Welcome to the sixth 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:

• The scaling back of the proposed revocation of EU law bill, and proposed changes to the Working Time Regulations, TUPE and non-compete clauses
• New government guidance for employers on ethnicity pay reporting
• New Acas guidance on making reasonable adjustments for mental health
• How the refusal of a flexible working request could amount to indirect sex discrimination
• The extent of an employer’s liability to protect and indemnify employees against criminal convictions
• Whether a 'without prejudice’ letter was effective to terminate employment
• Whether the behaviour of an employee who is neurodivergent arose from his disabilities
• Whether an employer could rely on an exemption in the Data Protection Act to use the personal data of a former employee to defend a discrimination claim

Government scales back the proposed revocation of EU law bill and announces changes to the Working Time Regulations, TUPE and non-compete clauses

In previous editions of the Edit we reported on the proposals in The Retained EU Law (Revocation and Reform) Bill to ‘sunset’ certain EU-derived legislation on 31 December 2023 unless specifically preserved. On 10 May 2023 the UK government announced significant changes to its proposals, confirming that only certain identified legislation will now be repealed on that date.

The Government has published a policy paper and a consultation document which set out further details:

1) Two sets of regulations protecting ‘posted workers’ (workers temporarily sent by an employer in one EU state to work in another EU state) which are no longer relevant following the end of the Brexit transition period, will be revoked.

2) The government intends to preserve regulations which:

• provide rights to take maternity, paternity, parental and adoption leave;
• protect part-time, fixed term workers and agency workers; and
  govern workplace information and consultation arrangements (domestic and European Works Councils).

3) The government is consulting (until 7 July 2023) on the following proposed employment law changes:

• To remove the requirement in the Working Time Regulations 1998 for businesses to keep records of working hours;
• To simplify the complexity of calculating holiday pay by allowing ‘rolled up holiday pay’ (so that holiday pay can be paid in equal instalments in each payslip rather than being paid only when the employee takes holiday) and merging the two separate statutory entitlements to annual leave into one;
• On business transfers governed by the Transfer of Undertakings (Protection of Employment Regulations) 2006 (TUPE), to allow employers to inform and consult directly with employees (rather than having to elect employee representatives) where the employer employs fewer than 50 employees and in small scale transfers of fewer than 10 employees. It should be noted that there is already a micro employers exemption from consultation for businesses employing 10 or fewer people;
• To limit the length of non-compete clauses to three months. This proposal has been considered and discounted by the government previously. The proposal would not appear to affect the ability of an employer to protect its business by putting employees on garden leave or using post termination covenants to restrict the solicitation of clients or key employees.

Government publishes guidance for employers on ethnicity pay reporting

On 17 April 2023, the government published new guidance for employers on ethnicity pay reporting (the Guidance) which it committed to do in March 2022 in its Policy paper Inclusive Britain: Government response to the Commission on Race and Ethnic Disparities with the aim of supporting employers to calculate their ethnicity pay gaps and to take meaningful action on the findings.

The Guidance is split into five sections, the key points of which are as follows:

1. Introduction and overview

It is a statutory requirement in the UK for employers with at least 250 employees to calculate and report gender pay gaps. Ethnicity pay reporting is voluntary, meaning that employers could decide not to report at all or to report internally. The purpose of the Guidance is to provide employers with a consistent approach to measuring pay differences. The Guidance broadly follows the statutory scheme for calculating gender pay gaps. However, ethnicity pay reporting is significantly more complicated than gender pay gap reporting, which involves comparisons only between the pay of men and women. Ethnicity pay analysis can potentially involve many ethnic groups, and employer will have to make considered decisions about how best to combine different ethnic groups to ensure that results are reliable and statistically sound, and to protect confidentiality.

As with gender pay gap reporting it should be noted that ethnicity pay gap reporting highlights the differences in the average pay of identified groups across an organisation as a whole – it does not of itself indicate that people doing the same work or work of equal value are not paid the same for reasons connected with ethnicity.

2. Understanding and reporting your data

This section sets out how employers should ‘diagnose’ the cause of any identified pay disparities e.g. by asking questions such as ‘are some ethnic groups more likely to be recruited into lower paid roles in your organisation?’ This will allow the employer to determine if there are reasonable explanations for such disparities, or whether there are areas where tailored action is required. Employers should be aware of both external and internal factors which may affect the underrepresentation of certain groups in an organisation (e.g. in the wider population qualifications required are more prevalent in certain ethnic groups, or within an organisation certain ethnic groups are less likely to be selected for interview, or promotion).

