Two year limit on back dating of holiday pay claims

avatar Posted on December 18th, 2014 by Nicholas Thorpe

So, the rumours were right. Following the recent holiday pay ruling in the Employment Appeal Tribunal (EAT) that holiday should reflect non-guaranteed overtime, the Government has announced today that it will impose a two year cap on the back dating of holiday pay claims.

Changes will be made to the Employment Rights Act 1996 which will prevent claims for holiday pay stretching back further than 2 years. While the EAT’s ruling gave employers some arguments to limit the back dating of holiday pay claims, these changes will give employers much needed certainty in relation to their potential financial exposure and should help to reduce the potential costs to employers.

However, employers are not out of the woods yet. These changes will not be introduced until 1 July 2015. Therefore, workers could still make claims under the existing arrangements over the next 6 months, which will act as a transition period before the new rules come into force, for holiday pay stretching back beyond 2 years. We are therefore likely to see increased activity from unions and employee representative bodies in the New Year seeking pay settlements before the new 2 year cap comes into force.

So, enjoy your holidays; as next year looks like it is going to be another interesting year for us all!

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What to expect in 2015

avatar Posted on December 16th, 2014 by Margaret Davis

Despite the stated aim of the Government to cut red tape for business, one cannot help but look back over 2014 and wonder whether this was no more than aspirational given some of the changes introduced this year.

In 2014, we saw the introduction of new rules in the Employment Tribunals that Claimants have to comply with before their claim may proceed, complex Shared Parental Leave Regulations that came into force on 1 December, and the power for Employment Tribunals to order equal pay audits (see More changes – new law).

Even the courts have not been quiet. The recent judgments on the calculation of holiday pay have created considerable uncertainty as to what should be included in the calculation of holiday and the period over which holiday pay should be calculated.

Some may ask whether 2015 will be any different. The short answer is no. New legislation will start to bed in and we can also expect to see rulings in Europe on the long running collective redundancy consultation cases, as well as decisions on the new fees regime in the Employment Tribunals and the unfair dismissal compensation cap. And, of course, we have the General Election in May 2015!

So, as you head off for the festivities and eating fest that Christmas means for many of us, you might want to use up a few calories thinking about what some of these significant employment law changes may mean to your business in 2015 and where to place them on your New Year’s Resolution list.

Bonus caps and claw backs for financial institutions

Following the publication of the Advocate General’s opinion that the UK’s challenge to the bonus cap provisions of the Capital Requirements Directive should be rejected, the Government has announced that it is dropping its challenge. The first bonuses to be affected by the new regime will be those paid on or after 1 January 2015 in respect of performance in the 2014 calendar year.

If employers have not already planned for this, they could well be up against time in ensuring that they comply with the revised rules set out in Chapter 19A of the Senior Management Arrangements Systems and Controls sourcebook (SYSC).

Revised rules on clawback will also apply to awards made from 1 January 2015, and further changes are proposed in relation to malus provisions, buy-outs and the deferral and vesting periods for variable pay.

Collective redundancy consultation

USDAW has also announced that the Advocate General will publish an opinion on 5 February 2014 in the case of USDAW v Ethel Austin Ltd (in administration) and another – more commonly known as the Woolworths case.

Readers of this blog will recollect that the Employment Appeal Tribunal (EAT) ruled that the words “at one establishment” in the statute governing collective redundancies are to be disregarded (see Retail administrations, collective redundancies and protective awards).  The effect of this was that employees working in Woolworths stores where fewer than 20 employees were employed had the right to be collectively consulted when the decision was made by the administrators to close stores and make employees redundant.

A Northern Ireland case and a Spanish case on the same issue were also referred to the ECJ which will be looking at the construction of the EU Collective Redundancies Directive, including the meaning of “establishment” and whether the Directive has direct effect.

While opinions of the Advocate General (AG) are not binding on the ECJ, rarely has the court ignored the opinion of the AG.  It will take many months for the ECJ’s judgment to come through but the opinion will give a flavour of what employers should expect.

