Category Archives: Employees

Hard Work Needn’t Be It’s Own Reward!

GulliverImageThis is an article designed to ensure that all the hard work applied to building your business does not exit with your departing employees!

Even with the most effective engagement strategy, employers will not please all of the people all of the time. For this reason, it is paramount for employers to have strategies in place to protect their business if key employees leave.

There are many ways in which an employer may protect its business, and choosing the most appropriate (which is likely to be a combination of the areas below) will depend on the type of work that is carried out and the industry sector in which the employer operates. Post-termination restrictions and confidentiality clauses are commonly used, but employers should also consider the potential impact on their business of the use of social media including LinkedIn and Facebook.

POST TERMINATION RESTRICTIONS

Post termination restrictions, also known as restrictive covenants, should do what their name indicates; restrict employees’ activities after their employment has ended. Usually, these restrictions are contained in Contracts of Employment and fall into three categories:

  • Non-Solicitation of employees/clients: this essentially means that the employee is agreeing not to contact the employer’s clients (or possibly potential clients) to obtain business from them and/or agreeing not to poach their former colleagues;

  • Non-Dealing: this means that the employee is agreeing not to do business with clients (or possibly potential clients); and

  • Non-Competition: this is the most difficult type to enforce because of its restrictive nature, but in essence means that the employee is agreeing not to work in competition with the employer.

The key point to remember with post-termination restrictions is that there is a general rule that they cannot be enforced because they are contrary to public policy as an unlawful restraint of trade, unless the employer can show that:

  • it has a legitimate interest that it is appropriate to protect (for example, trade connections or confidential information); and

  • the protection sought is no more than is reasonable.

The public policy rule means that it is very important that post-termination restrictions are carefully drafted. To ensure there are strong prospects of enforcement, consideration will need to be given to (amongst many other factors):

  • the seniority of the employee;

  • the length of time the restrictions last for after termination;

  • what is meant by “clients”; and

  • whether there is any limit in terms of location.

Employers should also pull together as much information as possible about the job that the employee carries out and where they fit in the structure of the business to obtain the most accurate advice on suitable post-termination restrictions.

Thought should also be given to garden leave clauses, which can be very effective; such clauses have the effect of taking the employee out of the “marketplace” during their notice period.

CONFIDENTIALITY CLAUSES

Often employers consider information and knowledge to be fundamental to their business and even well-drafted post-termination restrictions will not sufficiently protect this. Such information and knowledge could include a secret recipe or formula, a list of key business contacts and customers, or specialised IT systems and data which, if disclosed to a competitor or to the general public, could cause damage to their business.

Although “trade secrets” can be protected without having a particular clause in the Contract of Employment, most information, although vital to an employer, will not be considered a “trade secret.” For this reason, confidentiality clauses are commonly included in Contracts of Employment.

Advantages of confidentiality clauses include:

  • they are more likely to be enforceable than restrictive covenants; and

  • they can last much longer than post-termination restrictions.

A good confidentiality clause will protect the business both during and after termination of the employee’s employment, and should set out what type of information is considered to be confidential.

We advise that a confidentiality clause is included in all Contracts of Employment, Service Agreements and Consultancy Agreements.

DATABASE RIGHTS AND SOCIAL MEDIA

Although a confidentiality clause might include reference to databases being confidential, increasingly often we see problems when a dismissed employee seeks to use a database of contacts that he or she has built for the purposes of their work, using social media tools such as LinkedIn or Facebook.

In the information society, databases are simply modern forms of property. A database is often such a valuable asset that businesses are increasingly looking to exploit them in their own right. Many employees will be engaged in producing databases, whether as their main role, or in adding contacts for the purposes of developing the business.

The general rule is that the employer is the owner of the database if an employee has created a database during the course of his or her employment, but this is a developing area of the law when linked to social media. If an employee has used social media to create a database, it will depend on the circumstances as to whether the employee or the employer is considered to be the owner of the database and what the employee can do in relation to contacts made. For this reason, we recommend:

  • setting out rules about the use of networking accounts and how contacts should be recorded and used. This could be by way of a social media policy and/or in the Contract of Employment; and

  • including a clause setting out details of intellectual property rights in the Contract of Employment.

ACT NOW

In summary, to protect their business, employers should:

  1. Get existing Contracts of Employment, Director Service Agreements and Consultancy Agreements reviewed;

  2. Obtain advice on specialist drafting of post-termination restrictions, garden leave, intellectual property and confidentiality clauses; and

  3. Put in place a social media policy and/or contract clause including relating to how contacts made through LinkedIn and Facebook are treated at the end of employment.

