Employment Law e-alert December 2012

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1 Employment Law e-alert December 2012 Welcome Welcome to December s e-alert. Following on from last month s e-alert on the topic of constructive dismissal, this month s Q&A takes a look at the area of unfair dismissal. Q&A: Unfair Dismissal 1. What is unfair dismissal? The right not to be unfairly dismissed is a creation of statute. It is set out in the Employment Rights Act 1996 (Act). An employer who dismisses a qualifying employee will have unfairly dismissed that employee unless: The employer can show that it dismissed the employee for one of five potentially fair reasons that are set out in the Act; and The employer acted reasonably in relying upon that reason in order to justify the employee s dismissal (e.g. it followed a fair procedure). What equates to a fair procedure will vary, both according to the reason for dismissal and the individual circumstances of each case. 2. What is a fair reason for dismissal? In order to be a fair reason for dismissal, it must fall into one of the following five categories: Conduct Capability (this includes both poor performance and ill-health) Redundancy Where continued employment would be a breach of statutory duty or restriction Some other substantial reason (SOSR) An example of dismissal for a breach of statutory duty (or restriction) is where continued employment would be a breach of immigration rules. SOSR is a catch-all category where the reason for dismissal does not fall into one of the other categories. One of the most common SOSR dismissals is where there has been a breakdown in trust and confidence between the parties. Another is where the employer is reorganising its workforce, which may lead to dismissals, but those reorganisation dismissals do not fall under the statutory definition of a redundancy dismissal. 3. Once an employer has established a potentially fair reason for dismissal, how does an employment tribunal decide if an employer has acted reasonably (and therefore fairly) in dismissing the employee?

2 An employment tribunal has to consider whether, taking into account all the circumstances, a reasonable employer could have dismissed the employee for the reason it based its dismissal upon. Over the years case law has developed in order to formulate particular tests for different types of dismissal. For example, in relation to dismissals on grounds of an employee s misconduct, case law has established that in order for the dismissal to be fair, the tribunal will have to satisfy itself that at the time of making the decision to dismiss: the employer believed, and had reasonable grounds for believing, that the employee was guilty of the misconduct in question; and that before it formed its belief, it had carried out such investigation into the misconduct as was reasonable in the circumstances. The questions that a tribunal needs to ask itself in order to assess the reasonableness of other types of dismissal, such as poor performance and redundancy, are different. In addition, if dismissal was for poor performance or misconduct, an employment tribunal will also take into account whether or not the employer has complied with the requirements of the ACAS Code of Practice on Disciplinary and Grievance Procedures (ACAS Code) in determining the fairness of the dismissal. What a Tribunal should not do is to substitute what it would have done in the same situation. It should only consider whether the employer s decision to dismiss fell within the range of reasonable responses that an employer might have taken. 4. Can an employer use information that comes into its possession after the dismissal in order to justify the fairness of the dismissal? No. In determining whether or not a dismissal was fair, an employment tribunal can only take into account facts known to the person making the decision to dismiss at the time that they reached their decision. 5. Who can claim unfair dismissal? Unless the dismissal is for an automatically unfair reason (see below) an individual must satisfy the following eligibility criteria in order to bring a claim for unfair dismissal: They must be an employee; and If the employment commenced prior to 6 April 2012, he or she must have accrued at least one year s continuous service with the employer by the date that the employment terminated, or If the employment commenced on or after 6 April 2012, he or she must have accrued at least two years continuous service with the employer at the termination date. 6. What is automatically unfair dismissal? An automatically unfair dismissal is a dismissal for a reason that has been deemed by statute to be unfair, irrespective of how fair the dismissal procedure was that had been followed. Examples of reasons that would render a dismissal automatically unfair are dismissal on grounds of an employee s pregnancy or trade union activities, or dismissal in response to an employee blowing the whistle on the employer s unlawful activities. In contrast to ordinary unfair dismissal claims, employees do not generally have to satisfy any length of service criteria in order to bring a claim of automatically unfair dismissal.

