Round-up of employment law developments: December 2004/January 2005

This ebulletin includes short summaries of recent developments; please contact us if you would like further information.

1. Data Protection Code on health information
2. Maternity rights
3. Legislation coming into force this Spring
4. Age discrimination
5. Disability
6. Collective redundancy consultation
7. Equal pay
8. Snooping on employees
9. Stress claims
10. Corporate governance

1. Data Protection Code on health information

Employers would be well advised to review their practices in the light of Part 4 of the Employment Practices Data Protection Code, which has finally been made available together with supplementary guidance and a shortened version for small employers. Part 4 covers the collection and use of workers' medical information (eg, sickness records, pre-employment health questionnaires, GP records, the results of medical examinations or drugs/alcohol tests). The Code is not legally binding, but does set out the Information Commissioner's recommendations on how employers can comply with the Data Protection Act 1998.

Generally, employers can only collect and use this type of "sensitive data" if it is necessary to comply with legal obligations (eg, health and safety obligations or to prevent discrimination), for medical purposes, in connection with legal proceedings, or if the worker himself has deliberately made the information public or expressly consented to its use (a blanket consent in the employment contract is unlikely to be sufficient). The Code expands on how these conditions may be satisfied and sets out some core principles:

• collection and use of health information must be justified by real benefits and be no more intrusive than necessary – an impact assessment should be carried out in advance and preferably recorded in writing;
• health information should be kept securely, with restricted access, and for no longer than necessary, and staff should be told what information is held and why;
• the collection and interpretation of health information should be left to health professionals as far as possible, although it will still be for management to determine whether a worker is suitable for a particular job.

2. Maternity rights

The Inland Revenue's Employer's Bulletin Issue 19 confirms that the method of calculation of the earnings-related part of statutory maternity pay (SMP) is to change with effect from 6 April 2005. The regulations (which are not yet available) will require the rate of SMP to be re-calculated if a pay-rise falls between the start of the original calculation period and the end of the maternity leave (either ordinary or additional). This brings SMP into line with the ECJ's decision in Alabaster reported in our April 2004 ebulletin. The Court of Appeal will consider the impact of the ECJ decision on retrospective claims for SMP (and, by analogy, for contractual maternity pay) this February.

Another case currently before the ECJ could significantly affect maternity-related rights. In North-Western Health Board v McKenna, the Advocate General has given his preliminary opinion that, in relation to a sick pay scheme providing full pay for a fixed period followed by half pay, it is unlawful discrimination for pregnancy-related sickness absence to count in using up the general sick pay entitlement. An employee off sick for the entirety of her pregnancy due to pregnancy-related illness should not have been reduced to half pay. The ECJ will now consider whether to follow this opinion.

In Madarassy v Nomura, the EAT has confirmed that an employer's failure to carry out a risk assessment for new/expectant mothers will only be culpable if the employee can show that the work was of a kind which could involve risk to the health and safety of a mother or baby. The employee in this case had failed to present any evidence that there was or might be radiation or that radiation from a computer created any risk to the health or safety of mother or baby, and evidence of pain or discomfort from sitting in front of a computer for a long period was not sufficient.

In relation to risk assessments, note that the TUC has publicised a study suggesting that pregnant women who regularly work the night shift may have an increased risk of a miscarriage late in pregnancy or a stillbirth – click here for further details. Employers may therefore need to consider changing pregnant women to day shifts.

3. Legislation coming into force this Spring

• The new limits on tribunal awards reported in our last ebulletin come into effect on 1 February. The maximum compensatory award for most unfair dismissals will be £56,800.

• The Government has announced that the standard rate of statutory maternity, paternity and adoption pay is to increase from £102.80 to £106 per week from April 2005. The earnings threshold will rise from £79 to £82 per week. Statutory sick pay will increase from £66.15 to £68.20 per week.

• Parliament has approved the final version of The Information and Consultation of Employees Regulations 2004. They apply to companies with 150 or more employees from this April and enable employees to request the formation of a domestic works council. Further detail can be found in our briefing on the draft regulations. Government guidance is also available here.

