Welcome to the February 2017 edition of Bevan Brittan's employment law report: our monthly round-up of key employment law developments and what they mean for you.

Featured Case

Plumb roles?

The Court of Appeal has decided that a plumbing company's 'contractor' was, in fact, a worker – and, in doing so, provides a useful reminder of how to determine worker status. 

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Briefing

Compliant in paying the National Minimum Wage?

More than 350 employers are facing penalties of over £800,000 for non-payment of the minimum wage, according to an HMRC announcement this month. How can you avoid being in the same boat? John Moore explains.

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News round-up

Workforce news in brief - February 2017

There's nothing 'fake' about our monthly workforce news. We report on the latest developments affecting employers, including imminent changes coming into effect for both private and public sector employers; changes to the ET fees regime and new publicity of proceedings against employers. We also cover a useful case on defeating subject access requests and the latest Brexit news.

Read more

Events and training

Dates released for our next series of free client training events in London, Bristol, Birmingham and Leeds. Find out more

Our webinar on managing sickness absence, presented by Julian Hoskins for the Healthcare People Manager's Association (HPMA), is now available online.  Watch webinar

 

Plumb roles?

The Court of Appeal has decided that a plumbing company's 'contractor' was, in fact, a worker – and, in doing so, provides a useful reminder of how to determine worker status. Sarah Lamont reports.

The background

For the purposes of the Employment Rights Act 1996 and the Working Time Regulations 1998, the status of an individual's relationship with the organisation providing them with work falls into three broad categories.

  1. Self-employed contractors: working in business, genuinely on their own account.
  2. Employees: working under contracts of service, under the control of an employer.
  3. Workers: individuals who contract to undertake to perform work or provide services personally but not under a full blown employment contract (something of a hybrid of 1 and 2 above).

Determining which of the above categories applies is not a 'tick box' exercise and often involves specific analysis of various factors such as control, subordination, and integration.

This can be complex, but it is, nevertheless, important to get this right because access to a raft of workers' rights rests on whether an individual is a 'worker' or a self-employed contractor.   Although workers do not benefit from the same range of rights as employees, they are entitled to some important rights and protections such as:

  • paid annual leave
  • protection from unlawful deductions from wages
  • protection from discrimination.

The facts

Pimlico Plumbers (PP) engaged Mr Smith as a plumber for approximately five and a half years. PP terminated the relationship approximately four months after Mr Smith suffered a heart attack. Mr Smith subsequently issued proceedings in the employment tribunal claiming unfair dismissal, wrongful dismissal, entitlement to pay during medical suspension, holiday pay, unlawful deductions from wages and disability discrimination.

An employment tribunal found that Mr Smith was not an employee, but was a worker.

Factors which the employment tribunal was asked to consider included contractual documentation which stated, amongst other things, that Mr Smith:

  • was an independent contractor of PP, in business on his own account
  • was under no obligation to accept work from PP, and it was not obliged to offer him any work (although Mr Smith was required to undertake a minimum of 40 hours work a week; albeit that he could reject work if he so wished)
  • was subject to restrictive covenants
  • had to drive a PP branded van (which he had to 'hire' from PP for a fee) and wear a PP uniform
  • provided his own materials and tools
  • had to bear a significant proportion of commercial risk - for example, he had to pay in advance for his own materials and provide his own liability insurance.

Mr Smith was supplied with a mobile phone by PP and mobile phone costs were deducted from payments to Mr Smith. Mr Smith was registered for VAT, submitted invoices to PP, claimed tax deductions for expenses and filed tax returns on the basis that he was self-employed.

There was no express right of substitution in the contractual documentation. However, the tribunal found as a fact that PP plumbers could swap assignments between themselves; but could not swap with a non-PP plumber.

Mr Smith was permitted to bring in external contractors for specialist jobs for which he, or other PP plumbers, did not have the necessary skills, provided that he obtained PP's consent to do so.

An employment tribunal decided that Mr Smith was not an employee but was a worker.  Mr Smith accepted the finding on his employment status; but PP pursued an appeal to the Employment Appeal Tribunal, and then to the Court of Appeal (CA), arguing that Mr Smith was not a worker but was a self-employed contractor.

