Employment Law 2009 review/2010 preview: Part 1

Introduction

Another eventful year (nearly) over. Harriet Harman frantically pushes the Equality Bill through Parliament before the next general election and the draft Agency Worker Regulations continue to make their way through the parliamentary system, albeit at a slower pace than originally promised. In the meantime the judiciary have continued last year's trend of turning their hand to legislative drafting.

As in other aspects of life, the two great issues facing the world today, the credit crunch and climate change, are having a significant impact on employment law in 2009. Here, gentle reader, we pick out some of the need-to-know highlights. Later in Part 2 we will be looking forward to the anticipated trends for 2010.

Another year over - review of 2009

The holiday season

Ah, the end of the year, a time when many of us use up our untaken holiday leave by putting our feet up and enjoying the holiday season with our families - (ok, run around the shops, cook lots of food and keep the children entertained!)

For many employers, the end of the calendar coincides with the end of the annual holiday year. The Working Time Regulations clearly provide that a worker who has not taken their full statutory holiday entitlement during a leave year cannot be paid in lieu, unless they leave, nor carry forward any of the first four weeks of leave not taken. So, can employers draw a line under this year's annual leave entitlements and move on to next year? Well, NO.

The European Court of Justice (ECJ) has, in three high-profile decisions following swiftly on the heels of one another, provided some guidance on the interrelation of holidays and sickness absence. The key points are:

• workers on long-term sick leave are entitled to take paid statutory holiday leave while on sick leave (Stringer)
• where a worker has been prevented from taking their annual leave due to sickness, they must be allowed to take that leave when they return in a new leave year, or receive payment on termination (Schultz-Hoff)
• a worker who is sick during a period of scheduled statutory holiday has the right to reschedule the holiday for a later date and, if necessary, to roll over that holiday to the following leave year (Pereda).

However, this has left more questions unanswered than answered. For instance, are workers on sick leave entitled to decide not to take their holiday and to roll it over to the following year, storing up potentially years of untaken leave? Do workers have to give notice and take holiday to be entitled to holiday pay? How do PHI schemes fit in? Is UK law actually even compliant with the European Working Time Directive?

Whatever the answers, it is clear that employers could be facing not insignificant bills if employees on long-term sick leave start claiming holiday entitlement, or holiday pay, in respect of years gone by. Yet another reason to manage sickness absence robustly and for HR managers to keep paracetamol to hand!

Discrimination: peace and goodwill

As ever, 2009 has seen a number of significant discrimination cases. Making a particularly high profile showing this year are two of the new kids on the block, age and religion & belief. Not to be outdone, old favourites disability and equal pay have equally filled the law reports this year.

Before reviewing the 2009 UK discrimination case developments, let's just take a moment to pause for thought and consider possible future areas for discrimination law. Is a new form written in the stars?

Well, what about astrological discrimination? Earlier this year, an Austrian insurance company advertised for sales and management staff, but only those with certain star signs. Apparently, people born under the signs of Capricorn, Taurus, Aquarius, Aries and Leo make the best workers in the sector.
The Austrian anti-discrimination authority investigated the advertisement but concluded that "It does appear like a certain limitation, but it is not discrimination". On a personal note, the writer apologises for writing a legal developments review, as a Gemini I should apparently really be writing travel guides!

Age

A legal challenge that started even before the age discrimination regulations came into force has finally come to an end: we are of course talking about the Heyday saga challenging the compulsory retirement age of 65. It is lawful for employers to compulsorily retire employees at age 65, as long as they follow the statutory processes. However, don't expect it to last. The High Court was clear that the decision would have been different had the Government not already brought forward its review of the default retirement age from 2011 to 2010.

Not surprisingly given the current economic climate, we have seen several cases concerning age discrimination and redundancy selection. One question vexing HR professionals and employment law specialists is how redundancies can be made in a way that minimises disruption to the workforce and rewards workers for their loyalty, service and commitment, while not falling foul of discrimination legislation.

