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Newsletter February 2014NEWSLETTER APRIL 2015

ALL THE LATEST LEGAL DEVELOPMENTS IN THE RECRUITMENT INDUSTRY

NEWSLETTER APRIL 2015

Holiday payAs an employer, have you reviewed the way you calculate holiday pay?

Inferred employment How to avoid the risk of inferred employment where no employee/ employer relationship is intended

Fees and FinesTwo recent changes in the courts may impact on your business

Shared Parental LeaveNow that we have reached April we are witnessing a new era of family friendly rights

Further Employment Law updates

SINCE LAST SUMMER, THERE HAS BEEN

SIGNIFICANT MEDIA COVERAGE FOLLOWING CASES

HEARD AT THE EMPLOYMENT TRIBUNAL AND

EUROPEAN COURTS IN RELATION TO THE RIGHTS

OF WORKERS REGARDING HOLIDAY PAY.

HOLIDAY PAY - HAVE YOU REVIEWED THE WAY YOU CALCULATE HOLIDAY PAY?

This is a topic that sparks interest among workers whilst causing a degree of

concern for businesses. In some circumstances holiday pay can no longer be

limited to basic pay alone but should include certain allowances, overtime,

commission and bonuses.

The cases focus primarily on

overtime pay and commission being

factored into the workers’ entitlement

regarding paid leave. As an employer,

have you taken the relevant issues

on board and reviewed the way you

calculate holiday pay? Have you

adapted your holiday policies and pay

in line with the current position? Have

you received any queries or claims

from workers?

A NEW LAW?

These cases do not, in fact, signify

a change of law, as these rights

have existed since the Working Time

Directive came into force setting out

the statutory rights of all workers to

20 days paid annual leave (and in the

UK workers are also entitled to an

additional eight days paid leave in

respect of public holidays). u

Instead, the recent cases challenged the way we had been calculating

holiday pay and the decisions provide guidance as to the correct interpretation

of that Directive in our domestic law. In essence, employers should be providing

all ‘normal’ elements of remuneration on top of basic wages to the worker

when taking annual leave. The objective is to ensure that workers do not suffer

a financial detriment when taking leave or are deterred from taking that leave

altogether.

COMMISSIONThe case of Lock v British Gas returned to the Tribunal in February this year

and a decision was released at the end of March. The judgment served to

confirm that the purpose of providing payment for annual leave is to put the

worker, during that leave, in a position which is, as regards salary, comparable

to periods of work. In other words, the worker should receive remuneration in

respect of annual leave that reflects the commission he/she would earn if not

taking that leave.

The judgment suggested that the reference period for calculating the pay

should be as stated in the Employment Rights Act. This provides guidance that

the calculation of a week’s pay is based on average earnings over a 12 week

reference period immediately prior to the period of leave.

The case further provided clarification that the level of holiday pay can be

limited to the 20 days statutory holiday derived from European law (and not the

additional 1.6 weeks provided by UK law or any additional contractual leave).

This long awaited decision did not address all issues that employers were hoping

to seek guidance on and a degree of uncertainty remains. For businesses still

grappling with revising holiday pay policies and calculations, there are still some

practical issues to be determined by the Tribunals to include:

• Whether commission should be reflected in holiday pay if it is minimal or

irregular

• Where a commission scheme is deliberately structured to compensate

employees for annual leave, whether there is still a requirement to include

commission in the holiday pay calculations under the Regulations as,

potentially, it cannot be argued that there has been an unlawful deduction

• Whether bonuses (e.g. annual) should be included in holiday pay

calculations

• How to address the lower pay a worker will receive after a period of

leave if they cannot generate the pipeline of work/sales that generates

commission during the time they are on leave

“A significant concern of businesses is the potential for workers to make historical claims for incorrect holiday pay spanning back years.”


Whilst this issue can be

straightforward in some industries,

there can be challenges associated

with calculating an employee’s loss

of earnings in relation to commission

payments during periods of annual

leave when considering seasonal

variations, market factors and a

concern that employees may time

their leave to manipulate the system.

