Employment Law Bulletin - July 2011

Welcome

Welcome to our employment law update for July 2011. The Bribery Act came into force on 1st July and we explain in our featured analysis how it will impact on you and your business. We also consider some recent developments in redundancy law and consider other recent HR developments.

Meanwhile, have you reviewed your working practices for Agency Workers? The Agency Worker Regulations mean that agency workers will have the same rights to basic employment and working conditions (e.g. pay, rest breaks, duration of working time) as those recruited directly by you from 1st October 2011; provided that they have worked for twelve weeks. We are happy to talk to you about the practical ramifications of this groundbreaking legislation.

Redundancy issues

Do employers have to hold a selection process if all members of a pool are redundant? Fortunately for businesses, the Employment Appeal Tribunal has said no. Mr Zeff worked for Lewis Day Transport PLC as a manager in the chauffeur department. There was a downturn of business in early 2009 and after a number of meetings with staff a decision was made to close the chauffeur department, so Mr Zeff and the two controllers in the department were made redundant.

Mr Zeff brought an unfair dismissal claim and lost. The tribunal agreed with the company that the chauffeur department was the whole 'pool' and Mr Zeff and the two controllers were the only members of the pool. As none of Mr Zeff and the two controllers was needed and all three of them were made redundant, there was no need for any selection, no need for any formal selection criteria and no need for any formal selection process. Mr Zeff appealed, mainly on the basis that there should have been a redundancy selection process with formal criteria. The EAT rejected this argument, saying that there was no question of selection and therefore, no need for matrices or selection criteria.

To what extent can employers justify indirect discrimination on the grounds of cost?

An employment tribunal in Cherfi v G4 Security decided that the practice of not allowing a security guard employed at a site to leave the site to attend Friday prayers at a local mosque was properly justified, and this was upheld by the EAT. There was a legitimate need for the client owner of the site for a specific number of security guards to be on site during operating hours and allowing Mr Cherfi to leave would have been a breach of the employer's contract with the owner.

A balancing exercise had to be carried out between the effects of the discriminatory practice on the worker and the employer's legitimate business needs. Significantly, the EAT said that although it was not the case here, it might be possible for indirect discrimination to be justified on the grounds of cost alone. Whether cost can justify indirect discrimination is a grey area which the European Court of Justice is due to give a (hopefully) definitive ruling on, probably next year.

Implementation of the Bribery Act – a detailed analysis

The Bribery Act became law on 1 July 2011. The legislation applies to all companies, partnerships and individuals based in the UK, as well as foreign companies and individuals doing business in the UK. The legislation makes it absolutely clear that commercial organisations are responsible for 'policing' not only their own garden, but even the remotest areas of their operations to ensure that nothing illegal is taking place, including the third parties with whom they do business. This represents a step change in the level of risk assessment and control.

Penalties under the new Act include the possibility of jail for directors and unlimited fines for organisations. On top of that would be legal costs, not to mention incalculable reputational damage associated with a high profile prosecution.

The Act defines new criminal offences:

• offering, paying, requesting or receiving a bribe;
• bribing a foreign public official; and
• a corporate offence of failing to prevent bribery being undertaken on its behalf.

There is a defence to the corporate offence of failing to prevent bribery if an organisation can show that the directors have put in "adequate procedures" to prevent bribery. There is a degree of flexibility in what "adequate procedures" actually means. Organisations must take a risk based approach and their procedures should be proportionate to the risk posed.

Given the growing regulatory pressures on all businesses, boards could be forgiven for viewing the Bribery Act as an additional burden. In fact, it could be a blessing in disguise. The Act provides clarity. Previously the limits of the law were not always clear, and that in itself represented a risk. Under the Bribery Act, companies should know exactly where they stand. Perhaps more importantly, the Act may have a beneficial effect on the way UK companies run their affairs and transact with third parties. In forcing companies to examine all areas of their operations, the Act will provide managers with a more accurate view of how business is conducted and risk managed. That will, in turn, lead to far greater operational effectiveness.

The Act has the potential to force businesses into reviewing their relationships with third parties and establish a new basis for co-operation and trust. This could be achieved through new contracts, a jointly agreed approach to risk management and controls and potentially the adoption of a common moral culture.

