Employment Update, UK

05 February 2008

Vanessa Bullock, Alison Dixon

Legislation

New Immigration Orders come into force on 29 February 2008

Background

Under section 8 Asylum and Immigration Act 1996, it is a criminal offence for an employer to employ someone who does not have valid permission to live and work in the UK. It is a defence for employers to show that, before taking on a prospective employee, they have checked, copied or retained certain specified documents (such as a passport). Although employers guilty of such an offence can be fined up to £5,000 per illegal worker, the prosecution rate under the current system is very low. In order to tackle illegal immigration more effectively, the Government has introduced a new system under the Immigration, Asylum and Nationality Act 2006, which combines civil and criminal sanctions and which will come into force on 29 February 2008.

New legislation

The Immigration, Asylum and Nationality Act 2006 introduces three key measures:

  • a civil penalty for employers who negligently employ an adult subject to immigration control in breach of their conditions of leave or stay in the UK, the maximum fine being £10,000 per illegal worker (section 15(1) and (2));

  • a continuing obligation for employers of workers who have limited leave to enter or remain in the UK to check their ongoing entitlement to work in the UK (section 15(7)(e)); and

  • a new criminal offence for employers who knowingly employ illegal workers, which will carry a maximum prison sentence of two years and/or an unlimited fine (section 21(1) and (2)).

Effect on employers

The new legislation does not significantly change employers’ obligations with regard to the prevention of illegal working. As is the case under the 1996 Act, employers will be excused from payment of a fine under section 15(3) and (7) Immigration, Asylum and Nationality Act 2006 provided they: (i) have verified, retained, copied or recorded specified documents of the employee prior to employment; and (ii) can show that they were not aware at any time during the period of employment that they were employing an illegal worker. The main difference is that in order to have a defence to civil liability, employers will need to undertake ongoing checks at least annually for those employees with limited leave to enter or remain in the UK. In addition, there will be no defence to criminal liability.

Although the new measures are not groundbreaking, they will enable the Government to impose tougher penalties and deal with non-compliance of UK immigration law more effectively. Employers should ensure that in making the required checks, they avoid unlawful race discrimination, for example by only checking the documents of a particular group. The new Immigration, Asylum and Nationality Act 2006 will permit the Secretary of State to issue a new Code of Practice on how to avoid race discrimination when making the required checks.

New caps on Unfair Dismissal Compensatory Award and Statutory Redundancy Payment came into force on 1 February 2008

Background

In unfair dismissal cases, compensation awarded by employment tribunals will usually consist of:

  • a basic award, which is calculated using a formula based on the employee’s age, length of service and weekly pay, and

  • a compensatory award, of such amount as the tribunal considers ‘just and equitable’ in all the circumstances.

Where employees are made redundant, those with over two years’ continuous service are entitled to a statutory redundancy payment which, like the basic award, is calculated according to age, length of service and weekly pay.

The compensatory award is subject to a cap which, since February 2007, has been £60,600. A week’s pay for the purposes of calculating the basic award and the statutory redundancy payment has been capped at £310 for the same period.

New legislation

The Employment Rights (Increase of Limits) Order 2007, which came into force on 1 February 2008, increases the limit for compensatory awards for unfair dismissal from £60,600 to £63,000. The cap on a week’s pay is also increased from £310 to £330.

Effect on employers

The new limits will apply to dismissals where the effective date of termination falls on or after 1 February 2008. Employers should therefore ensure that they take these increased amounts into account when calculating redundancy and severance payments for employees who are dismissed on or after that date.

Employment Bill published

Background

The new Employment Bill, which was published on 6 December 2007, received its second reading in Parliament on 8 January 2008. The Bill aims to strengthen the enforcement of employment law by reducing regulatory burdens on employers, whilst also increasing protection for vulnerable workers.