The Guidance notes that the reporting of ethnicity pay calculations is more complex than gender pay gap reporting and so a range of figures should be published with explanations (see section 5 below for the various calculations recommended). This could include the proportion of employees that did not disclose their ethnicity when asked by their employer – this is a measure of the engagement of employees. A supporting narrative could include e.g. a summary of why the employer believes that pay disparities exist, and any efforts which have been made to address any disparities. Employers should consider publishing consistently calculated figures each year as this helps to show how organisations are changing. The complexity of the reporting means that using one overarching measure (such as the mean pay of white British employees as compared to ethnic minority employees) is unlikely to be useful. As with gender pay gap reporting, employers who publish their data should also consider publishing an action plan to explain how they intend to address identified pay gaps.

3. Collecting ethnicity data

This is a complex area which requires the employer to act with sensitivity and transparency. In broad terms the Guidance advises employers to use the ethnicity categories used in the 2021 census and to follow guidance from the Race Disparity Unit. The questionnaire for employees should be presented as a list from which only one box can be ticked. There should be an option for ‘prefer not to say’, and an option not to answer at all by not ticking any box.

Employers need to carefully observe their data privacy obligations. Data about an employee’s ethnicity will be ‘special category data’ under the GDPR and subject to enhanced protection. Employers should be particularly careful not to identify inadvertently individual employees e.g. because it employs a small number of employees from a particular ethnic group.

4. Preparing your payroll data

The Guidance here broadly follows the methodology for gender pay gap reporting (including identifying appropriate pay periods, lists of employees who should and should not be included in calculations, and identifying the relevant ‘ordinary pay’, bonus pay and working hours). From this data the employer can then calculate an hourly pay rate for each included employee, and from these hourly pay rates it can make the pay gap calculations set out in section 5.

5. Making your calculations

As with section 4, section 5 broadly follows the methodology used for gender pay gap calculations, and sets out examples of different calculations. The Guidance recommends that the employer calculates:

• percentage of each ethnic group in each hourly ‘pay quarter;’
• mean and median ethnicity pay gap using hourly pay;
• percentages of employees in different ethnic groups;
• percentage of employees who when asked by their employer did not disclose their ethnicity – they either answered ‘prefer not to say’ or gave no answer;
• the percentage of each ethnic group receiving bonus pay; and
• the mean and median pay gap for bonus pay.

There is detailed guidance about which ethnic groups to analyse to avoid identifying individual employees and to ensure statistical robustness (e.g. that numbers in each category are not too small to give meaningful results). Whilst as many ethnic groups as possible should be shown, for smaller organisations it may be necessary to aggregate to five larger ethnic groups. The following list is suggested: Asian, black, mixed, white, other, prefer not to say.

Takeaway: Although the reporting of ethnicity pay gaps is more complex than reporting gender pay gaps, employers who already report on their gender pay gaps may find that much of the pay data they collect for gender pay gap reporting can also be utilised for the purposes of reporting on their ethnicity pay gap – although this will still require a considerable amount of work. Reporting is currently voluntary but there have been calls for legislation to be introduced. Employers should therefore be aware of the possibility that this will become compulsory in due course and may accordingly wish to start work on the collection of ethnicity data to ensure a good statistical base, something which may in itself require a considerable amount of work and careful consideration to build up employee confidence and engagement.

New Acas guidance on making reasonable adjustments for mental health

On 17 April 2023, Acas published guidance for employers about reasonable adjustments which may be appropriate for employees with mental health issues (the Guidance). Reasonable adjustments are changes which an employer is required to make under the Equality Act 2010 (EqA) to remove or reduce a disadvantage caused by a person’s disability. Employers should take the same care to make adjustments for an employee with mental health issues, as they would for an employee with physical disabilities. Whilst not all mental health issues will amount to a disability within the meaning of the EqA, it is nevertheless good practice to consider adjustments for all employees with mental health issues as this may help them to stay in work, and to work well.

The Guidance includes examples of what reasonable adjustments for mental health may be appropriate, and notes that different adjustments may be needed for the workplace and working at home. Examples include reviewing tasks or deadlines to make workload more manageable; agreeing a preferred communication method to reduce anxiety; relocating a workspace to a quieter area to reduce sensory demands; offering paid time off to attend appointments; and modifying supervision to provide regular check-ins and a structure to the working day.

The Guidance also includes advice for employers and employees around planning for and attending meetings to discuss reasonable adjustments, trialling and monitoring adjustments, and the role that managers play in supporting employees with mental health issues. Finally the Guidance advises employers to review absence policies to make sure that they are suitable for employees with mental health issues (e.g. making sure that ‘trigger’ points for absence do not put employees with recognised and ongoing mental health problems at a disadvantage).

