Employment Rights and Pensions Flashcards
Different employment statuses?
· Employee
· Independent contractor
· Worker
What makes someone an employee?
- Performs work personally for the company as their employer
- Contract of employment
- Employer has control over what, where, when, how work is done>Mutual obligations to provide and perform work>Other economic and integration factors
What makes someone an independent contractor?
- Individual is in business on their own account providing services to a client or customer of that business
- works under a contract for services rather than a contract of service
- Freelance workers or self employed.
- No employment relationship
What makes someone a worker?
- Performs services personally as part of a profession or business undertaking carried on by someone else where the other party to the contract is not, by virtue of the contract, a client or customer of the worker
- Works under a contract – other factors for employee may not be present
- Casual workers, locums, temporary workers, consultants
Statutory rights that employees have?
· Employees only: Unfair dismissal rights; Statutory redundancy rights, Working time rights (i.e. maximum working hours); Minimum wage rights (i.e. minimum wage per hour)
also have a right to provision of a pension under the ‘auto-enrolment’ pensions legislation and rights under anti-discrimination legislation.
Statutory rights that workers have?
· Workers (including employees): Working time rights (i.e. maximum working hours); Minimum wage rights (i.e. minimum wage per hour)
also have a right to provision of a pension under the ‘auto-enrolment’ pensions legislation and rights under anti-discrimination legislation.
Self-employed rights?
· Self-employed independent contractor: No rights under ERA
When does a wrongful dismissal arise? Where can they be brought to? What are the remedies for wrongful dismissal?
· A claim for wrongful dismissal arises where the employer has dismissed the employee in breach of the terms of their employment contract. Wrongful dismissal claims can be brought in the Employment Tribunal or court. The remedy for wrongful dismissal is damages (and the general duty to mitigate applies).
When does a unfair dismissal arise? Where can they be brought to? What are the remedies for unfair dismissal?
· Unfair dismissal is a statutory claim that can only be brought by employees who also satisfy certain other qualifying criteria. Unfair dismissal claims can only be commenced in the Employment Tribunal. To successfully defend an unfair dismissal claim, the employer must have (1) a fair reason for the dismissal (for example, capability or conduct) and (2) the dismissal must have been fair in all the circumstances. This means, the dismissal procedures followed must be fair. The main remedy for unfair dismissal is compensation.
When does a constructive dismissal arise? What are the remedies for constructive dismissal?
This occurs where it is the employee who leaves the job, but they are compelled to do so by the conduct of the employer. The employer’s conduct must amount to a fundamental breach of the employment contract to which the employee must have resigned in response. The remedy is damages for breach of contract.
What is statutory redundancy?
· Statutory redundancy is a fair reason for dismissal: following a statutory procedure for redundancy allows an employer to dismiss a number of employees who are no longer required in the business without the dismissal being unfair. There is a statutory minimum redundancy payment.
· A payment in lieu of notice clause (PILON)?
· A payment in lieu of notice clause (PILON) allows the employer to pay the employee for the period covered by their notice period, rather than require the employee to work during their notice period.
· If the employment contract contains a PILON clause and the employer dismisses the employee, paying them in accordance with the PILON clause - instead of employing them until the end of their notice period – then there will be no breach of contract and no claim for wrongful dismissal.
Garden leave clause?
· A garden leave clause allows the employer to require the employee to stay at home during their notice period – reducing the risks of disruption to the business.
Why are restrictive covenants put in employment contracts?
· To protect its business an employer may put restrictive covenants in the employee’s employment contract to restrict what they can do after their employment has ended.
Types of constructive dismissal?
- Non-competition This prevents the ex-employee from working for a competitor or setting up a competing company.
- Non-dealing This prevent any dealings between the ex-employee and customers
- Non-solicitation/poaching This prevents the ex-employee soliciting business of customers or prevents the ex-employee poaching members of the team to join a new business.
· Restrictive covenants are void and unenforceable unless both:
- They protect a legitimate interest of the business; and
- They go no further than is reasonably necessary to protect that legitimate interest
· Reasonableness factors: How long? How far? Needs of business/ Duties of employee
· If the employer dismisses an employee in breach of contract or if the employee resigns as a result of a constructive dismissal, then any restrictive covenants are likely to be unenforceable.
