Employment Update - July 2019

Immigration Radar

Sponsored visas – lowering the threshold?

The Home Secretary has commissioned the independent Migration Advisory Committee (MAC) to review and advise on what minimum salary thresholds should apply to employer-sponsored visas in the post-Brexit immigration regime.

A new immigration system is expected to apply from 1 January 2021, with the same rules and criteria applying to EU and non-EU nationals. Essentially under the new system employers will require a licence to sponsor EU nationals as well as non-EU nationals.

Currently, the minimum salary for employer-sponsored Tier 2 visas for non-EU nationals is generally £30,000 or the specified minimum for the particular job type if higher. The MAC, which is expected to report back by January 2020, has been asked to recommend whether a fixed minimum salary threshold should be adopted to cover all job types and also whether regional variations should be introduced. A lower overall salary threshold would be welcomed by some employers, as it would make it easier to sponsor visas in some roles which do not
currently qualify.

Brexit and mobile workers

As reported in the January 2019 Employment Update, EU nationals who are resident in the UK will be required to apply under the EU Settlement Scheme to maintain their status post-Brexit. However, some EU nationals who live in one country but regularly work in the UK may not qualify under the EU Settlement Scheme. The Government has confirmed that so-called "frontier workers" will be protected post-Brexit. If the UK leaves with a deal, frontier workers will be able to continue working the UK up until 31 December 2020 on the same basis as at present. In a no-deal scenario, frontier workers will be able to work in the UK for up to three months at a time up until 31 December 2020. To work beyond 31 December 2020, frontier workers will need to apply for a "frontier worker permit". No details on the application process or timing have been published at this stage but the Government says these will be set out in due course.

Case Watch

Shared parental leave – what's the cost?

Should employers match what they pay for shared parental leave with any enhanced maternity pay they offer? A recent Court of Appeal ruling suggests that employers do not have to do so, as it is not discriminatory to enhance pay for women on maternity leave where the employer pays the statutory rate only for employees on shared parental leave.

The Court of Appeal ruling was made in two cases which were heard together:

Case 1: The first case involved a business customer adviser who had taken two weeks of paid paternity leave and two weeks of paid holiday when his daughter was born prematurely. He wanted to take more time off and was told that he could take shared parental leave but that this would be at the statutory rate only, so he decided not to apply. An Employment Tribunal ruled that this amounted to direct sex discrimination because the employer's policy offered 14 weeks' full pay for women on maternity leave. The decision was overturned by the Employment Appeal Tribunal and the employee appealed further to the Court of Appeal.

Case 2: The second case involved a police officer who brought a claim of indirect sex discrimination on the basis that shared parental leave for police officers was paid at the statutory rate but mothers on maternity leave received full pay for 18 weeks. An Employment Tribunal initially ruled that there was no direct or indirect sex discrimination. On appeal, the Employment Appeal Tribunal ruled that such a policy could potentially give rise to indirect sex discrimination on the basis that fathers in the police force only have the option of taking shared
parental leave (at statutory pay), whereas mothers have the additional option of taking maternity leave (at full pay for 18 weeks). The case was also appealed to the Court of Appeal.

The Court of Appeal has now ruled that there was no sex discrimination in either case. The Court ruled that the purpose of maternity leave is different to shared parental leave. Maternity leave is designed to protect the mother in connection with the effects of pregnancy and motherhood whereas shared parental leave is all about facilitating childcare. A man on shared parental leave is therefore not comparable to a woman on maternity leave. In addition, UK law expressly allows employers to provide special treatment to women in connection with pregnancy or childbirth without this constituting unlawful discrimination. Accordingly, employees taking shared parental leave cannot claim sex discrimination in relation to more favourable enhanced pay offered to mothers taking maternity leave.

This ruling provides some welcome clarity for employers and suggests that employers can safely pay employees on shared parental leave less than mothers on maternity leave. However, the ruling is likely to be appealed to the Supreme Court and this may not be the last word on the issue. In addition, in practice many employers align their policies on enhanced pay for maternity and shared parental leave, given the aim of shared parental leave is to promote greater equality and give parents more choice as to how to share parental responsibilities.

ALI V CAPITA CUSTOMER MANAGEMENT LTD; HEXTALL V CHIEF CONSTABLE OF LEICESTERSHIRE POLICE & ANOTHER

Working hours – what records should be kept?

A recent European Court ruling suggests that employers should be required to set up a system of measuring working time for all workers. The ruling involved a claim from a Spanish trade union against a bank in Spain, arguing that the bank was under an obligation to set up a system to record the actual number of hours worked each day by staff. The Spanish courts referred the case to the European Court of Justice (ECJ) to understand what the requirement is under EU law.