It should also be noted that, as this

most recent decision is only at the

Employment Tribunal level, this may

well be the subject of appeal in the

coming months.

OVERTIMEIn the autumn we saw the headlines

that certain overtime payments must

also be considered in the calculation

of “a week’s pay” when analysing

holiday pay. Previously overtime did

form part of holiday pay when it was

guaranteed and compulsory but the

definition of what type of overtime to

include has now widened to cover

non-guaranteed overtime that the

worker is obliged to accept. The jury is

still out in terms of voluntary overtime.

PAYROLLAs these holiday pay rights derive

from the European Working Time

Directive, strictly speaking, the right

to this additional element of pay only

needs to be honoured in respect of

the first 20 days leave taken each year

and not the additional eight public

holidays or any additional contractual

leave. However, to avoid increased

administrative issues, the payroll

preference for some employers may

be to make adjustments in relation to

total annual leave.

BACK-DATING CLAIMSA significant concern of businesses is the potential for workers to make historical

claims for incorrect holiday pay spanning back years. As such, the Government

moved to limit this period. From 1st July 2015, any claims for previous unpaid

holiday will be limited to two years.

Furthermore, according to the recent case of Bear Scoltand v Fulton, any claims

which are based on an “unlawful deduction from wages” must be brought

within three months of the last incorrect payment or they will be ‘out of time’.

Consequently, as these regulations only relate to the first 20 days of leave in a

holiday year, in theory the last 1.6 weeks leave (and any additional contractual

holiday entitlement) would not be subject to these rules and this period of time

may seek to break the chain. u

Inferred employment: how can I avoid it?In recent years, we have seen a shift away from the stereotypical ‘9 to 5’ working arrangements that are associated with a ‘normal’ working relationship.

Increasingly we see people engaged in atypical working arrangements

to include casual workers, agency workers, home-workers, the self-

employed and people engaged on flexible working arrangements. What

implications do these various working arrangements have in terms of

workers’ rights and responsibilities and employers’ obligations? This

article seeks to provide some clarity for businesses in terms of ensuring

that they understand the characteristics of an employee and how to

avoid the risk of inferred employment where no employee/ employer

relationship is intended.

Inferred employment issues can arise where agency workers claim to be

an employee of either the employment business or the client. This is an

important distinction because individuals are entitled to different rights

depending on their employment status.

Under UK law there are three different categories of employment status:

1) Employees

2) Workers

3) Self-employed

Temporary workers engaged under ‘contracts for services’ are

‘workers’ and consequently do not have the normal statutory rights and

protections attributed to employment such as statutory notice, unfair

dismissal protection and maternity leave.

How can I tell if a temporary worker has a contract for services or a contract of employment?

The Employment Tribunal hears many employment status cases from

temporary workers who claim that they have become employees of


u

either the employment business or their client

and therefore have the usual employment

rights.

Typically temporary workers are assigned by an

employment business to work on a temporary

basis for a client organisation. The employment

business will have a contract with the client

and at the same time the temporary worker will

have a contract with the employment business,

being subject to day to day control of the client

organisation.

Where there is no clear agreement between the

parties, it can be very difficult to say whether

the temporary worker is an employee and if so

who employs them.

Where a contract does exist the Employment

Tribunal will look at the wording of the contract,

i.e. does the contract state that it is a ‘contract

of employment’. The industry standard

contract for most temporary workers is a

‘contract for services’.

However, there was a trend starting with the

case of Dacas v Brook Street Bureau (2004)

which suggested that the mere fact the

contract states an individual was not employed

by the employment business or their client was

not necessarily conclusive of the employment

relationship.

No single test is conclusive and in cases of

dispute an Employment Tribunal will also look

at other factors such as whether there is any

period of notice to terminate the contract,

whether the worker is entitled to be paid when

they are not working (other than for holiday or

statutory sick pay) and whether there are any

disciplinary, grievance or specific dismissal

procedures that apply.

Where a worker can delegate certain elements

of the role or works for short periods for

various clients of the employment business the

Employment Tribunal are less likely to find an

employment relationship exists.

