Here’s a link to the WTF HR micro-sumamry of the case of Eweida v UK. Now with added undead.
Settlement: The wrong question
March 27, 2013 – 12:07 am
Most litigation settles. The parties reach an agreed compromise and move on to more productive pursuits. It is rare, therefore, for me to be asked to advise on proceedings without being asked about whether settlement should be explored.
In this post I want to touch on a single issue: I find clients consistently ask the wrong question. The question they ask is “What are my prospects of winning?” Of course the answer to that question is relevant and important to the decision whether or not to fight. It is, however, only the third most important question that a client should ask.
The most important question is “Can I afford to win?” It seems an unlikely question but it is vital. Fighting a case involves cost. The most obvious costs are the lawyers’ fees. In Tribunal proceedings they are generally not recoverable. There are opportunity costs. Employees sat in court are leaving work undone and opportunities uninvestigated. Less easy to define are the costs to working relationships and trust that may arise from subjecting employees to giving evidence in a high stress, hostile and blame-soaked environment. There are risks associated with the popular press practice of reporting the allegation and not the response. You may win the case and still find your interests damaged significantly. Start by asking yourself, therefore, where winning may leave you.
The next question is “Can I afford to lose?” No lawyer with an insurer will ever give you a 100% chance of success. It is important to understand what prospects of success actually mean. If your lawyer tells you that your chances of success are 70% she means that of the 10 judges you might find gazing sceptically at you as the trial beings, 7 would likely find for you and 3 would not. You don’t know whose court you will walk into. You never bet your house at the bookies. Similarly, you should never fight a case you simply cannot afford to lose unless a settlement is genuinely impossible. There are no points for bravery. It might all work out, but if it doesn’t the lawyers move on to the next case, the consequences of your loss are yours alone.
If you can afford to win and you can afford to lose, then, but only then, should you ask about prospects.
Bankers’ Bonuses: The EU acts
March 5, 2013 – 6:04 pm
- What is proposed?
The proposals are not a cap in the traditional sense because there is no fixed maximum amount that someone affected by the proposals will be entitled to earn. The proposed rules will require that the ratio of basic salary to bonus should not exceed 1:1. In other words, the value of the bonus should be no greater than the value of the banker’s basic salary.
However, the ratio can be raised to 1:2 with the express permission of the shareholders. The proposals stipulate with some care the majority necessary to pass any proposal to permit the higher level of remuneration. Where permission is obtained for the more generous entitlement, 25% of the bonus must be deferred for at least 5 years.
- Who has agreed these proposals?
European Parliament and Council negotiators. On 5 March 2013, George Osborne failed to persuade the EU’s Economic and Financial Affairs Council to re-open negotiations. It is thought that some limited further tweaking may be possible. The political agreement will require the agreement of the Member States and the European Parliament in April 2013. The UK will not be entitled to veto the proposals. If the political agreement is ratified, the UK will have to introduce implementing legislation by 1 January 2014.
- What is the significance of this announcement?
Commentators’ views have covered every part of the spectrum from talk of the cataclysmic destruction of London as a financial centre through to prosaic predictions that amending pay structures may well leave the sector relatively undisturbed. From an employment lawyer’s point of view the notion of direct control of UK workers’ maximum remuneration by Europe is, at first glance, an unsettling one. It is worth bearing in mind, however, that there has already been some limited domestic regulation of bonuses (see the FSA Remuneration Code).
- Is this an attack on the free market? Are other sectors subject to such limitations?
It depends to some extent on how free the market you are envisaging is. No-one believes that banks and their activities should be beyond the reach of regulators. The background to the package of reforms of which the bonus proposals form part is the widely perceived need (to quote the Bank for International Settlements) to “strengthen the regulation, supervision and risk management of the banking sector”.
The proposals include new requirements in respect of retained capital and transparency which are intended to move banking in Europe towards compliance with the regime developed by the Basel Committee on Banking Supervision and favoured by the G20, known as Basel III.
The controversial question is whether, as part of this package of regulation, there is any need for direct control of bankers’ pay. The European perspective is that the global economic crisis was at least in part caused by bank employees taking on too much risk. It is thought that the emphasis on remuneration by bonus within the sector incentivized irrational risk taking. Neither proposition is uncontroversial. The causes of the crisis are unlikely to be quite so simple and the suggestion that bonuses increase risk-taking seems to be based more on intuition than study.