The decision

In Pimlico Plumbers v Gary Smith, the CA dismissed the appeal and held that Mr Smith was a worker (albeit not an employee).

PP argued that, contrary to worker status, there was no element of 'personal service' in the arrangements between PP and Mr Smith.  However, the CA observed that the written contractual terms were clear: there was no unfettered right of substitution; PP required personal service. At most, the ability to swap assignments amongst other PP plumbers represented an informal concession – akin to employees swapping shifts. Moreover, a limited ability to provide a substitute is not usually inconsistent with an alleged requirement to provide personal service.

The CA provided a helpful review of relevant authorities on personal service (paragraphs 75 to 83) and highlighted the following principles.

  • An unfettered right to provide a substitute is inconsistent with an undertaking to provide services personally (in other words, this would point towards self-employed status).
  • A conditional right to provide a substitute may or may not be inconsistent with personal performance. It will depend on the degree to which the right is limited or occasional.
  • The degree of control exercised by PP (alongside the minimum hours required) was contrary to the notion that PP was a client or customer of a business run by Mr Smith. The court highlighted, in particular, that Mr Smith was subject to restrictive covenants.

The CA noted that the test for determining whether an individual is a worker or self-employed contractor does not involve any single touchstone; but relevant factors might include:

  • subordination (also referred to as control).
  • whether there were a number of discrete separate engagements
  • whether obligations continue during the breaks in work engagements (sometimes called an umbrella contract); and
  • the extent to which the individual is integrated into the putative employer's business.

What does this mean for me?

This case follows hot on the heels of several well publicised employment tribunal cases involving the question of employment status in the context of modern models of working, including cases against Uber, CitySprint and Deliveroo. It is, however, the first case in some time which has provided binding authority on the question of worker status.

That said, this decision does turn on its particular facts, which makes it difficult to draw from it general guidance. Nevertheless, it provides a timely reminder of the importance of the personal service requirement when considering worker status and sets out a helpful review of the other factors to take into account.

When considering how to structure your working models, it is important to consider whether – looked at it in the round – the arrangements in question (including contractual documentation and practicalities) would meet the criteria for 'worker' or 'self-employed contractor' as set out by the Court of Appeal. It follows from the Court of Appeal's summary of the principles that it is possible to shape your workforce documentation and working practices to maximise the prospect of successfully arguing that individuals are workers or self-employed contractors, depending on your requirements.

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Compliant in paying the National Minimum Wage?

More than 350 employers are facing penalties of over £800,000 for non-payment of the minimum wage, according to an HMRC announcement this month. How can you avoid being in the same boat? John Moore explains.

Current focus on wage compliance

In the week commencing 13 February 2017, HM Revenue & Customs (HMRC) 'named and shamed' more than 350 employers who had failed to pay the National Minimum Wage (NMW). As a result of those investigations the employers in question were issued with penalties in excess of £800,000 and the workers received back pay of just under a £1 million.

In the same week HMRC announced that Argos had been ordered to pay £2.4 million in back pay to its' workers and it had been fined nearly £1.4 million, reduced to £800,000 for early payment. In addition, Debenhams was fined £63,000 and made to pay nearly £135,000 to 12,000 workers.

Although the majority of the 350 employers mentioned above who were "named and shamed" were either in hairdressing, hospitality or retail, HMRC has, over the past few years, been directing its attention in particular towards care sector employers. HMRC has confirmed that these employers have been selected for investigation either because of allegations by workers of underpayment of NMW, or by third party intelligence or by risk profiling.

These recent developments are the latest manifestations of the government's self-proclaimed "crackdown" on minimum wage payments; shifting the focus away from new regulation and onto greater scrutiny and enforcement of employer's obligations.

