Employment essentials: March 2016's top 5

17 minute read
29 March 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.

  1. The Budget key points for employers
  2. Childcare Vouchers
  3. Service provision changes under TUPE
  4. Disability discrimination - who "knows" what
  5. "Pulling a sickie"

At number 1: The Budget key points for employers

Shared parental leave

The government will launch a consultation in May on how to implement its commitment to extend Shared Parental Leave and Pay to working grandparents. For more detail of the proposed extension see All About Age: "Grand plans" - Older Workers and Flexibility.

Significantly the consultation will also cover options for streamlining the complex Shared Parental Leave system more generally, including simplifying the eligibility requirements and notification system, and will explore the potential to make better use of digital technology.

Employment taxes

  • Exit (termination) payments of over £30,000 will be subject to employer National Insurance Contributions (NICs) from 2018. The government confirmed that the £30,000 exemption will remain and that the whole termination payment will be outside the scope of employee NICs.
  • A new public sector duty to ensure that employees pay the correct level of tax will be introduced.
  • Salary sacrifice schemes are under scrutiny. The government is considering restricting the range of benefits that may be offered through salary sacrifice schemes. However, it has confirmed that salary sacrifice for enhanced employer pension contributions, childcare benefits and health-related benefits, such as the cycle to work scheme, would be unaffected
  • A new individual lifetime limit of £100,000 on gains eligible for Capital Gains Tax (CGT) exemption through Employee Shareholder Status is being introduced. This limit will apply to arrangements entered into on or after 17 March 2016, and will not apply to arrangements already in place before that date.
  • An Apprenticeship Levy will be imposed on all employers with an annual wage bill of £3 million or more from April 2017. It will be set at a rate of 0.5% of an employer's paybill and will be paid through PAYE. Each employer will receive an allowance of £15,000 to offset against their levy payment.
  • Loss of NICs allowance for employers of illegal workers: From April 2017, employers will be denied the NICs employment allowance for a period of one year if they are subject to a civil penalty for employing illegal workers.

At number 2: Childcare vouchers are no child's play

Are childcare vouchers "remuneration" or "non-cash benefit"? Employment Appeal Tribunal (EAT) declares HMRC guidance classifying salary sacrifice scheme as "non-cash benefit" simply wrong.

Many employers operate childcare voucher schemes as a benefit to their employees, usually by way of a salary sacrifice arrangement. Whether the childcare vouchers are classed as "remuneration" or a "non-cash benefit" has important implications for employees on maternity leave.

The lack of any judicial guidance on the "remuneration" v "non-cash benefit" debate has made this a 'grey' area for years. Last year an employment tribunal in Peninsula Business Services Ltd v Donaldson followed HMRC guidance and found childcare vouchers paid via a salary sacrifice scheme were a "non-cash benefit". As such, a provision requiring a pregnant woman to opt out of the scheme when on maternity leave amounted to unlawful maternity and sex discrimination.

The EAT has now overturned the tribunal's decision stating that the HMRC guidance is erroneous and it could not have been Parliament's intention to require employers to continue providing vouchers at a time when there was no salary that could be sacrificed in respect of them.

In Childcare vouchers are no child's play, we look at the remuneration" v "non-cash benefit" debate.

At number 3: Service provision changes under TUPE - "activities" may be split along functional lines

Can there be a transfer by way of a "service provision change" (SPC) when only part of a service transfers because it has been split into different functions? Yes, says the EAT in Arch Initiatives v Greater Manchester West Mental Health NHS Foundation Trust & ors.

The SPC regime does not require all the activities carried out by the transferor before the relevant date for the client to cease and be carried out by a single transferee after the change. Although it was already clear from previous case law that the SPC regime may apply where there is a quantitative split of activities, the EAT have now confirmed that it may also apply where activities are divided along functional lines.

In this case, Bolton Council contracted out drug and alcohol services. Until the end of 2012 the services were provided by the Greater Manchester West Mental Health NHS Foundation Trust through its Alcohol and Drugs Directorate. The Council decided to retender the service with effect from 1 January 2013. The services previously provided by the Trust were split into two functions, which broadly took the form of case management services and delivery of interventions. As a result, the Trust ceased to provide any of the services. Arch Initiatives was awarded the case management function and Lifeline Project Ltd was awarded the delivery of interventions function.

