HR FAQs
November 2008
Employers and their Human Resources advisers face constant difficulties
in trying to avoid the potential pitfalls posed by current employment
law. This bulletin aims to address, in a practical way, some issues
commonly dealt with by Human Resources departments and to give
realistic guidance on how to reduce the risk of employment related
litigation in these areas.
LEGISLATION UPDATE
National Minimum Wage (NMW)
From 1 October, the NMW hourly rates increased to £5.73 (for those aged
22 and over), £5.53 (aged 18-21) and £4.77 (aged 16-17).
Maternity Leave
Women whose babies are born after 5 October, are now entitled to the same
terms and conditions of employment during additional maternity leave
(i.e. the second 6 months of leave) as when they were on ordinary maternity
leave.
Employer’s Liability Insurance
From October it is now acceptable to have an electronic copy of the
employer’s liability insurance certificate available instead of displaying
a hard copy.
FAQs – FOCUS ON REDUNDANCY
Redundancy
Q: We have an employee who we
are not very happy with. Can we
make him redundant?
It is a common misconception that
redundancy is a sort of “catch all” reason for dismissal which can be
used to avoid addressing sensitive
issues of misconduct or
performance. However, a genuine
redundancy will only exist in certain
situations.
These are that you:
- Are ceasing or intending to
cease to carry on the business
for the purposes of which the
employee was employed by it
(i.e. a business closure);
- Are ceasing or intending to
cease to carry on that business
in the place where the employee
was so employed (i.e. a
workplace closure); or
- Have a reduced requirement for
employees to carry out work
of a particular kind or to carry
out work of a particular kind at
the place where the
employee was employed to work
(i.e. a reduced
requirement for employees).
Even if you can show that a redundancy situation
exists, you will need to ensure that the dismissal is
fair procedurally.
Broadly speaking, a fair procedure will include:
- clear planning of the redundancy process
and proper consideration of the reason for the
redundancy situation;
- identification of the correct pool of employees
at risk;
- notification to the employee(s) of the “risk” of redundancy before any decision is made;
- consultation with the employee(s) at risk;
- application of fair objective criteria on which
to select this individual for redundancy;
- considering of ways in which to avoid or minimise
redundancy, for example by redeployment to an
alternative position in the organisation; and
- ensuring that the 3 step statutory dismissal
procedure is followed.
Unfairly targeting this individual could leave
you exposed to a claim for unfair dismissal and
possibly discrimination (depending on the
circumstances). It will generally only be possible
to show that only one person is at risk of redundancy
if you are planning to eliminate only his particular role
and there is no one else who does the same role who
should be included in what is generally known as the “pool” of employees at risk.
It may be more appropriate to consider initiating
disciplinary proceedings on grounds of performance
or conduct or both (as appropriate) to try to address
the particular issues that you have.
Employment Contracts and Staff Handbooks
Q: Our Staff Handbook contains a number
of discretionary entitlements, such as enhanced
redundancy pay. Is there a risk that this could be
deemed to be a contractual entitlement?
Yes, simply putting such a scheme in the Staff
Handbook rather than in the contract of employment
or terming it as “discretionary” will not necessarily
mean that it is non-contractual.
Firstly, if the policy is applied consistently over
a significant time period it is likely to become a term
implied by “custom and practice”. To become such
a term, it must be notorious, certain and reasonable.
Publication of the enhanced redundancy scheme
within the Handbook will ensure that it is notorious
and if it provides for a specific calculation to be made
upon redundancy, this is likely to give the term
certainty. Even if it has not been applied consistently,
you will have to be reasonable in the exercise of your
discretion and consider in good faith whether to make
an enhanced redundancy payment in accordance with
the policy. If you vary the application of the policy,
be prepared to provide evidence that you have not
exercised your discretion irrationally or perversely.
Secondly, the way that it is termed within
the Handbook may indicate it is contractual rather
than discretionary. The recent High Court case
Harlow v Artemis International Corporation Ltd
considered this very issue. In that case,
the employee’s contract was set out in a letter which
stated “All other terms and conditions are as detailed
in the staff handbook as issued to you, and subject
to its most recent update”. The handbook contained
an enhanced redundancy policy which the employee
claimed was a contractual entitlement. During the
course of his employment, the handbook had been
replaced by the intranet which contained a folder “HR
Policies and Procedures” in which the redundancy
policy could be found.
The court took the view that not only was the
redundancy policy included in the staff handbook
(even though this was now an intranet), it also had
contractual effect as it was included in the HR folder with other policies that had contractual effect,
such as sickness and holiday pay. Furthermore,
the policy made reference to “entitlement” to the
enhanced payment which set it aside from other
policies which were merely “procedural, inspirational
or discretionary”.
However, remember that even if you word your policy
carefully and keep it separate from contractual
entitlements or arrangements, it will almost certainly
become contractual as a term implied by custom and
practice if it is applied consistently over the years.
