What happens a firm’s internal regulations following a TUPE transfer ?

By Marie-Thérèse Eugénio on December 26, 2018 Posted in Europe, France

Under French employment law, the application of TUPE regulations triggers specific consequences not only with regard to an employee’s employment contract, which is transferred automatically by operation of law, but also on the employees’ collective status.

In this respect, a recent decision of the French Supreme Court has specified what happens to a company’s internal regulations (règlement intérieur) in the event of a TUPE transfer.

It should be recalled that the promulgation of internal regulations is compulsory in companies employing at least 20 employees and the purpose of such document is to cover specific topics, essentially health and safety rules, discipline and rules applicable to sexual and moral harassment. In addition to such compulsory topics, any policies implemented internally within companies the breach of which may lead to disciplinary sanctions also requires the specific procedure of internal regulations to be followed.

Until such recent decision, in the case of a TUPE transfer, as the law was silent on the subject, a company’s internal regulations were considered as following the regime applicable more generally to any unilateral undertakings and were automatically transferred to the new employing entity.

In a recent decision of 17th October 2018, the French Supreme Court held for the first time, in a situation in which employees were transferred to a newly incorporated entity, that such entity could not apply the internal regulations of the initial employing entity and that such document was no longer enforceable against the transferred employees. In so deciding, the Supreme Court considered that a company’s internal regulations are a document of a specific nature, i.e., a regulatory document which cannot be assimilated to other unilateral undertakings of the employer.

On this basis, the Supreme Court held that in the case of a TUPE transfer, the internal regulations do not transfer to the new employing entity and that it is up to the new employing entity to implement its own internal regulations following the transfer.

Although the Supreme Court did not deal with this topic, this decision raises the more general question of the transfer of company policies when TUPE regulations apply. Logically, it would appear to be the case that for those policies which have been implemented under the same procedure as internal regulations, the decision would also be relevant and that the new employing entity would be required to reiterate them after the transfer in order for the policies to continue to apply. But what about other policies? Until further clarity is obtained on the issue and to be on a safe side, it may be prudent to reiterate them as well after the transfer.

The immigration white paper – what will it mean for the UK’s future immigration system?

By Lauren Pullen-Stanley (UK) and Amanda Sanders on December 24, 2018 Posted in Europe, General, UK

The UK Government has now published the White Paper on the future immigration system for the UK after it leaves the EU. It has confirmed, following many of the recommendations by the Migration Advisory Committee (MAC), that it will adopt a new single skills-based immigration system from 1 January 2021. The new system will put an end to the EU free movement of people regime and will be a system where it is “a worker’s skills that matter, not which country they come from” and there is a focus on “quality” rather than “quantity”, all with a view to driving up skills and controlling numbers.

Whilst it is clear that following Brexit there will no longer be one immigration system for non-Europeans and one for EU citizens, the true extent of the future immigration policy is not clear. Much of the detail will depend on and future trade agreements and any exemptions agreed in such agreements, as well as, of course, what the final form of the Immigration Rules will look like after an extensive programme of engagement by the Government.

Under the proposals set out in the White Paper, for the majority of individuals wishing to work in the UK, their route to work will depend on whether they are a skilled worker or a temporary short-term worker at all skill levels.

Skilled worker

A route for workers from outside the EU to come to work in the UK in highly skilled jobs already exists, Tier 2 of the Points Based System. The White Paper proposes to extend this whilst making some amendments to achieve the aim of maximising the economic benefits that migrants bring to the UK. The main changes are:

