Developments in Employment Law 2013: An Overview

2013 was a year that kept employment lawyers and HR professionals on their toes with a number of significant developments. The purpose of this article is to give an overview of those key changes. In future reports we will be examining the most noteworthy in further detail.

February kicked off the year with a rise in the cap for unfair dismissal compensation (the “compensatory award”) to £74,200. In most cases, this is the maximum amount the Tribunal can award taking into account the loss suffered by an employee, such as for lost wages. There is a second element to an unfair dismissal award called the basic award, this is a statutory calculation and is currently capped at £13,500, From July 29th, an additional cap was added to compensatory awards so that the maximum compensatory award for unfair dismissal is now the lower of £74,200 or 52 weeks' pay. The cap does not apply to dismissals in relation to whistleblowing, for certain health and safety reasons or where there is unlawful discrimination. This new development should make it easier for employers to quantify the actual value of a claim, particularly as most employees do not earn anything close to £74,200 per year. However Compromise Agreements Ltd, a London based law firm, has sought a judicial review of the one year salary cap claiming that it indirectly discriminates against older people. The argument is that older people are more likely to be unemployed for longer than one year, so the cap restricts their access to justice. We are awaiting an outcome on this.

On March 8th, unpaid parental leave rose from 13 to 18 weeks. This means that any employee who is the parent of a child under the age of 5 may take up to 18 weeks’ unpaid parental leave up until the child’s 5th birthday. The right also applies to adopted children. For those children who are disabled, the right extends up until that child’s 18th birthday and remains unchanged from before.

Redundancy grabbed headlines last year, and not just because of the state of the economy. April 6th saw changes to collective consultation obligations. Previously where an employer was proposing to dismiss as redundant 100 or more employees within a 90 day period, the requirement was to consult for a minimum of 90 days before the first dismissal took effect. From April, the consultation period was reduced to 45 days. This is a significant benefit to employers. 

In May, employers were then thrown into confusion with the Employment Appeals Tribunal case of USDAW v Ethel Austin Ltd (in administration) and another case UKEAT/0547/12; 0548/12 (known as the “Woolworths case”). Section 188 (1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”) states that the duty to consult applies only where 20 or more dismissals are proposed at one establishment. However, there is a discrepancy between TULRCA and the Collective Redundancies Directive which it purports to implement. The Directive contains no "establishment" requirement.  Consequently the Employment Appeals Tribunal held that, owing to the fact that TURLCA is incompatible with the Directive, the words "at one establishment" must be disregarded for the purposes of any collective redundancy exercise involving 20 or more employees. This is very bad news for employers. 

Previously an employer could avoid collective consultation obligations if it was not proposing to dismiss as redundant 20 or more employees at any one location, and each location could be shown to be a distinct entity. Now if an employer is proposing to dismiss as redundant 20 or more employees across their business as whole, no matter where their staff are located or how disparate, collective consultation will be triggered. 

The Government has been granted leave to appeal against this decision.

June saw a number of significant developments brought in by the Enterprise and Regulatory Reform Act 2013, most notably changes to whistleblowing protection. Employees had increasingly been using the Public Interest Disclosure Act 1998 (“PIDA”) to bring complaints against their employers about breaches to their own employment contracts, rather than reporting serious wrongdoing within their organisation. There was nothing specifically preventing this in the legislation, but it was not the original aim of PIDA. It is an attractive route for employees as whistleblowing claims do not have a compensatory cap nor does the 2 year qualifying employment period to bring a claim apply. In an effort to discourage this practice, PIDA has been amended to make clear that in order to obtain protection under the act, an individual must reasonably believe that a disclosure he or she makes is in the public interest. 

There was a previous requirement that any disclosure had to be made in good faith. In an effort to move away from focusing on the motivation of the individual making the disclosure, this requirement has been removed. Instead, compensation can be reduced by up to 25% where it can be shown that a disclosure was not made in good faith.

There are often genuine concerns from individuals that if they do “blow the whistle”, not only will they be unfairly targeted by their employer, but also picked on by their colleagues. From June, employers can now be held vicariously liable where their employees victimise a colleague because he or she made a protected disclosure. The employer will be deemed to have carried out these acts unless it can show that it took all reasonable steps to prevent the victimisation occurring. 

Also from June, employees no longer need the normal minimum qualifying service of 2 years to be able to claim unfair dismissal where the reason for dismissal is their political opinions or affiliation.