Should the wording of the contract not make the position clear,

the Employment Tribunal has established a series of tests that, for

a contract of employment relationship to exist, need to be present:

The Integration Test: How well integrated is the worker in

the organisation?

The Mutuality of Obligation Test: The existence of some

“mutuality of obligation” between the parties. An obligation

on the part of the employer to provide and pay for work done

and an obligation on the worker to perform that work

The Control Test: The worker agrees to be subject to a

degree of control by the employer over how, when and where

they work

The Personal Service Test: An obligation for the worker to

provide his services personally i.e. they do not have the right

of substitution

The Multiple Test: Is there evidence of control, personal

service and is the relationship not inconsistent with a contract

of employment

A

B

C

D

E

I currently have an agency worker working for me; can I discipline them for performance issues or give them an appraisal?

Disciplining a temporary worker could allude

to an employment status scenario.

If the temporary worker is treated like one

of a business’s own employees during the

course of the assignment, this could create

an employment relationship. By disciplining a

temporary worker, you run the risk of treating

them like an employee and therefore this

should be avoided.

If any issues or complaints arise regarding a

temporary worker they should be referred to

the employment business to deal with.

In addition, any feedback regarding a

temporary workers’ performance good or

bad should be directed to the employment

business to pass on. Making the temporary

worker subject to an appraisal process will

ultimately be used by the temporary worker

as evidence of employment status.

What effect do the Agency Workers Regulations have on the issue of inferred employment?

With the introduction of the Agency Workers

Regulations (AWR) on the 1st October 2011,

in scope temporary workers are entitled to

some of the same rights as employees of the

client to prevent them from being treated less

favourably.

The legislation intended to introduce equal

treatment in basic terms and conditions, such

as pay, maternity rights and holiday after the

temporary worker has worked 12 continuous

weeks with the same client.

The intention was not to force the client or

employment business to treat the temporary

worker as an employee to create an

employment relationship. Equal treatment

therefore does not cover other aspects of a

typical employee/employer relationship such

as rights to have a disciplinary or an appraisal.

What should I do to reduce the risk of inferred employment?

Ultimately it will be for the Employment

Tribunal to decide whether an

employment relationship has been

created. However there are a number

of things a business can do to reduce

the risk of inferred employment:

Ensure that the contracts in

place between the business

and the employment business

accurately reflect the relationship

between the parties and the

services being provided

Where possible avoid following

practices that are usually

reserved for employees such

as disciplinary meetings and

appraisals which could create

a direct relationship with the

temporary worker

Review company policies

regarding the treatment of

temporary workers to ensure

consistency across teams and

departments

Provide training to managers on

how to handle any issues that

arise with a temporary worker

Ensure all issues are referred to

the employment business

1

2

3

4

5

“Making the temporary worker subject to an appraisal process will ultimately be used by the temporary worker as evidence of employment status.”


FEES AND FINES: AN UPDATEIn this update we will be looking at two recent changes in the courts and consider how these may impact on your business.

Firstly, the fees for submitting a money claim

have increased (which will need to be taken

into account when weighing up whether to

issue a claim or not). Secondly, the fines that

magistrates can impose have been revised,

with the result that businesses no longer have

the relative comfort of the upper cap.

Fees for money claims

Businesses often have to initiate a money

claim in respect of unpaid invoices or for

losses incurred as a result of provision of

goods or services where the other party is

refusing to pay.

Simply issuing a claim can be an effective

way of bringing a dispute to a close, as

the respondent will often be incentivised

to settle without contesting the case and

becoming involved in lengthy and costly court

proceedings.

So, it is important to be aware that with effect

from the 9th of March this year the cost of

bringing money claims has substantially

increased.

