HR ADVISER The Latest Developments: Employment Law, Pay and Benefits and Employee Management

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1 HR ADVISER The Latest Developments: Employment Law, Pay and Benefits and Employee Management Employment Contracts Create Employment Contracts Changes to Employees Contracts Restraint of Trade Clauses Terminate Contracts

2 HR ADVISER SPECIAL REPORT EMPLOYMENT CONTRACTS Published by Agora Business Publications LLP Nesfield House Skipton Yorkshire BD2 AN Publisher: Victoria Burrill Phone: Fax: Web: Copyright 201 Agora Business Publications LLP. This material may only be used in the furtherance of the subscriber s business and may not be sold, hired, copied or used for any other commercial purpose etc. without the prior written consent of Agora Business Publications LLP. Every effort has been made by Agora Business Publications LLP to ensure that the information given is accurate and not misleading, but Agora Business Publications LLP cannot accept responsibility for any loss or liability perceived to have arisen from the use of any such information. 2 Agora Business Publications LLP. Nesfield House, Skipton, Yorkshire, BD2 AN. Registered in England No. OC25, VAT No. GB

3 EMPLOYMENT CONTRACTS HR ADVISER SPECIAL REPORT Ensure You Don t Fall Foul of Contractual Breaches! As you know, an employment tribunal is a costly and time consuming business and is the one thing you really want to avoid. However, you can reduce your chances of being involved in legal wranglings by ensuring you have watertight employment contracts in place. These can be complicated and wide-ranging in scope, from making relatively simple changes to employees contracts, like changes in duties or working hours, to significant areas such as managing redundancies effectively. And you can t always plan for every eventuality! Read our Special Report on Employment Contracts to ensure you do everything you can to minimise your chances of being taken to an employment tribunal and to ensure that any contractual changes you do make, are all legally accurate and binding. Inside this Special Report you will find: Creating a Contract of Employment... 1 Landmark Ruling on Uber Workers What this Means for Your Business...2- No Employment Status for Agency Workers... 4 Can I Terminate the Contract of a Troublemaker?... 4 Can I End a Fixed-Term Contract Early?... 4 Terminating a Missing Employee s Contract... 5 Unsigned Contract Still Binding... 5 Unreasonable Restrictive Covenants are Void... 6 How to Make the Right Choice: Zero Hours or Fixed-Term Contracts?... Working Hours Variation of Contract... 8 Restraint of Trade Contract Clause... 8

4 HR ADVISER SPECIAL REPORT EMPLOYMENT CONTRACTS Creating a Contract of Employment All employees should have a written document that sets out the key terms of their employment. The Employment Rights Act 1996 requires such a statement to be issued to employees within two months of them starting work if they are going to be working for you for one month or more. This written statement must include a number of factors, which are listed here: The names of the employer and the employee. The date when employment began. The date when continuous service with the employer began (i.e. taking into account any previous service with the employer prior to this appointment, maybe because the employee has transferred under the Transfer of Undertakings (Protection of Employment) Regulations 2006). The job title, or a brief description of the job duties. The rate of remuneration, the way in which it is to be calculated (this is particularly relevant if there is overtime, a bonus or any other variable element of pay) and the periods at which the employee will be paid _ this includes all financial benefits as well as basic pay. Terms and conditions relating to hours of work (this should include basic hours, shift patterns, rules regarding overtime and anything else that relates to the hours that are worked). Terms and conditions relating to holiday allowance and pay (this must specify the amount of holiday that will be allowed and any specific requirements to ensure that the entitlement to paid holiday is not lost). The place of work, or the employer s address if the employee will be moving between a number of places of work. Terms and conditions relating to payments given if incapacitated due to sickness or injury. Details of pension schemes. The length of notice the employee is required to give, and the employer is entitled to receive, to terminate the contract of employment, and vice versa. Where the employment is not intended to be permanent, the period for which it is expected to continue, or if it is a fixed-term contract the date it is to end and, for extra flexibility, an early termination clause. Any collective agreements (agreements reached between the employer and a recognised trade union) that will directly affect the employee. If the employee is required to work outside the UK for more than one month, the duration of the period of work outside the UK, the currency of the remuneration while abroad and any additional remuneration or benefits applicable to the work; in addition, any terms and conditions relating to the eventual return to the UK. Details of disciplinary rules that apply to the employee. Details of grievance procedures, and the name of the person the employee should apply to if s/he is dissatisfied with any disciplinary decision or to air a grievance. It is recommended that you check the documents that you currently issue to ensure that all of these points are covered. In addition, it is advised that you add any terms that are particularly relevant to the job that the employee might be doing, or specific terms of employment. 1

