Welcome to our latest round-up of recent employment law developments and what they mean for you.
Sarah Lamont looks at the recent high profile equal pay decision against Asda and its wider significance.Read more
Jodie Sinclair answers five key questions on forthcoming tax reforms for companies which use contractors.Read more
An Ombudsman’s decision results in unexpected cost for a Council which issued an incorrect benefits statement. Philip Woolham reports.Read more
Sleep-in payments under appeal, new guidance on closing your gender pay gap and two important new workforce proposals: changes to health and care senior leadership standards and extending Fair Deal to the LGPS.Read more
Sarah Lamont looks at the recent high profile equal pay decision against Asda and its wider significance.
In order to bring an equal pay claim, the claimant in question must
- identify a comparator of the opposite sex
- performing equal work
- for the same employer or an associated employer
- at the same establishment or at different establishments to which “common terms and conditions” apply.
“Common terms” between employees can be found even if the employees do not work at the same location.
The equal pay litigation which has been launched against Asda is sizeable in both numbers and potential cost to Asda: over 7000 claims have been brought, with a potential cost of millions of pounds if the claimants are successful. Similar claims have also been brought on behalf of shop floor staff at Sainsbury’s, Tesco and Morrisons.
The main argument run by the claimants in the claim against Asda (and other supermarkets) is that shop floor staff (who are mainly female) should be able to compare themselves with higher-paid employees in distribution depots, who are predominantly male.
Asda’s counter argument to that claim is that shop floor staff and depot staff are employed under different terms and, therefore, their pay is not comparable.
In terms of the contractual arrangements for both sets of employees, employment terms for shop floor and depot staff are set by different management processes, but the managers setting those terms are answerable to Asda's Executive Board, which is, in turn, governed by Asda’s parent company.
The shop floor workforce is not heavily unionised or subject to collectively agreed terms; whereas depot terms are collectively bargained by a Union.
The preliminary battle ground for the claims by shop floor workers was over the key question of whether “common terms” applied between their employment and that of employees working in depots.
An employment tribunal and the Employment Appeal Tribunal found that a comparison could be made between the two sets of employees. Asda appealed.
In Asda Stores Limited v Brierley, the Court of Appeal dismissed Asda’s appeal, holding that it is possible for shop floor workers to compare themselves with depot workers.
The focus, according to the Court of Appeal (CA), is on whether the terms under which both sets of employees are employed are broadly similar. Although the CA disagreed with the employment tribunal’s reasoning, it upheld its conclusion that for both classes of employee, the employer applied common terms and conditions wherever they worked. This meant that they satisfied the comparability test required for an equal pay claim to get off the ground.
The CA did not think that it mattered that, in practice, depot workers would never work in a shop, and vice versa. What was relevant was that if, hypothetically, a depot worker were to work as a depot worker on a shop floor, their terms of employment would be the same as a depot worker working in a depot. By contrast, if terms of employment depended on where an employee worked, then it is unlikely that there would be “common terms” and no comparison could be made.
Furthermore, the CA held that both classes of employees’ terms were derived from a “single source” because they were set by the same employer, which had the power to equalise them. It did not matter whether the Board of Asda or its parent company regularly reviewed the employees’ terms and conditions; it was sufficient that they had the power to do so under general company law.
What does this mean for me?
This decision has attracted much comment in the legal and HR press, and has wider ramifications beyond its impact on the ‘big four’ supermarkets. It confirms that the test for a comparison between employees is based on whether their terms would remain unchanged if employees were “transplanted” from one site to another site. If the employee in question would be engaged on broadly the same terms, if they were required to undertake their job at a different site, then the terms may be compared across the two sites. So, the key issue is whether there are common terms for the claimant's and comparator's classes of employee.
Therefore, all employers operating different pay regimes at multiple sites will need to take note of this decision and track the progress of this litigation. However, a final decision on this point is far from being reached. This decision only confirms that the preliminary point that the two categories of employee are employed under “common terms” and are, therefore, capable of being compared. The shop floor workers still need to show that their work is of “equal value” to depot work, and that any pay differential is because of gender, rather than any other factor.
We understand that Asda will appeal this decision to the Supreme Court, although a date for the hearing has not yet been listed. It will, therefore, be some time before there is final clarity on this preliminary point, and an even longer wait before the substantive question in this litigation will be answered.
