Employment law

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1 Employment

An employer-employee relationship implies that there is a contract of service and the employer controls how, when and where the work is done.

This has to be contrasted with a contract for services which is the relationship that exists between a self-employed person and whoever is paying him or her.

There are mutual obligations between employers and employees. For example, the employee is obliged to work and the employer is obliged to pay wages or a salary. The employee must perform the work personally and cannot sub-contract to someone else.

The distinction matters for more than tidiness. An employee under a contract of service gets the statutory employment rights this chapter describes — the written statement, protection from unfair dismissal, a redundancy payment, the implied terms in §2.3. A self-employed contractor under a contract for services gets almost none of them, and is taxed differently. Labelling someone “self-employed” in the paperwork does not settle it: a court or tribunal looks at the substance.

1.1 How the courts tell the two apart

No single test decides it. A tribunal weighs them together and looks at how the relationship actually works, not at what the document calls it.

2 Employment contracts

2.1 Terms

Contract terms could be:

• In a written contract, or similar document like a written statement of employment.

• Verbally agreed.

• In an employee handbook.

• In an offer letter from the employer.

• Required by law (eg an employer must pay employees at least the National Minimum Wage).

A contract of employment does not have to be in writing — it is formed by offer, acceptance, consideration and intention, exactly as chapter 8 describes. But the employer must give the employee something in writing about it, and that is a separate statutory duty.

2.2 The written statement of employment particulars

Under the Employment Rights Act 1996, s.1: “Where a worker begins employment with an employer, the employer shall give to the worker a written statement of particulars of employment.” Two points that older material gets wrong:

• it is owed to workers, not only to employees; and

• the principal particulars must be given in a single document and not later than the beginning of the employment. The old rule — a statement within two months, and only where the job was expected to last a month or more — was replaced in April 2020.

The statement is not the contract. It is the employer’s written account of the main terms, and if it is wrong the contract still governs. It will include:

• The employer’s name.

• The employee’s name, job title or a description of work and start date.

• How much and how often an employee will get paid.

• Hours of work (including weekend and shift work details).

• Holiday entitlement.

• Sick pay entitlements and arrangements.

• Where an employee will be working.

• How long a temporary job is expected to last.

• The end date of a fixed-term contract.

• Notice periods.

• Collective agreements ie agreements negotiated with trade unions.

• Pension contributions and entitlements.

• Who to go to with a grievance.

• How to complain about how a grievance is handled, or about a disciplinary or dismissal decision.

2.3 Implied terms

Beyond what is written down, the law implies a set of terms into every contract of employment, running in both directions:

• The duty to maintain mutual trust and confidence

This implies a duty on the part of an employer not to “conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between the parties”. It is a duty to act rationally and not so perversely that no reasonable employer would act in such a way.

• Fidelity

This requires the employee to serve the employer faithfully. It is implied in all employment contracts and means that an employee may not act against the interests of the employer. It becomes particularly relevant if the employee is thinking about leaving and working for a competitor (obviously the employee could take confidential information with him or her), or setting up a competing business (where poaching customers of the old employer might be attempted).

• Not to steal from the employer

Not a surprising implied term!

• Employees should obey their employers

Employees should obey their employers in respect of lawful and reasonable orders.

• Reasonable care and skill

Employees must exercise reasonable care and skill. The level required will depend on the experience and qualifications of the employee.

• Safe working environment

Employers are required to provide a safe working environment for their employees.

• Something necessary to do the job

For example, a delivery van driver must have a driving licence.

• Duty to provide work

While there is generally no duty for an employer to provide work for its employees, such an obligation does arise if the employee must be allowed to work to maintain his or her skills or public profile.

• References

There is no duty to supply these but if they are supplied there is a requirement for them to be accurate.

2.4 The rights and duties of employers and employees

Set side by side, the implied terms and the main statutory rights give this picture. Each duty on one side is a right on the other.

3 Workplace policies and procedures

The syllabus names eleven matters that a workplace policy may deal with. They are covered here (§3.1 to §3.6), in §4 (data protection), §5 (health and safety) and §6.1 (disciplinary).

3.1 Anti-discrimination legislation

Most developed countries now have equal-opportunity legislation aimed at discrimination in recruitment, pay, promotion, training, benefits and dismissal. In the UK the whole area was consolidated into one statute, the Equality Act 2010.