There may also be financial benefits. The immediate impact of the Act is almost certainly increased spending on compliance, but longer term, an enhanced understanding of operations could provide an opportunity to take cost out of the business. What's more, a proactive approach to risk control is good for corporate reputation. That in turn provides a competitive edge. The Bribery Act may impel UK companies to take a far more robust approach to internal and third party risk and in the long term this should be a good thing.

What steps should be considered to minimise exposure?

1. Leadership from the top, taking on board responsibility for the design of an anti-bribery and corruption programme and instilling a culture in which corruption is eradicated. Appointment of a compliance officer will reinforce the importance of a corporate anti-corruption compliance programme within the organisation. Board agendas should include consideration of bribery issues.
2. A clear and unambiguous code of conduct giving clear guidance on gifts and entertainment, charitable and political contributions and reimbursement of travel expenses as well as the treatment of illegal payments such as facilitation payments.
3. Effective risk assessment and risk management including consideration of the countries where the business is operating, the types of transactions being undertaken by the business, as well as other potential high-risk issues. Adoption of appropriate risk management strategies, which are business specific and take account of key relationships with employees, third parties acting on behalf of the business and business partners.
4. Due diligence of business partners and other strategic partners covering examination of their compliance policies and procedures. Where necessary the right to audit accounts and transactions undertaken by business partners should be included in contract terms.
5. Financial controls and audit testing should be considered when entering high risk markets or where potential risks have been identified following audit reviews. Internal audit testing of all business locations should include testing of high-risk areas, including cash handling, customs compliance, transactions with third party agents and use of consultants. Audit reports should be reviewed to test the effectiveness of current controls.
6. Monitoring of practices in high risk countries, e.g. where governments own or control manufacturing facilities or where there are known corrupt practices within specific industries operating in particular countries. Information is freely available from reputable government sources identifying high-risk countries and sectors, e.g. Business Anti-Corruption Portal.
7. Implementation of an effective contract review procedure to ensure that payment terms are properly scrutinised and the use of particular types of agreements are reviewed, e.g. consultancy agreements, agreements with sales agents and agreements with lobbyists. Review key contracts and incorporate necessary amendments to contract terms. In particular, consider including: a right of audit of anticorruption procedures of business partners, a right to terminate a contract in the event of suspected corrupt activity, appropriate warranties and indemnities, obligations for partners to immediately report any corrupt activity of which they become aware and obligations on business partners to comply with your own code of conduct and anticorruption compliance procedures, if appropriate.
8. All payment terms should be justifiable on an arms length basis. Ensure payments are not made in cash and are made in the countries where business takes place. All payment terms should be agreed and properly recorded.
9. Mechanisms should be put in place to encourage staff to seek guidance on potentially illegal transactions and report suspected breaches of anticorruption policies. Such mechanisms should be highlighted in training given to employees. Review standard wording of employment contracts and amend to ensure that the company's position is protected in the event of an employee breaching the Bribery Act.

Don't wait until the Bribery Act becomes a problem for your business. Make sure you put adequate procedures in place now.

If you call it ex-gratia, it's exactly that

Ms O'Farrell worked for Publicis Consultants UK Ltd in the post of Director. Her contract provided for three months' notice of termination by either party. She was informed of her redundancy by letter of 14 May 2009, the effective date of termination being the day after. She was paid to 18th May and was provided with statutory redundancy pay and holiday pay. The letter also said, "Ex-gratia Payment - You will receive an ex-gratia payment equivalent to three months' salary. This payment amounts to £20,625. The payment is free of Tax and NI deductions."

Ms O'Farrell then claimed that the company was in breach of contract by failing to pay her notice pay. The company argued that the ex-gratia payment was meant to be a notice payment, but the tribunal rejected that argument and found for Ms O'Farrell.

At the company's appeal the Employment Appeal Tribunal held that the issue was how should the ex-gratia clause in the letter to Ms O'Farell be construed. Did the words mean 'we are hereby paying you for your period of notice' or did they mean 'we are hereby paying you a sum other than the monies to which you would be entitled by way of pay in lieu of notice'? To an ordinary reader the letter meant that three payments were to be made. The company was legally obliged to pay two of them, the third was a payment "made freely and not under obligation". Nothing in the language used in the letter of 14th May 2009 suggested that the ex-gratia payment was a payment for a period of notice and no background information put forward changed that position. The tribunal's interpretation of the words ex-gratia was therefore held to be correct and the company's appeal was dismissed.