New legislation

One of the principal elements of the Bill is that it proposes to repeal the statutory dismissal and grievance procedures set out in the Employment Act 2002 and the Employment Act 2002 (Dispute Resolution) Regulations 2004 and related provisions on procedural unfairness in the Employment Rights Act 1996, including section 98A, which states that a dismissal is an automatically unfair dismissal if an employer has failed to comply with the statutory dismissal procedures. It proposes to give employment tribunals discretion to increase compensation awards made to employees by up to 25% where an employer has unreasonably failed to comply with an applicable ACAS Code of Practice and to reduce any award to an employee by up to 25% if it considers that the employee has unreasonably failed to comply with the Code. Other changes proposed include the introduction of a “fast-track” process in the Employment Tribunal, the abolition of fixed conciliation periods in Tribunal cases, strengthening the current regime for enforcement of national minimum wage legislation and improving the enforcement of employment agency standards.

Effect on employers

Probably the most significant of the changes proposed in the Bill is the repeal of the statutory dispute resolution procedures after only a short period in force (they were introduced in 2004). This will come as a relief for many employers, as the current procedures, in particular the statutory grievance procedures, have given rise to much confusion. However, the repeal is unlikely to take effect until April 2009, so in the meantime employers will need to continue to follow the current procedures. When it does eventually come into force, the new regime will not relieve employers of their obligation to try and resolve disputes fairly and reasonably. An employer’s compliance with the ACAS Codes of Practice on disciplinary and grievance procedures is likely to have a significant bearing on the amount of compensation awarded to an employee in a successful claim. The Codes of Practice on disciplinary and grievance procedures will be revised to coincide with the new regime and employers will need to familiarise themselves with these.

Case law

The Transfer of Undertakings (Protection of Employment) Regulations 2006 can apply to transfers outside the UK

Background

The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) were introduced in 1981 to protect employee rights and continuity of employment where the business in which they work is transferred from one employer to another. TUPE was amended in 2006 to cover ‘service provision changes’ which include most situations where services are outsourced, reassigned or brought back in-house. TUPE applies where the undertaking is situated in the UK immediately before the transfer (in the case of a business transfer) and (in the case of a service provision change) where there is an organised grouping of employees situated in Great Britain immediately before the service provision change (Regulation 3(1) and 3(3)). Provided this is the case, TUPE will apply even if the transfer is governed by or effected under the law of another country, the employment of the transferring employees is governed by foreign law, or the employees subject to the transfer ordinarily work outside the UK (Regulation 3(4)).

Facts

Newell Limited (‘Newell’), which had a factory in the UK, sold part of its manufacturing business to Holis Metal Industries Limited (‘Holis’), a company based in Israel. None of the employees in the business moved to Israel and all were made redundant by Holis shortly after the transfer. The GMB started proceedings against both Holis and Newell for breach of the duty to consult with appropriate representatives of the affected employees, as required under Regulation 13 of TUPE. On the issue of the applicability of TUPE outside the UK and the EU, the EAT held that TUPE can apply to a transfer from the UK to another jurisdiction (whether inside or outside the EU). The EAT found that in the light of the purpose of TUPE, which is to protect the rights of workers in the event of a change of employer, a ‘purposeful approach’ required that the employees affected should be protected even if, after the transfer, the undertaking is based outside the UK. The pre-transfer requirement of location in the UK was sufficient to give jurisdiction to UK courts. The EAT also held that the fact that TUPE could govern transfers with an international element was clear from the wording of Regulation 3(4) TUPE and from the 2006 ‘service provision change’ provisions which are clearly aimed at outsourcing both inside and outside the EU.

Effect on employers

Although commentators have already expressed the view that TUPE is likely to apply to overseas transfers, this case is useful as it is the first judicial comment on the issue. It serves as a warning for UK employers who outsource or offshore services overseas that TUPE may apply to these types of transaction. Employers should therefore ensure that they fully consider the potential application of TUPE and its implications in international business transfers or outsourcing / offshoring situations (although the practical importance of this decision remains to be seen, as enforcement of a tribunal award against a company or business based overseas could prove difficult).