- The UK government was the sole voice of dissent, is there any way in which the government could challenge or limit the effect of the decision?
It would be very surprising if the Government were not able to find a lawyer willing to advise them that the rules on bonuses may fall outside the competence of the European Union. A legal challenge to the validity of the rules cannot be ruled out. The length of the shrift that the European Court may give the challenge is a different question.
There has also been talk of the UK invoking the “Luxembourg Compromise”. It sounds like the title of the world’s dullest thriller but refers to a convention, the present scope of which is itself controversial, for there to be a veto where a proposal adversely affected a state’s “very important national interest”. It remains to be seen whether George Osborne would be prepared to risk playing that card. To play it and lose would likely have very considerable political consequences.
- What impact will this have on remuneration structures in the banking sector?
They will adapt to meet the new regime. The likelihood is that banks will seek shareholder approval for proposals to allow them to use the 1:2 ratio and fixed salaries will increase.
- What are the relevant merits/downsides of the various options:
- Higher basic salary
The principal merit of this approach is that it allows the same total remuneration to be implemented as had previously been in place without any requirement for shareholder approval. It should enable employers, therefore, to forestall the possibility of significant desertions. If one accepts the premise that variable pay encourages risk taking increasing the proportion of income that is fixed should cause employees to take fewer chances.
From the bank’s point of view, decoupling remuneration from results may have a number of disadvantages. When an employee’s performance falls off, the impact on income is lessened. When the bank’s overall performance is affected, cost cutting may require re-negotiation of terms and conditions rather than changing the often non-contractual terms of a bonus policy.
- Shareholder permission to exceed basic cap
This approach does not, by itself, allow replication of previously more generous remuneration arrangements (although it can be combined with increases to basic salary). Arguably, subsequent changes to bonus arrangements may require fresh shareholder approval complicating negotiations with high-value employees in circumstances where competitors based elsewhere may have greater immediate freedom of action.
- Supplementary (non-cash) benefits
Non-cash benefits may be unattractive to employees, can have complex taxation treatments and are difficult to operate with sufficient flexibility to allow total remuneration to be closely correlated with performance.
- Do you believe financial institutions will leave Europe?
Whether individual bankers want to leave will depend on whether the amount of money they are paid is the determinative factor for where they work. It has to be admitted that it would not be entirely surprising if the people with that worldview were disproportionately represented amongst the group of highest paid bank employees. A degree of international mobility is already commonplace in the banking industry. If institutions fear the loss of individuals or, worse still, of teams, they may be persuaded that replicating existing business in a less restrictive jurisdiction makes good commercial sense. In the meantime, they may wish to put lawyers specialising in team poaching cases on speed dial.
The Dynamic Do-over: The Advocate General looks at Alemo-Herron
February 22, 2013 – 12:23 pm
What’s the point of the TUPE? Other than terrorising HR professionals and inspiring books as good as this one, that is? Its essential function is simple: to protect the employment and the terms and conditions of employees affected by a change in the ownership of the undertaking they work in or (for now at least) by a change in the identity of the provider of a service. The eye-popping complexity for which TUPE disputes are famous arises from trying to apply that simple principle to the messy business that is real life employment. The CJEU is presently pondering one example of the conceptual difficulties that can be thrown up in Alemo-Herron and others v Parkwood Leisure Limited C-426/11 and Advocate General Cruz Villalon has just delivered his opinion.
The employees in the Parkwood case started out working in the Public Sector. More specifically, they worked for Lewisham LBC dealing with leisure activities. As local government employees, their terms and conditions were negotiated by the National Joint Council for Local Government Services. The NJC is a body which gathers together trade union representatives and local government employers. They negotiate the core terms and agreements applicable to local government employees. Those terms are set out in what is known as “the Green Book”. Other terms are then settled by local collective agreements. The contracts of employment issued to individual employees usually provide that where the NJC agrees new terms those terms will be incorporated into the employee’s contract. Thus, if the NJC agrees a pay rise, all employees then have a contractual entitlement to receive that increase.
