When an employee is dismissed the employer usually has to be prepared to show that the reason for the dismissal was on the list of potentially fair reasons and that the employer behaved reasonably.  If the employer can’t and the employee has been there for more than a year the dismissal is unfair.

 In some cases if the employee can show that the reason for the dismissal was on a different list of protected reasons then the dismissal will be unfair however long the employee had been employed and however reasonable the employer’s decision.

 There are a number of these automatically unfair reasons connected with health and safety.  One of these is when the employee took ‘appropriate steps’ to protect himself or others from ‘serious and imminent danger’.

 In a recent case a chef refused to do some cleaning in an area where some electrical work was being carried out because he thought it was dangerous.  The employer thought it wasn’t dangerous and sacked him.  The Employment Appeal Tribunal decided the dismissal was unfair because Parliament had intended to allow employees to remove themselves from what they reasonably consider to be dangerous situations.  Whether it really is dangerous or even less whether the employer thinks it is dangerous, is irrelevant.

 The Tribunal accepted that in theory at least it was possible for an employee’s dismissal to be unfair even if he hadn’t mentioned that his actions were because of some danger or other.  If his actions were an appropriate response to the perceived danger and the employer dismisses because of that action then the dismissal is unfair.

 Not surprisingly, the right of an employee to remove themselves from a dangerous situation does not apply to members of the armed forces; whatever the equipment they have been given.

 Oudahar v Esporta Group Ltd

If an employee leaves without giving their employer the notice they should there is a breach of contract and the employer can claim damages from their now ex-employee. 

In an SME context, although not an uncommon situation, the amounts involved usually mean claims are not pursued.  Cases with people who work in the City are more likely to go to Court.  One recent case illustrates what can happen when an employee leaves without giving the employer the amount of notice they should give or, as in this case, without giving any notice at all.

The amount of the employer’s claim was calculated on the assumption that the employee would have given 6 months’ notice and left at the earliest opportunity he could without breaking his contract.  The employer was entitled to claim the difference between its actual financial position at the end of that period and what it would have been if there hadn’t been a breach.

The mirror image is when an employee is dismissed without sufficient notice.  The employer is normally liable to pay them at most whatever they would have earned in the notice period.  The employee is expected to mitigate their loss by seeking alternative employment and if they are successful the employer may end up paying less.

When an employee leaves the employer is clearly better off to the amount it would have paid the employee during their notice period.  The question is whether it can show it has suffered any loss in excess of that saving?

Each case will depend on the circumstances.  The loss of a particularly poor employee may even benefit the employer.  Other employees can be replaced without difficulty so that there is no financial loss for the employer.

The recent case concerned an employee who was head of a broking company’s Swiss francs forward desk with a salary of about £158,000.  The court decided that although he had wrongly terminated his contract of employment the company had failed to show that any loss had resulted.  The employee was a good broker and would have earned some commissions for his employer in the period but after deducting his additional overhead costs, salary, benefits and expenses there was no profit.  Accordingly, the employer’s claim for loss of profit during the notice period failed.

 BGC Capital Markets (Switzerland) LLC v Rees and others

 Minimum wage rates are about to increase by 2.5% which, it is estimated, will raise the wages of about 900,000 workers.  The doubts last year about whether proposed increases would be introduced at all are not there this time.

 Assuming the relevant statutory instrument is passed in time the rates from 1^st October 2011 will be:

• Workers aged 21 and over £6.08 per hour (up from £5.93)
• Workers aged 18 to 20 £4.98 per hour (up from £4.92)
• Workers aged 16 to 17 £3.68 per hour (up from £3.64)
• Apprentices £2.60 per hour (up from £2.50)

 As before it remains the employer’s responsibility to keep sufficient records to show that the minimum wage has been paid.

 At the beginning of the year there was a change to the National Minimum Wage rules meaning that any subsistence costs for travelling to a temporary workplace no longer form part of the worker’s pay, for the purposes of calculating the minimum wage.  Previously some employers had used travel and subsistence schemes as part of worker’s pay as a means of saving tax and National Insurance Contributions, whilst still complying with the minimum wage rules.

