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Newsletter February 2014NEWSLETTER APRIL 2015
ALL THE LATEST LEGAL DEVELOPMENTS IN THE RECRUITMENT INDUSTRY
NEWSLETTER APRIL 2015
Holiday payAs an employer, have you reviewed the way you calculate holiday pay?
Inferred employment How to avoid the risk of inferred employment where no employee/ employer relationship is intended
Fees and FinesTwo recent changes in the courts may impact on your business
Shared Parental LeaveNow that we have reached April we are witnessing a new era of family friendly rights
Further Employment Law updates
SINCE LAST SUMMER, THERE HAS BEEN
SIGNIFICANT MEDIA COVERAGE FOLLOWING CASES
HEARD AT THE EMPLOYMENT TRIBUNAL AND
EUROPEAN COURTS IN RELATION TO THE RIGHTS
OF WORKERS REGARDING HOLIDAY PAY.
HOLIDAY PAY - HAVE YOU REVIEWED THE WAY YOU CALCULATE HOLIDAY PAY?
This is a topic that sparks interest among workers whilst causing a degree of
concern for businesses. In some circumstances holiday pay can no longer be
limited to basic pay alone but should include certain allowances, overtime,
commission and bonuses.
The cases focus primarily on
overtime pay and commission being
factored into the workers’ entitlement
regarding paid leave. As an employer,
have you taken the relevant issues
on board and reviewed the way you
calculate holiday pay? Have you
adapted your holiday policies and pay
in line with the current position? Have
you received any queries or claims
from workers?
A NEW LAW?
These cases do not, in fact, signify
a change of law, as these rights
have existed since the Working Time
Directive came into force setting out
the statutory rights of all workers to
20 days paid annual leave (and in the
UK workers are also entitled to an
additional eight days paid leave in
respect of public holidays). u
Instead, the recent cases challenged the way we had been calculating
holiday pay and the decisions provide guidance as to the correct interpretation
of that Directive in our domestic law. In essence, employers should be providing
all ‘normal’ elements of remuneration on top of basic wages to the worker
when taking annual leave. The objective is to ensure that workers do not suffer
a financial detriment when taking leave or are deterred from taking that leave
altogether.
COMMISSIONThe case of Lock v British Gas returned to the Tribunal in February this year
and a decision was released at the end of March. The judgment served to
confirm that the purpose of providing payment for annual leave is to put the
worker, during that leave, in a position which is, as regards salary, comparable
to periods of work. In other words, the worker should receive remuneration in
respect of annual leave that reflects the commission he/she would earn if not
taking that leave.
The judgment suggested that the reference period for calculating the pay
should be as stated in the Employment Rights Act. This provides guidance that
the calculation of a week’s pay is based on average earnings over a 12 week
reference period immediately prior to the period of leave.
The case further provided clarification that the level of holiday pay can be
limited to the 20 days statutory holiday derived from European law (and not the
additional 1.6 weeks provided by UK law or any additional contractual leave).
This long awaited decision did not address all issues that employers were hoping
to seek guidance on and a degree of uncertainty remains. For businesses still
grappling with revising holiday pay policies and calculations, there are still some
practical issues to be determined by the Tribunals to include:
• Whether commission should be reflected in holiday pay if it is minimal or
irregular
• Where a commission scheme is deliberately structured to compensate
employees for annual leave, whether there is still a requirement to include
commission in the holiday pay calculations under the Regulations as,
potentially, it cannot be argued that there has been an unlawful deduction
• Whether bonuses (e.g. annual) should be included in holiday pay
calculations
• How to address the lower pay a worker will receive after a period of
leave if they cannot generate the pipeline of work/sales that generates
commission during the time they are on leave
“A significant concern of businesses is the potential for workers to make historical claims for incorrect holiday pay spanning back years.”
NEWSLETTER APRIL 2015
Whilst this issue can be
straightforward in some industries,
there can be challenges associated
with calculating an employee’s loss
of earnings in relation to commission
payments during periods of annual
leave when considering seasonal
variations, market factors and a
concern that employees may time
their leave to manipulate the system.