Please contact us if you have any queries about how to protect your business, or indeed if you want to find out if you can take advantage of a competitor’s failure to sufficiently protect its business when you want to hire its employees!

Sports Direct: Use of Zero Hours Contracts – A Business Model With Exploitation at its Heart? (Part 2)

11578822 - 3d human charcter holding green zero, 3d render, isolated on whiteSUMMARY: The Sports Direct founder Mike Ashley faced the Business Innovation and Skills (“BIS”) Select Committee on 7 June 2016 for an evidence session into the working practices adopted by Sports Direct. A month later, it was widely reported that Sports Direct’s profits had been hit. Mr Ashley’s fortunes have not improved as, at the beginning of this month, it was announced that shareholders will be asked to vote on whether there should be an independent workplace review; and this week it was reported that Sports Direct is to pay £1million to its workers for breaches of the minimum wage legislation.

But how did it come to this?

To recap, Mr Ashley received intense criticism stemming from the Guardian Newspaper’s investigation at the end of 2015, which uncovered allegations that his Company:

1. Failed to pay its workers the minimum wage;

2. Engaged a significant proportion of staff via zero hours contracts and short term hours agency worker agreements;

3. Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and

4. Conducted daily physical security searches of employees.

In the first article of a two part series, we deal with the allegation concerning a breach of national minimum wage legislation; the first article can be accessed here.

In this second article, we explore the allegation that Sports Direct sought to increase its profit margins by engaging workers on zero hours contracts and short term hours agency agreements in order to avoid many of the legal obligations of employing staff. We also review the legal considerations that your business should take into account when using either zero hours contracts or being supplied with temporary workers via an agency.

THE ALLEGATIONS

Reports revealed that nearly 80% of Sports Direct’s workers are not employees but, instead, workers engaged via zero hours contracts or short term hours agency worker agreements. During the Select Committee’s evidence session on 7 June 2016, Steven Turner, the Assistant General Secretary of the Unite Union, remarked that this practice has created a “business model that has exploitation at its heart.”

In May 2015 the Government banned exclusivity clauses in zero hours contracts; clauses that prohibit a worker from taking up work under another contract, or which require the worker to get the company’s consent beforehand can no longer be included.

However, alternative work arrangements, specifically the arrangements adopted by Transline and the Best Connection Group, who supply Sports Direct with agency workers, could be placing workers in a worse position compared to if they had been engaged via a zero hours contract post the May 2015 change.

The reason behind this claim is that the Transline and the Best Connection Group do not have an obligation to offer these agency workers any work over and above a minimum of 336 hours over a 12 month period.

However, the agency workers must accept any suitable assignment offered to them unless there is “just cause,” and if assignments are not accepted, it is likely that the worker will not be offered another.

In addition, the workers are effectively forbidden for looking for additional hours elsewhere; workers who have done so have not been offered any further assignments – this is effectively an exclusivity clause in disguise.

WHAT IS A ZERO HOURS CONTRACT?

Zero hours contracts are contracts between a company and a worker and/or an employee, which specifies that the company is not obliged to provide the worker or employee with any minimum working hours, and that the company only pays for work undertaken. Similarly, the worker or employee is not obliged to accept any of the hours offered to them.

CAN ZERO HOURS CONTRACTS STILL BE USED?

Yes, zero hours contracts can still be used by companies.

The change in the law in May 2015 did not ban companies using zero hours contracts completely, instead it prohibits zero hours contracts containing exclusivity clauses.

WHY WOULD A COMPANY USE A ZERO HOURS CONTRACT & WHEN IS IT APPROPRIATE TO DO SO?

The key benefits of a zero hours contract are that a company using these contracts:

  • does not have to guarantee a minimum amount of work, and
  • only pays for work undertaken.

This is useful if your company is a start-up business and you are unsure of your people requirements. Alternatively, zero hours contracts may be useful if a company wishes to engage staff for seasonal work, or to cover absence and holidays.

The other benefit to companies is that the relationship between the company and the worker does not have to be one of employment. However, the worker will still benefit from the right to receive the National Minimum Wage, paid annual leave, rest breaks and will be protected from discrimination.

WHAT SHOULD THE BUSINESS CONSIDER WHEN ENGAGING AGENCY WORKERS?

If like Sports Direct, your company is supplied with workers via an external agency, you should be very clear as to the employment status of these workers because this will affect their rights.