When does TUPE apply?
· TUPE applies to a relevant transfer which includes business transfers and service provision changes. TUPE does not apply to share sales.
What happens when TUPE applies?
· Where TUPE applies the buyer becomes the employer of all employees, if they are employed in the business, or part of the business being sold, immediately before the transfer. This includes employees dismissed prior to the transfer and because of the transfer where there is no economic, technical or organisational (ETO) reason for the dismissal. In addition, such a dismissal will be automatically unfair.
· Employees who object to being employed by the transferee will not transfer. The transfer will instead operate to terminate their employment, but it will not constitute a dismissal.
· Any changes to employment terms, where the sole or principal reason for the variation is the transfer itself, will be void, unless the variation is for an ETO reason and the employer and employee both agree to the variation.
What is a relevant transfer for TUPE?
- “a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity”. (Reg 3(1)(a))
· The sale of a business as a going concern will generally constitute a ‘relevant transfer’ for the purposes of TUPE.
What happens to employment contracts when TUPE applies?
· Where TUPE applies, there is an automatic transfer of the contracts of employment from the seller (the ‘transferor’) to the buyer (the ‘transferee’) and the contracts continue as if originally made between the employees and the buyer – see Reg. 4(1).
· Remember that TUPE will not apply on a share sale. On a share sale employees of the target company before completion will remain as employees of the target company after completion
Which employees are affected by TUPE?
· Regulation 4(1)
- “A relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee.”
· Regulation 4(1) specifically applies to employees assigned to the business being transferred, so employees will not transfer automatically to the buyer if they do not work in the business or part of the business being transferred
· The transfer of rights and liabilities will not occur if the employee informs the seller or buyer that they object to becoming employed by the buyer.
- If this occurs, the transfer will terminate the employee’s contract with the seller but the employee will not be treated as having been dismissed by the seller and will not have any right to claim unfair dismissal. The employee will also not be entitled to any statutory or contractual compensation on termination (unless they object and resign either in response to a repudiatory breach by the employer or to a substantial change to their working conditions which is to their material detriment).
How do you assess whether an employee is ‘assigned’ to the business being transferred?
· Where only part of a business is being transferred, or where employees work in more than one business operated by a company, employees will not transfer to a buyer if they are not ‘assigned’ to the business or part business transferred.
· The court will look at an employee’s function rather than the terms of their employment contract to determine whether employees are wholly engaged or assigned to the business (Botzen v Rotterdamsche Droogdok Maatschappij [1986] 2 CMLR 50).
· The Employment Appeal Tribunal has set out further guidance in the Duncan Webb case – Duncan Webb Offset (Maidstone) Ltd v Cooper & Others [1995] IRLR 633. In determining the question of whether an employee is ‘assigned’ to the business or part business transferred, tribunals should consider the following:
* the amount of time spent working in one part of the business over the other;
* the value given to each part of the business by the employee;
* contractual terms setting out what the employee’s job comprises; and
* the allocation of the cost for the employee’s services.
In determining the question of whether an employee is ‘assigned’ to the business or part business transferred, tribunals should consider the following:
- the amount of time spent working in one part of the business over the other;
- the value given to each part of the business by the employee;
- contractual terms setting out what the employee’s job comprises; and
- the allocation of the cost for the employee’s services.
Can sellers dismiss employees before a transfer to prevent the automatic transfer principle applying?
· Employees only transfer if they are employed in the business being sold immediately before the transfer OR if they would have been so employed if they had not been dismissed in certain circumstances prior to the transfer (Reg. 4(3)).
· The circumstances that would lead to employees still being treated as transferring to the buyer are set out in Regulation 7(1) - which provides that if the sole or principal reason for an employee’s dismissal is the transfer itself, it is automatically unfair UNLESS the dismissal was for an economic, technical or organisational reason entailing a change in the workforce (‘ETO Reason’) (see Reg 7(2)). ETO Reasons could include (for example) a reduction in the requirement for employees carrying on a particular function in the business
· Whether or not the sole or principal reason for a dismissal is the transfer itself is a question of fact. Dismissals occurring shortly before or after completion are likely to be by reason of the transfer, but dismissals taking place weeks before completion are not likely to be by reason of the transfer - unless, at the time of the dismissal, a buyer had been found.
