News & Insights

Employment bulletin November 2014

STOP PRESS! Significant EAT decision on holiday pay just in.  We also look at time off to care for dependants and effective dates of termination.

Holiday pay must include sum for overtime

The calculation of holiday pay is currently a hot topic in employment law.  In February we reported on the first stage decision of the European Court of Justice (now confirmed) that holiday pay should include a sum to reflect the commission that a worker would have earned during a period of annual leave (read more).  Now a series of cases heard together by the Employment Appeal Tribunal (EAT) have raised the question of whether holiday pay should also include a sum for overtime.

The cases concerned workers contracted to perform a set number of hours per week, but who regularly worked overtime in addition to those set hours, although their employers were not contractually obliged to provide them with overtime.  The EAT described this as ‘non-guaranteed overtime’.  The workers argued that their holiday pay should not be limited to their basic pay and should include a sum in respect of normal non-guaranteed overtime.

The EAT confirmed that holiday pay should reflect normal pay.  Taking guidance from European case law, it held that where normal pay includes normal non-guaranteed overtime, that non-guaranteed overtime must be included in holiday pay.  The EAT noted that holiday pay need only include a sum for non-guaranteed overtime in respect of the first four weeks in each holiday year (i.e. the statutory minimum leave provided for by the Working Time Directive (WTD); non-guaranteed overtime is not payable for the ‘additional’ 1.6 weeks’ leave provided for by UK legislation).

Employees may now look to bring claims for previous underpayments of holiday pay. However, the EAT has limited the risk of claims stretching back over a long period.  It ruled that employees would not be able to claim for a series of past underpayments unless each was separated from the next by no more than three months.  As the EAT made it clear that the four weeks’ WTD leave shall be the first leave period a worker takes in any year, the ‘additional’ 1.6 weeks’ leave which follows will often break a series of deductions (because it can be paid without taking non-guaranteed overtime into account).  This further limits the potential for significant back pay claims.  Any claim would also have to be submitted within three months of the most recent underpayment.

It is anticipated that given the potential financial impact on UK employers, this decision will be appealed to the Court of Appeal.  Within hours of the EAT handing down its judgment the government announced a task force to assess how it could limit the impact of the ruling.  Pending further developments, employers should ensure that their holiday payments now incorporate non-guaranteed overtime.

Failure to communicate proves costly for new father

Employees are entitled to a reasonable period of unpaid time off to take “necessary action” to care for a dependant who, for example, falls ill, gives birth or is injured.  To benefit from this right, employees must inform their employer of the reason for their absence as soon as reasonably practicable.  In a recent case, the Employment Appeal Tribunal (EAT) considered whether an employee had fallen short of this obligation.

The case concerned Mr Ellis, who was absent from work to accompany his heavily pregnant wife to hospital.  On the first day of his absence, 6 February 2012, Mr Ellis’s father rang his son’s employer to explain that his daughter in law was unwell.  Mr Ellis’ wife then went into labour on 7 February, and Mr Ellis did not return to work until 13 February.  After the initial update on 6 February, Mr Ellis made contact on only one further occasion (having received a text asking him to contact the office urgently), leaving a voicemail late on 8 February.

Taking into account an active final written warning for misconduct (also as a result of attendance issues), Mr Ellis’ employer decided to dismiss him for failing to make reasonable efforts to inform them of his absence.  Mr Ellis argued that he had been unfairly dismissed for exercising his statutory right to unpaid leave.

The EAT was satisfied that Mr Ellis was dismissed because of his failure to give reasons for his absence.  The EAT found that Mr Ellis initially met his obligations by making contact on 6 February in respect of his wife’s pregnancy-related illness.  However, Mr Ellis failed to properly inform his employer in respect of his further absences from 7 February onwards which related to his wife giving birth.  The contact late on 8 February had not been made as soon as reasonably practicable; the EAT was unimpressed with Mr Ellis’ excuse that his phone had run out of battery.

What amounts to acting as soon as reasonably practicable will vary depending on the particular facts, but this case shows that employers can expect employees to utilise alternative means to get in touch should their normal or preferred method be unavailable.  Employers should make sure that their absence policies clearly set out expectations of behaviour in such circumstances.

Disciplinary proceedings – did employer breach duty of care?

A recent Court of Appeal case emphasises the importance of undertaking a thorough disciplinary investigation (and carefully assessing the findings of any such investigation) prior to instigating disciplinary proceedings.  Failure to do so may result in an employer breaching its duty of care to an employee.

The Court heard that Dr Mian, a highly regarded senior lecturer at Coventry University, appeared to have sent a misleading and inaccurate reference about a former colleague, Dr Javed, to Greenwich University.  Coventry investigated the claims and found three draft references very similar to the reference received by Greenwich on Dr Mian’s computer.  At a formal preliminary hearing Dr Mian denied sending the reference in question, claiming that Dr Javed had sent her the drafts, that he was a nuisance and that she had only saved the drafts to keep him quiet.  In spite of this, Coventry considered that the evidence uncovered warranted initiating disciplinary proceedings.

