Welcome to the fifth 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:

• When a conversation to explore termination of employment and settlement of a grievance will be without prejudice.
• When it may be permissible to dismiss an employee who is on long-term sick leave.
• The FCA’s multi-firm review of how financial services firms are designing and embedding D&I strategies.
• An update on the Retained EU Law (Revocation and Reform) Bill which could ‘sunset’ key EU-derived employment rights.
• Statutory pay rate increases which will apply from April 2023.
• Fire and rehire – draft code of practice for employers published.
• Menopause and the workplace – government response to recommendations.
• Proposed new workers’ rights in relation to sexual harassment, carer’s leave, neonatal care leave, flexible working and protection from redundancy for pregnant women.

If you have any questions or would like to discuss any of the issues addressed in this edition further, please contact any of the lawyers listed below.

Settlement discussion was without prejudice and should not be disclosed

In Garrod v Riverstone Management Ltd, the Employment Appeal Tribunal (EAT) upheld a decision of the Employment Tribunal (ET) that a conversation between Ms. Garrod and her employer’s legal adviser was without prejudice and that she must therefore remove references to it from her ET pleadings.

Ms. Garrod had raised a grievance against her employer that included serious allegations of pregnancy and maternity discrimination, bullying and harassment. At a meeting to discuss the grievance, the employer’s legal adviser made Ms. Garrod a without prejudice offer to terminate her employment in exchange for a payment. Ms. Garrod sought to rely on this conversation in support of her claims in the ET, asserting that she did not understand what it meant to have a without prejudice discussion. The ET did not accept Ms Garrod’s evidence on that point – in part because she was a law graduate.

The EAT reiterated that the purpose of the without prejudice rule is to encourage parties to settle a dispute by agreement – and that details of those discussions cannot therefore be referred to or relied upon in litigation. However, the rule only applies where there is an existing dispute (which means either that litigation has commenced, or it is in the reasonable contemplation of the parties). The without prejudice communication must be a genuine attempt to resolve that dispute. The rule does not apply in cases where it would cover up improper behaviour (unambiguous impropriety) such as blackmail.

In this particular case, the EAT noted that the mere fact that an employee has raised a grievance does not automatically mean that there is a dispute. However, Ms. Garrod’s grievance referred to the infringement of legal rights and to the early steps of ET litigation, and this was sufficient to show that litigation was in contemplation. On the evidence, the ET had found that the conversation was a genuine attempt at settlement, and that the adviser had conducted the meeting in a polite and professional manner, so there was no unambiguous impropriety.

Takeaway: This case reminds employers that it is good practice to check that an employee understands the meaning of without prejudice before starting a settlement conversation and to plan the conversation carefully. It also confirms that an ongoing grievance may, but will not always, indicate the existence of a dispute enabling the employer to explore termination of employment and settlement on a without prejudice basis. If there is doubt about whether a conversation will be without prejudice, an employer may seek to protect itself when commencing exit discussions with an employee by conducting a protected conversation in accordance with the applicable rules, although the contents of a protected conversation can in broad terms still be relied by an employee on in relation to discrimination claims or where the employer’s conduct is found to have been improper.

Disabled employee on long-term sickness absence was lawfully dismissed

In McAllister v Commissioners for Her Majesty’s Revenue and Customs, the EAT found that Mr. McAllister had not suffered from discrimination arising from disability (his disability being anxiety and depression) when he was dismissed following repeated and prolonged absences from work. When his employer took the decision to dismiss Mr. McAllister, he had been absent for seven months, was unfit to return to work in any capacity, and was unable to say when he would be fit. He had completed a course of therapy and tried different types of medication. The employer had provided support and adjustments during which time Mr. McAllister had threatened to resign, had behaved in an aggressive and petulant manner, and been difficult to contact.

In order to defend the claim of discrimination arising from disability, the employer had to show that its unfavourable treatment of Mr. McAllister (his dismissal) was a proportionate means of achieving a legitimate aim. The EAT agreed that the employer had a legitimate aim – which was in broad terms to ensure good staff attendance, to maintain a fair, effective and transparent sickness management regime, and to ensure the efficient use of resources. In relation to the issue of whether dismissal was a proportionate means of achieving that aim, the employer had demonstrated that Mr. McAllister’s absence had an adverse impact on staff morale and its efficient use of resources, as well as being a drain on management time. The ET had considered whether a less discriminatory measure would have allowed the employer to achieve its aim (such as giving Mr McAllister more time to try different types of medication). The ET concluded that, on balance, dismissal was a proportionate response in the circumstances.

