Employment Essentials: June's top 5

16 minute read
30 June 2016

Gowling WLG's employment, labour & equalities experts bring you the latest top five employment law developments that may affect your business - what they are, and what you can do about them.

At number 1: The decision to leave the EU - what next?

The UK has voted to leave the European Union by 52% to 48%, with a turnout of 72%. What now? In the very short term there is going to be no change at all - we have not left, there is no brave new world. But one is or may be on its way. We are now in a period of extended uncertainty. What will be the process and timetable for withdrawal from the EU?

In Brexit stage right - what is the legal position now the UK has voted to leave the European Union?, our public law experts examine the process for withdrawing from the EU, the options for the UK as it negotiates a new relationship with the EU, and the pace and degree of change to the UK's legal landscape as it prepares for full Brexit.

What will be the potential employment law implications? The issue here is going to be about the appetite for reform of the post-Brexit government. What areas will a future government prioritise and which laws will be targeted for repeal or amendment? Assuming a deregulatory agenda, how far will the post-Brexit government go and how fast?

Some areas, such as national minimum wage and unfair dismissal, are already purely within the UK national law domain, but others enact EU laws or are heavily influenced by EU law as they currently stand. In Brexit Untangled: the employment law implications, we consider the potential impact of the exit vote on six key areas affected to varying degrees by EU law: the employment law "Brexit sextet" of working time, agency workers, TUPE, discrimination, family-friendly measures and collective redundancy consultation.

While how the decision to leave the EU will play out in practice remains to be seen, employees are likely to have questions now over job security, changes to employment rights and the position of migrant workers. In these uncertain times, what practical steps can employers take now to react to the uncertainty?

  • Reassure staff that any significant changes to employment rights and rights to work in the UK for migrant workers are unlikely to happen in the short term and that the organisation will be monitoring developments closely.
  • Recognise that workers within the organisations will have voted for both sides with strongly held views which may be aired in the workplace. Take steps to bring people together by emphasising the importance of respect at work. Focus on the priorities of team work and innovation in dealing with the evolving economic context.
  • Promote diversity and inclusion policies. In light of reports of increased abuse of foreign workers reported since the vote, employers should treat any incidents in the workplace seriously in accordance with its grievance and disciplinary procedures.
  • Deal openly with employee concerns about pay, pensions and employment prospects. If you are putting off summer pay reviews let people know why as soon as possible and the new timescale for decisions.
  • Communicate with employees, keeping an open dialogue as implications for the workforce become clearer over time. At the same time, remember it is OK to simply say you don't know what the consequences of exit may be at a particular point in time as it will depend on a variety of factors, in particular, what kind of exit deal is eventually negotiated.

At number 2: TUPE not necessarily triggered by loss of significant client

Service provision changes (SPC) were intended to make life simpler for those dealing with TUPE transfers. To establish a SPC transfer there must be an "organised grouping of employees" which has as its principal purpose the carrying out of the relevant activities on behalf of the client. A question mark often arises where the outgoing contractor received the majority of its work from one major client.

Back in 2012 in Eddie Stobart Ltd v Moreman and others, the Employment Appeal Tribunal (EAT) held that, to constitute an "organised grouping", it is not enough that employees carry out the majority of their work for a particular client. Rather, employees must be organised by reference to the requirements of the client and be identifiable as members of that client's team.

This month, the EAT in Amaryllis v McLeod and others reminds us that chance or happenstance is irrelevant when considering whether the group of employees is dedicated to a particular client. In this case, the group of workmen in a furniture renovation department worked across contracts rather than in any kind of identifiable teams. The fact that nearly 70% of the renovation work had been for one major client did not mean that there was a grouping of workmen dedicated to that major client's work.

The difficulties that arose in this case could have been avoided by the conscious decision to arrange the workforce into specific teams servicing the particular contract at some point prior to the transfer. If the outgoing contractor had organised its furniture renovation department so that 70% of the employees worked on the majority client contract and the other 30% on other contracts, the outcome might have been different. Without identifiable teams, however, the courts had to look at the principal purpose of the furniture renovation department as a whole. The EAT could not accept that the majority client's contract was the department's principal purpose.

The winning or losing of a new contract does not automatically mean that TUPE will apply. It depends in part on the set-up within the existing contractor's business. The 'organised grouping' test favours some set-ups over others - so, for example, the more deliberately organised are the employees, the more likely there is to be an organised grouping. The more client-account orientated, the more likely there is to be an organised grouping.

It has been 10 years since the concept of SPC was introduced by TUPE 2006, heralding a new era in TUPE developments and case law. 10 years on and the path is not always easy to see.
In our podcast, Introduction to TUPE & Outsourcing, we discuss the risks in the constantly developing area of SPCs and answer the questions:

  • It's 10 years since the SPC concept was introduced. Where are we now and what might the future hold for SPCs?
  • What are the other challenges to SPCs and the key trends in this area?
  • What advice do you give on the key question of assignment?

At number 3: When maternity pay and payment in lieu of notice overlap

It is well known that where an employer offers enhanced contractual maternity pay, the contractual maternity pay goes toward discharging any liability on the employer to pay statutory maternity pay (SMP) for any week in which SMP is also due and vice versa ("the offset rule"). But can other contractual payments paid during the 39 week statutory maternity pay period also be offset? In particular, what about a contractual payment in lieu of notice (PILON) on termination of employment? In certain circumstances - yes.

