HR Two Minute Monthly


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Summary: There are a lot of developments to report in our October update. These include two helpful decisions on whether international employees can claim British employment rights, a rare reported case on the Agency Workers Regulations, an important decision on the tax treatment of termination payments, an update on employment law changes coming into effect from 1st October, and much more.

International employees not sufficiently closely connected to Great Britain to bring employment tribunal claims

Two new cases highlight the difficulties facing international employees seeking British employment protection rights. To claim rights such as unfair dismissal, whistleblowing and discrimination, employees must show either that their place of work is in Great Britain, or that they otherwise have a sufficiently close connection with Great Britain and British employment law.

US employee who spent 49% of his time in Great Britain not protected by British employment law

In Fuller v United Healthcare Services Inc. the employee worked for a US company and was based in the US. He then became managing director of a UK subsidiary which required him to spend up to 49% of his time in Great Britain. However, the EAT decided that he had not given up his US base but retained an overwhelmingly close connection with the US - he maintained his Texas home, had a US-style contract and benefits package, was paid in US dollars, and was managed from the US. As such, he did not have a sufficiently close connection with Great Britain to claim unfair dismissal, whistleblowing or discrimination rights.

Employee who moved from Great Britain to Dubai similarly fell outside British employment law net

In Creditsights Ltd v. Dhunna the employee was employed by the UK subsidiary of an international group, and was based in London as part of the European sales team. He then moved to Dubai and shifted his focus exclusively to the Asian business of the group. The Court of Appeal held that in doing this he shifted his base away from the UK to the Asian operations, and so was unable to claim unfair dismissal and the right to be accompanied to disciplinary hearings. The fact that he remained employed by the UK entity for administrative purposes was not sufficient for him to say that he continued to have British employment law protection.

Close analysis of the facts required in territorial scope cases

These two cases serve as a useful reminder that employees whose place of work is not Great Britain will only be entitled to claim British statutory employment rights if they have a sufficiently strong connection with Great Britain. However, deciding this issue will typically require a detailed factual analysis of the arrangements and the employee’s circumstances. It is worth noting in particular that the territorial scope of discrimination rights used to be much wider, but this was narrowed by the Equality Act. The Fuller case suggests Tribunals will have no difficulty saying that the current, more restrictive test described above is now the correct one to apply in discrimination claims.

Agency Workers Regulations: hirer liable for underpayment of agency worker’s salary

In a rare reported case on the Agency Workers Regulations 2010, an employment tribunal held that the hirer, not the agency that employed the agency worker, had to compensate the agency worker when she wasn’t paid the appropriate salary required by the Regulations.

Employers not required to enhance paternity pay to mirror enhanced maternity schemes

An Employment Tribunal in a case called Shuter v. Ford Motor Company has decided that an employer was entitled to pay enhanced maternity pay to women on maternity leave whilst only paying statutory paternity pay to men on additional paternity leave. The case highlights issues for employers to consider in relation to the Shared Parental Leave regime, which comes into effect from April 2015.

Discrimination payments related to termination of employment are taxable

A new tax Tribunal decision makes clear that, subject to the usual £30,000 tax free exemption for termination payments (or to one of the other less common tax free exemptions for termination payments, such as for foreign service) any compensation received in connection with termination of employment is taxable. This is regardless of whether the payment is to compensate for financial loss, for discrimination/injury to feelings, to protect the employer’s reputation or otherwise.

The reason for the termination payment isn’t important

In Moorthy v. HMRC, the employee argued that the £200,000 compensation he received under a settlement agreement was tax free because it was for age discrimination related to his dismissal and also to protect the employer’s reputation. The first-tier Tribunal expressly disagreed with earlier case decisions which suggested that the tax treatment of a termination payment depends on the nature of the payment in question – for example, whether the payment is for financial loss or injury to feelings arising from discrimination, or to protect the employer’s reputation. Instead, the only issue is whether the compensation payment is connected to the termination of employment. If it is connected to termination, the payment is taxable under the termination payments regime. This means that only limited tax free exemptions will apply (such as the £30,000 exemption).

Implications for employers

The Tribunal in Moorthy was highly critical of a previous first-tier Tribunal case called Oti-Obihara v. HMRC, which individuals have historically relied on to argue for a much more generous tax treatment for termination payments. Whilst both cases are decisions of the first-tier Tribunal, Moorthy is the more recent and also reflects HMRC’s own views of the correct tax treatment of termination payments. Moorthy therefore provides helpful clarification in this difficult area. Employers should note, however, that it may still be possible to make tax-free compensation payments for discrimination, injury to feelings, or to protect the employer’s reputation, where such payments are not termination-related.