Jodie Sinclair answers five key questions on forthcoming tax reforms for companies which use contractors.
- What is IR35?
IR35 is not new. It first appeared following the 1999 budget, and was introduced with the aim of cracking down on “disguised employees” seeking to avoid paying employee income tax and National Insurance Contributions (NICs) by providing their services through an intermediary, usually a Personal Service Company (PSC).
If covered by IR35, the “disguised employees” have to pay income tax and NICs as if they were employed, i.e. through a pay as you earn (PAYE) system.
However, research has shown that compliance with this scheme amongst contactors has been low. So, in April 2017, public sector organisations were required to assume responsibility for assessment and payment of IR35 tax and NICs, for any contractors they engaged through intermediaries.
- What is changing?
With effect from 6 April 2020, medium and large companies in the private sector that engage workers through PSCs will have to assess whether those workers fall within IR35, and then account for tax and NICs – in line with the same scheme which has operated for the public sector since April 2017.
- How will the new rules work?
The relevant legislation will be introduced in the 2020 Finance Bill and will only apply to large and medium sized employers.
Broadly, the new requirements will apply if the following three conditions are met.
- An individual personally performs services for a client.
- Those services are provided under arrangements involving an intermediary.
- The working arrangements are such that, but for the existence of the intermediary, the individual would be classed as an employee of the end user organisation – applying the usual employment status tests.
If the regulations apply, the worker and the intermediary are treated as employee and employer for income tax and NIC purposes.
- What are the consequences of non-compliance?
If you wrongly assess a contractor as falling outside the IR35 regime, the relevant tax and NICs due must be paid to HMRC, as well as any interest due on these amounts. There may also be penalties payable, based on a percentage of the tax / NICs due.
If you wrongly assess a contractor as falling within IR35, then you will be paying unnecessary employer’s NICs. You may also encounter resourcing issues, as contractors may be deterred from joining your organisation if they are concerned that additional tax may be wrongly deducted.
- What should you be doing now to prepare?
Although the reforms to IR35 assessment and payment for the private sector do not bite until April 2020, prudent organisations will be using the long lead in time to lay the ground work for these changes.
Companies should be
- reviewing and auditing their use of contractors
- examining the IR35 rules and identifying the extent to which any arrangements may fall within the scheme
- identifying an approach to determining IR35 status. A blanket approach is not advisable, as this is likely to lead to misclassification and result in the issues outlined at (4) above.
Given that the assessment of whether the IR35 rules will apply will depend largely on the question of whether a contractor would be classed as an employee, companies need to ensure that their management teams have a clear understanding of employment status and how the tests are applied. Unfortunately, this is not straightforward and is based on a combination of the statutory definition set out in section 230 of the Employment Rights Act 1996 and supporting caselaw. The test is multifactorial, taking into account questions such as
- the extent to which an individual is embedded in an organisation
- whether there is ‘mutuality of obligation’, i.e. an expectation that the individual will undertake work when required and that work will be provided to the individual
- how much control the organisation has over an individual’s working arrangements
- whether the individual provides ‘personal service’, i.e. whether they could send a substitute to undertake their work.
HMRC have developed an online tool called CEST (Check Employment Status for Tax), which is intended to assist with assessing employment status for tax purposes, but it has been reported that this tool is overly simplistic and, therefore, not reliable.
Please contact me, or your usual Bevan Brittan contact, to discuss how we can help you ensure that you are ready for these reforms in good time by providing
- an audit of your organisation's contractor workforce, assessing and providing reports on employment status
- advice on how to limit the likelihood of IR35 applying
- on-site practical training on the reforms for your finance, HR and management teams
- providing policies and easy to understand guidance
- preparing contractual documentation for your contractors
- advising on handling disagreements with contractors and ensuring workforce continuity.
An Ombudsman’s decision results in unexpected cost for a Council which issued an incorrect benefits statement. Philip Woolham reports.
The Pension Ombudsman’s determination in The Estate of Mrs S (PO-19018) illustrates how complexities can arise when employment contracts and pension scheme rules have to work together, and employers must operate different definitions in respect of the same set of factual circumstances.