The ECJ has ruled that, under EU law, member states must require employers to set up an "objective, reliable and accessible" system of measuring working time for all workers. Without this, there is no way of ensuring that employers are complying with working time rights, such as the limit on weekly working time and the right to daily and weekly rest periods.

In the UK, employers are only required to keep records to show (i) compliance with the weekly working time limit (for workers who have not opted out of the limit) and (ii) that limitations on night work are being complied with. However, employers are not required to keep records of all working time for all workers to show, for example, that rest breaks and daily rest requirements are being complied with. There is therefore a question over whether the UK law complies with EU law. Some commentators are suggesting employers immediately need to implement new time recording systems. However, the full impact of the ruling is not known and it is unlikely that employers will want to change their time recording practices straight away. For many organisations, it is simply not practical to require all workers to keep a record of all hours worked. Having said that, the UK Government may decide to change the law or case law may develop to introduce such a requirement in the UK in future. Until then, many employers will be adopting a "wait and see" approach.

FEDERACIÓN DE SERVICIOS DE COMISIONES OBRERAS (CCOO) V DEUTSCHE BANK SAE

Trade union inducements

Employers are prevented from inducing employees who are members of a recognised union to step out of collective bargaining arrangements. But can a 'one-off' pay offer constitute an unlawful inducement?

The employer in this case had a collective agreement with a recognised trade union, which provided that pay negotiations would take place annually. However, pay negotiations for 2016 broke down when the union rejected the employer's offer. The employer then went directly to employees with the same offer, giving them the chance to sign up on an individual basis. The offer, which comprised a two percent pay rise and a Christmas bonus, was made twice to employees, once at the end of 2015 and once again in early 2016 for those who had not yet signed up. A group of employees brought claims alleging that the employer's direct offers constituted unlawful inducements for them to step outside of collective bargaining.

The Employment Tribunal and the Employment Appeal Tribunal (EAT) initially ruled that the direct offers were unlawful inducements. The Employment Tribunal and EAT said that the employer's motive was to circumvent the collective bargaining process and to make deals directly with employees. However, on appeal, the Court of Appeal ruled that an offer will only be unlawful if the effect is that employees' pay or other terms are no longer determined by a collective agreement on a permanent basis. A 'one-off' offer covering only one year would therefore not constitute an unlawful inducement – otherwise, unions would effectively have a veto over even the most minor changes to terms and conditions.

This ruling is helpful for employers who recognise trade unions. It means that where there is an impasse in annual pay negotiations, the employer can put its offer directly to employees. Provided there is a genuine impasse, the offer is a 'one off', and the employer intends to continue with collective bargaining in future, this will not constitute an unlawful inducement. However, employers should still tread carefully in collective bargaining negotiations. An employer who blatantly or consistently disregards the collective bargaining process and goes straight to employees with its offer could still fall foul of the unlawful inducement provisions. The cost is significant – a mandatory award of £4,059 per each union member to whom an offer is made. Employers should therefore only make offers directly to employees after efforts have been made to agree the proposal with the recognised trade union. It is also possible that the case could be appealed to the Supreme Court, which could take a different view. Employment Update will report developments.

KOSTAL UK LTD V DUNKLEY

Non-competes – when are they enforceable?

The employee in this case worked for a global executive search firm. She was recruited initially as a consultant but was later promoted to partner. She subsequently resigned to join a competitor in the US. Her employment contract contained a post-termination non-compete, which provided that she should not "engage or be concerned or interested in" any competing business for six months after the end of her employment. The employer sought an injunction to enforce the non-compete but the employee argued it was too wide to be enforceable.

The Court of Appeal ruled that the non-compete was too wide, as the words "interested in" prevented even a minor shareholding in a competitor for investment purposes. The Court of Appeal initially said these words could not be removed from the non-compete to narrow it. However, on appeal, the Supreme Court has now ruled that the offending words could be removed to make the non-compete enforceable. 

This case is helpful for employers as it suggests it will be easier than previously thought for courts to enforce post-termination restrictive covenants by taking out words which make the covenant too broad. However, it also highlights the need for careful drafting. Courts will only enforce such restrictions if they go no further than is reasonably necessary to protect the employer's legitimate interests (eg confidential information or client connections). Courts will not rewrite an unreasonably wide covenant to make it enforceable – they will simply strike out an unenforceable covenant in its entirety. Courts can remove words from a covenant to make it enforceable but they will only do so if: (i) the words can be removed without having to add to or modify the wording of what remains; and (ii) the removal of the words does not create a major change in the overall effect of the restrictive covenants. Employers should therefore ensure that restrictive covenants are drafted as tightly as possible without having to rely on any words being severed by the courts.