Family friendly legislation

The new Shared Parental Leave regulations came into force on 1 December 2014. If you have not already introduced a shared parental leave policy then this should be number 1 on your New Year Resolution list.

It may not be obvious to many employers that they already have parents who qualify for the new rights (such as fathers, same sex partners or adoptive parents) who may not yet have disclosed their intentions.

Holiday pay

Unite has now stated that it will not be appealing the judgment of the EAT in the co-joined appeals in Bear Scotland.  That means that the determination of the EAT on the question of limiting the period over which claims may be backdated where there has been a 3 month gap in under-payments will, for the time being, be the clearest statement of the law.

There is, however, still litigation pending, and there are other cases concerning holiday pay, which may eventually provide further guidance and clarity on some of the other issues, such as the reference period for calculating holiday pay, and whether or not payments other than overtime or commission should be payable during holidays.

We will keep readers updated on any developments in this area, but employers should make sure that they understand the potential liability they have for arrears and put in place changes that will reduce the risk of any future claims for arrears of pay (see Overtime to be included in holiday pay calculations).

National Minimum Wage (NMW)

As part of the ‘Red Tape Challenge’ Vince Cable in November 2011 announced that the NMW regulations should be simplified by “merging the current body of 17 different regulations into a single consolidated set, and complementing the work the Low Pay Commission is already doing to streamline the regime”. In July 2014 a draft set of Regulations were published and went out to consultation and this closed on 15 September 2014. The new Regulations also contain an increased maximum financial penalty from £5,000 to £20,000 for employers who fail to pay the NMW.

The regulations are dependent upon the Small Business Enterprise and Employment Bill 2014-15 being enacted. The second reading of this bill took place on 2 December 2014 and the committee stages of the Bill will take place in February 2014. It is not expected that the new Regulations will be in force before the General Election in May. The anticipated commencement date is October 2015.

Zero hours contracts

While zero hours contracts continue to attract media attention, and there was much talk of comprehensive reform, the only change that is proposed for such contracts is that in 2015 there will be a ban on exclusivity in zero hours contracts. This is again something that is dependent on the Small Business, Enterprise and Employment Bill 2014-2015 being enacted.

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George Osborne doffs his cap to the Advocate General

avatar Posted on November 21st, 2014 by James Warren

In an unexpected move this morning, it emerged that the UK government is dropping its legal challenge to the EU rules limiting bankers’ bonuses.

The EU directive (CRD IV) applying a “cap” came into force in July 2013 and limits the level of any bonuses awarded to bankers to the value of their normal ‘fixed salary’ remuneration or, with special shareholder approval, to a maximum of twice their salaries. The directive’s ostensible purpose is to avoid bankers being incentivised to attain inappropriate short-term goals which expose banks, their shareholders and the wider economy to excessive financial risk. However, the UK Government has argued that the measure may have an overall negative impact, suggesting that the cap could lead to key talent leaving Europe and/or simply drive up basic pay, meaning banks are stuck with high fixed costs even in difficult years.

The UK applied to the European Court of Justice to overturn the key provisions of CRD IV, raising six legal grounds for their annulment. Yesterday the court’s legal adviser, Advocate General Jääskinen, released his opinion on those arguments, concluding that none of them had any legal merit. The ECJ does not always follow its Advocate General’s advice, but it does in around three quarters of cases, and in this particular case the government’s submissions were largely given short shrift.

One argument which the Advocate General recognised as having potential value suggested that regulating bankers’ pay represented interference in social policy issues, and in particular, the right of national governments to set domestic rules on pay levels. The Advocate General’s analysis on this issue focused on the fact that the rules only fix the ratio of variable to fixed pay, and therefore do not in fact limit or regulate the actual level of pay. In abandoning the legal challenge today, this point has in turn been seized upon, somewhat ironically, by George Osborne. He uses it to highlight his continuing dissatisfaction with the EU rules, because they do not in fact impose any such limit. He stated:

I’m not going to spend taxpayers’ money on a legal challenge now unlikely to succeed. The fact remains these are badly designed rules that are pushing up bankers’ pay, not reducing it. These rules may be legal but they are entirely self-defeating, so we need to find another way to end rewards for failure in our banks.