 The coalition Government has confirmed its support for the minimum wage, and made it clear that it rejected the suggestion in a private members bill that disabled people should be able to opt out and work for a lower figure. 

 We are expecting guidance shortly to clarify when individuals performing work experience, including interns, are entitled to the minimum wage.

 

A recent case concerning replica helmets for the Star Wars Stormtroopers has been decided in the Supreme Court.

One point from the case is relevant to SMEs who sell goods through a website.

The film company said the supplier had breached their copyright in the helmet designs under both UK and US law. The court decided there was no breach of UK copyright law. However it accepted there had been a breach of US copyright law.

That might not be a problem if the UK supplier was sued in the US, unless it had assets there. In this case the court decided that the supplier could be sued in the UK because he had sold the helmets to customers in the US through his website.

The implication of the case is that anyone in the UK who sells abroad is at risk if they don’t comply with the intellectual property rules of the country their customer lives in.

SME’s have probably been aware that they have to comply with the consumer protection laws of the countries their customers are living in. In the event of a complaint most would offer a refund and a consumer is unlikely to sue someone in another country anyway. Intellectual property rights are different because, as in this case, they often belong to the big boys. In this case the supplier sold at most $30,000 of goods in question in the US but the US court said he had to pay damages of $20,000,000!

The case is an illustration of the impact of globalisation. Whether it, or any court case, can be significant enough to act as a brake on export sales or even to encourage the end of national legal systems (and national governments) remains to be seen.

Lucasfilm Limited and others v Ainsworth and others

What should an SME do about the new Bribery Act?

 The answer, in most cases, is probably not much more than thinking whether there is any real risk of bribery being committed on their behalf and then making a record that they have done so.

 If an organisation is corrupt then any new legislation is unlikely to change that.

 The fact that a director or manager can be personally liable if they knew about and didn’t stop any bribery may give pause for thought to those who are themselves pukka but suspect, or know, the company they work for isn’t entirely straight.  They are now exposed to a possible penalty of up to 10 years imprisonment and/or an unlimited fine.

 The organisation itself can now be liable for the acts of its employees, agents, representatives and subsidiaries – even when they are acting on their own initiative and without approval.  Giving a bribe normally requires money and the normal financial controls should enable management to see where the company’s funds are going.  However the legislation also applies to accepting a bribe and this may be harder to discover if the money goes to an individual rather than the company.

 It is a defence for the company to show it had ‘adequate procedures’ in place to prevent anyone associated with it from giving or receiving bribes.  To protect honest companies and their directors from things they don’t condone even SME’s should:

1. carry out risk assessment to identify if anything they do or anyone does on their behalf could involve them in bribery;
2. prepare a simple anti-corruption policy to make it clear the company doesn’t condone bribery.  This should refer to corporate hospitality;
3. train, or at least inform, staff about the new procedures and provide a method of reporting concerns;
4. consider revising staff handbooks or employment contracts to make it clear that the company avoiding bribery is more important than improperly landing the business;
5. possibly add a clause to contracts with distributors, agents, joint venture partners and others that no bribes, secret commissions and the like will be given or accepted;
6. repeat on a regular basis.

 For most SMEs this is just more administration that won’t change anything they do or is done on their behalf.  However some will be surprised about what is being done in their name or for their benefit.  Prosecutions need the consent of one of three senior prosecutors and the director of the Serious Fraud Office has said

‘Bringing the full force of the SFO and the criminal justice system to bear on a very small company (say under 50 people) seems to me to be a wrong use of resource.  Far better to find other ways of making sure that that small company knows how to operate ethically.’

That may be some comfort but note how small the company has to be.

A recent decision of the Employment Appeal Tribunal (Olds v Late Editions Limited) concluded that where there is a pre-pack sale of a business by an administrator the contracts of employment of the people working in the business are all automatically transferred to the buyer.  This means that all the employees of the business which is sold by way of a pre-pack will continue to be employed by the new owner of the business on their existing terms.