Arch refused to take any employees on after the transfer and the employees who had been performing the case management service claimed unfair dismissal. The tribunal found that all, save for one, of the claimants were involved in case management and they were an organised grouping that transferred to Arch.

On appeal, Arch argued that there could not be a SPC where the activities undertaken by the Trust were split into two separate functions (management and delivery).

Rejecting the appeal, the EAT held that there is no requirement for the whole of the service to transfer in order for the SPC provisions of TUPE to apply. It is possible for there to be a SPC where only part of the service being carried out by the transferor is subsequently performed by the transferee.

The EAT rejected the argument that the SPC regime could not apply in a case involving a division of activities along functional lines. The ways in which the activities of a service may be organised are infinitely variable. They may be organised geographically, in teams, in departments or by reference to particular functions or processes. Whether or not the SPC provisions in fact apply in any of these circumstances will depend on the application of the particular conditions within the SPC regime to the facts of the particular case.

A split or change in activities is plainly a relevant consideration in assessing whether the activities cease in relation to the outgoing contractor and whether fundamentally the same activities are carried on by the incoming contractor for the same client, but at the end of the day in each case the question is one of fact and degree.

A point to note is that this case concerned simply the division of existing activities between two new providers on a functional split. It was not one involving a service provision redesign to the extent that the tendered activities post-transfer were different than the pre-transfer activities. It remains the case that in some cases a redesign may amount to a change in activities and therefore have the effect that there is no SPC.

At number 4: Disability discrimination - who "knows" what

For an employer to be answerable for alleged disability discrimination, they must have known, or be in a position where they should have known, that the employee is disabled.

In the long-running case of Gallop v Newport City Council, the EAT has rejected the proposition that knowledge of disability in one part of an organisation or on the part of one individual in an organisation means that knowledge can be imputed to the organisation generally or to any or all of its employees for all purposes and in particular in the context of deciding whether there has been direct discriminatory conduct.

In this case, Mr Gallop had been off work on three separate occasions for stress-related illness and depression. After several unsuccessful attempts to return to work permanently, the Council obtained the view of an occupational health advisor whose opinion was that Mr Gallop was likely to remain unfit for the foreseeable future, he was not a candidate for ill-health retirement and that he was not disabled within the statutory definition. On his return to work after the final period of sickness absence, Mr Gallop was suspended following several allegations of bullying over a long period of time and was dismissed several months later.

Back in 2013, the Court of Appeal in this case held that the employer could not defend a claim on the basis of lack of knowledge simply because it had received reports from its occupational health adviser that despite the employee having a stress-related illness, he was not disabled. It is for the reasonable employer to make its own judgment on whether the employee is disabled, it cannot "simply rubber stamp the adviser's opinion". The case went back to the tribunal to consider whether the employer knew sufficient facts about the employee's condition to be fixed with knowing that he had a disability.

Should the knowledge regarding Mr Gallop's condition known by occupational health be imputed to the dismissing officer?

The tribunal and EAT both say - no.

In relation to direct discrimination, it is the decision-maker's state of mind which is important. Consequently, the focus is on the decision-maker's intention, motive and actual knowledge. Knowledge held by Occupational Health should not be imputed to him. In this case, there was no evidence that anybody involved in the dismissal process had acted as they had done because of Mr Gallop's disability. Also, there was no evidence that the complaints from colleagues were in themselves discriminatory with many of the complaints of bullying predating the onset of the alleged disability.

While this case has been decided under the old provisions of the Disability Discrimination Act 1995, it is of equal relevance to the Equality Act 2010. The EAT expressly criticises the guidance contained in the Disability Rights Commission's Code of Practice: Employment and Occupation 2004 (now contained in the EHRC's Equality Act 2010 Employment Statutory Code of Practice) on imputing knowledge of disability in one part of an organisation or on the part of one individual to the organisation generally in the context of deciding whether there has been discriminatory conduct. As the EAT points out "it establishes practical guidance that should be taken into account, but is only guidance."