Discrimination
Q: We offer an enhanced redundancy payment
which generally rewards age and length of service.
Is this discriminatory?
The Employment Equality (Age) Regulations 2006
contain a specific exemption for enhanced
redundancy schemes based on age and length
of service provided the enhanced payment is
calculated in accordance with the multipliers used to
calculate a statutory redundancy payment. Statutory
redundancy pay is calculated using multipliers based
upon age bands as follows:
- Half a week’s pay for each year of work between
the ages 18 and 21;
- One week’s pay for each year of work between
22 and 40; and
- One and a half weeks’ pay for each year of work
over 40.
A week’s pay is currently capped at £330.
Provided your enhanced redundancy scheme follows
the same multipliers but, for example, does not cap
the amount of a week’s pay or it provides an enhanced
amount of a week’s pay, it will be permitted under
the Age Regulations.
If your scheme does not follow these multipliers it will
be potentially either directly or indirectly
discriminatory on grounds of age and you will need
to able to objectively justify such a scheme. The test
for justification is that the treatment or provision
should be a proportionate means of achieving
a legitimate aim, i.e. that it is an appropriate and
necessary means of achieving a real and reasonable
business need. The benefits of the aim must outweigh
the discriminatory effect and there should be no
reasonable less discriminatory option available.
This can often be hard to assess and each scheme will
be different in terms of payments made and
justifications given. However, the Employment
Appeal Tribunal gave some useful general guidance in
the recent case of MacCullough v Imperial Chemical
Industries plc. It accepted that the following aims
could be legitimate in terms of an enhanced
redundancy scheme:
- Encouraging and rewarding loyalty by linking
a redundancy payment to length of service;
- Paying more to older workers because they would
be more vulnerable in the employment market if
made redundant;
- Retaining a popular scheme which encouraged
older workers to leave, giving greater
opportunities to others and making it easier
to manage change.
Note that the Employment Appeal Tribunal did not
accept that it was a legitimate aim for an employer
to honour its contractual obligations, holding that
a scheme, if discriminatory, must be changed.
Generally speaking, provided the difference between
payments to older employees is not so much greater
than those made to younger employees, it will be
easier to show that any justification is proportionate
but you will need to consider objective justification
carefully.
If your scheme is discriminatory, what compensation
could an employee expect to receive? This issue was
considered recently by the employment tribunal who
held that the right approach was to ask what would
have happened had the employer considered the
disparity and rectified it and compensation should be
based on what is fair and equitable.
Termination
Q: We need to make a number of
individuals redundant but would
like to ensure that no claims are
brought as a result. How can we
safely introduce a Compromise
Agreement?
Even where you have gone through
a careful planning process and taken
steps to ensure that your
redundancy procedure is fair,
reasonable and non-discriminatory,
many employers would like the
added reassurance of a clean break
with departing employees, to be
sure that they will not have to
address potential claims. However,
in most cases it is not possible to
simply make a payment to an
employee for a written promise that
they will not issue tribunal claims
against you. Statutory employment
rights such as unfair dismissal claims
and discrimination claims can only
be waived in a prescribed form, by
means of a Compromise Agreement.
A Compromise Agreement is
essentially a document setting out
the terms of settlement of potential
employment disputes in return for
a payment of compensation to the
employee. The employee is
required to take independent legal
advice on the terms and effect of
the agreement and on their right to
pursue claims against their
ex-employer, in order to make the
agreement binding. It sounds simple and easy. However,
introducing a Compromise
Agreement in the wrong way may
result in a claim for constructive
unfair dismissal, if the employee
is essentially given no option but
to take an offer or leave.
Furthermore, even if you state that
the offer is made “without
prejudice” (i.e. that it cannot be
used as evidence), the application of
this protection is becoming more
limited in practice and will only be
available in circumstances where
there is an actual dispute in
existence. In other words, you
should not use a Compromise
Agreement in order to bypass an
appropriate dismissal procedure
unless you are prepared to offer
enough in compensation under the
agreement to make it pointless for
the individual to pursue claims.
You will certainly be in a stronger
negotiating position if you introduce
the agreement having already
followed a fair and reasonable
redundancy procedure. If you want
to use the offer of a compromise
earlier in the process, you should do
so informally as a guide to what
individuals might expect if their
redundancy is confirmed following
the consultation process with clear
assurances that no decision has yet
been made as to the termination of
employment.
If you would like any further information about the issues raised in this newsletter, or any other aspect of employment law, please contact , Partner, or any other member of Goodman Derrick LLP's .
Further information and guidance about how to follow a fair and
reasonable redundancy process with a minimal risk of claims is covered
in our Redundancy Seminar which, due to demand, we are going to rerun
in February 2009.
This guide is for general
information and interest
only and should not be
relied upon as providing
specific legal advice.
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