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Employment Update 9 August 2011


United Kingdom

Read the 'Employment Law Update' newsletter, 9 August 2011, on

Welcome to our fortnightly round-up of what's happening in employment law.

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Supreme Court ruling on employment status

The Supreme Court has upheld the decision of the Court of Appeal that car valeters were employees. Although their contracts described them as self-employed and permitted them to provide a substitute, this did not reflect the true agreement between the parties. This case provides useful guidance on determining an individual’s status and confirms the fact that Employment Tribunals are in a position to disregard express contractual terms which do not reflect the parties’ actual agreement.

In Autoclenz Limited v Belcher and others, the valeters had written contracts with Autoclenz in which they were described as “sub-contractors”. The contracts included terms which stated that the sub-contractor could engage substitutes to carry out the work, they were not obliged to provide their services and Autoclenz was not obliged to engage their services. The valeters claimed that they were workers within the meaning of the National Minimum Wage Regulations 1999 (NMWR) and the Working Time Regulations 1998 (WTR) and were entitled to receive the national minimum wage and receive paid annual leave.

The Employment Tribunal held that the valeters were workers within the definition of worker under the WTR and NMWR, on the basis that they were employed under a contract of employment and were, in any event, workers. Autoclenz appealed. The Employment Appeal Tribunal allowed the appeal in part, and held that the valeters were workers but not employees. The Court of Appeal in turn restored the decision of the Employment Tribunal. Autoclenz appealed to the Supreme Court.

The Supreme Court dismissed the appeal. The Employment Tribunal was entitled to hold that the documents did not reflect the true agreement between the parties and that, on the basis of the Employment Tribunal’s findings, four essential contractual terms were agreed i.e. (1) the valeters would perform the services defined in the contract for Autoclenz within a reasonable time and in a good and workmanlike manner; (2) the valeters would be paid for that work; (3) the valeters were obliged to carry out the work offered to them and Autoclenz undertook to offer work; and (4) the valeters must personally do the work and could not provide a substitute to do so.

The Court held that the Court of Appeal was correct to hold that these were the true terms of the contract and the Employment Tribunal was entitled to disregard the terms of the written documents, insofar as they were inconsistent with them. The Court noted that where there is a dispute as to the genuineness of a written term, the focus of the enquiry must be to discover the actual legal obligations of the parties. This will involve the Tribunal examining all the relevant evidence, including the written term itself, read in the context of the whole agreement. It will also include evidence of how the parties conducted themselves in practice and what their expectations of each other were. The Court also agreed that the test should focus on the actual legal obligations, rather than the “true intentions” or “true expectations” of the parties, because of the risk of concentrating too much on what were the private intentions of the parties.

The Court noted that the relative bargaining power of the parties must also be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed. The circumstances in which contracts relating to work or services are concluded are often very different from those in which commercial contracts between parties of equal bargaining power are agreed. In employment matters, it may be more common for a Tribunal to have to investigate allegations that the written contract does not represent the actual terms agreed and a Tribunal must be realistic and worldly-wise when it does so. 

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Compulsory retirement - ECJ decision

The European Court of Justice (ECJ) has provided further guidance on the justification of compulsory retirement laws under the Equal Treatment Framework Directive (the Directive). 

In Fuchs and another v Land Hessen, the two claimants worked as State prosecutors until they reached the age of 65, the age at which they should normally have retired under the laws of the Land Hessen (a German state). These laws provided that permanent civil servants should retire at the end of the month in which they reach the age of 65, except for teachers (who retire at the end of the school year in which they reach 65) and lecturers (who retire at the end of the last month of the semester in which they reach 65). Retirement may, at the request of the civil servant, be postponed beyond the age of 65 for periods of no more than one year, subject to an overall retirement age limit of 68. In addition, there is a special provision for directly elected civil servants, who can retire on reaching the age of 71 if their term of office has not come to an end by that date. At a federal level, until February 2009, the general retirement age applicable to civil servants was fixed at 65. Since that date, legislation has provided for the retirement age to be raised gradually to 67 years.

In this case, the claimants each applied to continue to work for a further year. Their applications were rejected on the grounds that it was not in the interest of the service for them to remain in post. They applied to the court and questions were referred to the ECJ to establish whether the law was consistent with the Directive. The national court asked whether the Directive precluded a law which provided for the compulsory retirement of permanent civil servants at the age of 65, subject to the possibility that they may continue to work if it is in the interest of the service, until the maximum age of 68, if that law had the aims identified by the court, which included the creation of a “favourable age structure” and achieving budgetary savings.

The ECJ concluded that the aim of establishing an age structure that balances young and older civil servants in order to encourage the recruitment and promotion of young people, to improve personnel management and thereby to prevent possible disputes concerning employees’ fitness to work beyond a certain age, while at the same time seeking to provide a high-quality justice service, can constitute a legitimate aim of employment and labour market policy. The ECJ also considered whether compulsory retirement at the age of 65 is appropriate and necessary. The ECJ stated that it does not appear unreasonable for a member state to take the view that such a measure can secure the aim of putting in place a balanced age structure in order to facilitate planning of staff departures, ensure the promotion of civil servants, and prevent disputes that might arise on retirement. The ECJ therefore confirmed that a measure which provides for prosecutors to retire when they reach the age of 65 does not go beyond what is necessary to achieve the above aims.