5 EMPLOYMENT CONTRACTS HR ADVISER SPECIAL REPORT Landmark Ruling on Uber Workers What this Means for Your Business The ruling that individuals working for Uber are workers (a sort of mop up category of those who are neither employees or self-employed) was widely reported in the media. However, now that some of the initial debate has died down it is time to take a detailed look at the ruling, what it tells us about employment status and what you need to be aware of if you have any individuals working for you that you think are self-employed but might actually be workers. Drivers working for Uber are registered with them and this then allows a member of the public who wants a vehicle to use the Uber app to make contact with the driver if they are available. When a member of the public is connected to an Uber driver, the driver has 10 seconds to accept the trip. If the driver does not accept the trip, it is presumed that the driver is unavailable and, therefore, the member of the public is connected to a different driver. At the end of the journey, the fare is calculated automatically by the Uber software and the passenger pays by credit or debit card. The drivers are paid weekly by Uber. Given these basic facts of how the process works, why has the Employment Tribunal concluded that they are workers (note that they have not been deemed to be employees) and what are the implications for you? To understand why it has been concluded that the Uber drivers are workers, it is important to start by understanding the difference between someone who is self-employed, employed and a worker. In the Uber case, there were a number of factors taken into consideration when determining their employment status. Key factors were: The individuals were not carrying out their own business. Indeed, there are around 0,000 Uber drivers and the Employment Tribunal did not think it was realistic to see Uber as a mosaic of 0,000 small businesses. This suggested that they were not self-employed. The drivers were only working for Uber when they switched on the app and could choose when to do this. However, once they were connected to Uber via the app, they had to accept at least 80% of the journeys offered to them and if they declined three trips in a row, they were forcibly logged off for 10 minutes. This suggested some element of control from Uber. It should also be noted that they had to fund their own expenses and their own private hire licence both of which were inconsistent with employment. This suggested that they were not employees. The conclusion, therefore, is that they are workers. A self-employed individual is running their own business for their own purposes. They are not under the control of an employer. An employee is someone who works under a contract of service, is under the control of the employer, who has to provide work personally and has no term that is inconsistent with employment. In addition, an employee is obliged to do work for the employer and the employer is obliged to offer work. A worker is someone who does not have all the obligations of an employee but is not carrying out a business for their own purposes. Why does this matter? It matters because, as workers, they are entitled to the following: To be paid at least the National Minimum/Living Wage for each hour they are working. It is likely that many Uber drivers will be claiming unpaid wages. Rest periods and paid leave, in accordance with the Working Time Regulations Uber drivers have not received any paid annual leave and they are likely to now claim unpaid leave (this can only be claimed for the previous 2 years). The right to claim Statutory Sick Pay if they meet the qualifying requirements. Protection against suffering any detriment if they should make a public disclosure. However, as they are not employees, they will not be entitled to: 2

6 HR ADVISER SPECIAL REPORT EMPLOYMENT CONTRACTS The right to claim unfair dismissal after 2 years service. Statutory redundancy payments if they are made redundant. Protection of the transfer of undertaking legislation if Uber decided to sell its business. Uber has said that it will appeal the decision but presuming that it is not changed, they now face a considerable bill in relation to such things as unpaid holiday pay for around 0,000 drivers (limited to 2 years). In addition, it is reported that a number of similar companies will be taking similar claims. Clearly, getting employment status right first time is important. The Rights of Employees, Workers and Self-employed As well as working out whether or not someone is an employee, it is important to understand the different rights that employees, workers and the self-employed have: Employment Status Definition Table Paid the National Minimum/Living Wage Paid Statutory Sick Pay Paid holidays and regular rest breaks To claim unfair dismissal To receive Statutory Redundancy Payments Paid time off for ante-natal care Employee Worker Possibly Self-employed The right to be accompanied at a disciplinary or grievance hearing Pension auto-enrolment Protection from discrimination Rights under data protection legislation The right to receive a written statement of employment particulars The right to an itemised payslip