Takeaway: When managing a disabled employee who is absent from work for prolonged and repeated periods, an employer must explore all reasonable avenues to assist the employee, which may include giving them time to improve their attendance or undertake courses of treatment, making reasonable adjustments to their duties or working environment, and taking advice from occupational health. However, when all these measures have been explored and nothing has (or appears able to) resolve the situation, there may come a point at which the balance tips, the impact of the employee’s absence becomes too great and the employer will be able to justify the termination of their employment.

New FCA webpage – understanding approaches to D&I in financial services

The FCA continues to focus on diversity and inclusion (D&I) in the financial services sector. On 12 December 2022, it published a webpage Understanding Approaches to D&I in Financial Services in which it sets out the results of its multi-firm review (involving 12 firms) of how financial services firms are designing and embedding D&I strategies. This is part of the process started in July 2021, when the FCA published a discussion paper about the state of D&I in the industry. The purpose of this multi-firm review was to give a picture of the current position in firms, encourage further industry action and help the FCA to develop a supervisory approach that it can use as a basis for future engagement with firms. The FCA intends to consult about the issues set out in the July 2021 discussion paper during 2023, and all firms are encouraged to consider the FCA’s findings in the development of their D&I strategies and practices.

Some key findings of the review include:

• D&I strategies are often generic and not consistently based on a clear diagnosis of a firm’s specific circumstances and challenges, meaning that actions and initiatives may not be appropriately focused. Firms are also not systematically tracking the effectiveness of their D&I strategies.
• Many firms were focused on improving diversity at senior management level, which risks creating a culture where firms do not focus on their ‘pipeline’ of talent but compete with other firms for a small pool of diverse senior talent.
• There is a wide variety of data quality – firms with better diversity data better understand their position, and are better placed to decide which actions they need to take. Firms need to work hard to encourage good rates of staff declaration of diversity data (in a manner that is compliant with their legal obligations, including data privacy). Poor data also affects firms’ ability to identify and address issues for people who belong to more than one minority group (intersectionality).
• Very few firms seem to have understood D&I as a fundamental culture issue. There can be an overreliance in some firms on measures such as training and allyship groups, which are important but not enough to bring about the fundamental changes required. Few firms talked about issues that affect attempts to build an inclusive culture, such as behavioural biases and systemic discrimination.
• Whilst many firms say that senior managers are accountable and have D&I goals, it is often not clear whether these goals affect pay and bonuses in practice.

The Retained EU Law (Revocation and Reform) Bill

The Retained EU Law (Revocation and Reform) Bill (the Bill) proposes in broad terms that certain EU-derived legislation will expire on 31 December 2023 unless specifically preserved by the government. The Bill has passed through the House of Commons and is being considered by the House of Lords, with committee hearings scheduled for February and March 2023. As previously reported in The Edit, if the Bill were to become law, the impact on employment rights in the UK could be dramatic because large swathes of EU-derived legislation would fall away unless positive steps are taken by the government to preserve it. This will include some key pieces of employment-related legislation such as the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Employers will need to keep a careful eye on how the Bill progresses, given not only the potential effect of the Bill on employees’ statutory rights, but also the commercial impact of any change to the application of TUPE on the termination provisions of existing outsourcing arrangements, and on new outsourcing, retendering or in-housing processes.

Statutory pay rate increases

The UK government has announced new statutory rates of pay that will apply from April 2023:

• The National Living Wage (for workers aged 23 or over) will rise from £9.50 to £10.42 per hour.
• The basic rates of statutory pay for all family-related leave (including maternity, adoption, paternity, shared parental and parental bereavement pay) will rise from £156.66 to £172.48 per week.
• Statutory sick pay will rise from £99.35 to £109.40 per week.

Draft Code of Practice on Dismissal and Re-engagement

The UK government has issued a draft Code of Practice on Dismissal and Re-engagement (the Code). Dismissal and re-engagement, a practice also known as fire and rehire, may be used by employers as a means to change employees’ terms and conditions in circumstances where attempts to change terms and conditions by agreement have failed. As reported in previous issues of The Edit, there have recently been a number of high-profile cases of fire and rehire, and the P&O case where more than 700 employees were dismissed without notice or consultation. As a result, the government indicated that, whilst it did not intend to legislate to make fire and rehire unlawful, it would introduce a statutory code of practice on the use of dismissal and re-engagement.