Usually, the arrangement dictates that workers supplied by an agency are classed as workers of the end user client and not as their employees.

From day 1, agency workers are entitled to access to collective facilities (such as canteen facilities, child care facilities and transport facilities) and access to information about employment vacancies. Agency workers are also entitled to take rest breaks, receive the National Minimum Wage, receive Statutory Sick Pay (if they satisfy the relevant qualifying conditions set out in the legislation), take paid annual leave and benefit from protection against discrimination.

Following 12 weeks with the Company, agency workers are entitled to receive the same pay and other basic working conditions as equivalent permanent staff; this can include the auto enrolment pension obligations.

This is a relationship which often gives rise to uncertainty of employment status and, consequently, there are many reported cases on this very issue. Companies are therefore advised to ensure that, when engaging agency workers, they have in place the appropriate documentation with both the agency supplying the worker and the agency worker.

COMMENT:

Exclusivity clauses in zero hours contracts, which could exploit the most vulnerable of workers, are now unenforceable. However, this protection does not address the real issue for zero hours workers, which is the practice of ceasing to use workers who have turned down an assignment because they have accepted an alternative assignment and are unavailable.

In addition, as is evident from the Sports Direct review, Companies are now taking advantage of other working models such as the arrangements adopted by Transline and the Best Connection Group; although these arrangements are not prohibited by law, they raise questions of morality.

Only time will tell if the ongoing review by the BIS Select Committee will result in recommendations for change. In the meantime, we would recommend carrying out a review of the arrangement that your Company adopts for the supply of its staff to ensure that any legal obligations are being met.

CONTACT DETAILS:

If you would like more information on this topic or would like to discuss a specific concern in relation to your business, please contact us:

Call: +44 (0) 808 172 93 22     Email: fgmedia@fgsolicitors.co.uk

This update is for general guidance only and does not constitute definitive legal advice.

Sports Direct: Failure to Pay National Minimum Wage – A Business Model With Exploitation at its Heart? (Part 1)

14184143 - green grass  uk pound symbol against blue skySUMMARY:  The Sports Direct founder, Mike Ashley, faced the Business Innovation and Skills (“BIS”) Select Committee on 7 June 2016 for an evidence session into the working practices adopted by Sports Direct.  A month later, it was widely reported that Sports Direct’s profits had been hit.  Mr Ashley’s fortunes have not improved as this month it has been announced that shareholders will be asked to vote on whether there should be an independent workplace review – we will have to wait until September to see how this latest chapter unfolds.

But how did it come to this?

To recap, Mr Ashley received intense criticism stemming from the Guardian Newspaper’s investigation at the end of 2015, which uncovered allegations that his Company:

  1. Failed to pay its workers the minimum wage;
  2. Engaged a significant proportion of staff via zero hours contracts and short term hours agency worker agreements;
  3. Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and
  4. Conducted daily physical security searches of employees.

On the back of the ever increasing publicity of how some high profile companies treat their employees, we have produced a two part series to enable you to assess whether your company is inadvertently making the same mistakes as those reportedly made by Sports Direct.  The first in this series explores the allegation that Sports Direct failed to pay its workers the minimum wage and sets out the law behind this complex issue.

___________________________________________________________________________

THE ALLEGATIONS:

HM Revenue and Customs (“HMRC”) are currently investigating allegations that Sports Direct paid its workers less than the National Minimum Wage (“NMW”) effectively saving the Company millions of pounds per year.

The underpayment allegedly arose as a result of workers being forced to undergo compulsory rigorous security checks at the end of their shifts as a theft prevention measure, adding as much as 15 minutes onto their working day (or up to one hour and fifteen minutes to their working week), which is unpaid.

In addition, it is also alleged that workers faced a 15 minute deduction from their pay for “clocking on” 1 minute after their designated start time, even if they actually arrived on site on time.

WERE THE SPORTS DIRECT STAFF WHO WEREN’T EMPLOYEES ENTITLED TO NMW?

All employers are obliged to pay the NMW regardless of their size, and the NMW applies to all “workers” ordinarily working in the UK who are over compulsory school leaving age, not just employees.  This includes agency workers and apprentices.

WHAT ARE THE CURRENT NMW RATES?

From 1 April 2016, there are now 5 rates of NMW:

CATEGORY   RATE (£)
National Living Wage Workers aged 25+

7.20

Standard Adult Rate Workers aged 21-24 (inclusive)

6.70

Development Rate Workers aged 18-20 (inclusive)

5.30

Young Workers Rate Workers aged under 18 but above the compulsory school age

3.87

Apprentice Rate Apprentices either:

  1. Under the age of 19; or
  2. Aged 19 or over, but in the first year of their apprenticeship

3.30

HOW DO I DETERMINE IF MY COMPANY IS PAYING THE NMW?