Refusal of a flexible working request could amount to indirect sex discrimination

In Glover v Lacoste UK Ltd, the Employment Appeal Tribunal (EAT) found that an employer’s decision to refuse Ms Glover’s flexible working request (to work three days per week on her return from maternity leave) was capable of amounting to indirect sex discrimination. This was despite the fact that the employer withdrew its decision when Ms Glover threatened to resign and claim constructive dismissal, and instead agreed to her original request in full. The EAT found that the original decision to refuse Ms Glover’s request and to require her to work four days per week on any day of the week (thereby making her childcare arrangements extremely challenging), amounted to the application of a provision criterion or practice (PCP) which could form the basis of an indirect sex discrimination claim. It was incorrect to suggest that there could be no discrimination because Ms Glover had never actually attempted to work under the arrangement suggested by her employer. The test of what amounts to a disadvantage or detriment for the purposes of a discrimination claim is broad. The decisions made against Ms Glover which led her to consider resigning from her job were themselves capable of amounting to a detriment or disadvantage for the purposes of a discrimination claim.

The EAT noted that, while internal processes that allow erroneous decisions to be corrected should be encouraged, the withdrawal of the decision did not in this case make the potentially discriminatory conduct ‘disappear.’ It did, however, note that, if an employer corrects a decision in this way, this would be likely to limit significantly any compensation awarded.

Takeaway: this case serves as a warning to employers that it may not be possible to correct a potentially discriminatory response to a flexible working request on appeal (in the way that defects in dismissal or disciplinary processes can sometimes be corrected at the appeal stage). Even though any compensation may be limited if a potentially discriminatory decision is withdrawn, there will still be a cost in terms of management time and employee relations in dealing with such a matter. Employers should therefore always consider such a request with care, and follow the required procedures, before responding.

Employer was not liable to protect employee from criminal conviction or indemnify him against losses suffered as a result

In Benyatov v Credit Suisse (Securities) Europe Limited, the Court of Appeal (CA) found that there was no duty on the employer to protect its employee from criminal conviction, nor was it an implied term of the employee’s contract that the employer would indemnify the employee against any loss suffered in the course of carrying out his duties regardless of whether the employer is at fault.

Mr Benyatov had been working in Romania and was convicted of a criminal offence. It was accepted by the employer that he had done nothing wrong and had been wrongfully convicted. However, in accordance with its regulatory obligations, the bank had to notify the Financial Conduct Authority (FCA) of Mr Benyatov’s conviction. This notification meant that Mr Benyatov could never work again as a regulated financial professional in the UK or anywhere else in the world. He sought damages from the bank for career-long loss of earnings. The CA found that in the circumstances (which included that neither Romania nor the transaction in which Mr Benyatov had been involved were regarded as high risk) it was not reasonably foreseeable that Mr Benyatov would be exposed to criminal conviction in the course of performing his duties for the bank, and thus the employer was under no duty to protect him.

In addition, the CA found that it would not strike a fair balance between the interests of employers and employees to find that there is a general indemnity of the kind suggested by Mr Benyatov. The law provides for fault-based liability on the part the employer in a wide range of circumstances which includes everything from health and safety, to expenses incurred in the course of employment. However, it would go too far to require employers to indemnify their employees against loss of earnings in any circumstances in which they were doing their job, even when the loss was caused by an external third party and the employer was not at fault.

Takeaway: The facts of this case were highly unusual. It is reassuring for employers that the scope of employers’ responsibility for employees’ economic losses associated with their employment has not been expanded in the way the employee argued for in this case. However, employers should nonetheless remain vigilant as to the risks their employees face in their.

‘Without prejudice’ letter was effective to terminate employment

In Meaker v Cyxtera Technology UK Ltd the EAT found that a letter given to Mr Meaker which was labelled ‘without prejudice’, attached a draft settlement agreement, and referred (inaccurately) to termination of employment by mutual agreement was nevertheless effective to terminate the employee’s employment and constitute a dismissal letter for the purposes of establishing the employee’s effective date of termination (EDT) for the purposes of his unfair dismissal claim.

Mr Meaker had been injured at work and was no longer able to carry out his duties. An application for income protection payments was unsuccessful. He had various discussions with his employer, during which both alternative employment within the employer’s business and the termination of his employment were discussed. Although Mr Meaker was under the impression that a search for alternative employment was still ongoing, he then received the letter from his employer dated 5 February which purported to terminate his employment with effect from 7 February and made an offer of additional ex gratia compensation in return for Mr Meaker signing the enclosed settlement agreement. Shortly after the termination date the employer paid Mr Meaker’s notice and outstanding holiday pay.

The EAT noted that it is important that the rules around the EDT are clear and certain, particularly, for example, because the strictly enforced time limits for bringing an unfair dismissal claim run from the EDT. There is no need for the employee to ‘accept’ the termination – the termination will take effect on the date stated by the employer, provided that this is clearly and effectively communicated to the employee. The employee may then have a claim for damages against the employers, and some contractual obligations may subsist, but for all practical purposes at that point the employment relationship is at an end.