In 2002 Lewisham contracted out its leisure services. The employees, as a result, found themselves in the Private Sector. A further transfer brought them into the employment of Parkwood Leisure Limited.
In 2004 a dispute arose about pay. At the heart of the dispute was a very simple question: who was to decide what pay the employees should receive? Parkwood had a simple answer: they were the employer so they decided what to pay their own employees. Not so fast! Lurking ominously in the corner was TUPE and TUPE cannot abide simple answers. The employees countered with their own answer: the NJC continued to set their pay. The argument runs as follows: “Our contracts of employment with Lewisham said that our pay was set by the NJC. When we transferred our terms and conditions were protected. Specifically, the term which provides for our pay to be set by the NJC was protected.” If the employees were right that meant that Parkwood would have to pay its employees at rates set by a negotiation that they could not participate in.
The two different arguments about how TUPE works have been given handy labels. Parkwood’s contention that TUPE takes a sort of “snapshot” of entitlements at the date of transfer and thereafter amendments are for the employees and their new employer to agree is known as the “static” approach. The employees’ argument that TUPE preserved their right to have the NJC set pay on an ongoing basis is known as the “dynamic” approach. The CJEU has been asked by the Supreme Court to decide which approach is the correct one.
The Advocate General favours the dynamic interpretation. He observes that Article 3(3) of Directive 2001/23 (the European Directive that TUPE implements) permits the dynamic approach and notes that there is a line of UK authority giving effect to it. He also points out that the Directive allows Member States to set a limit (subject to a minimum of a year) on the continued effect of transferred collective agreements. The UK did not take advantage of that opportunity. He is further influenced by the fact that the parties, he says, are free to agree to a variation of the contract that would remove the reference to the collective negotiations.
The Advocate General’s last point is a difficult one. Parties are not entirely free to agree to vary contracts post-transfer. Any variation, even if expressly consented to, will be ineffective if “the sole or principal reason for the variation is … the transfer itself; or … a reason connected with the transfer which is not an economic, technical or organisational reason entailing changes in the workforce” (TUPE Reg 4(5)). Removing a reference to a collective agreement with which a transferee has been stuck as a result of a transfer would, on its face, likely be for a “reason connected with the transfer”. It would be difficult to see on what basis it could be said to be for a reason “entailing changes in the workforce”.
The likely effect, therefore, is that should the CJEU do what many expect it to and endorse the Advocate General’s opinion, the ability of private sector employers to take control of their own pay negotiations will depend on the Government stepping in to restrict the protection for employees to the minimum the Directive allows. By happy chance, that is what the Government purports to be determined to do in any event.
CPD for Charidee
November 14, 2012 – 9:23 am
What’s the idea?
I come to visit you (or vice versa if it’s easier for you) and deliver a seminar. Anyone attending collects CPD points. In return you make a donation to either FRU or Adoption UK (or, if you want, a little bit to each).
I’m prepared to travel (within reason) throughout the UK (and to Dublin).
What are you prepared to talk about?
Well, UK Employment Law is my strong suit.
Are you … er … how can I put this … dull?
That is not a word that has featured in my recent feedback. Distressingly, “panto” has. I’d likely be a bit like this but with more arm movement.
I already know everything about Employment Law, would you talk to my clients?
Yes, I’m happy to participate in a marketing seminar. I do an infamous talk on giving evidence in tribunal proceedings that has been known to go down well.
How do I contact you?
Either via the comments below or try my clerk: Lucy
NHS Leeds v Larner
July 24, 2012 – 11:47 pm
I am going to miss Lord Justice Mummery. His judgments are models of clarity and his instincts are flawless. When you lose, as I did comprehensively in Larner, you know exactly why and the merits of the alternative analysis are put so persuasively you struggle to disagree even when you are paid to.
The critical question in the appeal is identified in the opening paragraph of the judgment:
“In what circumstances is a worker, who has not taken paid annual leave in the relevant leave year because of absence from work on long term sick leave, entitled to payment in lieu?”
