February 5 2007 Employment Law Enews

Welcome to the latest employment law e-newsletter.

The best of both worlds

The basic position under the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("the 1981 Regulations") is that all employees who are sufficiently assigned to a part of the business which is transferred to a new employer, also transfer to the new employer on the same terms and conditions of employment. The new employer cannot make changes to an employee's terms and conditions post-transfer for a reason connected to the transfer. Any such changes will be void. However, following the introduction of the new 2006 TUPE regulations, changes can be made, if for an economical, technical or organisational reason.

The Case of Power v Regent Security Services Limited concerned an employee who transferred to a new employer, under the 1981 Regulations. Upon transferring, the employee agreed to one variation to his contract; that his normal retirement age would be 65, rather than 60, as was the position under his previous contract.

The new employer then sought to retire the employee at 60 and the employee brought a claim for unfair dismissal. The employee argued that his normal retirement age was 65, either because of the contractual variation, or because even if his retirement age was still 60, his employer had assured him that he would not be retired until he had completed a particular project and as this did not identify a specific age, the default retirement age was 65.

The employer argued that the contractual variation was invalid because it was a change made by reason of the transfer and that for an employee in a unique position, the normal retirement age was the contractual retirement age i.e. 60.

The Employment Tribunal agreed with the employer. It held that the variation to the contractual retirement age was void under Regulation 12 of the 1981 Regulations because it was entered into in connection with a relevant transfer. It did not matter whether the variation was advantageous to the employee or not, Regulation 12 was not directed so as to render void only amendments which were detrimental to the employee. It is neutral between employer and employee.

The employee appealed to the Employment Appeal Tribunal ("EAT"), who took a different view. The EAT held that it would be inconsistent with the aim of protecting the workforce to refuse them benefits contractually conferred on them by the new employer they transfer to. The principle of the TUPE regulations is that the employees should not be prejudiced as a result of the transfer and by preventing them from enforcing more favourable terms this would be the effect.

The employer argued that the essence of a void agreement is that neither party can enforce rights under it. Moreover, it would be unjust if the employee could pick and choose whether or not to enforce the later agreement but the employer could not.

However, the EAT found in favour of the employee. It stated that it was not a question of whether objectively viewed the original term is more beneficial or not. The relevant question to ask is whether the employee wished to rely upon it, although, of course an employee will usually only seek to rely on it if it is more beneficial.

Although this case was based on the1981 Regulations, the principles are still relevant to the 2006 TUPE regulations.

Procedural defects in redundancy selections

The statutory dismissal and disciplinary procedures, introduced from 1 October 2004, have caused some significant problems in practice for employers. However, alongside those procedures were certain amendments to the Employment Rights Act 1996 (ERA) that have proved more useful to employers, provided they act in compliance with the statutory procedures.

The introduction of new section 98A(2) to the ERA means that a minor procedural error will not render a dismissal unfair, if the employer can demonstrate to the tribunal's satisfaction that the dismissal would have occurred notwithstanding the error.

In the recent case of Software 2000 Ltd v Andrews and others, the employer carried out a redundancy exercise that was found by the employment tribunal to be procedurally flawed, although the employers had complied with the basic steps required under the statutory dismissal and disciplinary procedure. The tribunal was highly critical of the selection criteria against which the affected employees were scored, on the basis they were overly subjective. Factors such as "commitment/reliability" could not be objectively measured, nor could "ability to relate to colleagues/customers". In addition, very little guidance was provided to the managers on how to apply the selection criteria to ensure consistency of approach. The tribunal was not satisfied, on the balance of probabilities (more than a 50% chance), that the dismissals would have occurred despite these procedural failures. It therefore upheld the employees' claims for unfair dismissal and the employer could not rely on the operation of section 98A(2) to render the dismissal fair.

On appeal to the EAT, the employer argued that despite the tribunal's finding of unfair dismissal, it should still have addressed the question of whether the compensation awarded to the employees should be reduced to reflect the possibility that they might have been dismissed. The EAT agreed and upheld the appeal. Even where section 98A(2) does not apply, the tribunal must consider whether any evidence was relevant to reduce the amount of compensation (known as a "Polkey" reduction). If there was a less than 50% chance of dismissal, compensation should be reduced accordingly by an appropriate percentage to reflect the tribunal's assessment of how likely it was the dismissal would have taken place. In this case, relevant evidence included the fact that at least two of the employees concerned had scored significantly lower than the next highest scoring individual. Even if there had been some discrepancies in the scoring, this suggested that those individuals were still at some risk of dismissal. According to the EAT, there was evidence of sufficient reliability to require the tribunal to consider reducing the amount of compensation awarded. On that basis, the case was remitted to the tribunal to be reconsidered.

Employers can significantly reduce the risk of a successful claim by following a fair procedure, and must ensure at the very least they have complied with the statutory dismissal procedure. This case demonstrates the importance of ensuring that those responsible for implementing a redundancy selection procedure are fully briefed on how to carry it out. Even where the tribunal is critical of the process adopted, provided it is a genuine redundancy situation any award of compensation is likely to be reduced.

Increased statutory payments

From 1 February 2007, certain compensation limits have been increased:

• The maximum award of compensation for a claim of unfair dismissal has increased from £58,400 to £60,600.
• The maximum limit for a week's pay (for calculating a basic award in a claim for unfair dismissal and for calculating statutory redundancy pay) has increased from £290 to £310 per week.

These new limits will apply to dismissals where the effective date of termination is on or after 1 February 2007.

In addition, the Government announced last week the new rate for statutory benefits to apply from April 2007:

• The standard rate of statutory maternity, paternity and adoption pay will increase from £108.85 to £112.75 (from 1 April 2007)
• The standard rate of statutory sick pay will increase from £70.05 to £72.25 (from 6 April 2007).

Certain other benefits will also be increased, including jobseekers allowance and incapacity benefit.

Top 10 Employment Law Developments of 2006 Briefing

As you are aware, employment law is a rapidly developing area and all the indications are that the relentless pace of development is set to continue. With this in mind and to start off the new year we will be running briefing sessions covering the top ten developments of 2006 as well as some predictions of forthcoming developments to ensure you start 2007 in the best shape to protect your business.

The emphasis of these briefings is very much on the practical implications of all the changes and what they mean for you and your business. The briefing that we offer differs from that of many other training providers, as it is delivered by qualified and experienced lawyers who specialise exclusively in employment law and who advise employers on a daily basis on the practical implications of legal changes. The session will revisit the following major developments:

• Age discrimination
• Atypical workers
• Part Time Workers
• Work and Families
• Working Time
• Vicarious liability
• Statutory procedures
• Equal Pay
• Disability Discrimination
• Immigration developments in 2006

This briefing takes place on Tuesday 13 February 2007 at Broadway House, Tothill Street, London, SW1H 9NQ. The cost is £75 + VAT. To book your place please book online.

For further information regarding either of the above topics, or indeed any other immigration or nationality issue, please contact Mark Barnett at immigration@steeleslaw.co.uk.

This article copyright © 2007 Steeles Law llp. All rights reserved.