Is mutuality of obligation required to establish worker status?

Two cases this month examine the concept of mutuality in relation to worker status. In both cases, the EAT confirmed that, where an engagement consists of a series of shorter assignments, the individual does not need to establish mutuality of obligation between assignments in order to be a worker. It is only when arguing that an "umbrella" contract exists that it is necessary to establish mutuality (that is, the obligation to offer and the obligation to accept work). This is generally relevant to employment status, where the employee will often need to show an umbrella contract exists to fulfil a minimum length of service requirement to claim rights such as ordinary unfair dismissal or redundancy.

Language interpreters argue they are workers, not self-employed, to qualify for race discrimination rights

In Windle & Arada v Secretary of State for Justice the individuals were interpreters who provided their services to the Court Service. The EAT confirmed that a lack of mutuality between assignments did not prevent them from being employed under a contract personally to do work for the purposes of the Equality Act. This test is akin to the test for a worker under the Employment Rights Act and other legislation.

Self-employed labourer was actually a worker and so entitled to unpaid holiday pay

In Plastering Contractors Stanmore Ltd v Holden, Mr Holden worked for the same company for 16 years. After 4 years he accepted the sum of £200 in return for becoming a labour-only subcontractor. This arrangement continued for 12 years. There was no requirement for the company to offer work or for Mr Holden to accept it. Nonetheless, the EAT found there was mutuality of obligation when he was working. This was sufficient to establish worker status.

Interestingly, Mr Holden's claim is for unlawful deductions in respect of unpaid holiday pay. The case now returns to the Tribunal to consider how far back his holiday pay claim can extend, an issue which is significant in relation to current holiday pay cases (Lock v British Gas and the combined appeals of Fulton and Wood in the EAT).

Employer not liable for less favourable treatment of a fixed-term employee in a PHI policy

In Hall v Xerox UK Ltd, the employer provided its employees with PHI. While fixed-term employees were eligible to participate, Mr Hall’s fixed term contract expired during the qualifying period, so he was not covered by the policy. He claimed that this amounted to less favourable treatment under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002.

Not an act of the employer

The EAT upheld the Tribunal’s finding in favour of the employer. Although there was less favourable treatment on the grounds of Mr Hall’s fixed-term status, the act was by the insurer, not the employer. The EAT also agreed that insurer was providing a commercial service to the employer and so could not be described as the employer’s agent. Finally, the EAT upheld the Tribunal’s finding that, even if the employer had committed a discriminatory act, its actions were justified. Although only limited evidence had been provided on the point, the Tribunal accepted the conclusion that there was no realistic alternative for the employer, as it appeared that other insurers had similar terms in their policies.

Reassuring news for employers – up to a point

The confirmation that the agency provisions in discrimination legislation will not come into play in relation to PHI and other similar contractual arrangements is clear and helpful. Further, the finding that the decision not to pay the benefit was the insurer’s act and therefore was not an act by the employer is also good news for employers.

However, the single lay member of the Tribunal did not agree with the Judge’s findings and did identify a “discriminatory act or failure to act” by the employer. This was the employer’s failure to ensure that the policy did not contain discriminatory provisions. There were flaws in the lay person’s reasoning in this case and the Judge had the casting vote (and in any event, found that any discriminatory treatment was justified). The nature of the act though, will be a question of fact, so it remains possible that a discriminatory act by the employer could be identified on the facts of the particular case. In particular, the EAT noted that this scheme did not completely exclude fixed-term workers but instead set requirements for their participation. If an employer adopted a scheme which excluded a particular class of protected employees altogether, it is still possible that a Tribunal may identify this as a discriminatory act by the employer, leaving the employer potentially liable for discrimination claims.

Can disability render a dismissal following a criminal conviction unfair?

In Hensman v Ministry of Defence, an employee who suffered from Asperger’s Syndrome had made covert recordings of a work colleague in a shower. He was convicted of gross public indecency but due to his disability he was given a lesser sentence than he might otherwise have received – a community order. The MoD subsequently dismissed him for gross misconduct.

Discrimination arising from disability and unfair dismissal

Despite the criminal conviction, the Tribunal found that the dismissal amounted to discrimination arising from disability. It also found that the dismissal was substantively unfair. In both cases, the Tribunal placed significant weight on the sentencing comments of the Crown Court Judge, who found that the conduct was linked to Mr Hensman’s disability and that he was not blameworthy.

The EAT overturned both findings. The Tribunal failed to give any consideration to the MoD’s business reasons for making the decision. This meant that it had not carried out the appropriate balancing exercise when assessing whether the discrimination could be justified. It also meant that it had erred when considering whether dismissal fell within the band of reasonable responses. The EAT therefore remitted the case to a fresh Tribunal.