In order to determine whether the NMW is being paid to your workers, you will need to determine their average hourly rate of pay.

On the face of it this calculation seems quite a simple one – sadly, this is not so. The average rate of pay is calculated by dividing the total amount of “money payments” that a worker earns across the relevant reference period, by the number of hours the worker has worked during that same reference period. However, what amounts to a “money payment” frequently trips up the uninitiated – see below.

The number of hours worked (known as “working time”) can also prove a tricky area for companies and one which has given rise to a raft of case law on its own. This is dealt with below.

Turning then to the relevant reference period, this is usually one month and cannot be greater than one month. However, if the worker is paid weekly or daily, then this is their reference period.

What Money Payments Should Be Considered?

Companies must exercise caution as some payments cannot be included as “money payments” for NMW purposes:

EXAMPLES OF INCLUDED PAYMENTS Basic salary
Bonus**An annual bonus paid for example in December, will usually only count for the December reference period
Commission/Incentive Payments Based on Performance
Accommodation Allowances
Allowances Paid by HMRC Dispensation Agreements
 

EXAMPLES OF EXCLUDED PAYMENTS

Benefits in Kind
Loans Given by the Company
Advances of Wages
Pension Payments
Lump Sum Payments on Retirement
Redundancy Payments
Tribunal/Settlement Awards
Premiums Paid for Overtime/Shift Work
Expenses
Tips and Gratuities

What About Deductions From Pay?

Certain deductions from a worker’s pay can reduce their pay for NMW purposes, including deductions made by a company in respect of expenditure in connection with carrying out their duties (e.g. the cleaning or purchase of uniforms). After these deductions have been taken into account the worker must still be left with at least the NMW.

Another famous retailer, Monsoon, was ordered to pay more that £100,000 to its employees in 2015 as a result of its practice of requiring staff to wear Monsoon clothes at work and deducting the discounted cost of the clothes from their wages. After the deduction, staff were left with less than the NMW.

Conversely, certain deductions do not reduce a worker’s pay for NMW purposes such as a deduction permitted by the contract between the Company and the worker due to misconduct.

In the case of Sports Direct, it has been reported that deductions were made from workers’ pay for lateness. If the deductions were not permitted by contract, the deduction would reduce the workers’ pay for NMW purposes.

A deduction of this nature could also amount to an unlawful deduction of wages, allowing the worker to bring a claim in the Employment Tribunal.

What Is Classed As Working Time?

Finally, a key issue for the Sports Direct case is what is actually classed as working time?

Working time is defined as any time during which a worker is working, at their employer’s disposal and carrying out their duties. There has also been recent case law demonstrating that, for those workers without a fixed placed of work, travelling time to their first assignment of the day and travelling time from the last assignment of the day may count as working time.

Against this legal backdrop, should the time spent by Sports Direct workers undergoing compulsory security checks be considered working time that is counted for NMW purposes? It is highly likely that the answer to this question is “yes”.  This is because workers are not free to leave the company’s premises until the compulsory security checks are completed.

How Can Your Company Avoid A Similar Fate?

Those companies operating in sectors where payment of the minimum wage is prevalent often adopt a proactive stance and schedule annual reviews to ensure legal compliance in this respect. These reviews can be linked to annual pay reviews or can form part of wider audits which align HR strategies to deliver the businesses’ objectives.

In any event, and at the very least, all companies need to:

  • have an awareness of the current NMW rates which are updated twice a year;
  • understand what payments can be included for NMW purposes; and
  • understand what counts as working time for NMW purposes.

This then enables a company to identify any risks which may arise on the back of the publicity surrounding high profile NMW cases such as Sports Direct; at the very least this will enable that company to tackle those risks head on.

CONTACT DETAILS:

If you would like more information on this topic, audits or would like to discuss a specific concern in relation to your business, please contact us:

Call: +44 (0) 808 172 93 22     Email: fgmedia@fgsolicitors.co.uk

This update is for general guidance only and does not constitute definitive legal advice.

The Rio Olympics Are Approaching…What Should Employers do to Prepare?

22444484 - sport icons on computer keyboard buttons original illustrationThe countdown to the Olympics is now in earnest with the opening ceremony just a few days away. Over the coming weeks 306 events are scheduled to be held in Rio. If they have not done so already employers should be considering the potential effects of this four yearly event on their business.  A key priority is ensuring employee attendance. Unlike the 2012 Games in London, few employees will have tickets, but many will intend to watch the Rio Games on the television or internet.

