News & Insights

Employment bulletin May 2014

May’s bulletin investigates the risks associated with employing illegal workers, highlights the pitfalls of being customarily generous with redundancy payments, and reports on two recent TUPE cases.

Are you discriminating while checking entitlement to work?

All UK employers have a duty to prevent illegal working by checking that prospective employees have documents confirming their right to work in the UK.  If employers fail to do this, the penalties may be substantial.  As we reported in our April bulletin, the maximum civil penalty for employers who employ adults who do not have the right to work in the UK has increased from £10,000 to £20,000 per employee.

In addition to civil penalties, employers also face the risk of tribunal claims if they carry out their pre-employment checks in a discriminatory manner.  To assist employers, the government has published a draft statutory code of practice on avoiding unlawful discrimination while preventing illegal working.

The Code advises employers to have clear written procedures for the recruitment and selection of all workers, based on equal and fair treatment for all applicants.  It also recommends that employers carry out statutory immigration checks for all prospective workers, regardless of their accent or ethnic background.

The Code is expected to come into force imminently.  Once in force, a tribunal may take into account an employer’s failure to follow the Code in deciding whether a person has been discriminated against.  Clearly the possibility of both civil penalties and discrimination claims makes it essential for employers to be thorough, fair and consistent in their pre-employment checks and procedures.

Can TUPE apply to a share sale?

Broadly speaking, TUPE applies to business sales and changes of service providers.  TUPE does not normally apply on a sale of shares in a company as there is no change in the identity of the employer.  However, a recent case before the Employment Appeal Tribunal (EAT) reminds us just because shares are sold, that doesn’t prevent the possibility of a TUPE transfer as well.

In the case, all the shares in a company called Jackson Lloyd were brought by Mears Ltd which was a subsidiary of Mears Group.  Jackson Lloyd’s work and clients remained the same at all times and there was no dispute that it had retained its identity.  The key question was whether there had been a transfer.

Mears Group became heavily involved in Jackson Lloyd’s business – they installed an integration team which replaced Jackson Lloyd’s policies and procedures with those of Mears Group and instructed Jackson Lloyd’s employees and customers to direct all of their enquiries to Mears Group’s Chief Operating Officer.  The EAT found that Mears Group had taken over the day-to-day running of Jackson Lloyd’s activities.  Therefore, although the share sale to Mears Ltd was not a TUPE transfer, there had been a TUPE transfer of the business and employees from Jackson Lloyd to the parent company Mears Group.   

Claims for failure to inform and consult under TUPE can usually only be brought by the employee representatives, rather than the employees themselves.  However, where there are no elected representatives with a mandate which covers TUPE consultation, as in this case, the employees may bring claims themselves.

Whistle-blowing – employee goes overboard with campaign

Whistleblowers are protected from being treated badly or being sacked because they have blown the whistle so long as they do so in a particular way.

In a recent case, the EAT heard that Mr Panayiotou, a police officer, had blown the whistle about the attitude of certain officers to race and to the treatment of victims of rape, child abuse and domestic violence.  The police investigated and Mr Panayiotou’s concerns were found to be largely valid.  Mr Panayiotou then continued over a lengthy period to campaign determinedly for changes which he thought should be made.  The police dismissed Mr Panayiotou using a specific police rule which banned incompatible business interests and which avoided the type of disciplinary procedure an employer would usually follow in a fair misconduct dismissal situation.

The EAT found that Mr Panayiotou had suffered a detriment, but it was due to the manner in which he had pursued his concerns (not because of the whistle-blowing itself) and his long term sickness absence.  Mr Panayiotou’s claim therefore failed as he was not dismissed because he had blown the whistle.

This case may offer some hope to employers who are dealing with workers who relentlessly make complaints.  However, employers will need very good evidence to persuade a Tribunal that a dismissal or other detriment was due to the manner in which the whistle was blown or the underlying issues which were subsequently pursued rather than the whistle-blowing itself.  Every time a worker blows the whistle their concern should be dealt with properly; even if they are a serial complainer.

TUPE consultation – who can employees claim against when information is not provided?

Under TUPE the old employer must give employee representatives information about the planned transfer and consult about any proposed changes to working conditions or terms of employment.  So that the old employer can consult about any changes proposed by the new employer, the new employer has to give information to the old employer about any changes it intends to make.

In a recent case the EAT considered whether the employees could bring a claim directly against their new employer for its failure to provide information to the old employer.  The EAT found that the employees could only bring a claim against their employer at the time that consultation should have happened ie the old employer.  It is up to the old employer to show that it could not meet its obligations to consult because it had not received the necessary information from the new employer.  The new employer could then be joined to the proceedings.

In this case, the employees had already settled or withdrawn their claims against the old employer.  This is a useful reminder to employees to ensure that they fully understand what claims they are settling when signing a settlement agreement.  Employers should consider whether the employees should be asked to waive claims against both the old and new employer, although commercially this will not be appropriate in all situations especially changes of service providers between competitors.

Duty of trust and confidence: employer’s grand statements backfire

A recent case concerned IBM’s proposed changes to its pension scheme.  The vast majority of the case relates to pension issues, but one of the questions was whether IBM’s failure to consult properly on its proposed changes breached the implied term of trust and confidence in the employees’ employment contracts.

The judge concluded that the employees were entitled to expect that IBM would carry out the consultation in accordance with its own Business Conduct Guidelines and Core Values (Guidelines), which included statements such as “Never make misrepresentations or dishonest statements to anyone” and “Honesty based on clear communication is integral to ethical behaviour”.

The judge found that IBM had failed to communicate openly and transparently; the management had misled the members, failed to disclose their true motives and failed to consult with an open mind.  Even without considering the Guidelines, the judge found a breach of the implied term of trust and confidence.  When taking the Guidelines into account, the judge found the case is even clearer.

The case shows that employers should bear in mind the wide extent of the duty of trust and confidence and not be complacent about failure to follow consultation obligations which some view as rather toothless.  Employers should also appreciate that the courts will judge them by the standards which they say they uphold.

Enhanced redundancy payments – what is your custom?

Employees who are made redundant with at least two years’ service are entitled to receive a statutory redundancy payment from their employer.  The payment is based on age, length of service (up to 20 years), and a week’s pay (currently capped at £464).  Employers may, of course, choose to offer their redundant employees an enhanced redundancy package.

In a recent EAT case an employer had routinely paid its redundant staff in accordance with the statutory redundancy rules, except that it disapplied the caps on length of service and a week’s pay.  Although there was no written policy setting out how the payments were calculated, the evidence which the tribunal accepted suggested that the employer had consistently disapplied the caps for about 25 years.  Unsurprisingly, it was therefore found to have become a contractual term by custom and practice.  

Employers must avoid adopting a consistent practice unless they are prepared to be bound by it.  Once a custom of making enhanced payments has been established, employers who abandon that approach face the risk of successful claims for breach of contract.  Regularly varying the way in which enhanced redundancy payments are calculated can be helpful.  Ensuring that the employees are not told that there is a particular policy is very important otherwise they will quickly gain reasonable expectations as to how the payments will be calculated.