July brought in a whole host of changes, one of the most useful for employers is the introduction of pre-termination negotiations. The aim is to allow an employer and an employee to have confidential discussions; that is “off the record”, to end employment on mutually agreed terms without fear of reprisal in the Employment Tribunal. An employer may have a conversation with an employee about a performance or capability issue, without there being an existing dispute, and raise terms of proposed settlement. These conversations will not be admissible at a subsequent ordinary unfair dismissal hearing. There are a number of pitfalls to be aware of, such as these provisions do not apply to discrimination issues or automatic unfair dismissal (e.g. participation in trade unions activities) but it is nevertheless a useful tool for a manager when used correctly. 

July also marked a historic shift in the employment law landscape with the introduction of fees into the employment tribunal system. When the industrial tribunals were originally established the idea was that it would be informal, cost effective, anyone could represent him or herself and have access to justice. However, as the years have gone by, there is a strong perception that there are many vexatious litigants and the system itself is bogged down. The hope is that fees will encourage the use of alternative means of settlement, discourage unmeritous claims and provide a way of funding the tribunal system.

There are now two levels of claims. For level 1 claims, such as holiday and redundancy pay, the issue fee is £160 and the hearing fee is £230. For level 2 claims, which are the more complex such as discrimination and unfair dismissal, the issue fee is £250 and the hearing fee is £950. There are additional fees for the Employment Appeals Tribunal. There is a widespread remission system in place, so those receiving certain benefits or below a specified income threshold, will not have to pay. This may well apply to many claimants, as a significant number will be unemployed.

It is a little too early to ascertain whether the fee system will lead to a long-term decline in the number of employment claims, however early indications are that it has had an noticeable impact.  UNISON has launched a judicial challenge to the fee regime, and we will keep you posted on developments.

September heralded the introduction of a new type of employment relationship called “employee shareholder”. In return for shares within a company, employees give up some of their employment rights, most notably unfair dismissal (except in health and safety cases, automatically unfair cases, or where the dismissal is discriminatory) and the right to claim a statutory redundancy payment. The first £50,000 worth of shares (value at acquisition) is free from capital gains tax on disposal. So far, take up has been poor but it is hoped that it will appeal to start-ups and high growth businesses. 

October marked the annual increase in the national minimum wage. For workers who are aged 21 or over, the rate is £6.31 per hour. The youth rate for workers who are aged 18 but under 21 is £5.03 per hour. The young workers' rate, for those workers who are aged under 18 but who are no longer of compulsory school age, with apprentices excepted, the rate is £3.72 per hour. The apprentice rate, for apprentices who are aged under 19 and apprentices aged 19 or over but in the first year of their apprenticeship, the rate is £2.68 per hour.

The year concluded with the publication of the draft TUPE amendment regulations.

2013 has been an extremely busy year. In future articles will be exploring the issues raised here in more detail. We will also be looking at some important 2013 cases and their practical impact, such as the calculation of holiday pay and overtime, how to deal with holiday for those who are on long term sickness absence and the right to be accompanied at disciplinary /grievance hearings. 

If you would like assistance or further advice on any of the matters raised in this article, or any other employment issue, please contact Sally Bradshaw.   

Avoiding Deadlock – Court Intervention or Shareholders’ Agreement?

If the attendance of a specific director is a requirement of a company’s constitution, can a decision made at a directors’ or shareholders’ meeting be valid if that director is not present?  Further still, can that director’s removal as a director of the company be possible without their attendance?  

Simply put, the answer to this question is no, which leads to a situation in which it may be impossible to remove an uncooperative director without breaching the company’s constitution, resulting in a deadlock situation.

Perhaps unsurprisingly this situation is commonly encountered by many small and often family run businesses and, whilst understandable that a director wishes to ensure that the management and strategy of the company remains under their control and that their interest remains secure, the situation becomes complicated when director relations start to fall apart.

Court Intervention

Section 306 of the Companies Act 2006 provides some comfort to companies, as a court may, at the request of a director or shareholder, order a general meeting to be called, held or conducted in any manner it thinks fit where it is impractical to call or conduct the meeting in the manner prescribed by the company’s articles (as supplemented by the Companies Act 2006).  Furthermore, the court has the general power to make any necessary directions to give efficacy to the operation of the company, which may include amending a company’s quorum from two to one, amongst other things.

