Hugely significant pensions case in Europe

Posted on March 24, 2011 by Martin Malone

As you have probably read in the mainstream press the European Court has ruled that different insurance premiums for women and men constitute sex discrimination and that they are not compatible with the EU Charter of Fundamental Rights (see EC Press Release of 1st March 2011: Sex Discrimination in Insurance Contracts). The European Court ruled in early March in an important Belgian case which decided whether pension providers in the EU (and insurance companies in the EU generally) can, when calculating premiums and benefits including annuity rates, lawfully take into account the fact that women generally live longer than men.

Superficially of course it is sex discriminatory to do so. However there is specific provision in relevant EU law to enable notice to be taken of the relevant biological facts. EU law provides that “Member States may decide … to permit proportionate differences in individuals’ premiums and benefits where the use of sex is a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data…” (Article 5 of Directive 2004/113/EC).

The Association Belge des Consommateurs Tests-Achats, a consumer association (and two private individuals) brought proceedings in Belgium claiming that this provision was invalid in that it infringed more fundamental provisions, specifically Articles 21 and 23 of the Charter of Fundamental Rights of the European Union. As the case concerned the compatibility of an EU Directive with the Charter of Fundamental Rights, the Belgian Constitutional Court referred the case to the European Court for a ruling.

The preliminary opinion of the European Court’s Advocate General Kokott was handed down in late September 2010. It has now been adopted by the full court. The preliminary opinion came down firmly on the side of the Association Belge des Consommateurs Tests-Achats. Advocate General Kokott proposed that the full European Court should declare Article 5(2) of Directive 2004/113 invalid on the basis that it infringes the prohibition of discrimination on grounds of sex, which is enshrined as a fundamental right. He pointed out that “The Court would be keeping good company if it delivered such a judgment: more than 30 years ago the Supreme Court of the United States of America held in connection with pension insurance funds that the Civil Rights Act of 1964 prohibits different treatment of insured persons on the basis of their sex”.

Recognising the enormity of the consequence of his conclusion Advocate General Kokott recommended a three year phase in of the new rules if the full European Court decision follows his opinion. Since it has now done so, one result could be a boom in off-shore life insurance as of course any ECJ ruling will be effective only in EU Member States.

HMRC’s view as to whether an individual is an “employee” is not conclusive

Posted on March 24, 2011 by Martin Malone

We have commented on many occasions that HMRC and employment tribunals can reach equally valid but contrary views that a person can be both employed and self-employed at the same time. A recent case re-emphasises that just because the taxman regards a person as being an employee it does not follow that that is the correct position in law.

Mark Fitzpatrick is a designer in the aerospace field. He set up his own company, of which he was the sole director and only employee, to provide his services. The company (MBF Design Services Ltd) then contracted with Airbus, via two intermediaries, to provide his services to Airbus in connection with the design of their A380 aircraft. MBF received “fee income” from Airbus.

MBF had a history of contracting out Mr Fitzpatrick’s services of the kind featured in this appeal to a number of different clients, including Westland Helicopters, Strachan & Henshaw and Western Design Systems, both before and after the period when he worked for Airbus.

HMRC considered that Mr Fitzpatrick was liable to PAYE income tax and employee NICs on the monies received by MBF from Airbus in the years 2001-02, 2002-03, 2005-06 and 2006-07. He worked a 35 hour week for Airbus under the direction of Airbus management at the Airbus factory at Felton, using the company’s equipment. HMRC took the view that under what is known as “IR35″ monies paid to MBF were for tax purposes employment income of Mr Fitzpatrick personally.

Mr Fitzpatrick appealed to the tax tribunal.

The issue before the tribunal involved applying what is called the statutory hypothesis to the facts of the case. The statutory hypothesis required the tribunal to establish whether, if the arrangements with Airbus had taken the form of a contract between Mr Fitzpatrick and Airbus, they would have resulted in his being (i) an employed earner of Airbus for the purpose of National Insurance Contributions and (ii) an employee of Airbus for income tax purposes. It was agreed that for the purposes of the appeal the two tests are not materially different.

Mr Fitzpatrick, or more accurately, MBF Design Services Ltd, won.