How easy is it to justify an enhanced redundancy scheme which does not mirror the statutory scheme, but rewards older employees at the expense of younger employees? Clearly it will depend on the scheme, but it seems that justification will be easier where the workforce as a whole broadly supports the scheme. So, where an employer offers to level down a scheme so the older workers get the same as (rather than more than) the younger workers, and the workforce as a whole rejects the proposal, the original discriminatory scheme is more likely to find favour with the tribunal.

Of particular concern has been the way in which redundancy selection criteria are applied to employees 'at risk' of redundancy. Can employers reward longer serving employees by giving them more points in redundancy scoring without breaching the Age regulations?

The Court of Appeal in Rolls Royce PLC v Unite the Union declared that the use of length of service as part of the redundancy selection criteria can be a proportionate means of achieving a legitimate aim, and therefore is not age discriminatory. However, the decision is loaded with caveats and employers still need to be careful about how their redundancy selection criteria are structured and applied in each case.

We have also had a couple of cases on whether consideration of minimising pension liabilities could be a legitimate aim justifying a discriminatory impact. In both cases, the selection for redundancy was not based on age. However, in the first case all possible redeployment options had been fully exhausted whereas in the second case it was held they were not. In the first case, the fact that the employer chose not to comply fully with its own dismissal procedures in order to save significant pension liabilities accruing was held to be a proportionate means of achieving a legitimate aim. However, in the other, the same motive was held to be unlawful age discrimination. Both cases are currently making their way through the appeal process.

Religion or Belief

The hot political and scientific issue of climate change has also made its way into the employment law reports. The Employment Appeal Tribunal (EAT) has agreed with Mr Nicholson that a belief that "man is heading towards catastrophic climate change" and that we are under moral imperative to do something about it can be protected under the Religion or Belief Regulations. In another case, a police trainer, Mr Power, has successfully argued that his belief that psychics can contact the dead is capable of protection.

What some sections of the press have missed, intentionally or otherwise, is that this does not mean Mr Nicholson or Mr Power won their discrimination claims; it just means that the type of beliefs they assert are capable of being protected. They must still establish that their beliefs were the reason for their dismissals and the employers may successfully argue that they were dismissed for foisting their beliefs on others, rather than for simply holding those beliefs. Mr Power has already failed in his claim. So we may not see a sudden influx of successful claims. But with uncapped damages in a difficult job market, that doesn't mean some employees won't be tempted to try it on.

The EAT's guidance on what constitutes a belief is welcome, but far from easy to apply. It seems that a belief in a political philosophy or doctrine might be protected. The EAT listed Socialism, Marxism, Communism or free-market Capitalism as examples in its judgment. So, what about the British National Party's (BNP) philosophy? The BBC took a slating for allowing Nick Griffin to appear on Question Time. How would the public react to a tribunal decision that afforded BNP members' legal protection? Can that really have been Parliament's intention? A tricky test case waiting to happen, perhaps...

2009's other significant religious discrimination cases can best be described as "clash of the discriminations". We began the year with the Christian registrar who refused to carry out civil partnership ceremonies (Ladele), mid-year we had the Christian social worker handing out Bibles to clients (Chondol) and finished the year with the Christian relationship counsellor unwilling to provide psycho-sexual therapy to same-sex couples (McFarlane).

They all failed in their claims for religious discrimination. Their dismissals were found not to be on the grounds of religion, but rather the improper proselytising of their religious views at work. Where a belief leads the holder to participate in discriminatory behaviour, it is unlikely they will be able to invoke religious discrimination protection.

Disability

This time last year we reflected on the tribunal's decision to redraft the Disability Discrimination Act (DDA) extending protection to people who are not themselves disabled, but are associated with someone who is. In the Coleman case, the tribunal attempted to give effect to associative discrimination by drafting into the DDA a few additional words. This year the EAT have decided the tribunal did not go far enough and have added not just a few words, but two entirely new sub-sections! The radical redrafting is intended to avoid spurious litigation about what "association" means. It remains to be seen, however, whether we will see a flood of claims from carers claiming associative discrimination on the back of this decision.

