Questions and answers

The law team at Shadbolt and Co answer questions on workplace issues

Parental leave

Q  We have an employee with a four
year old daughter who believes that she may now take parental leave notwithstanding
that the child was born before 15 December 1999. Is this correct?

A  The changes to maternity
leave/pay and the proposal to introduce paid paternity leave announced in
April’s budget will not come into force until 2003. However, following a recent
review by the Government, various changes to parental leave will be introduced
later this year. At present, under the Maternity and Parental Leave Regulations
1999, only parents of children born on or after 15 December 1999 qualify for
the right to take parental leave. The entitlement to parental leave will now be
extended to parents of all children who were under five years of age on 15
December 1999. Parental leave will remain unpaid.

There will be transitional provisions to cover parents of children who were
born between 15 December 1994 and 14 December 1999, ie those children who were
under five when the Regulations came into force but who have now reached or who
are shortly to reach the age of five. Under the default provisions of the
Regulations four weeks is the maximum amount of leave that may be taken in a
year – accordingly it would take over three years to take up the full 13 weeks’
entitlement. To remain in line with the existing regulations parents in this
category will be allowed a period of just over three years in which to take
their leave when the amended regulations come into force.

The entitlement for parents of disabled children will be extended from 13 to
18 weeks, which can be taken flexibly in blocks of one day up to a maximum of
four weeks in one year.

Amanda McGurran

Pension scheme contributions

Q  We have an employee who is a
member of the company’s contributory pension scheme. Do we have to make
contributions while she is on maternity leave?

A  A distinction must be made
between ordinary maternity leave (OML) and additional maternity leave (AML).
During the 18 week period of OML, a woman is entitled to the benefit of all her
contractual terms save for "remuneration". "Remuneration"
includes only salary and wages. Accordingly, a woman will be entitled to all
her contractual benefits such as membership of a health insurance scheme and
use of a company car. She is also entitled to accrue holiday in accordance with
her contractual entitlement. If the employer contributes to a pension scheme,
the employer must continue to pay pension contributions into this scheme at the
normal rate, ie as if she was receiving full remuneration during OML, and for
any further period during which the woman receives maternity pay. If the woman makes
contributions, they are calculated by reference to her actual maternity pay
while she is receiving it.

If a woman takes AML, she is only entitled to her employer’s implied
obligation of trust and confidence and any terms and conditions relating to:

(i) notice of termination of employment

(ii) compensation in the event of redundancy

(iii) disciplinary or grievance procedures.

She will not be entitled to any other contractual benefits and will only be
entitled to receive employer’s contributions into her pension scheme to the
extent that she is paid during AML.

If the employee subsequently does not return to work, there will be no
entitlement for the employer to recoup any of the contributions.

Rebecca Kettell

Employment Tribunal costs

Q  When can I recover some or all
of my costs from the other side in the Employment Tribunals?

A  The new Employment Tribunal
rules of procedure came into force on 16 July 2001. These new rules make
various changes including changes to the previous rule on costs orders.

One of the more significant changes is that an Employment Tribunal now has
an express power, in appropriate circumstances, to consider whether to make a
Costs Order against a party in proceedings.

The previous test for a costs order has also changed. The new test is
broader and the costs ceiling has risen. The new test provides that "where
in the opinion of the Tribunal, a party has in bringing the claim, or a party
or a party’s representative has in conducting the claim, acted vexatiously, abusively,
disruptively or otherwise unreasonably or the bringing or the conducting of the
claim by a party has been misconceived," the Tribunal shall consider, and
if it decides, may make an Order for Costs up to a sum not exceeding £10,000.

The new test has been extended to cover a party’s representative who has
acted unreasonably. It also extends to cover where the bringing or the
conducting of the claim by a party has been misconceived. The term misconceived
is defined as having no reasonable prospects of success. This means that at the
conclusion of a case, after consideration, the Tribunal may decide to make a
costs order. The level of the costs order made shall be such sum as the
Tribunal thinks fit up to a maximum of £10,000.

Alternatively, the Tribunal can order it to be such sum as agreed between
the parties or, in any other case, as determined by way of detailed assessment.

Gavin Haynes

Performance bonus

Q  We have an employee whose
contract entitles him to a discretionary bonus dependant upon his performance.
He has not met his targets this year – are we obliged to pay a bonus?

A  Following the case of Clark
v Nomura the exercise of any discretion over whether or not a bonus should be
payable must be based on sound reasoning. An employer must not exercise its
discretion "perversely" or "irrationally". Previously, only
where the employer exercised its discretion "capriciously" or
"in bad faith" would its decision constitute a breach of contract.
The judge explained that the court can intervene when no reasonable employer
could have exercised its discretion in such a way. Further, Clark v Nomura
emphasises the importance of careful wording of the bonus scheme – the wording
needs to be clear and unambiguous as to what factors will be taken into account
in determining whether or not a bonus will be payable. If performance is to be
a factor, this should be further refined, ie, is it the performance of the
employee, the company or a division of the company that is to be taken into

In short, an employer must be able to justify the basis on which it
exercises its discretion. In answer to the question, the employer would need to
be able to show that the employee involved had not performed by way of
reference to, for example, pre-determined targets and that it was clear from
the wording of the bonus scheme that individual performance was a decisive
factor in determining whether a bonus would be payable. Companies are advised
therefore to keep a written record of those factors which influence their
decision on whether or not to award a bonus.

Rebecca Kettell

Damages for distress

Q  Is it true that an employee van
now recover damages for distress in the Employment Tribunal?

A  Until recently, tribunals have
not awarded compensation for distress or injury to feelings other than in
discrimination cases. However, commentary in a recent House of Lords decision
has paved the way for claiming compensation in the tribunal for psychiatric
injury, distress, humiliation and damage to reputation or to family life.

The case of Johnson v Unisys involved an employee of 20 years’ service who
was dismissed on the grounds of conduct. His dismissal was procedurally unfair.
Mr Johnson brought a claim in the Employment Tribunal, for unfair dismissal. He
was awarded the then statutory maximum compensation for unfair dismissal of

Mr Johnson suffered a mental breakdown as a result of the manner of his
dismissal. He then brought a civil claim for wrongful dismissal on the grounds
that his employer had breached the implied contractual term of trust and
confidence by the manner of his dismissal. The case reached the House of Lords.
They ruled that an employee is not entitled to an implied contractual remedy
for the manner of dismissal because in formulating the unfair dismissal
legislation, Parliament had covered the situation where an employee was
dismissed in a manner that was unfair or unreasonable. The compensatory award
for unfair dismissal is such amount as the tribunal considers just and
equitable in all the circumstances having regard to the loss sustained by the
employee in consequence of the dismissal in so far as that loss is attributable
to the employer.

Lord Hoffman ruled that in appropriate circumstances, it would be open to a
tribunal to award compensation for distress, humiliation or damage to
reputation. "Loss" need not be confined to monetary loss as
previously thought.

Rebecca Kettell

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