21/06/2019

Employment Eye June 2019

Welcome to our latest round-up of recent employment law developments and what they mean for you.

Featured case

Recording Working Time

Julian Hoskins reports on the case of Confederación Sindical de Comisiones Obreras (CCOO) v Deutsche in relation to recording working time.

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Briefing

Where are we on holiday pay?

Following the recent Court of Appeal decision in Flowers and others v East of England Ambulance NHS Trust, Sarah Lamont summarises the important case law on the calculation of holiday pay.

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Pensions update

Pensions update - more local government pension scheme consultation

Philip Woolham reports on a major consultation which could affect all employers with exposure to LGPS.

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News round-up

Government plans to cap public sector exit payments, employers given guidelines in a bid to end Britain’s obesity crisis, and non-disclosure agreements (NDAs) – when are they acceptable?

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Events and training

Workforce Investigations for Healthcare Employers

It is critical for healthcare employers to deal effectively with sensitive grievances, misconduct, bullying or whistle-blowing allegations. Find out how Bevan Brittan can support you to manage, learn from and deliver effective workforce investigations.

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Recording Working Time

In the case of Confederación Sindical de Comisiones Obreras (CCOO) v Deutsche Bank the ECJ has expressed the need for employers to have clear processes in place, to record working time and protect employees well -being.

The claim was brought by a Spanish Union on behalf of its workers, who claimed that overtime records failed to adequately reflect the length of time actually worked.

Under Spanish law employer’s need only record overtime; there is no general obligation to record all time worked by an employee. Consequentially, the Union claimed that employees were actually working overtime but not receiving the appropriate rest periods or remuneration, which is in breach of the Working Time Directive as well as national legislation.

The ECJ held that employers must have;

Objective, reliable and accessible systems enabling the duration of time worked each day by each worker to be measured”.

The ECJ did not specify how this may might be achieved, invariably leaving the interpretation of the ruling open to the domestic courts.

UK Position

Regulation 9 of the Working Time Regulation 1998 requires employers to “keep records which are adequate to show whether the limits [of the Regulations] are being complied with.

The key question is what is meant by “adequate”?

Employers operating a “clocking in” system will certainly be able to demonstrate compliance with the Regulations; but what about anything less than this? For example could a worker who is required to complete a daily record sheet claim this is not adequate?

Many UK employers in fact have no system for recording the time actually worked by their staff but will instead rely on work rotas to indicate hours worked or, where staff are salaried, to simply assume those staff are working their contracted hours; and employers will have no system in place to record and monitor this. Whilst agreed overtime is generally recorded, any overtime voluntarily worked by the employee, in excess of their contracted hours, will often not be recorded.  This has always been assumed to be “adequate” in line with the Regulations.

It would appear, however, from the ECJ’s decision that the Regulations in their current form do not satisfactorily implement the Directive into UK domestic law because the way of recording time actually worked may not be “adequate”.

What does this mean for employers?

For the time being at least the UK is bound by the ECJs decision and it will now be open to the UK judiciary to interpret this ruling in context of the domestic legislation. We certainly envisage seeing test cases run by Unions on the issue.

Going forwards, employers may need to revise the way they record working time, to capture all time actually worked by staff, and monitor this, to ensure staff are not working excessive hours and to maintain employee’s well -being.

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Where are we on holiday pay?

Following the recent Court of Appeal decision in Flowers and others v East of England Ambulance NHS Trust, we summarise below the important case law on the calculation of holiday pay.

A week’s pay for a week’s holiday

Under regulation 16 of the Working Time Regulations 1998 (‘WTR’), workers are entitled to a week’s pay for a week’s holiday. The rules surrounding what constitutes a “week’s pay” are contained in sections 221-224 of the Employment Rights Act 1996 (‘ERA’); these are complex and vary depending whether the workers’ hours are “normal working hours” or “not normal working hours”.

