Welcome to the June 2018 edition of our employment law report: our monthly round-up of key employment law developments and what they mean for you.


Featured case

Passport to Pimlico

Ashley Norman looks at whether the employment status case of Pimlico Plumbers is this Summer's employment law blockbuster, or a box-office flop.

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Disability and sickness absence

Sarah Lamont on managing the sickness absence of disabled employees, in the light of a new ruling on disability discrimination and sickness absence warnings.

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News round-up

Employment news round-up, June 2018

Alastair Currie reports on this month's employment law news, including: dismissals short of 'gross' misconduct, immigration rules relaxed, details of the EU settlement scheme, sexual harassment in the wake of #MeToo, new facility time guidance and a new decision on NHS holiday pay. Plus, details of more pay reporting obligations on their way.

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 Pensions Quarterly

Pensions funding in industry-wide pension schemes – will deferred debt arrangements help?

We've written before about the unique challenges faced by employers in industry-wide pension arrangements that provide defined benefits (final salary-type). This includes a large number of not-for-profit companies and charities, writes Philip Woolham.

Read more



Ashley Norman looks at whether the employment status case of Pimlico Plumbers is this Summer's employment law blockbuster, or a box-office flop.

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 a range of 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
  • plumbers could swap assignments between themselves, but Mr Smith did not have an unfettered right to send a substitute to undertake his work. On a similar point, Mr Smith could engage an external contractor to undertake specialist work for which he did not have the correct skills, but he was required to obtain PP's consent before doing so.

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.

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), and finally the Supreme Court, arguing that Mr Smith was not a worker but was a self-employed contractor.

The decision

In Pimlico Plumbers v Gary Smith, the Supreme Court dismissed PP's appeal and held that Mr Smith was a worker, but was not an employee.  In reaching its conclusions, the Supreme Court made the following findings.

Personal service is key

The key question was whether Mr Smith's right to allow another PP plumber to undertake his work was inconsistent with an obligation of personal performance.

The Supreme Court's view was that right to send a 'substitute' was so limited that it was virtually meaningless – almost akin to workers swapping shifts amongst themselves. This was supported by PP's contractual terms, which contained repeated references which implied personal performance, such as "your skills" and "you will be competent to perform the work", plus there were several requirements relating to personal appearance.

Relationship is not one of 'client or customer'

Having made that finding on personal service, the next step was for the Supreme Court to consider whether the relationship between Mr Smith and PP was not one of 'client or customer'. Unusually, this test requires a court or tribunal to consider a relationship in the negative.

The Supreme Court approved the approach taken by the Court of Appeal on this point: that the evidence pointed away from Mr Smith being a truly independent contractor. Although Mr Smith was able to exercise some flexibility over how much work he undertook for PP and there was little supervision of his work by PP, he was also subject to tight controls and the overall picture did not look like that of a truly independent contractor, in business on his own account.

What does this mean for me?

Although this decision has grabbed the headlines this month, it does not represent a significant change to the legal landscape and its general application is limited, given that it is tied to its own specific facts.

It is, however, helpful that the Supreme Court has endorsed the two stage approach set out above. The decision also confirms that it is the reality of the working relationship which should be examined in employment status cases; not the 'contractual choreography' (as the Supreme Court put it). The logical extension of that approach is that you must ensure that the practical reality of your workforce arrangements echo the structure you aim to achieve contractually; otherwise, you may find that an employment tribunal will impose its own categorisation – as we seen most recently in this week's employment tribunal decision that Hermes workers had been wrongly categorised as self-employed when they were, in fact, workers.

It will be interesting to see how the question of employment status evolves in the coming months, as we await the outcome of the government's consultation on employment status and the Uber appeal due to be heard on 30 October 2018. The recent employment tribunal and employment appeal decisions on employment status will doubtless feed into the government's views on reform of this area.

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Sarah Lamont on managing the sickness absence of disabled employees, in the light of a new ruling on disability discrimination and sickness absence warnings.

Managing sickness absence of disabled employees – the legal risks

A range of legal risks come into play when considering the management of the sickness absence of disabled employees.

Unfair dismissal

This could relate to both an

  • actual dismissal (if the employer takes the decision to go ahead a dismiss an employee for their levels of absence); or
  • constructive dismissal (if the employee resigns in response to the conduct of the employer while implementing a sickness absence procedure).

It is important to remember that the risk of constructive dismissal will apply during the whole absence management process. So, whilst it would not normally be unfair to manage a disabled employee's attendance as part of a procedure, it is important not to unduly criticise or embarrass the employee.

Disability discrimination

The most likely areas of discrimination risk in the context of sickness absence are:

  • indirect disability discrimination
  • discrimination 'arising from' disability; and
  • the duty to make reasonable adjustments to working arrangements which put disabled employees at a disadvantage when compared to others.