Point to note

It remains best practice that departments such as Occupational Health and Human Resources should share information with the relevant managers where appropriate. If such information is not shared, in circumstances where it would be expected to be shared, an employer may be vulnerable to a tribunal finding that the decision maker could 'reasonably be expected to know' of the disability.

This is most likely to arise in the context of other potential disability discrimination claims such as one for failure to make reasonable adjustments or one for discrimination arising from disability, the latter having been introduced in the Equality Act 2010.

At number 5: "Pulling a sickie" - exaggerating the extent of an injury gross misconduct

It will usually be considered misconduct or gross misconduct for an employee to take sick leave and/or claim sick pay when not genuinely unfit for work. But what about a situation where an employee has suffered an injury but is exaggerating its severity?

In Metroline West Ltd v Ajaj, the EAT has held that it was fair to dismiss an employee who exaggerated the extent of an injury preventing them from returning to work for gross misconduct. In addition, an employee who deliberately misrepresents that he is unfit to attend work will be in fundamental breach of contract.

What happened in this case?

Mr Ajaj was employed by Metroline for 10 years as a bus driver. In 2014, Mr Ajaj reported that he had slipped on water on the floor of the depot's toilets and suffered an injury. He was seen a week later by the employer's Occupational Health adviser who concluded Mr Ajaj was not presently fit for driving duties.

Mr Ajaj claimed he was not able to return to work as he was in pain and could not walk quickly or for more than five or six minutes. He also claimed he had difficulties in sitting for long periods as well as difficulties carrying shopping and dressing himself. Metroline had concerns about the genuineness of Mr Ajaj's injury and arranged for covert surveillance of him around the time he was to attend a series of sickness absence reviews.

Having reviewed the surveillance footage, Metroline concluded that Mr Ajaj's abilities shown in the footage were not consistent with what he had reported. Following the third sickness absence meeting, Mr Ajaj was suspended and subsequently dismissed for gross misconduct for having:

  • made a false claim for sick pay;
  • misrepresented his ability to attend work; and
  • attempted to defraud the company with a claim of injury at work that was exaggerated.

The employment tribunal (ET) accepted that Mr Ajaj had "exaggerated the effects of his injury, and that this was culpable and misleading" but that there was no evidence that he had exaggerated his inability to perform his contractual duties as bus driver. The ET, therefore, found that Mr Ajaj had been unfairly dismissed and also made a finding for wrongful dismissal. However, it also found that Mr Ajaj had misled Metroline and the Occupational Health doctor as to extent of his injury and its effects. Metroline appealed.

Appeal allowed

Overturning the tribunal, the EAT points out that the question for the tribunal was not whether Mr Ajaj was capable of walking or sitting for long periods; the question was whether the employer had reasonable grounds to believe, based on a reasonable investigation, that he had misrepresented his injury and its effects.

Mr Ajaj was not dismissed for capability but for misconduct. Having concluded that Mr Ajaj had exaggerated the effects of his injury, and that this was culpable and misleading, it was perverse for the tribunal to hold that the dismissal was unfair.

The EAT also overturned the wrongful dismissal claim, in the words of the EAT:

"an employee [that] 'pulls a sickie' is representing that he is unable to attend work by reason of sickness. If that person is not sick, that seems to me to amount to dishonesty and to a fundamental breach of the trust and confidence that is at the heart of the employer/employee relationship."


This case highlights the importance of correctly classifying the reason for the dismissal. In this case, the employer correctly classed the reason for the dismissal as 'misconduct'. It was the ET that incorrectly confused the case as one of 'capability'. Whether the employee was or was not capable of resuming his duties as a bus driver was irrelevant. He was not dismissed for capability, but rather for the misconduct for misrepresenting the extent of his injury and its impact.

The EAT's comments on 'pulling a sickie' are also interesting, suggesting that a deliberate misrepresentation by an employee that he is unfit to attend work will inevitably amount to a fundamental breach of contract.

If employers are concerned that an employee may have misled them as to the reasons for their absence, it is important to deal with the issue and try to establish what happened. An employer cannot make an assumption without a reasonable investigation, but if they follow a fair process and have a reasonable belief in the employee's dishonesty then it could be grounds for a fair dismissal for gross misconduct.

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