Normal remuneration

The following two cases which came before the European Court of Justice in 2011 and 2014 respectively called into question whether the WTR was sufficient to provide workers with the holiday pay to which they are entitled under European law (specifically the Working Time Directive (2003/88/EC) (‘WTD’)):

Williams and Others v British Airways plc

This case concerned a group of pilots whose holiday pay entitlement was determined in accordance with the Aviation Direction (2000/79/EC) rather than the WTD. The holiday pay provisions are comparable and the ECJ ruled that the following principles apply to both directives:

  • Workers are entitled to their “normal remuneration” when they are on holiday i.e. the pay that they normally receive
  • This includes payments which are intrinsically linked to the workers’ performance of tasks they are required to carry out, and payments which relate to their personal and professional status
  • This does not include expenses payments

Lock v British Gas Trading Ltd

The decision in Williams was followed in the above case which concerned a worker who received commission for sales that he achieved in his role as an internal energy sales consultant, on top of his basic salary. The ECJ held that commission constitutes a payment linked to the performance of tasks required to be carried out, and so an amount which reflects the commission previously earned over a representative period should be taken into account when calculating holiday pay.

Overtime

The European Court of Justice’s decisions in the above cases led to series of claims being brought in employment tribunals in which workers variously argued that they were not receiving the full holiday pay entitlement under the WTD.

In particular, further clarification was needed regarding whether overtime should be included. Guaranteed overtime is captured by the “normal working hours” provisions of the ERA, but the position in relation to other types of overtime was unclear until the point came before the Employment Appeal Tribunal in Bear Scotland Ltd and Others v Fulton and Others in 2014.

This case considered whether overtime and travel allowance should be taken into account for the purposes of calculating holiday pay. The EAT followed the ECJ decisions in Williams and Lock, meaning that the definition of a “week’s pay” in the ERA must now be interpreted in line with the principal of normal remuneration. The EAT went further and clarified that normal remuneration is that which is paid for a sufficient period of time.

The EAT explained that, as in Williams, there should be an intrinsic or direct link between the payment the worker is claiming and the work they are required to carry out. As such, it held that payments made in relation to overtime which is not guaranteed but the worker must work if required to do so, should be taken into account for the purposes of holiday pay.

In relation to travel allowances, an element of the allowances paid to the claimants (who were construction workers) were expenses for travel costs incurred by them. However, an element of the allowances paid was in lieu of the time spent travelling and this was treated as taxable remuneration. The EAT found that that element which was taxable should have been included in the claimants’ holiday pay. 

In Dudley Metropolitan Borough Council v Willetts and Others, the EAT again considered overtime payments, but this time in relation to voluntary overtime which was not required by the employer. The claimants were electricians, plumbers and roofers who did voluntary overtime, sometimes were on “standby” and went on call-outs outside of their contracted hours. It found that all of these types of payments should be included in the calculation of holiday pay, provided that they were paid sufficiently regularly to amount to normal remuneration.

The issue of voluntary overtime resurfaced in Flowers and Others v East of England Ambulance NHS Trust, which went all the way to the Court of Appeal. In its judgment, handed down just last week, the Court of Appeal followed the EAT’s decision in Willetts and is authority for the principle that all types of overtime should be taken into account when calculating holiday pay, provided that they are paid sufficient regularly and over a sufficient period.

Calculating holiday pay

Below are the various types of payments which should and should not be taken into account when calculating holiday pay. Note that payments which fall within the category of payment which should be taken into account should only be taken into account if they are paid regularly over a sufficient period such that it should be treated as part of the workers’ normal remuneration.

Payments to take into account Payments not to take into account
Payments relating to personal and professional status of workers Expenses
Commissions Bonuses not linked to workers’ performance
Incentive bonuses Company benefits
Payments linked to performance  
All types of overtime pay and premiums  
Payments for being on “standby” and on a call-out  
Shift allowances and premiums  
Travel allowances which are treated as taxable remuneration  

 

Whether annual discretionary bonuses or company performance bonuses are to be taken into account when calculating holiday pay remains unclear, and is likely to be subject to future litigation.