The tax tribunal found that, on applying the statutory hypothesis, Mr Fitzpatrick was not a hypothetical employee of Airbus but was an independent contractor providing services to Airbus. In other words, the hypothetical contract between Mr Fitzpatrick and Airbus was a contract for services, not a contract of service.

The critical point was that the tribunal found that there was no “mutuality of obligation”, essential for a finding of employment as an employee rather than as an independent contractor. The tribunal pointed out that an obligation on the employer to provide work, or in the absence of available work to provide pay, is a touchstone or feature one would expect to find in an employment contract and whose absence would call into question the existence of such a relationship. An important point was that Airbus had no obligation to provide payments in the absence of available work.

Other key points were that Airbus was entitled to cancel MBF’s contract without notice and that there had been occasions when due to computer failure Mr Fitzpatrick was sent home without pay whereas Airbus’s own employees had to remain on-site. Mr Fitzpatrick worked alongside Airbus employees and other contractors and while the proportion of one to the other varied, it was mostly about four to five contractors to one Airbus employee. Also Mr Fitzpatrick was entitled to do his own research (and did so both at Airbus and at home in his own time) and he was not subject to Airbus disciplinary or grievance procedures. Keeping core hours was strictly speaking a definite requirement by Airbus but in practice was not enforced so long as work done by Mr Fitzpatrick and other contractors was effectively coordinated with work done by the rest of the establishment.

A link to the full text of the tribunal judgment is available here for those interested. It must be borne in mind however that this type of case is very fact specific – in particular systems in the aircraft building industry are not typically replicated elsewhere. Nonetheless the case has been hailed by the anti-IR35 Professional Contractors’ Group as “a significant victory for the freelance community” and is clearly of considerable significance, not only in the context of IR35 but also in other situations (such as unfair dismissal claims) where the question of whether a worker does or does not count as an “employee” is relevant. Given the increasing use of freelance workers generally, this is an important question of law which has to be considered quite frequently and you should contact us for expert professional advice if there is any doubt.

Corporate manslaughter

Posted on March 24, 2011 by Martin Malone

Alexander Wright, a junior geologist working for a company called Cotswold Geotechnical Holdings Ltd, was killed in September 2008 when a pit or trench from which he was taking trial soil samples collapsed on top of him. The company was prosecuted under the Corporate Manslaughter & Corporate Homicide Act 2007, the first prosecution of a company under that Act (which had recently come into effect, in April 2008).

Under the Act an organisation is guilty of corporate manslaughter if the way in which its activities are managed or organised causes a death and amounts to a gross breach of a duty of care to the person who died. A substantial part of the breach must have been in the way activities were organised by senior management. A conviction can lead to an unlimited fine and guidelines from the Sentencing Advisory Panel have recommended that a fine on conviction under the Act should rarely be less than £500,000, and “may be measured in millions of pounds”.

Given the events leading to the passing of the the Act it is of some note that this first prosecution under it is of a small company – it is understood that Cotswold Geotechnical Holdings had only eight employees. The Act itself was prompted by deficiencies in previous law which had led to the dropping of charges against very large organisations on grounds that the evidence would not be sufficient for a jury to convict under then existing law (notably Network Rail, aka Railtrack, arising from the Hatfield Rail crash in 2000, and Townsend Thoresen after the 1987 capsizing of the Herald of Free Enterprise ferry).

In June 2009 Stroud magistrates remitted the Cotswold Geotechnical Holdings case to Bristol Crown Court. The trial was due to begin there in August 2009 but was adjourned until February 2010. It was then further adjourned three more times because of the ill-health of a director, Mr Peter Eaton (charges of gross negligence manslaughter and an offence under the Health and Safety at Work Act against Mr Eaton were permanently stayed on account of his ill health).

Eventually the trial took place at end January 2011 at Winchester Crown Court. The jury found Cotswold Geotechnical Holdings Ltd guilty, finding that the system of digging trial pits used by the company was unnecessarily dangerous and that well-recognised industry guidance had been ignored. The Court imposed a fine of £385,000 but has allowed this to be paid off over ten years (£38,500 a year).