1

Claim value Previous fee New fee

£10,000 - £15,000 £455 5% of the claim value

(up to £750)


(up to £2,500)


(up to £5,000)

£100,000 - £150,000 £1,115 5% of the claim value

(up to £7,500)

£150,000 - £200,000 £1,315 5% of the claim value

(up to £10,000)

£200,000 - £250,000 £1,515 £10,000

£250,000 - £300,000 £1,720 £10,000

More than £300,000 £1,920 £10,000

Claims of £10,000 or less are not affected and there is still a small

discount for online applications using the CCBC Centre Users and

Money Claim Online.

Justice Minister Sahilesh Vara justified the increase on the basis that “[i]t

is only fair that businesses and individuals who can afford to pay and are

fighting legal battles should contribute more in fees to ease the burden

on hardworking taxpayers”. This increase in fees is estimated to recoup

£120 million which will be retained wholly by the courts.

2

However, the reality is that the increase will

preclude some applicants from issuing in

the first place as the costs are too high. The

Law Society is “extremely concerned about

these proposals, which [they] believe will

have a detrimental effect on [their] members,

consumers and small businesses” and

has issued a pre-action protocol letter for

judicial review to challenge the government’s

decision. We have already seen a notable

decrease in cases brought to the employment

tribunals as a result of the increase in fees

and so there is a very real concern that this

increase will discourage cases with merit. It

will be interesting to see how the challenges

are responded to by the government in due

course.

Going forwards, businesses will need to take

this increase into account when weighing

up whether or not it is worth issuing a claim.

Although court fees may be recoverable as

part of the payout, this will only happen where

the matter proceeds to court and the applicant

is successful.

Magistrates court’s sentencing powers

We usually associate the magistrates courts

with criminal proceedings, and over 95% of

all criminal cases are heard there with the

remaining 5% being sent or committed to the

Crown Courts. However, magistrates courts

also hear some civil matters which involve

businesses taking the stand as the respondent

and this includes a number of regulatory

offences such as health and safety breaches.

The fines and sentences that the magistrates

can give for both criminal and civil matters are

set out in a scale ranging from Level 1 to Level

5 and accompanied by sentencing guidelines

that assist magistrates based on the particular

factors and severity of the offence committed.


This scale has constrained magistrates in

respect of giving medium and large business

fines because the maximum fine under Level

5 is £5,000 with the exception of certain

offences, such as breach of specific health

and safety legislation where fines range up to

£20,000. Whilst for individuals these fines may

have a substantial impact, the reality is that

for medium and large businesses this sum is

considered insignificant.

As a result, the government has reviewed

the position and with effect from 12th March

this year (*section 85 of the Legal Aid,

Sentencing and Punishment of Offenders Act

2012 now enacted) this upper cap has been

removed, giving magistrates the power to

impose unlimited fines, which is a considerable

departure. This will not apply to any offences

committed prior to this date.

Part of the reasoning behind this is that it will

allow the magistrates courts to deal with more

cases directly, without needing to commit

cases to the Crown Court which involves an

expenditure of both time and money.

Additionally, the Ministry of Justice is keen to

ensure that these greater fines target “wealthy

or corporate offenders and organisations”

with the hope that this will act as a greater

deterrent.

By way of example Level 5 fines, which are

now uncapped, will apply to the following:

• Manufacture, import and sale of realistic

imitation firearms

• Selling, supplying, offering to supply and

hiring products to persons under 18, such

as adult fireworks, crossbows/knives/axes/

blades

• Sale of alcohol to children

• Failure to comply with an improvement

notice to ensure properties are safe and

habitable

• Communication network offences

• Breaches of the Health and Safety at

Work Act 1974 and the Health and Safety

(Offences) Act 2008

So how can businesses mitigate this risk of

higher fines? As with all regulatory matters

each business needs to ensure that it is fully

compliant with relevant pieces of legislation

and applicable regulations.

This will be particularly important in respect

of issues which previously attracted a lower

or capped fine, and may therefore have been

considered a lower risk. It is always worth

periodically reviewing policies and procedures

to ensure that robust processes are in place

to minimise the risk of breach and subsequent

prosecution.

Shared Parental Leave: Overview for EmployersNow that we have reached April we are witnessing a new era of family friendly rights in relation to facilitating the work-life balance that families’ desire.