7 EMPLOYMENT CONTRACTS HR ADVISER SPECIAL REPORT No Employment Status for Agency Workers A worker supplied by an employment agency is usually placed in a company to deal with a short-term increase in demand, or to cover the absence of a permanent employee. Although it is often intended that an agency worker will only be in a company for a short period of time, sometimes they stay for longer and sometimes for many years. This issue of whether an agency worker ever gains employment status has been the subject of several cases brought to the Courts over the years, and there have been conflicting decisions. However, in James v Greenwich Council 2006 guidelines were given that are still being followed by the courts today. The Case: James had been working for the Council for five years. She argued that an employment relationship had developed. However, the Courts disagreed. The Ruling: It will be a rare situation where an agency worker is seen to be an employee of the company where s/he is placed. For there to be an employment relationship there must have been some discussion or actions that suggested that the employer is obliged to give the agency worker work, and a specific agency worker is required to do that work. The length of time that an agency worker has been in a company is not relevant. Can I Terminate the Contract of a Troublemaker? Question: 10 weeks ago, we recruited a new Accounts Manager. She seemed very competent and had excellent references. However, since she arrived life has been awful! She has upset all of the team by criticising their work and saying that they do not know what they are doing. Last week, she submitted a written report to me saying that we have been accounting wrongly and owe lots of tax. I am sure she is wrong but when I discussed it with her, she just talked over me and ignored everything I said. Can we just get rid of her? Answer: The response to this question depends on whether you have a probationary period in place which allows you to dismiss without following your contractual procedure. Start by checking the contract of employment. A probationary period is typically for months. If she has been with you for 10 weeks, then you need to act quickly. If there is no probationary period, then you will need to tackle this situation through issuing disciplinary warnings. Although she will need 2 years service to bring a claim of unfair dismissal, you should still follow the Acas Code of Practice: Disciplinary and Grievance Procedures. Give her a warning, make it clear what she needs to do to improve and hopefully the required improvements will be made. If not, proceed with a further warning and, if there is still no improvement, you could dismiss for poor performance. Can I End a Fixed-Term Contract Early? Question: We have employed an employee on a fixed-term contract to help with the introduction of a new finance system. He was recruited to work for six months, ending on 12 February 201. However, the system introduction has gone more smoothly than expected and will be completed by the end of Can we terminate his contract early? Answer: It depends what the contract actually says. If the contract says that the employee will be employed until 12 February 201 then it is not possible to simply end the contract at the end of However, if the contract says 12 February 201 or an earlier date if the project is completed earlier then it would be possible to terminate the contract. If you have not included the option of terminating when the project ends, start by considering if there is any alternative employment available. If there is not, then this will be a redundancy situation. 4

8 HR ADVISER SPECIAL REPORT EMPLOYMENT CONTRACTS Terminating a Missing Employee s Contract It s frustrating when you want to contact an employee who has been absent due to sickness for a long time and they are no longer at the address that you have. How hard should you try to locate the employee? The Case: In 2005, Zulhayir started a period of sickness absence. In 2006 he was still absent, moved house and did not tell his employer. There was no response to a letter sent to the employee, which was eventually returned by the Post Office as being undeliverable. The employer concluded that the employee s contract of employment was terminated (Zulhayir v JJ Food Services Ltd 201 EWCA Civ 1226). The Ruling: The claims of unfair dismissal and disability discrimination were unsuccessful. The unfair dismissal claim failed because the employer had waited a lengthy period of time before terminating the contract, the employee had made no attempt to contact the employer and had shown no intention of working. Tip: All you need to do is make a reasonable attempt to make contact. Send a letter by recorded delivery. Ask staff if they know where the employee is. Ensure that you have an unauthorised absence policy. Unsigned Contract Still Binding If a contract has not been signed, is it legally binding? This was answered in the following case: The Case: The employee joined the company in He had a number of promotions, and signed a contract in 200. When he was promoted in 2009 he did not sign the contract associated with that appointment, which had a restrictive covenant in it. When he resigned he went to work for a competitor. The employer sought to enforce the restrictive covenant, but the employee claimed it was invalid because the contract was not signed. The Ruling: The restrictive covenant could be enforced. Although the employee had not signed the contract he had taken advantage of pension and healthcare benefits that were part of it (and which had not been part of his previous contracts at lower levels in the organisation). His actions indicated, therefore, that he accepted the terms of the contract of employment (FW Farnsworth v Lacy 2012). Tip: Ensure that employees sign any contract of employment that is issued to them. Although the employer won the argument in this case, it was a time-consuming and costly argument that would not have been needed if it had ensured that the contract was signed. 5

