UK Employment and Labour Law — Quarterly Executive Summary (January 2008)

January 31, 2008

Welcome to the latest Quarterly Executive Summary, in which we highlight key developments in UK Employment and Labour Law over the last quarter of 2007 and look forward to key developments in 2008. 

A headline summary of cases and developments is provided below. A more detailed explanation and analysis is available by clicking on the appropriate link. For further details concerning cases and developments discussed in this Quarterly Executive Summary or for assistance on any UK Employment or Labour law matter, please contact James Cox or Daniel Pollard in Gibson Dunn’s London office.

Headlines

A surprising extension of the scope of redundancy consultation. The Employment Appeal Tribunal has decided that employers must consult employee representatives before making any business decision which could lead to collective redundancies in the UK. Management must now be prepared to commence consultation sooner and be prepared to justify the business decisions behind the redundancies.

When undertaking a redundancy exercise (i.e. a reduction in force) in the UK, an employer is required to undertake both individual consultation and, in large scale redundancy situations, collective consultation with a recognised trade union or other elected employee representatives. A large scale redundancy situation arises where 20 or more employees face redundancy within a 90 day period at a single establishment. Collective consultation must commence at least 30 days before the first redundancy takes effect (or at least 90 days if there are 100 or more redundancies). The legislation states that consultation shall include ways of: (a) avoiding the dismissals; (b) reducing the numbers of dismissal; and (c) mitigating the consequences of dismissals. It was previously believed that employers need not consult about an underlying business decision which could lead to redundancies, only the consequences of that decision. However, in UK Coal Mining Limited v National Union of Mineworkers [2007], the Employment Appeal Tribunal found UK Coal Mining Limited to be in breach of its obligations when it consulted the National Union of Mineworkers about the redundancies resulting from a mine closure but not the reasons behind the decision to close the mine. As a consequence, employers must now commence consultation before taking any final business decision which could lead to large scale redundancies and must be prepared to discuss the underlying reasons for any such decision. An employer who breaches its consultation obligations may be ordered to pay a protective award of 90 days pay to every employee made redundant. 

When will the English courts enforce a non-compete which is subject to the laws of another country or state? The High Court declined to enforce a non-compete contained in a long term incentive plan governed by the laws of the State of Maryland against a senior UK employee on the basis that the restriction was too broad to be enforceable as a matter of English law.

Multi-national share or bonus schemes are commonly subject to the governing laws of the Country or State in which the parent company resides. However, complications may arise where an employer seeks to enforce provisions of a stock/bonus plan against an employee based overseas, particularly in the case of post employment restrictive covenants such as non-competes. In Duarte v Black and Decker [2007] the English High Court had to decide whether to enforce a post-employment restriction contained in a long term bonus scheme governed by the laws of the State of Maryland against an employee based in the UK. Mr. Duarte was a senior employee of Black and Decker who participated in a long term bonus incentive plan containing various post termination restrictions — including a two year non-compete. The High Court held that, even were the non-compete enforceable under Maryland law, it would not enforce them against Mr. Duarte on the basis that the restriction was "manifestly incompatible" with public policy in the United Kingdom. Employers who wish to protect themselves from unfair competition by UK employees must ensure that employees are subject to individually tailored restrictions which are enforceable under English law. 

When a purchaser of a business invites transferring employees to join its benefit schemes must it give credit under the schemes for past service with the seller? The Court of Appeal outlines the circumstances in which a purchaser need not provide a credit for past service to an employee who joins its benefit plans following a business acquisition. 

The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") (which implement the Acquired Rights Directive in the UK) protect UK employees who are employed in a business (or part of business) which is sold or outsourced. In such circumstances, employees will transfer automatically to the purchaser/new service provider under their pre-transfer employment terms (pension provisions excepted). Under TUPE, an employee’s accrued pre-transfer service and post-transfer service are aggregated and deemed continuous for all statutory employment law purposes. However, are there any circumstances in which an employee’s pre-transfer and post-transfer service will not be aggregated following a TUPE transfer? 

