Employment Law Review - September 2020

Welcome to our September 2020 Employment Law Review

This month we discuss:

• The Department for Work and Pensions (DWP) has published guidance for employers making redundancies
• Should a profitability bonus be included in holiday pay calculations?
• Refusing to give a written undertaking to pay a severance payment in the future was a failure to make reasonable adjustments
• Dismissal without any procedure was not unfair
• Coronavirus - updates

The Department for Work and Pensions (DWP) has published guidance for employers making redundancies

The DWP has published redundancy guidance for employers. The guidance outlines the information and support available for employers proposing to make redundancies as a result of the COVID-19 pandemic. The guidance, titled 'Redundancy factsheet for employers', outlines the support employers can give to employees being made redundant. This includes the Government's 'Rapid Response Service (RRS)' which is able to provide support and advice to both employers and employees about various matters including the provision of training, writing CVs and helping with travel costs. Furthermore, the guidance provides links to useful information on governmental and non-governmental webpages such as ACAS and The Insolvency Service. It also provides signposting for employees seeking voluntary redundancy and early retirement, and for those who are struggling to cope after being made redundant. The guidance can be found here. The Insolvency Service has recently published an updated version of Form HR1, and issued new guidance for employers contemplating collective redundancies (i.e. 20 or more redundancies within a period of 90 days or less).The Insolvency Service's new Form HR1 and guidance can be found here.

Should a profitability bonus be included in holiday pay calculations?

In Econ Engineering Ltd v Dixon and others, the Employment Appeal Tribunal (EAT) held that a profitability bonus should not be included in holiday pay for the 1.6 weeks of a worker's UK statutory holiday entitlement.

Background

Under the Working Time Regulations 1998 (WTR), all workers are entitled to 5.6 weeks' holiday. This is split up into four weeks of holiday enshrined in EU law (EU leave) and an additional 1.6 weeks' holiday guaranteed by UK law (UK leave).EU law dictates that a worker should receive their “normal remuneration” whilst on holiday. This, however, only applies to the four weeks of EU leave. A worker's pay entitlement for the additional 1.6 weeks' UK leave is governed by the Employment Rights Act 1996 (ERA) which states that a worker with normal working hours should receive “the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week”.The FactsSix employees (the Claimants) brought a claim for unlawful deductions from wages in respect of their holiday pay. The Claimants' wages were paid weekly and based on an hourly rate. In addition, they were entitled to a profitability bonus paid monthly in arrears, which took the form of a supplement payable for each hour they had worked in the preceding month. The bonus was calculated on the basis of annual targets set by the Respondent and by reference to the Respondent's total profit for the month. The bonus could therefore vary from month to month and could even be nil.The Claimants argued in the Employment Tribunal (ET) that the profitability bonus should be included in the calculation of their holiday pay when taking both their four weeks' EU leave and their 1.6 weeks' UK leave. The Claimants were successful in the ET.The Respondent appealed to the Employment Appeal Tribunal (EAT). The employer accepted that the bonus should be included as part of the Claimants' normal remuneration for the purposes of the calculating pay for the four weeks' EU leave, but argued that the bonus did not fall within the ERA definition and therefore it should not be attributable to the additional 1.6 weeks' UK leave.

The Decision

The EAT upheld the appeal. It considered that the wording in the ERA dealing with this 1.6 week period related to sums payable as a result of a worker simply working their normal weekly hours. Since the profitability bonus was also dependent on the Respondent hitting a profitability target, this could not be attributed to the Claimants simply working their usual hours. This meant that the profitability bonus did not need to form part of the holiday pay calculation in respect of the additional 1.6 weeks' UK leave entitlement.

What does this mean?

 Calculating pay for statutory holiday entitlement continues to be a complicated area. A detailed assessment needs to be made of each element of pay in order to establish whether it is intrinsically linked to the hours worked. Where an element of a worker's pay relates to something other than hours worked (e.g. the company's performance), the EAT's decision suggests that this element may not need to be taken into account in respect of 1.6 weeks' of their holiday pay.

 Refusing to give a written undertaking to pay a severance payment in the future was a failure to make reasonable adjustments

As well as awarding compensation, in discrimination cases ETs can also make recommendations to employers about their future working practices. In Hill v Lloyds Bank Plc, the EAT held that in this successful failure to make reasonable adjustments case the ET was permitted to make a recommendation that the employer provide an undertaking and pay a severance package if it cannot fulfil the undertaking.