If there is a finding of indirect discrimination or discrimination arising from disability, a justification defence is available to the employer.

Direct disability discrimination is unlikely to be relevant to sickness absence management, but if this does occur, then there is no justification defence available.

A failure to make reasonable adjustments cannot be 'justified', as such, but the employer will, by definition, only be required to take 'reasonable' steps.

Relevance of the Acas Code

The Acas Code of Practice on Disciplinary and Grievance Procedures does not usually apply to dismissals for sickness absence. However, this Code may apply if there is a suspicion that the employee may be dishonestly claiming to be unwell.

Practical management

What practical steps can you take in order to minimise the risk of the claims above from arising?

The employee in question should be made of aware of your absence management policy, including any attendance triggers and expectations. A clear written policy will underpin your approach, and is key to establishing consistency and fair management. That said, remember that the duty to make reasonable adjustments encompasses policies and procedures, as well as physical premises, so be ready to be flexible on your policy if necessary. If you are sticking to the letter of the policy, be prepared to justify that decision. At all stages, the employee should be consulted and their views sought on their health and sickness absence.

When embarking on an absence management process, medical advice and an occupational health report should be sought as early as possible, and reviewed and updated as necessary. Once a report has been provided, it is important to read the report critically, as there is no assumption that an employer should take an occupational health report at face value. It may be that further questions need to be asked, in order to ascertain the full picture in relation to an employee's prognosis and any adjustments which may be required.

Once a process is concluding, it is important not rush towards a decision on dismissal or disciplinary action, and consider other options, such as:

  • retraining and/or further support
  • redeployment
  • eligibility for ill-health retirement.

The importance of pausing to consider the justification for your actions was illustrated very clearly this month, in an Employment Appeal Tribunal (EAT) decision called DL Insurance Services Limited v O'Connor. In this case, the employer was found liable for unjustified discrimination arising from disability after it issued a disciplinary warning to a disabled employee for sixty days of disability related absence. Although the EAT acknowledged that the employer had treated Mrs O'Connor with sympathy and sensitivity – putting in place adjustments to accommodate Mrs O'Connor's disability and extending the absence policy so that Mrs O'Connor was granted a much longer period of sickness absence than was strictly allowed – the decision to issue a sickness absence warning was not justified: the employer failed to show how issuing the written warning would achieve their stated aim of improving Mrs O'Connor's attendance, as Mrs O'Connor was genuinely ill and could not have avoided her absences. The employer's position was further undermined by a failure to refer to occupational health or provide any other medical evidence to support their decision.

Key points

Drawing all of this together, whilst it is possibly to actively manage a disabled employee's sickness absence, you must tread carefully and consider the following key points.

  • Engage in proactive management, in consultation with the employee in question.
  • Involve Occupational Health and actively engage with their report – is further information required?
  • Consider reasonable adjustments and alternative roles.
  • Evidence your decision making process with a clear paper trail.
  • Disciplinary action must be clearly and objectively justified, as a proportionate means of achieving a legitimate aim.
  • Dismissal should be an option of last resort and, again, must be clearly and objectively justified.

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Alastair Currie reports on this month's employment law news, including: dismissals short of 'gross' misconduct, immigration rules relaxed, details of the EU settlement scheme, sexual harassment in the wake of #MeToo, new facility time guidance and a new decision on NHS holiday pay. Plus, details of more pay reporting obligations on their way.

Dismissal for conduct short of 'gross misconduct'

Is it possible to fairly dismiss an employee, without warning, for 'serious' misconduct, notwithstanding that the conduct in question stopped short of 'gross' misconduct? Yes, said the Employment Appeal Tribunal (EAT), in a case called Quintiles Commercial UK Limited v Barongo. A dismissal is capable of being "fair", as defined in the Employment Rights Act 1996, if it is for a reason relating to the employee's conduct, under section 98(2). There is no reference to "gross misconduct" in that section.

In this case, the claimant was found to have committed two acts of misconduct, which were characterised by the employer as 'serious' and, as a result, he was dismissed. An employment tribunal found that the dismissal was unfair because the claimant's misconduct was 'serious' rather than 'gross', so warnings should have been imposed rather than dismissal. However, on appeal, the Employment Appeal Tribunal (EAT) said that this approach was incorrect; a dismissal is not automatically unfair if the misconduct in question is less than gross misconduct. It does not automatically follow that the correct sanction is a warning, rather than dismissal. The EAT sent this case back to the employment tribunal to consider whether the claimant's dismissal was, in fact, fair when the correct test was applied.