TILLMAN V EGON ZEHNDER LTD

New Law

Financial services – SMCR extension

On 9 December 2019, the Senior Managers and Certification Regime (SMCR) will be extended to all FCA regulated financial services firms. The SMCR was introduced in March 2016 and replaced the approved persons regime for employees in banks, building societies and other financial services organisations regulated jointly by the FCA and the PRA. An equivalent regime was brought in for large insurers at the same time. The SMCR was extended to all insurers in December 2018 and will be extended to all FCA regulated firms on 9 December 2019.

We are working with our clients on the HR aspects of implementation, which include new processes for annual certification of some staff, new statements of responsibility for senior managers, training for staff, new policies on regulatory references and updates to template employment contracts and settlement agreements. Please speak to your usual Employment department contact if you would like to discuss the impact on your business.

Changes to taxing contractors

As reported in the March 2019 Employment Update, the public sector off payroll working rules are being amended and extended to the private sector from 6 April 2020. The Government has now published draft legislation to implement the changes. The draft legislation confirms the following:

• The new rules will apply to all payments made on or after 6 April 2020 even if they relate to services provided before that date.
• Clients that are "small" businesses in the private sector will be exempt from the rules. The changes also apply to all clients in the public sector (regardless of size).
• Where a business engages contractors or consultants through a personal services company, the business, as the end user client will be required to decide whether, without the personal services company, the individual would be regarded as an employee of the client.
• The business as end user client will be obliged to provide its determination and its reasons for the determination to the individual contractor via a "Status Determination Statement". The client must take reasonable care in making this determination.
• Where the contractor or consultant is engaged through other parties such as an agency or series of agencies, the client will also need to provide the Status Determination Statement to the party with which it contracts.
• The client will also have to establish a process for considering challenges from the contractor to its status determination.
• Where the client decides that the off payroll rules apply, it must account for income tax and national insurance (including employer national insurance) as if the contractor were an employee. If there is another party in the supply chain, such as an agency, it will be the body responsible for paying the contractor's company (usually the agency) which must account for income tax and national insurance (but the end user client will still be responsible for making the status determination).

In scope businesses will need to establish a process for providing Status Determination Statements for contractors they engage and responding to challenges to the determinations. The requirement to provide reasons for the determination at the outset in the Status Determination Statement is new and will require more work for businesses engaging contractors. The draft legislation is being consulted on until 5 September 2019.

Watch this space

Confidentiality provisions and non-disclosure agreements

The Women and Equalities Committee has published a report, The use of non-disclosure agreements in discrimination cases. The report follows an inquiry launched in November 2018 into whether non-disclosure agreements or confidentiality provisions in settlement agreements are being used to cover up allegations of discrimination and harassment. The report concludes that such allegations are routinely covered up and, in some cases, the allegations are not investigated properly or at all. The report follows an earlier Committee
report in March 2018 which focused on sexual harassment allegations and made similar findings.

The latest report makes a number of recommendations, including:

• requiring employers to investigate all discrimination and harassment complaints, regardless of whether a settlement is reached
• requiring employers to nominate one director or board-level manager to oversee discrimination and harassment policies and procedures, and another to oversee the use of confidentiality clauses in discrimination and harassment cases
• requiring employers to report annually on the number and type of discrimination and harassment complaints received and their outcome, and the number of settlement agreements reached which contain confidentiality clauses
• requiring employers to use prescribed standard confidentiality clauses in settlement agreements and
• requiring employers to pay the costs of the employee's advice on the confidentiality provisions in a settlement agreement, regardless of whether the settlement agreement is signed.

The report also repeats earlier calls to extend the time limit for bringing an Employment Tribunal claim from three to six months in cases involving allegations of sexual harassment or maternity or pregnancy discrimination. The Government has already committed to explore the evidence for changing Tribunal time limits in such cases but no formal consultation has been undertaken yet.

The Government has also committed to introducing tighter regulations on the use of confidentiality clauses in settlement agreements in discrimination and harassment cases. As reported in the March Employment Update, a public consultation ran during spring 2019 on proposals to tighten the use of confidentiality provisions. The Government is considering responses to the consultation and will respond later this year with its formal proposals. It is not yet clear whether the Government will take forward the Committee's other recommendations listed above. Employment Update will report developments.

Our Work

Since our last Employment Update, our work has included:

• advising on a grievance relating to harassment based on sexualised comments made by a co-worker
• advising on the application of the off payroll working rules to a client and audit of their self-employed consultants
• advising around GDPR issues on a DSAR request from a former employee
• advising on a dispute between executive board directors
• advising on an office relocation
• advising on a redundancy exercise across EMEA
• successfully obtaining strike out of an Employment Tribunal claim.