UK Employment Update - January 2012

January 9, 2012

In this client alert we review some of the key developments that have taken place in UK employment law during 2011 and look forward to some significant changes that are on the horizon for 2012.

Relaxation of UK Employment Law

In a widely anticipated speech, Business Secretary Vince Cable has announced a series of measures designed to ease the perceived burden of employment regulation on employers.

Whilst the UK is recognized as having one of the more flexible European labour markets, the last decade has seen a steady increase in employment protection legislation culminating in the new Agency Workers Regulations which came into force in October 2011 (see Gibson Dunn Alert, UK Employment — Key Developments for 2011, January 31, 2011).

Some of the measures announced are extremely controversial and not all may be implemented. However, there are grounds for hoping that the pendulum of UK employment regulation has begun to swing back toward the center. We summarize the key proposals below.

Unfair Dismissal

In addition to rights under their contract of employment, qualifying employees in the UK also enjoy protection against unfair dismissal. In an attempt to reduce the number of unfair dismissal claims clogging up the UK Employment Tribunals it is proposed that:

The qualifying service requirement will be doubled from one to two years. This is a controversial proposal although it will not affect the situations in which no qualifying service is required (for instance if an employee is dismissed for "whistle-blowing").
A new "compensated no-fault dismissal" is proposed for micro firms. This would apply to employers with 10 or fewer employees. It is not clear if employees of associated employers working outside the UK would count towards this number and how generous the "compensation" is proposed to be.
The dismissal procedures which employers are required to follow in cases of misconduct and poor performance will be simplified.

Reform of the UK Employment Tribunals

The UK Employment Tribunals, the specialist tribunals that consider most employment cases in the UK, were originally established as an accessible, informal, quick and inexpensive way of resolving workplace disputes. However Employment Tribunals have seen an increase in claims in recent years, and defending claims can be disproportionately expensive and time consuming. It is proposed that:

The process for settling employment disputes will be simplified with the introduction of a standard form compromise/settlement agreement and a relaxation of the requirement that the agreement must relate to "particular proceedings".
All claimants will have to submit their complaint to ACAS (the Independent Advisory, Conciliation and Arbitration Service) before their claim can be issued. The aim is to encourage early settlement; however, in our experience this is unlikely to be effective in the majority of cases.
There will be a new concept of "protected conversations" to allow employers to discuss poor performance and retirement with employees in a candid manner "off the record" in circumstances where there may not be any pre-existing dispute between the parties.
The president of the Employment Appeals Tribunal (Mr Justice Underhill) has been instructed to undertake a root-and-branch review of the Employment Tribunal rules. This is to be welcomed by all Employment Tribunal users.
Claimants should pay a fee to issue proceedings in the Employment Tribunal to deter unmeritorious claims and to encourage settlement. This is a controversial proposal in what has traditionally been a largely costs free jurisdiction. Of concern for employers is the Government’s proposal to empower the Employment Tribunal to impose a penalty on employers who fight and lose before the Employment Tribunal.
A "Rapid Resolution" scheme will be introduced as an alternative to a legal hearing in simple cases.

Whistle-blowing

UK law protects those who "blow the whistle" against retaliation whether by way of dismissal or other detriment in employment. Employees who are dismissed for "blowing the whistle" are considered to be unfairly dismissed and enjoy enhanced protection. The Employment Appeals Tribunal have held that an employee who complains to an employer of a breach of that employee’s own contract of employment enjoys protection as a "whistle-blower" even where there is no public interest in the matter complained of. The Government propose to close what they describe as this "loophole".

Agency Workers

The rules relating to agency workers including the UK’s recent implementation of the Agency Workers Directive are to be reviewed with a view to simplifying them.

Sickness Absence

In February 2011, the Government commissioned an independent review into sickness absence with the aim of reducing employers’ £9 billion annual sick pay bill. The review’s recommendation was to create a new independent medical assessment service for employees who are absent for more than four weeks. This would provide better occupational advice for employers to help employees back to work. In addition, by removing the fitness to work decision from the treating physician, it is hoped that such decisions will be more independent. The Government has indicated that they will respond to the report during 2012 and we expect reform in this area.

TUPE Update

The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") protects the rights of employees who are affected by the sale of the whole or part of a business or undertaking or a change of service provider.

During the course of 2011, we saw a number of interesting decisions in the field of TUPE including:

Enterprise Managed Services Ltd v Dance and Smith v Trustees of Brooklands College — which confirmed that an employer is not prevented by TUPE from making changes to terms and conditions of employment of transferred employees based upon a sound business rationale independent of the TUPE transfer, even if those changes would not have taken place "but for" the TUPE transfer.
Tapere v South London & Maudsley NHS Trust — in which an Employment Tribunal held that the redundancy of employees upon a workplace relocation carried out by the transferee was automatically unfair because the relocation plans did not entail changes in the overall functions or numbers of employees of the transferee.
Spaceright Europe Ltd v Baillavoine — which confirms that a dismissal can still be "connected with the transfer" (and therefore potentially automatically unfair under TUPE) even if it takes place before a transferee has been identified.
Hunter v McCarrick — which decides that the service provision rules do not extend to the situation where there was both a change of service provider and also a change of client.