Not to be outdone, the House of Lords turned previously settled case law on its head by deciding that the word "likely" in the DDA does not mean "more probable than not", but means "could well happen", lowering the bar for claimants. Although the Lords were considering the meaning of "likely" in the context of what amounts to a disability, they went on to suggest that it would mean the same thing when mentioned elsewhere in the DDA. The decision also opens the door to debate as to what "likely" means in other employment legislation.

Last year the House of Lords were also making waves, having decided that the well-established comparator test for disability-related discrimination claims was in fact wrong. The EAT have cunningly found a way to mitigate against the effect of that decision, by finding that a dismissal can, in itself, be a failure to make reasonable adjustments. So now, if there was a possible reasonable adjustment which would have avoided a dismissal, the dismissal itself will be an act of discrimination as it will be a failure to make reasonable adjustments.

Race discrimination

It seems counter intuitive to say an employer may have a "reasonable and proper cause" for acting contrary to the race discrimination legislation. Nevertheless that is exactly what the EAT found in a case earlier this year.

Amnesty International failed to appoint an employee of northern Sudanese ethnic origin to a post involving field work in the Sudan. Its motives were concerns over the organisation's perceived impartiality and genuine increased safety concerns for both the employee and those who would be working with her. While their motives were benign, it did not prevent the actions being directly discriminatory. While being unable to escape liability for race discrimination, Amnesty's benign motives saved it from also being in repudiatory breach of the implied contractual term of trust and confidence, so her constructive unfair dismissal claim failed.

Sex discrimination

Following last year's ECJ ruling, this year our own courts have confirmed that an employee who undergoes failed In vitro fertilisation (IVF) treatment does fall within the bounds of the protection afforded under the Sex Discrimination Act (SDA).

An employee is protected against pregnancy discrimination from the date the eggs are implanted until two weeks after she learns that an implantation failed. Of more general application, suffering a detriment due to undergoing IVF also falls within the protection of the wider SDA provisions.

Equal pay

As in 2008, the continuous stream of equal pay cases has continued to wind its way through the tribunals and courts, often on technical points. Key cases include:

• An employer can be required to provide objective justification for both the way in which it applied a length of service criterion as well as its adoption in the first place, where the claimant has raised "serious doubts" about its appropriateness (Wilson).
• Equal pay claims must be brought within six months of a TUPE transfer for claims based on pre-transfer employment. But claims for the period after the transfer can be brought against the new (transferee) employer, even if the comparators have not transferred (Gutridge).
• Subject to a further pending appeal, a man may validly pursue a 'piggyback' equal pay claim by comparing himself with a female employee who herself has succeeded in an equal pay claim with a male comparator (McAvoy).

While local councils around the country struggle to settle claims with limited resources, the NHS no doubt gave a sigh of relief having ploughed through a 220-page tribunal decision which rejected claims that the NHS Agenda for Change introduced in 2004 perpetuated alleged prior systemic discrimination.

Compensation

Compensation awards for discrimination claims can be very costly as, unlike many other employment claims, there is no statutory cap on awards. In addition, with the exception of the Equal Pay Act 1970, anti-discrimination legislation provides for payment of compensation for injury to feelings suffered by claimants as a result of the discrimination. From a claimant's point of view there has been some bad news and good news on calculating awards.

The bad news for claimants is that the Court of Appeal has said that a Polkey equivalent principle applies to awards for discrimination. So, as in unfair dismissal cases, a reduction should be made to discrimination awards to reflect the chance that the employee would have been dismissed even if there had been no discrimination.

But the good news is that the Vento bands for potential injury to feelings awards set back in 2002 have finally had an inflation adjustment. The new bands are:

• Lower band: up to £6,000 (formerly £5,000)
• Middle band: £6,000 to £18,000 (formerly £15,000)
• Higher band: £18,000 to £30,000 (formerly £25,000).