NMW enforcement mechanisms 

To that end, HMRC have a duty to act as enforcement officers to ensure that employers, irrespective of their size, are meeting their obligations and paying their workers the NMW. The current standard adult NMW rate is £6.95 per hour, which will rise to £7.05 on 1 April 2017. Since April 2016, workers over the age of 25 have been entitled to the National Living Wage (NLW), which is currently set at £7.20 per hour and is set to rise to £7.50 per hour from 1 April 2017. Provisions around payment and enforcement of the NMW apply equally to the NLW. 

HMRC have civil and criminal enforcement powers, although criminal investigations are rare and only used for a small minority of employers that are persistently non-compliant or refuse to co-operate with compliance officers during investigations, or tamper with and / or destroy records.

Beware if HMRC come calling:  they do not need a reason to carry out an inspection and have wide ranging powers - they can 

  • inspect records, including individual contracts of employment for every worker
  • enter premises and carry out interviews with employers and workers
  • carry out telephone interviews
  • request details of the directors of a company
  • ask for details of hours worked by each worker and the pay received by them.

Compliance investigations usually take at least a year to complete and some may last much longer, depending on the number of employees and the amount of information to be gathered and analysed.

Calculating the National Minimum Wage

Although there is an obligation to pay the NMW, that doesn't mean that every hour worked has to be paid at the NMW rate, but that the average hourly rate over a pay reference period (usually a month) is at least the NMW.

In order to determine if a worker is receiving the NMW it will also be necessary to identify the type of work they are doing: is it

  • 'time work' where a worker is paid according to the amount of time spent working
  • 'salaried work' where a worker is paid a set amount to work a set number of hours per year
  • 'output work' where pay is determined by how productive a worker is, or
  • 'unmeasured work' being a general catch all for work that does not fall into the other three categories.

Travel time is an area that HMRC have paid particular attention to in their investigations and have looked to see how it is recorded, and if it is being recorded accurately. A large proportion of care sector workers undertake 'unmeasured work' and, generally, travel time (where for example a worker visits a number of different clients during the day) will be taken into account when calculating the hours worked. However, the journey from home to the first client, and the journey from the last client to home are excluded from the calculation of hours worked.

Also, in calculating whether or not NMW is being paid it is permissible to deduct the accommodation offset and any premium for indemnity insurance or for uniforms, but such deductions need to be made from the total gross pay, which will then allow the correct calculation of NMW. Any deductions similar to these cannot take the worker's pay below the NMW threshold.

Penalties and practical steps

Since 1 April 2016, the penalty for failing to pay the NMW has been a maximum of 200% of arrears, up to a cap of £20,000 per worker.

Some recently published excuses given to HMRC for not paying the NMW have been rather surprising and have included the following:

  • he wasn't a good worker so he didn't deserve the NMW
  • she only makes the tea and sweeps the floors
  • I only pay them when they are actually serving customers
  • he is still learning so he isn't entitled to the NMW.

Needless to say, HMRC have made it clear that there are no excuses for not paying the NMW – especially not the excuses listed above!  That said, there are flexibilities built into the NMW regime, such as allowing for accommodation off-set, and pay packages may be structured to maximise the types of payments that can lawfully be counted towards a worker's minimum wage.

Whilst ideally every worker's pay should be assessed on a regular basis to make sure their pay is compliant with the NMW, that is likely to be an unrealistic aim. A more achievable goal would be to carry out an assessment on different workers in different pay periods. If you find that there are more than a few workers who are close to the NMW level then it would be worthwhile carrying out the assessment again, perhaps more frequently, to ensure that you are NMW compliant.

If you suspect that you may have workers who are not receiving the NMW then we recommend that you focus upon them in the first instance, to identify any non-compliance and also put in place steps to rectify the position.

It will of course be critical to carrying out a successful assessment that you have accurate, comprehensive records that show the hours worked. Particular areas of risk will include, for example

  • the extent of any unpaid travel time,
  • unpaid time waiting between appointments
  • any unpaid training undertaken
  • deductions, if any, made from the workers' pay, such as payments for the cost of uniform, tools etc.

If you do discover that you are non-compliant then you should rectify it as soon as possible by paying back pay and making sure that all future pay is NMW compliant. This will help to protect you from future HMRC enforcement proceedings.