The nine protected characteristics

Equality Act 2010, s.4, in full: “The following characteristics are protected characteristics — age; disability; gender reassignment; marriage and civil partnership; pregnancy and maternity; race; religion or belief; sex; sexual orientation.”

The four principal forms of prohibited conduct

Two further forms apply only to disability: failing in the duty to make reasonable adjustments (ss.20–21) — altering premises, equipment or working practices where a disabled person is put at a substantial disadvantage — and discrimination arising from disability (s.15), which is unfavourable treatment because of something arising in consequence of a disability, such as absence caused by it.

3.2 Diversity

Diversity of employment means ensuring that the composition of the workforce reflects the population as a whole. There are sound reasons for diversity.

• You’re likely to attract a wider range of candidates if you are known as an employer who embraces diversity. Diversity means more than diversity in race or sexual diversity; it can also mean offering people part-time work or allowing them to work from home. If you can offer part-time work or home working you may well get additional good candidates worthy of consideration. So why reduce the field by putting unnecessary restrictions?

• A diverse workforce brings a variety of skills. If you employ people just like yourself, you’ll probably get skills just like yours.

• The diverse workforce might better reflect customers and clients so your customers and clients are likely to feel more comfortable.

• You may be able to claim the moral high ground by having a diverse workforce and this of itself may be attractive to customers, clients, and potential employees.

3.3 Bribery and corruption

Improper payments of cash or gifts to third parties can be described as:

• Bribery: payments to induce someone to do something they shouldn’t do. For example, to induce the person to award you a contract when you were neither the cheapest nor the best supplier. Low value is no defence: a small gift intended to win that contract improperly is still a bribe.

• Facilitation payments: payments to induce someone to do something they should be doing anyhow. For example, payments to customs officers to inspect goods quickly. In the UK facilitation payments are regarded as bribes under the Bribery Act 2010.

Gifts and hospitality

Reasonable and proportionate hospitality given in good faith — to build a relationship, or to present the company’s products — is a normal part of business, and the Bribery Act 2010 does not prohibit it. What makes a gift or hospitality a bribe is the intention behind it: if it is meant to induce or reward the improper performance of someone’s job, it is a bribe whatever its value.

Most organisations go further than the law, for ethical reasons and to avoid even the appearance of influence. They set a monetary threshold, require anything above it to be declined or declared, and keep a gifts and hospitality register. For that internal policy the test to apply is not “was I actually influenced?” but “how would this look to an informed outsider?” — the same reasonable-and-informed-third-party test that runs through the CIMA Code of Ethics in chapter 2.

Conflicts of interest

A conflict of interest arises where an employee’s personal interest could improperly influence a decision they take for the employer. If your brother is the sales manager of a supplier, there is an obvious risk that orders go to your brother’s company even when it is not the most suitable supplier.

A conflict is not itself wrongdoing; concealing one usually is. The standard policy requires the interest to be declared on a register and the employee to step back from the decision. It would be normal to include the anti-bribery rules and the duty to declare conflicts as express terms of the employment contract.

In the UK the Bribery Act 2010 makes it an offence for a commercial organisation to fail to prevent bribery by a person associated with it (s.7), and gives one defence: “it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.” What counts as adequate depends on the bribery risks the organisation actually faces, so the procedures must be proportionate to an assessed risk — which is why the risk assessment is the first thing an investigator asks to see.

3.4 Whistle-blowing

Whistleblowing is defined as “making a disclosure that is in the public interest”.

Many frauds are known about or suspected by people who are not involved in the dishonesty. The challenge for management is to encourage these ‘innocent’ people to speak out and to demonstrate that it is very much in their own interest to do so. Reporting mechanisms are a very important element of risk management and fraud deterrence.

There can be many conflicting emotions influencing the potential ‘whistle-blower’:

• working group/family loyalties

• intimidation

• fear of consequences

• suspicion rather than proof.

The organisation’s anti-fraud culture and reporting processes can be a major influence on the whistle-blower, as it is often fear of the consequences that has the impact. To the whistle-blower the impact of speaking out can be traumatic, ranging from being dismissed to being shunned by other employees. Confidential reporting mechanism might help.