Given the sentencing guidelines noted above that fine may seem modest. However the Court took into account what it referred to as the company’s “parlous financial state” and no doubt recognised, as suggested above, that the thinking behind the Act was directed more at prosecution of big companies than of a small one such as Cotswold Geotechnical Holdings Ltd.

Cotswold Geotechnical Holdings Ltd is said to be considering an appeal.

TUPE avoidance blocked by the EAT

Posted on March 24, 2011 by Martin Malone

A leading article in the Times of 23 February 2011 was headed “The TUPE regulations are a barrier to open services that needs to be removed”. The Times was making the point that the TUPE regulations make it practically impossible for local councils to achieve efficiency savings by outsourcing functions but there are also serious implications for business.

A main effect of the TUPE regulations is that they automatically transfer contracts of employment of staff performing a particular function to any another enterprise which takes over that function. The regulations make it unlawful for the new operator to dismiss any of the transferred staff, to reduce their wages or otherwise impose less beneficial terms of employment (even if the staff agree, which they might well do if the alternative is redundancy). One effect is that it is practically impossible for a private enterprise taking on a staff intensive function from a local authority to do the job at lower cost. It is not hard to see that the end result of a well meaning attempt to protect employees can thus sometimes be to create even bigger problems than it solves.

Although not referred to, the Times article may have been prompted by a decision of the Employment Appeal Tribunal just a week earlier. That decision has effectively blocked what for a while appeared to be a loophole in the TUPE Regulations. The Regulations apply, of course, to commercial organisations as well as to local authorities and the possible loophole which has been blocked was one which could be relevant for them rather than for local authorities.

The new EAT decision is OTG Ltd v Barke and ors on 16 February 2011. The “loophole” which it has blocked was opened by a previous EAT decision (Oakland v Wellswood on 5 November 2008). The 2008 decision appeared to enable administrators of a company which was in difficulty to set up a “pre-pack administration” arrangement which would enable them to sell the business of the company as a going concern without TUPE being applicable. This was on the basis that use could be made of an exemption from TUPE designed to protect jobs when a company is put into liquidation. In 2008 the EAT had held that this exemption applied not only when a company is put into liquidation but also when administrators sell the business of a company as a going concern. For technical insolvency law reasons the point was a difficult one but the Court of Appeal later hinted that the 2008 EAT decision was probably a wrong interpretation of the law. The EAT has now, in February 2011, confirmed that.

The result is that “pre-pack” sales by company administrators are caught by TUPE in the same way as other transfers of undertakings.

While not knowing whether this result has had any part in the recent failure by administrators of the Cheshire based company Auto Windscreens to find a buyer for the business as a going concern, the fact that the possible TUPE loophole has now been blocked cannot have helped. It is reported that as a result over 1,000 staff are being made redundant (see BBC News 25 February 2011).

It is important to note that the TUPE regulations are there to implement an EU Directive and in one form or another TUPE has been in place for many years. The latest 2006 version is a possibly unfortunate example of “gold-plating” by Britain of EU requirements. Notwithstanding that, and notwithstanding a recent Government promise not to “gold-plate” EU Directives when transposing them into British law, the Government indicated in November 2010 that it had no plans to make any changes to TUPE. Whether a combination of matters such as the recent EAT decision noted above, the Times leading article and the redundancies at Auto Windscreens may cause the Government to think again is an open question.

Territorial jurisdiction

Posted on March 24, 2011 by Martin Malone

Regular readers will know that BA cabin crew have kept the courts and tribunals very busy in the last couple of years.

In the latest case involving them the Court of Appeal has ruled that cabin crew, based in Hong Kong but flying to and training in London, worked partly at an establishment in Great Britain: accordingly they are entitled to bring claims under the Race Relations Act 1976 and the Employment Equality (Age) Regulations 2006.

Mrs Mak and 15 colleagues of Chinese origin worked as cabin crew for British Airways. They were ordinarily based in Hong Kong; they worked on BA flights to London (in the case of Mrs Mak an average 28 round trips per year) and would stay in hotels in London. They also had to attend compulsory training courses in London. Mrs Mak and her colleagues brought claims for unlawful direct and indirect race discrimination and age discrimination. The preliminary question arose as to whether an employment tribunal had jurisdiction to hear the claims. For the tribunal to have jurisdiction it had to be satisfied that their employment counted as being at an establishment in Great Britain.