Mrs S was a part time teacher employed by Liverpool City Council. She was a member of the Teachers’ Pension Scheme. She became seriously ill and eventually exhausted her entitlement to sick pay. The regulations governing the Scheme stated that she was then no longer in pensionable employment as a result. She would certainly have been entitled to draw early retirement benefits on the grounds of ill-health if she chose.
However, in good faith, the governors of her school agreed that she should remain on the payroll as an unpaid employee, hoping, if she did, that she would return to work at some stage. She was therefore recorded as an employee on the Council’s returns to the Scheme, effectively therefore still in pensionable service.
Mrs S was unfortunately now very ill, but based on the Council’s information, the Scheme sent her statements confirming that her estate would be entitled to receive a death in service payment should she die. In fact, it was not, as this was only payable while in pensionable service, i.e. paid employment, and for twelve months afterwards. She had been unpaid for longer than that by the point she sadly died. The correct method of drawing her benefits at this stage would have been to draw them early due to ill-health, whether as a pension or a lump sum.
The Scheme could not pay Mrs S’s husband death in service benefits, because she no longer qualified under the rules. Instead, the Scheme paid a much smaller death grant in addition to spouse’s and children’s benefits. The difference between the in-service lump sum and death grant was close to £100,000.
Mrs S chose not to apply for ill-health early retirement because she believed on the basis of her pension statements that her family would be better off if she was still classed as an active employee. This was a logical decision based on what she had been told.
Mrs S’s husband made a complaint to the Ombudsman once discussions with the Scheme, school, Council and the Department for Education had failed to resolve the situation.
The Ombudsman determined that the Council was at fault for incorrectly logging Mrs S as an active employee, not an unpaid one. It was this that had caused the Scheme to continue to send Mrs S statements as if she was an active member, entitled to death in service benefits.
The Ombudsman ordered the Council to pay to Mrs S’s estate the amount of benefits that she would have received had she applied for ill-health early retirement benefits when she was no longer entitled to sick pay, less the amount the Scheme had paid out in death grant.
What does this mean for me?
This decision shows that just because someone might be treated as an employee, even an unpaid one, in an employment contractual sense, this does not mean that it automatically follows that they will be classed as one for pension purposes. The differences between the employment contract and pension scheme rules can have very serious financial consequences for employees and their families.
Equally importantly, it is vital for any employer, public or otherwise, to consider what information it is sending to a pension scheme in relation to its employees, and to make sure that the way they classify employees, particularly those in unusual circumstances, will not lead to later difficulties. If possible, instead of just relying on regular information flows, it is better to discuss specific difficult cases with the pension scheme, so that all parties know what has been agreed. That is an additional administrative burden for both employer and pension scheme, but may help to avoid long-drawn out complaints processes such as this and additional cost.
Sleep-in payments under appeal, new guidance on closing your gender pay gap and two important new workforce proposals: changes to health and care senior leadership standards and extending Fair Deal to the LGPS.
‘Sleep-in’ payments decision being appealed
As we reported last week, the Supreme Court will hear an appeal by the claimants in Royal Mencap Society v Tomlinson-Blake. The appeal is against a decision by the Court of Appeal in July 2018 that night shift workers should only be paid the national minimum wage for the time during their shift that they are awake and working; rather than being paid for the whole of a ‘sleep-in’ shift. Our summary of that decision is here.
The Court of Appeal’s decision was widely welcomed in the care sector, as the financial implications of paying workers for the whole of a sleep-in shift would place the sector under severe strain. In the light of the Court of Appeal’s decision, we understand that many providers have continued to pay, or have reverted to, flat rates of pay for sleep-in shifts.
It remains to be seen whether the Supreme Court will uphold the Court of Appeal’s decision and developments will be keenly awaited as the prospect of an appeal throws the sector into uncertainty once again.
In the meantime, care providers will need to undertake an urgent audit of their potential exposure to additional cost if the Court of Appeal’s decision is over-turned. Employers may wish to consider ring-fencing funds in order to meet the significant additional costs that would result.
A date for the Supreme Court hearing has yet to be set, but we will keep you updated. If you have any queries in relation to this issue, please contact Jodie Sinclair, Mike Smith or your usual Bevan Brittan contact.
