Employment Update - April 2015

27 minute read
01 April 2015


Wragge Lawrence Graham & Co's employment & equalities experts bring you the latest developments that may affect your business - what they are, and what you can do about them.

This month's update covers:

Small Business Enterprise and Employment Act 2015

The Small Business Enterprise and Employment Act 2015 (SBEE) received royal assent on 26 March. The employment law provisions are in Part 11 and include:

1. Zero hours contracts

Section 153 enables the Government to render exclusivity clauses in zero-hours contracts unenforceable. To assist the passage of the clause through Parliament, on 11 March, the government published its Response to the 'Banning Exclusivity Clauses: Tackling Avoidance' consultation which included draft outline regulations covering the exclusivity clause ban.

SBEE defines 'zero hours contracts' (for the purposes of a ban on exclusivity clauses) as a contract of employment or a worker's contract under which a worker undertakes to perform work when that work is offered by an employer, but there is no certainty of work being available. To avoid some employers attempting to circumvent the proposed ban by simply introducing one-hour contracts on minimal pay, the ban on exclusivity clauses will be extended to workers on 'prescribed contracts' as well as zero hours contracts.

A 'prescribed contract' is a contract that does not guarantee the worker a specified minimum income. The threshold (yet to be set) will be based on a combination of hours and income. This approach will mean that if an employer cannot guarantee a certain weekly income, they will not be able to prevent that person from seeking additional work and income if they so wish. However, the minimum hours component will not apply where the hourly rate for work under a prescribed contract is at least £20 on current thinking.

An exclusivity clause in a prescribed contract will be unenforceable in the same way as an exclusivity clause in a zero hours contract. Zero hours and prescribed contract workers will have the right not to be subjected to a detriment as a result of also working for other employers. Where a complaint to a tribunal is upheld, compensation may be awarded and the tribunal will also be able to impose a financial penalty payable to the Exchequer.

As to when the new provision will come into force, timing will be for the new Government to decide. As all the major political parties are agreed that something needs to be done to curb the abuse of zero hours contracts, the regulations implementing clause 147 will likely follow relatively soon after the Election - whether they will be strengthened further we await the outcome of the Election.

2. Equal pay reporting for the private sector

In a late addition to SBEE, required equal pay reporting will soon become a reality for all employers employing 250 or more people.

The concept of using equal pay reporting as a way of promoting more transparent and gender-balanced pay practices is not new. Section 78 of the Equality Act 2010 already provides the power to implement regulations requiring private sector employers with over 250 employees to disclose pay gap information.

To date, the Government has chosen not to bring in any mandatory provisions, preferring to rely on voluntary action. The Think, Act, Report Initiative, launched in 2011, encouraged voluntary publication of pay information to "improve transparency" and "to help drive change, including closing down the gender pay gap".

But the initiative has not really taken off: 200 employers have signed up to the scheme, but only four have gone as far as publishing their pay data.

In a surprise late amendment to SBEE, the Secretary of State is now required by law to bring into force such equal pay reporting regulations "as soon as possible, and no later than 12 months after the passing of this Act", making the deadline 26 March 2016. So soon, employers employing 250 or more people will be required to publish information about differences in the pay of male and female employees. A consultation is now expected on the details of such regulations.

Last October saw tribunals given the power to order equal pay audits to be carried out by employers who lose equal pay claims - see our Employment update - October 2014.

Will the new equal pay reporting requirements (when in force) coupled with the new tribunal power to order equal pay audits have any impact on the UK's current gender pay gap? Will they kick-start real change or would the Government simply be better off subsidising theatre attendance at Made in Dagenham?

What we do know is that large-scale equal pay claims are no longer largely the preserve of public sector employers. Currently, Asda is facing claims by over 400 female floor staff claiming equal pay with male distribution centre staff before the Manchester Employment Tribunal. No doubt equal pay will remain a battle ground for legal argument for some time.

3. Whistleblowing

SBEE includes two provisions in relation to whistleblowing.

(a) Protected disclosures: reporting requirements

Under section 148, the Secretary of State has power to require ‘prescribed persons', to whom whistleblowing disclosures can be made, to report annually on the disclosures they receive.

To assist the passage of the clause through Parliament, on 11 March, the government published its 'Prescribed bodies: annual reporting requirements on whistleblowing - government response' which includes draft outline regulations.

The Government has decided to adopt a more flexible approach to the content and format of the annual reports than originally planned in order to accommodate the various roles and remits of prescribed persons. The report should be made available online for maximum accessibility. Under the draft regulations, the report will not require the disclosure of any information which could identify the worker who made the disclosure or the employer to which the disclosure relates. So it will not be a naming and shaming exercise.

