UK Employment - Key Developments for 2011

In this client alert we identify key developments in UK employment law expected in the coming year and highlight those steps which employers should be taking to prepare their UK businesses for these developments.
 

Employment Law Reform

The coalition Government has recently announced a major review of the way that employment disputes are resolved.  Although Employment Tribunals, created in the 1970s, were designed as a low cost and accessible way of resolving workplace disputes, in recent years the number of claims has dramatically increased and employers have complained of the very substantial costs that they incur in defending claims – many of which are, in our experience, entirely without merit.

The highlights include:

Increasing the ordinary qualifying period for bringing an unfair dismissal claim from 1 year to 2 years.

Requiring all claims to be submitted for conciliation before they can be issued and encouraging workplace mediation.

Requiring employees to pay a fee for issuing a claim or before allowing it to proceed to a full hearing. 

Requiring employees to provide more detailed information about the nature of their claim and their losses at the time they issue the claim.  This will make claims easier to respond to.

Developing a system whereby offers of settlement made by the employer can be taken into account when awarding compensation or assessing whether to make an award of costs. This is similar to the rules  that apply in the civil courts whereby a party can be penalised if they unreasonably fail to accept an offer made by the other party and then go on to lose their claim or recover less than the amount offered. 

Increasing the number of claims which will be heard by an Employment Judge sitting alone (i.e. without the two lay tribunal members who currently make up the three person panel) to include most unfair dismissal claims.

Increasing the power to require employees to pay a deposit before continuing with weak cases and doubling the maximum size of the deposit from £500 to £1000.

Making it easier for weak claims to be struck out without the cost and expense of a full hearing.

Doubling the current limit on the amount of costs that may be awarded against a party where, for instance, it has acted "vexatiously, disruptively or unreasonably" or where the bringing of the claim was misconceived.   The limit is currently £10,000 and the proposal is to increase it to £20,000.

Whilst the bulk of the changes are good news for employers there is a sting in the tail.  The Government propose that employers who are found to have breached an employee's rights will face a fine of up to £5,000 payable to the Government.  This would be in addition to the remedies already available to the employee which are mainly but not exclusively compensatory in nature. 

The proposals are all subject to a detailed consultation exercise and much of the detail has yet to be fleshed out.
 

The Equality Act

The bulk of the Equality Act 2010 (the "Equality Act") came into force on 1 October 2010.  The key practical changes are summarised in our previous client alert here and include a limit on the enforceability of pay secrecy clauses, a prohibition on generic questions about the health of a job applicant at pre-offer recruitment stage, an enhancement to the protection afforded to disabled employees who are absent on long-term sickness leave and an extension of the existing duty of employers to prevent harassment by third parties on the grounds of sex to cover most other protected characteristics (such as race, sexual orientation, religion, disability, etc.) (please click here for further details). 

On 1 April 2011 one of the most controversial measures in the Equality Act will come into force.   Employers in the UK will be permitted for the first time to prefer a "protected characteristic" candidate over a non-protected characteristic candidate for recruitment or internal promotion in circumstances in which both candidates are equally well qualified.
In order to engage in such positive discrimination, employers will first need to satisfy themselves that either: (a) persons who share a protected characteristic suffer a disadvantage connected to the characteristic; or (b) that the persons with the protected characteristic are underrepresented in the job in question. Employers will then need to show:
that the protected characteristic candidate is as qualified as the non-protected characteristic candidate;
the employer does not have a policy of treating protected characteristic candidates more favourably then other employees; and
that the action in question is a "proportionate means of achieving a legitimate aim".

Unfortunately, the statutory language is ambiguous and will require considerable clarification by the courts and tribunals. 

Clients who have not already done so should review their internal policies, contracts and application forms to ensure that they have been updated to reflect the changes implemented by the Equality Act 2010.
 

EU Agency Workers

Employers in a variety of sectors make use of temporary agency workers ("temps") as a flexible and cost effective away of fulfilling their temporary staffing needs.   Typically the worker is provided by an employment business and there is no direct contractual relationship with the hirer/client.

The UK Agency Worker Regulations 2010 shall come into force from 1 October 2011 from which time: 

After a 12 week qualifying period, agency workers will be entitled to the same "basic working conditions" as they would ordinarily have been entitled had they been directly employed by the hirer/client.

An agency worker is an individual with a contract of employment or employment relationship with a temporary work agency who is assigned to a hirer/client to work temporarily under the hirer's/client's supervision and direction.

Employees of outsourced service providers will not be agency workers (as they are not under the supervision of the client/agency) although those who provide their services through personal service companies may be.

The equality principle only applies to "basic working and employment conditions" which include pay (widely defined to include performance bonuses, commission or holiday pay), duration of working time, length of night work, rest periods, rest breaks and annual leave.   It excludes occupational sick pay, pension, severance,  maternity pay or participation in financial participation schemes (such as share option schemes), benefits or loyalty/retention bonuses.

The provision in the draft version of the regulations that would have allowed a client/hirer to justify less favourable treatment if an agency worker's contract, taken as a whole, is at least as favourable as that of a comparator, has been removed from the final regulations.

There is a limited exception that applies if the agency worker is employed by the employment business between assignments.

Employers should review the arrangements whereby they engage agency workers and the terms upon which they engage them in preparation for 1 October 2011.
 

Mandatory Retirement Abolished 

Currently employers are able to dismiss employees by reason of retirement on or after their default retirement age (usually but not always 65) without exposure to compensation for age discrimination or unfair dismissal. 

Age discrimination laws introduced in 2006 retained a special exemption which allowed an employer to retire an employee at its default retirement age (usually but not always 65) provided that a required procedure had been followed (the "Mandatory Retirement Exemption").  

The new coalition Government has announced that they will abolish the Mandatory Retirement Exemption later this year.

Confusingly for employers, whilst the Mandatory Retirement Exemption is to go, employersmay still be able to operate a blanket mandatory retirement rule.  However, rather than relying upon a clear statutory exemption, they will instead need to prove that: (a) mandatory retirement at the age in question is objectively justified as being a proportionate means of achieving a legitimate aim; and (b) that the dismissal was fair in all the circumstances.  At the time of writing the final statutory provisions have yet to be published and the leading domestic authority may be subject to an appeal to the Supreme Court, which means that employers who wish to continue with mandatory retirement ages should take specific legal advice on a case-by-case basis.

Significantly the change does not mean that employees will be compelled to work on but means that they will not be forced to leave employment before they are ready.  The Government intends that the majority of employers will instead reach agreement with employees about retirement dates and, if this is not possible, employers will have to manage out poorly performing older workers. 

As part of the review, the Government has recognised the disproportionate costs associated with providing certain insured benefits (such as life assurance) to older workers and has announced that it will introduce an exception to the age discrimination legislation allowing employers to specify a maximum age of 65 for participation in certain insured group risk benefits. Legislation is awaited.  

Employers should act now to review the age profile of their workforce before the changes take effect.
 

Source Gibson Dunn