Immigration rules relaxed for doctors and nurses

With effect from 6 July 2018, all doctor and nurse posts will be exempt from the Tier 2 visa cap, so that, from that date, there will be no limit on recruitment numbers of non-EU doctors and nurses. Currently, there is a limit of 20,700.

Note, however, that this change is not retrospective. Therefore, it will be necessary to apply, or re-apply, for restricted certificates from July.

The resident labour market test, and Tier 2 immigration requirements, will continue to apply after the cap has been lifted.

EU citizens - settlement scheme announced

The government has published a 'statement of intent', setting out details of how EU citizens and their families will be able to apply for settled status in the UK under the new EU Settlement Scheme. The scheme will be introduced initially in late 2018, and will be fully implemented by 30 March 2019.

In outline, the scheme confirms that applicants will need to

  1. confirm their identity
  2. demonstrate that they live in the UK
  3. declare that they have no serious criminal convictions.

The cost of applying under the scheme will be £65 (£32.50 for children under 16), but there will be no charge for applicants who have permanent residence documentation. EU citizens who have not yet lived in the UK for five years will be able to apply for pre-settled status and will then be eligible to apply for settled status once they reach the five-year point.

The government will consult on the draft Immigration Rules implementing this scheme, before the arrangements are placed before Parliament for approval.

Sexual harassment at work – latest figures

According to press reports, a study published this month shows that over a third of women have been subjected to sexual harassment at work. The study was undertaken by a union, Prospect, and found that

  • 35% of women had experienced some form of sexual harassment
  • 27% of women had received comments of a sexual nature; and
  • 25% of women reported said that they had experienced unwelcome comments about their appearance.

Some of those surveyed said that they felt unable to report their concerns, because they felt intimidated.

These findings highlight the importance of ensuring that you put in place an actively implemented equalities policy, supported by equalities training for all your staff. This will reduce the risk of sexual harassment / discrimination claims from arising, and will assist with establishing a statutory defence (that you took reasonable steps to prevent harassment or discrimination from occurring) if employment tribunal proceedings are brought against you. In the light of the current high profile of sexual harassment at work – ranging from Hollywood to Westminster – prudent employers will be reviewing their equalities documentation and training, to ensure that the statutory defence is available if a claim is brought. Bevan Brittan offers practical, focussed and cost effective training on equalities and sexual harassment, which can be rolled out across your workforce – please contact Julian Hoskins for further information.

Fire Brigade's 'Close Proximity Crewing' falls foul of Working Time Regulations

In R (The Fire Brigades Union) v South Yorkshire Fire and Rescue Authority), a trade union successfully applied for judicial review of a 'Close Proximity Crewing' (CPC) shift pattern. This working pattern involved firefighters undertaking a four day working week, consisting of 96 hours of continuous duty, including night shifts. The Fire Brigades Union argued that this breached the fire-fighters' right to rest breaks under the Working Time Regulations 1998, and the High Court agreed. It noted that the fire authority had implemented the CPC shift pattern in an effort to make costs savings, but it was contrary to the health and safety objectives of the legal restrictions on working time. Although the fire-fighters might be asleep, or relaxing at the fire station for some of the night shifts, this still counted as 'working time'. The CPC shift system was, therefore, operating unlawfully. The High Court noted that this system had been implemented in response to severe budget restrictions, and that it was popular with some firefighters, and there had been no health and safety incidents as a result of the system; this did not, however, alter the fact that the CPC shifts were inconsistent with the Working Time Regulations 1998.

More transparency reporting on its way

The government has announced that it has plans to extend pay reporting requirements further, so that listed companies with more than 250 employees will be required to publish – and explain – their pay ratios between their Chief Executive Officers and their staff. Companies covered by the regulations will also have to provide a statement on employee engagement, explaining how they encourage staff involvement, how they provide information to staff and what regard the company has had to employee interests.

Draft regulations have been published and will be subject to parliamentary approval, so some of the detail around the requirements may change. However, it is expected that the main aspects of the new requirements will remain unchanged and will be in force by January 2019.

New guidance on facility time reporting in the public sector

The government has published guidance on the new requirement for certain public sector employers to collect and report on paid facility time provided to relevant union officials for union duties and activities. The guidance is available here. Employers must publish the relevant data for the period 1 April 2017 - 31 March 2018 by 31 July 2018.

New guidance on suspension

Acas has produced new guidance on suspension, which reminds employers of key considerations to bear in mind when considering and implementing a suspension, whether for disciplinary reasons or for health and safety reasons related to maternity.

Agenda for Change and holiday pay

We understand (via Sean Jones QC) that the Employment Appeal Tribunal has published its decision in an appeal against a case called Flowers v the East of England Ambulance Trust, concerning the question of voluntary overtime and statutory holiday. The key point for NHS employers is that the decision confirms that clause 13.9 of Agenda for Change provides a contractual right for employees to have overtime pay included in their holiday pay, whether or not it is 'normally received'.