A removal of the cap on the number of workers (being 20,700 per year) who can enter under the Tier 2 route for high skilled workers. There will therefore be no limits on the volume of skilled migrants under that system.
The Resident Labour Market Test (which required employers to advertise a job for four weeks and to consider applications from resident workers before allowing applications from migrants) is to be abolished. This currently adds to the length of time the process takes and is not effective in ensuring that settled workers have the first opportunity to fill any vacancy.
The skills threshold for workers entering under the new skilled workers route will be lowered to RQF 3 or above (from 6 and above), except in respect of intra-company transfers which will remain at RQF 6. This includes A-level or advanced apprenticeship or Level 3 NVQs. Having said this, the minimum salary threshold of £30,000 may be retained (though the level is something the Government is seeking views on), meaning that (subject to falling within a lower entry level salary threshold or on the shortage occupation list (SOL)) many who may fall within the skills threshold would not satisfy the salary threshold. In fact the Government itself acknowledges that 60% of existing jobs in the intermediate skills level would not meet this salary threshold and it could be argued that a salary threshold of this level favours London and the South East.
The SOL which is used to give priority to individuals within the current highly-skilled route cap and to exempt migrants from minimum salary thresholds required for settlement if they are in a shortage occupation, will be kept under review.
Nationals from low risk countries should be able to look for work having entered as a visitor and apply to switch to the skilled worker programme, as compared to now where most applications needs to be made out of country.
A reform of the process for applying for the right to work. In the current non-EU high skilled route, all organisations seeking to employ persons from outside the EU have to apply and obtain a sponsor licence from the Home Office. As this process will be extended to sponsoring EU citizens, the Government recognises that improvements are required and hopes to improve the administrative burden on sponsors by a greater ability to share and utilise data across government agencies, such as HMRC and the Home Office. They may also consider the use of umbrella organisations to act as sponsors, a lighter touch regime for trusted employers, as well as a tiered system of sponsorship ranging from a sponsor licence to a transactional system for those who do not need a licence or have small number of vacancies to fill.

Transitional short-term work

The Government acknowledges that certain sectors such as construction and social care have built up a reliance on lower skilled workers from the EU, which will not be assisted by the changes to the skilled workers route. In addition, it acknowledges that some skilled workers will come to the UK to work for shorter periods such as to fulfil a temporary contract. The Government has however accepted MAC’s recommendation that there will be no route specifically for lower skilled workers or for specific sectors (other than potentially for seasonal agricultural workers). The future system very much focuses on prioritising skilled migration. However, for a transitional period after Brexit, there will be a new route for temporary short-term workers at any skill level to come to work in the UK without a sponsor to help employers move smoothly to the new immigration system. The system will operate as follows:

Workers will be able to come to work in the UK for a maximum of twelve months.
This will be followed by a cooling off period of a further twelve months to prevent long term working.
The worker will not be entitled to access public funds, request a right to extend to stay, switch to other routes, bring dependants or have the right to lead to permanent settlement.
The route will only be available to nationals of specified countries, for example those low risk countries with whom the UK negotiates an agreement concerning the supply of labour, including returns arrangements.
Workers will need to pay a visa fee to enter under this route and the intention would be that this amount will be increased incrementally each year to incentivise businesses to reduce their reliance on migrant labour.
The route will be under review and this may mean imposing a limit on the total number of people able to come under this route, if necessary.
By 2025, this route will be reviewed to determine whether there should be any continuing facility for temporary workers to come to the UK.

This route will therefore assist employers in the construction and social care industries in the short term, but it will not provide certainty as to the number of workers from year to year, nor would it appear to be a long term solution. Although, as noted by the Government, there are migrants in the UK undertaking low skilled worker, for example dependents of skilled workers, students, refugees and youth mobility visa holders are permitted to work in the UK, query if the numbers of these are sufficient to plug the potential gap in labour shortages identified by certain sectors.

Other routes

In addition to the above, the Government will also be operating routes from the current system for innovators (via the introduction of a new Start-Up visa route in Spring 2019), exceptional talent (by increasing the number of places available under this route), investors who are looking to make a substantial investment in the UK, as well as other temporary workers such as looking to expand existing youth mobility routes (this permits people from certain countries who are aged 18-30 to come to the UK for two years) and supporting the existing temporary professional worker routes (including Government authorised exchanges, charity workers, religious workers, creative and sporting people and relating to the provision of services under an international agreement). If the EU reciprocates, the UK Government also proposes to make binding commitments regarding a future mobility partnership ensuring that visitors from the EU (including business visitors) will be facilitated, for example, there being no requirement to secure a visit visa.