As to when the new provisions will come into force, timing will be for the new Government to decide, but a further consultation on more detailed draft regulations may be likely.

(b) Protection for applicants for employment in the health service

Another late addition to SBEE is a set of specific measures to enhance protection for National Health Service (NHS) workers. Section 149 gives the Secretary of State power to make regulations prohibiting an NHS employer from discriminating against an applicant because it appears to the NHS employer that the applicant has made a protected disclosure.

Again, on the question of when the new provisions will come into force, timing will be for the new Government to decide.

4. Employment tribunals

Employment tribunals will be given two new powers

(a) Financial penalty for failure to pay sums ordered by employment tribunal

Last year, the tribunals were given the power to impose a financial penalty on employers where it is found that they have breached a worker's rights and that breach has "one or more aggravating features". Penalties are payable to the Exchequer and largely viewed as a way to get employers who breach employment laws to contribute to the financial cost of running the tribunal service. However, in the eight months following their introduction, no such penalties have been ordered.

Under section 150 SBEE, employers who fail to pay employment tribunal awards or sums due under a settlement agreement following ACAS (The Advisory, Conciliation and Arbitration Service) conciliation, may have a non-payment penalty imposed upon them as well.

An enforcement officer will be able to impose a financial penalty of 50% of the unpaid award subject to a minimum of £100 and maximum of £5,000. If, within 14 days of the penalty notice, the employer pays both the unpaid relevant sum and the penalty, the amount of the penalty will be reduced by 50%. Again, penalties will be payable to the Exchequer.

As to when the new provisions will come into force, timing will be for the new Government to decide, but most likely October. It is anticipated that enforcement officers will be less reluctant to exercise their new power than the employment judges appear to have been.

(b) Employment tribunal procedure regulations: postponements

Section 151 enables regulations to be introduced to amend the Employment Tribunal Rules of Procedure to limit the number of postponements requested by a party.

The Government has already consulted on draft regulations which provide that parties will usually be limited to two postponement requests in any case. Any further request, or an application made less than seven days before the hearing or at the hearing itself, will be granted only in exceptional circumstances, and the tribunal will be obliged to consider making a costs order against the applicant.

There will be exemptions where a tribunal considers that postponement is desirable to facilitate settlement, or where the need for a postponement is due to an act or omission by the tribunal or another party to the claim.

5. National minimum wage (NMW) enforcement

Since 7 March 2014, the maximum financial penalty for employers who flout the NMW has been 100% of the total underpayment, subject to a maximum of £20,000. This maximum penalty applies per notice, irrespective of the number of underpaid workers.

Section 152 increases the maximum financial penalty for underpayment of the national minimum wage to £20,000 per worker. So whereas currently, where a notice relates to ten workers who are each owed £20,000, the maximum penalty that can be levied is £20,000. When brought into force, the maximum penalty would instead be £200,000.

As to when the new provision will come into force, timing will be for the new Government to decide. Given cross-party support for stronger enforcement of the minimum wage, implementing regulations are likely to follow relatively soon after the Election.

6. Public sector exit payments

SBEE contains a number of provisions aimed at enabling certain public bodies to recover redundancy and other exit payments from highly paid employees who return to work in the same part of the public sector within a short period of leaving. Some UK public sector bodies already have arrangements in place to recover exit payments from returning employees. Many others will welcome the ability to recoup costs in this way. Again further regulations will be required before these provisions will take effect.

Deregulation Act 2015

The Deregulation Act 2015 also received royal assent on 26 March. The employment law provisions include:

1. Repeal of the power to make recommendations for the wider workforce in discrimination cases

Section 2 amends section 124 of the Equality Act 2010 by removing the powers of employment tribunals to make recommendations for the benefit of the wider workforce in successful discrimination cases.

While removing the wider recommendations provision introduced by the Equality Act 2010, the more long-standing power to make recommendations for the benefit of the individual claimant will remain, therefore returning to the position before October 2010.

As to when or whether the new provision will come into force, that will be for the new Government to decide. At the House of Commons stage earlier this year, Conservative MPs argued that the power is unnecessary and puts employers in fear of inappropriate or excessive recommendations. It was suggested that this can stifle job growth. However, Labour and other MPs argued against the move. It was pointed out that such recommendations have rarely been made and were sometimes viewed as helpful by employers.

2. Apprenticeships

Schedule 1 of the Act introduces the concept of an "approved English apprenticeship", which will take place under an "approved English apprenticeship agreement". Approved English apprenticeships will replace "apprenticeship agreements" which were introduced under the Apprenticeships, Skills, Children and Learning Act 2009 in England but not in Wales.