Mr Osborne is now apparently focused on seeking agreement on some form of global standard, to support bankers’ remuneration being structured in a way which encourages appropriate risk taking. This may include measures such as those floated by senior bankers to put more of the nominally “fixed” component of their pay at risk if decisions are taken which have bad consequences in the long term. Any such approach is likely to continue to be at odds with the present EU rules if it effectively increases the variable pay component. And, in the meantime, the current use by banks of “allowances” to supplement pay is much more likely to be tackled as a breach of those rules.

The government’s emphasis on the need for a single worldwide set of standards is nonetheless telling, and explains its real motive for challenging CRD IV. The underlying concern is that one set of rules for London and another more “liberal” set for New York or other financial centres will simply lead to business moving to the more favourable location. As the Advocate General’s opinion indirectly highlights, there is no barrier to the UK Government imposing whatever appropriate further limits or controls on bankers’ pay it considers appropriate. However, despite the rhetoric about bankers’ pay, it will not contemplate any such measures if they might lead international banks and other financial institutions to set up shop elsewhere than London.

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Overtime to be included in holiday pay calculations

avatar Posted on November 4th, 2014 by Nicholas Thorpe

This week has seen significant media coverage of an Employment Appeal Tribunal case concerning the inclusion of overtime in holiday pay calculations, with reports that businesses could face a potential bill running to billions of pounds. The case follows earlier decisions concerning the inclusion of other elements of pay in the calculation of holiday pay, such as shift premia and sales commission.

So, is your business at risk of a significant holiday pay bill? And if so, what can you do to mitigate that risk?

What is the issue?

In a nutshell, the cases concern the elements of pay that should be included in an employee’s holiday pay calculation. In the past, many employers have taken into account base salary only when calculating holiday pay. However, the recent cases require a significant change in the way that employers calculate future holiday pay.

Employees may also seek to recover past underpayments by way of a series of unlawful deductions of wages, potentially going back as far as 1998, when the holiday pay legislation was first introduced in the UK. The costs could therefore be significant.

What types of pay should be factored into holiday pay?

Overtime and holiday pay

Today’s decision provides some answers. The Employment Appeal Tribunal (EAT) has confirmed that ‘non-guaranteed’ overtime should be included in the calculation of holiday pay in so far as it relates to the 4 week entitlement provided under EU legislation (‘non-guaranteed’ overtime being overtime which an employee is required to perform if requested). However, it does not have to be included in the additional 1.6 weeks’ leave provided under UK legislation.

The question of whether or not ‘voluntary’ overtime should be included in an employee’s holiday pay calculation was not directly addressed by the EAT. The EAT also gave employers some hope in relation to the potential back pay liability, with claims for arrears of pay being out of time if there has been a break of more than three months between successive underpayments. However, permission has been given to appeal this point to the Court of Appeal.

Other payments

Today’s decision follows earlier decisions which confirmed that shift premia and sales commission should also be included in the calculation of holiday pay. The current trend of cases also calls into question other elements of pay, including bonus payments.

What should employers do?

Many employers have been adopting a “wait and see” approach to this issue, but in light of today’s decision and the publicity it is likely to attract, that approach is looking increasingly unsustainable and it is only a matter of time before employees start to challenge their holiday pay calculations, particularly with reports of some Claimant based firms running PPI-type compensation campaigns asking employees whether their holiday has been underpaid.

While the risk of significant ‘back pay’ claims may have been reduced by today’s decision, employers should take steps to understand how these cases affect them. Employers need to identify whether they are at risk, review their pay structures and payroll operations and understand what options might be available to them to mitigate the potential costs.

How we can help?

We can help you to assess the impact of the recent cases on your business through our comprehensive holiday pay audit, calculate the costs and suggest appropriate risk mitigation strategies. This is an issue that cannot be ignored. It is not going away.