In Jackson v Computershare Investor Services plc [2007], the Court of Appeal considered whether to aggregate the pre-transfer and post-transfer service of Mrs Jackson for the purposes of calculating her benefits under an enhanced severance benefit plan. Computershare acquired the business in which Mrs Jackson worked in 2004, upon which Mrs Jackson automatically became an employee of Computershare in accordance with TUPE. Unlike Mrs Jackson’s previous employer, Computershare operated an enhanced severance benefit plan. Computershare nevertheless extended the enhanced severance plan benefits to Mrs Jackson following the acquisition. When Mrs Jackson was subsequently made redundant she argued that her severance benefits under the Computershare plan should be calculated based upon her combined service with both Computershare and her previous employer with the effect that her severance payment would be increased. The Court of Appeal rejected her claim. As Mrs Jackson had no right to enhanced severance benefits prior to her transfer to Computershare, she could not claim credit for service prior to the transfer when calculating benefits under the Computershare severance Plan, based upon a proper interpretation of the rules of the Computershare Plan. It will always be necessary to review the underlying plan documentation when considering whether an employee in such circumstances can aggregate pre-transfer and post-transfer service when calculating plan benefits. 

UK law protects employees who work in a business or part of a business which transfers overseas. The Employment Appeal Tribunal confirms that the protection afforded to UK employees who are affected by a business sale can apply even where the business in question is relocated outside the UK by the purchaser — meaning the employment of UK employees and associated termination costs can transfer unexpectedly to an overseas purchaser.

The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") protect the rights of UK based employees who are assigned to a business or part of a business that is sold or changes ownership. TUPE also applies to the transfer of activities which are outsourced from one service provider to another (whether first generation "out-sourcing", "in-sourcing" or re-tendering). Although it is generally accepted that TUPE can apply where businesses are relocated between two member states of the European Union ("EU"), the Courts have not previously considered the extent to which TUPE could apply in circumstances where a business is relocated to a country outside the EU. In Holis Metal Industries Ltd v GMB and Newell Ltd [2007], Holis operated a curtain manufacturing business which it carried on in the UK. The business was purchased by Newell which relocated the manufacturing process, using some of the same equipment but none of the UK employees, to Israel. The Employment Appeal Tribunal ("EAT") confirmed that TUPE was capable of applying in such circumstances, notwithstanding the fact that the business had been transferred from the UK to a country outside of the EU. This decision paves the way for UK employees to seek compensation from a purchaser which relocates the business in which they work overseas following an acquisition. Compensation may include damages for any failure by the seller or purchaser to engage in compulsory information and consultation as well as compensation in connection with any redundancies. Similar liabilities could arise in connection with an outsourcing where the new service provided chooses to carry out the work from an overseas location.

Employer entitled to exercise mobility clause in redundancy situation. The Court of Appeal lends support to employers who wish to exercise a contractual right to relocate employees to another location rather than making them redundant.  

A question that often arises when an employer operating a multi-site business wishes to close one of its sites is whether employees working in the site facing closure are entitled to redundancy compensation. The position may be unclear where the employer wishes to rely upon a contractual mobility clause to relocate employees to other sites in the business. Employees may be reluctant to relocate in such circumstances, preferring instead to claim statutory redundancy compensation and, possibly, enhanced payments under an employer’s severance plan. In Home Office v Evans [2007] the Court of Appeal confirmed that an employer is entitled, in such circumstances, to avoid redundancy liabilities by exercising an express "mobility clause". This is a useful authority for employers who wish to avoid redundancy severance obligations by relocating affected staff, although employers are required to exercise mobility clauses reasonably (i.e. with reasonable notice and giving consideration to reimbursement of relocation expenses) and it may be dangerous to rely upon mobility provisions which are unnecessarily onerous. 

Key Developments in 2008. The most highly anticipated development during 2008 is the introduction of the Corporate Manslaughter and Corporate Homicide Act 2007 which is likely to lead to a significant increase in the number of prosecutions for corporate manslaughter. However, 2008 will see a number of other important developments in employment law including a further extension of information and consultation obligations to employers with as few as 50 employees, the anticipated abolition of the unwieldy statutory disciplinary and grievance procedures and an annual increase in employment tribunal compensation limits. 