In Ladiverova v (1) HMRC (2) Chokdee, First Tier Tax Tribunal has confirmed that a PILON payment made pursuant to a term in the contract of employment constitutes contractual remuneration. As such, it should be set off against the employer's liability to pay SMP. However, the position in respect of a non-contractual PILON payment is less clear and will have to be determined in a future case

SMP and termination of employment basics:

Provided the employee fulfils the conditions for payment of SMP (have 26 weeks' continuous service with the employer in the 15th week before the EWC etc…), she will be entitled to receive SMP regardless of her resignation or departure for any reason, including misconduct or redundancy. The right to receive SMP (up to 39 weeks) survives termination of the contract.

The amount payable to an employee by way of notice during maternity leave will depend upon the employer's contractual notice obligation. The Employment Rights Act 1996 provides for the full salary (not just SMP) to be paid to an employee who is given, or gives notice, during her maternity leave but only if the notice does not exceed the statutory minimum by one week or more (statutory notice entitlement for these purposes is one week per year of service up to a maximum of 12 weeks' notice).

By contrast, if the contractual notice entitlement is longer than the statutory entitlement by more than one week, the statutory right to full pay during the notice period does not apply. In these circumstances, the employee's entitlement during the notice period is to normal statutory or contractual maternity pay that would otherwise have applied.

Under the offset rule, where a maternity leaver is entitled to receive notice pay, any payments in respect of notice pay and SMP go towards meeting the employer's liability in respect of the other.

What happened in the case of Ms Ladiverova?

Ms Ladiverova had recently begun maternity leave when her employment transferred to a new employer. Shortly after the transfer, she and her fellow transferred colleagues were made redundant. Her contract of employment included a PILON clause which provided that:

"The Company reserves the right to pay basic salary in lieu of notice. This can be in the form of a lump sum, or in instalments, on those days when the salary would normally have been paid had the employment continued through the notice period."

The transferee employer accepted that her employment had transferred and paid a PILON of £3,068.80. HM Revenue and Customs (HMRC) carried out a determination of Ms Ladiverova's entitlement to SMP. In assessing the amount outstanding, it took into account the amount already received by way of the PILON. Ms Ladiverova argued that none of her contractual PILON should be used to offset her entitlement to SMP.

The First-tier Tribunal Tax Chamber confirmed HMRC was correct to take into account the PILON. For tax purposes the PILON forms part of an employee's income because it was paid under the terms of the employment contract rather than as compensation for breach of the terms of her contract. As "contractual remuneration", it has to be set off against the SMP.

When can a PILON be used to offset an entitlement to statutory maternity pay?

An employee on maternity leave will not be entitled to payments of SMP in addition to a contractual PILON already received in respect of the weeks to which the PILON related. It should be noted that the employer was not entitled to offset the total contractual PILON paid against the total SMP due as offset only applies on a week-by-week basis - in this case £2,807.64 of the £3,068.80 PILON paid could be off set.

The decision is limited to the treatment of a contractual PILON payment. Whether or not a non-contractual PILON is subject to a similar offset will have to be decided in a future case. It is certainly arguable that a non-contractual PILON amounts to 'damages' in respect of a breach of the terms of the contract and is not 'contractual remuneration' which could be offset.

At number 4: Immigration status not the same as nationality

Under the Equality Act 2010, the definition of race includes colour, nationality and ethnic or national origin. But what is the scope of this non-exhaustive list?

What about vulnerable migrant workers? In 2014, the Court of Appeal held that unfavourable treatment on the ground of vulnerability for reasons including immigration status does not constitute race discrimination. While a worker's immigration status may contribute to their vulnerability, it was not the reason itself for the treatment.

On 22 June, the Supreme Court in the combined cases of Taiwo v Olaigbe and Onu v Akwiwu, agreed with the Court of Appeal. While immigration status is a function of nationality, it is not so closely associated with nationality as to be in-dissociable from it.

In these cases, the mistreatment of the migrant domestic workers was, in part, on the ground of their vulnerability due to their particular precarious immigration status. The individuals were particularly vulnerable because of the terms of their domestic workers' visas which meant they were dependent on their employers for their continued right to live and work in the UK. However, there are a wide variety of immigration statuses, with some non-British nationals subject to fewer restrictions on their rights to live and work in the UK than others. Accordingly, treatment based on precarious immigration status did not amount to discrimination on the ground of nationality.

At number 5: Apprenticeship levy looms

The Government's new Apprenticeship Levy (the Levy) will see large employers paying 0.5% of their annual wage bill towards the cost of apprenticeship training from April 2017.

All employers with an annual wage bill of £3 million or more will need to pay the Levy. The funds collected will be available to employers via a new Digital Apprenticeship Service (DAS), an online system which the Government envisages will be up and running from April 2017, to fund apprenticeships with approved training providers.

In The cost of training: apprenticeship levy looms we look at how employers can make the most of the new funding for apprentice training and what they should be doing now to prepare.


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