Bonuses: gold, frank nonsense and a stir

Bankers' bonuses are now the subject of daily press headlines. The size of the Royal Bank of Scotland (RBS) bonus pot and the taxing of bonus payments are current political hot topics. There have been several High Court writs issued this year involving highly paid bankers complaining about unpaid bonuses. Such big bonus claims historically tend not to make the law reports as a deal is done out of court. It seems now that at least some financial institutions would rather be forced by a court to make a payment to apparently mitigate the wrath of the public and shareholders, which in some cases, are now one and the same.

However, some cases have reached the hallowed halls of the High Court. In the summer, four City bankers won a £10.8 million legal battle. Commerzbank was ordered to honour its bonus and severance commitments to the former Dresdner Kleinwort bankers following its bail-out by the German Government. Two further groups of ex-Kleinwort bankers have now commenced High Court proceedings to sue for millions in withheld guaranteed bonuses.

Bonuses are of course not just the reserve of the highly paid. This year the EAT considered the word discretionary in a bonus scheme for warehousemen. Employers were reminded that labelling a bonus scheme "discretionary" in employment documentation, does not necessarily mean that it does not have contractual status. The use of the word "discretionary" in the context of bonus schemes may relate to the decision to pay the bonus, how to calculate the bonus or the amount of the bonus.

Bonus schemes often contain discretion elements while being contractually enforceable. In such circumstances, the employer must exercise any discretion rationally and in good faith. This need not mean a bonus must be paid, but the decision must be considered carefully to avoid a successful challenge.

It will be interesting to see whether the courts will develop new principles from the cases arising out of the recent banking crisis.

TUPE: talking turkey

Service provision changes

As predicted at the beginning of the year, many of this year's TUPE cases concerned the new service provision changes under TUPE 2006.

Is the provision of pre-prepared sandwiches and salads fundamentally the same as the provision of a range of hot and cold meals, including hot soups and English breakfasts? No, according to the EAT. Tribunals in the past have generally adopted fairly wide definitions of the activities carried out when considering outsourcing contracts, and have used a pragmatic, common sense approach. While purporting to do just that, the EAT seemed here to actually apply a detailed factual analysis and to adopt a narrow definition of "activities".

Duty to inform & consult

We have some further guidance on the duty to inform and consult under TUPE.

On the one hand, a transferor is under a duty to inform long enough before the transfer to allow consultation to take place, even though there are no measures envisaged giving rise to the statutory duty to consult. Time for possible voluntary consultation needs to be built into the timetable (GMB Northern).

On the other hand, a transferor is only obliged to inform and consult on what it genuinely believes to be the legal, social and economic implications of a proposed transfer. Transferors will not automatically be in breach of their duty under TUPE by failing to inform employees of the correct legal position. But note this does not mean employers can fail to consider properly the legal implication or can simply shut their eyes to problems (Royal Mail Group).

As for transferees, the EAT has confirmed that their duty to consult about measures they envisage taking ceases on the date of the transfer. But remember, regardless of consultation obligations under TUPE, a transferee planning 20 or more dismissals following a transfer will still be obliged to consult under the collective redundancy provisions (Glasgow City Council).

Changes to working conditions

The EAT has confirmed that whether there has been a substantial change to working conditions is a question of fact, and whether it was to the employee's material detriment is assessed from the employee's point of view. So a change of location following a transfer, objectively of little difference on the face of it (a further 2 ½ miles from the employee's home), could be a material detriment where it disrupted her child care arrangements (Tapere).

Effect of collective agreements post transfer

The EAT held that a contractual term entitling employees (previously employed in the public sector) to pay increases "in accordance with collective agreements negotiated from time to time by the NJC" was protected on a TUPE transfer to the private sector so as to give a right to pay increases negotiated by the NJC post-transfer. The ECJ decision in Werhof was distinguished due to the different nature of the collective agreements involved. Not surprisingly this question has been referred to the Court of Appeal whose judgment is eagerly awaited by those undertaking public sector outsourcing contracts (Alemo-Herron).

