HR Two Minute Monthly: discrimination; tax; discretionary bonuses


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Summary: In our February update we cover cases on direct age and race discrimination, an important employment tax decision and updates on privacy and data protection. We also consider an employee's unsuccessful challenge against a discretionary bonus award and the PRA's consultation on variable remuneration buy-outs.

Instruction not to speak Russian at work was not direct race discrimination

In Kelly v Covance Laboratories Ltd, the EAT upheld a Tribunal’s finding that an employer’s instruction to an employee not to speak Russian at work was neither race discrimination nor harassment.

Covance undertook animal testing and had been aggressively targeted by animal rights groups. It recruited Mrs Kelly, who was of Russian national origin, but had immediate concerns about her conduct. In particular, she frequently spoke in Russian on her mobile phone in the office toilets and her manager became concerned that she might be an undercover activist. He therefore instructed her that she should not speak Russian at work. Mrs Kelly complained and pointed to two Ukrainian employees who spoke to each other in Russian. Her manager gave them the same instruction. The relationship continued to deteriorate for these and other reasons, until Mrs Kelly resigned and brought a number of claims including direct race discrimination and harassment.

The race discrimination claim failed because the Tribunal found that a comparator (whether hypothetical or actual in the two Ukrainians) would have been treated in the same way. It went on to find that even if that was not the case, the reason for the treatment was not race, but the concern that she was an animal rights activist. The harassment claim also failed, the reason for the treatment was the manager’s suspicions not her Russian nationality.

Whilst this case is a useful one for employers, it is important to remember that it was made against quite an unusual factual background and there are other cases where similar instructions were found to be discriminatory. Care should always be taken to ensure that there is a non-discriminatory reason for any instruction which could, on the face of it, be deemed to be discriminatory and to ensure that all employees are treated consistently.

Who is the correct comparator in a direct age discrimination case?

Under the Equality Act 2010, an employee who is claiming direct age discrimination is required to establish that they have been treated less favourably than a real or hypothetical comparator whose relevant circumstances are not materially different to theirs.

In Donker v Royal Bank of Scotland, the EAT held that an employee over the age of 50 who was not permitted to apply for voluntary redundancy in the context of a restructuring should be able to compare his treatment to that of two colleagues under the age of 50 who successfully applied for voluntary redundancy.

The EAT found that it was not a relevant circumstance, rendering the comparison invalid, that those over the age of 50 were more expensive for the employer to make redundant because of their early retirement benefits under their pension scheme. Indeed, the EAT held that the additional cost was directly referable to age, so it was directly discriminatory for the employer to take this circumstance into consideration. The case was remitted to consider justification arguments.

This case again demonstrates the uncertainties for both parties when seeking to rely on comparator arguments. Employers should be wary, when attempting to distinguish a comparator, that the grounds relied on are not themselves tainted by discrimination, as was the case here.

Employee monitoring: when can private messages at work be read by employers?

Contrary to various reports in the press, the European Court of Human Rights’ decision in Barbulescu v Romania does not give employers free rein to spy on their employees’ private messages. In fact, the Court’s decision is in line with existing case law on the scope of an employer’s rights to monitor communications.

The case is covered in greater detail in Adam Turner’s blog, Employee monitoring: when can private messages at work be read by employers?

Tax on termination: injury to feelings payments are taxable

A new tax case brings some much needed clarity to the tax treatment of termination payments. In Moorthy v HRMC the Upper Tribunal (Tax and Chancery Chamber) confirmed that apart from the usual £30,000 exemption (or one of the less common exemptions such as a payment for injury or disability) 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 injury to feelings arising from discrimination, to protect the employer’s reputation or otherwise.

The case is covered in greater detail in Rob Eldridge's blog, Tax on termination: injury to feelings payments are taxable.

Agreement reached on EU data protection reform package

The European Parliament and Council have now agreed an EU data protection reform package. This should be formally adopted early this year and will then come into force in 2018. A key feature of the package, which is likely to put data protection compliance in sharp focus for all organisations, is the proposed introduction of a sanction of up to 4% of global turnover for breaches of data protection legislation.

Bonuses: Does an employer’s discretion when awarding a bonus have to be Wednesbury reasonable?

The case law on the exercise of discretion in relation to bonuses is now well established. The basic principle is that so long as the employer is not acting in an irrational or perverse manner, the courts are reluctant to interfere with its exercise of discretion.

In Paturel v DB Services (UK) Ltd, a banker was paid a smaller bonus than two colleagues who were paid a guaranteed bonus based on a formula. He alleged this was both a breach of his express contractual terms and a breach of the implied term to act in good faith. The High Court gave summary judgment in favour of the bank holding that it was entitled to treat the two colleagues differently because it was seeking to incentivise them not to leave.

Of particular interest in this case, the claimant sought to rely upon the decision of the Supreme Court in the case of Braganza v BP Shipping. In that case, the public law concept of Wednesbury unreasonableness (which has, historically, been largely limited to local authority judicial review matters) was applied in the employment law context.