Different family set-ups and arrangements for having a baby and

sharing the care for that baby are increasingly commonplace. We see an

increase in rights and recognition in relation to families seeking to adopt

or have a baby using a surrogate. For all new families, a cultural shift

may be afoot in relation to sharing the care for a baby during the first

precious year. This is where Shared Parental Leave (“SPL”) comes into

play. We explore below details of the new scheme and the key issues

employers should be aware of.

To make things simple in this article, please note that references to

‘mother’ are also to the adopter or intended parent in a surrogacy

arrangement and references to ‘partner’ also refers to father, spouse,

civil partner or someone living with the child’s mother in an enduring

family relationship who is not a relative. All references to ‘employee’

refer to both mother and partner.

Who is eligible to take SPL?

If they are the child’s mother or partner, and:

• Both have at least 26 weeks’ continuous employment ending with

the 15th week before the expected week of birth and remain in

continuous employment with the organisation until the week before

any period of SPL that the mother or partner takes

• At the date of the child’s birth both share the main responsibility for

the care of the child

• The partner has worked for at least 26 weeks in the 66 weeks prior to

the due date and has average weekly earnings above a certain limit

What are the notice requirements for SPL?

The notices that the mother and partner must

give to the relevant employer to be able to take

SPL are made up of three elements. These are:

• A “maternity leave curtailment notice” from

the mother setting out when she proposes

to end her maternity leave (unless the

mother has already returned to work from

maternity leave) and this must be given at

least eight weeks before SPL

• A “notice of entitlement and intention” from

the employee giving an initial, non-binding

indication of each period of SPL that he/she

is requesting and this must be given at least

eight weeks before the first intended period

of leave

• A “period of leave notice” from the

employee setting out the start and end

dates of each period of SPL that he/she is

requesting and this must be given at least

eight weeks before the start of leave


How much SPL can an employee take?

If you are the mother you cannot start SPL until

after the compulsory maternity leave period

which lasts for two weeks after the birth.

Therefore the maximum period that the mother

and partner can take as SPL is 50 weeks

between them (although it will normally be less

than this because of the maternity leave that

mothers usually take before and after the birth).

The mother and partner must take any SPL

within 52 weeks of the birth.

Taking SPL in practice

SPL can be taken as a ‘continuous’ block of

leave which the employer is obliged to accept.

In fact, an employee can submit up to three

‘period of leave’ notices.

This may enable the employee to take up to

three separate blocks of SPL. However, if

the employee wishes to take ‘discontinuous’

blocks of leave, for example work every other

week over a particular period, the employer

has two weeks to agree to the request,

propose alternative dates or refuse the periods

of leave requested. If refused, the employee

may choose to take the total amount of leave

requested as a continuous block.

Please note that SPL must be taken in blocks

of at least one week.

Shared Parental Pay

Shared parental pay (“ShPP”) of up to 37

weeks may be available during SPL provided

the employee has at least 26 weeks’

continuous employment ending with the 15th

week before the expected week of birth and

their average earnings are not less than the

lower earnings limit set by the government

each tax year.

The amount of pay available to the employee

will be reduced by the amount of any statutory

maternity pay received by the mother.

From 5 April 2015 the rate for ShPP will be

£139.58 per week or 90% of the employee’s

average weekly earnings if lower.

Returning to work

Employees are entitled to return to work in the

position they held before starting SPL, and on

the same terms of employment. However, if

it is not reasonably practicable the employer

may give the employee another suitable and

appropriate job on terms and conditions u

that are not less favourable, but only in the

following circumstances:

• If the SPL and any maternity or paternity

leave taken adds up to more than 26 weeks

in total (whether or not taken consecutively)

• If the employee took SPL consecutively with

more than four weeks of ordinary parental

leave

Whilst on SPL an employee can work for up

to 20 ‘Shared Parental Leave In Touch’ days

known as SPLIT days. SPLIT days can be

used for any work-related activity, including

attending training, conferences and team

meetings.