For more information on how we might support your business address these issues, please contact Nicholas Thorpe, or any of the other partners in the Employment and Pensions Group.

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The waiting is over – well, almost!

avatar Posted on November 3rd, 2014 by William Hampshire

Holiday pay and overtime

The Employment Appeal Tribunal (EAT) is expected to hand down its long awaited judgment in the holiday pay and overtime cases tomorrow. We will, of course, report on the judgment as soon as it is published. However, the media furore has already started with reports that businesses are facing a potential bill running to billions of pounds. It has also been reported that some firms are looking to run PPI-type compensation campaigns, asking employees by text and email whether they have been underpaid holiday.

Many employers have adopted a “wait and see” approach to this issue, but with the EAT’s judgment expected tomorrow, can employers really afford to wait any longer before taking action?

Is your business at risk of a significant underpayment claim? If so, what steps should your business be taking to mitigate that risk? We are advising a number of employers on the potential implications of this case, as well as other holiday pay cases, and would be happy to discuss the issues and possible solutions in more detail with you.

Sports Direct settles zero hours worker claims

Also in the media last week were reports that Sports Direct has settled its long running employment tribunal claim concerning its zero hour workforce. Although Sports Direct did not admit any liability, it is clear a number of concessions were made, most significantly in relation to paid holidays and sick leave for the workers.

Although the announcement will not carry any legal precedent, Sports Direct is the UK’s biggest sporting retailer and employs nearly 20,000 staff on contracts with no fixed hours each week. Its agreement that it will make it clear to such workers that “casual” roles will not guarantee any work and also fully explain to the workers their paid holiday and sick leave entitlements, is potentially a significant step towards protecting workers on contracts with no guaranteed hours. This will certainly be the case if other major companies such as McDonald’s, Wetherspoons and Domino’s Pizza, who have also come under fire over their use of zero hour contracts, follow suit.

Woolworths – Collective Consultation

And finally, the Court of Justice of the European Union (ECJ) has announced that it will hear the Woolworths and Ethel Austin case on Thursday 20 November 2014, which is a referral from the Court of Appeal following the UK government’s appeal of the EAT’s decision in the case.

The EAT’s decision brought about a significant change to the current law on collective redundancy consultation, ruling that the requirement in the UK legislation for the 20 redundancies to take place “at one establishment” for the purposes of triggering the employer’s information and consultation obligations, was incompatible with the EU Directive, and must be disregarded.

An ECJ judgment on the meaning of establishment is welcome, not only for helping to conclude the six year legal wrangle in this case but more significantly for clearing up the long time uncertainty in this area of collective consultation in the UK.

For more information regarding any of the above, please do not hesitate to contact any member of the team.

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Changes in Immigration Rules – Important Tier 1 and Tier 2 Changes

avatar Posted on October 22nd, 2014 by Lynn McCloghry

Last week the Minister of State for Immigration and Security, James Brokenshire, laid before Parliament the Statement of Changes in Immigration Rules. Most of the changes will come into force on 6 November 2014. The reforms contain important measures to make it easier to deport foreign criminals; to make it quicker and easier for the Home Office to correct case work errors on student applications; to clarify the Immigration Rules relating to family and private life; and to extend the time required to give notice of marriage or civil partnerships to combat sham marriages and civil partnerships.

However, the most interesting change is the much talked about change to the investment threshold for Tier 1 (Investor) applications. We also detail below some of the other changes that may impact your immigration circumstances:

Tier 1 (Investor)

The Tier 1 (Investor) category caters for high net worth individuals making a substantial financial investment to the UK. The Tier 1 (Investor) route is being reformed in a variety of ways following recommendations from a report delivered by the Migration Advisory Committee:

  • The minimum investment threshold will be raised from £1 million to £2 million – this will only affect applicants who submit their application on or after 6 November 2014. The government will also consult further on what sort of investment the route should encourage in order to deliver real economic benefits, and other improvements to the route. A consultation document will be published in due course.
  • Under current Rules, a Tier 1 (Investor) is required to invest 75% of the funds in prescribed forms of investments (share or loan capital in active and trading UK companies, or UK Government bonds) and the remainder can be held in a wider range of holdings. This requirement will be removed so that from 6 November 2014 the full investment sum of £2 million must be invested in the prescribed investments.
  • The current requirement that the migrant’s investment must be “topped up” if its market value falls will be removed from 6 November 2014 in the hope that this will provide investors with greater flexibility. Tier 1 (Investor) migrants will only need to purchase new qualifying investments if they sell part of their portfolios and need to replace them in order to maintain the investment threshold.
  • The existing provision under which the required investment sum can be sourced as a loan is being removed.

Furthermore, Entry Clearance Officers and UK Visas & Immigration caseworkers are being empowered to refuse a Tier 1 (Investor) application where all the criteria has been met if they have reasonable grounds to believe that: (i) the applicant is not in control of the investment funds; (ii) the funds were obtained unlawfully (or by means which would be unlawful if they happened in the UK); or (iii) the character, conduct or associations of a party providing the funds mean that approving the application is not conducive to the public good.

Due to transitional arrangements, Tier 1 (Investor) migrants who have already entered the route before these changes are introduced will not be subject to these changes and can rely on the £1 million investment level when they apply for extensions or for Indefinite Leave to Remain.

Tier 1 (Exceptional Talent)

Good news was delivered for the exceptionally talented. The Tier 1 (Exceptional Talent) category was introduced for those who lead the world or show exceptional promise in the fields of science, humanities, engineering  and the arts, who have been endorsed by a Designated Competent Body and wish to work in the UK.

Under current Rules, a successful applicant is granted leave for three years. This has now been changed so that applicants will now be granted five years’ leave – this reflects a similar change that was made to the Tier 2 category in April 2014. In addition, the English language requirement is being removed for extension applications. The Statement also contains minor clarifications to the criteria applied by The Royal Society, The Royal Academy of Engineering and The British Academy.

Tier 1 (Entrepreneur)

The Tier 1 (Entrepreneur) category caters for applicants coming to the UK to set up, take over, or otherwise be involved in the running of a business in the UK. As a result of abuse in this category in recent years, the following changes will take place:

  • For applications made in the UK from 6 November 2014, the funds to be invested in the business must also be in the UK. This change is designed to assist in verifying that the funds are genuine.
  • Those applying under the accelerated provisions for Indefinite Leave to Remain must show that they have invested their funds from 6 November 2014 onwards.
  • A number of technical clarifications are being made to evidential requirements relating to funding held in joint accounts, multiple bank accounts, or another business; where an applicant has already established a business; to the job creation requirements for Indefinite Leave to Remain, and to the definitions of “Venture Capital firms”, “new businesses” and “property development or property management”.

Tier 2

Tier 2 of the Points-Based System caters for migrant workers with an offer of a skilled job from an employer that holds a Sponsor Licence.

The Statement of Change brings a new power to the Home Office to assess whether a genuine vacancy exists in relation to a Tier 2 (Intra-Company Transfer) and Tier 2 (General) application. This change will empower Entry Clearance Officers and caseworkers to refuse applications where there are reasonable grounds to believe that the job described by the sponsor does not genuinely exist; has been exaggerated to meet the Tier 2 skills threshold; or in respect of Tier 2 (General) has been tailored to exclude resident workers from being recruited; or where there are reasonable grounds to believe that the applicant is not qualified to do the job.

Further, it is now being confirmed in the Immigration Rules that migrants cannot be sponsored to fill a position for a third party who is not the sponsor. And some leeway is being given to Tier 2 (General) migrants: applicants whose leave expired no more than 28 days before they make their extension application will be exempt from the Resident Labour Market Test if they are continuing to work in the same role with the same employer. Currently the exemption only applies if the applicant still has current leave as a Tier 2 (General) Migrant when they make their extension application.

