Welcome to the third edition of The Employment Edit – a summary of the most important recent cases and news affecting employers in the UK. We hope you find this newsletter helpful and informative. In this edition we look at:

• Injunction granted to prevent 'fire and rehire'
• Whistleblower not entitled to retain confidential documents
• Extension of workers' rights in respect of refusal of paid annual leave
• Firing employees for bringing frivolous grievances
• Annual increases in compensation
• Menopause and the workplace
• New FCA webpage on the MIFIDPRU Remuneration Code and clarifications around the use of regulatory references

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High Court grants injunction to prevent fire and rehire

In USDAW and others v Tesco Stores Ltd, the High Court granted an injunction to prevent Tesco from firing and rehiring employees to remove a contractual entitlement to a specific element of their pay called Retained Pay. As reported in the previous issue of The Employment Edit, Acas recently issued guidance on the practice known as "fire and rehire" following adverse press and parliamentary comment during the Covid-19 pandemic.

During a reorganisation of its distribution network, Tesco offered employees Retained Pay as an incentive to stay in their jobs and relocate, rather than taking redundancy. Tesco gave assurances to the affected employees that this was a permanent benefit payable for as long as the employees remained in their roles. Some years later Tesco proposed to remove Retained Pay by firing the employees and re-hiring them on new terms without Retained Pay. The High Court held that it was an implied term of the employees’ contracts that Tesco could not terminate the contracts in order to remove or reduce the Retained Pay, and granted an injunction prohibiting Tesco from dismissing the employees to achieve that result (although this would not prevent Tesco dismissing employees for genuine and unrelated reasons such as redundancy or gross misconduct).

Takeaway: This case underlines the potential risks to employers of granting an absolute and permanent benefit to staff. It also underlines the need for employers to take great care when seeking to fire and re-hire employees, and to ensure that such an exercise is only followed after a careful analysis of employees’ contractual terms. That said, the facts of this case were extreme. It is very unusual for a contractual benefit to be offered on a “permanent” basis. Well drafted employment contracts generally contain express terms that the employer has the right to change or remove benefits, and to terminate the contract even if this will deprive the employee of benefits.

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Whistleblower is not entitled to retain documents or information belonging to his former employer

In Nissan v Passi, the High Court granted an interim injunction requiring a whistleblower to return and destroy all copies of documents belonging to his former employer which contained confidential information and privileged material (and a number of which Mr Passi had given to a journalist). Mr Passi argued that he had retained the documents to take legal advice and should be entitled to keep them for that purpose. Mr Passi had separately issued proceedings against Nissan for unfair dismissal and unlawful detriment relating to whistleblowing.

In granting the injunction, the judge found that Mr Passi had no credible legal claim to possession of the documents in order to seek legal advice or otherwise – they were clearly the property of his former employer. Nor did he have a right to disclose documents which did not belong to him in the Employment Tribunal (ET) proceedings. If he believed that Nissan had failed to comply with its duty to disclose documents, or had wrongly asserted privilege over certain documents, the correct course would be to make an application for specific discovery to the ET. Mr Passi was therefore required to return all documents to Nissan.

Takeaway: This is a helpful case for employers, confirming that an employee does not have the right to take or retain documents or information which belongs to the employer – even where the employee believes they are a whistleblower. The proper course is for the disgruntled employee to seek disclosure of the documents in their tribunal claim.

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Extension of workers’ rights to claim in respect of refusal of paid annual leave

In Smith v Pimlico Plumbers, the Court of Appeal (CA) has confirmed that where a worker takes annual leave which is not paid at the time it is taken, the right to take that leave is not lost at the end of the leave year but is carried over and accumulates until termination of employment. On termination, the worker can claim in full for the unpaid leave. This case applies only to the four weeks of statutory annual leave to which workers are entitled under the EU Working Time Directive.

Mr Smith was wrongly categorised as a self-employed contractor throughout his engagement as a plumbing and heating engineer, with no right to paid annual leave. He did take leave, but it was unpaid. The CA found that the right to take paid annual leave is a single composite right and noted that failure to pay at the time annual leave is taken, or uncertainty regarding pay, may detract from the rest and relaxation which should be afforded by annual leave and could deter workers from taking it.

An employer must show that it:

• specifically and transparently gave a worker the opportunity to take paid annual leave;
• encouraged the worker to take paid annual leave; and
• informed the worker that the right would be lost at the end of the leave year.

If the employer cannot show that it has done these things (and a worker does not take leave, or takes leave which is unpaid), the right does not lapse but is carried over and accumulates until the employment is terminated. In Mr Smith’s case, this amounted to a claim for unpaid annual leave over a period of six years.

While not strictly part of its decision in Smith, the CA also expressed a strong view that previous case law about the time limits for bringing a claim for a series of unpaid or underpaid holidays is wrong. These cases suggested that the series would be broken (and that therefore any claims before the break were out of time) if there was a gap of three months or more between deductions. The CA said that there was nothing in the legislation to support this view and that deductions should be treated as a series where there are sufficient factual and temporal links between them.

Takeaway: This decision increases the potentially costly consequences of miscategorising a worker or employee as a contractor. In practice, employers should ensure that they give workers clear messaging about taking their annual leave, and the consequences of not doing so. This can be achieved, for example, by having a clear annual leave policy and sending reminders to take leave towards the end of the holiday year. For purchasers of businesses, particularly those with large numbers of contractors, it will be important to consider the potential level of liability for unpaid holiday pay claims as part of a due diligence exercise and to seek appropriate warranties and indemnity cover.