It should also be noted that, as this
most recent decision is only at the
Employment Tribunal level, this may
well be the subject of appeal in the
coming months.
OVERTIMEIn the autumn we saw the headlines
that certain overtime payments must
also be considered in the calculation
of “a week’s pay” when analysing
holiday pay. Previously overtime did
form part of holiday pay when it was
guaranteed and compulsory but the
definition of what type of overtime to
include has now widened to cover
non-guaranteed overtime that the
worker is obliged to accept. The jury is
still out in terms of voluntary overtime.
PAYROLLAs these holiday pay rights derive
from the European Working Time
Directive, strictly speaking, the right
to this additional element of pay only
needs to be honoured in respect of
the first 20 days leave taken each year
and not the additional eight public
holidays or any additional contractual
leave. However, to avoid increased
administrative issues, the payroll
preference for some employers may
be to make adjustments in relation to
total annual leave.
BACK-DATING CLAIMSA significant concern of businesses is the potential for workers to make historical
claims for incorrect holiday pay spanning back years. As such, the Government
moved to limit this period. From 1st July 2015, any claims for previous unpaid
holiday will be limited to two years.
Furthermore, according to the recent case of Bear Scoltand v Fulton, any claims
which are based on an “unlawful deduction from wages” must be brought
within three months of the last incorrect payment or they will be ‘out of time’.
Consequently, as these regulations only relate to the first 20 days of leave in a
holiday year, in theory the last 1.6 weeks leave (and any additional contractual
holiday entitlement) would not be subject to these rules and this period of time
may seek to break the chain. u
Inferred employment: how can I avoid it?In recent years, we have seen a shift away from the stereotypical ‘9 to 5’ working arrangements that are associated with a ‘normal’ working relationship.
Increasingly we see people engaged in atypical working arrangements
to include casual workers, agency workers, home-workers, the self-
employed and people engaged on flexible working arrangements. What
implications do these various working arrangements have in terms of
workers’ rights and responsibilities and employers’ obligations? This
article seeks to provide some clarity for businesses in terms of ensuring
that they understand the characteristics of an employee and how to
avoid the risk of inferred employment where no employee/ employer
relationship is intended.
Inferred employment issues can arise where agency workers claim to be
an employee of either the employment business or the client. This is an
important distinction because individuals are entitled to different rights
depending on their employment status.
Under UK law there are three different categories of employment status:
1) Employees
2) Workers
3) Self-employed
Temporary workers engaged under ‘contracts for services’ are
‘workers’ and consequently do not have the normal statutory rights and
protections attributed to employment such as statutory notice, unfair
dismissal protection and maternity leave.
How can I tell if a temporary worker has a contract for services or a contract of employment?
The Employment Tribunal hears many employment status cases from
temporary workers who claim that they have become employees of
NEWSLETTER APRIL 2015
u
either the employment business or their client
and therefore have the usual employment
rights.
Typically temporary workers are assigned by an
employment business to work on a temporary
basis for a client organisation. The employment
business will have a contract with the client
and at the same time the temporary worker will
have a contract with the employment business,
being subject to day to day control of the client
organisation.
Where there is no clear agreement between the
parties, it can be very difficult to say whether
the temporary worker is an employee and if so
who employs them.
Where a contract does exist the Employment
Tribunal will look at the wording of the contract,
i.e. does the contract state that it is a ‘contract
of employment’. The industry standard
contract for most temporary workers is a
‘contract for services’.
However, there was a trend starting with the
case of Dacas v Brook Street Bureau (2004)
which suggested that the mere fact the
contract states an individual was not employed
by the employment business or their client was
not necessarily conclusive of the employment
relationship.
No single test is conclusive and in cases of
dispute an Employment Tribunal will also look
at other factors such as whether there is any
period of notice to terminate the contract,
whether the worker is entitled to be paid when
they are not working (other than for holiday or
statutory sick pay) and whether there are any
disciplinary, grievance or specific dismissal
procedures that apply.
Where a worker can delegate certain elements
of the role or works for short periods for
various clients of the employment business the
Employment Tribunal are less likely to find an
employment relationship exists.
