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Employment Law Newsletter May 2013

Employment Law Newsletter May 2013

Dear Employer

Finally, some progress has been made on the proposed new system of employees being given shares in return for giving up some of their employment rights. The scheme has not yet been finalised but, as seen in our “What’s in the Pipeline” section, some further adjustments have been made. For some employers it could be the answer to their prayers; for others it may not bode so well. If you require any advice on this or any other employment issue, then please do not hesitate to contact us: details are at the end of this letter.

If you have any comments or suggestions on this newsletter, please email newsletter@breezeandwyles.co.uk

Kind regards

The Employment Law Team

Some Recent Cases in Employment Law


A recent case has held that where an insolvent company transferred part of its business and closed the other part, the employees of the closed part were not “affected employees” of the transfer and so were not entitled to be informed and consulted under TUPE consultation. In such a situation, the employees are “affected” by the closure of their part of the business, not by the transfer. Even if the closure is indirectly the result of the transfer, that does not mean that employees are “affected” by the transfer within the meaning of the TUPE Regulations. [I Lab Facilities Ltd v Metcalfe and Others]


In a Spanish case, which has ramifications for employers in other European countries, the European Court of Justice (ECJ) has held that homophobic comments made in public by persons strongly associated with an employer, which suggested the existence of a homophobic recruitment policy, are capable of establishing a “prima facie case of discrimination” against the employer – even if the person who made the comments is not legally capable of binding the employer in recruitment matters. The fact that the employer may not have clearly distanced itself from the comments is a factor which a national court may take into account in deciding whether or not the claimant has established that there is a case – and also in deciding whether or not the employer has rebutted that case.

In brief summary, B owned shares in a Romanian football club. It was public knowledge that he played an important behind-the-scenes role but was not capable of binding the club in employment-related matters, such as recruiting staff. B gave an interview to a journalist concerning the possible transfer of a professional footballer, X, to the club. The journalist suggested X was homosexual; in response, B made a number of homophobic comments, including that he would prefer to hire a player for the junior team than a homosexual. In the event, X was not transferred to the club. AA, a non-governmental organisation which promotes and protects gay and transsexual rights, lodged a complaint against B and the football club before the National Council for Combatting Discrimination, claiming that they had directly discriminated on the grounds of sexual orientation. It claimed that B had taken on board the journalist’s suppositions that X was homosexual and prevented the footballer being taken on by the club. The Council rejected the claim against the club on the basis that the club could not be responsible for these comments because B did not have the legal capacity to bind the club or represent it in recruitment matters. The organisation (AA) appealed to the Romanian Court of Appeal which referred it to the European Court of Justice.

To establish a discrimination claim (of any kind), a claimant has to establish that there are facts from which discrimination can be inferred – i.e. a “prima facie” case. Here, the ECJ held that these comments were capable of establishing a prima facie case if the comments came from a person who plays an important role in the management of that employer, even if that person is not legally capable of binding the employer in any employment related matters. Also, the fact that the employer has not clearly distanced itself from the comments is a factor which a national court may take into account in deciding whether or not the claimant has established a prima facie case.

The ECJ also held that in order to rebut a prima facie case of sexual orientation discrimination, the employer would not need to prove that persons of a particular sexual orientation have been recruited in the past. However, an employer could rebut the prima facie case by, for example, showing that it had clearly distanced itself from the public statements and by pointing to the existence of a recruitment policy aimed at ensuring compliance with the principle of equal treatment. [Asociatia ACCEPT v Consiliul National pentru Combaterea Discriminarii]



Sometimes, redundancy can disguise dismissal for poor performance. A recent EAT (Employment Appeal Tribunal) decision highlights the tension between the two. Mr M threatened to leave, so his employer recruited another Practice Manager. The new recruit proved to be more capable. Mr M did not resign, at which point the medical practice had two Managers but only needed one. Mr M was made redundant and his more capable replacement retained. The EAT accepted that Mr M’s dismissal was due to redundancy and not, as might seem, a disguised performance dismissal. But his dismissal was held to be unfair, as it had been pre-determined and consultation was a sham. However, his compensation was reduced by 100% because his selection was inevitable given his shortcomings.