In the UK the protection comes from Part IVA of the Employment Rights Act 1996, inserted by the Public Interest Disclosure Act 1998. A worker who makes a protected disclosure must not be dismissed or subjected to any detriment for having made it.

A disclosure qualifies (s.43B(1)) if, “in the reasonable belief of the worker making the disclosure”, it “is made in the public interest” and tends to show one or more of the following:

• a criminal offence, eg fraud

• someone’s health and safety is in danger

• risk or actual damage to the environment

• a miscarriage of justice

• the company is breaking the law, eg doesn’t have the right insurance

• you believe someone is covering up wrongdoing

Personal grievances (eg bullying, harassment, discrimination) aren’t covered by whistleblowing law, unless your particular case is in the public interest.

It must also be made to the right person — the employer first, or a body prescribed for the purpose such as a regulator. Wider disclosure, for example to the press, is protected only in tightly defined circumstances.

3.5 Money laundering

Definition:

A process whereby the proceeds of criminal activity are converted into assets appearing to have a legitimate origin.

For example, the illegal funds could be the result of drug-dealing, prostitution or people-trafficking.

There are three stages in money laundering:

• Placement of the illegal monies into a legitimate business activity. Businesses generating cash are often used because the illegal money can be paid in and described as sales. Tax will be paid on it, but that’s a small price to pay for making the cash appear legitimate. However, there is a danger that this will be spotted so therefore the next stage is also carried out.

• Layering – the transfer of money from place to place to conceal its source. This often involves passing the money through several countries and many bank accounts.

• Integration to make it appear that the money, after its travels, is legitimate.

In the UK and many other countries there is a duty to report suspicions about money laundering to the financial authorities or to the police. There can also be sanctions against ‘tipping off’ the perpetrators by, for example, telling them that you have reported them.

3.6 Social media

Social media such as Twitter and Facebook have become important marketing and communication tools. Marketing is aimed at outside entities, but communication can be both inside and outside the organisation.

You will be aware of phenomena such as ‘trolling’ where offensive, rude or sarcastic remarks are made - often under the cover of anonymity. Even email exchanges can become offensive because there is a tendency to answer immediately without full thought or a period of time in which to cool down.

One employee bullying another using social media can be very costly to the employer if the bullied employee can show that bullying occurred and that the employer took no steps to prevent it.

Offensive remarks made directly to customers are obviously bad news, but employees should also be careful about remarks and pictures they post on their Facebook accounts as careless privacy settings can let customers, suppliers, competitors and other employees have access.

Organisations must ensure that they have policies in place governing employees’ use of social media – not only because of the damage it can cause but because employees might spend too long on various applications rather than getting on with their work.

4 Data protection

4.1 Introduction

Huge amounts of data about employees, customers and suppliers can now be easily stored on IT systems. This has the following implications:

• Is the data correct and up-to-date?

• Is it held safely?

• What damage could be caused if the system was ‘hacked’ so that others could access it?

• Is the data relevant to the decisions being made using it?

Data and IT are now recognised as major strategic resources, and like all major assets must be protected and used properly.

4.2 Keeping personal data safe

All machines and the network should use anti-virus software and firewalls to prevent hacking or loss or corruption of data. Employees should be trained about the dangers of downloading material (particularly unsolicited material) from the Internet and using USB sticks that can pass viruses from machine to machine.

Data should be regularly backed up and the copies kept securely at a separate location. If the company is very IT dependent it should have a disaster recovery plan that will allow processing to resume quickly even if their IT system has been destroyed, eg by flood, fire or act of terrorism.

This is not merely good practice. Keeping personal data secure is one of the data-protection principles in its own right — integrity and confidentiality — so security is a legal matter as well as an operational one. A data breach does not by itself prove that the organisation broke the law, but a breach caused by weak security may show that it did not take appropriate measures — and the breach itself may have to be reported (§4.3).

4.3 The UK GDPR and the Data Protection Act 2018

The principles

Personal data must be:

1. processed lawfully, fairly and in a transparent manner;

2. collected for specified, explicit and legitimate purposes and not processed further in a way incompatible with them (purpose limitation);

3. adequate, relevant and limited to what is necessary (data minimisation);

4. accurate and, where necessary, kept up to date;

5. kept in identifiable form no longer than necessary (storage limitation);

6. processed securely (integrity and confidentiality).