After a meticulous analysis of the European and Domestic legislation (and a graceful if merciless dissection of my submissions on behalf of the Appellant) the question is answered in the final paragraph:
“(1) The claimant was entitled to paid annual leave in the leave year 2009/10;
(2) She was prevented from taking her paid annual leave because she was sick;
(3) She was entitled to carry her untaken paid annual leave forward to the next leave year in 2010/11 without making a prior request to do so;
(4) As her employment was terminated in that year, before she could take the carried forward leave, she was entitled to payment on termination for the paid annual leave she had been prevented from taking”
It was the third point that was the core issue in the appeal. reg 13 of the WTR does not appear to allow untaken leave to be carried over at all. It was clear from Stringer (C-520/06), Schultz-Hoff (C-350/06), Pereda (C-277/08) and other cases before the ECJ that carry over had to be allowed if sickness prevented the employee from having the opportunity to take the leave during the year in which it accrued. It was argued, however, that Pereda required that a specific request to carry over be made in the absence of which the entitlement was lost. Their Lordships concluded that references in Pereda to carry over requests merely reflected the particular facts of the case and were not an articulation of a general principle that a request was always necessary.
The claimant was able to rely on the Working Time Directive (as NHS Leeds was an emanation of the State). However , the Court concluded that the Domestic Law would in any event have had to be read in such a manner as to reach the same result in private sector cases.
The Court left open the question whether the period of additional leave conferred by Reg 13A had to be dealt with in the same way. The CJEU case of Neidel (C-337/10) suggested that it did not but the Appellent was refused permission to take the point as it had not been taken below.
Witness Statements 7 Deadly Sins
May 3, 2012 – 10:59 am
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For those of you prepared to bear the sight of a magnificent set of jowls and a grating nasal tone … here are some thoughts on Witness Statements:
Protected Conversations
November 22, 2011 – 10:37 am
The Governing Coalition is presently proposing to introduce the concept of a “protected conversation” into employment law. The following is taken from a speech given by David Cameron on 10 November 2011:
But if employers are so concerned about the prospect of being taken to tribunal that they don’t feel they can have frank conversations with their employees many companies just won’t feel able to create those jobs in the first place.
…
That’s why I want to deregulate and cut back on bureaucracy. Not simply to help business but to create fair, simple processes that are good for business and good for employees too.
So we will be consulting on the introduction of protected conversations, so a boss and an employee feel able to sit down together and have a frank conversation – at either’s request.”
The proposal is favoured by Nick Clegg who has said that protected conversations would allow employers and employees:
“to treat each other like human beings and not like potential litigants”
He echoed the suggestion that the employers felt the need for such a measure:
“Employers tell us they’re afraid to have frank discussions with staff… or fear of those exchanges being used against them unfairly, should a dispute end up at tribunal.”
Whilst the CBI has expressed enthusiasm, it is worth noting that this does not seem to be something that organisations representing employees are calling for. For that reason, I am going to concentrate in this post on whether the proposals make sense from an employer’s point of view.
What is a Protected Conversation?
We presently know very little about what the Government has in mind beyond the essential idea that employers should, in certain circumstances, be able to say what they like to employees without having their words quoted back at them in tribunal proceedings. For a lawyer, the immediate analogue is a “without prejudice” (or “WP”) discussion. Where two parties to a legal dispute wish to negotiate with a view to compromise they can do so on a WP basis. They can be as “frank” as they wish in the knowledge that, subject to some narrowly drawn exceptions, the court will not be told about what they have said. The “protected conversation” seems to be an attempt to extent the WP principle into the heart of the employment relationship, covering situations where there is no legal dispute to resolve. Of course, since the policy that underpins WP privilege is the public interest in resolving legal disputes without recourse to the courts, extending the principle to cases where there is no legal dispute to be resolved means that a different policy justification is required.
What is the policy justification? It has yet to be precisely articulated, but David Cameron’s speech suggests that it is something along the following lines: Tribunal cases are an expensive inconvenience and a disincentive to job creation. I do not propose to deal with whether that premise is correct. I want to concentrate instead on more practical issues.
When would an employer want to have a Protected Conversation?
The example most frequently cited has been a situation in which an employer has concerns about an employee’s performance. The employer, it is proposed, will invite the employee to a meeting, express dissatisfaction with a great frankness and send them off to improve. It is difficult to understand why an employer would want to have that conversation on a “protected” basis. A protected conversation would only make sense if employers were regularly getting into trouble by being too frank with employees about performance concerns. In fact, the opposite is true. Where an employer relies on poor performance as the reason for termination, the most likely ground of unfairness is a failure to warn the employee early enough and explicitly enough that they are under-performing and that their job is at risk. The protected conversation makes that problem worse because the employer would not be allowed to tell the tribunal about the warning that they had given the employee. In performance cases, the more open an employer is the better.