Business Visitors

The Business Visitor route enables individuals to carry out a wide range of permitted activities in the UK provided they remain paid and employed overseas.

Changes will be made to provide flexibility within the Business Visitor route to: (i) allow scientists and researchers to collaborate on an international project that is being led from the UK; (ii) to allow overseas lawyers, who are employees of international law firms which have offices in the UK, to advise UK clients on litigation or international transactions; and (iii) to allow graduates of an overseas nursing school to take an Objective Structured Clinical Examination in the UK which is required before any overseas nurse can work in the UK under the Tier 2 route.

Overseas Domestic Worker in a Private Household route

The Overseas Domestic Worker route exists to allow employers resident overseas to be accompanied by their household staff on visits to the UK. A maximum stay of six months is permitted. Changes to the Rules on Overseas Domestic Workers in a Private Household will prevent abuse by those who are living in the UK through frequent, successive visits, and provide added protection to workers against exploitation.

For more information on any of the above topics, please contact Lynn McCloghry.

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A question of status

avatar Posted on October 17th, 2014 by Olivia Baxendale

Status is important, particularly when it comes to employment rights. However, the various rules and qualifications that apply to employee, worker and self-employed status can give rise to uncertainty and confusion. In the last year alone, we have seen a number of cases in the appellate courts concerning individuals who have been seeking to assert rights either as employees or as workers.

Partly (one suspects) in response to such cases, the Government has now announced a wide ranging review of the status of workers. The aim of the review is to ascertain whether the current framework is clear, whether there are any options to extend employment rights to more people and to streamline the various rules and qualifications that apply, so that all parties are clear at the time of recruitment what rights are available. The range of status will be analysed including employee, worker and self-employed status and interim findings and recommendations following the review are expected by March 2015.

The Government’s press release can be viewed here.

The status of individuals who are engaged to perform individual assignments under an umbrella contract has been a particular area of focus for the Employment Appeal Tribunal (EAT). In recent weeks, there have been several cases in which the EAT has considered worker status, in particular examining mutuality of obligation within the context of umbrella contracts.

Mutuality of obligation is the obligation to offer and to accept work and is an essential element for an individual to fall within the category of a worker. Whilst such cases are often fact specific, the EAT has provided some useful guidance. In particular, in one case concerning a self-employed labourer who had changed status from employee to sub-contractor in return for a payment, the EAT found that although there was no requirement for the company to offer work or for the sub-contractor to accept it, there was mutuality of obligation during each assignment or period of work that the individual undertook to establish worker status and entitlement to holiday pay. Therefore, where an engagement of a self-employed contractor consists of a series of short individual assignments, there is no requirement for the individual to establish mutuality of obligation between assignments to be held to be a worker.

A second case provides useful guidance when considering whether an individual is protected under the Equality Act 2010. That particular case concerned two interpreters who successfully argued that they were workers rather than self-employed contractors and could therefore bring claims of discrimination under the Equality Act. The EAT found that the lack of mutuality of obligation between their assignments was irrelevant to determine whether the interpreters were “employed” for the purposes of the Equality Act.

If you require any advice on an individual’s employment, worker or self-employed status, please contact any member of our team who will be happy to assist.

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Landmark UK-Ireland Visa Deal Signed

avatar Posted on October 9th, 2014 by Lynn McCloghry

This week the British Government unveiled a new visa scheme titled the British-Irish Visa Scheme to enable Chinese and Indian nationals to visit the UK and the Republic of Ireland using a single visa when travelling on certain short stay and visitor visas. The scheme will start in China by the end of October 2014 and will follow in India soon afterwards. China and India are both key markets for UK and Irish tourism and it is hoped that more than 10,000 visitors will use the scheme.

Under the British-Irish Visa Scheme, some Irish short stay visas will allow onward travel to the UK and some UK visitor visas will allow onward travel to the Republic of Ireland. All Indian and Chinese nationals who hold an eligible UK visitor visa (except ‘visitor in transit’ and ‘visitor for marriage or civil partnership’) are covered by the scheme. For example, under the scheme an Indian or Chinese visitor in Dublin will be able to make a short trip to London without needing a separate visa. Alternatively, an Indian or Chinese visitor in London could then travel to Dublin.