A seventh runs across all six: accountability. The controller must not only comply but be able to demonstrate compliance — through records of processing, policies, training, impact assessments and, where required, a data protection officer. That is the biggest single change from the old regime: the burden of proof sits with the organisation.

What else an organisation must do

4.4 The rights of the data subject

The data subject is the living individual the data is about. Under the UK GDPR they have the following rights, and a request to exercise one must normally be answered within one month and free of charge:

For an employer, the practical consequences are that personnel files are disclosable to the employee who asks, monitoring of employees needs a lawful basis and must be proportionate and told to them, and recruitment data cannot simply be kept for ever.

5 Health and safety

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Health and safety legislation imposes duties on both employers and on employees.

In the UK the framework statute is the Health and Safety at Work etc. Act 1974. Section 2(1) states the employer’s duty: “It shall be the duty of every employer to ensure, so far as is reasonably practicable, the health, safety and welfare at work of all his employees.” Note the qualification — so far as is reasonably practicable. The duty is not absolute; it weighs the risk against the cost, time and trouble of removing it, and the greater the risk the less weight cost carries.

5.1 Health and safety – employer’s duties

• Work practices and the work environment must be safe and healthy.

• The plant and equipment should be maintained to the necessary standard.

• There should be information, instructions, training and supervision so people know how to work the machinery and that safe working practices are adopted.

• People should know that there is a health and safety policy.

• People should be aware of the organisation’s safety policy.

• Employers must carry out risk assessments, thinking ahead, identifying risks, seeing to what extent those risks need to be worried about, and providing training, guidance, and protection as necessary.

• Note there is a requirement to share hazards and risk information with others.

• You have to identify employees who are particularly at risk.

• You must employ competent safety and health advisors.

• Within the organisation there will be a safety representative from the employee side, and probably a safety committee which meets regularly to consider health and safety matters.

5.2 Health and safety – employees’ duties

• They have to take reasonable care of themselves and others and for example these duties could be breached by employees playing practical jokes with their colleagues.

• They must allow the employer to carry out the duties in relation to safety. They mustn’t interfere intentionally or recklessly with machinery for example by taking off guards from machine.

• They must inform the employer of any situation which they think is a danger. For example, if an employee sees that a machine has deteriorated and is now perhaps dangerous they have a duty to inform their employer.

• They have to use equipment properly, making use of all the safety features that it may incorporate.

5.3 Health and safety policy

Some companies establish and publish a health and safety policy. This will usually have the following sections:

• First, a statement of the principles.

• There will then be a section on certain procedures, perhaps relating to fire safety procedures.

• They may emphasise how important it is to comply with the law, and in some cases state what is necessary to comply with the law.

• There may be a section on the detailed instructions about operating machinery.

• A section dealing with the training requirements, and perhaps the qualifications needed to ensure that health and safety policies are properly implemented.

6 Disciplinary procedures, employment protection and termination

6.1 Disciplinary procedures

A disciplinary procedure deals with misconduct — poor time-keeping, health and safety breaches, dishonesty — and with poor performance, which is usually better handled through a capability procedure. Getting the procedure right matters as much as getting the decision right: a dismissal for a perfectly good reason can still be unfair if the process was not.

In the UK the benchmark is the Acas Code of Practice on disciplinary and grievance procedures, published by the Advisory, Conciliation and Arbitration Service. An employment tribunal must take the Code into account, and can adjust compensation by up to 25% either way where an employer, or an employee, has unreasonably failed to follow it. The steps below are the Code’s.

Initially there will be an informal talk with the employee and that might be enough to correct performance.

If that doesn’t produce results, then there should be a verbal warning. This can be informal (not entered on the employee’s record), or formal (entered on the employee’s record).

If improvements are still not made (and in some cases time must be given for this) then there will be:

• First written warning

• Second (final) written warning

• Suspension/demotion/dismissal

Some acts, termed gross misconduct, are so serious that they may justify dismissal without initial warnings. But a fair disciplinary process should always be followed, before dismissing for gross misconduct. A fair disciplinary procedure will follow the following steps:

• Establish the facts. It is important to carry out investigations of potential disciplinary matters promptly to establish the facts of the case. This might require an investigatory meeting with the employee before proceeding to any disciplinary hearing. In other cases the investigation stage will be the collection of evidence by the employer for use at any disciplinary hearing.

