Work It: HK Employment - August update

In this month's round-up of key employment and HR developments, we look at:

01 Aug 2016
"Empty seats in airport.


  • What employers should be doing in response to the Brexit referendum vote
  • Migrant workers and modern slavery
  • Managing sickness absence
  • Pre-termination negotiations
  • Self-employed consultants: tax crackdown in the public sector
  • What's on the horizon
  • Howard Kennedy Employment in the news

Brexit: what now?

The shockwaves from the UK's referendum vote to leave the EU will continue to reverberate for years. The Government has now confirmed that Article 50 will not be triggered in 2016, so it seems that the uncertainty will continue for some time. Whatever the UK's relationship with the EU looks like in the future, it is clear that there will be major consequences for UK businesses and employment and immigration law are areas likely to be affected.

Depending on the UK's future trading relationship with the EU and how far the UK is required to maintain EU social protections as the price of a deal, we anticipate changes to employment law may be on the agenda.

In the meantime, our key tips for HR teams include:

  • Communicate with staff
  • Audit your workforce and identify immigration issues and options
  • Review expat employee terms
  • Evaluate the likely impact of Brexit on the business and consequent workforce change on an ongoing basis.

There have been disturbing reports of racist harassment and attacks following the referendum vote. Although employers are no longer automatically liable under the Equality Act for repeated harassment by third parties, such incidents can still lead to liability in some cases and it is good practice to take reasonable steps to prevent them. Businesses should assess the risks and take appropriate action. This may include prominently displaying signs stating that abusive behaviour will not be tolerated on the business' premises and ejecting any member of the public who engages in such behaviour. Some businesses may also need to consider extra security measures. Reassuring staff that the business will not tolerate abusive behaviour is also essential to maintaining morale.

Migrant workers and modern slavery

The Supreme Court has ruled that migrant workers treated less favourably because of their vulnerable status as migrants cannot bring race discrimination claims.

The facts of the case are undeniably sad. However, the decision will be a welcome one for many employers. Had the Supreme Court determined that immigration status was a protected characteristic equivalent to race, it could have made the management of migrant workers' right to work checks even more complex for businesses.

The Supreme Court commented that it would be sensible for the law to be changed so that compensation under the Modern Slavery Act can be awarded by the Employment Tribunal. In the meantime, the civil courts can award such compensation to victims, with the first such award (expected to exceed £100,000) having been made last month.

Read our in-depth guide to Modern Slavery Act reporting obligations here or for more information please speak to a member of our Employment team. Antonia Torr, our Head of Business Immigration, can advise on all aspects of right-to-work checks and migrant worker sponsorship.

Managing sickness absence: ACAS mandatory procedures do not apply

Long-term sickness absence is one of the trickiest employee relations issues businesses face, despite Government reforms such as "fit notes" and the "Fit for Work" referral service. Dismissing an employee fairly on ill-health or absence grounds is complex and time-consuming. In many cases, the employee will be disabled (for the purposes of the Equality Act 2010) and the employer must therefore consider discrimination law and the duty to make reasonable adjustments. A fair process usually requires medical evidence and several meetings with the employee. Non-cooperation by the employee can make this even more challenging.

Helpfully for employers, the Employment Appeal Tribunal has now confirmed, that the ACAS Code of Practice on Disciplinary and Grievance Procedures does not apply to dismissals for ill-health: whether due to high absence levels or the employee's inability to carry out the job due to their medical condition. This means that any compensation awarded by an Employment Tribunal for claims resulting from such dismissals will not be increased by 25% as it would if the employer fails to follow the Code.

Employers should nonetheless take care when dismissing on ill-health grounds that they follow a fair process with due regard to fairness and their Equality Act obligations, to reduce the risk of unfair dismissal and disability discrimination claims.

Pre-termination negotiations: details of negotiations as well as details of offers inadmissible

Pre-termination negotiations allow an employer and employee to discuss possible exit terms and, providing that there is no "improper conduct" (examples of which are given in the ACAS Code of Practice on Settlement Agreements) the terms will not be admissible in evidence in any subsequent unfair dismissal claim. This can be very useful for businesses looking to exit staff, as such discussions might not be inadmissible under "without prejudice" privilege if there was no pre-existing dispute with the employee at the point such discussions took place.

