Workplace litigation on the rise

If you read nothing else, read this…

• Employees’ appetite for industrial action has increased during the recession, and more claims are expected to be brought against employers when the default retirement age is abolished next year.

• Awards paid out for successful claims relating to age discrimination are uncapped, and can be very expensive
for the employer.

• Employers have to be careful how they treat casual or freelance workers, because excluding them from certain benefits could result in a claim.

Case study: Court rejects retirement age appeal

The Court of Appeal rejected an appeal by Leslie Seldon, who was forced to retire at 65 by his employer, law firm Clarkson Wright and Jakes.

In the case Seldon v Clarkson Wright and Jakes, the court deemed that it was not unlawful to make Seldon retire at 65 after a long period of service as a partner at the firm of solicitors. It sided with the firm’s justifications for its retirement age, which were: the need to retain junior employees by providing the opportunity of partnership; aiding workforce planning by allowing realistic expectations about when vacancies would arise; and ensuring a pleasant and supportive workplace by ensuring partners did not have to be barred from partnership through performance management.

Rachel Dineley, employment partner and head of the diversity and discrimination unit at law firm Beachcroft, says: “Retirement age is a tricky business for all organisations. For the time being, employers can still fairly retire employees at or after 65 if they follow the prescribed procedure. This case tells us what they may need to do in relation to non-employees and, looking ahead, what they will need to do in relation to employees when the default retirement age comes to be abolished.

“Whether [employers] can retire a nonemployee depends on whether there is an objective justification, which will
rarely be a straightforward issue. As the case makes clear, [employers] may only lawfully discriminate against partners on grounds of age if they can justify it. That is to say, they have a legitimate aim and use a proportionate means of achieving the aim or aims.”

Case study: Casual worker wins pension plan claim

In November 2010, the UK Pension Ombudsman rejected and overruled a decision taken by the Telegraph Media Group to exclude a former staff member it considered a casual worker from its pension scheme.

The ruling followed a claim by Glyn Roberts, who worked a regular Saturday shift as a sub-editor for The Sunday
for about 10 years from 1997. According to the National Union of Journalists, Roberts wrote to the night editor of the paper asking for the same pension, sick pay and holiday rights as full-time staff. But the Telegraph argued that Roberts was a casual worker and had no such rights. In 2006, a tribunal declared Roberts was a part-time employee rather than an as-and-when required casual worker. A written statement of his employment, outlining his entitlements to new benefits such as paid holidays, was given to him.

James Churcher, pensions manager at the Telegraph Media Group, told Employee Benefits: “The statement of his terms and conditions of employment said he was not a member of the Telegraph Staff Pension Plan, but that the company has a designated stakeholder for member contributions only and told him he could join that. The agreed statement was that he was not a member of the plan. He argued he should have been a member.”

Churcher said the rules of the Telegraph Staff Pension Plan stipulate that an employee can join as long as they are not regarded as a casual worker.

After Roberts was refused entry to the scheme, backed by the NUJ, he took his case to the Pension Ombudsman, which overruled the paper’s decision and told it to reinstate pension contributions from 2001, when a rule change dropped the minimum number of hours required to be worked for membership of the scheme.

Employers are having to cope with a rising number of workplace disputes that are taken to litigation, says Nicola Sullivan

Unemployment triggered by the global recession, coupled with massive cuts in public expenditure, appears to be increasing employees’ appetite for litigation. According to the Employment Tribunal Service, the number of accepted claims to employment tribunals was 236,100 in 2009/10, a rise of 56% on 2008/09, and 25% up on 2007/08. The Tribunal Service acknowledges that a rise in collective claims by large groups of employees may have inflated the statistics, but it also holds the economic climate responsible.

Kathleen Healy, a partner in employment, pensions and benefits at law firm Freshfields Bruckhaus Deringer, says: “The trends across the different types of claim tend to differ, but if you look at the overall totals, there has been a huge leap in employment tribunal cases. I think there is increased awareness on employees’ part of their rights and their ability to bring claims if they feel they have not had their rights respected. People who are made redundant or who feel they have been treated unfairly for any reason have nothing to lose. Why would they not bring a claim if there might be an opportunity for compensation?”