TUPE Reform

The Conservative/Liberal Democrat Coalition Agreement states that the Government proposes to end the so called "gold plating" of EU Directives. This refers to the practice of implementing domestic UK legislation which goes further than the minimum required by virtue of the UK’s membership of the European Union. TUPE is an example of legislation that not only implements the Acquired Rights Directive (the "ARD") but also contains a number of provisions not found in the ARD.

As part of the Government’s wide-ranging review of employment law, the Government has published a "call for evidence" seeking views on how TUPE might be simplified. The call for evidence takes the form of a series of questions, and so while the Government’s intentions are unclear, the key areas under consideration include:

The service provision change rules which expressly provide that TUPE applies to most outsourcing transactions (whereas this is unclear under the ARD).
The provisions requiring transferors to provide certain employee liability information to prospective transferees.
Whether there is any scope, within the confines of the ARD, to make it easier to change terms and conditions within the context of a TUPE transfer.
Whether both transferee and transferor should be jointly liable for pre-transfer obligations rather than such liabilities passing entirely to the transferee (as is currently the case).

We are compiling our response to the call for evidence and would welcome the opportunity to discuss how these questions may impact your business on an individual basis. Please contact James Cox.

Collective Redundancy Update

Where an employer in the UK envisages engaging in a reduction in force, it is required to consult individually with affected employees and may also be required to consult collectively with appropriate employee representatives. The collective consultation obligation applies where an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less.

If the employer does not recognise a trade union and there is no other existing body of representatives, then the employer must hold an election to appoint representatives for the purposes of the collective redundancy consultation.

The minimum consultation period is 30 days, unless the employer proposes to dismiss 100 or more employees, in which case the minimum consultation period is extended to 90 days.

Where an employer fails to consult collectively, an Employment Tribunal may make a protective award of up to 90 days pay (uncapped) per employee. Redundancies made without prior collective consultation may also be unfair dismissals in which case further compensation may be awarded.

During the course of 2011, we saw a number of interesting decisions in the field of collective redundancies including:

Phillips v Xtera Communications Ltd — which confirmed that an employee election was not necessary in order to establish appropriate representatives of employees facing redundancy in circumstances where: (i) affected employees are invited to nominate appropriate representatives; (ii) the number of available vacancies is not oversubscribed; and (iii) none of the employees object to the identity of appropriate representatives at the time.
Independent Insurance Co Ltd (In Provisional Liquidation) v Aspinall — which confirmed that, where individual employees bring failure to consult claims, the Employment Tribunal does not have the power to make an award in respect of the entire workforce but only in respect of the employees who bring claims (resolving uncertainly on this issue).

Collective Redundancy Reform

As part of the Government’s wide ranging review of employment law, the Government has published a "call for evidence" seeking views on how the collective redundancy rules might be simplified. Here too, the call for evidence takes the form of a series of questions, with the key areas under consideration including:

Reducing the minimum consultation period from 90 days (where 100 or more employees are proposed to be dismissed), increasing the threshold required to trigger 90 days consultation or adopting a more graduated approach.
Clarifying what is meant by the term "establishment".
Considering the interaction between collective redundancy consultation and consultation required under TUPE. The concern here is whether a transferee can consult with its (prospective) employees before the transfer in respect of a proposal to make redundancies, or if it must wait until after transfer when the employees are actually employed by it.
Considering how the collective consultation obligation might be modified in insolvency situations to allow insolvency practitioners to comply with the consultation obligations within the limited timescales typically open to them.

Finally, during 2012 we expect the European Court of Justice to hear the case of United States of America v Nolan which will address the important question of whether the obligation to consult collectively arises: (i) when the employer is proposing, but has not yet made, a strategic business or operational decision that will foreseeably or inevitably lead to collective redundancies; or (ii) only after that decision has actually been made and it is then proposing the consequential redundancies.

Conclusion

2012 looks set to see a number of changes in UK Employment Law, many of which will be welcomed by employers. In particular, the UK government is considering far reaching changes in the field of both TUPE and collective redundancies. Gibson Dunn’s UK labour and employment team will be on hand to help clients understand and respond to these changes as and when they happen.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these and other developments. Please feel free to contact the Gibson Dunn lawyer with whom you work or the following lawyers in the firm’s London office:

James A. Cox (+44 207 071 4250, jacox@gibsondunn.com)
Daniel E. Pollard (+44 207 071 4257, dpollard@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

UK Employment Update – January 2012