If the HMRC does start an NMW compliance investigation against you, we recommend that you co-operate as fully as possible. If they do find that you have been non-compliant then your co-operation may help in minimising any punitive action the HMRC may take subsequently.

Please contact us if you would like us to advise on:

  • carrying out a NMW self-assessment
  • reviewing contracts, including daily average agreements, and working practices
  • helping you navigate your way through an HMRC compliance investigation
  • "sense checking" and advising about your responses to HMRC requests for information
  • providing strategic advice
    • any advice from Bevan Brittan would, of course, benefit from protection under legal professional privilege and would not need to be disclosed in any HMRC investigation.

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Employment news round-up, February 2017

There's nothing 'fake' about our monthly workforce news. We report on the latest developments affecting employers, including imminent changes coming into effect for both private and public sector employers; changes to the ET fees regime and new publicity of proceedings against employers. We also cover a useful case on defeating subject access requests and the latest Brexit news.

Gender pay gap reporting – new guidance published

Remember that the 'snap-shot' dates for large employers' gender pay gap reports are fast approaching (31 March 2017 for public sector employers and 5 April 2017 for private sector employers).

In advance of the first 'snap shot' data gathering exercises, Acas has published new guidance, a factsheet and suggested wording for a notification to employees about the new reporting obligations. The new Acas documentation can be accessed here. Please click here for our briefing which explains the final version of the regulations, practical steps to take and how to deal with finding a gender pay gap.

IR35 / Off-payroll working in the public sector

HM Revenue and Customs (HMRC) has published a new landing page (available here), containing a summary of the new off-payroll taxation obligations for public sector bodies.  From 6 April 2017, responsibility for operating the off-payroll working rules, and deducting income tax, will move to the relevant public sector body, agency or other third party paying a worker's personal service company or intermediary.  This change applies to local authorities, universities, the NHS and other public sector bodies.

Steps to comply with this new taxation regime need to be taken now, if not already completed. Please click here for our full briefing on this topic, and details of how we can help.

A link to the new HMRC employment status service will be inserted into the guidance when the service becomes available – this was orginally timetabled for the end of February 2017 but we understand that it has now been delayed until March 2017.

Employment tribunal fees – changes afoot

The latest development in relation to the question of the impact of employment tribunal fees is that the long-awaited Ministry of Justice review into fees has now been published.  While the report finds that the reduction in employment tribunal claims is a positive development, it notes that the scale of the reduction is "troubling".  The overall conclusion is that there will be no reduction in the level of tribunal fees, but measures to lessen the impact of the charges will be considered. This will most likely involve an extension of the scheme to help low earners with the cost of fees.  Certain claims under the National Insurance Fund (where employers have become bankrupt) have been immediately exempted from fees.  The Ministry of Justice's review and consultation on changes to the scheme which provides help with fees can be found here.

Annual payment increases

National Minimum Wage

Increases to the National Minimum Wage and National Living Wage have been announced. With with effect from 1 April 2017 minimum hourly wage rates will be set as follows.

  • National living wage (workers aged 25 and over): £7.50.
  • Standard adult rate (workers aged between 21 and 24): £7.05.
  • Development rate (workers aged between 18 and 20): £5.60.
  • Young workers rate (workers aged under 18 but above the compulsory school age who are not apprentices): £4.05.
  • Apprentices: £3.50.

From 1 April 2017, the accommodation offset will be £6.40 each day.

Compensation limits and minimum awards

Compensation limits and minimum awards payable under employment legislation will increase from 6 April 2017 as follows.

  • The limit on compensation for unfair dismissal will increase from £78,962 to £80,541
  • The maximum level of a 'week’s pay' for the purposes of calculating (amongst other payments) statutory redundancy payments and the basic award for unfair dismissal, will increase from £479 to £489 per week.
  • The minimum unfair dismissal basic award for health and safety dismissals, acting as an employee representative, trade union, or occupational pension trustee reasons will increase from £5,853 to £5,970.