Our employment law specialists regularly advise on holiday pay issues. If you would like help in reviewing your current methods of calculating holiday pay, or if you have any queries arising out of the above, please contact Sarah Lamont or your usual Bevan Brittan contact.

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Pensions update - more local government pension scheme consultation

We’ve previously written about the major consultation on applying Fair Deal to the LGPS.  Hot on its heels is a further consultation.  It could affect all employers with exposure to LGPS.  There are five proposals:

  1. Moving to a four-year valuation cycle (from the current three-year process).
  2. Options to manage volatility over that longer cycle, including interim valuations and cash injections where appropriate.
  3. Delaying or spreading the cost of exit payments once they are crystallised.
  4. Changes to who can benefit from the payment of an exit surplus.
  5. Removing the obligation for further and higher-education employers to be enrolled into LGPS.

Each are important and significant, and all but option 4 have been expected for some time.  But we want to look at options 3 and 4 in a little more detail. 

They deal with some significant potential costs and windfalls for employers on which we have been advising recently.  They are really two sides of the same coin.

Delay or spreading the cost of exit payments

An employer with access to LGPS is usually liable for any exit debt.  This happens when it has no more members building up benefits, but the fund’s assets are less than the amount needed to pay in full the pension promises made.

The authority often protects the employer in full or in part, from exit debt in particular, but also often from changes to ongoing costs.  This allowed the employer certainty as to pension risk and cost, and to price for a contract accordingly.  However, especially in older agreements, and where access has been granted outside of a purely commercial agreement, the employer may be exposed.

Sometimes this forces employers to stay in LGPS, often building up more deficit, because they cannot afford to withdraw and pay the exit debt.  The charitable sector has been particularly hard-hit. A debt can also arise outside of the employer’s control at a time when it cannot pay the debt.  For example, the last employee entitled to LGPS membership resigns, meaning a debt is automatically arises.

Many LGPS funds already offer flexibility, recognising the problem.  In particular, they may agree to pass the debt as a deficit back to the ‘parent’ authority, or allow employers to pay off the debt in instalments rather than all at once. In both cases, they may ask for further security.

The consultation proposes making the instalment option available more widely. 

It will also allow an employer, with the agreement of the fund, to become a ‘deferred employer’, similar to options for private sector pensions.  The employer no longer has active members in the fund, but the debt does not crystallise, and is not immediately payable. 

Instead, the employer continues to pay off the deficit via regular contributions, but does not build up any future liability – there are no more members building up benefits.  The fund may ask for security, and it will need to consider the strength of the employer – is there is a risk it will still become insolvency, leaving a deficit unpaid and crystallising at a point when it will be an unsecured creditor of the insolvency.  The fund can of course look to any existing or new security at that point.

In both cases, the fund can still choose whether to allow flexibility or deferment, and it must be a sensible option for the fund and its wider membership.  But we believe these options are worthwhile.

Exit surpluses

In some cases, however, there can be a surplus when a contractor leaves an admission. This means there is more the in fund than is needed to pay all promised benefits for that contractor.

In the past, if there was any surplus in the admission, the fund would retain it.  It would be used for funding other benefits, including pension promises made by the original authority.  That was seen as a fair trade-off for taking some or all of the risk away from the contractor.

Since May 2018, such a surplus would be paid to the exiting employer, similar to a surplus in many private sector schemes.  However, many commercial agreements involving LGPS admission provided partial or complete protection from pension risk for the new contractor.  They did not take into account any repayment of surplus to an employer as that was not an option.

At the same time, the funding position of many LGPS funds, and specific admissions within them, has improved over recent years.  In some cases, as a result, surpluses on exit do exist.

This creates a situation where employers have borne little or no risk and may now benefit from an unexpected windfall.  This issue has been raised with the MHCLG.  The Ministry has reacted extremely quickly to add proposals to this consultation.