New gender pay gap reporting guidance
As the gender pay gap regulations have now bedded in and employers will shortly be filing their second annual reports, it is evident that most employers’ figures are showing a pay disparity between genders. The Government Equalities Office has now published two new pieces of guidance to help employers close their gender pay gap
- eight ways to understand your gender pay gap addresses how employers may identify areas for improvement; and
- four steps to developing a gender pay gap action plan provides information for employers on practical plans that have been successfully developed and implemented in tackling gender pay gaps.
The two pieces of guidance are intended to be complementary and read alongside one another.
Government Policy Consultation – extending Fair Deal to LGPS?
When a local authority outsources one of its functions to a private entity, those employed in the provision of that service are afforded protection in relation to their pension entitlement by the Best Value Authorities Staff Transfers (Pensions) Direction 2007. For local authority employees this operates in a similar way to Fair Deal, but is not identical. In particular, they are not guaranteed Local Government Pension Scheme (LGPS) access as new employers can opt to provide them with ‘broadly comparable’ benefits in another pension scheme instead. New Fair Deal requires employers to gain access to the employees’ current pension scheme in most cases, so there is now a difference between Fair Deal and Best Value pension protection
In May 2016, the Ministry of Housing, Communities and Local Government (MHCLG) consulted on extending the Fair Deal 2013 guidance to include the outsourcing of local authority functions. Following a public consultation, the initial proposals have been abandoned and a new consultation paper, Local Government Pension Scheme: Fair Deal – Strengthening pension protection, was published on 10 January 2019. The new consultation paper, which includes draft regulations, proposes applying a modified version of Fair Deal to these processes.
If brought into effect in their current form, the draft Local Government Pension Scheme (Amendment) Regulations 2019 (‘the draft Regulations’) would require an LGPS employer involved in a compulsory transfer to ensure that ‘protected employees’ are given continued access to LGPS instead of either LGPS or a broadly comparable scheme. Such a move would be welcomed by employees who would benefit from and be reassured by continued membership of the same pension scheme. It also reflects the more general shift by employers who have often found that the costs and responsibilities of providing broadly comparable pensions in the private sector have become increasingly difficult to manage. The new rules would, like Fair Deal, also apply to retendering exercises where the employer, even if it wins the tender, has previously used a broadly comparable scheme.
The draft Regulations also extend the concept of ‘deemed employer’ status. Under the MHCLG’s proposals, when an employee is transferred from a Fair Deal employer to an independent service provider, their former employer can choose to remain a deemed employer for the transferred employees. This is already available in some circumstances, but the changes would extend this to a wider group of employers, including those in the private sector. This would mean that the original employer could retain the majority of the scheme responsibilities (including funding and exit costs risks). This will provide contracting parties with the benefit of a ‘pass through’ approach while enabling flexibility for negotiations around price and risk sharing. Moreover, ‘deemed employer’ status boasts administrative advantages in that local authorities could consolidate their contributions, reduce their actuarial valuations, and avoid backdating admission agreements.
Under existing regulations, when the last active member of certain, usually commercial LGPS scheme leaves membership, even if the commercial contract is continuing, an exit payment (a sum intended to cover the costs of the employer’s pension liability) is usually due to the LGPS fund. Where an LGPS scheme employer is merged with or taken over by another organisation, this exit payment can be unintentionally triggered. The draft Regulations propose that in such circumstances, pension liability automatically transfers to the successor body. If that successor body is also an LGPS employer with active members, all assets and liabilities must be combined thereby avoiding crystallisation of the pension debt.
If your organisation is affected by these proposals but does not intend to submit a consultation response, Philip Woolham is preparing Bevan Brittan’s submissions and would be happy to discuss incorporating your views. The consultation will run until Thursday 4 April 2019.
Proposed overhaul of NHS senior leadership requirements
In the latest development to arise as a knock-on effect of the Francis Report, Tom Kark QC has published his review of the ‘fit and proper person test’ for senior leaders in health and social care. The Kark Review includes seven recommendations and, of those, the government has accepted in principle to:
- set up a central database of information about the qualifications, previous employment and performance of directors
- make new competency standards to help people know what to expect of senior managers.
The remaining recommendations will be considered later this year, as part of a review led by Baroness Harding, chair of NHS Improvement.