Practical points for employers

• Provide line managers with sufficient

training to ensure that they are equipped

to deal with SPL requests

• Update company policies and

handbooks to include details of the new

regime

• Take relevant steps to inform employees

of their new rights and engage with

them to ensure they are flexible when

agreeing appropriate arrangements with

the employer

• Consider whether you want to provide

an enhanced rate of pay as there is no

statutory requirement under the new

regime

• Ensure that all SPL notification requests

and variations are responded to in

writing

• To avoid discrimination claims, all

requests for SPL will need to be treated

consistently whether they are received

from mothers or partners

Further employment law updates in brief... RIGHT TO BE ACCOMPANIED

The revised ACAS Code of Practice on Disciplinary and Grievance

Procedures has recently come into force. This relates to the statutory

right to be accompanied at disciplinary and grievance hearings

under section 10 of the Employment Relations Act 1999. Employees

will now have the right to be accompanied by a colleague, trade

union representative or official of choice, provided the request to be

accompanied is made in a ‘reasonable’ manner.

Employers are advised to review their current policies in relation to this

new code to ensure there is no restriction on an individual’s right to

choose their companion that may conflict with this.

As a reminder, the penalty for denying an employee’s rights in this regard

can be up to two weeks’ pay.

FIT FOR WORK?

In December 2014 the Department for Work and Pensions introduced,

on a phased basis, the Fit for Work service with a view to easing the

burden on employers in dealing with employees on long-term sickness

absence. The scheme includes a Government funded assessment by an

occupational health professional for employees who are off sick for four

weeks or more. The objective is to provide specialist impartial advice


Contributors to this Newsletter: Carla Roberts Head of Legal & ComplianceHayley Pierson SolicitorCaroline Oliver SolicitorSophia Lloyd Legal ManagerNeena Sangha Trainee Solicitor

These pages are intended to provide general information only. Nothing in these pages constitutes legal advice or should be taken as such. You should consult a suitably qualified lawyer on any specific legal matter.

and assistance to support the employee in

their return to work. Three separate guidance

notes have been published for employers,

employees and GPs.

As the scheme is not mandatory, its success

will partially depend on the employee giving

their consent to take part.

SURROGACY

Surrogacy is increasingly recognised as an

option for couples to become parents. Until

now it has only been the birth mother who

is eligible for maternity rights. From 5th April

2015 the intended parents will become entitled

to adoption leave and pay.

The new rights for the partner to have

unpaid time off in order to attend antenatal

appointments will also apply to intended

parents in a surrogacy arrangement. This

means they can attend up

to two antenatal appointments with the

surrogate.

ADOPTION RIGHTS

Also, from 5th April this year, there will be a

shift bringing the rights of adoptive parents

closer in line with those eligible for maternity

leave. For adoptive parents, rights will apply

from day one with the removal of the qualifying

period in employment of 26 weeks. Statutory

adoption pay will also be enhanced to 90%

of the adopter’s salary for the first six weeks.

Both adoptive and intended parents will be

able to consider the Shared Parental Leave

rights available (as covered above).

“From 5th April this year, there will be a shift bringing the rights of adoptive parents closer in line with those eligible for maternity leave.”

The two key changes to be aware of are:

• The limit on the compensatory award for

“ordinary” unfair dismissal will increase

from £76,574 to £78,335

• The maximum amount of a week’s pay

for the purposes of calculating statutory

redundancy payments and the basic

award in unfair dismissal claims will

increase from £464 to £475

NEW STATUTORY RATES

There will be a 1% increase in the

rates for statutory maternity, adoption,

paternity, shared parental and sick pay

from 5th April 2015.

The new statutory rates will be as follows:

Maternity, Adoption

and Paternity ............................... £139.58 Shared Parental .......................... £139.58 Sick Pay ....................................... £88.45*

INCREASE IN EMPLOYMENT TRIBUNAL COMPENSATION LIMITS

For dismissals taking place from 6th April

2015, there will be new limits on compensation

for unfair dismissal and statutory redundancy

pay.

(*from 6th April 2015)

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