Disciplinary hearings: a merry ding dong

2009 saw the wholesale repeal of the unpopular statutory dismissal, disciplinary and grievance procedures, which were tidings of comfort and joy to employers and practitioners up and down the kingdom. We have now welcomed in the new ACAS Code of Practice with tribunal discretion to increase or reduce awards by up to 25% for unreasonable failure to comply with the Code. While cases regarding the repealed procedures have continued to make their way through the tribunals and courts, cases under the new regime have yet to make their way through to appellate level.

The 2009 big question has instead been "do employees ever have the right to legal representation when attending an internal disciplinary hearing?"

The Court of Appeal has found that the NHS disciplinary procedures give doctors a contractual right to be represented at internal disciplinary hearings by a lawyer instructed by their professional indemnity body. Although that was enough to determine the Dr Kulkarni case, the court did not stop there. It went on to suggest that the European Convention of Human Rights could be interpreted to extend the right to legal representation to any employee faced with what is in effect a criminal charge that could result in them being deprived of the right to practise their profession.

While the additional comments are not strictly binding, they are in line with a separate High Court judgment which held that a school teacher had the right to legal representation at an internal hearing which could lead to his name being added to the child protection list of those not permitted to work with children. The High Court expressly limited its decision to the facts of the particular case without the intention of having wider implications. Nevertheless, it appears that employees may have the right to legal representation when facing a career ending charge (as opposed to just losing a specific job). The school teacher case has recently been considered by the Court of Appeal and we await a more definitive answer to the question.

Unfair dismissal: panto time

As we look back over some of the significant 2009 unfair dismissal cases a seasonal chorus of "Oh yes it does! Oh no it doesn't!" springs to mind.

Constructive dismissal

The controversy around the Norton Tool principle has found yet another twist this year: does it apply in a constructive dismissal scenario?

Under this principle, an employee who is summarily and unfairly dismissed will receive a compensatory award that includes a payment in lieu of notice, without reduction for earnings from new employment during the notice period.

At the beginning of the year we were told oh yes it does, but by the end of the summer the Court of Appeal said oh no it doesn't! The principle is restricted to direct dismissals only (Bell).

A further step in the trend to narrowly apply the principle first espoused in 1973.

In the case of Buckland, we were told that when assessing whether there is a fundamental breach of the employment contract, the employer's conduct should not be subject to a "range of reasonable responses" test. So says the EAT class of 2009, leaving the law confused; in 2007, the EAT had said the opposite.

In the same case, the EAT held that the employer had remedied the breach by upholding the employee's complaint. Again, this has led to some confusion: surely some breaches are so serious that they cannot be remedied? Is simply upholding a complaint always sufficient to remedy a breach?

Compensation

Scenario - an employee whose remuneration package includes membership of a final salary pension scheme is unfairly dismissed. Very shortly after dismissal she finds other employment with an overall better remuneration package, but a money-purchase pension scheme.

We had the EAT at the beginning of the year tell us that in assessing her losses, while the new employment broke the chain of causation for loss of future earnings, it did not do so for loss of pension rights as her final salary pension loss constituted a unique type of loss.

Oh no it doesn't! says the Court of Appeal. Pension benefits are an important but not unique part of the remuneration package so the usual rules apply to them (Roberts). Note this does not mean that a different period of loss may be awarded for pensions loss where there is not a break in the chain of causation.

Effective Date of Termination (EDT)

The EDT is all important for calculating whether an employee has enough continuous service to bring a particular claim and whether their claim has been presented within the tribunal time limits.

We now have updated judicial decisions on two EAT decisions which featured in last year's review highlighting the importance of having a clearly defined EDT.

