Employment Briefing - May 2014
Published byMartin Stephen
Welcome to WJM’s May Employment Briefing. In Employment Briefing we round-up changes to the law and interesting cases which could have an effect on you or your business.
In this issue, we start with the latest European Court of Justice decision which states that holiday pay must include commission and follow on with changes to flexible working regulations. We also discuss decisions in cases which affect law and practice include defining a company owner as an employee, defining Limited Liability Partnership members as employees and TUPE issues when a workplace moves.
In this issue, we start with the latest European Court of Justice decision which states that holiday pay must include commission and follow on with changes to flexible working regulations. We also discuss decisions in cases which affect law and practice include defining a company owner as an employee, defining Limited Liability Partnership members as employees and TUPE issues when a workplace moves.
- Holiday Pay Must Include Commission
- Extension to Flexible Working Regulations – comes into force 30th June 2014
- Moving a business location does not mean a TUPE transfer is automatically unfair
- The owner of a company can be regarded as an employee for the purposes of a redundancy payment.
- Sleep in Night Shift constitutes “Time Work” for the purposes of National Minimum wage legislation, holds EAT
- A member of an LLP can be a “worker” within the meaning of the Employment Rights Act 1996
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Holiday Pay Must Include Commission
The European Court of Justice (ECJ) has decided that holiday pay is not limited to basic pay but should also take account of any commission paid. The claimant, Mr Lock, was a salesman on a basic salary and variable commission. The commission depended not on time he worked but on the sales he achieved. Mr Lock could not, therefore, earn commission while on holiday.
In a landmark decision which has wide ranging consequences, the ECJ has decided that his holiday pay should be calculated by reference to the salary and commission he would have earned had he not been on holiday. The exact method of calculation has yet to be determined.
This decision has significant consequences for employers who use a basic salary and commission model to remunerate employees. We will cover this issue further in future Employment Briefings.
If you have any immediate concerns, please contact our Employment Team for further advice.
Extension to Flexible Working Regulations – comes into force 30th June 2014
Currently, employees who have children under the age of 17 (or certain carers) have the right to request flexible working. On the 30th June 2014, this right will be extended to all employees with at least 26 weeks’ continuous service. Employers will have to consider all requests in a reasonable manner, but do have the flexibility to refuse requests on business grounds.
In anticipation of the new regulations, ACAS has produced a Draft Code of Practice, designed to guide employers on as to what “handling a request in a reasonable manner” means. The Code of Practice is in draft form and currently under Parliamentary Scrutiny. It indicates that requests should be considered carefully by looking at the benefits of the requested changes in working conditions for the employee and weighing them against any adverse business impact of implementing the changes. The guidance indicates if an employer wishes to reject a request, it must be for one of the reasons set out in the legislation, including reasons like:
- The burden of additional costs
- A detrimental impact on quality
- An inability to reorganise work amongst existing staff.
The reasons are fully set out in the legislation and in the ACAS Code of Practice. In addition to the Draft Code of Practice, ACAS has produced guidance on handling requests in reasonable manner. It includes advice on developing a Flexible Working Policy, and notes on good practice in handling a request. These include discussing the matter as soon as possible, and informing the employee of the decision in writing. The guidance also includes examples of reasonable behaviour when deciding an employee’s request. The Guidance and the Draft Code of Practice are both available here.
Moving a business location does not mean a TUPE transfer is automatically unfair
Organisations and businesses often want to change premises or relocate work, perhaps through outsourcing. This can lead to challenges from staff who do not want to move.
In NSL Ltd (‘NSL’) and RR Donnelley Global Document Solutions Group Ltd (‘RRD’) v Mr P Besagni & Others the Employment Tribunal held a that requirement to work in a different location following a TUPE transfer, is not automatically unfair in terms of TUPE legislation.
The local Council, based in Barnet, North London, employed Mr Besagni and others (the Claimants) in their “Parking Enforcement and Related Services” department. The Council decided to out-source its parking operations to NSL’s office in Croydon, South London. Both NSL and The Council recognised that the out-sourcing constituted a transfer of undertakings which would result in a TUPE transfer. NSL also confirmed it would be sub-contracting other functions (related post room and payment operations) to Lancing in West Sussex.
The Claimants were not willing to move to Croydon and Lancing. All available alternative employment was either a long way from Barnet, or involved different skill sets. As a consequence, the Claimants were dismissed on grounds of redundancy. As the reason for dismissal was one connected with the transfer of undertakings, they claimed unfair dismissal.
The TUPE Regulations provide that an employee is automatically unfairly dismissed if they are dismissed (i) because of a transfer or (ii) for a reason connected to a transfer that is not an economic, technical or organisational (ETO) reason entailing changes in the workforce. An employer may, therefore, avoid liability for unfair dismissal if they can show that the reason for the dismissal was an economic, technical or organisational reason which had to result in changes in the workforce, and that it was procedurally fair.
Here, the Employment Judge recognised that there is no statutory definition of “entailing changes in the workforce” and confirmed that it meant a change in the actual numbers employed, or in any event, in the jobs which the employees do.
The Employment Appeal Tribunal (EAT) confirmed that the phrase “changes in the workforce” did not include a change in the workplace. The case was decided under the 2006 TUPE Regulations, but the new TUPE regulations ( which came into force this year) state that the location of the workforce following a transfer can now fall within the scope of the ETO defence.