Next steps

This White Paper is not the final rules and the Government proposes a 12 month programme of engagement with sectors to listen to views and proposals before drafting the final rules. In addition, as we have discussed much of the detailed exemptions will depend on future trade agreements with countries, including any future working arrangement with the EU. What remains clear is that the Government wishes to continue its commitment to reduce annual net migration to sustainable levels, whilst acknowledging that it needs to support an open, global economy in line with its industrial strategy.

Ontario Delays Pay Transparency Act Coming Into Force

By Maxwell Radway on December 19, 2018 Posted in Canada

The Ontario government has delayed the coming into force of the Pay Transparency Act (the Act) from January 1, 2019 to “a day to be named by proclamation of the Lieutenant Governor”. The change comes as part of Bill 57, Restoring Trust, Transparency and Accountability Act, 2018, which received royal assent on December 6, 2018.

The outgoing Ontario Liberal government had introduced the Act as Bill 3, which received royal assent on May 7, 2018 and was expected to come into force on January 1, 2019.

Among other things, the Act would require employers to publish expected salary figures as part of job postings, to create pay transparency reports, and would also prohibit employers from asking about a job applicant’s past salary history as part of the application or interview process.

Ontario’s Labour Minister has confirmed that the government is committed to the principle of pay transparency, but has said that additional time is needed to ensure that the Act is compatible with business realities.

We will be sure to provide further updates, as they are made available to the public.

Bill C-86 Receives Royal Assent: New Leaves, Greater Notices, Proactive Pay Equity & More

By Stéphane Erickson on December 17, 2018 Posted in Canada

Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures (the “Bill”), received Royal Assent on December 13, 2018. As noted in our previous publications on the Bill’s amendments to the Canada Labour Code (the “Code”) and the introduction of the new (proactive) Pay Equity Act, significant cost and resource-intensive changes to the federal sphere of employment, labour and human rights law are now at every federally-regulated employer’s doorstep.

The Bill provides that many of the amendments to the Canada Labour Code will not come into force before September 1, 2019, at the earliest, including those pertaining to group termination notices, equal pay for equal work, the burden of proof for determining who is an “employee”, vacation and holiday pay, unpaid leave for pregnant or nursing women, work scheduling, and shift breaks.

Other changes to the Code may come sooner, or possibly later, as they are to come into force at date fixed by order of the Governor in Council, including aggregate parental leave entitlements, individual termination notices, reimbursement of work-related expenses obligations, personal leaves, and requirements to provide materials on employee rights and obligations. Significantly, the coming into force of the new Pay Equity Act and related changes to the Canadian Human Rights Act, will also come into force at a date fixed by order of the Governor in Council.

Lastly, we note that the Department for Women and Gender Equality Act is now in force, which replaces the former department of Status of Women Canada, currently headed by Minister Monsef.

As the year comes to an end, and businesses look onwards to 2019, employers would do well to consider whether their current procedures and policies need to be amended to ensure compliance with the Bill’s important amendments.

The author would like to thank Crystal Li, articling student in Ottawa, for her contribution to this publication.

Singapore: “Watershed” Amendments to Employment Legislation

By Mathias Goh on December 11, 2018 Posted in Asia Pacific, Singapore

Singapore’s employment laws are set to undergo watershed changes come April 2019. In summary, a greater number of employees – in particular, professionals, managers and executives (“PMEs”) – will soon be able to avail themselves of the statutory protections contained in Singapore’s Employment Act, the key employment legislation in Singapore.

The single most significant legislative change is the removal of the monthly salary cap of SGD 4,500 in respect of PMEs. Presently, only PMEs below this salary cap have the benefit of the provisions in the Employment Act relating to minimum periods of notice, paid public holiday and sick leave entitlements, as well as other protections such as timely payment of salary and protection against wrongful dismissal.

With these legislative changes, all PMEs regardless of their monthly salaries will fall within these provisions of the Employment Act.

At the recent second reading of the Employment (Amendment) Bill, the Minister for Manpower explained that the removal of the salary threshold was timely in light of the rising proportion of PMEs, which is expected to make up two-thirds of the Singapore workforce by 2030. The Ministry of Manpower estimates to an additional 430,000 PMEs are likely to benefit from this change.