Should the wording of the contract not make the position clear,
the Employment Tribunal has established a series of tests that, for
a contract of employment relationship to exist, need to be present:
The Integration Test: How well integrated is the worker in
the organisation?
The Mutuality of Obligation Test: The existence of some
“mutuality of obligation” between the parties. An obligation
on the part of the employer to provide and pay for work done
and an obligation on the worker to perform that work
The Control Test: The worker agrees to be subject to a
degree of control by the employer over how, when and where
they work
The Personal Service Test: An obligation for the worker to
provide his services personally i.e. they do not have the right
of substitution
The Multiple Test: Is there evidence of control, personal
service and is the relationship not inconsistent with a contract
of employment
A
B
C
D
E
I currently have an agency worker working for me; can I discipline them for performance issues or give them an appraisal?
Disciplining a temporary worker could allude
to an employment status scenario.
If the temporary worker is treated like one
of a business’s own employees during the
course of the assignment, this could create
an employment relationship. By disciplining a
temporary worker, you run the risk of treating
them like an employee and therefore this
should be avoided.
If any issues or complaints arise regarding a
temporary worker they should be referred to
the employment business to deal with.
In addition, any feedback regarding a
temporary workers’ performance good or
bad should be directed to the employment
business to pass on. Making the temporary
worker subject to an appraisal process will
ultimately be used by the temporary worker
as evidence of employment status.
What effect do the Agency Workers Regulations have on the issue of inferred employment?
With the introduction of the Agency Workers
Regulations (AWR) on the 1st October 2011,
in scope temporary workers are entitled to
some of the same rights as employees of the
client to prevent them from being treated less
favourably.
The legislation intended to introduce equal
treatment in basic terms and conditions, such
as pay, maternity rights and holiday after the
temporary worker has worked 12 continuous
weeks with the same client.
The intention was not to force the client or
employment business to treat the temporary
worker as an employee to create an
employment relationship. Equal treatment
therefore does not cover other aspects of a
typical employee/employer relationship such
as rights to have a disciplinary or an appraisal.
What should I do to reduce the risk of inferred employment?
Ultimately it will be for the Employment
Tribunal to decide whether an
employment relationship has been
created. However there are a number
of things a business can do to reduce
the risk of inferred employment:
Ensure that the contracts in
place between the business
and the employment business
accurately reflect the relationship
between the parties and the
services being provided
Where possible avoid following
practices that are usually
reserved for employees such
as disciplinary meetings and
appraisals which could create
a direct relationship with the
temporary worker
Review company policies
regarding the treatment of
temporary workers to ensure
consistency across teams and
departments
Provide training to managers on
how to handle any issues that
arise with a temporary worker
Ensure all issues are referred to
the employment business
1
2
3
4
5
“Making the temporary worker subject to an appraisal process will ultimately be used by the temporary worker as evidence of employment status.”
NEWSLETTER APRIL 2015
FEES AND FINES: AN UPDATEIn this update we will be looking at two recent changes in the courts and consider how these may impact on your business.
Firstly, the fees for submitting a money claim
have increased (which will need to be taken
into account when weighing up whether to
issue a claim or not). Secondly, the fines that
magistrates can impose have been revised,
with the result that businesses no longer have
the relative comfort of the upper cap.
Fees for money claims
Businesses often have to initiate a money
claim in respect of unpaid invoices or for
losses incurred as a result of provision of
goods or services where the other party is
refusing to pay.
Simply issuing a claim can be an effective
way of bringing a dispute to a close, as
the respondent will often be incentivised
to settle without contesting the case and
becoming involved in lengthy and costly court
proceedings.
So, it is important to be aware that with effect
from the 9th of March this year the cost of
bringing money claims has substantially
increased.