The EAT has now confirmed that not only the details of any offers made but also the fact that discussions took place at all will be inadmissible in evidence in an unfair dismissal claim. The EAT also stated that if one party refers to the discussions in open correspondence, that does not mean that the evidence becomes admissible. This is therefore wider than the protection under "without prejudice" privilege, which can be waived by the parties referring to "without prejudice" discussions openly and which only prevents the parties from referring in evidence to any offers made, not the fact that discussions took place.

Businesses need to be careful when seeking to rely on these rules. They must ensure that they comply with the ACAS Code of Practice to avoid allegations of "improper conduct" which could result in a Tribunal agreeing to hear evidence about the discussion with the employee (and worse still, further claims). They should also bear in mind that evidence of "pre-termination negotiations" is only inadmissible in unfair dismissal claims (and not in discrimination claims, for example). Where there is a risk of discrimination allegations, it may be preferable to seek to rely on "without prejudice" privilege as well and any discussions should be carefully scripted.

Self-employed consultants: tax crackdown in the public sector

The Government is consulting about changes to IR35 tax rules for self-employed contractors who provide services to public sector bodies. IR35 applies to self-employed contractors who provide services through an intermediary (a limited company) if the contractor is employed or engaged by the intermediary. Under IR35, payments to the intermediary are treated as employment income and the intermediary must pay any tax and NI contributions due.

Under the new proposals, the public sector body engaging the contractor (rather than the intermediary) will be responsible for deciding whether the IR35 rules apply and, if they do, for calculating, reporting and paying tax and NI contributions.

The changes are due to take effect from April 2017 and it is likely that they will later be extended to the private sector in time.

On the horizon…

Holiday pay:  British Gas' appeal against the ruling that they have to include commission in calculating holiday pay was heard by the Court of Appeal on 11 July 2016. We will report on the decision once made.

New whistleblowing rules: for certain financial services businesses will take effect from 7 September 2016.

Gender pay gap reporting regulations:  which were due to become law in October 2016, with guidance expected in September, are now likely to be delayed until next April.

Religious discrimination: The ECJ is due to rule in two cases concerning employees fired after wearing hijabs at work. The issue is whether a ban on political or religious symbols is direct or indirect religious discrimination, and whether such a ban can be justified in the interests of projecting a "neutral" corporate image or only in very limited cases (e.g. for health and safety reasons). It will be the first ECJ decision on the scope of religious discrimination law and is keenly anticipated.

Executive pay: The new Prime Minister, Theresa May, has indicated that she wants workers to be represented on company boards and to give shareholders stronger powers to block executive pay packages (currently a binding shareholder vote on remuneration policy takes place only every three years in public companies). As yet she has provided no detail about how this representation would operate, although several European countries have such arrangements in place. Meanwhile, the Executive Remuneration Working Group, chaired by Legal and General chief executive Nigel Wilson, has issued its final report on executive pay in listed companies, in which it recommended greater flexibility in remuneration structures (moving away from the standard 3 year LTIP model), strengthening remuneration committees and greater transparency on targets and discretionary pay.

Equal pay audits: In the meantime, the leader of the Labour Party, Jeremy Corbyn, has proposed that companies employing 21 or more staff should be required to carry out and publish equal pay audits. Again, further details are awaited.

HK Employment in the news:

  • Lydia Christie assessed the Government's options for regulating tips and service charges in the restaurant sector (Guardian). Lydia is part of a working group established by the Employment Lawyers' Association to respond to the consultation on this issue.
  • As the Employment Tribunal claim by Uber drivers alleging worker status is being heard, Susie Al-Qassab looks at the implications for tech businesses of employment status claims (Howard Kennedy Insights).
  • Alex Mizzi outlined how employers can deal with misleading CVs. (Times – paywall)
  • Jane Amphlett gave some practical tips for managing a workforce during periods of change (Growth Business)
  • Alex Mizzi explained what a business should consider when deciding to settle or fight an Employment Tribunal claim (People Management).

If you would like to discuss any employment-related issues, please contact our Head of Employment, Jane Amphlett or your usual contact in the team.


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