Smith v Butler & another [2011] EWHC 2301 (Ch)

The case of Smith v Butler successfully illustrates s.306 in action.  The claimant, Smith, was the Chairman of a company and held 68.8% of the shares whilst the Managing Director, Butler, held the remaining 31.2%.  The quorum requirement for general and board meetings was two, one of which had to be Smith unless he waived the requirement.  In 2011 the parties fell out with suspicions of fraud being raised by Butler against Smith culminating in Smith wanting to appoint a new CEO and Butler seeking to suspend Smith as a Director.  Butler proceeded to hold a meeting in which Butler and a third director signed a resolution of the board authorising the suspension.  Following this, Smith requested that a general meeting be held in order to remove Butler and the third director as directors, Butler’s refusal to attend the meeting led to the meeting be held inquorate causing Smith to make an application to court to seek an order that a general meeting be called with a quorum of one.

It was held by the court that a quorum of one would be allowed as the Articles were designed to give excessive protection to Smith who could not be dismissed as a director.  As a point of interest, the court also commented that Butler, as a minority shareholder, could in fact have commenced unfair prejudice proceedings and/or sought permission to commence a derivative action.

Conclusion – the need for a Shareholders’ Agreement

Whilst this case is an example of court intervention in a deadlock situation, the reality is that a s.306 application is often an option of last resort, as the courts are generally hesitant to interfere in company matters unless absolutely necessary.  A preferable and potentially more cost effective option would be for a company to invest in the drafting of a clear and concise shareholders agreement to strike an effective balance between protection and flexibility and which contains specific provisions dealing with potential deadlock scenarios. This would enable the company to function successfully and thrive irrespective whatever the situation.

For more information on the drafting or interpretation of shareholders’ agreements or any of above, please feel free to contact Partner Andy Wilks  on 0207 841 0390.

10 Common Mistakes in Litigation

Unnecessary Delay
If you believe that you have a cause of action against another party then avoid unnecessary delay. If you have a monetary claim, you need to act fast in the current climate to get your money back. Otherwise the debtor might pay other parties in priority to you and ultimately go out of business. Delay makes it harder to put together the supporting evidence to win your case – documents get lost, witnesses move and lose touch.

If you are facing a claim, avoid putting off responding to any letters of claim in the hope that they go away. If you ignore a formal demand or solicitor’s letter this is likely to result in formal proceedings being issued which will become far more expensive with the addition of legal cost and  interest. It is better to try and avoid this by responding and negotiating.

Not knowing if a Debtor is Good for the Money before Taking Action
In claims of any notable value, it always makes sense to work out in advance if the debtor is good for the money. Otherwise you might spend time and money obtaining a Judgment which is essentially worthless.

We can help you do this. We can arrange for wealth assessments to be carried out and if necessary, personal visits to the debtor’s address. Simple checks can often save you throwing good money after bad.

Not Understanding your Long-term Aim
Litigation can have short-term benefits but the long-term consequences must be considered.  For example, is it worth issuing proceedings against an established customer for recovery of a debt which might in turn lead to the loss of that commercial relationship?

Is there another way you can recover the money without damaging your longer term interests? Is it a matter of principle which if you took a deep breath, could be resolved without a legal fight?

Are you Suing the Right Party?
It might sound odd, but it is surprising how often people don’t know the correct legal entity they have contracted with. For example, mistakes are commonly made with trading styles.

Suing the wrong party can be very bad indeed. Not only will you have wasted costs issuing proceedings against the wrong party, you will almost certainly be responsible for paying the innocent parties costs as part of discontinuing the proceedings. You will also have lost time recovering your money from the actual party who owes it.  Make sure you look at the contractual documentation carefully before issuing.  If you have any doubts, we can assist you.

Not Choosing the Best Litigation Route
In the case of genuinely undisputed debts, there are other options available to a Claimant other than commencing a traditional county court or high court claim. These measures can be far quicker and more effective. They can also mean that you recover your legal costs in claims under £5,000 – which would normally be irrecoverable in the small claims court even if you are successful.

We can advise you of the most hard-hitting, cost effective and speedy route appropriate to your claims.

Believing that Litigation is Always Expensive
We do not deny that litigation can be expensive but the risk can be minimised with proper advice. Choosing the right litigation route is vital. Understanding what products are in the market place to reduce your risk further is also important. Have you considered for example After The Event Insurance and whether that could be available. ATE cover can mean that even if you lose a claim at trial, the other parties legal fees are not recoverable from you, but from your insurer.