The decision contradicts an earlier decision of the Employment Appeal Tribunal (Oakland v Wellswood (Yorkshire) Limited) which said that the employees’ contracts of employment did not transfer where the intention of the administration was to liquidate the assets of the seller; which is the position when there is a prepack sale.  The general view is that it would be dangerous to rely on the earlier decision now although it may well be that the question will go to a higher court for a definitive ruling.

Arguably it should for two reasons:

(a)    the wording of the legislation; and

(b)   the underlying objective of saving jobs.

The wording of the legislation

The key phrase in the TUPE Regulations that the Employment Appeal Tribunal had to interpret is whether if a company appoints an administrator who immediately sells the company’s business the insolvency proceedings were ‘instituted with a view to the liquidation of the assets of the transferor’ (i.e. the company in administration).

There is a clear distinction in European law between insolvency proceedings aimed at:

(a)    the continuation of a business in the same hands; and

(b)   the disposal of the business

In the UK administration is one of several types of insolvency proceedings.  It was introduced by the Enterprise Act 2002 to assist with the continuation of a business in the same hands.  This objective is in line with the ‘rescue culture’ that the UK Government aims to promote.

Pre-packs do not seem to have been envisaged by legislation and at one time were considered of doubtful legitimacy.  Now they have been approved by the Courts and are a firmly established sub-set of administrations.

In this case the Employment Appeal Tribunal decided that all administrations had to be treated the same.  It wasn’t prepared to allow different outcomes for those administrations that involved a pre-pack sale and those administrations where there wasn’t a pre-pack sale.

Although the EAT gave five inter-related reasons for its conclusion in practice these seem to come down to whether or not it is clear that any particular administration belongs in the pre-pack sub-set or not.

As a result of pre-packs not featuring in the Insolvency Act there is no statutory definition of what a pre-pack is.  It is easy to say that there is a pre-pack where the ‘sale of the business’ follows ‘immediately’ after the appointment of the insolvency practitioner.  However it may be the ‘sale of the business’ includes a greater of lesser total of all the assets of the business or even that the business is divided between two purchasers.  Even if a sale ‘immediately after the appointment of the insolvency practitioner’ there is always going to be a gap of some magnitude.  Legislation might have provided for the sale to be a pre-pack if it had followed within a specified period but it didn’t.

While the conclusion of the EAT in Olds may be simpler and clearer it does seem to duck the issue.  The TUPE regulations say that they do not apply if the administration was ‘instituted with a view to the liquidation of the assets of the transferor’.  The traditional pre-pack sale does exactly that.  The earlier decision in Oakland accepted that there had to be an enquiry as to why the administration had been entered into and a decision made as to whether that particular administration had been entered into with a view to re-stabilising the business as a going concern or one where there is no intention to operate/trade the business.  The rough justice of treating all administrations the same seems to be stereotyping which ignores the requirement of the TUPE regulations to look at the particular transaction and classify it appropriately.

 Saving Jobs

The underlying objective of the European Directive from which the TUPE Regulations derive is ‘to provide for the protection of employees’.

Everyone involved in this area will have come across cases where a business wasn’t sold because a buyer wouldn’t take on all the employees on their existing terms.  In some cases it becomes clear that the original company failed because it had too many employees and paid them too much.  Employers, large and small, often underestimate the time and money required to implement a redundancy programme.

It is not known whether more jobs are saved by making buyers take on staff they don’t want than are lost by businesses having to close.  Clearly there is a tension between the two positions.  If a business closes all the jobs are lost.  If a buyer can choose which members of staff to employ it may be that some or even most of the staff will be offered new jobs; although not necessarily on the same terms.

The state also has an interest because if employees do not transfer they may be entitled to claim payments from the National Insurance Fund.  These include redundancy pay, pay arrears, pay in lieu of the statutory minimum period of notice and pay for untaken holidays.

