October 24, 2022

Employment legal update #59 | October 2022

Posted in Employment
Employment legal update

Our Employment & HR team brings its monthly review of new legislation, guidance and case law.


The UK Government has confirmed that it has no plans to devolve employment law to Scotland. In a debate in the House of Commons in September the Parliamentary Under-Secretary for Business, Energy and Industrial Strategy (BEIS), stated that the Government has ‘no intention’ of devolving legislative competence for employment rights matters to the Scottish Government. One of the reasons was that to devolve employment rights could disadvantage workers by suppressing the free flow of labour between England and Scotland.

The House of Commons Women and Equalities Committee (WEC) has published a report, Menopause and the Workplace. Although it does not endorse introduction of mandatory menopause policies, it states that there is a lot that employers can do to help employees, citing the risk of discrimination claims and reputational damage. Solutions include practical adjustments, additional flexibility, and encouraging greater awareness of the menopause. The report calls on the Government to introduce a number of measures, including model policies which should cover requesting reasonable adjustments; advice on flexible working and sick leave for menopause symptoms; and provisions for education, training and building a supportive culture. The report also calls on the Government to bring into force s. 14 of the Equality Act which would allow dual discrimination claims, and to consult within six months on making menopause a protected characteristic, including a duty to provide reasonable adjustments for menopausal employees. However, it is unlikely that the WEC's calls for legislative reform will be taken forward, as the Government confirmed that it does not intend to make any changes to the Equality Act.

The Order increasing the limits on the maximum damages award against a trade union where industrial action is found to be unlawful is now in force. The limits are increased as follows:

  • Less than 5,000 members: £40,000 (previously £10,000)
  • 5,000 to 24,999 members: £200,000 (previously £50,000)
  • 25,000 to 99,999 members: £500,000 (previously £125,000)
  • 100,000 members or more: £1,000,000 (previously £250,000).

The new limits do not apply to any tort proceedings which relate to an act that began or occurred before 21 July 2022.

Regulations allowing employers to engage temporary workers when industrial action is taking place are now in force. The Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022 revoke the regulation of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 preventing this. The trade union Unison has indicated that it will seek judicial review of the Regulations.

Following a government consultation about extending the ban on exclusivity clauses (introduced in 2015 for zero hours workers) to other low-paid workers, draft regulations have been laid before Parliament which will prohibit exclusivity clauses in the employment contracts of workers whose earnings are on or below the lower earnings limit (currently £123 a week). Key terms are:

  • Any term in a contract which prevents a worker from working or performing services under another contract or from doing so without their employer’s consent, will be void and unenforceable.
  • Employees will be protected from unfair dismissal and workers will be protected from detriment in circumstances where an exclusivity clause in the contract is breached.
  • There is no minimum service qualifying period for this new unfair dismissal protection.
  • Where an employment tribunal finds that a worker has suffered a detriment, it may make a declaration and award an amount of compensation which it considers just and equitable up to an amount equal to the unfair dismissal basic and compensatory award.

The draft regulations will come into force 28 days after the day on which they are made and apply to England, Scotland and Wales.



Reimbursement of expenses taxable as earnings

The Court of Appeal has overturned a decision in the Upper Tribunal that employees’ benefits which are in excess of reimbursed expenses did not constitute profits and so were outside the definition of earnings in section 62 of IT(EP)A – and as such were not taxable as earnings. The decision in the First-tier tribunal in HMRC v Murphy was thus restored.

The taxpayer and his claimant colleagues had brought and settled a group action against the Metropolitan Police for unpaid overtime and other allowances. The settlement sum comprised a success fee and litigation insurance premium which was payable directly to the solicitors and insurance company, as well as their own settlement payment. The Upper Tribunal ruled that the success fee and premium were not earnings for tax purposes as there was no "profit".

However, the Court of Appeal disagreed. It held that the question was whether the reimbursed expenses provided a financial benefit in return for services, which is the meaning of “profit” in section 62. It did not matter how the money was paid, but what it was actually for, which is reimbursement of services rendered.

The court emphasised that its conclusion did not result from the label put on the payment but from its nature, as a lump sum in respect of employment (albeit that it included amounts that the claimants would use to pay legal costs and the insurance premium).

While it is prudent to ensure settlement agreements are carefully structured in terms of the payments made, this case demonstrates that it is not how the payments are set out, but what they actually apply to, which determines whether or not they are taxable.

Removal of PHI payments not unlawful age discrimination

In Pelter v Buro Four Project Services Ltd, the EAT has upheld an employment tribunal’s decision that an employer that provided access to a permanent health insurance (PHI) scheme did not discriminate against an employee whose payments under the PHI scheme ceased when he reached the age of 65. The Equality Act provided that payments under a PHI scheme that ended when the recipient turned 65, were lawful.

The employee was accepted under the scheme to receive benefits until age 65, the then state pension age. When the employee’s state pension age increased to 66, the payments under the scheme were still being paid and were a matter for the insurer. The insurer ceased payment when the employee reached 65 in accordance with the terms of its scheme in force at the date on which he became incapacitated, and benefits became payable.

The claimant then issued proceedings for direct age discrimination in the tribunal, which were dismissed. In accordance with the scheme rules, the insurer ceased the payments even though the claimant was still incapacitated. While the reason the payments stopped was directly connected to his age, the discriminatory act was that of the insurer, not the respondent. The tribunal also found that, even if the claimant had been subjected to age discrimination, the respondent would be able to establish a justification defence because, at the time it entered into the scheme, the scheme fell within the exception from age discrimination contained in the Equality Act; or alternatively it was a proportionate means of achieving a legitimate aim under the Act. Finally, the tribunal found that the claim was out of time and that it was not just and equitable to extend time. The claimant appealed to the EAT.

