Employment fact... or is it fiction

Today’s corporate client organisations and guarding companies operating in the private and public sectors alike are facing ever-increasing employment legislation. Boards of Directors, their Human Resources directors and departmental managers are beginning to realise that they can no longer make decisions relating to their staff without having a sound working knowledge of employment law.

The end result? Employers are now unwittingly participating in an unintended employment ‘lottery’ wherein the stakes are high for them, while the rewards can often be even higher for those under their immediate control.

Over the years, a great many myths and misconceptions have burgeoned around employment legislation. Those myths have become so entrenched in working practices that, for some, they almost find their place as a part of folklore.

How many of these common myths are actually correct, though? Let’s look at the Top 10 and find out...

(1) The first £30,000 of all termination payments can be made without taxation

The general rule here is that truly ex-gratia termination of employment payments can indeed be made free from taxation up to a maximum limit of £30,000. However, where an individual’s contract contains a payment in lieu of notice clause then that payment will be subject to both taxation and national insurance contributions. Therefore, it’s important to check the precise terms and conditions of contracts in relation to any payment made.

In addition, if a termination payment is negotiated some time before the cessation of an individual’s employment, once again the Inland Revenue (IR) can take the view that this is a contractual payment and thus render it fully-subject to taxation under PAYE. Employers need to be aware that, if tax is not appropriately deducted when it should be, then the IR will – in the first instance – seek to recover that tax from the employer as it is an employer’s duty to make the appropriate deductions for tax.

Also, the IR is more likely to pursue an employer as that employer is far more likely to have greater financial means than the employee. Subsequently, the employer cannot seek to recover any unpaid tax from the employee in the absence of a tax indemnity.

(2) A Contract of Employment must be made in writing. Verbal promises or assurances made to employees are not legally binding in a Court of Law...

In truth, Contracts of Employment do not have to be made in writing. Furthermore, every employee has a Contract of Employment irrespective of whether or not their employer has provided something in writing. This is simply because contracts can include terms which are written, spoken or even implied by way of custom and practice, by statute or even by common law. That being the case, an employee can rely upon the agreed oral terms of a contract if promises or assurances are given to him or her at, say, an interview. For their part, the employee may seek to rely on such terms if they are not subsequently honoured.

Any failure to record the terms in writing could result in expensive litigation if, for example, the employee seeks to bring a claim for a bonus which was discussed at the interview but never actually committed to a written document.

(3) Offers of employment can be withdrawn if the employee has not actually started work

Any withdrawal of an offer by an employer once it has been accepted by the new employee amounts to a breach of contract. In this case, the prospective employee may bring a claim against an employer.

If the parties have not agreed on a notice period, or if a notice period cannot be implied through – for example – the periods of notice given to other employees in similar posts, then the employer will have to make a payment in lieu of a reasonable notice period. This payment may be considerable in the case of a senior employee where the notice period would normally be 6-12 months.

(4) Only employers can bring Employment Tribunal claims

Some claims – among them unfair dismissal – can only be brought by employees. However, it should be borne in mind that it is a question of fact in each case as to whether or not someone is actually an ‘employee’.

Many companies take on so-called self-employed contractors who are treated as the company’s employees. In many cases, these individuals will also be the company’s employees and, therefore, could bring the types of claims only available to employees.

However, there are a great many claims not solely limited to employees. For example, under the Working Time Regulations, ‘workers’ (ie those individuals who personally carry out services for a company) are entitled to receive paid holidays, and – of course – are subject to the requirement not to work more than an average of 48 hours per week. Similarly, the discrimination legislation applies not only to employees, job applicants and contract workers but also to agency staff.

Claims for discrimination can potentially be very expensive as there is no cap on the amount of compensation that may be awarded. In addition, if an individual claimant does not suffer any financial losses, they can still be awarded damages for injury to their feelings as a result of the alleged discrimination.

An award for injury to feelings may range from a modest amount of, say, £500 through to a huge five-figure sum. It is important to ensure that your company has a proper and just equal opportunities policy in place which is subject to regular monitoring and updating.

(5) Employees that work part-time are not entitled to Bank Holidays if they do not work on a Monday

Under the Part-Time Workers Regulations, it is unlawful to treat a part-time member of staff any less favourably than a full-time worker. On a pro rata basis, part-time workers are entitled to receive the Bank Holidays that would be the privilege of the full-time employee.