An employee cannot rely on an employer’s breach of the implied term of trust and confidence to claim constructive dismissal where he had committed a prior breach of the implied term

Background

Employers and employees owe each other an implied contractual duty of mutual trust and confidence. Employers must not without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee. Employees, for their part, must serve their employers loyally and not act contrary to their best interests. Breach of the duty by the employer may amount to a repudiatory breach of the employment contract, entitling the employee to resign and claim constructive dismissal. A repudiatory breach of contract may also release the employee from any further obligation to the employer under the contract of employment.

Facts

RDF Media Group plc (‘RDF’) entered into a Sale and Purchase Agreement (‘SPA’) for the purchase of IWC Media Limited (‘IWC’). Mr Clements was a shareholder of IWC as well as one of its directors. Under the SPA, he entered into restrictive covenants with RDF, one of which was a three-year non-compete obligation, in exchange for almost £2 million in cash and shares. Just sixteen months into the agreement, Clements divulged confidential information to a competitor of RDF, Scottish Media Group plc (‘SMG’), which he intended to join. RDF sought to enforce the restrictive covenant against Clements, who counterclaimed for constructive dismissal on the grounds of damaging remarks made to the press by RDF’s managing director which, he alleged, were in breach of the implied duty of trust and confidence. The High Court found that Clements was still bound by his restrictive covenants and had not been constructively dismissed, holding that although the statements made to the press were capable of amounting to a breach of the implied duty of trust and confidence, an employee who has already breached his duty of trust and confidence towards his employer cannot rely on the employer’s subsequent breach to found a claim of constructive dismissal. The Court took the opportunity to consider the extent of the duty of mutual trust and confidence and found that: (i) the duty still exists when an employee is on garden leave, although it may be diluted, depending on the facts; (ii) there is no breach of the duty where a board of directors discuss an employee in a negative way between themselves; (iii) the burden lies on the employee to prove any breach; and (iv) when assessing whether there has been a breach, it is the impact of the employer’s behaviour rather than his intention which is relevant, and regard must be given to all the relevant circumstances including the fact that an employee is himself in repudiatory breach.

Effect on employers

Although employers should generally welcome this decision, the case highlights the need to be vigilant when releasing statements about employees who resign or go on garden leave, especially where the employee is senior or holds confidential information and the employer wishes to rely on restrictive covenants. Releasing negative comments about departing employees can amount to a repudiatory breach of contract and may discharge the employee from further obligations owed to the employer under the employee’s contract of employment, including post-termination restrictions.

The duty to consult over collective redundancies under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 includes a duty to consult about the reasons for the redundancy situation

Background

Under section 188 Trade Union and Labour Relations (Consolidation) Act 1992, ‘where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, the employer shall consult about the dismissals all the persons who are appropriate representatives of any of the employees who may be affected by the proposed dismissals or may be affected by measures taken in connection with those dismissals’. Section 188 further stipulates that the consultation must include consultation about ways of avoiding the dismissals, reducing the numbers of employees to be dismissed, and mitigating the consequences of the dismissals. This has been interpreted in the past as amounting to a duty to consult in relation to the actual redundancy process rather than the underlying business reasons for the redundancies (R v British Coal Corporation and the Secretary of State for Trade and Industry, ex parte Vardy and Securicor Omega Express Ltd v GMB).