Another legislative change to the Employment Act concerns the statutory protections found in Part IV of the Employment Act. These statutory protections – which relate to rest days, maximum hours of work, overtime payments – generally apply to vulnerable employees. Presently, these protections found in Part IV of the Employment Act cover workmen earning up to SGD 4,500 a month, and non-workmen earning up to SGD 2,500 a month. The Employment Act will be amended to increase the monthly salary threshold for non-workmen from SGD 2,500 to SGD 2,600, a move that is likely to expand these protections to half of Singapore’s total workforce.

As far as employers are concerned, some of the legislative amendments are aimed at giving businesses greater flexibility. For example, employers will now have an added option when it comes to certain employees (i.e. employees who are covered by the Employment Act but do not fall within Part IV) who are made to work on public holidays: these employees may now be given time off in-lieu instead of a full day off or an extra day’s pay.

The Ministry of Manpower also announced legislative changes to move the adjudication of wrongful dismissal claims from the Ministry of Manpower to the Employment Claims Tribunals (ECT). Presently, salary-related disputes are adjudicated by the ECT, while wrongful dismissal claims are adjudicated by the Ministry of Manpower. It has been observed that this distinction can be artificial as more often than not there are overlaps between both forms of disputes. These changes are therefore intended to provide both employees and employers with a more convenient “one-stop service” for the adjudication of employment disputes.

In addition to the above, there will be other legislative changes made to the Employment Act. For example, the requirement that employers can only recognise medical certificates which are either issued by government doctors or employer-approved doctors will be removed, and employers must now recognise all medical certificates issued by registered doctors (the rationale being that doctors in Singapore are today registered under the Medical Registration Act and are subject to the Singapore Medical Council Ethical Code and Ethical Guidelines).

Finally, it should be stated that notwithstanding these significant legislative changes, the Employment Act will continue to not cover public servants, domestic workers and seafarers, who are covered separately under other laws.

More information on these legislative changes may be found here.

Premature termination of fixed term contracts of employment

By Karen Ainslie (ZA) on December 10, 2018 Posted in General, South Africa

Fixed term contracts of employment are becoming a common practice in the workplace. A fixed term contract is typically entered into for a specific duration (defined by time) or purpose (for a particular project) and would ordinarily expire either with the effluxion of the agreed time or upon the purpose for which it had been entered into being fulfilled (for example the return of a permanent employee who was on maternity leave).

The question that often arises is whether the fixed term contract of employment can be terminated prior to the agreed termination date or the happening of the agreed-upon circumstance.

The common law position is that fixed term contracts of employment cannot be prematurely terminated, unless there is a material breach or repudiation by either party.

The Courts have consistently upheld the principle that by entering into a fixed term contract of employment for a specific period, the parties intend to be bound by the contract for the stipulated duration unless there is express provision made for earlier termination.

Buthelezi v Municipal Demarcation Board [2005] 2 BLLR 115 (LAC) the Municipality terminated Mr Buthelezi’s fixed-term contract early. Mr Buthelezi then claimed this as an unfair dismissal. The Labour Appeal Court agreed with him. In arriving at its finding the Court held:

“There is no doubt that at common law a party to a fixed–term contract has no right to terminate such contract in the absence of repudiation or a material breach of the contract by the other party. In other words there is no right to terminate such contract even on notice unless its terms provide for such termination.”

Nkopane and Others v Independent Electoral Commission (2007) 28 ILJ 670 (LC) the Labour Court was required to determine whether an employer can prematurely terminate a fixed term contract due to its operational requirements. In arriving at the decision that the employer is only entitled to premature termination on the basis of operational requirements, if the contract allows for it, the Court said:

“It could easily have worded the form and the related documents to make it clear that the employment would terminate at the latest on the date specified and was subject to earlier termination for operational reasons.”

The finding in the Buthelezi and Nkopane cases, that there is no common law right to premature termination of a fixed term contract unless the fixed term contract provides for such right was upheld in Lottering and Others v Stellenbosch Municipality [2010] 12 BLLR 1306 (LC). At paras 14 and 20, the court held:

”If the contract is for a fixed term, the contract may only be terminated on notice if there is a specific provision permitting termination on notice during the contractual period – it is not an inherent feature of this kind of contract and accordingly requires specific stipulation.”

