The end of the affair – dealing with the termination of the employment relationship

30 May 2007

Shazia Ali- Webber – Mills & Reeve

Arzu Ozel – Mills & Reeve

Implementing Dismissals

Overview

Unfair dismissal

Employments Right Act 1996 – six reasons for dismissal

General Reasonableness

Substantive Fairness – Was it reasonable to dismiss

Unfair Dismissal

Statutory Procedure

• Letter-Basis of the Decision

• Meeting

• Appeal

Gibbons Report

Contractual Procedure (no less favourable)

Unfair Dismissal

General Fairness

• Section 98 ERA 1996 o Did the employer act reasonably in dismissing o In all the circumstances o Including the employer’s size and administrative resourceso To be determined in accordance with ‘equity and the substantial

merits of the case’

Requirements of procedural fairness

Conduct

• Full investigation

• Staged warnings unless gross misconduct

• British Home Stores

Redundancy

• Warning in good time

• Objective selection criteria

• Consultation

Requirements of procedural fairness

Capability• Performance

o Set reasonable targets o Over a reasonable periodo Monitor o Give staged warnings

• Sicknesso Long term or short term (DDA) o Medical evidence o Balance between needs of the organisation and effect of

dismissal on employee

Requirements of procedural fairness

Identifying the reason for dismissal

Right to be accompanied

Appeals

Trust and confidence

Consequences of being ‘unfair’

Does following a fair procedure matter?

Provision for uplifting awards where there has been non-

compliance between 10 – 50%

Automatic unfair dismissal

Company procedures

But Must We Follow The Process?

• The ‘without prejudice’ meeting

• When to hold ito At an early stage?o After procedure implemented?o After procedure completed?

• The ‘doing a deal’ problem o Valuation of settlement o Referenceso Announcemento Dignity

Valuing a settlement and compromise agreements

30 May 2007

Shazia Ali- Webber

Mills & Reeve

Introduction-Compromise Agreements

Valuing a settlement, the need for and essential

terms of a compromise agreement

Valuing the settlement

How much will it cost?

Value of benefits under contract of employment

Potential awards in tribunal

Valuing contractual claims

Consider all terms Loss of salary and benefits for notice period Is there a PILON? Bonuses Share options Contractual disciplinary and dismissal procedures Contractual redundancy pay Holiday entitlement, outstanding salary, expenses etc

Valuing statutory claims (1)

Complex and imprecise science;

Overlapping claims?

Consider both:

• Value of claim; and

• Chance of success.

Valuing statutory claims (2)

Loss of earnings:• Expressed in terms of a number of weeks’ or months’ pay;

• Assessment depends on type of claim;

• Depends on industry and job market and likelihood of getting another job.

Cap on unfair dismissal compensation:

Compensatory award currently capped at £60,600

Basic award currently capped at £9,300

Uplifts for failure to comply with statutory minimum procedures.Cont…

Valuing statutory claims (3)

Uncapped compensation for discrimination

Injury to feelings, aggravated, exemplary damages

Other common claims might include:

• Equal pay;

• Statutory redundancy compensation;

• Personal injury damages;

• Protective awards.

Other considerations

Non-monetary benefits:

• Agreed reference;

• Outplacement counselling or training.

Saving management time

Saving legal expense

Preserving confidentiality

Maintaining restrictive covenants.

COT3

Usually used once a claim has been filed Fixed conciliation periods for most claims ACAS aims to assist parties reach agreement before an ET

hearing No need for employee to have legal advice Wording relatively straightforward Can extinguish statutory claims

Cont…

COT3 continued…

Only for ACAS conciliated settlements – not rubber-

stamping

Usually only used where proceedings have begun or

notice has been given, or employee forced to resign

Not often appropriate for complex settlements.

Requirements of a compromise agreement

Must be in writing It must relate to particular proceedings The individual must have received advice from an independent adviser

about the terms and effect of the agreement The adviser must be covered by either a contract of insurance or an

indemnity for members of a professional body It must identify the adviser It must state that the conditions regulating compromise agreements

have been satisfied.

“Particular proceedings”

Hinton v University of East London (2005)

General waiver can dispose of contractual claims.

Statutory claims whether actual or potential must be clearly

identified – general waiver not enough.

Generic description - “unfair dismissal” or reference to the

section of the statute is required.

If claim already started – give brief factual and legal description

of claim.

Claims the employee is not aware of?

Hilton Hotels v McNaughton [2005]

Equal Pay Act referred to but employee not aware of possible

claim.

Compromise agreement only said it settled claims the

employee believed she had. She could bring the equal pay

claim.

Words must be absolute and unequivocal in order to

compromise a claim of which the employee was unaware.

Common clauses

Settlement amounts Tax Compromised claims Confidentiality and restrictions No “bad-mouthing” clauses Agreed references Warranty that there are no other claims Employer’s contribution to legal costs “Clawback”

Practical tips

Consider whether necessary

Do your homework – check the contract

Set your parameters

Timing

Without prejudice

Keep the upper hand

Discretionary bonuses

Arzu Ozel – Mills & Reeve

30 May 2007

Discretionary bonuses: How discretionary are they?

Depends on clause within the employee’s contract of

employment

Custom and Practice

Employee may not receive the amount they expect

Employer may refuse to pay

Discretionary bonuses continued…

Gross misconduct – no requirement to pay a discretionary

bonus

Payment in lieu of notice (PILON)

If employer elects to pay employee PILON

No PILON in employee’s contract

Recent case law

Horkulak –v- Cantor Fitzgerald International [2004] EWCA

Employee entitled to “fair and rational assessment of his

entitlement”

Employer is obliged to exercise its discretion in good faith

Recent case law continued…

Commerzbank AG –v- Keen [2006]

Burden of proof is on employee to show that employer’s

decision is “irrational” or “perverse”

Employee entitled to know reasons behind discretionary bonus

award

Employee is not dealing with his employers “as a consumer”

Final thoughts

Employer cannot unreasonably withhold payment of a

discretionary bonus

Employee entitled to know reasons behind their

discretionary bonus award

Employers should ensure that any reasons given are

market based

Aim to have frank and open discussions with employees

Discrimination case law

30 May 2007

Shazia Ali-Webber – Mills & Reeve

Arzu Ozel – Mills & Reeve

Extension to goods and services: April 2007

Widening of definition of religion or belief: agnostics and

atheists covered

Will political extremists – eg the BNP – now be covered?

Religion or Belief: legislation

Religion or Belief: cases

Azmi v Kirkless Metropolitan Borough Council 2007

Mrs Azmi told to remove veil whilst teaching

Is clothing ban direct or indirect discrimination?

Is it justified?

What steps to take before imposing a clothing ban?

The Sunday observance and Sikh turban cases

Sexual Orientation

Extension to goods and services: April 2007

Recent cases

Ditton v CP Publishing Limited 2007

Other recent claims

More education and training needed?

Sex Discrimination

Sex Discrimination Act 1975

The burden of proof

Claimant has to prove:

• They were treated differently by employer

• Treatment could have been as result of sex discrimination

Burden of proof shifts to employer

Sex Discrimination: case law

Madrassy –v- Nomura International Plc [2007]

Ms Madrassy employed as senior banker

Went on maternity leave

Restructuring at Nomura led to redundancies

She was dismissed in November 2001 on grounds of

redundancy

Did she succeed in shifting the burden of proof?

Age Discrimination

Employment Equality (Age) Regulations 2006

Came into force October 2006

No decided cases in UK yet

Irish case: Cunningham –v- BMS Sales Ltd [2007]

ACAS’ advice to employers

Wake up – it’s over!

Well, not quite – any questions?

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