The Radecki case is a lesson on not letting things drift on and on when trying to negotiate a settlement. A council who wanted to dismiss a teacher for capability, suspended him for three months on full pay and then removed him from the payroll. Signing of the negotiated compromise agreement drifted on for a further six months. The employee then refused to sign and hey presto now had one year's service. Last year the EAT held that the removal from the payroll did not amount to an actual dismissal and so the teacher could proceed with his unfair dismissal claim.

Oh no he couldn't! This year the Court of Appeal held by majority that on the facts of the particular case, removal from the payroll of which the employee was aware was sufficient to amount to termination of the employment. A relief for the council involved, but the lesson still remains not to let things drift and ensure there is a clear communication of termination.

In the Gisda case, the Court of Appeal has now confirmed that when an employer sends a letter of dismissal via the post, and the employee has neither gone away deliberately to avoid receiving the letter nor avoided opening and reading it, the EDT is the date the letter is read by the employee not when it is delivered.

For auld lang syne...

The judicial committee of the House of Lords

After centuries as the country's highest court, the final appeal hearings and judgments of the House of Lords took place on 30 July. On 1 October its judicial role was assumed by the Supreme Court of the United Kingdom.

By the way this also meant a name change for solicitors, instead of solicitors in England and Wales being called "Solicitors of the Supreme Court", we are now the perhaps less impressively titled "Solicitors of the Senior Courts".

The Department for Business, Enterprise and Regulatory Reform

Speaking of names, at the beginning of June, BERR merged with the Department for Innovation, Universities and Skills (DIUS) to form BIS, the Department for Business Innovation and Skills.

At the beginning of the decade we had DTI, then DPEI (but only a seven-day blip), back to the DTI, then DBERR with a quick drop of the D, so BERR and now BIS. Perhaps the dropping of the D was not enough to get rid of echoes of the Chris DeBurgh nickname. D'BIS is much more Hip Hop.

And finally, the 2009 awards...

The nice try award 2009

As first runner-up, the care worker's employer who tried to claim there was no breach of the national minimum wage legislation where an employee's basic contractual pay rate was beneath the National Minimum Wage (NMW) since 2005, but she always worked nights and weekends which attracted a 30% increase. The EAT quickly concluded that it would "be completely contrary to the purpose of the legislation if [the NMW] obligation could be avoided simply because an employee chooses to normally work those hours when she would be in receipt of some enhancement."

And the winner is...

In a late entry, but with a certain inevitability this year, this goes to a banker. The 42-year old banker brought age claims against ABN Amro following his dismissal for redundancy. One of his claims was based on his non-selection for any of the three remaining posts. Unfortunately for him the three successful applicants were all within his age bracket of 38 to 48 with one being younger and another only nine months older. In rejecting his claim, the EAT found that it was "prima facie implausible to the point of absurdity".

Best judicial use of a fairytale... are you sitting comfortably?

In this new category for 2009, we have as first runner-up Judge Peter Clark in GMB Northern v Cable Realisations Ltd sitting in the EAT. Describing the level of an award for failure to inform under TUPE he said:

"It was neither too high, as Mr Hyams submits, not too low, as Mr Goldberg argues. Like baby bear's porridge, it was just right".

But the clear winner is...

Arden LJ, explaining why and how the provisions of the Equal Pay Act 1970 can be wider than Article 141 of the EC Treaty:

"Like the foot of Cinderella, the 1970 Act (as amended from time to time) has for some purposes at least to be fitted into a slipper (Community law). However, unlike Cinderella's slipper, the slipper is not made of glass but of some altogether technologically more advanced material that can expand and improve. Neither the foot nor the slipper can, however, be shrunk in the process of applying the slipper. Moreover, Cinderella is not always bound to wear the slipper: on some occasions she can dance perfectly well on her own two feet without any slipper."

Arden LJ, failed to go on to comment on whether Cinderella did indeed go on to live happily ever after!

In Part 2 we look forward to the anticipated judicial and legislative trends for employment law in 2010.