Employers should note that the case does not give employers the green light to hire an employee alongside a poor performer in order to make the poor performer redundant. The employer here had not recruited the second employee with that in mind or because Mr M was under-performing. However, it shows that there is scope to establish a redundancy if an employer recruits extra staff (who may turn out to be more capable) and is then faced with more employees than it needs. [Malekout v Ahmed & Others (t/as the Medical Centre)

What’s in the pipeline


Regular subscribers will recall that the new Employee Shareholders proposals were announced in October 2012. The idea was to give companies flexibility as to how to hire their staff and help their companies grow. The proposals were aimed at the small-to-medium fast-growing companies. The idea is that employees should be given the opportunity to give up some of their employment rights in return for shares in the company. Originally, it was called Employee Owner Status but that has now been changed to Employee Shareholder Status. The shares to be allotted to the employee must have a minimum value of £2000. There is no minimum value on the shares that can be given to employee shareholders but the exemption from Capital Gains Tax will only apply to shares having a value of up to £50,000 on acquisition.

The scheme has not been finalized yet but here is an up-date.

The House of Lords has approved some amendments to the Employee Shareholders Scheme:

1. A company which is wanting to use the scheme must give an individual a written statement of the particulars of the status of employee shareholder, specifying the employment rights he or she will give up and detailing the rights, restrictions and other conditions attached to the shares and will say, e.g. whether the shares have any voting or dividend rights, whether they can be bought back or redeemed etc. This written statement of employee shareholder particulars will be in addition to the statement that employees are already entitled to have under the Employment Rights Act (i.e. setting out their terms and conditions)

2. An individual, once he or she has received the written statement of particulars, must be given independent advice as to the terms and effect of entering into the scheme. Unless independent advice is received, and the individual has been given seven days to consider the advice, the agreement will have no effect in removing his or employment rights. Acceptance of an employee-shareholder contract within that seven-day period will also have no legal effect. Under the revised scheme, even if the individual decides not to take up the job, the company will be required to meet the “reasonable costs” of the advice.

The scheme is not without criticism, e.g. the impact the proposals will have on industrial relations and the trust between employee and employer; also, that the employee shareholder status could be manipulated to facilitate tax avoidance or benefit senior employees only; also, many small companies may not be in a position to offer employee shareholder status at all, as £2000-worth of shares may be a significant percentage of the share capital.

The proposals may be seen as a good thing for senior employees who may be less concerned about the loss of unfair and redundancy rights. Also, they may be willing to acquire more than the minimum £2000-worth of shares and incur the up-front tax charge.

The Employer Traps and Other Tips


The fact that a person is recruited for a fixed term does not prevent them being a proper employee. A fixed term contract ends either on the expiry of the fixed term; on the completion of a particular task; or on a specified event. Remember that fixed-termers are entitled to basic employment rights, e.g. the national minimum wage, paid holiday, protection against discrimination etc. A fixed-termer who works for more than one month must also be given a written statement of terms and conditions of employment. If you treat your fixed-term employee less favourably than his or her comparator (another employee who is doing the same or broadly similar work), then you can be in breach of the statutory regulations protecting fixed-termers. For example, they must be allowed the same access for training and promotion as permanent employees and should not be selected for redundancy just because they are fixed term. You must inform fixed-termers about permanent employment opportunities. It is only possible for an employer to treat a fixed-termer less favourably if it can be “objectively justified”.


If you have an employee who has health issues you should make further enquiries to establish whether their problem amounts to a physical or mental impairment so as to render them disabled under the Equality Act 2010. Failure to make enquiries and to take appropriate steps to make adjustment would render you liable for discrimination. Reasonable adjustments can include making adjustments to premises, altering hours of working or training, arranging for an outside agency to give assistance (for which the employer is not usually liable). Be aware that the Code of Practice now says that employers must “do all that they can reasonably be expected to do” to find out whether an employee has a disability, which indicates that reasonable enquiries should be made (although not at the interview stage except to ascertain whether reasonable adjustments can be made to enable them to attend the interview). Disability discrimination is a very tricky area so it is always better to take advice if unsure. If in doubt, shout.


The Spanish case referred to in this newsletter shows that an employee could get you, the employer, into trouble unwittingly or without you having done anything wrong. If you do find yourself being accused of discrimination, of whatever kind, one of the first things that an Employment Tribunal would want to see is an Equal Opportunities Policy in place showing (at the very least) that you as the employer are aware of these issues and take steps to prevent discrimination happening.