In the more recent case of Nord v Civicus World Alliance for Citizen Participation Inc (JS363/12) [2016] ZALCJHB 162 (21 April 2016) the Court held:

“……premature termination of a fixed term contract is permissible, where an express provision is made for such an event.”

An appropriate clause making express provision for premature termination of a fixed term contract of employment would read something like this:

“Either party may terminate this fixed term contract of employment on one calendar months’ written notice only for reason of misconduct, incapacity or the operational requirements of the Company.

Should this fixed term contract be lawfully terminated prior to its expiry, the employee will have no claim for compensation or damages against the Company.”

In today’s ever changing work environment, it is extremely important for employers to ensure that their contracts of employment include their specific requirements. In the present context, employers must ensure that any fixed term agreement includes a clause allowing for premature termination.

This article was written by Danielle Ebrahim-Naseem, Associate, Norton Rose Fulbright South Africa Inc

Recent changes to Modern Awards – What employers should know

By Martin Osborne and Andrew Wheeldon on December 5, 2018 Posted in Asia Pacific, Australia, General

As part of the Commission’s four-yearly review of modern awards[1], the Full Bench of the Fair Work Commission (FWC) recently handed down a number of decisions[2] which have the effect of inserting a model casual conversion clause (Model Clause) into 84 Modern Awards[3] from 1 October 2018. This provides “regular casual” employees the right to request to convert their employment to permanent full-time or part-time.

The other 28 Modern Awards that already contain a casual conversion clause prior to 1 October 2018 will remain unchanged.

Who can request for casual conversion?

The Model Clause provides a framework under which employees are entitled to request to convert their employment from casual to either permanent part-time or full-time, in certain circumstances.

The entitlement arises if the employee is a “regular casual employee” within the definition provided in the Model Clause. This requires the employee to have, in the preceding 12 months, worked a pattern of hours on an ongoing basis which, without significant adjustment, the employee could continue to perform as a full-time employee or part-time employee under the provisions of the Modern Award.

When can an employer refuse the request?

In the event that an employee is a “regular casual” employee for the purpose of the Model Clause, the employee is not provided with an automatic right to be converted to permanent full-time or part-time employment. The Model Clause allows employers to refuse a request on “reasonable grounds”, including any of the following:

It would require a significant adjustment to the employee’s hours of work in order for the employee to be engaged as a full-time or part-time employee in accordance with the provisions of the Award. That is, the employee is not truly a regular casual employee under the Award.
It is known or reasonably foreseeable that the regular casual employee’s position will cease to exist within the next 12 months.
It is known or reasonably foreseeable that the hours of work which the regular casual employee is required to perform will be significantly reduced in the next 12 months.
It is known or reasonably foreseeable that there will be a significant change in the days and/or times at which the employee’s hours of work are required to be performed in the next 12 months which cannot be accommodated within the days and/or hours during which the employee is available to work.

For any ground of refusal to be reasonable, the employer must base the reason on facts which are known or reasonably foreseeable at the time the decision is made.

Claim by track cyclist Jess Varnish to be heard in the employment tribunal next week

By Claire Darbourne on December 4, 2018 Posted in Discrimination and harassment, Europe, UK

Track cyclist Jess Varnish brought a claim of sex discrimination against British Cycling and UK Sport last year, following her removal from the Great Britain Olympic team just months before the 2016 Rio Games.

In the UK, protection from discrimination in the workplace is governed by the Equality Act 2010 (the Act). However, in order to be able to bring a claim, an individual must fall within the categories of protected persons under the Act.

Who is protected?

The first category of those protected under the Act are those in “employment” which has a wider meaning for the purposes of discrimination law than for other areas of employment law. “Employment” means “employment under a contract of employment, a contract of apprenticeship or a contract personally to do work”.

This definition covers employees, workers and also a wider category of individuals who are self-employed, provided that their “employment” contract obliges them to perform the work personally: in other words, if they are not permitted to sub-contract any part of the work or employ their own staff to do it. Case law has also established that, in addition to personal service, a degree of subordination to the “employer” is required.