At a Pre-Hearing Review an employment judge ruled that the claimants worked at least partly in Great Britain and so under the relevant statutory wording counted as being at an establishment in Great Britain. The employment tribunal therefore had jurisdiction. British Airways appealed to the EAT but lost. They appealed on to the Court of Appeal and have lost again.

The arguments put forward by BA were mainly technical, based on the precise wording of the relevant sections and regulations and how they should be properly interpreted. Those arguments are not considered further here but there was also an important general point. BA argued that the amount of “work” done by Mrs Mak in Great Britain was so small that it should be disregarded. The original tribunal had accepted that compulsory training time and standby time were both in GB and were both work. It was also agreed by all parties that standby time took place in Hong Kong and not in GB.

The Court of Appeal dismissed BA’s argument. Compulsory training time in Great Britain was work and was not trivial. In terms of time taken it was relatively small but it was a regular and crucial part of Mrs Mak’s role, which she could not have done without. It was therefore not trivial.

Note: As from 1 October 2010 the Equality Act 2010 has repealed the Race Relations Act 1976 and revoked the relevant parts of the Employment Equality (Age) Regulations 2006. There is no specific provision in Equality Act 2010 to define its territorial scope. Presumably under that Act normal common law rules will therefore apply as they do in unfair dismissal cases (essentially meaning that the test is a general test of whether an individual’s employment relationship is sufficiently closely connected with Great Britain to make it appropriate that he should be able to bring a claim in Britain, as explained by the House of Lords in the leading case of Lawson v Serco [2006] ICR 250 and subsequently developed).

Abolition of default retirement age

Posted on March 24, 2011 by Martin Malone

I wrote about the anomaly in the draft Regulations last month when I pointed out that it appeared that the new Regulations appeared to exclude the option to give notice to over 65s before the default age was abolished.

The Government announced in January that it was not going to back down on proposals to abolish the so called “default retirement age” on 1 October 2011. Many had argued that increasing the age from 65 to some higher age would be a better solution, on grounds of simplicity, of reducing the number of tribunal claims and of “humanity” (a default retirement age avoids the unpleasantness of having to tell an ageing employee that he is no longer up to the job). However that is not to be.

Under current law, provided the employer has complied with statutory conditions, notably giving between 6 and 12 months notice, he can require an employee to retire at age 65 or over without facing the risk of a tribunal claim. The regulations are due to come into effect on 6 April 2011 and will ensure that, subject to a transitional arrangements, employees whose dismissal takes effect on or after 1 October 2011 will be entitled to claim unfair dismissal and/or unlawful age discrimination even if they are aged 65 or over.

Although this basic position is clear the detail of the transitional arrangements was questionable. Originally the Government indicated that if the minimum 6 months’ notice expired on or before 30 September 2011, then all else being equal the current law would apply so that the 65 year old employee would not be able to complain to a tribunal. That appeared to mean the notice had to be given by 30 March 2011 even though the new Regulations would not be in force until 6 April. The draft regulations as issued have avoided the “retrospective legislation” implications that involved – but in doing seemed to have produced a different complication.

Under the transitional provisions set out in the initialbdraft regulations for an employer to take advantage of the current law the basic requirements were that (i) the employee must have their 65th birthday between 6 April 2011 and 30 September 2011 and (ii) the notice of dismissal must be given before 6 April 2011. As the notice of dismissal can be 12 months notice, it follows that provided the employee became 65 between 6 April and 30 September 2011, the dismissal itself could be set for any time up to 5 April 2012 if, in this example, notice was given on 5 April 2011. So far so good.

However there appeared to be an (in practice probably not very important) potential problem if the employee became 65 BEFORE 6 April 2011. The transitional arrangements could not then apply (as condition (i) above will not be fulfilled). The peculiar result would have been that, at least in theory, it would be possible for an employer to take advantage of existing law by giving 6 to 12 months’ notice before 6 April 2011 requiring an employee who has their 65th birthday in May or June 2011 to retire after 6 or 12 months but it would NOT be possible for him to do the same if the employee had their 65th birthday before 6 April 2011. By the time the notice given to the latter employee expired the current law would have been revoked by the new Regulations. The employer would not be able to take advantage of the transitional arrangements in the new Regulations with the result that that employee would be able, if the facts made it worth while, to sue the employer for unfair dismissal and/or unlawful age discrimination.