· If the transfer is the reason for the dismissal, then either (1) there is no ETO Reason for it – in which case the dismissal is unfair and the liability for the dismissal transfers to the buyer under TUPE; or (2) there is an ETO Reason – in which case the dismissal is potentially fair (as a redundancy or a dismissal for another substantial reason) and there is no TUPE transfer to the buyer
What happens if the transfer is the reason for the dismissal?
either (1) there is no ETO Reason for it – in which case the dismissal is unfair and the liability for the dismissal transfers to the buyer under TUPE; or (2) there is an ETO Reason – in which case the dismissal is potentially fair (as a redundancy or a dismissal for another substantial reason) and there is no TUPE transfer to the buyer
- What rights and liabilities do not transfer automatically under TUPE?
- rights and liabilities under or in connection with an occupational pension scheme which relate to benefits for old age, invalidity or survivors (however, an employer’s liability in respect of a personal pension scheme will transfer to the buyer, as will certain enhanced early retirement/redundancy benefits under an occupational pension scheme) - Reg 10(1); or criminal liabilities.
Which rights and liabilities transfer automatically under tupe?
· Under TUPE the buyer inherits the transferring employees on the terms and conditions which existed with the seller. The buyer also inherits all accrued rights and liabilities connected with the employment contracts of the transferring employees: for example, an employee can sue the buyer for a breach of contract committed by the seller pre-transfer.
What happens when the buyer changes the terms and conditions of the employment contract?
· Any changes to an employment contract at any time cannot be made unilaterally and must be agreed by the employee and employer. If a buyer unilaterally imposes changes to terms and conditions, the employees could resign and claim constructive dismissal.
· TUPE further restricts the changes which an employer may propose. A change to the employee’s terms and conditions is void if the sole or principal reason for the variation is the transfer.
· However, an employer may vary the employee’s contract if any of the following exceptions apply:
- the reason for the variation is not related to the transfer;
- the reason for the variation is an ETO Reason and the employer and employee agree the variation;
- the terms of the contract permit the employer to make the variation;
- the variation is entirely positive for the employee;
- there are ‘relevant insolvency proceedings’ and the specified statutory conditions are satisfied (NB: this condition is beyond the scope of the module); or
- there is a collective agreement (these are agreements between employers and trade unions) from which the term or condition has been incorporated into the employment contract
· The Department for Business, Energy and Industrial Strategy has provided some guidance (‘BIS Guidance’) on examples of circumstances which could result in changes to employee terms that are unrelated to the transfer and so would not be void under TUPE:
- the sudden loss of an unexpected order by a manufacturing company;
- a general upturn in demand for a particular service; or
- a change in a key exchange rate.
How is Exception 1: The reason for the variation is not related to the transfer determined?
· If the variation is because of the transfer but there are other reasons for the variation, then the surrounding circumstances must be considered to decide whether the sole or principal reason for the change is the transfer. For example, if the changes are part of a wider reorganisation which has nothing to do with the transfer then they may be effective. There is no time period after which the changes will no longer be deemed to be connected to the transfer, so this is a continuing risk for buyers.
How to determine Exception 2: The variation is an ETO Reason?
· It may be possible to vary the employees’ terms and conditions where the reason for the variation is an ETO Reason. However, the grounds for a valid ETO Reason have been quite restrictively defined by case law. In particular, a desire to harmonise terms and conditions with the buyer’s existing employees (which is a common motivation for a buyer) does not of itself amount to an ETO Reason.
· BIS Guidance has examples of what an ETO Reason may constitute as there is no statutory definition: examples include:
- a reason relating to the profitability or market performance of the new employer’s business (an economic reason);
- a reason relating to the nature of the equipment or production processes which the new employer operates (a technical reason); ora reason relating to the management or organisational structure of the new employer’s business (an organisational reason).