Lawyers at internal disciplinary hearings

The Supreme Court has overturned the decisions of the Court of Appeal and High Court that a music teaching assistant at a primary school should have been allowed legal representation at an internal disciplinary hearing. G has been accused of engaging in indecent conduct with a 15 year old undertaking work experience. He was denied legal representation in an internal disciplinary hearing and was dismissed for gross misconduct. He claimed that his right to a fair trial had been infringed (European Convention on Human Rights, Article 6) because the finding would be likely to mean that he would then be placed on the "barred" list by the Independent Safeguarding Authority (ISA) and therefore permanently barred from his profession.

In considering his judicial review application last year, the Court of Appeal held that where employees need authorisation from an external regulator to carry out their chosen profession or occupation and a dismissal could lead to the regulator withdraw authorisation, then the employee should be allowed to bring a lawyer into a disciplinary hearing. However, the effect of the more recent Supreme Court ruling is that employees subject to authorisation by the ISA, such as teachers, will no longer be able to argue that they are entitled to legal representation at internal disciplinary proceedings because of the potential for the ISA to be influenced by the outcome of those proceedings.

However, there could still be scope for employees to argue for a right to legal representation at disciplinary hearings in some other cases where their career is at stake, especially in the public sector or where an employer is a "monopoly" employer (as in Kulkarni v Milton Keynes Hospital NHS Trust in 2009 when the Court of Appeal held that the NHS felt into that category). Each case will need to be considered on the specific facts as it may be that procedures create contractual rights for disciplinary matters to be deal with in a certain way, including the availability of legal representation.

Outside the public sector, employees could not rely on the human rights legislation and there are fewer monopoly employers or areas where employees are subject to authorisation; but there have been cases that have said that if an employee brings an unfair dismissal claim, rights under Article 6 should be weighed in the balance when a tribunal considers whether the dismissal was reasonable. In particularly difficult or sensitive cases, employers may wish to consider, as an exception to their usual approach, granting a request for legal presence at hearings in order to nullify later arguments from the employee about other alleged flaws in the process.

Emails sent from personal computers outside working time

Mr Gosden was a care worker working with drug users inside Moorland Prison. He sent an email containing offensive comments, accompanied by images of naked women, from his home computer to a work colleague's home computer, outside working hours. The email concluded: "It is your duty to pass this on!" The colleague forwarded the email to another colleague who worked at the prison. The email chain came to the attention of the prison, which instituted an internal investigation.

Mr Gosden's co-worker then forwarded the email on to another colleague at the prison and so the email entered the prison service's system. Mr Gosden was dismissed following a disciplinary hearing but argued that the dismissal was unfair because he had sent the email from his personal email address outside of working hours. The tribunal disagreed. Although he sent the email from home, it clearly stated that it should be passed on and so he should reasonably have expected it to have been forwarded. The tribunal concluded that a reasonable employer would be entitled to conclude that Mr Gosden had committed an act of gross misconduct that could damage the company's reputation or integrity and so the decision to dismiss was therefore within the band of reasonable responses.

In view of the increasing use of social media and to avoid debate over privacy issues, employers should ensure that internet usage policies make it clear that employees should not send offensive emails, or similar communications, inside or outside the workplace and that disciplinary action could result if they do.

Can a person working illegally bring a race discrimination claim?

Miss Hounga was employed as a domestic servant by Mrs Allen. She had been dishonest when applying for her visa and she stayed in the UK illegally after it had expired. Whilst employed, she was the victim of serious physical abuse by Mrs Allen and was dismissed in traumatic circumstances. The employment tribunal found that since she had known she had no right to work, she could not bring her complaints relating to her contract of employment (unfair dismissal, breach of contract, unpaid wages) as the contract was illegal but that her complaint of race discrimination could be heard and was successful.

Mrs Allen appealed, and the EAT confirmed the decision of the employment tribunal. It refused to find that if an employee does not have the legal right to work in the UK he or she cannot bring a discrimination claim. In this case, Mrs Allen's behaviour in dismissing Miss Hounga was not linked to the illegal conduct and so it was not affected by the illegality, therefore it could proceed before the employment tribunal.

The contents of this article are intended as guidelines for clients and other readers. It is not a substitute for considered advice on specific issues. Consequently, we cannot accept any responsibility for this information or for any errors or omissions.

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