Employment Update, UK - October 2007

09 October 2007

Emily Bennett, Elizabeth Lang

Legislation

The Working Time (Amendment) Regulations 2007 came into force on 1 October 2007

Background

At present, the statutory minimum holiday entitlement under the Working Time Regulations 1998 entitles all full time workers to 20 days of paid holiday. This includes the 8 bank holidays. Part time workers are entitled to a pro-rata entitlement. In order to ensure that workers take their holiday entitlement, the regulations provide that no payment may be made in lieu of the 20 days holiday entitlement (except on termination of employment), and it may not be carried over from one year to the next.

New legislation

The new legislation will mean that all workers will have a minimum of 28 days of paid holiday including the bank holidays. The changes will be introduced in 2 stages in order to give employers time to adjust to the change. On 1 October 2007 the entitlement will increase to 24 days, and 1 April 2009 it will increase to 28 days. Until 1 April 2009 employers will be permitted to make payment in lieu of the 4 additional days of holiday as a transitional measure. As from 1 April 2009 no payment in lieu of the 28 day statutory holiday entitlement will be permitted except upon the termination of employment. Workers will be entitled to carry over up to 8 days' holiday to the following year only.

Effect on employers

The change may have a real financial effect on many employers, particularly in sectors which rely heavily on agency workers and other seasonal and hourly paid workers, who are commonly only given the statutory minimum paid holiday entitlement. In these cases, the entitlement will increase by 40%, resulting in a higher cost to employers. Even employers who currently offer more than 28 days of paid holiday to their workers will have to make adjustments to comply with the new regulations governing the administration of holiday. There will be less freedom to allow employees to carry holiday over from one year to another and to make payments in lieu of holiday.

The Racial and Religious Hatred Act 2006 came into force on 1 October 2007

Background

Employees in the UK have workplace protection from discrimination on the grounds of sex, race, disability, sexual orientation, religion or belief and age. Employees can claim against employers in the Employment Tribunal, if they have been less favourably treated or harassed on these grounds.

The Racial and Religious Hatred Act 2006 (the “Act”) received Royal Assent in February 2006. It amends the Public Order Act 1986 to create a new criminal offence of stirring up hatred against a person on the grounds of their religion. The offence is punishable by a fine or a prison sentence of up to seven years. The offence applies to words or behaviour which is threatening and intended to stir up religious hatred. Religious hatred refers to hatred against a group of people who are defined by reference to their religious belief or lack of belief.

Most provisions of the Act were due to come into force on 1 October 2007. Employers should be aware that any act of religious discrimination within the workplace, as well as exposing the employer to claims of religious/ race discrimination, may now also constitute a criminal offence under the new Act. If a company is liable under the Act, and it can also be shown that “the offence was committed with the consent or connivance of a director, manager, secretary or other similar officer” then the individual, as well as the company, will be guilty of the offence and liable to a sanction.

Effect on employers

It is possible that harassment claims, or claims under the Race Relations Act 1976 or Employment Equality (Religion or Belief) Regulations 2003, could now be supplemented by a claim under the Racial and Religious Hatred Act 2006. Although such a claim cannot be brought before the Employment Tribunal, claimants may try to use the Act as an alternative to an Employment Tribunal claim of discrimination or harassment, especially if they have failed to comply with the shorter time limits applicable to Tribunal claims.

The remaining provisions of the Data Protection Act 1998 come into force on 24 October 2007

Background

The Data Protection Act 1998 (the “Act”) came into force on 1 March 2000 and replaced the (previous) Data Protection Act 1984 in its entirety. The new Act applies not only to personal data which is automatically processed (ie held on computer), but also to paper-based personal data stored in filing systems. Every company and organisation is legally obliged to process any personal data which it holds in a fair and proper way. The Act regulates when and how personal data relating to individuals may be obtained, held, used and disclosed, and provides mechanisms (such as registration procedures and enforcement powers) to ensure that those in control of personal data comply with the law. It also provides the subjects of personal data with mechanisms for gaining access to that data, challenging any misuse or abuse of that information and seeking redress if they suffer damage or distress as a result of breaches of the law.

New legislation

Employers were given several years in order to comply with the new legislation in respect of existing paper-based records. Although the Act came into force on 1 March 2000, some of its requirements were phased in. The second transitional period was from 24 October 2001 to 23 October 2007 and applies to manual data held immediately before 24 October 1998 and manual health records that do not form part of a relevant filing system. During the transition period, companies and employers were exempt from various data protection principles in relation to manual data. The transitional period expires on 24 October 2007, and at this point the remaining provisions of the Act will come into full force.

Effect on employers

As this second transitional period is drawing to a close, it is essential that employers review their data storage and processing systems. Employers should ensure that manual filing systems that were in existence before 24 October 1998 – which will include all paper-based personnel records that form part of an organised filing system - are compliant with the data protection provisions under the Act.