Tribunal hearing

Jess Varnish’s legal representative has confirmed that the preliminary hearing to determine whether she was an employee, worker or self-employed falling within the definition of those protected under the Act will take place next week.

As with similar cases on employment status over recent months involving drivers, couriers and plumbers, the case will be decided on its particular facts and the nature of the relationship between the parties, and will not turn solely on the terms of any written contract between them.

If the cyclist succeeds in arguing that she was an employee, worker or someone engaged under “a contract personally to do work”, her claim of sex discrimination can go ahead in the tribunal next year. If she was an “employee” she would also have the right to bring a claim of unfair dismissal subject to establishing the necessary length of service required in the particular circumstances of her case.

Decision of the French Supreme Court of 28th November 2018 : Does it spell the doom of the gig economy?

By Laure Joncour on December 4, 2018 Posted in Europe, France

The term « gig economy » has come into use to describe segmented jobs governed by “apps”. Drivers, riders, cleaners rely on a “digital platform” to be put in contact with clients and their jobs do not seem to fall precisely within the parameters of laws designed to deal with the traditional subordination relationship of employee to employer, for example because they are free to accept or decline a request for work and because it is often a side job conducted at the same time as another activity.

In France, the business model of such platform relies on the individual being self-employed (no social security is paid by the platform as the self-employed individual carries the cost of his or her own social protection and does not benefit from the rights traditionally enjoyed by employees). However, some unions and individuals working for such platforms have queried whether the status of self-employed is adapted to such individuals given the constraints placed on them by some platforms.

This distinction between employees and self-employed persons is one of the main problems from a legal perspective and often gives rise to cause for dispute. Under French law, the distinction is important in particular with regard to the application of the strict employment law rules such as working time rules and the protection given in case of termination of the employment contract as well as the employer’s liability for social security contributions (employers must make these payments only for employees but not for self-employed) and entitlement to unemployment benefits.

There have been some litigation over the recent years before the labour courts with drivers or riders who claimed to be employees but it ended with mixed results both before the courts of first instance and at the court of appeal level.

A new law was passed in 2017 granting some very minimal rights for the individuals subscribing to the platform such as the obligation by the platform to pay for a work accident cover, some sparse obligations to cover financial cost of professional training, and right to strike and to constitute a union association. However the parliament decided not to qualify the status of such individuals as the point made during the debates was that it was up to the labour courts to apply the usual criteria of case law to determine whether such individuals were employees or not.

This is exactly what the supreme court did on 28th November 2018 for a rider for Take Eat Easy, (which had in the meantime gone into liquidation in 2016). The rider asked for the qualification of his relationship as an employment contract before the labour court and the case went up to the supreme court.

The supreme court began by recalling that a subordination link (which is the determining factor under French law in assessing whether the relationship is an employment contract) is characterized by the performance of work under the authority of an employer which has the power to give orders and instructions, to control the performance and to sanction the failure of a subordinate.

Therefore, the supreme court decided that a rider is bound by an employment contract to a company which has recourse to a web platform and an application in order to connect partner restaurants, customers ordering meals through the platform and riders, on the basis that the application used a geo-location system enabling the monitoring in real time of the rider’s position and the recording of the total number of kilometers travelled and that the company had the power to sanction the rider by a system of penalties which could even lead to the exclusion of the rider.

The supreme court outlined the control over the rider’s activity and the capacity for the platform to sanction the individual by refusing to work any longer with him which are the two main aspects which can allow a court to requalify a self-employed relationship into an employment contract.

It will be interesting to see how this case law develops and in particular the position of the courts of appeal across France which until now have seemed mostly to consider that self-employment was the applicable relationship. This landmark decision of the supreme court may also prompt the legislator to intervene to try to secure the digital platform business and perhaps grant an intermediary protective status to such individuals.

Employees on Long term sickness – when can an employer dismiss?