• Changes to the protection of employees' pensions on a business transfer will also come into force in April 2005. Under the Pensions Act 2004, where the seller operates either a defined benefit or a defined contribution occupational pension scheme for the employees, the buyer will have to offer the employees participation in either a defined benefit scheme or a defined contribution or stakeholder pension arrangement which meets certain tests. Our pensions group has issued a detailed briefing on the Pensions Act 2004 which is available here.

Draft regulations dealing with other changes to TUPE are now expected this March.

In what has been declared a victory for employers, the Government has finally published its proposals on retirement ages. It intends to set a default retirement age of 65, with employers only able to set lower retirement ages if this can be objectively justified as "appropriate and necessary", and employees are to be given the right to request working beyond 65 (similar to the right to request flexible working). Employees who are dismissed other than on reaching the default/justifiable retirement age (including those who have worked past this age) will be eligible to claim unfair dismissal. The Government will review whether to retain the default retirement age in 2011. Draft legislation is now being promised for consultation in the summer of 2005, to come into force on 1 October 2006. The parliamentary statement is available here.

5. Disability

• The Queen's Speech included a Disability Discrimination Bill extending protection to employees with HIV, multiple sclerosis and cancer from the point of diagnosis. A Department of Work and Pensions consultation paper has now set out proposals to exclude from the new protection the most common cancers which do not require substantial treatment. Views are sought by 18 March 2005.

• The TUC has warned that employers may be unlawfully discriminating because they fail to appreciate that common performance problems can be caused by dyslexia – see the TUC's press release for further details. Employees should always be given the opportunity to explain poor performance before sanctions are imposed, and careful handling will be required if it is suggested that the reason may be a disability.

• The European Agency for Safety and Health at Work has produced a new factsheet including guidance on carrying out disability-sensitive risk assessments and making adjustments for disabled workers.

Recently, a harder line has been taken with employers who fail to comply with their obligations to inform and consult when proposing 20 or more redundancies within a 90 day period. The legislation provides for a protective award of a just and equitable amount up to 90 days' pay per employee. Earlier cases suggested that the tribunal should look at the loss suffered by the employees, ie, how much longer they would have been employed had the obligations been fulfilled. In Susie Radin v GMB, the Court of Appeal disagreed, holding that protective awards are punitive rather than compensatory in nature and should reflect the seriousness of the employer's default. The starting point for a total failure to consult would normally be the maximum award of 90 days' pay, even where the employees had remained in employment for 90 days from redundancies being proposed.

The EAT inSmith v Cherry Lewis has just held that the same applies where the employer is insolvent, even though the award would be paid by the DTI Fund and therefore not "punish" the employer - the purpose is to discourage employers from ignoring the consultation rules.

The ECJ in Junk v Kühnel has confirmed that notices of redundancy cannot be given until after the consultation process is completed. UK legislation requires consultation to begin in good time and at least 30 or 90 days (depending on the number of redundancies) before the first dismissal takes effect, and the decision throws some doubt over whether employers can continue to give notice after consultation is completed but before the 30/90 days have expired. It is also unclear whether the decision means that, in relation to the 20 employee threshold, it is the proposed dates of giving notice that must be within 90 days or the proposed dates of expiry of the notices. An English tribunal decision will be needed to clarify the impact of this judgment here.

Finally, the EAT in Hardy v Tourism South East has recently confirmed that employees to whom the employer plans to offer alternative jobs still count toward the 20 employee threshold.

7. Equal pay

In a widely reported decision, an employment tribunal has rejected a sex discrimination and equal pay claim brought by Ms Villalba against Merrill Lynch (although upholding unfair dismissal and victimisation claims). While the facts of the case attracted the tabloids' attention, the legal interest is in the decision that, although the Equal Pay Act 1970 restricts pay comparators to those working within Great Britain, this is overridden by EU law to permit comparators working abroad. V was able to compare herself with colleagues based abroad, as the employer is a global organisation and pay was set globally without reference to local conditions. The employer was therefore required to (and did) justify the difference in pay from that of a non-GB comparator.

