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In this issue of our Employment Newsletter:

Keeping abreast of reform and developments in the employment law arena has always been a challenge but perhaps never more so than at present. In this latest newsletter, we summarise the most critical developments.

Tribunal Reform – What Employers Need to Know

Whilst we are only half way through the year, we have already seen a number of changes and the horizon looks just as busy.

In our February/March Newsletter, we summarised key changes which were expected to come into force in March and April. The majority of these changes have now come into effect. Our earlier Newsletters can be viewed in the library secion of our website ( Additional changes include:

From 25th June 2013

There is no qualifying period for unfair dismissal where the main reason for dismissal is an employee’s “political opinions or affiliation”. An employee dismissed because of their political opinions or membership of a particular organisation can bring a claim for unfair dismissal from day one;

For the purposes of the whistleblowing legislation, in order for a disclosure to protect a worker, it must, in the reasonable belief of the worker, be in the public interest. Therefore, a worker can no longer raise claims in relation to breaches which are personal rather than in the public interest.

From 29th July 2013

New simplified Employment Tribunal rules of procedure will apply from 29th July 2013. In addition:

Fees: A controversial change implementing fees in the Employment Tribunal and the Employment Appeal Tribunal. Tribunal fees will be payable in relation to proceedings issued on or after 29 July 2013. No fees will apply to any aspect of proceedings issued before that date.

Remission: For those individuals who cannot afford to pay the fees, there will be a remission scheme in place. As a general rule, everyone is deemed to be able to pay unless they demonstrate (by way of an application through the remission scheme) that they are unable to do so. In the event that a remission application is successful, some or all of the fees will be waived.

It remains to be seen to what extent these new and significant fee requirements will deter Claimants from making claims in the Employment Tribunals. Those currently intending to make a claim are likely to do so before the 29th July deadline in order to avoid paying the new fees.

UNISON, Britain’s largest trade union, and others, have applied to the High Court for judicial review of the decision to introduce fees. They argue that the fees will make it ‘virtually impossible’ for workers to exercise their employment rights. It is very unlikely that these applications will delay implementation.

Cap on unfair dismissal compensation: In relation to dismissals taking effect after 29th July 2013, the new cap will be the lower of £74,200 (as now) or 52 weeks’ pay. This will have a significant impact on the value of many cases.

Other Anticipated Reforms

Settlement Agreements: ACAS has issued a new Code of Practice in relation to settlement agreements (known to many, at present, as compromise agreements). Under the new Code, the correct terminology for these agreements will be ‘settlement agreements’.

The current rules regarding compromise agreements will still apply (for example, the agreement must be in writing and the employee must have taken independent legal advice for it to be legally binding).

Pre-termination negotiations: Under the existing ‘without prejudice’ rule pre-termination negotiations are only inadmissible if there is a pre-existing dispute between the parties. However, under the new Code of Practice, pre-termination negotiations will be inadmissible in ordinary unfair dismissal claims regardless of whether there is a pre-existing dispute.

The rationale for this change is to make it easier to have difficult discussions with employees about their potential departure.

However, the rule will not apply if there has been ‘improper behaviour’ by one of the parties. Improper behaviour includes, amongst other things:

  • Putting undue pressure on a party;
  • All forms of harassment, bullying and intimidation, including through the use of offensive words or aggressive behaviour;
  • Physical assault or the threat of physical assault and other criminal behaviour;
  • All forms of victimisation; and
  • Discrimination on the grounds of a protected characteristic.

There is no implementation date set yet although it looks possible that this might come into force in September 2013.

Employee Shareholder Status

One of the further changes on the horizon is the introduction of employee shareholder status (previously called employee ownership). 

Despite a negative response to consultation, the Government has now decided to go ahead with its proposal which means that, as of 1 September 2013, employees will be able to give up some of their employment rights in exchange for shares in their employer. Employees will be specifically protected from suffering a detriment or being dismissed for refusing to become an employee shareholder.

