Advisers from The Aikin Driver Partnership answer questions on employment

Advisers from The Aikin Driver Partnership answer questions on employment


Q Recruitment seems to be so full of problems these days, should we be
seeking references for our prospective employees from their previous employers?
And how should we be answering the requests for references sent to us?

A References do have an important part to play in recruitment, so
yes, do seek them. Make your offer of employment – and if you allow employees
to start before references satisfactory to you have been received, any
subsequent employment – subject to receipt of references so your standards
prevail. The acceptance of a conditional offer such as this cannot create a
valid contract until that condition has been fulfilled.

Asking for a reference will not guarantee you will receive one, however, as
there is no general entitlement to a reference. There is a partial exception in
financial services where membership of a regulatory body may require one
employer to provide a reference to another.

When giving a reference you owe a duty of care to both the recipient and
employee concerned. You should ensure the facts you quote are correct and any
opinion you express is supported by the facts. This applies to both oral and
written references (Cox v Sun Alliance, 2001, IRLR 448 CA.)

It is not easy to decide how far to refer to the employee’s misconduct. In
Bartholomew v Hackney, 1999, IRLR 246 CA the employee claimed that his employer
should not have revealed he was in the process of being disciplined for
financial irregularities when he resigned. The court ruled, however, that if
his employer had not revealed this he would have been in breach of his duty to
the recipient.

Can the employee see his reference? Under the Data Protection Act 1998 you,
as referee, do not have to disclose an employment or educational reference
given in confidence (Schedule 7). But the recipient could choose to override
confidentiality and disclose it (S7).

Finally, do not refuse a reference to a former employee where this would
amount to discrimination. As far as sex discrimination is concerned, this will
be termed victimisation. But in the major reform of discrimination legislation
which will take place next year this will apply across the board.

Employee consultationon redundancy

Q We are a retail chain considering whether to close one of our
unprofitable units and sell the premises to a developer. There are about 25
people employed in this unit and we are concerned not to lose them before we
actually close so have kept this confidential. We do not recognise a trade
union. When do we have to tell the staff our plans?

A Whenever there is a proposal to dismiss 20 or more employees on grounds
of redundancy the employer must consult not only the individuals concerned but
also their trade union or elected representatives. The details are found in
S188 and S188A of the Trade Union and Labour Relations (Consolidation) Act

Briefly where an employer is ‘proposing’ to dismiss a number of employees
for reasons of redundancy, consultation should begin "in good time"
but no less than

– 90 days before the first dismissal where it is proposed to dismiss 100 or
more employees within a 90-day period

– 30 days before the first dismissal where it is proposed to dismiss between
20 and 99 employees within a 90-day period

As there is no recognised trade union, the company will have to consult
elected staff representatives. The duty of arranging the election falls on the
employer but if the company already has an employee representative elected body
it may be possible to consult them.

The trigger point for consultation in the 1992 Act is a "proposal"
to dismiss. In MSF v Refuge Assurance plc & anr, 2002, IRLR 324 EAT it was
decided consultation need not begin while the company is only
"considering" or "contemplating" dismissals but should
start when the company has proposals to make as distinct from having a plan
which could lead to redundancies at some future date. Public sector employers
are bound by the Directive on Collective Redundancies on which S188 is based,
however, and this requires consultation to start when dismissals are

The term "In good time" is not defined. However, the case of Hough
v Leyland Daf, 1991, IRLR 194 EAT, which was heard when the requirement to
consult began at the "earliest opportunity" rather than in good time,
gives a little help. Consultation should begin in sufficient time before the
final decision is taken to enable meaningful representations to be made by the

There should also be personal consultation on an individual basis. If the
individual employees are not consulted the dismissal will be deemed unfair.

Dismissal and disciplinary procedures

Q I have been reading about the new dismissal and disciplinary procedures
due to come into force in late 2003 as one element of the Employment Act 2002.
I am not clear how they fit in with existing legislation and procedures
relating to dismissals.

A These new dismissal and disciplinary procedures will affect
dismissals in two main ways:

Firstly there will be a contractual term in every contract of employment
rendering the employer who fails to follow the procedure liable for breach of
contract. This will be significant as employees without the one year’s service
qualification for unfair dismissal claim can bring breach of contract claims.
It is not possible to contract out of these procedures, so the employer has the
choice of following the procedure with its statements, meetings and appeals or
making extra payments to cover the contractual breach.

Secondly, if the employee has the right to claim unfair dismissal and the
employer has not followed the procedure, the dismissal will be automatically unfair
on that ground alone and the tribunal will proceed to calculate compensation.
Furthermore, when it comes to considering the size of the award the tribunal
must increase the size of the award by 10 per cent with a discretion to
increase it by 50 per cent if it would be ‘just and equitable’ to do so.

