News & Insights

Employment bulletin July 2014

Our July bulletin looks at whether an employer can penalise an employee for failing to work their notice period and an important change to zero hours contracts.

Can you deduct pay when an employee doesn’t work their notice?

An employee who has been employed for one month or longer must give their employer at least the statutory minimum of one week’s notice before leaving their job, or, if longer, the period specified in their employment contract.  If an employee fails to work their notice period employers will often withhold their pay, but can they also make a further deduction for the losses they may suffer as a result?  

This point was recently considered by the Employment Appeal Tribunal (EAT), which examined the contract between a project engineer, Miss Li, and her employer, First Marine Solutions.  Miss Li resigned from her job and did not work her one month contractual notice period.  First Marine withheld her pay for the period not worked and also made a deduction of £5,000 under a clause in Miss Li’s employment contract which allowed it to deduct a sum equal to any shortfall in notice.  Miss Li argued that the clause was legally unenforceable as it was designed to punish her for failing to give notice, rather than being a genuine estimate of the loss First Marine would suffer.

The EAT found that the clause was enforceable and that First Marine had been entitled to make the deduction.  Miss Li occupied a senior position and it was expensive and difficult to replace her at short notice.  The EAT also noted that the amount of the deduction was linked to the period of notice not worked.  It was for Miss Li to show that the clause was a penalty clause and she had failed to do so.

The Judge in this case emphasised that the enforceability of these types of clauses will depend on the specific circumstances and the intentions of the parties at the time the contract was entered into.  Employers seeking to rely on such clauses should consider reserving their use for senior or business-critical staff, making specific reference to the costs of recruitment at short notice, and including a right to demand payment as well as a right to make deductions.

Zero hours contracts – government announces one major change

‘Zero hours’ contracts have no legal definition, but are generally understood to mean contracts for casual workers where the worker is only paid for hours worked and the contract does not guarantee any minimum number of working hours.

Following a period of consultation, the government has announced that it will ban the use of exclusivity clauses in these contracts which prevent people from working for another employer.  It is widely accepted that such clauses are inappropriate where an employer is not guaranteeing work, and 83% of responses to the recent consultation were in support of the ban.

The government now intends to carry out further consultation about how the ban will work in practice, amid concerns that employers could avoid it by offering a ‘one hour’ contract.  The government will also work with businesses and trade unions to develop a code of practice on the fair use of zero hours contracts by the end of 2014.

All employers should review their use of casual worker and zero hour contracts in anticipation of the forthcoming restriction on exclusivity clauses.

Red card for referee’s employment claim

Determining a person’s employment status is crucial to establishing the extent of their employment rights, as only employees under the Employment Rights Act 1996 can bring an unfair dismissal claim.  Where a person must perform work personally, is obliged to carry out work offered, and is subject to a high degree of control over when and how work is completed, this may indicate employee status.

The EAT was recently asked to consider whether Mr Conroy, a referee, was an employee of the Scottish Football Association (SFA).  Mr Conroy was required to register with the SFA to referee matches under the SFA’s jurisdiction.

Factors pointing towards employee status were the provision of health insurance by the SFA and the fact that Mr Conroy couldn’t send a substitute referee to take his place.  Factors against employee status were that Mr Conroy was free to decline any matches offered, spent around £1,000 a year providing his own watch, cards and whistles, and was not subject to the SFA’s disciplinary procedures if he failed to attend training sessions or performed poorly.

The EAT held that Mr Conroy was not an employee and therefore could not bring an unfair dismissal claim.  It suggested that the correct approach was to note all the different factors, then weigh up the overall situation as if standing back to appreciate a detailed painting.  In this case the lack of control exercised by the SFA and Mr Conroy’s freedom to decline work offered to him were important details.

Where employment status is disputed, coming to a conclusion is rarely straightforward and is not a mechanical or ‘tick box’ exercise.  Employers should bear in mind that it is the conduct of the parties that will decide employment status, not the way the employer or the contract describes the relationship.

Accrued annual leave – what happens after a worker’s death?

The Working Time Directive places limits on working hours and provides rest breaks for all workers across Europe, including the right to a minimum of 4 weeks’ paid annual leave.  This minimum period of annual leave may not be replaced by a payment in lieu, except where employment is terminated.

The European Court of Justice (ECJ) has considered a case referred to it by a German court where national law prevented a man’s estate from receiving a payment in lieu of accrued but untaken holiday when the man’s employment terminated due to his death.  The man had been on sick leave for some time before his death and had accrued 140 ½ days’ holiday leave, which he had not taken.

The ECJ found that the Directive prevented any national legislation from denying entitlement to a payment in lieu of annual leave after termination, regardless of how that relationship was terminated and whether or not the employee had been on sick leave.  It also made clear that there was no need for the employee to have issued a claim prior to his death in order for his estate to receive payment.

Any employer which loses a member of staff in these circumstances will want to manage the situation with compassion and must ensure that the employee’s estate receives all payments that are legally due.

Reasonable adjustments – how far do you have to go?

It is well established that where a disabled person is put at a substantial disadvantage to a non-disabled person by an employer’s practice or a physical feature of the employer’s building, the employer has a duty to make reasonable adjustments to remove or lessen that disadvantage.

A recent case before the Court of Appeal involved a civilian employee of the British Army whose daughter had Down’s syndrome.  The employee requested a transfer from her base in Germany to the UK so that her daughter could access specialist learning facilities.  When her request was refused she claimed her employer had failed to make a reasonable adjustment.

The Court of Appeal held that the duty to make reasonable adjustments only applies in respect of employees or job applicants.  It dismissed the employee’s argument that Article 5 of the Equal Treatment Directive protects employees who are associated with a disabled person.  As the employee herself was not disabled, the employer had no duty to make reasonable adjustments.

Employers will often want to make adjustments for employees with a disabled family member, but it is clear that they are not legally obliged to do so.  It should be noted, however, that an employee struggling for family reasons could still make a request for flexible working and a female employee looking after an ill child may be able to bring an indirect sex discrimination claim.

Can an individual be an employee if they are not receiving a salary?

Only employees with at least two continuous years’ service are entitled to statutory redundancy payments.  In general terms an employee is a person who works under a contract of employment, but, as the referee case above demonstrates, pinning down employment status can sometimes be difficult.  One of the key requirements of being an employee is the agreement to work in exchange for salary or other consideration.

In a recent case the EAT was asked to consider Mrs Knight’s circumstances.  Mrs Knight had been the managing director and sole shareholder of a company since 1991.  She had a contract of employment and worked regular hours.  Mrs Knight also received a salary, but she forfeited it for two years when the company started to struggle.  In doing so she enabled other staff and creditors to be paid.  By October 2011 the company had become insolvent.  Mrs Knight claimed a redundancy payment from the Insolvency Service.  

The EAT found that Mrs Knight was entitled to a redundancy payment.  Choosing not to require the company to pay her salary did not mean that she had agreed to vary her contractual entitlement to her salary or that she had agreed to the contract of employment coming to an end.  

This is an interesting case as there are not many situations in which an individual will be considered an employee despite not receiving a salary from the employer.