What can employers do to prepare?

  • Decide on a policy for dealing with annual leave requests during the period the Games are on.  If the normal holiday request procedure is to apply, employers should remind employees of this.  If new procedures are to be put in place which simply cover the period the Games run for, highlight these to employees and ensure they are applied consistently.
  • Issue a general reminder of the absence notification/management procedures. That reminder to include a warning that employees could be subject to disciplinary procedures if they are not genuinely sick but provide sickness as the reason for their absence.  Absence levels should be closely monitored to enable the early identification of any high levels of sickness absence.
  • Flexible working may be a consideration which may enable employees to come in later or finish earlier. Considerations can also be given to whether employees can be permitted to swap shifts. Any flexible working arrangements should be carefully handled and recorded to ensure consistency of treatment and to ensure they run for the duration of the Games only.
  • Consider making available a television in a communal area to permit employees to view the Games at work.  This could offer an alternative to employees tempted to either “pull a sickie” to watch the games or to view them at work on the internet.  A number of employees simultaneously watching the games via an internet connection could cause disruption and negatively impact business continuity.  If making a communal television available, employers should highlight that employees will be expected to make up the time spent viewing the Games.
  • There may be an increased use of Social Media such as Facebook or Twitter or websites covering the Games. Employers should ensure that they have a clear policy regarding web use setting out that monitoring will take place, what use is permitted and what the likely sanctions are for a breach of the policy.

In summary…

In aiming for business continuity, it makes sense for employers to be:

  • Flexible – in altering working hours to accommodate viewing
  • Clear – in relation to expectations of leave requests, absence and performance
  • Communicative – discuss these matters with employees as soon as possible and continue to remind them of policies as the Games approach
  • Fair and Consistent  - in particular with respect to the way in which requests for time off are dealt with

Contact Details

If you would like more information or advice on business continuity planning for the Games, absence management or disciplinary procedures please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Should Employers Take The Gender Pay Gap Seriously?

wage-gap-concept-blue-symbolizing-men-red-womenSUMMARY: A failure to address gender pay gaps can create both financial, legal and reputational risk for employers. We answer some frequently asked questions about equal pay.

Do we have to pay men and women the same?

The law provides that men and women should be treated equally when doing “equal work”.  This means men and women must be treated equally in relation to their terms and conditions of employment if they are employed to do:

  • like work. This means work that is the same or broadly similar;
  • work rated as equivalent under a job evaluation study; and
  • work found to be of equal value in terms of effort, skill or decision making.

In order to establish if there is equal treatment or otherwise, there will need to be a comparison of the terms and conditions enjoyed by a member of the opposite sex working for the same employer, doing like work of equal value.

Employers should not forget that the equal pay law protects men too.  Women who are pregnant or on maternity leave have special rights when it comes pay, benefits and bonuses.

Is there any way of defending an equal pay claim?

It is open to an employer to defend a claim if it can show the reason for the difference is due to a genuine factor and is not based on the sex of the employee. Common factors would include a difference in geographical location, experience or qualifications.

Is it just pay that we have to ensure is equal?

The equal pay law covers all aspects of pay and benefits including:

  • basic pay;
  • contractual benefits, i.e., company cars;
  • holiday pay;
  • hours of work;
  • non-discretionary bonus payments;
  • non-monetary benefits;
  • pension benefits and access to pension schemes;
  • performance related pay and benefits, overtime rates and allowances; and
  • sick pay.

The following areas would not be covered by the equal pay law but could be challenged under the sex discrimination law:

  • discretionary bonus payments;
  • discretionary pay increases;
  • promotion; and
  • the terms of a job offer.

To avoid the risk of equal pay claims we are considering banning staff from talking about how much they get paid?

Whilst employers are able to impose some restrictions on their staff about discussions concerning pay, any ban on this type of discussion would be unenforceable, if the purpose of the discussion is to identify if there is unlawful pay discrimination. This means a gagging clause in a contract of employment will not be effective if its aim is to prevent this type of discussion.

Any disadvantage including dismissal suffered by the employee as a consequence of their disclosure about pay for the purpose referred to above will be unlawful victimisation.

Do we have to respond to a request from a member of staff asking for information about pay differences?