The upshot of the NSL v Begani case is that redundancies due to a change in location following a TUPE transfer will not be automatically unfair. Overall, this is good news for employers who are considering a premises move whether as part of an outsourcing programme as here or for business expansion reasons. If you have concerns or queries about a TUPE situation, whether around a premises move or not, WJM’s employment team can review your situation and provide tailored advice.
The owner of a company can be regarded as an employee for the purposes of a redundancy payment.
In another far reaching decision, the EAT decided that a company owner can, in some circumstances, be an employee of the company he or she owns.
Depending on the legal relationship between the individual and the company, a company owner can be regarded as an employee for the purposes of redundancy.
Mrs Knight had been the sole shareholder and Managing Director of her company since its incorporation in 1991 until it ceased trading in 2011. From 2009 onwards, Mrs Knight forfeited her salary to enable employees and creditors to be paid. Subsequent to the company’s insolvency, she applied for a redundancy payment from the Insolvency Service.
The Tribunal examined evidence showing that Mrs Knight had been engaged by her company through a contract of employment that had been prepared but never formally executed, and her P60s, which showed that she had been paid by the company as an employee.
In deciding the case, the EAT said that the question of whether or not an individual is an employee is a question of fact. As such, the Tribunal could find that Mrs Knight was an employee of the company (even though she was the sole shareholder), and the fact that she had not taken a salary for the last 2 years had not discharged or varied her contract of employment. She was, therefore, entitled to a redundancy payment.
The set-up where a company owner is employed by their own company is a popular structure for owner-managed companies. This case shows that properly executed contracts of employment can give unexpected protections to owner-managers in some circumstances. Owner-managers might like to review their “business paperwork” (shareholder agreements, articles of association, contracts of employment, etc.) to ensure they are taking advantages of the protections that being an employee brings.
Sleep in Night Shift constitutes “Time Work” for the purposes of National Minimum wage legislation, holds EAT
The thorny issue of differentiating between an “on call” worker and one on the premises “just in case” can be modified by other legislation.
Esparon t/a Middle West Residential Care Home v Slavikovska held that Ms Slavikovska, who was required to work a number of “sleep in” night shifts at the employer’s premises, and was required to be available for emergency purposes, was a worker under National Minimum Wage legislation.
Whilst recognising that it was a difficult differentiation between a worker being paid to be on an employer’s premises “just in case”; and a worker being deemed to be “on call” and not deemed to be working the entire time, the EAT decided that an important consideration is “why” the employee needs to be on the employer’s premises.
In this case, Esparon was bound by Care Home Regulations, which require certain levels of staff to be available on the premises at all times. It was necessary that staff were on-site, even if they were not required to do anything.
Regardless of the fact that Ms Slaviskova was allowed to sleep on shift, the EAT held that, in this case, she was entitled to be paid for being on the premises.
If you operate in an environment where employment legislation might be modified by other regulation, your contracts of employment, policies and working practices should reflect that environment. We can help you adjust your contracts, policies and practices to reflect your own particular situation.
A member of an LLP can be a “worker” within the meaning of the Employment Rights Act 1996
Following on from our commentary on whether an LLP can be a “company” for employment purposes in April (it can), a further judgement has decided that members of an LLP can be “workers”.
In the case of Clyde & Co v Bates van Winkelhof, it was decided that a member of an LLP has worker status and is entitled to protection against whistleblowing detriments.
Delivering the judgment, Baroness Hale cited the example of a majority shareholder in a company who is also the chief executive and held that “one can effectively be one’s own boss and still be a worker.”
The practical effects of the decision include:
- Regulated professionals (e.g. accountancy firms and doctors) who are members of an LLP will now have the benefit of whistleblowing rights.
- LLPs should now no longer take any retaliatory action against LLP members who report any wrongdoing
- LLPs should be aware the members will have other workers’ rights such as the right not to suffer unlawful deductions from wages, working time rights and in particular the right to holiday pay, the right to the national minimum wage and the right not to be discriminated against because of part-time status.
The case itself was remitted to the Employment Tribunal to be decided on the merits.
If you operate as an LLP, you may wish to review your partnership contracts from both the business structure and the employment points of view. WJM’s highly regarded Corporate Team work with many partnerships to help them structure themselves properly and would be pleased to review your partnership agreements from the business point of view. The Employment team work closely with the Corporate team and would partner with them to look at your partnership agreements from the employment angle.
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For further information on these or any other employment issues, please contact:
- Martin Stephen mss@wjm.co.uk
- Andrew Wilson ajpw@wjm.co.uk
- Liam Entwistle lae@wjm.co.uk
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The information contained in this newsletter is for general guidance only and represents our understanding of relevant law and practice as at May 2014. Wright, Johnston & Mackenzie LLP cannot be held responsible for any action taken or not taken in reliance upon the contents. Specific advice should be taken on any individual matter. Transmissions to or from our email system and calls to or from our offices may be monitored and/or recorded for regulatory purposes. Authorised and regulated by the Financial Conduct Authority. Registered office: 319 St Vincent Street, Glasgow, G2 5RZ. A limited liability partnership registered in Scotland, number SO 300336.