Dr Mian was signed off sick shortly afterwards.  She was later cleared of wrongdoing but brought a claim against Coventry for breach of contract and/or negligence leading to personal injury in commencing disciplinary proceedings without undertaking further enquiries.

The Court stated that the question to ask was whether, assessed objectively, the decision to commence disciplinary proceedings was “unreasonable” in the sense that it was outside the range of reasonable decisions open to an employer in the circumstances.  The Court held it was not unreasonable and found that Coventry had not breached its duty of care to Dr Mian.

While other employers may have put greater weight on Dr Mian’s ‘bona fides and otherwise excellent reputation’, the Court recognised that the matter was serious, was not straightforward, and that a disciplinary charge was entirely reasonable.  The case confirms that there is scope for employers to reach different decisions on a particular set of facts without being in breach of employers’ duties, provided that the decision reached is based on a fair and thorough investigatory procedure.  However, the case is also a useful reminder of the fact that there could be far-reaching consequences if an employer initiates disciplinary proceedings without due enquiry, regardless of the subsequent outcome of the disciplinary itself.

Pinning down the effective date of termination

Pin-pointing the effective date of an employee’s termination is crucial in determining whether they have brought an employment tribunal claim within the statutory time limit.  For unfair dismissal claims, the time limit is three months from the date of dismissal, unless it was not reasonably practicable to present the claim within that period.

The Employment Appeal Tribunal (EAT) recently considered the case of Mr Rabess, a firefighter who was dismissed on 24 August 2012 for gross misconduct.  Mr Rabess appealed the decision.  At the appeal hearing in January 2013 his employer downgraded its finding from gross misconduct to misconduct.  However, as Mr Rabess already had a final written warning for misconduct, the decision to dismiss was upheld.  Mr Rabess was subsequently paid in lieu of his six week notice period.

Mr Rabess brought a claim for unfair dismissal in January 2013, arguing that the appeal decision and/or the decision to pay in lieu of notice altered the effective date of his termination so as to bring his claim within time.  The employer argued that as the decision to dismiss had been upheld there was no change in the effective date of termination.

The EAT rejected Mr Rabess’ arguments.  Although an appeal decision could alter the effective date of termination, it did not do so on these facts.  Both the initial letter confirming dismissal and the letter following the appeal hearing expressly stated that the termination date was 24 August 2012.

The decision confirms that a dismissal without notice will be effective at the date the dismissal was communicated for the purpose of starting the clock on the time limit for bringing a claim, unless the decision is later overturned and the employee reinstated.

Employers should note that the effective date of termination operates differently when calculating length of service for eligibility to claim unfair dismissal.  For these purposes, where an employee is dismissed without notice or payment in lieu of notice for a reason other than gross misconduct, the effective date of termination is extended so as to take into account the statutory minimum notice that the employee should have received.  This point is particularly relevant where employees are dismissed just shy of two years’ service.

Polkey reductions – plucking a figure from the air?

Where an Employment Tribunal finds that an employee has been unfairly dismissed following a deficient process, it can reduce any compensation awarded to reflect the chance that the employee would have been fairly dismissed had a fair procedure been followed.  This is known as a Polkey reduction, after the lead case on this point.

The Employment Appeal Tribunal (EAT) has recently dealt with the issue of Polkey reductions again in a case where two administrative staff were unfairly dismissed as part of a deficient redundancy exercise in which four of ten pooled employees were made redundant.  Their employer appealed against a Polkey reduction of only 20% made by the Employment Tribunal.  It argued that its introduction of new accounting software meant the accounting duties performed by these particular staff put them at greater risk of selection than other employees in the pool.  On a mathematical basis, the chances of redundancy could not have been less than 40% where four of ten employees were dismissed.

The EAT stated that calculating a Polkey reduction is a work of art and not of science.  It rejected a purely mathematical approach.  The appropriate reduction should be arrived at by considering all relevant factors.  The EAT considered the relevance of the new software, but also took account of the employer’s rejection of offers to take a pay cut and its failure to provide sufficient and satisfactory evidence in support of a reduction.  The EAT ultimately arrived at a reduction of 33%.

The EAT noted that there is no legitimate ground for criticising a particular reduction made by an Employment Tribunal unless it is manifestly less or more than might have seemed proper, or if it is unreasoned.  In this case, the latter scenario applied and the Tribunal was criticised for appearing to pluck a figure from the air.

Employers arguing for a Polkey reduction will improve their odds of success by presenting clear evidence in support of that reduction.  Of course, the best approach for employers is to follow fair procedures from the outset; avoiding unfair dismissals and making arguments over Polkey unnecessary.