The key features of employee shareholder status are that:

  • The employee receives a minimum of £2,000 worth of fully paid up shares in their employing company;
  • The first £2,000 of shares will be free of income tax and national insurance contributions; and
  • The first £50,000 of gains will be free of capital gains tax (“CGT”) subject to certain anti- avoidance provisions.

In return for the shares, the employee gives up the right to:

  • A statutory redundancy payment;
  • Claim unfair dismissal (except where the dismissal is automatically unfair);
  • Request flexible working (except where the request is made shortly after returning from parental leave); and
  • Request time off for training.

Employees will also be required to give more notice of their proposed date of return from maternity/paternity leave.

Requirements for Employee Shareholder Status

In order to effect employee shareholder status, the company must provide a written statement to the employee which sets out specified information such as whether any voting or dividend rights apply to the shares.

In a similar way to a settlement agreement, the employee must then take independent legal advice on the terms and effect of the proposed agreement. The reasonable costs for this advice must be paid by the company, regardless of whether the employee actually decides to become an employee shareholder or not.

There must also be a seven day “cooling off” period (from the date the employee receives the advice) before any agreement can be entered into. If the employee is not given seven days to consider the advice or, if they accept the position before the seven days is up, the agreement will not be effective.

In practice

It is surprising that the Government is going ahead with this plan as the concept has been unpopular from the start. From an employee’s perspective, it is unlikely that £2,000 of shares sufficiently compensates for the potential value of employment rights they will give up.

From the company’s perspective, it could prove very costly to ensure that it has the right to issue or allot the new shares, to properly value the shares, to draft the necessary documentation and to cover the employee’s reasonable legal fees. On top of this, employee shareholders retain the right to pursue claims of automatic unfair dismissal (for example in relation to pregnancy and maternity, TUPE and whistleblowing) and discrimination claims.

It remains to be seen how many employee shareholders will be created. With the potential exception of senior employees who may make some gain from the CGT exemption, it seems unlikely there will be many takers.

TUPE – Important Changes

Service Provision Changes (SPCs) – more limited than we thought

A key development under the Transfer of Undertakings (Protection of Employment) Regulations 2006 was to clarify that instances of contracting out, contracting in and changes of service provider (Service Provision Changes or SPCs) would amount to a relevant transfer for the purposes of employment protection under TUPE.

In fact, the case law generated by the new Regulation 3(1)(b) (concerning SPCs) has arguably narrowed the circumstances in which the Regulations were thought to apply. In particular, regulation 3(1)(b) requires an ‘organised grouping’ of employees whose principal purpose is to provide services to a particular client. The Employment Tribunals have been rejecting many TUPE transfer claims on this basis. Most recently we have had the important case of Ceva, detailed below.

Ceva Freight (UK) Limited v Seawell Limited

In this case, the Court of Session has held that, in order to satisfy the requirements of Regulation 3(1)(b), it is necessary that work is deliberately organised around delivering services to a particular client.

It is not enough that an employee spends 100% of his time performing services for the particular client.

The effect of this decision is that it is becoming increasingly difficult to satisfy the requirements of Regulation 3(1)(b) in order to establish that TUPE applies in services and supply contracts.

Those involved in the supply of services and outsourcing contracts should take steps to ensure that the organisation of service delivery anticipates the requirement for individual jobs and team structures to be designed around particular clients (as opposed to particular activities or services).

It should not be forgotten that the case law concerning more traditional business transfers under ‘old TUPE’ (now in Regulation 3(1)(a)) historically recognised that the transfer of labour intensive or service based businesses could be caught by the Regulations in any event.

Those involved in the drafting of service contracts or outsourcing contracts should:

  • Ensure that references to TUPE are not limited to Regulation 3(1)(b);
  • Anticipate the possibility that TUPE may not apply on the termination of a contract to supply services and, therefore, include appropriate indemnity provision in relation to employment liabilities on the termination of the contract.