We can assist you in reducing your costs exposure as much as possible.

Not Considering Alternative Dispute Resolution
Alternative dispute resolution (ADR) is the use of arbitration, mediation or out of court dispute resolution methods. Sometimes a contract may contain a clause whereby the parties are obliged to follow a prescribed dispute resolution route in the event of a dispute. Failure to adhere to this can be a costly mistake.

Even if there is no contractual obligation, in certain claims, ADR is appropriate – especially if the two parties to the claim are in very entrenched positions. Over 80% of cases referred to some form of Mediation settle either on the day or shortly afterwards.  Even in those cases which do not, the issues are often narrowed considerably.

We can advise you whether ADR is appropriate and if so, the correct option to take (and when).

Believing you will always always get your Costs back if Successful
The general rule is that the wining party’s costs are paid by the losing party. However, there are exceptions to this general rule. 1)  Only the costs incurred after legal proceedings are issued are recoverable. 2) In reality, the Court will only order the losing party to pay around 70% of the winning party’s costs. 3) If the claim is for less than £5000 then the matter will be heard in the small claims court which is a costs free environment. 4) Failure to adhere to the appropriate Pre Action Protocol prior to issue can result in reduced (or no) costs being awarded, even if you are successful.

Care needs to be taken to maximise your chances of recovering your costs.

Failing to Collate all the Evidence Needed for the Claim
Make sure you get together your evidence before you start your claim. Too often, people acting in person will commence a claim without thinking through what is needed to obtain a successful result. Do you have all the relevant documents in your possession?  If not – where are they? Do you know the names and whereabouts of the witnesses needed to give evidence on your behalf? Do you actually know what evidence the court will want to see in order to win your claim?

If you don’t prepare properly in advance, you increase your chances of losing the claim and paying the costs of the other party.

Acting as a Litigant in Person
Whilst it is possible to run smaller claims to trial as a litigant in person, in claims over £5,000 which are outside the small claims court, the implications getting it wrong are far more serious – especially as you will be at risk of paying the other side’s costs in the event you are unsuccessful.  Equally, if your opponent does have a lawyer, they can take advantage of a lack of knowledge and experience of the legal system.  We appreciate that no one really wants to spend money on lawyers, but in litigation cases, it is often worth the investment.

For more information on any of the above, please feel free to contact Andy Wilks Partner, on 0207 841 0390.

Successful claimant ordered to pay majority of defendant's costs

Getting costs right.

In the words of Coulson J in the recent case of Brit Inns Ltd and another v BDW Trading Ltd (No 2) [2012] EWHC 2489(TCC) “when civil litigation goes wrong, costs become the critical issue”. 

The case concerns two separate actions, a subrogated insurers’ claim whereby the insurers were able to step into the shoes of their client/ the claimant and retain any benefits or remedies awarded to it and a distinct uninsured claim by the Claimant directly. 

In its subrogated action the Claimant had made two Part 36 offers, which were held to be unrealistic and unreasonable as to costs under CPR44.3.  Conversely, the Defendant made one Part 36 offer, which, although it failed to improve upon the offer at trial, was held to be more realistic and reflected the relevant conduct for the purposes of CPR44.3. Subsequently the Claimant went on to be successful at trial and, although in keeping with the general rule of CPR44.3, Coulson J ordered the Defendant to pay 60% of the Claimant’s reasonable and proportionate costs. The significant reduction of 40% was a result of the Claimant’s failure to adopt the same detailed approach as the Defendant, which could have resulted in settlement at a much earlier stage.

More notably, in respect of the uninsured claim, the Claimant was ordered to pay 90% of the Defendant’s costs primarily owing to the Claimant’s decision to have two separate actions and two separate legal teams inevitably duplicating costs and it was this decision that was held to be unreasonable in respect of costs. 

In reaching these conclusions, Coulson J provides us with a useful summary of relevant principles when dealing with costs where the claim is exaggerated and the Defendant has been unable to make an effective Part 36 offer.  This case undoubtedly serves as a reminder to parties to take a much more realistic and cooperative view of the value of a claim when faced with the harsh realities of recovery and costs in litigation.

For advice or further comment on the above, please contact Partner Andy Wilks on 020 7841 0390.