The original decision of the employment tribunal is here but the full transcript of the Employment Appeal Tribunal's decision is awaited.

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We've written before about the unique challenges faced by employers in industry-wide pension arrangements that provide defined benefits (final salary-type). This includes a large number of not-for-profit companies and charities, writes Philip Woolham.

What is the problem?

In many cases employers wanted to provide the best possible pension arrangements for their staff, in particular if they cannot normally provide pay that compares with the best of the private sector. Otherwise, employers have often used these arrangements to provide 'broadly comparable' pension benefits for former public sector staff who they have taken on via outsourcing.

Providing these defined benefits is always expensive. Funding benefits comparable with the public sector, while subject to private sector pension scheme costs and obligations, can be prohibitive. Just the cost of making ongoing contributions, including any deficit reduction payments that are intended to make good historic underfunded pension promises, is bad enough.

But the real worry for many employers is what happens when they exit the pension scheme. This can be because a contract to provide outsourced services has come to an end. Or the last employee that has transferred from the public sector has left, so the employer's membership of the fund is now closed. Or the ongoing costs are simply proving too expensive, and taking too much of the funds the employer wants to spend on its work.

In these cases, the concern is the exit debt set out in section 75 of the Pensions Act 1995 (it has been modified and increased many times since 1995). In the case of industry-wide pension schemes, this debt is triggered when each employer either:

  • leaves the scheme, or
  • no longer has any active members (i.e. employees still building up benefits).

The debt is triggered even though the wider scheme still has plenty of employers and employees actively contributing. The individual employer's section is treated as a distinct fund for these purposes.

At this point, a 'deficit', i.e. a measure of underfunding, becomes an actual debt, due to the pension scheme as soon as it is finally calculated. The debt is calculated on the basis of how much the open market would charge to pay any the promised benefits which are not already fully funded.

This can be an extremely large amount. In some cases, the costs are so prohibitive that it is stopping employers from ending their participation, despite the ongoing costs.

What does the Deferred Deficit Arrangement offer?

For some employers in pension scheme where they are connected to the other employers, perhaps as part of a group, there have for several years been ways to avoid the exit debt being triggered, or minimising it. Often this has involved 'apportioning' the debt to another employer in the group, so that when it exits, there is no debt to pay.

But this has not been available to employers in industry-wide schemes. Apart from operating in the same area of business, the other employers in the scheme aren't connected in any way. So there is no-one to apportion debts to, and so the employer must pay the debt itself.

Sometimes the pension schemes may allow an exiting employer to pay off its exit debt in instalments, but this is at the scheme's discretion and it may require security in order to cover its own exposure.

For many employers, the only options have been to bite the bullet and pay the exit debt, or remain active in the scheme despite the ongoing costs, which often mean that any future exit will in any case be even more costly.

For some time, the government has been looking at ways to help employers in this position, stuck in industry-wide multi-employer pension schemes. In April this year, the Deferred Debt Arrangement ('DDA') was launched, specifically targeted at employers in this position.

Effectively, the DDA allows an employer to exit a pension scheme without immediately paying an exit debt. In some cases, it will never have to pay it at all.

Although the employer will have no more active members in the scheme, still building up benefits, it is treated as if it still has them. The pension scheme must notify the Pensions Regulator that it is entering into a DDA.

The employer still has obligations to the pension scheme – it will in particular still be expected to make contributions designed to pay down the existing deficit, even though it will not have to pay any ongoing contributions in respect of its active members. So the cost burden is reduced immediately. And the aim is that over time these deficit contribution payments will reduce the deficit to zero. If so, the employer can then terminate the DDA with the trustees' agreement and exit the pension scheme in the normal way (it can in fact do this at any time and pay any remaining exit debt at that point).

If the employer is restructured, or it winds up, then the DDA will end and the exit debt will become payable. The same will happen if the pension scheme itself winds up. So the employer is not off the hook. The DDA rather provides a level of breathing space for an employer.

Will it work?

There is again no obligation on the pension scheme to agree to a DDA, or even to end one. We will wait and see how often they are actually used. After all, it is usually better for a pension scheme to receive payment of an exit debt immediately, so that it can invest the money, rather than defer it for the benefit of the employer.

We suspect that DDAs will be useful when it is clear to both pension scheme and employer that the employer cannot sensibly continue as an active employer in the scheme, and equally cannot easily pay the exit debt.

If you would like to discuss any of these topics, or any other aspect of Employment Law, please contact Head of Employment, Jodie Sinclair.

This article may contain information of general interest about current legal issues, but does not give legal advice.

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