Work Matters - Employment Law News

May 01, 2008

Changes to the Law on Sex Discrimination

The scope for employees to bring harassment claims against employers has been widened by changes to the law which took effect from April 2008.

Amongst the most significant of the changes is an obligation on employers to protect their employees from harassment from third parties such as customers or clients. Employers will be liable for damages if they do not take reasonable steps to shield their employees from third party harassment when they are aware that the harassment has taken place on at least two other occasions. It is irrelevant for these purposes if the harassment is carried out by different third parties on each occasion.

The potential scope for claims has been further widened due to a change to the definition of harassment. Prior to the changes, sexual harassment occurred when, on the grounds of sex, a person engaged in unwanted conduct that had the purpose or effect of violating another person’s dignity or which created an intimidating, hostile, degrading, humiliating, or offensive environment. Under the new law, the words “on the grounds of sex” will be replaced by “related to his/her sex or that of another person”. This new definition means that even those who are not directly exposed to harassment will be protected and that for harassment to be unlawful it may relate either to the victim’s sex or that of someone else. In other words, any harassment which has a sexual connotation will be unlawful, even if not carried out because of the victim’s sex.

The rules governing maternity leave are also due to undergo an overhaul later this year that will remove the distinction between Ordinary Maternity Leave and Additional Maternity Leave. The change will bring Additional Maternity Leave rights into line with those enjoyed whilst on Ordinary Maternity Leave meaning that women who continue their maternity leave beyond six months will still be entitled to their contractual benefits (excluding salary).

Agency Workers to Have Equal Rights with Permanent Staff

The Government, the CBI and the TUC have reached agreement on how to promote fairer treatment for agency workers in the United Kingdom. Under the agreement, agency workers will be entitled to equal treatment with comparable permanent employees after twelve weeks in a given job. The obligation will not extend to the provision of pension.

The Government will now work with its European partners to seek to agree the terms of the Agency Workers Directive, which will enable this agreement to be brought into legal effect in the United Kingdom — this is intended to be during the next parliamentary session.

Increases to Statutory Sick, Maternity, Adoption and Paternity Pay

On 6 April 2008, SSP increased from £72.55 to £75.40 and statutory maternity, paternity and adoption pay increased from £112.75 to £117.18. Flexible Working – Right to Request to Extend to Working Parents of Under-16s Gordon Brown has confirmed that the right to request flexible working will be extended to parents of children under 16. As yet, there is no timetable for implementation. Potentially, however, this change could benefit 4.5 million employees. We recommend that employers review their guidance (and update their managers) at the earliest possible opportunity.

Are You a Large Shipbuilder?

As a result of changes outlined in the 2008 budget, any company which currently operates an Enterprise Management Investment scheme (“EMI”) should consider granting options in the coming weeks.

This is because, as soon as the Finance Bill 2008 is granted Royal Assent (which would usually occur in July), only companies with less than 250 “full-time equivalent” employees will be able to grant EMI options. In addition, shipbuilding, producing coal and/or producing steel will now be “excluded activities” for the purpose of EMI options. Therefore any company whose trade consists of those activities exclusively or to a substantial extent will no longer be able to operate an EMI scheme.

Headcount? If a company is part of a group, all fulltime employees (including directors) within the group will count towards the 250 limit on the number of employees a company can have if it is to be able to grant EMI options. Those on maternity or paternity leave can, however, be excluded. In addition, part-time employees will represent fractions of employees to the extent the company considers it “just and equitable” (although it is likely that the Employee Share and Securities Unit will publish guidance on this).

Since there are no anti-avoidance provisions in the legislation, it is arguably possible for a group to restructure to avoid the application of this limit. However, in all but the most exceptional circumstances, the costs involved in such an exercise are unlikely to make this option financially viable. As an alternative, if a company usually exceeds the limit, it could consider granting EMI options when its headcount is temporarily below 250 full-time equivalent employees (for example, because a large number of employees are on maternity leave). This is because the requirement need only be met at the time the options are granted.

Is it worth it? Since the loss of taper relief, the tax benefit of EMI options when compared, for example, with share options under a Company Share Option Scheme (CSOP) is negligible. That said, it is now possible to grant an individual employee up to £120,000 worth of EMI options (since the limit was increased in April) as opposed to £30,000 worth of CSOP options. In addition, since EMI schemes do not require prior approval by HMRC they are undoubtedly quicker and easier to set up than other HMRC “approved” schemes.