The draft Code has now been published with the stated aim of providing basic practical guidance on avoiding conflict in fire and rehire processes; and details how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms. The Code will not impose legal obligations, but the ET will be required to take the Code into account, and in certain cases will have the power to uplift compensation awarded to employees by up to 25 percent when an employer has unreasonably failed to comply with its requirements. Consultation on the Code runs for 12 weeks from 24 January 2023.

Menopause and the workplace – government response to recommendations

On 24 January 2023, the UK government published its response to recommendations made by the Women and Equalities Committee (WEC) in its report Menopause and the workplace. The government has agreed to appoint a Menopause Employment Champion to drive forward work with employers on menopause workplace issues and to spearhead an employer-led information campaign. However, the government has not agreed to the other recommendations made by the WEC, which included producing model menopause policies to assist employers. The government also rejected the WEC’s recommendation that menopause be made a protected characteristic for the purposes of the Equality Act 2010. The government’s view is that the existing protected characteristics of age, sex and disability together provide sufficient protection for women experiencing discrimination relating to menopausal symptoms.

Menopause is likely to remain a high-profile issue for employers. 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.

If you would like assistance with putting an appropriate policy or training in place, please speak to your usual contact at Dechert.

Proposed new legislation – sexual harassment, carer’s leave, neonatal care leave, flexible working and protection from redundancy for women who are pregnant or on maternity leave

The UK government is backing a number of Private Members’ bills that will amend or introduce various employment rights. All the bills have now passed through the House of Commons, and with government backing are likely to become law in due course. Some of the bills are only enabling legislation, meaning that once they are enacted, the government will still need to introduce regulations setting out the full detail of the new or amended rights. The most important likely changes from this process are as follows:

Worker Protection (Amendment of Equality Act 2010) Bill – sexual harassment

This bill would reintroduce duties on an employer to:

• Protect its employees from third-party harassment (a duty that previously existed, but was abolished in 2013).
• Take all reasonable steps to prevent sexual harassment of its employees in the course of their employment. If an employee brought a successful claim for sexual harassment, and this duty had been breached, the ET would be entitled to uplift the compensation awarded to the employee by up to 25 percent.

Carer’s Leave Bill

This bill would:

• Introduce a flexible entitlement of one week’s unpaid leave per year for employees with caring responsibilities in order to provide or arrange care for a dependant with a long-term care need.
• Permit eligible employees to take leave from the first day of their employment.
• Give employees taking carer’s leave the same protection from dismissal or detriment as are associated with other forms of family related leave, such as maternity, paternity and adoption leave.

Neonatal Care (Leave and Pay) Bill

As reported in a previous issue of The Edit, the government has backed this bill which would:

• Permit parents of babies up to the age of 28 days to take paid leave if their baby receives neonatal care for seven continuous days or more. The government has indicated the final regulations will permit at least 12 weeks’ leave.
• Entitle eligible employees to this leave from the first day of their employment.
• Require this leave to be taken within 68 weeks of birth, allowing the employee also to take other leave to which they are entitled such as maternity or paternity leave.

Employment Relations (Flexible Working) Bill

This bill would amend the existing right of employees to request flexible working. As reported in a previous edition of the Edit, the government has previously consulted on changes to flexible working rights and announced an intention to make changes that are broadly similar to those contained in this bill. The changes proposed are relatively limited and include:

• Allowing employees to present two statutory requests in any 12-month period (rather than one as at present).
• Introducing a requirement for employers to consult with an employee before refusing a request.
• Reducing the period within which an employer is required to process and respond to a request from three months to two months.
• Removing the existing requirement that the employee must explain in their request what effect the change would have on the employer, and how that might be addressed.

Protection from Redundancy (Pregnancy and Family Leave) Bill

The government first announced in 2019 that it would extend the existing protection from redundancy for women who are pregnant or on maternity leave.

The government is now backing this bill, which would extend the existing right of a woman on maternity leave whose role is potentially redundant, to be offered any available suitable alternative vacancy. The protection would now apply during a protected period of pregnancy and for a period after maternity leave – the applicable periods of time have yet to be determined.

The new rights will also apply to employees taking shared parental and adoption leave so that they are protected during, and for a period after their leave.