By Amanda Sanders on November 30, 2018 Posted in Contracts, Discrimination and harassment, UK

The Employment Appeal Tribunal (EAT) has recently confirmed that employers should take care when dismissing an employee who is entitled to participate in a permanent health insurance (PHI) scheme and is absent from work by reason of long term ill health. It held that there is an implied term that an employer will not dismiss an employee for incapacity if that would prevent the employee being entitled to long term disability benefits.

Where an employee is absent due to ill health then on termination of employment, the employer may face a claim for unfair dismissal and for disability discrimination. Capability is a fair reason for dismissal, but the employer would have to show that it adopted a fair procedure in dismissing the employee, for example, by seeking medical advice and reviewing the likelihood of the employee returning to work. A claim for disability discrimination can be defended by the employer if it can show that the dismissal was a proportionate means of achieving a legitimate aim and that the employer made all reasonable adjustments to ensure that the employee could return. The situation becomes more complicated where the employer provides a PHI scheme.

In the case, the employee was employed as a security agent at Heathrow Airport by American Airlines. Under the terms of his contract of employment he was entitled to the benefit of an insured long term disability benefit plan. The terms of the plan stated that the employee would be entitled to those benefits as long as he remained an employee and until he returned to work, death or retirement. The employee went on long term sick leave and during that period the security department was outsourced and the employer’s obligations under the plan transferred to the new employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

The employee was dismissed by reason of lack of capability and he brought a claim for both unfair dismissal and disability discrimination. The Employment Tribunal held that the employer had dismissed the employee fairly and had acted reasonably. It also held that the dismissal was a proportionate means of a achieving a legitimate aim and so there was no unlawful disability discrimination.

The employee appealed to the EAT and the appeal was upheld. It held that following a line of cases, a term should be implied into the contract that, once the employee has become entitled to payment of disability income under the long term disability plan, the employer will not dismiss him on the grounds of continuing incapacity to work. The term effectively limited the right of the employer to terminate on notice by preventing the exercise of that right in circumstances where it would frustrate the contractual entitlement to long term disability benefits.

As a result, the Employment Tribunal’s conclusions could not stand, and the EAT held that the matter should be remitted to a fresh tribunal to determine the fairness of the dismissal and whether it was a proportionate means of achieving a legitimate aim.

The case itself does not represent new law. In most cases it is the intention of the parties that the dismissal power will not be operated so as to remove accruing benefits under the income insurance scheme except cases of summary dismissal, redundancy, or a repudiatory breach by the employee. For the most part employers will not be concerned by the individual remaining employed as the cost is covered by the insurance company. However, in this case, the new provider, following the TUPE transfer refused to cover the two individuals who were already on sick leave, of which the claimant was one. Therefore, the employer would be responsible for covering the cost of the PHI. Employers should therefore take care on a TUPE transfer to determine what cover can be sought for employees on sick leave prior to the transfer.

Another issue for employers, who have employees on PHI schemes, is to remember that employees continue to accrue holiday during sick leave. Employers should therefore ensure effective absence management and include clauses limiting the carryover of the holiday for a certain period into the next holiday year. For example, a clause should be included which states that any such carried over holiday accrued during a period of sickness absence which is not taken within eighteen months of the end of the relevant holiday year will be lost. This means that when the employment is terminated, the employee will only be entitled to accrued holiday for a limited period of time.

Can an express term in the contract override the implied term regarding termination? It has generally been thought that an express termination clause allowing the employer the right to terminate for incapacity notwithstanding that the employee is on the PHI scheme would override the implied term. However, the EAT in this case did cast some doubt explaining that such a clause would be inherently contradictory as either the claimant had a meaningful entitlement to disability benefits or the employer had an unfettered right to terminate his contract on notice even for incapacity.

As a result of the case it is clear that the contract should be drafted to ensure that the terms of the PHI in the contract are subject to the rules of the PHI scheme and the agreement of the insurance provider. It should also expressly state that the employer shall only be obliged to make payments to the employee if it has received payment from the insurance provider. The employer should also retain the right to discontinue, vary or amend the scheme at any time on reasonable notice. In addition, although the inclusion of an express clause allowing termination while absent on sick leave may be cast into doubt, it is worth including such a clause in case the employer may seek to rely on it.