It was not ideal that the letter was labelled ‘without prejudice’ or that it stated inaccurately that the termination was mutually agreed. However, the EAT found that the part of the letter which set out the termination date and consequential payments (such as for outstanding holiday pay) was clear, and separate from the ‘without prejudice’ offer of ex gratia compensation in return for signing a settlement agreement. This meant that the EDT was 7 February and that the claimant’s subsequent claim of unfair dismissal, was, on that basis, presented out of time. Mr Meaker was therefore unable to proceed with his claim.

Takeaway: When an employer wishes to terminate the employment of an employee, it should do so in writing and on an open basis, identifying the termination date clearly. This should be separate from any ‘without prejudice’ offer of compensation in return for a settlement agreement to waive any statutory claims

Behaviour of an employee who is neurodivergent did not arise from his disabilities

In McQueen v General Optical Council the EAT refused an employee’s appeal against a decision that he had not suffered ‘discrimination because of something arising in consequence of his disabilities’ under section 15 of the EqA. Mr McQueen had dyslexia, some symptoms of Asperger’s Syndrome, and left sided hearing loss. His employer accepted that he was disabled for the purposes of the EqA and that his conditions could cause some difficulties with his interactions in the workplace.

During his employment there were a number of difficult interactions between Mr McQueen and his colleagues, described as ‘meltdowns.’ After each incident the employer took actions such as changing Mr McQueen’s methods of working, referring him to appropriate health professionals (including an occupational health adviser, a psychologist and a psychiatrist), and taking disciplinary action against him. Mr McQueen brought a grievance and four Employment Tribunal (ET) claims against his employer, was absent for a long period, and then left his employment.

The ET found, on the evidence available, including medical evidence, that the effects of Mr McQueen’s disabilities were limited to a requirement for written instructions to back up verbal communications and a need for some physical adjustments to the workplace. It found that the effects of his disabilities did not extend to a need to stand up at work to speak (which was disruptive) or a need not to be approached in a confrontational manner. Mr McQueen’s disabilities played no part on the occasions that he went into ‘meltdown’ or became loud and angry. Rather, the reason for this conduct was that he had a short temper and resented being told what to do. On appeal, the EAT found that whilst the ET judgment was unorthodox, the ET had considered all the critical questions. The EAT considered that the ET was well aware of the medical evidence, summarised it carefully and fairly, and drew from it some effects of the disabilities but rejected others. Mr McQueen ascribed a very major role to his disabilities as a cause of his loud and aggressive behaviour but the ET was not bound by this self-assessment and had correctly rejected it.

Takeaway: this case demonstrates the importance of seeking professional advice where the effects of an employee’s disabilities are unclear. Following professional advice (even where, in extreme cases such as this once, it is contrary to the employee’s assessment of the situation) will give the employer confidence to manage the situation effectively, and reduce the risk of a disability discrimination claims.

Employer could rely on an exemption in the Data Protection Act to use the personal data of a former employee to defend a discrimination claim

In Riley v Student Housing Company (Ops) Limited the Dunfermline Sheriff’s Court found that the legal proceedings exemption in the Data Protection Act 2018 (DPA) meant that Mr Riley’s former employer was permitted to disclose his personal data for the purposes of defending legal proceedings against it.

Mr Riley had been the line manager of Mr Adamson who had brought successful ET proceedings for harassment and discrimination arising from disability against their mutual former employer. Mr Adamson made a number of complaints about Mr Riley’s behaviour including that he had used foul and derogatory language referring to Mr Riley’s disability. Mr Adamson was awarded £9,500 in damages. The written decision of the court referred to Mr Riley 162 times. The decision was reported on The Sun newspaper’s website, naming Mr Riley six times.

Mr Riley brought a claim against his former employer for distress and anxiety, claiming that the use of his personal data to defend Mr Adamson’s claim was a breach of its obligations under the GDPR and the DPA to:

• process his personal data lawfully, fairly and in a transparent manner (Article 5(1)(a)); and
• not to process his data in a way that is incompatible with the purpose for which it was collected (Article 5(1)(b)).

The court found that the employer could rely on an exemption in the DPA which provides that Articles 5(1)(a) and (b) do not, in broad terms apply to disclosures which are necessary for the purposes of conducting or defending legal proceedings or obtaining legal advice. The purpose of the exemption is to address the tension between data protection rights and the demands of litigation. A party’s duties as a data controller should not fetter its discretion to conduct litigation as it sees fit. This is vital to ensure the right to a fair trial under Article 6 of the European Convention on Human Rights (ECHR).

Takeaway: This case reassures employers that data protection obligations owed to current or former employees do not restrict their ability to defend legal proceedings. The correct approach for Mr Riley, had he been aware of the situation, would have been to apply to the ET for an order to anonymise its judgment, although this power is used sparingly as it interferes with the principle of ‘open justice.'