News & Insights

Employment bulletin March 2014

This month’s bulletin includes details of our breakfast briefings and the new compensation limits, discusses a variety of cases and reflects on the current state of collective redundancy consultation.

FSP Breakfast briefings 2014

Dates for your diary – join us in April, June and October. Read more

New compensation limits

On 6 April 2014:

  • the maximum compensatory award for unfair dismissal will increase from £74,200 to £76,574;
  • the limit on a week’s pay (used to calculate statutory redundancy payments and the basic award for unfair dismissal) will increase from £450 to £464.

External HR Consultants – who’s the decision maker?

It is very well established law that for a dismissal to be fair an employer must show a potentially fair reason, that its decision to dismiss was fair in all the circumstances and that it followed a fair procedure.

Rather than employ an in-house specialist HR professional, some employers choose to use external consultants to assist them in dealing with HR issues as and when they arise.  In a recent case, the managing director and sole shareholder of a small company engaged an external consultant to investigate allegations of sexual activity between colleagues on company premises outside normal working hours.  The employees had also made derogatory comments about the company.  The Employment Appeal Tribunal (EAT) found that due to the small size of the company and the fact that the managing director was a witness to the sexual activity, using external consultants was appropriate.  They found that the dismissal was fair even though the decision to dismiss was ultimately taken by the managing director.

While investigatory functions can be delegated and advice sought, it is important to remember that the ultimate decision-maker within the business must be sure of the reason(s) for dismissal.  It will not be acceptable to dismiss by relying blindly on a consultant’s advice.  As ever, each case will turn on its particular facts.  It would be unusual for a large employer with a dedicated HR team to use consultants in this way.

Post TUPE harmonisation – beware!

The basic principle of the TUPE Regulations is of course to protect employees when an employer’s business is bought by a third party.  An important aspect of that protection was the fact that dismissals for a TUPE related reason were automatically unfair unless that reason was an economic, technical or organisational reason (known as an “ETO” reason).  (TUPE changed in January this year, see below.)  Many employers wish to harmonise terms after a TUPE transfer but it can be hard to distance such exercises from the transfer itself.  Harmonisation programmes often involve dismissals where the employees refuse to agree the new terms.  Such dismissals risk being both unfair under ordinary principles and in breach of TUPE.

In a recent case before the Court of Appeal, an employer sought to harmonise 37 different sets of terms which it had inherited after a TUPE transfer as part of a broader cost-saving strategy.  During the harmonisation process it dismissed employees who refused to accept a considerable reduction in wages, then re-engaged them on new contracts.  The employer tried to run the argument that the reason for the dismissals was the business-wide reorganisation and not an isolated attempt to standardise terms after a TUPE transfer.  It pointed out that it had also put 300 roles at risk of potential redundancy.  The Court of Appeal was unimpressed and found that the principal reason for the dismissals was the desire to harmonise terms following a TUPE transfer.  The great difficulty with establishing an ETO reason is that it has to entail a change in the workforce, in other words a change in the number of employees, their roles (or since, 31 January, their place of work).  The fact that a redundancy exercise (which clearly would reduce the number of employees) had been conducted alongside the harmonisation exercise did not mean that the reason for the dismissal of the employees who refused to accept the pay cut involved a change in the workforce.  Their dismissals were therefore automatically unfair.

This case was decided prior to the changes to TUPE on 31 January 2014.  Now, a dismissal will be automatically unfair if the reason for it was the transfer itself (although this may include some situations which previously would have been considered transfer-related reasons).  Employers are now allowed to change terms for an ETO reason provided the employee agrees to the change or where the contract permits such variation.  However, BIS Guidance makes it clear that a desire to harmonise terms will be a “transfer” reason (and not an ETO) so not permissible.  Therefore, although the recent changes to TUPE have made life somewhat easier for employers, the risks of post TUPE harmonisation of terms are likely to remain high.

Collective confusion?

In light of changes in the law, recent cases and resulting uncertainty, Ian Machray sets out issues to bear in mind when planning a collective redundancy consultation. Read more 

Unused flexi-hours

Flexi-hours schemes allow employees to take time off if they work beyond their contractual weekly hours.  In a recent case before the EAT, an employee had accrued over 1,000 hours of flexi-time when he was made redundant.  He brought a claim for unauthorised deduction from wages after his employer refused to pay him in lieu of all of his accrued flexi-time.

It is well known that employees who have accrued but untaken holiday at the end of their employment are entitled to receive a payment in lieu of that holiday entitlement.  However, there is no equivalent statutory entitlement in respect of flexi-hours.  In this case, the EAT examined the employment contract and employee handbook, both of which were silent on how flexi-time should be dealt with on termination.  The EAT found that the employer was entitled to direct when flexi-hours could be used (eg during the notice period) and it saw no reason why any term should be implied into the contract requiring a payment in lieu of unused accrued flexi-time.  A term can only be implied into a contract where it is necessary to make the contract work or both parties would have said the term was agreed.  Terms cannot be implied in order to make a contract fair.

Although it was not penalised in this case, the employer could have saved itself the inconvenience and expense of attending tribunal and EAT hearings had its employment contracts adequately addressed this scenario.  This case is a useful prompt to check contracts to ensure that they are clear and comprehensive.