Case law

The first penalty has been awarded for a breach of the Information and Consultation of Employees Regulations 2004 (ICE Regulations)

Background

The ICE Regulations were introduced in 2005 and they currently apply to every UK undertaking which has at least 100 employees. In April 2008 the Regulations will be extended to cover undertakings with 50 or more employees. The purpose of the Regulations is to encourage discussion between employers and employees in relation to issues which affect both parties. In particular, the Regulations give employees a right to request information and consultation arrangements under which they will be informed about the employer’s economic situation and the employment prospects facing them. They also stipulate that those arrangements must cover information and consultation about any decisions which are likely to lead to a substantial change in the employees’ conditions of employment.

Facts

A few weeks ago, Macmillan Publishers Limited received the first penalty notice awarded under the Regulations. On receipt of a valid employee request, Macmillan took no steps to arrange a ballot to elect employee representatives which is required under the Regulations. Macmillan argued that the formal system of staff consultative committees, which it had operated for many years, was a pre-existing arrangement which removed its obligations under the ICE Regulations. However, the pre-existing arrangements, amongst other things, did not cover all Macmillan employees. The EAT took a dim view of Macmillan’s non-compliance and imposed a fine of £55,000, to be paid within 14 days. The EAT explained that the sum was an attempt to deter others from adopting the same “wholly cavalier attitude to their obligations”.

Effect on employers

This case emphasises the importance of employers taking any employee request under the ICE Regulations seriously, as the courts are clearly willing to impose penalties against employers. With the threshold coming down to 50 employees as from April, this issue will become relevant to an increasing number of employers. Employers who have no information and consultation arrangements with employees may wish to consider the benefits of reaching such agreement on a voluntary basis before a statutory request is made. Employers who have pre-existing information and consultation arrangements would be advised to check that they are compliant with the Regulations, so as to ensure they are capable of overriding any employee request under the ICE Regulations.

Tribunal strikes out age discrimination claim pending ECJ decision in Heyday

Background

The Employment Equality (Age) Regulations 2006 which make discrimination on the grounds of age unlawful provide for a default retirement age of 65. Subject to complying with certain procedures, employers may therefore lawfully dismiss employees aged 65 or more by reason of retirement. ‘Heyday’, an arm of Age Concern, are currently awaiting a judicial review of the legality of the Regulations on the basis that the UK, in allowing employees to be lawfully retired at age 65, has not fully implemented the Equal Treatment Directive.

Facts

In the recent case of Johns v Solent SD Ltd, Mrs Johns claimed unfair dismissal and age discrimination on the grounds that she had been retired at the age of 65. She requested that her claim be stayed pending the outcome of the Heyday judicial review. The employment tribunal refused to grant a stay and struck out her claim on the basis that it had little prospect of success. The tribunal in its decision referred to the Advocate General's opinion in the Palacios case, which stated that national laws providing compulsory retirement ages were permissible.

Effect on employers

This case is an important one for employers. Although it is only a decision of the employment tribunal, and therefore not binding, it is persuasive evidence that if employers follow the retirement provisions carefully, employees should not be able to proceed with a claim based on a retirement age of 65.

Limited discretion for employers considering exercise of options

Background

The Court of Appeal in McCarthy v McCarthy and Stone PLC, has confirmed the High Court’s judgment that any discretion reserved for the employer in the exercise of options under the option plan rules must be interpreted very narrowly.

Facts

The Claimant was a director and an employee of the Defendant. After his retirement the Claimant sought to exercise his options over all shares which had been granted under the Defendant’s share option scheme. The Defendant’s Remuneration Committee (RC) allowed the Claimant to exercise his option over only 75% of his shares, concluding that the Claimant had allied himself with interests of a competing business and had not been in a position to make any material contribution to the performance of the company or the achievement of the ‘performance condition’ necessary to exercise the option.

The Claimant argued that the performance condition for exercise of the options was achieved despite these matters. The Claimant also argued that the performance condition was over 3 years and the alleged misconduct (which was not proven) was for 3 months; therefore if the reduction of 25% was designed to take into account the 3 month period, it was disproportionate. The Court held that the Claimant had achieved 100% of the performance condition. The Court held that the RC was required to go through a 2 stage process. First, the RC had to use their absolute discretion in deciding whether to allow the shares to be exercised, taking into account bona fide factors relevant to the Claimant’s conduct. Here, it could not possibly be bona fide to take into account the factors referred to by the RC as (i) they did not affect the satisfaction of the performance condition, and (ii) the Defendant had remedies for such conduct but had chosen not to institute any proceedings. Secondly, the RC had to decide whether the option holder could exercise all or a proportion of his options. If a proportion, this was to be determined pro rata to the achievement of the performance condition, the RC having no discretion as to the extent of the exercise.

Effect on employers

Following this decision, it is clear that any discretion that the employer has in relation to share options must be interpreted very narrowly and, even if it suspects that an employee is guilty of gross misconduct, exercise of the share options must still be governed by the share plan rules. One solution may be to draft the option rules broadly, leaving wide discretion for the employer. However, this creates its own problems as some companies may be unwilling to approve plans which leave significant discretion to the Remuneration Committee. Additionally, any wide discretion is likely to be fettered by the company’s own actions, as it unintentionally sets precedents which may later be found to be binding. Recent case law related to bonus payments indicates in any event that a requirement of reasonableness may be imposed on the exercise of discretion by an employer.

Authors