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The Employers Update - August 2010

Welcome to this month’s edition of Employ!

This month we take a look at potential changes to the Default Retirement Age (DRA), minimum wage increases and changes to TUPE regulations as well as answering your employment questions.

If you have any queries in relation to the content of Employ, or any employment issue, please call the Employment Team on 0844 8000 263 or email oliver.mccann@taylors.co.uk.

Oliver McCann - Partner and Head of Employment
James Bellamy - Employment Solicitor

Tel: 0844 8000 263
Email: oliver.mccann@taylors.co.uk


In This Edition:

» When I’m 65!!
» Fresh Blood and Retirement!
» National Minimum Wage Rates
» TUPE and Equal Pay Issues
» TUPE and Material Changes
» Your Questions Answered

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When I’m 65!

The new coalition government has confirmed the intention to scrap the Default Retirement Age (“DRA”) which is currently set at 65!

The DRA is the age set by the last government where employers could lawfully retire an individual so without liability for unfair dismissal or age discrimination but only where the Employer followed statutory retirement procedures.

It is intended the DRA will cease completely by 1 October 2011 and no new notices of intended retirement may be issued after 6th April 2011.

Any retirement dismissal after 1 October 2011 will have to be objectively justified.

What do I need to know?

  • Retirement at 65 or above remains currently lawful but not for long and only in relation to notices issued before 6th April 2011
  • Transitional arrangements are likely to apply to retirement dismissals notified before 6th April 2011 and to occur before 1st October 2011
  • All retirement dismissals after 1st October maybe subject to challenge by the employee
  • The new changes beg the question whether it will ever be possible to justify a retirement policy setting a retirement age? There is likely to be more emphasis on dismissals for capability or poor performance so it maybe worth reviewing those policies to ensure they are clear and achieve your objectives.
  • The retirement procedures are likely to be abolished unless, following the consultation process, they are kept in a revised format so that they must be used in any purported retirement dismissal where the employer believes it can objectively justify the retirement dismissal.

Fresh Blood and Retirement!

Following the announcement to abolish the DRA it will become necessary for all retirement dismissals after 1 October 2011 to be objectively justified. The burden is on the employer right from the outset!

Accordingly a recent case on this very issue appears more important than ever!

A law firm had a compulsory retirement age of 65 for partners. A partner was retired in accordance with the partnership deed. He brought claims under the Employment Equality (Age) Regulations 2006 alleging that compulsory retirement at 65 was direct discrimination.
At tribunal the retirement age was found to be objectively justified on grounds that:

  • it ensured that senior solicitors are given the opportunity of partnership
  • it facilitated partnership and workforce planning; and
  • it created a congenial and supportive firm culture by limiting the need to expel partners by way of performance management.

On appeal the EAT approved the tribunals findings but rejected the third ground above on the basis it was a stereotypical assumption as it assumed performance tails off as you get older. There was no evidence to substantiate this and so could no be a legitimate aim.

At the Court of Appeal the claimant argued that the decision by the ECJ in the Heyday challenge established that legitimate aims had to be of a social policy or public interest nature, rather than individual to the employer. This was rejected holding the firms legitimate aim (some of which mirrored the national social aims) as legitimate. It also rejected the argument the firm could have chosen a different retirement age to achieve its legitimate aim. As long as it is established it was proportionate to choose 65 then the fact it would be less discriminatory to have chosen 66 cannot render the provision unlawful. The Court felt that the DRA of 65 set by the government supported the choice of 65 as a fair and proportionate cut off point.

What do I need to know?

  • Retirement ages can be objectively justified on succession and workforce planning grounds
  • Given the removal of the DRA, objective justification will be necessary
  • Any future retirement policy will have to be carefully considered, reviewed and challenged to see if the Company can sustain it in the future with identification of the legitimate aims of the company and research evidence to back it up being crucial
  • If there are legitimate aims for a retirement policy then setting the retirement age needs careful consideration – despite the above case supporting 65 as a retirement age, in light of comments made in the Heyday challenge to the DRA, it is apparent that the Judge in that case supported an ongoing review of a retirement age, suggesting that if the government was to set a DRA now it doubted 65 could be justified.

National Minimum Wage Rates

NMW rates increase in October as follows:

  • Adult rate - £5.80 to £5.93Rate - £4.83 to £4.92
  • Workers below 16-18 £3.57 to £3.64
  • Apprentices employed under a contract of apprenticeship – £2.50

TUPE and Equal Pay Issues!

A recent case has highlighted the difficulties which arise from a TUPE transfer of employees who carry out similar work but at different rates of pay.

In this case the Claimants and their comparator transferred from various predecessors and became Customer Service Managers in the transferor. At the time they became employed by the transferor the comparator was paid £10,000 more than the two claimants but this arose from historical contractual entitlements which were preserved by TUPE. The comparator was also entitled to pay rises until 2004 after which his salary would be reviewed annually. In 2004 the transferor introduced a performance related pay and bonus scheme for all employees but provided red circling for those who were overpaid. Despite the red circling this was not applied to the comparator and his salary continued to increase. The claimants and the comparator transferred to the transferee in 2008 which sought to address pay anomalies. However the claimants pursued Equal Pay claims.