Of course an employee whose contract of employment is transferred to the buyer is not completely safe.  The buyer can still make them redundant if there is an economic, technical or organisational reason to do so.  Unfortunately the meaning of an ETO reason has never been very clear.  There is considerable room for confusion as to whether a dismissal is for an ETO reason or for a reason connected to the transfer which is not permitted under TUPE. 

Avoiding litigation about the type of insolvency proceedings may just lead to more disputes around the reason for a dismissal.

Although, in general, private companies no longer need to hold Annual General Meetings many still do so as they don’t know what is needed to stop.  In reality they probably don’t need to do anything.

Under the Companies Act 1985 and its predecessors every company had to have an annual general meeting each year.  Latterly a private company could pass a resolution to dispense with holding an annual general meeting.

The current legislation is the Companies Act 2006 which does not require private companies to hold an annual general meeting.

The company’s articles may require an annual general meeting to be held.  This is likely to be the case if the articles pre date the 1985 act.  If so the company would have to change its articles to stop the AGM habit.

The directors can still hold an AGM if they want to and the holders of 5% or more of the voting shares can require them to do so.  If the directors simply don’t call an AGM one year it is up to a member to do something if he wants one.

The business of an AGM is usually to approve the accounts and reappoint the auditors.

Under the 2006 Act, private companies are not obliged to lay accounts and reports before general meetings. Therefore, for private companies, there is no statutory link between the accounts and annual general meetings, although the articles may create such a link.

In recent years most private companies have given up appointing auditors.  Even if they still do under the 2006 Act auditors of a private company will be deemed to have been re-appointed, save in exceptional circumstances, so there is no need for an AGM for that reason.

The amounts Employment Tribunals can award are reviewed each year.  From 1st February 2011 the following rates will apply:

• the maximum compensatory award for unfair dismissal will be £68,400 (up from £65,300)
• the limit on a ‘week’s pay’ for the purpose of calculating redundancy payments and the basic award of compensation for unfair dismissal will be £400 (up from £380)

More details on these increases and the increases in other Employment Tribunal awards can be found at http://nds.coi.gov.uk/content/Detail.aspx?ReleaseID=417255&NewsAreaID=2

In the 1890s about two thirds of males over 65 were ‘gainfully occupied’.  This fell to 50% in the 1920s and by the 1980s was less than 10% about half of whom were part time.  Today this trend has almost certainly been reversed due to improvements in health and problems with obtaining adequate pensions.

An employee can decide to retire at any age.  Subject to giving the appropriate period of notice the employee simply leaves when they want to retire.

Difficulties only arise when an employer wants an employee to retire but the employee wants to carry on working.  If agreement cannot be reached the employer may decide to dismiss the employee.  The question is in what circumstances that dismissal will not be both age discrimination and unfair dismissal.

If the employee is incapable of carrying out their duties then their employment may be fairly terminated.  The employer will have to carry out a proper procedure and the employee the opportunity of trying to persuade the employer they should not be dismissed.  Provided the employer does carry out a proper procedure the ultimate decision is that of the employer.  This tends to be unpopular with employers who may see compulsory retirement as a more dignified way of parting with a longstanding employee than using disciplinary procedures.

For the next few months an employee who is  perfectly capable of doing the job can still be fairly dismissed if they reach the compulsory retirement age and the employer follows the specified procedure.

The employee’s employment contract may specify a certain age for retirement but there is no need for a business to have a compulsory retirement age.  Only a small minority of employers, especially SME’s, apply mandatory retirement ages.  If a business does it can be set at any age but a compulsory retirement below 65 is unlawful unless objectively justified.  Compulsory retirement under the age of 65 (or an earlier justifiable retirement age) is automatically unfair.

If the business does not fix a retirement age it will be assumed to be 65.  Allowing a compulsory retirement age can be seen as undermining the principles behind preventing age discrimination which was introduced in October 2006.  The government has announced that this default retirement age will be scrapped from 1 October 2011.  After then any compulsory retirement age will have to be justified.