9 EMPLOYMENT CONTRACTS HR ADVISER SPECIAL REPORT Unreasonable Restrictive Covenants are Void Although restrictive covenants are used by employers to ensure that an employee does not engage in anything that damages an employer once the employee has left employment, drafting the covenant incorrectly or using the wrong type of covenant could leave the employer unprotected. If any part of a covenant is unreasonable it can be removed by the courts or the whole covenant could be declared void. Clearly, if it is void that leaves the employer with no protection. To ensure that a covenant is reasonable: The geographical coverage of the covenant must be reasonable it might be appropriate to limit the competitors that the employee can work with in the immediate locality, but not nationwide. The length of the covenant must be reasonable it is going to be rare that more than 12 months is reasonable, and often that will be too long. The type of protection must be reasonable it could be that the employee is restricted from working in a particular area, but if this means that the employee cannot work because that is their only area of expertise this would be unreasonable. It is not possible to give specific guidance on what will make a covenant reasonable or unreasonable. The Courts will look at the nature of the job, the nature of the competition and the seniority of the employee in considering whether the covenant is enforceable as highlighted in the case below: The Case: An employee joined the company as a junior sales representative in His contract of employment included a restrictive covenant such that he was not allowed to work for a competitor for 12 months after he left the organisation. In 2005 he was promoted and was given a contract that set out changes to his remuneration, but stated that all other terms and conditions of employment remained unaltered. In 2012 he resigned and went to work for a competitor. The employer dismissed him and sought an injunction to stop him, in accordance with the restrictive covenant (Patsystems Holdings Ltd v Neilly 2012). The Ruling: The restrictive covenant was not valid. When it was put in Neilly s contract in 2000 it was unreasonable because the extent of the restriction was inappropriate for a junior employee. In 2005 it was not specifically referred to, and hence it was not brought to life. The employer was not entitled to dismiss him in 2012 and breached the contract in doing so. Hence, this breach would have broken a restrictive covenant if it had been valid. Tip: It is important to review the covenant if an employee is promoted to ensure that it is still valid. As well as thinking about the level at which the covenant should be pitched it is also important to think about the type of covenant that is included. For example, it is not uncommon to include a non-solicitation clause, which restricts an employee from approaching a past client of the organisation for a specified period of time. However, that does not protect the organisation if the client approaches the employee. Before putting in place a restrictive covenant check the following: Is a specific geographical area identified in the covenant? Is this reasonable? Is a specific time frame identified in the covenant? Is this reasonable? Is the employee being restricted from particular work? Is this reasonable? Does the covenant do what you want? Does it stop all contact with former clients, for example, or just stop the employee from making contact? Is the covenant relevant to the level of job that the employee is doing? Does your non-poaching covenant specify that your employee must not entice away named employees, with whom they had regular contact during, for example, the six or 12 months preceding the termination of their employment? Is the employee being promoted? Has the restrictive covenant been reviewed appropriately to ensure validity? 6