The consultation proposes that LGPS funds must consider what risk a contractor has borne before paying out a surplus, and how much surplus to pay.  In some cases, it may not pay a surplus at all, instead retaining it in the fund, as before.

The change will have retrospective effect to 14 May 2018, when the current changes were made.

This does not prevent a contractor receiving a surplus payment when that is fair.  If it has been exposed to pension risk, it should be entitled to at least a share of any windfall.  We believe that this is a sensible and reasonable approach.

The fact that the change will be retrospective means that some exit processes and calculations are already being delayed, as funds do not want to pay out a surplus in a time period when they may, in the future, have had to take into account the balance of risk that the contractor has undertaken.

Replying to the consultation

The consultation closes on 31 July 2019.  We will submit a full response. If you would like to pass on any thoughts or suggestions, we would be delighted to include them.

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Employment News Round-Up - June 2019

Government plans to cap public sector exit payments

The government has resurrected their 2015 plans to introduce a 95,000 cap on exit payments for public sector workers. The new controversial sections 153A-C to the Small Business, Enterprise and Employment Act 2015 empower the treasury to impose such a cap, and there remains scope in the regulations to limit the total amount of exit payments to £95,000.  However, we still await clear drafting on this point.

It is vital that employers familiarise themselves with the following:

  • The proposed exit payments that will be subject to the cap.
  • Payments which are not classified as exit payments under the draft regulations.
  • How payments pursuant to TUPE will be dealt with.
  • When there is discretion to relax the cap.

Further details on the above mentioned points can be downloaded here.

 

Employers given guidelines in a bid to end Britain’s obesity crisis

The National Institute for Health and Care Excellence (NICE) has published guidelines suggesting various ways that employers can encourage workers to get active.

The national medical director of the NHS welcomes the guidelines published by NICE as another initiative to reduce the worrying statistic that ‘almost two thirds of people fall within the overweight or obese category in the UK’ NHS Digital. This is in comparison to just over 50% in 1993.

It is also hoped that encouraging workers to engage in physical activity will improve their mental and physical wellbeing. Long term, the suggestions made by NICE could reduce the amount of sick days taken by workers as a result of health issues related to obesity whilst also reducing the amount of sick days taken due to mental health, a figure that was 13million working days in 2017. The plans will also encourage a more positive work environment.

The Royal College of GPs is set to launch its own scheme to tackle sedentary behaviour in the workplace. It commended the guidelines published by NICE.

The guidelines can be downloaded here.

 

Non-disclosure agreements (NDAs) – When are they acceptable?

In response to recent publicity concerning the misuse of non-disclosure agreements in situations of workplace harassment or discrimination, the government has launched a consultation to seek evidence and views of the use of NDAs in the employment context, and to propose further regulation to tackle their misuse.

The guidance makes many recommendations, such as:

  • The law should be clarified to make clear the people to whom a victim can make a disclosure without falling foul of a confidentiality clause.
  • To require that NDAs clearly set out their limitations, either in settlement agreements or as part of a written statement of particulars, so worker know the rights they have when they have signed one.
  • To extend the requirement that the worker must have received independent advice to ensure the worker receives advice specifically on any confidentiality provisions within the agreement, and its limitations.
  • Any confidentiality clause in a settlement agreement that does not meet new wording requirements is made void in its entirety. This should encourage employers to ensure they draft confidentiality clause correctly otherwise they will risk the reason behind the dispute being made public.

The consultation shows the government are committed to protecting workers and sending the key message that harassment or discrimination of any sort cannot be tolerated in the workplace. The implementation of such recommendations would be welcome in offering further protection to individuals so long as new legislation does not become so stringent that it puts off employers from using NDAs at all. This would be problematic in that settlement agreements can allow both worker and employer to move on from the dispute and avoid costly litigation and adverse publicity.

 

The full consultation can be downloaded here.

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