Some commentators, including the Employment Lawyers Association, think this change will produce a glut of compulsory retirements in 2011.

It is not possible to have different retirement ages for men and women.

For the time being an employer can compel an employee to retire when they reach the default retirement age of 65 or the compulsory retirement age for that business if the employer follows the statutory retirement procedure:

• between 6 and 12 months before the intended retirement date the employer must notify the employee in writing of the date and their right to request to work beyond that date if they want;
• if the employee wants to continue working they have to make a request between 3 and 6 months before the intended retirement date;
• if the employee makes a request to continue working the employer should  meet with them to discuss it;
• the employer can decide whether or not to accept the request and doesn’t need to give reasons for their decision.  The decision must be given to the employee in writing;
• if the request is refused the employee has the right to appeal;
• the employee has the right to be accompanied at any meeting to discuss their retirement and any subsequent appeal meeting.

If the employee’s request is refused the employer can give the employee notice confirming their retirement on the compulsory retirement date.  The termination of the contract of employment in accordance with that notice will be a fair dismissal and won’t be age discrimination.

Compulsory retirement at the compulsory retirement age is automatically unfair if the statutory retirement procedure is not followed.  It will probably also give rise to a claim for age discrimination for which there is no upper limit to the compensation an Employment Tribunal can award.

Under the proposals for abolishing the default retirement age employers will not be able to give a notice requiring compulsory retirement after 6 April 2011.  After that date employers will only be able to dismiss employees under the ordinary unfair dismissal rules unless they can objectively justify a compulsory retirement age for their business.

 

It can be important to decide whether someone is an employee or self-employed for tax and well as employment rights.  Some statutory rights (e.g. unfair dismissal) only apply to ‘employees’ although some also apply to ‘workers’ (e.g. protection from discrimination in relation to the protected characteristics).

The following factors can be helpful in deciding whether a particular arrangement makes an individual an employee or not.  However the decision will be made on the overall impression created by the arrangement and not on the number factors indicating employment compared with the number suggesting self-employment.

1.            Mutual Obligations

Perhaps the most important test is whether the firm has to supply work and if they do whether the individual has to carry out that work.  If the firm doesn’t have to provide any work and even if they do the individual doesn’t have to accept it that suggests the individual is self-employed.

2.            Carrying on Business

Another factor is whether an individual can be said to be carrying on a business on his own account.  If he is he will be self-employed but if he is part of someone else’s business he is likely to be an employee.

Factors indicating the individual is carrying on a business include if the individual is:

• risking their own money;
• providing their own equipment;
• working for a number of firms;
• able to profit by efficient organisation or by reducing overheads.

3.            Contract Terms

In a marginal case what any contract between the individual and the firm says as to the status of the individual can be indicative.  However the parties cannot choose whether the individual is employed or not.  H M  Revenue & Customs and Employment Tribunals will look at what actual happens not what the contract says should happen.

If the contract has terms usually found in a contract of employment the contract is likely to be an employment contact.  These terms include:

• holidays;
• sick pay;
• pension arrangements;
• overtime arrangements;
• rights to terminate on notice.

4.            Personal Service

A self-employed person is contracted to carry out a particular job.  If there are restrictions on who can do the work that suggests an employment arrangement.  If the person is self-employed they should be able to send someone else to carry out the work.

5.            Control

If the firm can direct when, where and how the individual does his work then he is likely to be an employee.  On the other hand if the individual has discretion over these matters that suggests he is self-employed.

Any sort of disciplinary procedure in the contract suggests it is an employment contract.

6.            Tax

If an individual pays tax and national insurance on a self-employed basis it in indicative that he is not an employee.  However it is not conclusive if other factors suggest employment.

7.            Payment

If someone is paid by the hour or some other regular period they are likely to be employed.  If they are paid for completing a particular piece of work they are more likely to be self-employed.

HM Revenue & Customs have useful guidance on this question at http://www.hmrc.gov.uk/employment-status/index.htm