A person who thinks they may have an equal pay claim may submit questions to the employer to help them determine whether they have such a claim.    An employer is not legally obliged to respond.  Before making the decision not to respond, an employer needs to be aware that an employment tribunal can take into account any response, or lack of response as a contributing factor when considering the issue of discrimination.

An employer faced with a request for information will need to consider carefully the nature of any response it chooses to provide and any decision not to respond. In any event, if legal proceedings are commenced the employment tribunal may order the information to be provided.

Acas has provided guidance on the question and answer process – Asking and responding to questions of discrimination in the workplace.

Should we be aware of any additional legal requirements?

It is expected from October 2016 private and voluntary sector organisations with more the 250 employees will be required to publish information about the pay differences between men and women. The first reports will have to be published by April 2018.

These requirements do not apply to the public sector.

If we lost an equal pay claim, what are the sanctions?

Any claim by an employee can be brought during their employment or no later than six months after their employment has ended.  Any individual wishing to issue a claim would have to contact Acas to consider conciliation.

A successful employee would be entitled to:

  • a declaration that their rights have been breached;
  • payment of any arrears (in the case of pay); or
  • damages (in the case of a non-pay contractual term).

In most cases arrears of pay can go back up to six years before the date the claim was brought.

Any employer who loses any case in the employment tribunal can now be ordered to pay a financial penalty of between £100 and £5,000, which is payable to the government.

In some cases, a losing employer will be required to carry out an equal pay audit and publish its findings supported by a plan to avoid breaches occurring or continuing. The penalty for failing to carry out the audit is up to £5,000.

Contact Details

If you would like more information on good equal pay practices with a view to engaging with your workforce and to minimise the risk of claims, please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Absenteeism – What’s the impact on your business?

Contact Details

For more information please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Farewell EU – What Now?

Union Jack-01

“The will of the people must be respected” says Prime Minister David Cameron on the outcome of the UK referendum on membership of the EU. One can’t escape the view that this should read “the will of the people must be interpreted.”

As of 6.00 am today, we as a nation appear to have become victims of unanticipated consequences, and are now at the mercy of outcomes that are not the ones foreseen and intended by our purposeful actions. I fear that full appreciation of the consequences of our actions will not be achieved for some time as predictions indicate that it will take at least 2 years to achieve disentanglement from our European partners.

In the immediate haze of global reaction, currency free-fall, stock exchange hysteria and concern about future trading conditions with the remaining 27 member states of the European Union, there is a risk that UK businesses may defer undertaking a strategic review of the impact on their workforce resulting from Brexit. In the short term, the biggest risk to workforce productivity will be uncertainty, particularly for those members of the workforce that are EU nationals and those that are British nationals working throughout the EU, currently estimated to be around 1 million. The uncertainty could manifest itself in key individual members of the workforce exiting of their own accord to seek greater stability elsewhere. It is essential that individual businesses develop effective operational and communication strategies without delay!

As UK businesses grapple with the challenges of negotiating commercial trade agreements in the new post EU membership world of tariffs and barriers to entry, it is a realistic possibility that revenue streams will become less profitable and this may inevitably lead to a rebalancing of profit margins by reducing headcount. A strategic review now, if operational effectiveness is to be maintained, will be well worth the effort.

And what, I hear you cry, of existing EU Legislation? The short answer is that a lot of EU laws are already incorporated into our domestic legislation through Acts of Parliament and Regulations, while there may very well be some tinkering in the medium to long term, it is unlikely, in this employment lawyer’s view, that our exit from the EU will result in any wholesale overhaul of our domestic employment legislation.

When the dust finally settles on the UK’s exit from the EU, the issue of Border controls and immigration status will become a further challenge for UK business whether domiciled in the UK or within the EU and using UK labour. While this may very well be 2 years away, businesses are encouraged to consider the implications now and devise a strategy to deal with potential key skills loss, recruitment and succession planning.

For advice and assistance with any employment law, HR or corporate immigration issue contact FG Solicitors on 01604 871143 or visit our website at www.fgsolicitors.co.uk for further information.

Contract Essentials

Contract sorter - FG Solicitors

SUMMARY: With unemployment rates at an all-time low we are frequently asked by clients whether they can use the same contracts for each type of employee or worker they engage. The short answer to that question is “no”. As there are a number of contracts and agreements widely available to organisations, we have produced a quick guide to the key contracts.

Type of contract/agreement

Who does it apply to?

Who should it not be used for?

When should your organisation use this contract/agreement and what are the key considerations?