1
Claim value Previous fee New fee
£10,000 - £15,000 £455 5% of the claim value
(up to £750)
£15,000 - £50,000 £610 5% of the claim value
(up to £2,500)
£50,000 - £100,000 £910 5% of the claim value
(up to £5,000)
£100,000 - £150,000 £1,115 5% of the claim value
(up to £7,500)
£150,000 - £200,000 £1,315 5% of the claim value
(up to £10,000)
£200,000 - £250,000 £1,515 £10,000
£250,000 - £300,000 £1,720 £10,000
More than £300,000 £1,920 £10,000
Claims of £10,000 or less are not affected and there is still a small
discount for online applications using the CCBC Centre Users and
Money Claim Online.
Justice Minister Sahilesh Vara justified the increase on the basis that “[i]t
is only fair that businesses and individuals who can afford to pay and are
fighting legal battles should contribute more in fees to ease the burden
on hardworking taxpayers”. This increase in fees is estimated to recoup
£120 million which will be retained wholly by the courts.
2
However, the reality is that the increase will
preclude some applicants from issuing in
the first place as the costs are too high. The
Law Society is “extremely concerned about
these proposals, which [they] believe will
have a detrimental effect on [their] members,
consumers and small businesses” and
has issued a pre-action protocol letter for
judicial review to challenge the government’s
decision. We have already seen a notable
decrease in cases brought to the employment
tribunals as a result of the increase in fees
and so there is a very real concern that this
increase will discourage cases with merit. It
will be interesting to see how the challenges
are responded to by the government in due
course.
Going forwards, businesses will need to take
this increase into account when weighing
up whether or not it is worth issuing a claim.
Although court fees may be recoverable as
part of the payout, this will only happen where
the matter proceeds to court and the applicant
is successful.
Magistrates court’s sentencing powers
We usually associate the magistrates courts
with criminal proceedings, and over 95% of
all criminal cases are heard there with the
remaining 5% being sent or committed to the
Crown Courts. However, magistrates courts
also hear some civil matters which involve
businesses taking the stand as the respondent
and this includes a number of regulatory
offences such as health and safety breaches.
The fines and sentences that the magistrates
can give for both criminal and civil matters are
set out in a scale ranging from Level 1 to Level
5 and accompanied by sentencing guidelines
that assist magistrates based on the particular
factors and severity of the offence committed.
NEWSLETTER APRIL 2015
This scale has constrained magistrates in
respect of giving medium and large business
fines because the maximum fine under Level
5 is £5,000 with the exception of certain
offences, such as breach of specific health
and safety legislation where fines range up to
£20,000. Whilst for individuals these fines may
have a substantial impact, the reality is that
for medium and large businesses this sum is
considered insignificant.
As a result, the government has reviewed
the position and with effect from 12th March
this year (*section 85 of the Legal Aid,
Sentencing and Punishment of Offenders Act
2012 now enacted) this upper cap has been
removed, giving magistrates the power to
impose unlimited fines, which is a considerable
departure. This will not apply to any offences
committed prior to this date.
Part of the reasoning behind this is that it will
allow the magistrates courts to deal with more
cases directly, without needing to commit
cases to the Crown Court which involves an
expenditure of both time and money.
Additionally, the Ministry of Justice is keen to
ensure that these greater fines target “wealthy
or corporate offenders and organisations”
with the hope that this will act as a greater
deterrent.
By way of example Level 5 fines, which are
now uncapped, will apply to the following:
• Manufacture, import and sale of realistic
imitation firearms
• Selling, supplying, offering to supply and
hiring products to persons under 18, such
as adult fireworks, crossbows/knives/axes/
blades
• Sale of alcohol to children
• Failure to comply with an improvement
notice to ensure properties are safe and
habitable
• Communication network offences
• Breaches of the Health and Safety at
Work Act 1974 and the Health and Safety
(Offences) Act 2008
So how can businesses mitigate this risk of
higher fines? As with all regulatory matters
each business needs to ensure that it is fully
compliant with relevant pieces of legislation
and applicable regulations.
This will be particularly important in respect
of issues which previously attracted a lower
or capped fine, and may therefore have been
considered a lower risk. It is always worth
periodically reviewing policies and procedures
to ensure that robust processes are in place
to minimise the risk of breach and subsequent
prosecution.
Shared Parental Leave: Overview for EmployersNow that we have reached April we are witnessing a new era of family friendly rights in relation to facilitating the work-life balance that families’ desire.