The transferee had inherited the pay issues from the transferor. It sought to defend the claim on the basis that there was a genuine material factor other than sex for the pay disparity, namely the historical contractual obligations to the comparator which were TUPE protected. This was rejected, as there was no contractual basis for the pay increases after 2004. The Tribunal also rejected an argument that an Equality Clause had been frustrated by the TUPE transfer in 2008, holding that the Equality Clause had operated prior to transfer to substitute the comparators more favourable terms in to the claimant’s contracts and these were therefore preserved by TUPE on transfer.

What do I need to know?
  • It is important to conduct an annual review of pay and carry out a comparison of those working in the same department, at the same level or doing like for like work in order to identify any pay anomalies
  • Identify the root cause of any pay anomalies to see if there is a defence and question whether that defence can be maintained moving forwards or has become historical
  • Recognise that if you acquire a business and TUPE applies then you inherit the employees, “warts and all” - thorough due diligence must be undertaken to identify potential anomalies which can give rise to Equal Pay claims

TUPE and Material Changes

The TUPE regulations aim to preserve the terms and conditions of employment of all those who are employed at the time of the transfer. To achieve that objective the regulations make void any changes to terms and conditions where there is no economic, technical or organisation reason entailing changes in the workforce.

The regulations also state that an employee who resigns in response to substantially and materially detrimental changes in working conditions as a dismissal.

A recent case has given some clarity to a transfer situation where the effect of the transfer is likely to result in changes to terms and conditions. Employees were to be subject to a transfer of their employment to the Nationwide BS. Some of the transferring employees were told that they would have to take up downgraded positions along with reduced bonus entitlements. They resigned in response to these fundamental changes alleging they had been automatically unfairly dismissed.

What do I need to know?

Nationwide successfully defended the claim for automatic unfair dismissal on the basis that there was an ETO reason arising from the fact that its product range was different such that it could not enable the transferring employees to operate at the same function levels. It was however held that there had been a constructive dismissal as the regulation relating to material detriment was engaged. The fairness of that dismissal is to be determined having regard to the individual and collective consultation but this does not include compliance with the information and consultation obligations under the Regulations where no complaint has been made for a failure to comply with these obligations. The case also clarified that it to establish the ETO defence it was not necessary for the ETO reasons to entail changes to the workforce as a whole and could be limited to the transferring employees only.

Your Questions Answered

1. I have an employee who was granted emergency time off due to issues with childcare. I granted her this, unpaid. She indicated to me she expected this to be for two days. She has now been absent for 1 week with no other communication from her since the initial discussion. What can we do?

There is a statutory right to emergency time off to care for dependants which provides that an employee is entitled to take a reasonable amount of time off during the employee’s working hours in order to take action which is necessary either:

  1. to provide assistance on an occasion when a dependant falls ill, gives birth or is injured or assaulted;
  2. to make arrangements for the provision of care for a dependant who is ill or injured;
  3. in consequence of the death of a dependant;
  4. because of the unexpected disruption or termination of arrangements for the care of a dependant;
  5. to deal with an incident, which involves a child of the employee and which occurs unexpectedly in a period during which an educational establishment, which the child attends, is responsible for him or her.

Disruption to the Employer is irrelevant. The employee’s obligation is to inform the Employer as soon as reasonably practicable for their absence and how long they expect to be absent.

A recent case has confirmed that two weeks advance notice of childcare issues still fell amounted to an unexpected disruption or termination in childcare. Another case has suggested that one months advance warning of childcare issues would almost never fall within the statutory right.

Likewise the period of absence may or not be reasonable depending on the individuals circumstances.

In relation to your employee we believe she should have contacted you again on the third day to give you an update. As such you could consider disciplinary action but before doing so you need to meet with the employee on her return and find out the reason for the absence, why it lasted more than the two days intimated and why she failed to give you an update.

An employee must not be dismissed or suffer a detriment for exercising their statutory right above so you must take care.

2. I have given former employees references previously when asked but I have recently been asked for a reference on someone who I dismissed for gross misconduct. Do I have to provide a reference and if so what can I say or not say?

There is no legal requirement to provide a reference for former employees unless you work in the financial services industry or there is an express provision within the company’s contracts of employment. Despite this, there is case law in which a judge said that although no legal obligation exists, there is a moral obligation to provide one (Spring v Guardian Assurance plc and others [1994] ICR 596, HL).

If you do intend to provide a reference it is essential that you keep it factual and remain objective. Be aware that a former employee may obtain a copy and challenge the content. The main legal risk is under negligence (albeit claims could be issued for disability discrimination or defamation) where an employer will be liable if loss results from the employer's failure to exercise reasonable care in the preparation of a reference. Accordingly:

  1. Keep it short
  2. stick to the facts, i.e. dates of employment, position held, duties etc.
  3. Avoid referring to disciplinarians/ sickness records
  4. Do not give subjective opinion about the former employee

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