• Inform the employee. If there is a disciplinary case to answer, the employee should be notified of this in writing with enough information about the alleged misconduct or poor performance to allow the employee to prepare a response at a disciplinary meeting. The notification should also give details of the time and venue for the meeting and advise the employee of their right to be accompanied at the meeting.

• Hold the disciplinary meeting. This should be held without unreasonable delay whilst allowing the employee reasonable time to prepare their case. The employer should explain the problem and go through the evidence that has been gathered. The employee should be allowed to answer any allegations that have been made and to ask questions, present evidence and call relevant witnesses.

  Workers have a statutory right to be accompanied by a companion where the disciplinary meeting could result in:

  • a formal warning being issued; or

  • the taking of some other disciplinary action; or

  • the confirmation of a warning or some other disciplinary action (appeal hearings)

• Decide on action. After the meeting decide whether or not disciplinary or any other action is required and inform the employee in writing.

• Appeals. If an employee feels that disciplinary action taken against them is unjust they should appeal against the decision. Appeals should be heard without unreasonable delay and should be dealt with impartially and wherever possible, by a manager who has not previously been involved in the case. Workers have a statutory right to be accompanied at appeal hearings.

6.2 Notice, and the ways employment ends

The law increasingly gives employees protection. Health and safety was one aspect of that, as are the laws governing equal opportunities. Here we deal with the termination of employment.

Employment can be ended in three ways:

• Retirement

• Resignation

• Dismissal.

There are three forms of dismissal:

• Termination by the employer (sacking)

• Ending a fixed term contract without renewal

• Constructive dismissal. This is where the employer’s behaviour entitles the employee to presume he or she has been dismissed.

Except where the employee is dismissed for gross misconduct, the employer must give notice. Two figures apply and the longer of them wins:

An employer may pay in lieu of notice where the contract allows it. Notice is the hinge of the whole of §6.3: getting it wrong is what makes a dismissal wrongful, and that is a different claim from unfair dismissal.

6.3 Wrongful, unfair and constructive dismissal

These three are constantly confused. They are different claims with different tests, and a single dismissal can be more than one of them at once.

The five potentially fair reasons

Under Employment Rights Act 1996, s.98 it is for the employer to show the reason for the dismissal and that it is one of these:

Showing one of the five is only the first half. The tribunal then asks whether dismissal fell within the range of reasonable responses open to a reasonable employer, and whether the procedure was fair.

Automatically unfair reasons

Some reasons make a dismissal unfair whatever the procedure, and usually with no qualifying period of service at all:

• Pregnancy.

• Membership of a trade union.

• Carrying out health and safety procedures.

• Insisting on employment contracts and payslips.

The list also includes making a protected disclosure (§3.4), asserting a statutory right, and dismissal for a reason related to a protected characteristic (§3.1), which will also be a discrimination claim in its own right.

6.4 Redundancy

Redundancy is a dismissal for a reason that has nothing to do with the individual. It arises where the employer:

• has ceased, or intends to cease, carrying on the business at all;

• has ceased, or intends to cease, carrying it on at the place where the employee was employed; or

• has a reduced need for employees to do work of a particular kind, or to do it at that place.

The third is the common one, and note what it is not: it is the job that disappears, not the person. Dismissing a poor performer and calling it redundancy, when the work is still there and someone else is recruited to do it, is not a redundancy at all and will usually be an unfair dismissal.

6.5 Remedies for unfair dismissal

Disputes about dismissal are heard by an employment tribunal. Before a claim can be brought, the parties must notify Acas, which offers early conciliation — a free attempt to settle without a hearing, and the route most claims actually take. If the tribunal finds for the employee there are three remedies:

7 Check your understanding

Five short questions on the chapter, with the answers under each. Work through them before you move on.

8 Test your knowledge

Two quick checks before you move on: work through the flashcards to fix this chapter’s key terms and definitions, then sit the objective questions for exam-style practice. Both mark themselves and explain the answers as you go.