Facts

UK Coal Mining Limited, which owned the Ellington Colliery, decided to close the site for both economic and safety reasons without properly consulting with the National Union of Mineworkers (‘NUM’), the recognised trade union for most of the 329 employees. NUM commenced proceedings against UK Coal Mining for failure to consult in breach of section 188. The EAT held that where it is recognised that dismissals will inevitably, or almost inevitably, result from a closure, dismissals are ‘proposed’ at the point when the closure is proposed, which triggers the obligation to consult. The obligation to consult over ways of avoiding the proposed redundancies inevitably involves engaging with the reasons for the dismissals, which in turn requires consultation over the reasons for closure. The EAT emphasised that strictly speaking, it is the proposed dismissals that are the subject of consultation, not the closure itself. Therefore, in the rare circumstances where an employer who plans a closure in the belief that redundancies can be avoided, there would be no obligation to consult over the reasons for closure. Where closure and dismissals are inextricably interlinked however, the duty to consult over the reasons for the redundancies arises.

Effect on employers

This case serves as a warning for employers who plan to close a business or part of a business which will necessarily result in collective redundancies. They should ensure that consultation begins before a firm decision is taken to close and be prepared to discuss the reasons for the proposed closure with the unions or employee representatives. The requirement to consult over the reasons for the redundancies may result in increased costs and delays to the collective consultation process. Employers should keep documentary evidence that consultation has taken place over the business reasons for the dismissals, in order to avoid potential future liability under section 188.

Where an employer has changed terms and conditions in connection with a TUPE transfer, transferring employees can ‘cherry pick’ whichever terms they consider more favourable from their new and old contracts

Background

The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 1981 protected employees in a business which is transferred from one employer to another by providing that they transfer to the new employer on the same terms and conditions of employment and ‘all other rights, powers, duties or liabilities under or in connection with the contract of employment’ will transfer to the new employer (Regulation 5(1)). Regulation 12 of TUPE 1981 states that ‘any provision of any agreement…shall be void insofar as it purports to exclude or limit the operation of regulation 5…’. Under TUPE 2006, which replaced TUPE 1981, a purported variation in terms and conditions of employment is void if the sole or principal reason for it is the transfer or a reason which is connected with the transfer and which is not an ‘economic, technical or organisational reason entailing changes in the workforce’ (an ‘ETO reason’) (Regulation 4).

Facts

Mr Power’s employment transferred to Regent Security Services Limited (‘Regent’) pursuant to TUPE 1981. Before the transfer, he had a contractual retirement age of 60. Following the transfer, he agreed to an increase in his retirement age to 65. Regent then tried to retire Mr Power at 60. Mr Power brought a claim for unfair dismissal. Regent argued that under Regulation 12 of TUPE, the purported change to his retirement age was void. The Employment Appeal Tribunal (affirmed by the Court of Appeal) held that Regulation 12 did not require the agreed amendment to be treated as void and that Mr Power was therefore entitled to enforce the increased retirement age which he had agreed with Regent. The purpose of TUPE was to safeguard the rights of employees, and to allow a transferee employer to rely on TUPE to deprive an employee of the benefit of a varied term agreed by the employer would be inconsistent with that purpose. In any event, Mr Power had not contracted out of his rights under TUPE – he still had, and could have relied upon, the acquired right to retire at 60. However, he had agreed an additional right with Regent which Regent was not then entitled to withdraw.

Effect on employers

This case was decided under TUPE 1981. Unlike TUPE 1981, TUPE 2006 expressly states that any changes to terms and conditions by reason of a TUPE transfer are ‘void’, suggesting that unlike under TUPE 1981, neither employer nor employee would be able to enforce an amended term under TUPE 2006. However, it is arguable that TUPE 2006 fails to implement the ARD correctly in this regard, and employers should therefore be alert to the risk that employees who have agreed to changes in their terms and conditions in connection with a TUPE transfer will be able to pick and choose whichever of their old and new terms they consider more favourable. The judge commented that whilst ‘the employee can object to any change which he considers to his detriment, and the existence of any compensating advantages will not deprive him of that right… he may well have to give up any benefits obtained under the varied contract as a condition of so doing’. This is a positive note for employers, but it may also be worth making express provisions for the repayment of consideration made in exchange for TUPE-related contractual changes where an employee seeks to argue that he or she is not bound by them.

Authors