The new system aims to "simplify" the legislative framework governing apprenticeships. A person will complete an approved English apprenticeship if they achieve the "approved apprenticeship standard", created by the Secretary of State for particular sectors of work. Employers, or representatives of employers, are able to make proposals to the Secretary of State as to the content of a standard. As is currently the case with apprenticeship agreements, approved English apprenticeships will be contracts of service.

The academic years 2015/16 and 2016/17 will be the key period of transition to full implementation of the reforms, while the government's aim is that from 2017/18, all new apprenticeship starts will be based on the new standards.

Earning commission while on holiday: answered and unanswered questions

Last year the Court of Justice of the European Union (CJEU) in Lock v British Gas Trading Ltd held that, under the Working Time Directive, where a worker is paid commission calculated on the basis of the sales that they make, that commission must also be included in the calculation of the holiday pay. The fact that the reduction in remuneration actually occurs after the period of annual leave is taken is irrelevant.

The effect of the CJEU decision was that commission that couldn't be earned due to a worker being on holiday must be taken into account in the subsequent pay period.

The case returned to the Employment Tribunal in February to consider whether the UK's legislation can (A) be interpreted in line with the CJEU decision and, if so, (B) how much holiday pay Mr Lock was entitled to. On 25 March 2015, the Tribunal delivered its partial decision.

We have the answer to question A but not to question B. As expected, the Employment Tribunal has found that there is no obstacle to interpreting the Working Time Regulations 1998 so as to include commission payments in the calculation of holiday pay in respect of the four weeks' annual leave under regulation 13.

The effect of the decision is that commission that couldn't be earned due to a worker being on holiday must be taken into account in the subsequent pay period. What we don't know as yet is what happens where the commission rate includes an element of unlawful 'rolled-up' holiday pay.

For more detail see our alert dated 27 March, Earning commission while on holiday: answered and unanswered questions.

ACAS Early Conciliation - confusion over the "stop the clock" mechanism

For a respondent to know whether a claim has been brought in time can be tricky and, following the introduction of ACAS Early Conciliation (EC), even trickier.

Since May, ACAS EC has been mandatory for the majority of prospective claimants in employment tribunal claims. Before a prospective claimant can lodge proceedings, they must submit a form to ACAS or telephone them. It is only mandatory for prospective claimants to contact ACAS - they do not actually have to take part in any pre-claim conciliation.

The conciliation period will usually last for up to one calendar month, although this can be extended for up to 14 days. If at any point ACAS concludes settlement is not possible, it must issue an EC certificate. The claimant can then present their claim to the tribunal.

Stop the clock

Once a prospective claimant has contacted Acas, the original time limit to present their claim will be extended to take account of the conciliation period. However, just how the so-called 'stop the clock' mechanism works has caused and continues to cause much debate. Depending on the interpretation of the rules used, very different limitation periods result.

'Original v revised time limit' debate

Section 207B of the Employment Rights Act 1996 sets out the 'stop the clock' mechanism. Under s207B(3), the period beginning with the day when the claimant contacts ACAS (Day A) and ending on the day when they receive the EC certificate (Day B) will 'stop the clock'. In working out this 'pause' period, you count the period beginning with the day after Day A and ending with Day B. However, s207B(4) provides that "where the normal time limit for bringing the claim would expire in the period beginning with Day A and ending one month after Day B, the time limit expires instead at the end of that period."

It is unclear whether both subsections 207B(3) and 207B(4) need to be applied in some circumstances, or whether they are intended to operate as alternatives. In other words, what is the 'normal time limit' referred to in subsection 207B(4). Is it the original limitation date ignoring any conciliation period, or the revised limitation date under subsection 207B(3) which takes account of the conciliation period?

The Leeds Employment Tribunal Booth v Pasta King UK Ltd [2014] has held that the "original time limit" by which to present a claim should always be extended by the 'stop the clock' provision in s207B(3), e.g. the number of days it takes to complete the early conciliation procedure. This means the reference to 'normal time limit' is to the 'revised time limit'. This differs from many commentators reading of the provisions and indeed the HM Courts and Tribunals Service's (HMCTS) leaflet 'Making a claim to an Employment tribunal (T420)'. The Tribunal disagreed with the HMCTS guidance and pointed out that as it was merely 'guidance' it was not bound by HMCTS'S interpretation.

What does this all mean?