The Limits of Homophobia

As a result of the Employment Appeal Tribunal decision in English v Thomas Sanderson Blinds Ltd, if an employee’s colleagues constantly rib the employee for being gay, even though they know that employee is straight, the employee will not, as the law currently stands, be able to claim under the Employment Equality (Sexual Orientation) Regulations 2003 (the “Regulations”). This is because the Regulations only prohibit discrimination, victimisation and harassment based upon an individual’s actual or perceived sexual orientation (i.e., a mistaken belief that a person has a particular orientation) whether towards persons of the same sex, opposite sex, or both sexes. In the English case, the claimant was not, nor did any of the colleagues who subjected him to the treatment complained of believe him to be, homosexual nor did the claimant believe that his colleagues actually thought him to be gay. His colleagues did, however, subject him to “banter of a homophobic nature”, a course of conduct which was claimed to have originated from a manager who had become aware that the claimant lived in Brighton and had attended a boarding school.

In seeking the protection of the legislation, the claimant argued that his colleagues treated him in the way that they did because they perceived him as having stereotypical characteristics which they associated with a gay man. Consequently, he argued that the Regulations should apply since they extend to discrimination based on perception, association and instructions (as confirmed in the Explanatory Notes on the legislation produced by what was then the DTI). The EAT rejected this argument and held that the homophobic banter complained of was a “vehicle for teasing” the claimant rather than based on a perception or incorrect assumption that he was gay.

The EAT did, however, grant leave to appeal to the Court of Appeal since it was driven to conclude that the Regulations did not properly implement the European directive from which the protection on the basis of sexual orientation derives. In doing so, the EAT drew on the conclusions of Burton J in EOC v Secretary of State for Trade & Industry which concerned the United Kingdom’s implementation of the Equal Treatment Directive in relation to the Sex Discrimination Act 1975 (“SDA”). In summary, in both cases the Directives are concerned with behaviour “related to” an individual’s sex or sexual orientation. The United Kingdom’s construction, that the behaviour must be “on the grounds of” the protected character is arguably much narrower. As a result of the EOC case, the SDA has now been amended (as reported above). It seems likely that a similar change to the Regulations will not be far behind.

In any case, the English case should not be seen as excusing or legitimising banter, whether homophobic or related to one of the other characteristics protected by discrimination legislation, in any circumstances. Treatment of this sort may in any event constitute constructive (and unfair) dismissal and an employer's reaction to complaints about such behaviour may lead to claims based upon the whistleblowing legislation. Consequently, employers should adopt dignity at work policies to guide employees on what is considered inappropriate in the workplace and provide training on its policy at regular intervals.

Hefty Fines and Criminal Penalties – Immigration Checks Following a TUPE Transfer

The last edition of Work Matters highlighted the increased penalties for illegally employing foreign nationals. The maximum civil penalty for each illegal worker is now £10,000 and there is a new criminal offence for employers who knowingly employ illegal migrants — the penalty for which is a potentially unlimited fine or two-year prison sentence.

It is relatively straightforward for an employer to insist that prospective employees produce evidence of their entitlement to work in the UK — for example, by requiring employees to provide an EU passport or work permit on their first day of work. However, difficulties may arise following a relevant transfer (for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”)) — such as the sale of a business.

On a TUPE transfer, the new employer will generally inherit all rights, duties and liabilities in relation to the transferring employees. However, the Home Office Code of Practice confirms that a new employer will not inherit the benefit of immigration checks previously carried out by the old employer.

Instead, new employers have a 28-day grace period following a TUPE transfer in which to conduct the necessary immigration checks — else they themselves will face the substantial fines and potential criminal liability.

Reminder – Grievances during a Disciplinary Procedure

The statutory grievance procedures do not apply where an employee’s grievance relates to his/her dismissal or “relevant disciplinary action”. The only exceptions are where it is alleged that the employer’s actions constitute unlawful discrimination, or where the real reason for the employer’s action is unrelated to the explanation given to the employee.

However, “relevant disciplinary action” does not include warnings (whether written or oral) or periods of paid suspension. Accordingly, if an employee submits a written grievance about a disciplinary warning, his/her employer must then follow the statutory grievance procedure — and should (as the ACAS guidance recommends) consider suspending the disciplinary appeal process until the grievance has been addressed.

This update was authored by Charles Wynn-Evans (+44 20 7184 7545; charles.wynnevans@dechert.com), Nicholas Jackson (+44 20 7184 7512; nick.jackson@dechert.com), Emma Byford (+44 20 7184 7866; emma.byford@dechert.com), and Karen Ferries (+44 20 7184 7892; karen.ferries@dechert.com).

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