The Facts

The Claimant suffered from reactive depression which she said resulted from bullying and harassment at work by two of her colleagues. She submitted a grievance regarding her line manager which was not upheld. When the Claimant returned to work from sick leave, she worked in a different office and in different cities from both colleagues. She had no concerns about these working arrangements but was anxious about working with them again. This caused the Claimant to feel physically sick and be in a constant state of fear.The Claimant requested an undertaking from the Respondent that she would never have to work with or report to these colleagues, and if this was not possible, that she would be offered a severance package equivalent to what she would receive if she was made redundant. The Respondent refused to give that undertaking, stating it could make some efforts, but it was not possible to provide an absolute guarantee regarding the proposed working arrangements. The Respondent also told her that she would not be offered a severance package if this happened, as her role would not be redundant.The ET decided that the Respondent's refusal to give an undertaking that she would not be required to work with her former colleagues placed her, as a disabled person, at a substantial disadvantage due to the level of anxiety it would cause her. Giving such an undertaking would have been a reasonable adjustment in the circumstances.The ET made a formal recommendation under the Equality Act 2010 for the Respondent to give an undertaking to ensure that the employee did not work with her former colleagues and, in the event this was not possible, the Respondent would use its best endeavours to secure a severance package for the Claimant. However, this recommendation was subsequently set aside by the ET on the basis that it was inappropriate to make a recommendation covering remuneration and it was not possible to put a timescale on the recommendation.Both parties appealed to the EAT. The Respondent appealed against the ET findings on liability while the Claimant appealed the setting aside of the recommendation.

The Decision

The EAT dismissed the Respondent's appeal but upheld the Claimant's. It rejected the Respondent's argument that committing to a future severance payment could not be a reasonable adjustment since the purpose behind the duty to make reasonable adjustments is to keep a disabled employee in work. Had the Respondent provided the Claimant with the requested undertaking, she would have been able to return to work without fear.The EAT agreed that there were problems with the recommendation made by the ET, due to the lack of time limit and vague wording, but the ET was wrong to conclude that it should not make any recommendation at all. The undertaking could have a time limit, or it could remain in place indefinitely. The EAT therefore remitted the case to the ET to reconsider what recommendation should be made.

What does this mean?

This decision could be concerning for employers faced with difficult situations between employees who do not want to work together, particularly if the duty to make reasonable adjustments arises. It is usually uncommon in practice for the ET to make a formal recommendation to a Respondent after losing a discrimination claim, in addition to awarding compensation. However, this case illustrates that it is still open to the ET to do so and also demonstrates the potentially wide scope of such a recommendation. It is also likely that the size and resources of the employer in this case would have been a factor in reaching its decision.

 Dismissal without any procedure was not unfair

In Gallagher v Abellio Scotrail, the EAT declined to overturn an ET's decision that a procedure would have been futile after a breakdown in the working relationship and that the dismissal was therefore not unfair.

The Facts

The Claimant was a senior manager in the Respondent's business. Her working relationship with another senior colleague deteriorated at a critical time where the Respondent was facing difficult trading conditions and needed the Claimant and her colleague to work constructively together. The Respondent consulted with HR and, after concluding there had been a complete breakdown in the working relationship, dismissed her at an appraisal meeting without any forewarning, procedure or right to appeal. The ET concluded that there had been a breakdown in the working relationship and that in the particular circumstances, following a procedure would have been futile and probably would have even made the situation worse. The dismissal was therefore within the range of reasonable responses open to the Respondent in the circumstances and was not unfair. The Claimant appealed to the EAT, on the grounds that she should have been warned ahead of her appraisal that she could be dismissed and that she should have been given the opportunity to appeal against her dismissal.

The Decision

The EAT dismissed the Claimant's appeal. In doing so, the EAT held that there may be situations where the dismissal of an employee without any procedure might be considered reasonable and fair. However, the EAT was cautious in its decision, noting that "Dismissals without following any procedures will always be subject to extra caution on the part of the Tribunal before being considered to fall within the band of reasonable responses."In this case, the EAT held that, owing to the unusual circumstances of the case, the ET was within its right to find that the Claimant's dismissal was fair.

What does this mean?

There is no rule of law stating that the absence of any procedure will always render a dismissal unfair. However, it is very unlikely that an employer will be able to justify not following any procedure apart from in very unusual circumstances and therefore this case falls into the category of exceptions that prove the rule. This decision should therefore be treated with caution by employers and if any employer is proposing to dismiss an employee without following any procedure, it is always recommended that professional legal advice is sought beforehand.

 Coronavirus - updates

As highlighted in previous bulletins, our Coronavirus Hub is regularly updated to reflect new guidance for employers and employees, including on returning to work and travel. In addition, our FAQ for employers answers the most common pandemic-related questions.