Different family set-ups and arrangements for having a baby and
sharing the care for that baby are increasingly commonplace. We see an
increase in rights and recognition in relation to families seeking to adopt
or have a baby using a surrogate. For all new families, a cultural shift
may be afoot in relation to sharing the care for a baby during the first
precious year. This is where Shared Parental Leave (“SPL”) comes into
play. We explore below details of the new scheme and the key issues
employers should be aware of.
To make things simple in this article, please note that references to
‘mother’ are also to the adopter or intended parent in a surrogacy
arrangement and references to ‘partner’ also refers to father, spouse,
civil partner or someone living with the child’s mother in an enduring
family relationship who is not a relative. All references to ‘employee’
refer to both mother and partner.
Who is eligible to take SPL?
If they are the child’s mother or partner, and:
• Both have at least 26 weeks’ continuous employment ending with
the 15th week before the expected week of birth and remain in
continuous employment with the organisation until the week before
any period of SPL that the mother or partner takes
• At the date of the child’s birth both share the main responsibility for
the care of the child
• The partner has worked for at least 26 weeks in the 66 weeks prior to
the due date and has average weekly earnings above a certain limit
What are the notice requirements for SPL?
The notices that the mother and partner must
give to the relevant employer to be able to take
SPL are made up of three elements. These are:
• A “maternity leave curtailment notice” from
the mother setting out when she proposes
to end her maternity leave (unless the
mother has already returned to work from
maternity leave) and this must be given at
least eight weeks before SPL
• A “notice of entitlement and intention” from
the employee giving an initial, non-binding
indication of each period of SPL that he/she
is requesting and this must be given at least
eight weeks before the first intended period
of leave
• A “period of leave notice” from the
employee setting out the start and end
dates of each period of SPL that he/she is
requesting and this must be given at least
eight weeks before the start of leave
NEWSLETTER APRIL 2015
How much SPL can an employee take?
If you are the mother you cannot start SPL until
after the compulsory maternity leave period
which lasts for two weeks after the birth.
Therefore the maximum period that the mother
and partner can take as SPL is 50 weeks
between them (although it will normally be less
than this because of the maternity leave that
mothers usually take before and after the birth).
The mother and partner must take any SPL
within 52 weeks of the birth.
Taking SPL in practice
SPL can be taken as a ‘continuous’ block of
leave which the employer is obliged to accept.
In fact, an employee can submit up to three
‘period of leave’ notices.
This may enable the employee to take up to
three separate blocks of SPL. However, if
the employee wishes to take ‘discontinuous’
blocks of leave, for example work every other
week over a particular period, the employer
has two weeks to agree to the request,
propose alternative dates or refuse the periods
of leave requested. If refused, the employee
may choose to take the total amount of leave
requested as a continuous block.
Please note that SPL must be taken in blocks
of at least one week.
Shared Parental Pay
Shared parental pay (“ShPP”) of up to 37
weeks may be available during SPL provided
the employee has at least 26 weeks’
continuous employment ending with the 15th
week before the expected week of birth and
their average earnings are not less than the
lower earnings limit set by the government
each tax year.
The amount of pay available to the employee
will be reduced by the amount of any statutory
maternity pay received by the mother.
From 5 April 2015 the rate for ShPP will be
£139.58 per week or 90% of the employee’s
average weekly earnings if lower.
Returning to work
Employees are entitled to return to work in the
position they held before starting SPL, and on
the same terms of employment. However, if
it is not reasonably practicable the employer
may give the employee another suitable and
appropriate job on terms and conditions u
that are not less favourable, but only in the
following circumstances:
• If the SPL and any maternity or paternity
leave taken adds up to more than 26 weeks
in total (whether or not taken consecutively)
• If the employee took SPL consecutively with
more than four weeks of ordinary parental
leave
Whilst on SPL an employee can work for up
to 20 ‘Shared Parental Leave In Touch’ days
known as SPLIT days. SPLIT days can be
used for any work-related activity, including
attending training, conferences and team
meetings.