Directors’ Service Agreement

Any Executive Director

Employees generally

Apprentices

Temporary Workers

Zero Hours Casuals

Consultants

Non-executive Directors

  • It is a legal requirement to provide specific terms and conditions within 2 months of an employee commencing employment. Although a standard employment contract can be used, businesses often prefer using Directors’ service agreements due to the additional obligations owed by directors.
  • For owner managed businesses these agreements are favoured to provide protection of the directors’ rights on the sale/transfer/takeover of a business.

Employment Contract

Employees (including directors where a Directors’ Service Agreement is not in place)

Apprentices

Temporary Workers

Zero Hours Casuals

Consultants

  • It is a legal requirement to provide specific terms and conditions within 2 months of an employee commencing employment.
  • Contracts can be standardised for differing categories of employee within the business such as managers, shift workers or home based employees.
  • The contract can include additional protections for the employer such as post-termination restrictions, confidentiality and intellectual property rights – particularly relevant for a number of industries including IT, Professional/Financial Services and Pharmaceuticals. These need to be tailored to the organisation’s needs.
  • Employment contracts for part-time employees need to include specific provisions to ensure entitlements are accrued on a pro-rata basis.
  • Employment contracts for fixed-term employees need to include specific provisions relating to the termination of the employment.

Apprenticeship Agreement

Apprentices (on a work-based training programme).

Employees (including directors)

Temporary Workers

Zero Hours Casuals

Consultants

  • Apprentices are employees and the legal requirement to provide specific terms and conditions within 2 months of the employment commencing applies.
  • Failure to ensure the appropriate apprenticeship agreement is in place, can result in apprentices having rights which can make it difficult and costly to terminate their employment before the end of the apprenticeship.
  • The agreement will include specific provisions relating to the termination of the employment.
  • The agreement can include additional protections for the organisation such as post-termination restrictions, confidentiality and intellectual property rights – particularly relevant for some industries typically associated with apprenticeships such as the IT industry. These need to be tailored to the organisation’s needs.

Zero-hours Casual Worker Agreement

Zero Hours Casuals

Employees (including directors)

Apprentices

Consultants

Directors

  • The agreement will make it clear that it is intended the individual is a worker, rather than an employee, so does not have employment rights.
  • The agreement will set out how work will be offered and accepted.

Consultancy Agreement

Consultants (individuals who are self-employed or whose services are provided through a service company)

Employees (including directors)

Temporary Workers

Zero Hours Casuals

Apprentices

Directors

  • The agreement should specify that the individual is not a worker or employee, but is self-employed or engaged by a service company*.
  • The agreement will detail the basis on which work is offered, payment (including the submission of invoices) and where tax liability sits.
  • It is prudent to set out whether the consultant will have the benefit of various employment rights, or the more limited rights available to workers.
  • The agreement should clarify whether the individual is owed health and safety duties or whether the individual (as an independent contractor) is responsible for their own safety.
  • The agreement can also include additional protections for the organisation such as appropriate restrictions, confidentiality and ownership of intellectual property rights – particularly relevant for a number of industries including IT, Professional/Financial Services and Pharmaceuticals. These need to be tailored to the organisation’s needs.
  • The agreement should also contain appropriate termination provisions and/or substitution rights.

*Organisations are advised to take advice on the practical workplace arrangements and obligations when engaging consultants as these considerations will factor when determining if the “consultant” is, in fact, an employee.

Secondment Agreement

Secondees

Consultants

Zero Hours Casuals

  • Specific agreements should be put into place where the employer intends to temporarily transfer an employee from one organisation to another.
  • The agreement will set out details of the relationship between the two organisations and the employee.
  • The agreement will deal with the employee’s employment status, payment arrangements, day to day management arrangements and the corresponding liabilities.

 

 

Contact Details

For more details about any of the above contracts, or if you just want someone to check that your current contracts are up to date, please contact a member of our Employment Law team:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Does “Discretionary” Commission Mean Employers Can Pay Whatever They Want?

CommissionSUMMARY: Many employers give their employees discretionary bonuses or commission. However, “discretionary” does not mean that employers can pay whatever amount they choose.

In a recent case, the Court of Appeal agreed with the High Court that the amount of “discretionary” commission paid to an employee should be increased.

This case is a useful reminder that an employer should be able to show that the way in which it has exercised its discretion is not irrational or perverse.