3 7. Who has to prove what in the employment tribunal if an employee brings an unfair dismissal claim? An employment tribunal will deal with an ordinary unfair dismissal claim in the following way: Unless admitted by the employer, the employee first has to prove that they have been dismissed. This is usually only an issue for an employee in cases of constructive dismissal, where he or she must demonstrate that the employer acted in such a way that the employee was justified in treating himself or herself as constructively dismissed by the employer. Once the employee s dismissal has been established, the burden then shifts to the employer to show that it had one of the five potentially fair reasons for dismissing the employee (see above). If the employer is successful in identifying a potentially fair reason for the dismissal, it is then for the employment tribunal to consider if it was reasonable for the employer in all the circumstances to have dismissed the employee for that reason. In practical terms, this usually involves the employee setting out why it thinks the process was unreasonable and/or unfair and the employer responding with an explanation as to why its actions were fair. 8. If an employer has unfairly dismissed an employee, what penalties might it face? These are as follows: A Re-instatement Order this is subject to the agreement of the employee and requires the employer to re-instate the employee to their old job and to treat them as if they had never left in terms of pay and other terms, including the payment of back pay for the period that the employee has not been at work. A Re-engagement Order - this is again subject to the agreement of the employee and requires the employer (or its successor or an associated employer) to employ the employee in a role that is comparable to the one that they left, or is a suitable alternative one. It is ordered where re-instatement is not practicable. As with a reinstatement order, an employee will be entitled to back pay for the period between the date that the employment ended and the date that they start back at work. Basic Award - this award is calculated by reference to a statutory formula, which varies according to the employee s age, length of service and pay. It is the same formula as the one used for calculating statutory redundancy pay. Compensatory Award this award is for all financial losses suffered by the employee directly as a result of the unfair dismissal. It is primarily based upon an employee s loss of earnings for such period as the tribunal thinks appropriate, subject to the employee giving credit for any sums earned elsewhere; and subject to the employee mitigating his or her losses by seeking alternative employment and/or income. The compensatory award is in most cases limited to what is known as the statutory cap, which currently stands at 72,300. Re-instatement and re-engagement orders are rare (less than 1% of successful unfair dismissal awards), generally because the employee normally only wants to receive compensation and, even if ordered, the employer need not comply (although in those circumstances it will face paying what is referred to as an additional award over and above any Basic and Compensatory Award).

4 9. Is there anything that can reduce the amount of compensation that might otherwise be awarded to an employee who has been unfairly dismissed? There are a number of situations that can result in a reduction in the amount of compensation that might otherwise be awarded, as follows: Where it applies, an employee s unreasonable failure to follow the ACAS Code (e.g. a failure to attend disciplinary meetings or a failure to appeal). This can lead to an employment tribunal reducing the compensatory award by up to 25% (it is also worth noting that an employer s unreasonable failure to comply with the ACAS Code can result in an increase in the amount of compensation awarded of up to 25%). Where an employment tribunal concludes that an employee would have been fairly dismissed even if the employer had followed a fair procedure. This is known as a Polkey reduction after the name of the case from which the principle came. The reduction can be anything up to 100% of the compensation awarded. Where an employee is considered by the employment tribunal to have contributed to his or her own dismissal in some way. This is known as a reduction for contributory fault. Where an employee fails to mitigate their loss of earnings by making reasonable efforts to find another job or an alternative source of income. Tales from the Tribunal In this section, we bring you a summary of important practical points for employers arising from recently reported cases. Dismissal for redundancy judged to be fair despite lack of consultation A dismissal on grounds of redundancy, although a potentially fair reason for dismissal (see Q&A section on unfair dismissal above), will almost always be unfair if there has been no consultation with the employee. However, in the past, case law has recognised that there are cases, albeit rare, where consultation would have been futile so that the lack of consultation will not in itself render the dismissal unfair. In this case both the Employment Tribunal and the Employment Appeal Tribunal agreed that the commercial sensitivity and urgency of the employer s re-structure of its business that led to the employee s redundancy and which was necessary to secure the company s future, was such that it was reasonable for the employer not to have consulted the employee about its plans prior to the meeting in which his redundancy was confirmed. Comment: As there have been so few cases in which this issue has been decided in favour of the employer, employers should not feel that this case gives them the green light to skip consultation with a potentially redundant employee unless the commercial risk of doing so is sufficiently high as to warrant taking on the risk of an unfair dismissal claim (Ashby v JJ Sports plc). Employee dismissed on grounds of ill health that prevented him from participating in the employer s PHI scheme was not entitled to damages As a result of case law that had previously developed on the subject, it had generally been considered that where an employee was potentially entitled to benefits under a permanent health insurance (PHI) scheme operated by the employer, a term would be implied into that contract of employment to the effect that an employer would not dismiss such an