Is it always safe to dismiss following a criminal conviction?

No. A criminal conviction will not necessarily guarantee that an employer can dismiss without fear of liability in the Employment Tribunal. This is particularly the case if the employee in question is suffering from a disability which is relevant to his actions, as was the case here. It is worth noting that the Tribunal, although it had failed to balance the employer’s business reasons, had identified a number of reasons why dismissal may not have been a proportionate response in this case. It is therefore conceivable that another Tribunal, having carried out an appropriate balancing exercise, could conclude that the dismissal was discriminatory. Further, although the band of reasonable responses test for unfair dismissal is less onerous for the employer, there is still a risk that the dismissal could be held to be unfair.

For employers facing similar issues with disabled employees, the key point to note from this case is that even where an employee has been convicted of a criminal act, there should not be an automatic presumption in favour of dismissal. Instead the employer must weigh up all the relevant factors, including the impact of the employee's medical condition, the effect on other colleagues as well as on the employer, and the risk of further incidents occurring.

EU Treaty does not give workers the right to minimum wage on a cross-border outsourcing

In the latest in a line of cases, the ECJ has relied on Article 56 of the Treaty on the Functioning of the European Union (TFEU) to protect the right of employers to provide competitive services across European borders.

Article 56 TFEU prohibits restrictions on the ability of businesses to provide services when a business in one EU member state provides services to a business in another. In Bundesdruckerei GmbH v Stadt Dortmund, a German Local Authority issued a tender at EU level. It contained a requirement for the winning bidder to comply with local minimum wage legislation. One tenderer, who intended to subcontract exclusively to a Polish company, argued that this infringed Article 56.

Competition trumps protection against “social dumping”

The ECJ found that Article 56 did apply to this situation. The Posted Workers Directive, which gives workers posted to another country the same rights as local staff, did not apply as the Polish workers would be working exclusively in Poland. Further, although it is possible to justify measures which infringe Article 56 if they are intended to protect employees against social dumping, the justification arguments did not work in this case. This meant that Article 56 prevented the minimum wage requirement from applying to the tenderer.

This is one of several cases where the ECJ has championed the rights of business under Article 56, even when this appears to deprive workers of local employment rights such as a minimum wage. In this case, the ECJ recognised that the cost of living in Poland differs from that in Germany, meaning that the application of a German minimum wage to Polish workers was not “necessary”.

No entitlement to time off for dependants because employee failed to notify employer in good time

Employees must make sure they satisfy the statutory conditions if they want to exercise their right to reasonable unpaid time off work to deal with emergencies involving their dependants. This includes telling their employers the reason for their absence as soon reasonably practicable, and also saying how long they expect to be away.

Ellis v. Ratcliff Palfinger Ltd is an example of a case where the employer was justified in disciplining an employee who failed to tell them in good time the reasons why he was absent. The EAT said that even though the employee had good reasons to be absent – his partner was heavily pregnant and he took time off because she was ill and then gave birth – he failed to tell his employer why he was absent as soon as reasonably practicable, and so didn’t qualify for the statutory right.

1st October 2014 employment law changes

The following changes come into effect:

Power to order Equal Pay Audits

For equal pay claims presented on or after 1 October 2014, Employment Tribunals have the power to order an employer to carry out an equal pay audit where a finding has been made that the employer is guilty of sex discrimination in relation to pay. This could be either an equal pay claim or a dispute over a non-contractual payment, such as a bonus. Our BLP: Looking Ahead analysis of the implications of the new equal pay audit power.

National Minimum Wage hourly rates increase

The Standard Adult Rate increases to £6.50 an hour, the Development Rate to £5.13, the Apprenticeship Rate to £2.73, and the Young Workers Rate to £3.79.

Right to time off to accompany pregnant women to antenatal appointments

An expectant father or the partner (including same sex) of a pregnant woman will be entitled to take unpaid time off work to accompany the woman to up to two of her ante-natal appointments. The right also extends to those who will become parents through a surrogacy arrangement which satisfies certain requirements.

Latest employment tribunal statistics show significant drop in claims

The Government tribunal statistics for April to June 2014 show a significant drop in the number of employment tribunal claims. Among other things, the number of single claims fell by 70% compared to the same period last year, and are a third lower than the last quarter.

UK Corporate Governance Code updated

The FRC has updated the UK Corporate Governance Code. The changes are “designed to strengthen the focus of companies and investors on the longer term and the sustainability of value creation”. Among other things they include changes to the provisions on remuneration. For more information, read more.


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