This month Gowling WLG's employment, labour & equalities experts discuss their pick of November's top five employment law developments that may affect your business:

  1. Unfair dismissal & employees entitled to PHI payments
  2. Disability discrimination & excluded conditions
  3. Holiday leave: use it or lose it?
  4. Non-disclosure agreements remain in the spotlight
  5. April 2019 increases to statutory pay rates announced

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1. Unfair dismissal & employees entitled to PHI payments

Where an employer operates a scheme providing long-term sickness or incapacity benefits, such as a permanent health insurance (PHI) scheme, the courts may imply a term preventing an employee being dismissed where this would deprive them of the benefits to which they would otherwise be entitled under the scheme. This is often referred to as an 'Aspden term' (High Court in Aspden v Webbs Poultry and Meat Group (Holdings) Ltd [1996]).

While an employee may use the implied Aspden term in a breach of contract wrongful dismissal claim, tribunals must not allow a breach of this term to automatically dictate its conclusions on unfair dismissal. Having said that, breach of the implied Aspden term will still be a relevant factor. The extent that it is relevant for statutory unfair dismissal will, as ever, involve a full consideration of whether the employer acted reasonably in all the circumstances in treating the reason for dismissal as a sufficient reason for dismissal.

This can be illustrated by two separate claims arising from similar facts against the same employer; ICTS UK Ltd v Visram [2016] EAT and Awan v ICTS UK Ltd [2018] EAT. In both cases, employees were dismissed for capability after the insurer stopped making payments under a long-term disability benefits plan. In both cases, the employees' employment was transferred from American Airlines to ICTS. ICTS used a new insurer to provide the long-term disability cover to the employees transferred to it from American Airlines. However, the new insurer refused to accept liability for employees such as Mr Visram and Mr Awan who were already on sick leave when the policy commenced. The original insurer also refused to provide benefits because its contract was with American Airlines and at the time these two men became eligible to claim under the policy, they were no longer employed by that company. American Airlines raised a complaint and the original insurer subsequently agreed to provide cover in these cases until September 2014 as a goodwill gesture.

In the case of Mr Visram, the tribunal found that he was contractually entitled to the benefit payments for as long as he satisfied the condition of being absent from work owing to sickness or injury, and that this was unaffected by any changes to the cover in place. The tribunal concluded that the employer was in breach of the Aspden term and that his dismissal was unfair. On appeal to the Employment Appeal Tribunal (EAT), ICTS Ltd argued that the tribunal had erred by allowing its finding that there was a breach of the Aspden term to dictate its findings on unfair dismissal. The EAT accepted that the fact that the contract had been breached did not mean that the dismissal was unfair. Nevertheless, the  breach of contract was a relevant factor enabling the tribunal to find the dismissal was unfair; as in the tribunal's view, the employer had taken insufficient steps to determine whether Mr Visram was contractually entitled to disability benefits.

By contrast, a separate tribunal held that there was no scope for implying an Aspden term because it would have contradicted an express contractual power of dismissal (a point that was not addressed in Visram). The tribunal also found that Mr Awan's dismissal was fair. However, this month the EAT has allowed an appeal in Mr Awan's case. The tribunal had wrongly rejected Mr Awan's claim that there was an implied contractual term that prevented his employer from dismissing him in these circumstances. The implied Aspden term operated to limit (rather than contradict) the express contractual right to terminate on notice by preventing the exercise of that right in circumstances where it would frustrate the entitlement to long-term disability benefits expressly provided for by the contract. The tribunal's erroneous conclusion that there was no such implied term meant that its finding that Mr Awan's dismissal was fair and a proportionate means of achieving a legitimate aim could not stand. The question of whether the dismissal was fair and whether it was justified would therefore be remitted to be reconsidered by the tribunal.

It will be interesting to see the final outcome of Mr Awan's unfair dismissal claim after returning to the tribunal. Keeping an employee 'on the books' in order to receive PHI benefits is often regarded as a cost-neutral solution. But as the original tribunal in Awan recognised, there may be operational difficulties and costs associated with this course of action. For example, while Mr Awan remained an employee, ICTS had a duty to monitor his sickness absence, maintain contact with him, seek medical advice and take whatever steps it could to facilitate his return to work. It also had to pay national insurance and pension contributions and paid holiday entitlement continued to accrue. These factors will all be relevant to the fairness of the dismissal when it returns to the tribunal to consider the claim in light of the Aspden term applying to his case.