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Dismissal for bringing multiple and frivolous grievances was fair

In Hope v British Medical Association (BMA), Mr Hope brought various grievances against the BMA, including grievances about the way his grievances were handled. He refused to progress most of his grievances past the informal stage and his manager was unable to resolve his grievances as they related to more senior individuals. When the BMA instructed him to attend a grievance meeting, he refused, so the BMA commenced a disciplinary process. Following the conclusion of that process, Mr Hope was dismissed for gross misconduct for (among other matters) raising numerous grievances which were frivolous and vexatious.

When Mr Hope’s unfair dismissal claim failed in the ET, he appealed to the Employment Appeal Tribunal (EAT). He asserted that the ET should have considered, in determining whether he had been unfairly dismissed, whether his conduct was gross misconduct. The EAT dismissed the appeal. It held that it was reasonable for the BMA to conclude that Mr Hope’s grievances were vexatious and frivolous, and to dismiss him on that basis. It was not necessary for the employer to consider whether there had been a breach of contract amounting to gross misconduct.

Takeaway: This case confirms that it is possible, in the right circumstances, for employers to dismiss employees fairly for making repeated vexatious grievances. However, employers should tread carefully in such circumstances, particularly where the grievance involves allegations of discrimination or where there is a risk of a victimisation or whistleblowing detriment. In all such cases, it will be crucial to ensure any action is fair and proportionate, and to be satisfied that the grievances are truly frivolous and/or vexatious.

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Increases Announced to UK Employment Compensation Limits

With effect from 6 April 2022, certain compensation limits will be increased by the Employment Rights (Increase of Limits) Order 2022. These new limits apply where the relevant event, for example the termination of employment, occurs on or after that date. The key increases include:

• The cap on a week’s pay for the purposes of calculating both the basic award in unfair dismissal cases and statutory redundancy payments will be increased from £544 to £571. This means that the maximum basic award for unfair dismissal and the maximum statutory redundancy payment will increase from £16,320 to £17,130; and
• The maximum compensatory award for unfair dismissal will rise from £89,493 to £93,878 (or, in each case, one year’s gross pay if lower than these figures). The cap on compensation does not apply to certain dismissals (including those arising due to unlawful discrimination or whistleblowing).

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Menopause and the workplace

In a previous issue of The Employment Edit we reported on Rooney v Leicester City Council, one of the first appeal cases confirming that menopausal symptoms can potentially amount to a disability under the Equality Act 2010 (EqA). The House of Commons Women and Equalities Committee is continuing its enquiry into the extent of discrimination in the workplace relating to menopause. The enquiry is considering how Government policy and workplace practices can better support those experiencing menopause. Options being considered include making menopause a protected characteristic under the EqA and recommending that employers should have a menopause policy to ensure appropriate support for workers experiencing the menopause. This follows the publication in November 2021 of a report commissioned by the Government from leading employer organisations on the issue of the menopause and the workplace, which made a number of recommendations including encouraging employers to increase workplace support for those experiencing the menopause using tools such as training, policies, flexible working and reasonable adjustments.

Takeaway: Menopause and the workplace is likely to remain a high profile issue during 2022. Employers may wish to consider putting in place appropriate training, policies and other support – given the likely benefits in terms of worker retention, productivity and avoiding potential liability for discrimination

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New FCA webpage for the MIFIDPRU Remuneration Code

In January 2022, the FCA published a new webpage on the MIFIDPRU Remuneration Code (the Code). The Code is part of the Investment Firms Prudential Regime (IFPR), a new prudential framework for all MIFIDPRU investment firms, which is now in force for performance periods which start on or after 1 January 2022. The Code is contained in chapter 19G Senior Management Arrangements, Systems and Controls (SYSC 19G) of the FCA handbook. The Code sets out the new remuneration rules introduced by the IFPR and replaces the previous IFPRU and BIPRU remuneration codes (SYSC 19A and SYSC19C of the FCA Handbook).

The new webpage contains information and links relating to:

• The application of the basic, standard and extended remuneration requirements of the Code to different types of firm.
• The proportionality principle contained in SYSC 19G.2.4 and 2.5 which provides that “a MIFIDPRU investment firm’s remuneration policy must be appropriate and proportionate to the nature, scale and complexity of the risks that exist in the business model and activities of the firm.”
• Performance adjustment which means the adjustment of an individual’s variable remuneration, including malus and clawback. There is a link to the FCA’s guidance document FG21/5: “General guidance on the application of ex-post risk adjustment to variable remuneration” (published October 2021).
• Links to a template Remuneration Policy Statement and a table of material risk takers (MRTs) which firms may use to record how their remuneration policies and practices comply with the Code. The table can be used by firms required by SYSC 19G.5.2 to identify MRTs.
• The requirement to complete the MIFIDPRU Remuneration Report (MIF008) annually.
• The requirements to disclose qualitative and quantitative information about firms’ remuneration policies, practices and outcomes set out in MIFIDPRU 8.6. (The IFPR rules are contained in the MIFIDPRU Prudential Sourcebook for MiFiD Investment Firms. Disclosure is dealt with in MIFIDPRU 8, with remuneration covered specifically in MIFIDPRU 8.6 Remuneration policy and practices).

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FCA clarification on the use of regulatory references

In its January 2022 regulation round up, following feedback it received on the challenges firms face in obtaining regulatory references, the FCA has given some clarification on key points around regulatory references. By way of reminder, the requirements relating to regulatory references are contained in the Senior Managers & Certification Regime (SMCR), and the detailed rules are set out in SYSC 22 of the FCA handbook.

The FCA’s key points are that:

• Firms should request and respond to requests for regulatory references promptly;
• Firms should use the FCA template for regulatory references found in SYSC 22 Annex 1;
• Firms only need to take reasonable steps to obtain a regulatory reference and should notify the FCA if they experience difficulties; and
• Regulatory references should be assessed on a case by case basis – they need not be automatically rejected if they contain a qualification, and there is no quota for the number of qualified references which may be accepted.