The EAT found that the arrangements were that the employer provided access to the benefits under a PHI scheme, with benefits paid by the insurer, rather than agreeing that it would itself pay sickness benefits until his retirement age. The Claimant’s Service Agreement stated that the provision of access to that benefit was subject to the PHI scheme rules. In the EAT’s view, the purpose of the PHI scheme is that when an employee becomes incapacitated, this triggers the payment of benefits subject to the rules of the scheme. At that point the payment of benefits is a matter for the insurers and not the employer. The scheme rules were that the benefits ceased at age 65, and at the time the claimant started receiving benefits, this was the state retirement age.

Accordingly, the EAT found that the respondent did not discriminate against the claimant because of his age during the period it provided access to the benefit of the PHI scheme. It was the insurer, rather than the employer, that ceased payment when he reached 65, which was as a result of the terms of the scheme crystallising on the date that the claimant became incapacitated; and, as such, his appeal was dismissed.

"Fire and re-hire" allowed – Tesco

The controversial case that has been running the gamut of the courts, Tesco Stores Ltd v USDAW and ors has now reached the Court of Appeal. The case concerned Tesco’s attempts to change terms and conditions of long-standing employees with regard to a particular contractual clause concerning pay enhancements. When consultation failed to elicit agreement, they decided to fire and rehire the employees on different terms which did not include the offending clause.

The unions brought proceedings in the High Court, which granted an injunction to the union restraining Tesco from operating this practice. However, the Court of Appeal found that the High Court had been wrong to find that there was a pre-contractual agreement to the effect that both parties had intended that the clause entitling the employees to enhanced pay was to remain in place until they either left or retired. It further held that even if the High Court had been right, the circumstances of the case did not justify granting an injunction.

The Court stated that it was not aware of any case where a court had granted a final injunction to prevent a private sector employer from dismissing an employee for an indefinite period. It also commented that an injunction cannot be granted unless it is absolutely clear what the employer can or cannot do. That was not the case with the injunction granted by the High Court here. Furthermore, the remedy for a wrongful dismissal at common law is almost invariably financial, and injunctions should only be granted where there is no other feasible remedy.

Diplomatic immunity irrelevant where trafficking involved

In Basfar v Wong the Supreme Court has held by a majority that a diplomat could not rely on diplomatic immunity where the claimant was found to have been the victim of modern slavery and had been trafficked to the UK to work as a domestic servant.

The Vienna Convention on Diplomatic Relations protects diplomats from civil claims in the state in which he or she is posted, which relate to any professional or commercial activity exercised outside their official functions. This case concerned a preliminary issue as to whether the respondent diplomat could strike out various employment-related claims brought by a former employee who claimed to have been trafficked by the diplomat to the UK to work as a servant in a situation which amounted to modern slavery and which the diplomat disputed. The tribunal had refused the strike-out application, but this had been allowed on appeal to the EAT. The appeal from that decision was "leapfrogged" to the Supreme Court.

The majority of the Supreme Court held that there was a critical distinction between ordinary domestic employment arrangements (which are incidental to the daily life of a diplomat and which are not covered by the Vienna Convention) and exploiting a domestic worker for profit which amounts to a "commercial activity" when practised by a diplomatic agent. The court acknowledged that the line between the two can sometimes be blurred.

The minority found that there was no basis for extending the term “commercial activity” to encompass trafficked employment. The correct approach was to consider whether the duties undertaken by the forced labour or domestic servitude could be considered to be a commercial activity. However, the appalling way in which the diplomat treated the claimant meant that he was not engaged in a commercial activity.

Covid-19 Policy not discriminatory

In Cowie and ors v Scottish Fire and Rescue Service, the EAT has held that an employer's paid special leave policy during the Covid-19 pandemic was not discriminatory on the grounds of disability or indirect sex discrimination.

The respondent is a fire service in Scotland which introduced a policy providing indefinite paid leave for employees who were shielding or who had childcare responsibilities, but only when they had used up annual leave and any time off in lieu. This enabled them to continue to be paid even if they were unable to work.

Several employees brought claims in the employment tribunal complaining that the policy amounted to unfavourable treatment because of something arising from a disability under S.15 of the Equality Act 2010 and indirect sex discrimination under S.19 of the Equality Act.

The issue was apparently that the staff could not be flexible in taking their holiday and time off in lieu because they had to use this up before they could take advantage of the policy. They said that this was unfavourable treatment because of something arising in consequence of a disability under section 15; and placed the claimants at a particular disadvantage for the purposes of indirect sex discrimination.

The tribunal upheld the S.15 claims but dismissed the S.19 claims because the claimants had not established the necessary group disadvantage to women.

The respondents then appealed the tribunal's approach to the question of 'unfavourable treatment' in liability for disability discrimination; and the claimants appealed against the dismissal of the indirect sex discrimination claims.

The EAT upheld the respondent's appeal against the finding of disability discrimination and set this decision aside. It found that the relevant treatment was the requirement to use annual leave and time off in lieu before the policy kicked in, and so not when they chose to do so. However, the EAT found that this requirement was not unfavourable to the claimants, because they were then entitled to be paid for time off when they were unwell or shielding, under the policy.

On the matter of the indirect sex discrimination claims, the EAT found that the tribunal was right to find that there was no group disadvantage demonstrated on the evidence, and it had been right to dismiss these claims. It also found that these claims would not have got home on the ground of particular disadvantage, because none have been found. Furthermore, being able to be paid once they had exhausted entitlement to annual leave and time off in lieu was not considered to be a disadvantage event though they had to use up annual leave and time off in lieu before being able to take advantage of the policy. As such, the claimants' appeal was dismissed.

Some people just don't know when they're in luck...!

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