The following developments are expected during 2008:

• 1 February 2008. The limits on employment tribunal awards increase with the maximum unfair dismissal award in ordinary cases increasing from £69,900 to £72,900 (approximately US$143,800) and the maximum redundancy payment increasing from £9,300 to £9,900 (approximately US$19,500). There is no limit in unfair dismissal awards where the dismissal is related to discrimination, harassment or on certain other grounds.
• 6 April 2008. The Information and Consultation of Employees Regulations 2004, which require employers to adopt an "information and consultation agreement" if requested by its employees, will apply to employers with as few as 50 employees (the legislation currently only applies to employers with at least 100 employees).
• 6 April 2008. The Occupational Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006, which require employers to consult about certain changes to pension provision, will apply to employers with as few as 50 employees (the legislation currently only applies to employers with at least 100 employees).
• 6 April 2008. The Corporate Manslaughter and Corporate Homicide Act 2007 (the "Act") will create a new offence of corporate manslaughter replacing the common law offence of manslaughter by gross negligence. An organisation will be guilty of the new offence if the way in which its activities are managed or organised causes a person’s death and amounts to a gross breach of a duty of care owed to that person — for instance a breach of health and safety legislation. By contrast to the existing law, which requires that the organisation’s "directing mind" (i.e. an officer) be personally guilty of gross negligence, the Act will apply where a substantial element of the breach lies in the way the organisation’s "senior management" managed or organised its activities. This would, for instance, cover deaths caused by organisational and systematic failures where no one person was to blame. If convicted, organisations face the prospect unlimited fines, remedial orders and the publicity orders. Only organisations can be convicted under the Act although the existing law of manslaughter by gross negligence continues to apply to individuals. The Act is likely to substantially increase the number of successful prosecutions against companies in the UK. 
• Summer 2008. The Employment Bill, published in December 2007, is expected to abolish the statutory disciplinary and grievance procedures during the summer of 2008. The mandatory procedures have been widely criticised and their demise is likely to be welcomed by employers and employees alike. 

and finally….. 

Some of the previously announced Changes to Paternity/Maternity Rights are to be delayed, new penalties for Employers Employing Illegal Workers are to come into force, details of the New Points Based Immigration System are announced and the courts Stay Retirement Claims pending the outcome of challenge to the legislation before the European Court of Justice.    

Changes to Paternity/Maternity Rights Delayed. Two key elements of the UK Government’s flagship Work and Families Act 2006 are to be delayed. These are the rights of mothers to transfer part of their maternity leave and pay to their partners and the extension of maternity pay from 39 weeks to 52 weeks. It was originally planned that these would apply to births after April 2009 but this will not now come into force until at least 2010. Please click here for further details. 

New Penalties for Illegally Employing Workers Subject to Immigration Control. With effect from 29 February 2008, the fines for illegally employing workers subject to immigration control will increase to £10,000 per worker and there will be some technical changes to the pre-employment vetting that employers are currently required to undertake. There will also be a new offence of knowingly employing an adult subject to immigration control which will be subject to custodial sentences and unlimited fines. 

New Points Based Immigration System to Be Implemented During 2008. The Government have announced the detail of the first phase of the new "points based" immigration system. The "Highly Skilled Migrant" and certain other categories will be replaced during the first quarter of 2008. Changes to the Work Permit arrangements are expected late in 2008. The British consular posts in the United States have also, during December 2007, introduced a new requirement for visa applicants (including work permit holders) to provide biometric data which will require personal attendance by applicants. 

Retirement Claims Stayed. The UK legislation which, effectively, permits mandatory retirement at the age of 65 is currently subject to a high profile challenge before the European Court of Justice by Heyday/Age Concern. As a result of a recent ruling by the President of the Employment Appeals Tribunal, cases alleging unfair dismissal and age discrimination are now being stayed pending the outcome of the decision by the European Court of Justice. Employers currently considering making retirement dismissal should consider how to reduce the risks of being exposed to claims in the event that the UK legislation is quashed. We will report the outcome of the Heyday/Age Concern challenge once the judgement is available.