· Even if a valid ETO Reason exists, there is still the requirement for the employee to consent to the changes.
How to determine Exception 3: The terms of the contract permit the employer to make the variation?
· An example of when this would apply is if a contract already permits the employer to vary the shift times for its employees: in this case, making a change in shift times after the transfer will not be void under TUPE.
· However, an employer cannot simply circumvent TUPE by inserting a term in the contract which gives it the ability to make changes in the future. If the sole or principal reason for inserting that power is the transfer, this will be caught by the general restriction and will be void.
How to determine Exception 4: The variation is entirely positive for the employee?
· The BIS Guidance states that “changes to terms and conditions agreed by the parties which are entirely positive are not prevented by the Regulations”. Therefore, only detrimental or negative changes to terms and conditions (or positive changes made before the transfer – see case below) would appear to be void if they are due to the transfer itself.
· Key cases: The Court of Appeal held in Regent Security Services Limited v Power [2007] EWCA Civ 1188 that an employee can agree to an additional beneficial right in their contract of employment without being deprived of any rights that transfer and that this will not be void under TUPE. In this case the employee agreed with the transferee to an increase in this retirement age from 60 to 65 years and was found to have contracted into and obtained the right to continue working to 65 years if he so wished.
· In Ferguson v Astrea Asset Management LTD [2020] UKEAT 0139-19-1505, the Employment Appeals Tribunal found that variations agreed between employees and a transferring employer prior to a TUPE transfer, which were wholly in the employees’ favour (e.g. a new guaranteed bonus of 50% of salary), were void because they had clearly been entered into solely as a result of the upcoming transfer.
· The parties to a business transfer cannot prevent TUPE applying but they can share the risks involved:
- Schedule of employees: Because of the uncertainty in determining which employees will transfer under TUPE and which will not, the parties will often agree a list of transferring employees. These are the employees which the parties think will transfer; they will not necessarily be the individuals who do transfer by operation of law under TUPE.
- Warranties: The buyer will carry out full due diligence of all transferring employees’ terms and conditions because it inherits those terms and conditions on a TUPE transfer. The seller will provide warranties that all of the information is correct and accurate and that no employment claims are threatened or pending
- Indemnities: The parties will give cross-indemnities, in order to share the risk of (1) certain employees who are not in the schedule of employees but who claim that they should transfer to the buyer under TUPE and/or (2) certain employees who are in the schedule but who claim that they should not transfer under TUPE. The standard position is that the seller picks up the cost if an employee who is not on the schedule transfers by operation of law; the buyer picks up the cost if an employee who is on the schedule does not in fact transfer under TUPE and brings a claim against the seller.
Duty to inform and consult?
· Regulation 13 states that both the seller and buyer must provide information to, and in certain circumstances consult with, representatives of their own employees who may be affected by the transfer or by measures taken in connection with it (‘affected employees’).
- Essentially joint and several obligation to inform employees who may be transferred or jobs may be affected by the transfer of the facts around the transfer and whether any measures are proposed
· The BIS Guidance lists the following examples of affected employees:
- employees who are to be transferred;
- employees of the transferor who are not being transferred to the transferee but whose jobs may be affected by the transfer; and
- employees of the transferee whose jobs may be affected by the transfer.
· Appropriate representatives may be:
- Representatives of a recognised trade union; or
- Elected employee representatives.
Duty to consult relationship with Trade Union?
· Where there is a recognised trade union, the employer must consult with those representatives rather than with any other employee representatives.
How must information be given?
· Information must be given ‘long enough’ before the transfer to enable any consultation to take place – so this either requires the employees to be informed before the transaction (which may have confidentiality issues) or there will need to be a split signing and completion.
· Information to be provided must set out the fact of the transfer, when it is to take place, the reasons for it, the legal, economic and social implications for the affected employees and whether the seller and/or buyer envisage taking any ‘measures’ in relation to the employees (or if none, to state there are no measures intended). The buyer must inform the seller if there are any measures it is planning after completion, so that it can pass that information on to its affected employees.