Here are our top tips for employers who want to avoid challenges by employees about how they have exercised their discretion:

  1. Have in place an appropriately worded clause in the contract of employment setting out that a bonus/commission is discretionary.
  1. Consider the reason(s) for the amount of bonus/commission you are giving to an employee.
  1. Record your reason(s) in writing at the date the bonus/commission decision is made so that you have evidence ready in the event of a challenge.  Your record should show why and how you have reached a decision.  Flipping a coin is not a rational decision-making process!
  1. If you want a bonus/commission scheme in place, ensure that this is suitably worded to give you flexibility.  For example, the flexibility to vary or withdraw a scheme can be a useful tool.
  1. If you tell employees there are factors that will be taken into account in decision making (for example, in a commission scheme), ensure these factors are taken into account.  If the factors change, tell employees in advance of them carrying out the work.
  1. Treat staff consistently.  If an employee feels that they have been awarded a lower commission/bonus than others, they may claim this is on the basis of a protected characteristic (such as age, sex or disability).  This could leave an employer facing a discrimination, as well as a breach of contract, claim.

If you follow these tips, you should be able to motivate your workforce with the possibility of a bonus/commission payment, but avoid claims from employees when you want or need to pay less.

Case

Hills v Niksum Inc [2016] EWCA Civ 115

Contact Details

For more details about how to set up and implement bonus or commission schemes please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Commission Payments Add Value to Holiday Pay!

FG Solicitors - Holiday Pay CommissionSUMMARY: Employers will need to take into account commission payments when calculating holiday pay.

The Employment Appeal Tribunal (“EAT”) has handed down its decision in the case of British Gas Trading Limited v Mr Z J Lock & Secretary of State for Business, Innovation and Skills.

The issue for the EAT, in the Lock case, was whether holiday pay must take into account elements of normal pay such as commission. In October 2014, the EAT was already scrutinising how employers calculated holiday pay and ruled in Bear v Fulton that employers must take into account non-guaranteed overtime payments when calculating pay for the basic four week holiday entitlement under regulation 13 of the Working Time Regulations 1998. Unsurprisingly, in Lock, the EAT has decided that workers’ remuneration for annual leave periods must also include both commission and basic pay, if this is what they are normally paid.

The Law:

Under the Working Time Regulations 1998 (“WTR”) all workers have a statutory holiday entitlement of 5.6 weeks’ annual leave and they are entitled to be paid at the rate of a week’s pay for each week of statutory holiday. This entitlement is pro-rated for part-time workers.

The WTR derives from the European Working Time Directive (“WTD”), however, the WTD only entitles employees to 4 weeks’ holiday, which is 1.6 weeks’ less than the WTR entitlement.

The Facts of the Lock case:

Mr Lock, who was employed by British Gas as a salesman, had a remuneration package that included a basic salary plus commission which was based on the number and type of contracts he persuaded customers to enter into.  However, the remuneration that he received when he took holiday consisted of basic salary and any commission which he had earnt prior to his leave commencing but that fell due during his period of holiday. This meant he could not earn commission when he was on leave and, as his basic pay was significantly less than his normal pay, this was a disincentive to take annual leave.

In April 2012, Mr Lock claimed to an Employment Tribunal (“ET”) that the failure to pay him commission for the period that he was on holiday leave was contrary to the WTR. As the WTR derive from European law, the ET referred the matter to the Court of Justice of the European Union which ruled that the WTD provides that results based commission should be taken into account when calculating holiday pay. The ET subsequently held that the WTR could be interpreted so as to include commission payments in the calculation of holiday pay for the four weeks’ annual leave provided by Regulation 13 of the WTR.

The ET’s decision was appealed by British Gas. The EAT dismissed the appeal.

Implications for businesses:

  • If workers’ remuneration ordinarily comprises basic pay and commission businesses will need to calculate holiday payments for a worker’s 4 weeks’ statutory holiday entitlement (pro-rated for part-time workers) so that it includes commission which would have been earned but for the taking of leave.
  • Businesses may choose to pay the remaining 1.6 weeks’ statutory entitlement excluding commission, which would have been earned but for the taking of leave.
  • Failure to include commission when calculating holiday pay for the 4 weeks’ entitlement means the worker may apply to the ET for any underpayments provided that the claim is made within 3 months of that underpayment being made. If a claim involves a series of underpayments, any claims for the earlier underpayments will fail if there has been a break of more than three months between such underpayments.
  • Any claims presented to the ET for a series of backdated deductions from wages, including any shortfall in holiday pay, will be limited to cover a period of a maximum of 2 years.

British Gas Trading Limited v Mr Z J Lock & Secretary of State for Business, Innovation and Skills UKEAT/0189/15

Contact Details

For more details about the issues in this article or if you would like advice on how to calculate holiday pay, please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.