Failure to provide part-time workers with Bank Holidays as days off would expose the employer concerned to unlimited damages.

(6) Employees who are engaged on fixed-term contracts are not able to bring claims for unfair dismissal when their fixed-term contract comes to an end

Under English Law, the expiry of a fixed-term contract amounts to a dismissal. Therefore, if a fixed-term contract is not renewed, the employee may be able to instigate a claim for unfair dismissal and/or for a redundancy payment. Seen in this light, it’s fair to say that fixed-term contracts should only really be used for specific projects whereby an individual is needed for a particular project across a specific period of time. They should not be used in continuation without good cause.

It ought to be borne in mind that, once an individual has worked on a fixed-term contract for a year or more, they will acquire the right to bring a claim for unfair dismissal (the maximum amount of compensation for which totals a hefty £65,200).

(7) All employees are entitled to view their company personnel files

Until the end of 2003, such a statement was broadly accurate. It stems from the subject access provisions contained in the Data Protection Act 1998, whereby an employee who pays the requisite fee (amounting to a maximum of £10) is entitled to access data (held in a ‘relevant filing system’) about which they are the subject.

However, the meaning of the phrase ‘relevant filing system’ has undergone some radical changes as a result of the case involving Durant versus the Financial Services Authority, which duly narrowed the subject access provisions. Computerised records amount to a ‘relevant filing system’ on the basis that they are structured and available at the touch of a button. Thanks to the Durant case, manual records (such as personnel files) must now satisfy a similar test.

The key to all this is whether or not you would need to leaf through a given file to extricate, say, an individual’s disciplinary record. If the answer to that question is ‘Yes’, then the file is unlikely to be a ‘relevant filing system’. Thus the subject access provisions would not apply here.

(8) All employers are obliged to provide a reference to a former employee

Unless an individual’s Contract of Employment provides for a reference on termination of employment, no employer is obliged to provide a reference for an ex-employee.

However, if a reference is provided, reasonable care needs to be taken to ensure that it is accurate. If the reference is not accurate and a former employee loses out, then the ex-employee could bring a claim of negligence against his or her former employer.

If the former employee were to be successful, he or she would be entitled to damages for the financial losses which they had suffered as a result of the withdrawal of the job offer. These losses could well be significant if it means that the employee remains unemployed for a considerable period of time.

It should be remembered that the former employer also has a Duty of Care to the recipient of the reference in order to make sure that it is accurately drawn up. If it is not – and the new employer takes on the former employee and subsequently finds out that they are not quite as remarkable as you had declared them to be in the reference – then once again the former employer could be exposed to a claim for negligence.

(9) If an employer writes ‘without prejudice’ on a letter then the discussions are ‘off the record’ and cannot be referred to in any subsequent employee claim

Recent case law has suggested that it is not safe to rely on the phrase ‘without prejudice’ in order to conduct an ‘off the record’ discussion. Often, employers enter into ‘without prejudice’ talks during the disciplinary process wherein detailed talks take place about the employee resigning as opposed to being dismissed.

The Courts have indicated that the ‘without prejudice’ ruling only applies if there is a genuine dispute between parties. Simply pursuing disciplinary proceedings against an employee is unlikely to constitute a dispute.

One option may be to obtain the employee’s consent to have a ‘without prejudice’ discussion, but even this will be risky if the employee concerned has not had the opportunity to obtain proper advice as to the implications of these discussions.

(10) If an employee has a National Insurance number then the employer doesn’t need to make any further checks by way of ensuring that they have the right to work in the UK

In May 2004, the Government announced changes to the checks that an employer should make before taking on employees. It is no longer safe to rely solely on a National Insurance number. The employer must check certain original documents which include a British passport, EEA passport/identity card and travel forms that show a given individual has the right to stay indefinitely in the UK. The employer should take copies of all documents.

Alternatively, in those cases where a worker cannot produce the documents listed above, then an employer is obliged to check two documents from a further list provided by the Government. This could include a document containing details of a person’s permanent National Insurance number as well as a birth certificate. Note that it will be construed as a criminal offence on any occasion where an employer fails to make these checks.