5 employee so as to deprive them of that benefit. This implied term overrode any express right in the contract to dismiss the employee for reasons of ill health. The only exception to this would be an employee who was dismissed for an unrelated reason, such as gross misconduct. This case concerned an employee whose employment was terminated on grounds of ill health before he could receive any payments under the employer s PHI scheme. However, the right to benefit under the permanent health insurance was not contained in the contract of employment and the contract included a statement that the only terms of the contract were those expressly set out in the contract itself, known as an entire agreement clause. The contract included a term that the employer could dismiss the employee on grounds of ill health. In these circumstances the court rejected the employee s claim for damages, which was based on the employer s alleged breach of an implied contractual term that it would not dismiss the employee on grounds of ill health in order to prevent him receiving PHI benefits. In rejecting the claim, the court noted that the circumstances of the case that had previously established the implied term referred to above, included the fact that the employer in that case had not intended the employee s dismissal to have the effect of depriving him of PHI benefits. This was not the case here. Comment: Given the financial exposure of this type of breach of contract claim for an employer (which is usually for the total amount that would have been payable to the employee under the PHI scheme), employers should remain wary if they wish to consider the termination of employment of an employee on grounds of ill health in circumstances where that might deprive the employee concerned of receiving benefits under a PHI scheme. (Lloyd v BCQ Ltd). News round up In this section, we bring you a summary of other employment related news. New flexible parental leave scheme and extended right to request flexible working to be introduced As part of its response to its Modern Workplaces consultation, the Government has now announced two important changes: First, the introduction of a new system of flexible parental leave. This will permit a woman who returns to work before the expiry of her maximum 52 week maternity leave period to elect that up to 50 weeks of any untaken maternity leave should instead be taken as flexible parental leave, to be shared between the mother and her partner as they see fit. The concern for employers will no doubt be the burden of how it is going to administer such a scheme. It is expected be introduced in Secondly, an extension of the current statutory right to request flexible working, from those with children under 17 (or under 18 if the child is disabled), to all employees. The 26 weeks continuous service requirement will remain as it is but the current statutory procedure under which flexible working requests must be dealt will be replaced with a duty on employers to deal with requests in a reasonable manner and within a reasonable period of time. It is unclear whether or not the current business grounds on which employers are permitted to refuse flexible working requests will remain. This right is expected to be extended to all employees from 2014.

6 This information is intended as a guide only and is correct at the time of publication. There may be subsequent changes in the law and we advise you that you seek professional legal advice on specific problems. Wilsons Solicitors LLP. Wilsons Solicitors LLP is a limited partnership registered in England, registered number OC and is authorised and regulated by the Solicitors' Regulation Authority under Registration number A list of members of the LLP is displayed at the address below together with a list of those nonmembers who are designated partners. Employment Team: Stephen Oxley, Head of Employment. Alexandra House, St Johns Street, Salisbury SP1 2SB Tel Fax

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