These cases highlight just some of the issues that can arise in relation to contractual PHI benefits and the need to take specialist advice when issues arise with individual employees as well as on a transfer of undertakings. As a starting point, employers drafting PHI clauses should ensure that:

  • Contractual commitment by the employer is limited to what the insurer agrees to pay under the policy, so that the employer is not exposed if the insurer pays out less or nothing at all under the policy; and
  • Any significant limitations under the PHI policy are specifically drawn to the employee's attention.

2. Disability discrimination & excluded conditions

Under the Equality Act 2010 (Disability) Regulations 2010 specified conditions are expressly stated not to amount to an impairment under the Equality Act 2010 including: addiction to alcohol, nicotine or any other substance, a tendency to set fires, to steal, to physical or sexual abuse of other persons, exhibitionism, or voyeurism.

Although the listed excluded conditions are excluded from protection under the Equality Act 2010, impairments caused by any of those conditions might amount to protected disabilities. For example, alcoholism is excluded, but liver disease as a result of alcohol dependency will count as an impairment.

But is an excluded condition excluded only if it is freestanding, or does the exclusion extend to a condition that is caused by a physical or mental impairment? Pre-Equality Act 2010 case law held that the protection of the legislation is not intended to extend to the excluded conditions, whether or not they are manifestations of an underlying protected impairment.

Did the introduction of "discrimination arising from disability" under section 15 change this?

We now have confirmation from the EAT that the position remains unchanged. In Wood v Durham County Council, the EAT has upheld a tribunal's decision that the dismissal of an employee for shoplifting, which he claimed to be a manifestation of his post-traumatic stress disorder (PTSD) and associative amnesia, was not disability discrimination. The tribunal had been entitled to find that the incident showed a 'tendency to steal', which is an excluded condition under the Equality Act 2010 Disability Regulations.

This case concerned an Anti-Social Behaviour Officer, whose role was subject to a code of conduct, which applies inside and outside work, and requires vetting to Non Police Personnel Vetting (NPPV) Level 2.

Mr Wood suffers from severe depression, PTSD and associative amnesia. When caught shoplifting several small items he removed his Council ID lanyard and lied about his occupation when the police were called. He admitted taking the items and was issued with a Penalty Notice for Disorder (PND) and paid the £90 fine. Before doing so, he consulted two separate solicitors and was advised that paying the penalty did not of itself amount to an admission of guilt.

Later when the Council applied to renew Mr Wood's NPPV, it was informed about the PND for shoplifting. When asked (several times) by his line manager if there was anything it should beware of in relation to his NPPV renewal, Mr Wood said no. When the line manager revealed that his NPPV renewal was rejected due to the PND, Mr Wood accepted that he could remember the incident but insisted that it was not his fault due to his PTSD. Following a prolonged disciplinary process, Mr Wood was dismissed. The Council relied on criminal conduct outside the workplace, withdrawal of NPPV clearance and the risk of reputational damage as reasons for dismissal. Mr Wood brought claims of disability discrimination.

The EAT has upheld the tribunal's' rejection of Mr Wood's disability discrimination claims. It noted that the nub of the dispute was whether the shoplifting incident demonstrated that Mr Wood had a tendency to steal or merely a tendency to memory loss and forgetfulness. The question of dishonesty is a question of fact for the tribunal to determine. From the evidence, it was clear to see why the tribunal considered that Mr Wood had been dishonest, particularly in light of the admission that he made to the police, his hiding of his occupation from the police, his behaviour in the following few days and his self-serving selective memory in the interview with his line manager.

We now have welcome appellate level authority that the positon regarding excluded conditions in an employment context remains unchanged by the introduction of section 15 "discrimination arising from disability" in the Equality Act 2010 and is in accordance with Government Equality Act 2010 Guidance which states:

"The exclusions apply where the tendency to set fires, tendency to steal, tendency to physical or sexual abuse of other persons, exhibitionism, or voyeurism constitute an impairment in themselves. The exclusions also apply where these tendencies arise as a consequence of, or a manifestation of, an impairment that constitutes a disability for the purposes of the Act."