Employers should be aware of the scope for argument about the timeliness of claims lodged. As the ET decision in Booth is not a binding authority on other tribunals, the position remains unclear. Nevertheless, the position as set out in Booth appears to be gaining credence.

What difference does this make? Well, depending on how close to the 'original time limit' a prospective claimant contacts Acas and how long conciliation actually lasts, it can make a difference of several weeks. In the Booth case, the Tribunal's interpretation gave a limitation date of 1 August, whereas the HMCTS guidance interpretation gives an earlier limitation date of 21 July.

Service provision changes: can a number of parties collectively be "the client" for TUPE purposes?

In a decision of particular relevance for those in the real estate sector, we learn this month that a 'client', for the purposes of a service provision change under TUPE, may include the plural. The result is that a service provision change may occur where there is a common intention between two or more different entities to contract with the same service provider.

For more detail see our alert dated 25 March "Service provision changes under TUPE: can a number of parties collectively be "the client" for TUPE purposes?"

Pensions: IBM benefit change judgment - what does it all mean?

The High Court has delivered a long-anticipated remedies judgment on the practical effect of IBM breaching its duty of good faith towards its employees by purporting to make various changes to its pension scheme in a project known as "Project Waltz".

The case concerned IBM's 'imperial duties', i.e. its obligation to act in good faith to members of its pension schemes. The liability judgment handed down back in August 2014, did not mean that employers cannot make changes to their defined benefit pension schemes or cannot close them. In the IBM case, the problem was not the nature of the change, but rather what IBM had said in the past and the reasonable expectations this created.

In the light of the expectations which IBM had created, the issue was whether Project Waltz was an appropriate response to the problems IBM was facing. The judge concluded it was not and found that, in seeking to implement Project Waltz, IBM had acted in a way that was irrational and perverse, in a way no reasonable employer would have done. As a result IBM was held to be in breach of its duty of good faith to members of the scheme.

We now have the remedies judgment. There could be huge ramifications for employers in discovering that the closure of a company's defined benefit pension scheme was unenforceable and that employees can elect to be treated as remaining in pensionable service ever since.

For more detail see our alert dated 9 March 'IBM Remedies Judgment - What does it all mean?'

The 'rise' of tribunal and court fees

Tribunal fees

Following the introduction of tribunal fees at the end of July 2013, we have seen a very significant decrease in the number of tribunal claims. The number of single claims received by employment tribunals in the period April to June 2014 was 70% less than in the same period of 2013.

Unison has now failed in its challenge to the introduction of tribunal fees twice. The story is not over yet. An appeal to the Court of Appeal is currently pending, expected to be heard in the second half of the year. We also await the outcome of Vince Cable's review of the impact of employment tribunal fees which he announced on 15 February.

While claims have fallen, a new feature of every case is now who ultimately pays the fees. The general expectation is that a successful party will recover fees paid. This is not always straightforward. What happens where a party is only partially successful? Where an appeal to the Employment Appeal Tribunal (EAT) is involved, is remission back to the tribunal for clarification a successful appeal? In such cases, only partial recovery of fees is likely with the proportion varying on a case by case basis.

In Goldwater & ors v Sellafield, the EAT has held that issue and hearing fees incurred on behalf of the successful appellants by a union were not recoverable. For a fee to be recoverable by a successful party, the rules of procedure require the fee to have been "paid by the appellant".

Court fees

On 9 March, High Court and County Court fees were significantly increased for many cases. For cases where the value of a claim is £10,000 or more, the issue fee will be 5% of the claim value, up to a maximum of £10,000 for claims of £200,000 and over, or where the amount being claimed is not specified. Court fees for claims below £10,000 remain unchanged, at between £35 and £455. There will also be a discount of 10% for claims issued electronically. The changes apply equally where counterclaims are brought.

For more detail see our alert dated 9 March "Enhanced Court Fees - despite extensive opposition they apply from today".

Podcast on industrial action

Wragge Lawrence Graham & Co's experts in our recent podcast, 'Industrial action: What employers need to know' discuss Trade Unions, trade disputes and strikes with a focus on what steps employers can take to respond to these issues.

Webinar age discrimination

Last year the Government published its 'Fuller Working Lives' document, outlining the benefits of older workers and how people can be helped to have fuller working lives. Now the question being asked is whether younger people in the workforce are being neglected?

In our 'ALL ABOUT AGE: Younger workers and age discrimination' webinar our HR Law experts look at a number of issues facing employers including:

  • bias against younger workers during recruitment and promotion processes;
  • dealing with flexible working requests from younger workers;
  • age-related workplace saving strategies;
  • how to incentivise younger workers with reward structures; and
  • age-related redundancy policies.

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