reassignment, race, sexual orientation and religion or belief
• outlaw unjustifiable age discrimination by those providing goods, facilities and services. There will be further consultation before the new legal protections from age discrimination are implemented
• require public bodies to provide information on pay by gender, ethnic minority and disability employment
• ensure that public bodies tackle discrimination and promote equality through their purchasing functions
• ban secrecy clauses that prevent people discussing how much they are paid
• introduce a new ‘kite-mark’ for private sector companies that demonstrate openness on equality issues; and
• extend positive action so that employers can, when selecting between two candidates who are equally qualified, take into account groups that are underrepresented in their work force – for example women or those from ethnic minority communities.

In addition, when dealing with discrimination cases, employment tribunals will be able to make wider recommendations, which go beyond dealing with an individual claim, in order to benefit the rest of the workforce of the employer concerned.

The Government also wishes to allow discrimination claims to be brought on ‘combined multiple grounds’ and is exploring how best this might be achieved in practice. It will consider introducing representative actions in discrimination law so that where discrimination is systemic and a number of employees are being treated unfairly, actions can be brought by trade unions, the Commission for Equality and Human Rights and other bodies, on behalf of a group of individuals, as a single claim.

ICO Guidance on Transfer of Employee Information

When the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) came into force on 6 April 2006, they established a new duty on the transferor – when there is a relevant transfer of a business, a part of a business or a service provision change – to supply specific information about the transferring employees to the new employer by providing what is termed ‘employee liability information’.

This information consists of:

• the identity and age of the employees who will transfer
• information contained in the employees’ statements of employment particulars, such as written statement of pay, hours of work, holiday entitlement etc
• information about any relevant collective agreements
• details of any disciplinary action taken against an employee in the last two years
• details of any grievance action raised by an employee in the last two years
• details of any legal action brought against the employer by an employee in the last two years; and
• information about any potential legal action.

The information must be given at least two weeks before the completion of the transfer, unless this is not reasonably practicable. The transferee can bring a claim for compensation in the Employment Tribunal, if the transferor fails to provide the required information, and is entitled to a minimum of £500 from the transferor for each employee for whom information was not provided.

The Data Protection Act 1998 allows the disclosure of this information because it is required by law. The Information Commissioner’s Office (ICO) has now published guidance to help organisations comply with their data protection obligations when passing on this information. This includes recommended good practice for carrying out this duty under the TUPE Regulations, advice on requests for information over and above what is required by law and how employment records should be dealt with on the transfer of a business.

TUPE - Split Service Provision After Transfer

The Employment Appeal Tribunal (EAT) has considered the correct approach to take when deciding who should take responsibility for any employees when there has been a service provision change to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply but where after the transfer the services originally provided by a sole contractor are provided by more than one company (Kimberley Group Housing Ltd. v Hambley and Others, Leena Homes Ltd. and Angel Services (UK) Ltd.)

Leena Homes Ltd. (Leena) had a contract with the Home Office to provide accommodation and related services for asylum seekers pending determination of their applications for asylum. It provided about 140 properties in Middlesbrough and approximately 50 properties in Stockton. In 2006, Leena lost the contract to Kimberley Group Housing Ltd. (Kimberley) and Angel Services (UK) Ltd. (Angel).

Kimberley and Angel did not accept that the TUPE Regulations applied. Six employees of Leena, who lost their jobs as a result of the change, disagreed and took their case to the Employment Tribunal (ET).

The ET found that there was not a transfer of an economic entity which retained its identity (TUPE Regulation 3.1.a) but there was a service provision change (TUPE Regulation 3.1.b). There was, therefore, a ‘relevant transfer’ for the purposes of the Regulations.

The ET then considered to whom the employees’ contracts of employment and liabilities under those contracts had transferred. Based on the number of asylum seekers who were accommodated, 97 per cent of the Stockton operation was performed by Kimberley and 3 per cent by Angel. As regards Middlesbrough, 71 per cent of the operation was carried out by Kimberley and 29 per cent by Angel. The ET rejected the argument that the transferee who takes the greater part of the transferor’s activities should be treated as if it has taken all the employees of the transferor. It decided that although the people and their contracts cannot be ‘split’, the liabilities under their contracts of employments can. The ET therefore concluded that Angel had 3 per cent liability for the consequences of the dismissals at Stockton and 29 per cent liability for those at Middlesbrough. The balance of the liabilities in each case fell to Kimberley to discharge.

Kimberley appealed against the decision. The EAT held that the ET was entitled to reach the view that there had been a service provision change. However, there was no precedent for the approach it took in dividing the liabilities under a contract between two transferees on a percentage basis. An employee cannot be the servant of two masters at the same time. The ET’s ‘creative approach’ to the situation did not derive from an application of the TUPE Regulations.

The apportionment of liabilities in the case of a service provision change should be treated in the same way as when there is a transfer of an economic entity that retains its identity. The correct approach, therefore, is to establish to which part of the undertaking or business the employee was assigned. The facts will vary from case to case and may sometimes be very complicated, but the focus should be on the link between the employee and the work or activities performed.

Applying this principle, the EAT found that responsibility for the liabilities in respect of both transfers fell upon Kimberley.

Brethertons’ view:

“This decision provides useful guidance on situations where services previously provided under one contract are split between two or more service providers. If you are involved in the transfer of a business or lose or secure a contract for service provision, contact us for advice.”