3. Holiday leave: use it or lose it?

In Kreuziger v Land Berlin and Max-Planck-Gesellschaft zur Forderung der Wissenschaften eV v Shimizu the Court of Justice of the European Union (CJEU) considered two German referencesrelating to the right to a payment in lieu of accrued but untaken annual leave under the Working Time Directive (WTD). The CJEU has held that a worker who does not apply for paid annual leave during employment does not automatically lose the right to an allowance in lieu of untaken leave on termination. The worker must have been given an opportunity to take that leave. While employers are not required to force workers to actually exercise their right to take paid annual leave, it is for the employer to show that it encouraged the worker to do so, while informing them, accurately and in good time, of the risk of losing that leave at the end of the applicable reference period.

In other words, workers do not automatically lose accrued but untaken annual leave entitlement on termination, or at the end of the relevant reference period, on the basis that the worker failed to seek to exercise their right to annual leave unless the employer could show that it had enabled the worker to exercise their entitlement, particularly through the provision of sufficient information.

What does this mean for UK employers?

Under the Working Time Regulations 1998 (WTR), every worker is entitled to 5.6 weeks' annual leave. Regulation 13 leave (four weeks), gives effect to the WTD requirement. Regulation 13A leave (an additional 1.6 weeks), is a matter of domestic law. Regulation 13 leave cannot be carried over (following case law, exceptions apply regarding the carry over rule in relation to those on sickness absence, family related leave and those incorrectly classed by their employer as self-employed). It is possible for an employer to agree to the carry-over of the regulation 13A leave, but the worker cannot insist on carry-over.

The primary lesson of these judgments is that employers should ensure workers are encouraged to take their annual leave and that they are aware that failing to take the leave in the relevant period may result in the loss of the leave.

Employers in the UK should ensure they have a clear holiday policy explaining the potential loss of untaken entitlement at the end of the holiday year. In addition, employers are well advised to issue reminders a reasonable time prior to the end of the leave year to those who have not taken/booked four weeks' leave, encouraging them to take it and warning if they do not they will lose it (unless one of the exceptions applies). Employers also need to ensure workers who are not employees are also given this information.

It should be remembered that CJEU judgments on holiday leave only relate to the first 4 weeks of annual leave (regulation 13 leave).

4. Non-disclosure agreements remain in the spotlight

On 13 November 2018, the Women and Equalities Committee launched a new inquiry into non-disclosure agreements (NDAs) in harassment and discrimination cases. The launch follows the committee's inquiry in July into sexual harassment in the workplace which made recommendations to the government to address the unethical use of NDAs. The July inquiry concluded that employers and regulators have to date failed to tackle sexual harassment adequately and called for it to be put at the top of the agenda.

The new inquiry will have a wider remit, focusing on the use of NDAs in circumstances where any form of harassment or discrimination has been alleged. The scope will cover, for example, pregnancy discrimination and racist treatment.

The committee has sought written submissions on whether there are certain types of harassment or discrimination for which NDAs are more likely to be used; whether the use of NDAs should be banned or restricted in these cases and what safeguards may be necessary to prevent their unethical use. Respondents were also asked to consider questions about the role of internal grievance procedures, fairness and transparency obligations on employers and the role of boards and directors.

While we await the outcome of the latest inquiry, it is highly likely to include a recommendation that any NDA is void if it purports to restrict the making of protected disclosures under the whistleblowing regime or the reporting of a criminal offence to a law enforcement agency/regulator or co-operating with a criminal investigation or prosecution.

The deadline for written submissions was 28 November 2018.

5. April 2019 increases to statutory pay rates announced

On 23 November 2018 the Government published the proposed new statutory pay rates for 2019 to 2020.

From April 2019, the statutory pay rates for maternity (SMP), paternity (SPP), adoption (SAP) and shared parental (SShPP) leave and maternity allowance (MA) will increase from £145.18 to £148.68 per week.

The statutory sick pay (SSP) rate will increase from £92.05 to £94.25 per week.

The weekly lower earnings limit, that applies to National Insurance contributions, below which employees are not entitled to SMP, SPP, SAP, SShPP and SSP (but remain entitled to MA), is set to rise from £116 to £118.

For guidance on tricky SMP issues if dismissing an employee on maternity leave see 'Dismissing an employee & maternity leave: what employers need to know about statutory maternity pay'.