10 HR ADVISER SPECIAL REPORT EMPLOYMENT CONTRACTS How to Make the Right Choice: Zero Hours or Fixed-Term Contracts? A number of you will be starting to plan the recruitment of additional staff for the Christmas period. This could be because you work in a seasonal business, such as retail, where there is increased demand over this period. Alternatively, it could be that you recruit additional staff as support, given the rise of absenteeism during the winter months. Here, we show you when it is best to use zero hours contracts or fixed-term contracts for temporary staff. Zero Hours Contracts A zero hours contract is a contract where there is no commitment to offer a certain amount of work. You offer work when it is available. The obligation on the individual to do the work depends on the agreement that you have with the individual. Sometimes the individual is obliged to do all work that is offered or lose the arrangement. At other times, the individual has the freedom to refuse work. If there is obligation to do the work, then it is likely that the individual will be an employee. It is not possible to restrict someone working on a zero hour contract from also working for another employer. Fixed-term Contracts A fixed-term contract is for a specific period of time. The contract could end on a specified date, or when an event occurs (e.g. when a project comes to an end). You are required to make someone working on a fixed-term contract aware of any permanent opportunities that become available in the organisation. When the fixed-term contract comes to an end, it is a dismissal and you must consider if there is any suitable alternative work available. When to Use Zero Hours vs. Fixed-term Contracts Situation You do not know how much work you will need doing. You are covering an absent employee. You need additional assistance over the Christmas period. Zero Hours Contracts This situation fits best with zero hours. This gives you the flexibility to offer work as it becomes available but not to be tied in to paying the individual when there is no work. This does not work well for zero hours because you need regular work for a period of time. This could fit with a zero hours contract if you are not sure how much additional assistance you will need. The advantage of using a zero hours contract is that it will give you the flexibility to just offer work when it is available. The disadvantage of using this contract is that the individual might be unavailable to work for you. Fixed-term Contracts It does not work well with fixed term because you would not know what end date to put in the contract. This situation fits best with a fixedterm contract. Word the contract such that it ends when the absent employee returns to work. This means that you are not going to have both the fixedterm worker and the absent employee employed at the same time. It could fit with a fixed-term contract if you are sure you have a certain number of hours work available each week for a period of time. The advantage is that you have a person committed to come to work for you. The disadvantage is that you might not have as much work as you expect and then you will still be tied in to having the individual work for you.

11 EMPLOYMENT CONTRACTS HR ADVISER SPECIAL REPORT Working Hours Variation of Contract A common dilemma that faces organisations is the need to change working hours. Can an employee s contract be changed? The answer is that an employer cannot make a unilateral variation of a contract of employment. A contract of employment is a legal agreement and neither the employer nor the employee can make alterations without the agreement of both sides. In reality, there will be occasions when an employer has a real need to change a contract of employment and hence the following process needs to be followed: The first step is to talk to employees, explain the need for change and ask them if they would be prepared to work the hours. It might not be necessary for all employees to change their hours, maybe it would be appropriate to ask for volunteers initially. If employees will not agree to the change, there are two main options. One is to force the change. The danger of this is that employees resign and claim constructive dismissal. The other option is to terminate the contracts and offer new contracts of employment with the new terms. The danger here is that employees make claims of unfair dismissal. To defend the claims a strong business reason for making the changes would be needed. Restraint of Trade Contract Clause Note: The actual terms of a restraint of trade clause will depend on the nature of your business. The restraint must be reasonable, otherwise it is not enforceable. For example, if you say that an employee cannot work for any competitor in a seventy mile radius that might well be unreasonable, because it is forcing the employee to relocate to work elsewhere. However, a ten mile radius might be reasonable. The nature of the restraint is also likely to depend on the seniority of the employee. The typical areas to cover in a restraint are set out here: Immediately following the termination of your employment, and for [number] months after the termination you will not: Work for any competitor within a [number] mile radius of your normal place of work. Induce, solicit or entice any employees of this organisation away from the organisation. Make contact with any customers of this organisation with which you have had dealings in the past [number] months. You will not entice them away from their custom with this organisation. Each of these restrictions forms a separate covenant, and can be enforced separately. If you receive an offer of employment or engagement to start during the period of the restrictions, you agree to provide the person, firm or company making the offer, with a copy of this clause and, if you accept the offer, you shall immediately notify this organisation of the person, firm or company s identity and a description of the duties of the position accepted. 8