But compliance with the procedure will not guarantee that the dismissal is
fair. Once a tribunal satisfies itself that the procedure has been complied
with it will revert to its current practice and ask two questions;

What is the potentially fair reason for dismissal?

Was the dismissal fair in all the circumstances?

The absence of a ‘fair’ reason makes the dismissal unfair as does a failure
to follow a fair and proper procedure. Whereas a failure to follow a proper
procedure has almost inevitably rendered the dismissal unfair (Polkey v AE
Dayton, 1987, IRLR 503 HL), in the future tribunals will be allowed to overlook
the procedural error provided the tribunal is satisfied that, had the procedure
been followed, the employee would still have been dismissed.

So, the new procedures should not result in a dramatic change. The message
remains the same – deal with dismissal issues properly or be prepared to pay
the price. A new Acas code is expected to give further guidance.

Fixed-term contracts

Q Will the Fixed-term Employees (Prevention of Less Favourable Treatment)
Regulations 2002 which comes into force on 1 October 2002 sound the death knell
for fixed-term contracts?

A The regulations, which implement the EC Fixed Term Work Directive
(1999/70/EC) will certainly have an effect on the use of fixed-term contracts
and, indeed, on the use of many temporary contracts.

This is because the regulations define a fixed-term contract not only as a
contract with a defined end-date (the current UK definition) but also as a
contract which ends on the completion of a particular task or the occurrence or
non-occurrence of a specific event other than that of normal retirement age.
Therefore many temporary contracts will be covered by the regulations after 1
October 2002.

The regulations make it unlawful for an employer to treat a fixed-term
employee (FTE) less favourably than a comparable permanent employee or to
subject them to any detriment.

This applies in particular to service qualifications for benefits (including
pensions), training and the opportunity to gain a permanent job – so FTEs must
be eligible to apply for permanent, internal jobs.

Furthermore, after four years continuity of service on a fixed-term contract
starting no earlier than 10 July 2002, a fixed-term contract converts
automatically to permanent status unless the employer can objectively justify
not doing this.

FTEs could, however, have difficulty finding a comparator – a fellow
permanent employee engaged in the same or broadly similar work with similar
skills and experience.

Furthermore, the employer can make a case to justify any less favourable
treatment on objective grounds. This justification can be put forward if the
FTE’s terms, taken as a whole, are at least as favourable as those of the
comparator permanent employee.

The penalties for employers who get it wrong could be severe. There is no
cap on compensation and the FTE can request the employer to provide a written
statement of the reasons for the less favourable treatment.

Tribunals can make declarations of the FTE’s rights and make recommendations
to the employer to stop the detrimental treatment.

The regulations may not sound the death knell for fixed-term contracts but
they will certainly give employers pause for thought.

Profit sharing scheme transfers under TUPE

Q We are in the process of tendering to take over the IT
department of a large commercial organisation. If successful this will be a
TUPE transfer. We are concerned because the staff in the department
participates in a profit share scheme. Must we replicate this scheme?

A Under the Transfer of
Undertakings Regulations 1981employees transferring under TUPE do so without
any change to their existing terms and conditions. If the profit share scheme
is contractual, therefore, it should transfer even though profit share terms
based on one company’s profits do not transfer easily to another’s.

Past liability is relatively simple: if an employee has already
earned his share, but has not been paid, the duty to pay will transfer to you
as in Unicorn Consultancy Services v Westbrook, 2000, IRLR 80 EAT. To qualify
for payment the employee had not only to serve a complete year but also be in
employment on a qualifying date. He has served his year in the old employment
and was in Unicorn’s employment on the qualifying date, thus met the
requirements  – so Unicorn had to pay.

Future liability is more problematic. In Merckx and Neuhuys v
Ford Motor Co Belgium SA, 1996, IRLR 467 ECJ the European Court decided the
employee was entitled to expect his level of remuneration to be unchanged, even
where the profit calculation was based on turnover. If the scheme has a formula
for calculating the share, it may not be enough just to apply the formula to your
company’s profit if the payout will be lower.

This was expanded in Mitie Managed Services Ltd v French, 2002,
IRLR 512 EAT. Here employees in a Sainsbury’s subsidiary could convert their
profit into Sainsbury shares. The EAT accepted the absurdity of transferring
the exact scheme to Mitie but ruled staff were entitled " to participation
in a scheme of substantial equivalence but one which is free from unjust,
absurd or impossible features". If the parties could not agree a scheme
the tribunal would do so for them. There was no hint as to what the scheme
might look like!

You need to undertake due diligence as to the nature of the
scheme, replication costs and any possible negotiated arrangements – and factor
this into your bid.

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