One situation in which having a conversation on a protected basis would make sense is where the message the employer wants to communicate is not “you need to improve or you’ll be sacked” but rather “we’ve decided to sack you. Do you want to go quietly or do I have to push you through a performance procedure?” That sort of conversation frequently does get employers into trouble with the Tribunal. Speaking personally, my problem with giving that kind of conversation protected staus is that I think employers should get into trouble. There is no good policy reason for allowing employers to conceal the fact that their procedures are a sham.
How effective would the protection be?
Here is a bit of advice I give the Government for free: Attempts to exclude things from the Tribunal’s jurisdiction will result in more hearings. It is a phenomenon known to gleeful lawyers as “satellite litigation”. Employers who thought that they were protected from the costs of tribunal proceedings will find that they have to spend time and money trying to persuade the tribunal that they can rely on the protection.
Although the proposals need fleshing out, it is fantastically unlikely that an employer will be able to rely on merely invoking the “protected conversation” process to keep the Tribunal’s nose out of what was said. It is unlikely, for instance, that the employer will be entitled to rely on the cloak of secrecy to do any of the following:
(1) Conceal an act of discrimination;
(2) Conceal an act of bullying or harassment; or
(3) Prevent the employee from relying upon a protected disclosure made during the course of the conversation.
On the first point, one of the specific situations in which Nick Clegg appears to have thought a protected conversation might be useful is where an employer wants to talk about retirement. That suggests that he may have in mind protecting employers against age discrimination claims. If he does, he is likely to be disabused rapidly. The anti-discrimination measures are under-pinned by European legislation which requires that there should be an effective remedy for acts of discrimination. It is unlikely that the UK courts and tribunals are going to conclude that an employer will be free to discriminate provided he does so having uttered the magic words “this is a protected conversation”.
Other matters that will need to be settled
Beyond the cases identified above, there is a whole range of other difficult practical questions including the following:
(1) Can an employee refuse to have a protected conversation?
(2) Is there any limit to the number of conversations that an employer can require?
(3) Will an employee be entitled to be accompanied at a protected conversation meeting?
(4) Will the mere invocation of the process be enough or will an employer have to show that the conversation meets qualifying criteria?
(5) Will the employee be precluded from relying on an employer’s behaviour to found a constructive dismissal claim even where it is clear that the conversation resulted in a breakdown of trust and confidence?
(6) Can an employer convert a conversation into a “protected” conversation as it is happening?
(7) Can an employer convert a conversation from a “protected” conversation as it is happening?
The Government will no doubt say these issues will be thrashed out in consultation. However, it is worth taking a step back and asking whether a measure that poses so many practical difficulties is worth pursuing when the benefits it can deliver are so uncertain.
Terrifying Chins Unleashed in Manchester
November 11, 2011 – 12:26 am
This is a short interview I gave at the CIPD conference in Manchester about where witnesses go wrong in Tribunal cases.
I can’t explain why I am wearing my poppy around my midriff.
BIS hides their hand again
October 7, 2011 – 5:41 pm
One of the key passages in the BIS Second Statement of New Regulation contains one or two “drafting errors”. It now reads:
“[The Government has] Consulted on changes to employment law that will give business the confidence to take on staff. We are proposing to increase the qualifying period for employees to be able to bring a claim for unfair dismissal from one to two years and we will be introducing fees for lodging employment tribunal claims to transfer the cost burden from tax payers to the users of the system.”
So, we are told, no final decision has been taken as to whether or not to increase the qualifying period. Form your own conclusions as to how meaningful any forthcoming consultation is likely to be. At the same time (and mysteriously) the justification for introducing fees for commencing tribunal claims has changed from discouragement of vexatious litigation to redistribution of the cost burden. That justification is the one that the Government led with when formulating the proposal for consultation. Note that there is no question that fees “will be” introduced.
Thanks to Daniel Barnett who winkled the information out of BIS.