Interestingly, the ECJ also considered the legitimacy of an aim of achieving “budgetary savings” under the Directive. It noted that member states can take account of budgetary considerations at the same time as political, social or demographic considerations, provided that they observe the general principle of the prohibition of age discrimination. However, the ECJ also confirmed that while budgetary considerations can underpin the chosen social policy of a member state and influence the nature or extent of the measures that the member state wishes to adopt, such considerations cannot in themselves constitute a legitimate aim within the meaning of the Directive.

The ECJ also considered what information should be produced by a member state in order to demonstrate the appropriateness and necessity of a measure and, in particular, whether statistics or precise data with figures must be supplied. It noted that mere generalisations are not enough. It is for the national court to assess, according to the rules of national law, the probative value of the evidence adduced, which may include statistical evidence.

The ECJ also confirmed that the provision did not lack coherence, merely because it allowed prosecutors to work until the age of 68 in certain cases or contained measures designed to restrict retirement before the age of 65. It did not matter that there was other national legislation which provided for certain, particularly elected, civil servants to remain in post beyond the age of 65 and also for the gradual raising of the retirement age from 65 to 67 years.  

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Holiday pay and sick leave - EAT decision

The Employment Appeal Tribunal (EAT) has confirmed that a worker who was absent for the complete leave year, but who did not submit a request for the annual leave before the year ended, was entitled to a payment for that year’s annual leave entitlement on termination of employment.
In NHS Leeds v Larner, Mrs Larner was employed by NHS Leeds as a clerical officer and worked for 20 hours per week. In 2005, she was given her statement of written particulars, which stated that she would accrue annual leave during paid sick leave not exceeding 20 working days in one year. The statement and further documents confirmed that annual leave could only be carried over in exceptional circumstances and when a written request has been submitted and approved.

In January 2009, when Mrs Larner began her period of sick leave, she did not have any pre-arranged holiday and, during 2009 and 2010, she did not make any requests to take holiday while on sick leave. In April 2010, NHS Leeds decided to dismiss Mrs Larner and informed her in writing that "a payment in lieu of notice and any outstanding leave will be made to you".

Mrs Larner issued a claim for unpaid holiday pay under the Working Time Regulations 1998 (WTR). NHS Leeds argued that, since no holiday requests were made, the entitlement to annual leave was lost at the end of the year. The Employment Tribunal found that Mrs Larner was entitled to be paid for the annual leave which she had no opportunity to take in the 2009/10 holiday year, even though she had not made a request to take holiday.

The EAT considered the ECJ decisions and scope of the Working Time Directive (the Directive) in Stringer and others v HM Revenue and Customs (which confirmed that annual leave does accrue during a period of sick leave) and Pereda v Madrid Movilidad SA (which confirmed that a worker on sick leave during a period of previously scheduled annual leave has the right to take that leave during a period that does not coincide with the period of sick leave, which might mean carrying over the annual leave to the next leave year). The EAT confirmed that Mrs Larner was presumed not to have been well enough to exercise what the ECJ referred to in Pereda as her "right to enjoy a period of relaxation and leisure". She did not have the opportunity during 2009/10 to take her annual leave. Instead, she had the right to have her statutory leave entitlement under regulation 13 of the WTR carried over to the following year without having to have made a formal request for the leave to be carried over. The right to be paid for that annual leave crystallised on the termination of her employment.

The EAT commented that the position might be different in the case of a fit worker who fails to make any request for leave during the whole of a pay year. He or she might lose the right to take annual leave, and would certainly do so if the contract of employment provides for this, because that worker, unlike Mrs Larner, has, in the words of the ECJ, "the opportunity" to exercise the right to leave.

The overlap between annual leave and sick leave has already given rise to significant case law. One of the key areas of discussion, which was not addressed directly in this case, is that notwithstanding the scope of the Directive and decisions such as Pereda, under regulation 13(9) of the WTR, annual leave cannot be carried over to the next leave year. The EAT does not address the conflict between the Directive and the WTR in this case. However, it is worth noting that the Government is proposing to amend the WTR to clarify the ability to carry over annual leave.

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Agency Workers Regulations - agency supply teachers

The Department for Education (DfE) has published guidance relating to agency supply teachers and the application of the Agency Workers Regulations 2010 which come into force on 1 October 2011.

The DfE guidance provides guidance on the following:

  • Who is the hirer for agency supply teachers?
  • How is holiday pay accrued?
  • What is the impact of school closures?
  • How does the agency supply teacher's qualifications affect the rate of pay?

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ACAS guidance - get set for Olympics

ACAS has issued guidance for employers on getting the best from their staff and avoiding absence during the Olympic Games.

The guidance covers flexible working; holidays; time off and managing attendance and ACAS will publishing further material to assist employers during the countdown to the Games.

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Large-scale disputes - rise in demand for ACAS services

ACAS has seen a significant increase in demand for their help resolving large-scale disputes in the past year. According to the conciliation service's 2010/11 annual report, it has dealt with 1,054 collective disputes over the period, which is up 15 per cent from 2009/10.

Pay continued to be the top issue followed by redundancy. ACAS reports that the figures reveal that the North West of England saw the most cases with 228, closely followed by Scotland with 220. The South West of England had the lowest incidence with 26 cases.

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