HOWEVER, the anomaly in the drafting has now been resolved. The applicable provisions are now as follows.

The last date for giving notice of intention to retire an employee under the statutory regime remains April 5 2011.

The statutory regime allows for a maximum of 12 months’ notice, so that a notice given before April 6 2011 could expire after September 30 2011. Under the new regulations:

the old provisions will apply to retirements of employees who are 65 on or before September 30 2011 provided that the employer has given notice of intention to retire on or before April 5 2011;
there remains some uncertainty as to the latest date on which such notice could expire – the usual rule is that the day on which notice is given is excluded from the time period, so the maximum notice of 12 months would expire on April 5 2012;
an employee could still make a request to continue working, but would need to do so on or before January 4 2012 (as more than three months’ notice is required); and
following such a request, an employer could agree to delay the retirement date by six months or less and still rely on the old provisions. This could mean that the latest retirements under the old regime are on October 5 2012. If a longer or indefinite extension is agreed, any subsequent retirement would need to be justified.

Our advice is that notice should be given on or before 5 April 2011. Work on the basis of the end of March with a view to ensuring that there is no risk of the employee not receiving the notice before the deadline. Wherever possible, give notice which is due to expire after six months, e.g. notice given on or before 31 March should be at least six months but expire on or before 30 September (again allowing a few days). Don’t extend the retirement date under any circumstances. By applying this approach, the existing Regulations can be relied on with minimal risk.

Additional paternity leave

Posted on March 24, 2011 by Martin Malone

Employed new fathers who have completed 26 weeks continuous employment with their employer already have the right to two weeks’ paternity leave with statutory paternity pay.

New, additional, paternity leave rights come into force in relation to children whose expected week of birth (or matching for adoption) begins on or after 3 April 2011 (the detail is in the Additional Statutory Paternity Pay (Weekly Rates) Regulations 2010). The general idea is that where parents of a child are both working, then once the mother goes back to work (which for this purpose cannot be before the baby is 20 weeks old), the father can then take up to 26 weeks of “additional paternity leave”.

The additional paternity leave is in addition to the two weeks which the father is entitled to take under existing law during the 8 weeks after the baby is born. It must be completed before the child’s first birthday and must be one continuous period. The right is only available to the husbands/partners of working mothers (self-employed counts – technically the requirement is that the mother must be entitled to one or more of the following: (i) maternity leave; (ii) statutory maternity pay; or (iii) maternity allowance). The right is only available if – and after – the mother returns to work.

An important point is that the right to additional paternity leave is NOT a right to share the 52 weeks’ maternity leave available to mothers – in practice it may have that result but in law the father’s right to additional paternity leave is separate from the mother’s right to maternity leave. Therefore the total taken by both mother and father can exceed 52 weeks. Thus if the mother starts maternity leave on the earliest possible date (11 weeks before her expected week of childbirth) and goes back to work 20 weeks after the child is born she will have had 31 weeks of maternity leave (assuming the birth happened when expected). The father can then take 26 weeks additional paternity leave – this will expire before the child’s first birthday and thus fulfil that condition. The total of the maternity leave and additional paternity leave will then add up to 57 weeks and on top of that the father will have been able to take the normal two weeks’ paternity leave available under previous law. This means that in total in this example, between them the mother and father will have had 59 weeks’ leave. They will of course also have their normal holiday entitlement.

There is a limited right for fathers to be paid during additional paternity leave. The father can in effect claim any unpaid statutory maternity pay which the mother has forfeited by returning to work. As statutory maternity pay is limited in both amount (£128.73 as from 11 April 2011, or 90% of earnings if less) and duration (39 weeks) it follows that from a financial point of view it will only make sense for a man to take his full entitlement to additional paternity leave if the mother is going back to a well paid job.