SAR searches must be 'reasonable and proportionate'

We are increasingly seeing savvy claimants and their advisors using Subject Access Requests (SARs) under the Data Protection Act 1998 as part of their litigation strategy. It is, therefore, encouraging to see that the High Court has refused to order compliance with a subject access request because a data controller's searches need only be reasonable and proportionate. It was not necessary for the corporate data controller to search its directors' private email accounts as there was no evidence they had been used for company business.  This is a useful decision which will be welcomed by data controllers and the full judgment is available here.

Balloting requirements & "important public services"

Regulations defining the "important public services", which are subject to the higher 40% ballot threshold will be in force from 1 March 2017. Please click here for an explanation of this new requirement, reported in the December 2016 edition of Employment Eye.  

Employment tribunal decisions now online

A new online and searchable database of employment tribunal decisions is now available and can be accessed here.  It is possible to search for decisions made in England, Wales and Scotland, either by using a search box or a drop down menu, including employment tribunal jurisdications, such as Part Time Workers or Unfair Dismissal.  Although employment tribunal decisions have always been a matter of public record, until now the only way to obtain a copy of a decision was to apply to the Bury St Edmunds Employment Tribunal and pay a fee. Now that all employment tribunals will be available for free on the internet, employers will need to be mindful of the increased exposure that may now come with an adverse finding.

The 'gig economy'

Issues around modern working practices, commonly referred to as the 'gig economy', are receiving a great deal of attention at the moment, with several high profile cases reaching the courts and tribunals (please see our report, 'manager vs technology platform' and this month's update on the Pimlico Plumbers case on worker status). The latest development is that Labour Frank Field MP, speaking at the Taylor Review into modern working practices has said Theresa May should implement a "“national standard of fair work in the gig economy”. According to Mr Field, the proposed national minimum standard (which would automatically extend to all workers in the gig economy) would prevent employment tribunals and HMRC from having to determine whether people are genuinely self-employed. Instead, under the regime, gig economy workers would be automatically entitled to rights such as an income equivalent to the national minimum wage after accounting for costs such as car insurance and at least four weeks' notice from an employer of an intention to change working patterns or withdraw work.

 

Brexit news

Impact of Brexit on recruitment – mixed poll results

Much like the polls prior to the EU Referendum, two recent polls on employer attitudes towards the labour market post-Brexit are divided.  According to research undertaken by the educational organisation, City and Guilds, 26% of respondent did not feel that Brexit would have a negative effect on their recruitment prospects and 42% felt it would have a positive effect on recruitment. However, 87% of respondents to the same research admitted that they have difficulty finding the right person for vacant positions.

In contrast, research undertaken by the Chartered Institute of Personnel and Development (CIPD) found that more than 25% of respondents believed that EU staff had considered leaving their jobs and possibly the UK since the result of the EU Referendum. The CIPD suggested that the loss of EU nationals working in the UK would have a significant impact on low-skilled sectors (retail, healthcare and manufacturing) due to these sectors hiring a large proportion of EU nationals.

House of Lords briefing and debate

Following the Supreme Court's ruling that the Prime Minister requires parliamentary approval to commence the process for the UK's withdrawal from the EU, the European Union (Notification of Withdrawal) Bill 2017 has passed in the House of Commons and is being considered by the House of Lords.  The House of Lords Library has published a briefing paper on the Bill, which

  • summarises the debates that took place on the Bill in the House of Commons
  • provides background on Brexit, including a summary of R (Miller) v Secretary of State for Exiting the European Union; and
  • discusses general topics, such as reaction to the Bill, devolution issues and timetabling.

 

Save the date – free training events

Our next series of Employment Law Updates will be taking place in the Spring, on the following dates at the following locations:

  • London: 24 May 2017
  • Leeds: 6 June 2017
  • Bristol: 7 June 2017
  • Birmingham: 8 June 2017

Further details of the topics will cover and how to book will be emailed shortly, so keep an eye on your in-box and book as soon as possible, as we expect places to fill fast.

 

Free sickness absence webinar

Our managing sickness absence webinar (with a focus on discrimination and practical problems), presented by Julian Hoskins for the Healthcare People Managers Association (HPMA), is now available online: please click here for access.