Although the High Court in Paturel avoided having to make a finding on Wednesbury unreasonableness because of the way in which the particulars of claim were drafted, it did cast doubt over the appropriateness of this concept in the employment law arena. Notwithstanding the encouraging signals from this decision, however, there was no binding finding so the concept of Wednesbury unreasonableness may still be an emerging theme in the context of discretionary bonus claims.

Discrimination - punitive damages are at the discretion of the courts

Punitive (or exemplary) damages are damages awarded to punish a respondent, not to compensate a claimant. Such damages are rarely awarded by UK Courts and Tribunals and are, generally, reserved for cases where the compensation awarded is deemed to be insufficient for the purposes of punishing an employer.

In the case of Camacho v Securitas Seguridad Espana SA, the ECJ has held that the requirement in the Equal Treatment Directive for sex discrimination compensation to be dissuasive does not mean that member state courts must award punitive damages.

The ECJ found that national courts must award effective and proportionate compensation, but that it is for member states to decide whether their national courts should have discretion to award punitive damages in order to achieve the aim of the Directive. The current UK approach therefore accords with EU law.

What does “ordinarily working in Great Britain” mean for the purposes of pension auto-enrolment

Pensions auto-enrolment now affects almost all UK employers. A “jobholder” for the purposes of the auto-enrolment regime must ordinarily work in Great Britain. In the case of The Queen on the application of Fleet Maritime Services (Bermuda) Limited v The Pensions Regulator, the High Court provided guidance on what is meant by ordinarily working in Great Britain in the context of pensions auto-enrolment.

The case involved seafarers. The Court found that seafarers who live in Great Britain but who spend most of their time in foreign waters will be deemed to be working in Great Britain if they habitually join and leave the ship in Great Britain. Conversely, the Court concluded that seafarers who live in Great Britain and spend most of their time in foreign waters will not be ordinarily working in Great Britain for the purposes of pensions auto-enrolment if they join and leave the ship from ports outside of Great Britain, even in circumstances where they are paid whilst travelling to and from those ports.

This decision is of significance because it provides authority on what is meant by ordinarily working in Great Britain for the purposes of pensions auto-enrolment. It endorses the “base” test for peripatetic workers as established under the key case of Lawson v Serco, however it does depart from Lawson in finding that not all peripatetic workers must have a base for the purposes of pensions auto-enrolment. This departure was accepted by the High Court on the basis that peripatetic workers benefit from tax exemptions, so there are policy reasons why Parliament did not intend them also to benefit from auto-enrolment.

PRA consultation on variable remuneration buy-outs

The PRA has issued a consultation paper on variable remuneration buy-outs. It is proposing to introduce new rules in relation to the practice in which firms recruiting employees buy-out deferred bonus awards that have been cancelled by the previous employer.

BLP will be preparing a response to this consultation.

Pension Ombudsman finds a broad duty of care in relation to the provision of information to employees

The Pensions Ombudsman, in the case of Cherry (PO-7096), found that a Police and Crime Commissioner owed a duty of care to Mr Cherry, a police officer, to provide him with the salient information about the tax implications for his pension benefits of his decision to take up re-employment with the same employer immediately following his retirement.

There are specific conditions around re-employment and the impact that it may have in relation to an individual’s protected pension age and, in relation to the Police Pension Scheme, these are set out in a Home Office circular.

Whilst the Pensions Ombudsman made it clear that the Police and Crime Commissioner had no legal duty to advise officers about their tax and pensions risks, it did find that as a responsible employer it had a duty of care to provide Mr Cherry with the information in the Home Office circular. Accordingly, the Pensions Ombudsman upheld the complaint against the Police and Crime Commissioner and directed that it paid Mr Cherry the amount owed to HMRC in relation to the loss of the protected pension age.

Although this is a Pensions Ombudsman decision and has no binding impact for the Employment Tribunal, it demonstrates a willingness to hold employers to a high standard in terms of their duty of care to employees, at least in relation to pensions. There is, of course, a tension between this and the risk of employers providing inaccurate information in what is a complex area. In this particular case, the existence of the Home Office guidance was a material factor. Accordingly, it may be prudent for employers to point employees in the direction of relevant guidance on pensions and/or tax issues where such guidance exists, to avoid similar arguments, either before the Pensions Ombudsman or on a wider basis.

Early Conciliation – guidance on extensions of time

The rules on early conciliation (EC), which require claimants to comply with at least a minimum process via Acas before issuing a claim, contain complex “stop the clock” provisions. These grant employees an extension to the usual time limits to take into account time spent on the EC process.

In Myers and another v Nottingham City Council, the Employment Tribunal considered whether the period spent conciliating prior to the dismissal date should be included when calculating this extension of time. The employer argued that it should not, in which case the claimants were out of time. However, the Tribunal held that the period before dismissal did count when calculating the extension. This follows other tribunal-level decisions, the Judge commenting that the purpose of EC is to promote early settlement and it would not therefore be appropriate to penalise employees who act promptly in raising grievances.

This is the latest of several cases to take a similar approach. However, there is still no EAT guidance on the issue, so employers could still consider running this argument in appropriate cases.

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