TUPE Reform

No more SPCs: We reported in our Newsletter in February/March that the Government has proposed various changes to TUPE. In particular, this includes the repeal of Regulation 3(1)(b) concerning Service Provision Changes (SPCs). The outcome of the Government’s consultation on these changes has not yet been published (it is expected in September). Changes are then to be introduced in October this year but the repeal of the SPC provisions is likely to follow after a ‘lead in’ time, recognising that businesses will require time to adjust.

The case law in relation to SPC will therefore remain relevant for some time. Equally, we recommend that employers involved in the supply of services and outsourcing are mindful of the pre-2006 case law which may be potentially more relevant in the longer term.

TUPE and Pensions: In addition, the Transfer of Employment (Pension Protection) Regulations 2005 (implemented to protect employees with access to occupational pension schemes in the event of business transfers) will be amended to ‘dovetail’ with employers’ obligations in relation to pension ‘auto-enrolment’ (see our October 2012 Newsletter). The amendment means that transferee employers will be able to choose whether to comply with the 2005 Regulations or alternatively the (less onerous) obligations under the auto enrolment provisions of the Pensions Act 2008.

TUPE and Consultation: Another important TUPE development relates to the requirement to inform and consult with employees in the event of a proposed TUPE transfer.

It had become established in law that employees affected by a TUPE transfer may include employees who would not transfer to the new employer but who would remain in the original business. However, this has now been challenged in the case of I Lab, detailed below.

I Lab Facilities Limited v Metcalfe

In this case, the Employment Appeal Tribunal found that, where part of a business transferred, those employees not assigned to the transferring business were not ‘affected employees’ (in respect of whom there should have been consultation) even though following the transfer the employees were made redundant.

This is a surprising decision which relates to a scenario where there were two very distinct parts of a business. Accordingly, our advice is that there should still be careful consideration as to whether non-transferring employees should be treated as ‘affected employees’.

Case Update

Can ex-employees still bring victimisation claims against their former employers?

In Onu v Akwiwu, Mrs Onu was exploited by her employers. She left and brought claims of unfair dismissal and race discrimination.

Six months later, her former employer contacted her family to complain that she had brought a Tribunal claim and stated that “she would suffer for it”. If an employee is subjected to a detriment because they have brought a discrimination claim, threatened to bring a claim or been involved in a discrimination claim, this is victimisation.

The employee can bring a claim for unlimited compensation. It has traditionally been the case that former employees could also bring victimisation claims and these claims often arose in the context of reference requests being refused. When the Equality Act 2010 came into force, the victimisation provisions were worded differently and Tribunals have been rejecting post-termination victimisation claims as a result. However, in Mrs Onu’s case, it was decided that former employees can still bring these claims.

This issue is likely to be considered further by the Tribunals. However, in the meantime, employers should ensure that they avoid victimising employees both during and after their employment ends.

Can PILONs still be used to terminate employment?

In Société Générale v Geys, Mr Geys was told by his employer that he was being dismissed summarily, pursuant to a payment in lieu of notice clause (PILON) in his contract.

Mr Geys argued that his employment continued because his employer had not acted exactly in accordance with the terms of the PILON which required immediate payment of his notice pay.

The Supreme Court agreed and held that Mr Geys was employed until he received unequivocal communication of his employer’s decision to dismiss him by making a payment in lieu of notice.

Further, where an employer decides to exercise a contractual right to terminate an employee’s employment under a PILON, the employer needs to make it clear to the employee both that it is making a PILON and that it is doing so in exercise of its contractual right to summarily terminate the employee’s employment. Therefore, employers need to act carefully when dismissing an employee. If there is any irregularity in the dismissal, the employee can elect not to accept the dismissal and remain in employment.

Often, employees will not take this approach as they would rather receive their notice pay. However, employees may wish to keep their employment alive in order to benefit from bonuses, share options or other valuable benefits which accrue shortly after a purported dismissal.

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