Equal pay is certainly the topic of the moment. The TUC and IDS have launched a website to enable employees to check the level of their pay against the average salary for their job, which may well encourage equal pay claims. For those worried about potential claims, Opportunity Now and the EOC have set up a free Equal Pay Forum for employers committed to doing an equal pay review, to discuss equal pay issues and solutions and share best practice. Further details can be obtained here.

8. Snooping on employees

In McGowan v Scottish Water, the EAT held that filming an employee's house to investigate criminal activity can be lawful in some circumstances. The employer suspected the employee of falsifying timesheets to increase his pay. It decided to film his comings and goings from his home, as it was not possible to install cameras in the workplace without the employee becoming aware. The suspicions were confirmed and the employee dismissed. The EAT held that there was a strong presumption that the surveillance was an interference with the right to a private life, even though carried out on a public road and without any trespass or harassment. However, it was justified and proportionate in this case, and the dismissal fair, given that the employer was a public corporation (with responsibilities to the public to protect its assets), the alleged activity was criminal, and there was no other method of investigating. The EAT also seems to have been influenced by the fact that the suspicions were confirmed, although it seems inappropriate for hindsight to be relevant.

This decision does not give employers carte blanche to film an employee's home. Covert surveillance will only be justified to investigate strong suspicions of serious misconduct and only if there is no less intrusive but effective means of doing so. This is consistent with Part 3 of the Employment Practices Data Protection Code on monitoring, which recommends that employers keep a written record showing why these conditions are thought to be satisfied.

9. Stress claims

Six work-related stress claims have been heard by the Court of Appeal, which has applied the principles laid down in Barber v Somerset County Council (reported in our April 2004 ebulletin). The standard required is that of the reasonable and prudent employer taking positive thought for his employees' safety in light of what he ought to know. The cases illustrate how the standard will be applied, particularly where employers have occupational health systems:

• The fact that an employer has set up an occupational health or counselling system will not in itself be taken as an acknowledgement that it has foreseen a risk of psychiatric injury. However, if there is other evidence that the risk was foreseen, and the system has not been properly implemented, the employer may be liable for consequent injury.
• If occupational health advisers are aware of an employee's existing condition, consider it is work-related and recommend that the nature of the employee's work difficulties be discussed, the employer's failure to follow that advice might lead to liability.
• The availability of counselling services, which an employee has not taken up, will be relevant but will not necessarily defeat an employee's claim – there may be other steps the employer should have taken if there was a foreseeable risk of injury.
• An employer can take a reasonable amount of time to consider the appropriate course of action - taking five days to respond to an employee's memo setting out concerns about the effect of work on his health was not unreasonable.

As mentioned in our last update, the Health and Safety Executive has launched new Management Standards to assist employers to comply with their statutory duty to carry out a risk assessment specifically regarding stress in the workplace. For assistance in carrying out such assessments, or to be added to the distribution list for our new ebulletin, Round-up of Health and Safety Developments, please contact Howard Watson.

10. Corporate governance

In December the ABI published a revised version of its Guidelines on executive remuneration. The ABI/NAPF best practice statement on executive contracts and severance, attached to the Guidelines, has not been altered. The new Guidelines include a call for greater transparency in relation to bonuses, measures to discourage windfall payments to executives on a change of control, and a warning against increasing executive pay to compensate for pension taxation changes. The NAPF has also updated its voting guidelines and statements of good practice contained in its 2004 corporate governance document, available on the NAPF website.

Following a report on compliance with the Directors' Remuneration Report Regulations 2002, the Government has decided against further legislation in this area, although minor changes to the regulations may be considered in due course. Instead, the Government has called on the ABI, NAPF and CBI to work towards providing a common set of guidelines on directors' contracts by the end of 2005. These bodies are reported to be unenthusiastic!

Herbert Smith, Gleiss Lutz and Stibbe are three independent firms that have a formal alliance.

© Herbert Smith 2005