The scheme will make travel between the two countries much easier and will also allow the two governments to share data and exchange information on passengers.

For more information, please contact Lynn McCloghry.

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More changes – new law

avatar Posted on October 2nd, 2014 by Margaret Davis

While it may be only 90 shopping days to Christmas a number of employment law changes took effect on 1 October 2014 which may give little or no time to employers or HR professionals for shopping!

Family friendly legislation

While the new shared parental leave regulations will only apply to children whose expected week of childbirth is 5 April 2015, qualifying employees (and qualifying agency workers) now have a right to take unpaid time off work to attend up to two ante-natal appointments with a pregnant woman with whom they have a ‘qualifying relationship’.

The right is not confined to married parents, but is available to a pregnant woman’s husband, civil partner or partner (including same-sex partners), the father or parent of the pregnant woman’s child, and intended parents in a surrogacy situation who meet specified conditions. In the case of qualifying adoptive parents their right to attend adoption appointments in respect of a child placed with them for adoption does not come into force until 5 April 2015.

The BIS has published an Employers’ Technical Guide to Shared Parental Leave and Pay to assist employers implementing policies on shared parental leave and pay. If they have not already done so employers should be updating their family leave policies to reflect the new legislation.

National Minimum Wage (NMW)

The rate for workers aged 21 and over has increased from £6.31 to £6.50. The new NMW rate for 18 to 20 year olds is £5.13, the new NMW rate for those under 18 is £3.79 and the NMW new rate for apprentices is £2.73.

While this may well be the biggest cash increase since 2008 for low paid workers and will no doubt affect the profitability of employers who pay no more than the NMW, it is unlikely to give rise to employees on the NMW going on a spending spree in the shopping days left to Christmas!

Equal Pay Audits

Inequality of pay continues to be an issue despite attempts by various governments to reduce the gender pay gap. The introduction of mandatory equal pay audits under The Equality Act 2010 (Equal Pay Audits) Regulations 2014 SI 2014/2559 means that in respect of equal pay claims presented on or after 1 October 2014 employment tribunals are required to order employers found in breach of equal pay legislation to conduct and publish equal pay audits equal pay audits in certain circumstances.

This is clearly naming and shaming legislation in that the employer will be required to identify any differences in pay between men and women and the reasons for those differences; include the reasons for any potential equal pay breach identified by the audit; and set out the employer’s plan to avoid breaches occurring or continuing.

Micro-businesses which are defined as a business that has fewer than 10 employees and “new businesses” will be exempt from the new rules, although in the case of new businesses the situation is more complex in that such businesses will not be exempt if the employer has within 6 months of starting the new business carried on another business that consists of activities which are the same as those being carried on by the new business, or where there has been a transfer of a business and the transferring party ceased to carry on the relevant business activity.

Where an employer fails to conduct a satisfactory equal pay audit when ordered to do so without reasonable excuse, the tribunal can order it to pay a penalty not exceeding £5,000, and may make an order specifying a new date by which it must receive a satisfactory audit which again carries a further penalty of £5,000 for non-compliance.

Whistleblowing

When the qualifying period for bringing unfair dismissal claims was increased to two years there was a growing trend for employees who did not meet the qualifying condition to claim they had made a qualifying disclosure in respect of their employment contract. Indeed, it was not uncommon for employees who saw the writing on the wall to raise concerns about a breach of their employment contract. Many employers, therefore, gave a huge sigh of relief when the whistleblowing legislation was amended removing the ability of employees to rely upon a breach of their own employment contract for saying they had made a protected disclosure. Despite this the legislation is still relevant and, aside from the fact it protects employees who make such disclosures by removing the qualifying condition for an unfair dismissal claims, there are reputational risk issues that can arise.