The new right is available to the husband or partner of the mother and is available to adoptive parents. There are provisions to avoid fraud but, interestingly, the partners can be same sex partners leading to the result that a woman can claim paternity leave – as Humpty Dumpty said to Alice: ‘When I use a word, it means just what I choose it to mean – neither more nor less’.

Finally, it is worth noting that this new right to additional paternity leave may be subsumed in due course into new overall “family-friendly” rules which are likely to follow from a Government consultation which commenced this month.

Protection of Freedoms Bill

Posted on March 24, 2011 by Martin Malone

The “Protection of Freedoms Bill” is a Government Bill. It had its first reading on 11 February and is likely to be law by the end of 2011. It covers a variety of matters, including placing restrictions on wheel clamping of cars, use of CCTV and removal of restrictions on times for marriage and civil partnership ceremonies. From an employment law angle the most significant part of the Bill is Part 5, headed “Safeguarding Vulnerable Groups, Criminal Records etc”.

This Part of the Bill will try and strike a sensible balance between protection of vulnerable adults and children on the one hand and counter-productive, often unnecessary and expensive, authorisation requirements and CRB checks on the other. After the Soham murders, public disquiet about the ease with which a paedophile could get a job in a school led to the Bichard inquiry followed by the passing of the Safeguarding Vulnerable Groups Act 2006. It soon became obvious that the pendulum had now swung too far in the opposite direction – for example the vetting and criminal records checks required for almost anyone other than close family to have contact with school children made it impossibly difficult for some perfectly sensible activities to continue: school play groups were affected as was the ability of parents to club together to arrange for collecting children after school.

The Protection of Freedoms Bill aims to get a better balance. It will retain some parts of the present system so it will continue to be an offence for a barred person to work with vulnerable groups in regulated activity roles. It will also still be an offence for an employer or voluntary organisation knowingly to employ a barred person in a regulated activity role. However the requirement for registration will be scrapped and there will be no ongoing monitoring. The Criminal Records Bureau and the Independent Safeguarding Authority will be merged. The new regime will retain current arrangements for referrals to the state barring body (currently the ISA) where individuals have demonstrated a risk of harm to children or vulnerable adults and, where relevant, barring will continue to apply to both paid and unpaid roles – barring will be automatic where a serious offence which provides “a clear and direct indication of risk” has been committed.

There is a useful official explanatory note on the Bill on a government web-site.

Summary of forthcoming changes

Posted on March 24, 2011 by Martin Malone

Here is an outline list of eight employment law related changes (and non-changes) announced by the Government due in the near future. The last three are of sufficient general importance to merit separate consideration – provided by separate posts (see links below).

The outline list is as follows:

1. Time off to Train

The Government has now announced that this right will not be extended to employees of small businesses in April 2011. Almost a year ago the previous government introduced a right for employees to request time off for training, phased in from April 2010. This started last April for employees of larger employers (250+ staff) and was to be extended to employees of any size of employer in April 2011. The Coalition Government announced in November that firms with fewer than 50 employees would remain exempt. It has now announced (on 16 February) that all further implementation is to be deferred “to allow further, thorough discussion, scrutiny and evaluation”.

2. Bribery Act deferred

Implementation of the Bribery Act 2010 was also due for April 2011. This has been postponed to, at the earliest, June 2011. The Ministry of Justice has yet to issue final “guidance” and has promised that the Act will not come into force until 3 months after the guidance is issued.

3. Visa reform (non EU workers)

Currently businesses are given an annual allocation for the number of foreign workers they can bring into the country. On 16 February the Government announced a new system under which employers will have to apply to the UK Border Agency for a certificate of sponsorship for a specific post. Subject to Parliamentary approval this will come into force on 6 April 2011.

4. Flexible working

The age limit of children in respect of whom employers must seriously consider requests by employees for flexible working is increased from 17 to 18 as from 6 April 2011.

5. Equality Act 2010

The provision allowing “positive action” in recruitment and promotion (s.159) comes into force on 6 April, as does the “public sector equality duty” (s.149).

6. Criminal record checks and vetting of employees

See the separate news item under the heading “Protection of Freedoms Bill“.

7. Additional Paternity leave

See the separate news item under the heading “Additional paternity leave“.

8. Abolition of “default retirement age”

See the separate news item under the heading “Abolition of default retirement age“.