Practical points for employers
• Provide line managers with sufficient
training to ensure that they are equipped
to deal with SPL requests
• Update company policies and
handbooks to include details of the new
regime
• Take relevant steps to inform employees
of their new rights and engage with
them to ensure they are flexible when
agreeing appropriate arrangements with
the employer
• Consider whether you want to provide
an enhanced rate of pay as there is no
statutory requirement under the new
regime
• Ensure that all SPL notification requests
and variations are responded to in
writing
• To avoid discrimination claims, all
requests for SPL will need to be treated
consistently whether they are received
from mothers or partners
Further employment law updates in brief... RIGHT TO BE ACCOMPANIED
The revised ACAS Code of Practice on Disciplinary and Grievance
Procedures has recently come into force. This relates to the statutory
right to be accompanied at disciplinary and grievance hearings
under section 10 of the Employment Relations Act 1999. Employees
will now have the right to be accompanied by a colleague, trade
union representative or official of choice, provided the request to be
accompanied is made in a ‘reasonable’ manner.
Employers are advised to review their current policies in relation to this
new code to ensure there is no restriction on an individual’s right to
choose their companion that may conflict with this.
As a reminder, the penalty for denying an employee’s rights in this regard
can be up to two weeks’ pay.
FIT FOR WORK?
In December 2014 the Department for Work and Pensions introduced,
on a phased basis, the Fit for Work service with a view to easing the
burden on employers in dealing with employees on long-term sickness
absence. The scheme includes a Government funded assessment by an
occupational health professional for employees who are off sick for four
weeks or more. The objective is to provide specialist impartial advice
NEWSLETTER APRIL 2015
Contributors to this Newsletter: Carla Roberts Head of Legal & ComplianceHayley Pierson SolicitorCaroline Oliver SolicitorSophia Lloyd Legal ManagerNeena Sangha Trainee Solicitor
These pages are intended to provide general information only. Nothing in these pages constitutes legal advice or should be taken as such. You should consult a suitably qualified lawyer on any specific legal matter.
and assistance to support the employee in
their return to work. Three separate guidance
notes have been published for employers,
employees and GPs.
As the scheme is not mandatory, its success
will partially depend on the employee giving
their consent to take part.
SURROGACY
Surrogacy is increasingly recognised as an
option for couples to become parents. Until
now it has only been the birth mother who
is eligible for maternity rights. From 5th April
2015 the intended parents will become entitled
to adoption leave and pay.
The new rights for the partner to have
unpaid time off in order to attend antenatal
appointments will also apply to intended
parents in a surrogacy arrangement. This
means they can attend up
to two antenatal appointments with the
surrogate.
ADOPTION RIGHTS
Also, from 5th April this year, there will be a
shift bringing the rights of adoptive parents
closer in line with those eligible for maternity
leave. For adoptive parents, rights will apply
from day one with the removal of the qualifying
period in employment of 26 weeks. Statutory
adoption pay will also be enhanced to 90%
of the adopter’s salary for the first six weeks.
Both adoptive and intended parents will be
able to consider the Shared Parental Leave
rights available (as covered above).
“From 5th April this year, there will be a shift bringing the rights of adoptive parents closer in line with those eligible for maternity leave.”
The two key changes to be aware of are:
• The limit on the compensatory award for
“ordinary” unfair dismissal will increase
from £76,574 to £78,335
• The maximum amount of a week’s pay
for the purposes of calculating statutory
redundancy payments and the basic
award in unfair dismissal claims will
increase from £464 to £475
NEW STATUTORY RATES
There will be a 1% increase in the
rates for statutory maternity, adoption,
paternity, shared parental and sick pay
from 5th April 2015.
The new statutory rates will be as follows:
Maternity, Adoption
and Paternity ............................... £139.58 Shared Parental .......................... £139.58 Sick Pay ....................................... £88.45*
INCREASE IN EMPLOYMENT TRIBUNAL COMPENSATION LIMITS
For dismissals taking place from 6th April
2015, there will be new limits on compensation
for unfair dismissal and statutory redundancy
pay.
(*from 6th April 2015)