As the legislation is quite prescriptive employers may need to revise their whistleblowing policies to reflect the fact the list of the persons prescribed to receive qualifying disclosures occurring after 1 October 2014 has been updated. The new list is broadly the same but there are several new prescribed persons such as the National Society for the Prevention of Cruelty to Children and the National Crime Agency. Changes have also been made to reflect the fact that some bodies are no longer responsible for regulating particular sectors, such as the House Corporation which has been replaced by the Homes and Communities Agency. Furthermore, certain bodies such as the Financial Conduct Authority have been described in slightly different ways to that given in the previous list. The new list may be found here.

Reservist forces

Many employers may be getting nervous that increased military activity in the Middle East could see key employees who are reservists being called up. Equally some reservists settling in to new jobs, for example, armed servicemen who have recently retired from the services, or who were made redundant may be concerned they will lose their jobs if this were to happen. S.48 of the Defence Reform Act 2014 which amends S.108 Employment Rights Act 1996 and removes the statutory qualifying period for unfair dismissal for armed forces reservists will therefore be a worry to employers and a relief to some of their employees. However, this only applies where the employees employment terminates on or after 1 October 2014 and the reason (or, if more than one, the principal reason) for the dismissal is, or is connected with, the employee’s membership of a reserve force. There will be some relief to employers in that there is also increased financial assistance for employers of members of the reserve forces who are called up for service, and persons carrying on business in partnership with such members of the reserve forces.

Under the Reserve Forces (Call-out and Recall) (Financial Assistance) Regulations 2005 an employer is entitled to claim a payment of certain costs incurred by having to replace an employee reservist who is called out for service. The Reserve Forces (Payments to Employers and Partners) Regulations 2014 give effect to a new scheme for small and medium-sized employers (excluding public authorities) to claim an additional monthly payment of £500 when a reservist employee, who is contracted to work full-time for more than 35 hours per week, is absent on military service for a whole calendar month. The amount will be pro-rated for periods of less than a month and where the employee works less than 35 hours per week.

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FRC updates UK Corporate Governance Code

avatar Posted on September 26th, 2014 by Joanne White

In April 2014, The Financial Reporting Council (FRC) issued a consultation document setting out a series of proposals to update the UK Corporate Governance Code. Following the consultation period, the FRC has now published a revised Code.

FRC Chief Executive, Stephen Haddrill, explains that the rationale behind the revised Code is to “strengthen focus of companies and investors on the longer term and the sustainability of value creation” meaning that investors and shareholders should now receive better quality, more transparent information on the long-term health and strategy of companies.

In the revised Code, much greater emphasis is placed on ensuring that executive remuneration packages are designed with the long-term success of the company in mind, rather than simply short-term reward for high-performing executives.

The 2012 Code stated that “levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully ….“. The 2014 Code states that “Executive directors’ remuneration should be designed to promote the long-term success of the company …..“.

This shift in emphasis is perhaps unsurprising given that investors are now demanding greater transparency around areas of risk management, following the banking crisis. It is also part of a greater push to get companies to take a long-term rather than short-term approach to instill confidence in investors and shareholders. This increased link between executive performance and pay is designed to implement the FRC’s rationale on this point.

Specifically on the issue of executive pay, the FRC has said that companies should put in place plans to re-coup or hold back variable pay, and place greater emphasis on designing pay plans with the long-term health of the company in mind. One way of doing this is for companies to devise specific claw back provisions, which the FRC intend companies to self-regulate. As things stand, although it is common for companies to have provisions in place to withhold monies in certain circumstances, few companies have specific provisions in place to claw back monies already paid out.

As well as the practical considerations associated with implementing a claw back scheme, companies are understandably nervous about the impact this will have on the motivation of their executives. Critics argue that what will happen in practice is that companies will simply devise new non-cash bonus schemes in order to bypass these new provisions. Whether this happens or not, remains to be seen but certainly these new challenges will force companies to think more creatively when devising remuneration packages for their executives in the future.

The revised Code will apply to accounting periods beginning on or after 1 October 2014.

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