The Gearing up for Growth: CBI/Harvey Nash Employment Trends Survey 2010, published in October, showed employers are concerned about litigation. Of the 330 respondents, 45% reported a rise in the number of tribunal claims in the past year.

Next year’s abolition of the default retirement age of 65 is also expected to trigger a flood of tribunal claims against employers on the grounds of age discrimination and unfair dismissal. According to the aforementioned CBI/Harvey Nash survey, 48% of employers are worried about an increase in age-related claims after the legislation becomes effective in October 2011.

John Cridland, CBI deputy director general, says: “In most cases, employers want to keep on staff beyond 65 because they value their skills and experience. The default retirement age is a dignified way to manage cases where performance is not up to scratch or people are no longer physically up to the job. Abolishing it leaves a huge void, and has the potential to open the floodgates to age-based litigation.”

Age discrimination claims worrying

Age discrimination claims are particularly worrying for employers because they tend to be brought by workers who have nothing to lose and are worth more because the staff concerned are often higher earners. Also, the sums awarded to employees who win cases formulated on the basis of discrimination are uncapped.

Pulina Whitaker, a partner in the employment and benefits practice at law firm King and Spalding, says that from 6 April 2011, employers that give notice of retirement cannot rely on the default retirement age as the absolute reason for it. If employees have been notified of their retirement date before 6 April 2011, the retirement must happen by 1 October 2011. This means any retirement age set by the employer that cannot be objectively justified will be deemed unlawful age discrimination. To force staff to retire, employers will have to demonstrate it is because of a legitimate business aim.

“There have been a couple of reasonably useful cases which allow employers to have the progression of younger workers, and the valid need to have career progression,” says Whitaker. “This should, hopefully, make it relatively straightforward for [organisations] to retire older workers, but they still need to go through the right process.”

The cases that employers lose will be down to a breach of process rather than the credibility of their substantive need, for example to allow employees to progress through the organisation, says Whitaker. An employer is at risk of breaching the procedural aspect of the legislation if it is deemed to have made a decision about an employee’s retirement date before consulting with the employee.

Whitaker adds: “This is a really difficult one for employers because their obligation is to go into a meeting with the employees, listen to their views, and not to have made the decision before they go into that meeting. It is a pretty easy one to pick holes in because employers have got to get to a certain stage in their thinking process before they can be in that meeting, so a lot of tribunal cases have really been about the fact that it has been pretty clear from what the employer has said that the decision has already been made.”

Default retirement age removal

Removing the default retirement age will also have implications for employers that are required to carry on providing benefits to older workers. Certain benefits, such as private medical insurance and life assurance, are likely to be more expensive for older staff. The government is considering whether there should be an exemption for these perks and has yet to clarify whether it will be lawful for the employer to stop such benefits after a certain age or pass on the additional cost to the employees.

An employment tribunal will also consider the loss of any pension benefits in cases of unfair dismissal and age discrimination. However, tribunals sometimes struggle how to quantify pension loss, so specialists such as actuaries are often brought in to remedies hearings, which are held to establish the amount of compensation an employee should be awarded if their tribunal case has succeeded.

Whitaker says: “As employers tend to provide more pension benefits, those sorts of award tend to be much more expensive because it is not just salary that an employee has lost if they are found to have been unfairly dismissed or discriminated against, it is pension loss as well.”

When an employee makes a claim, the employer is notified of it by the employment tribunal, and is typically given 28 days to enter its defence. The tribunal will call a case management discussion to talk through the main issues of the case and to establish whether the parties involved have talked about alternative methods of resolving it. A date is set for the tribunal and a timeframe outlined for the exchange of witness statements and other documents.

Freshfields’ Healy says: “Either everybody cracks on to tribunal because they decide it is not going to settle and there is an appetite to fight it and the [parties] prepare their documents and witness statements, or Acas can get involved if it is decided this is something either party wants to try to conciliate. Acas can be extremely useful and effective in resolving disputes.”

Acas pre-claim conciliation

If a problem or disagreement in the workplace is likely to lead to a tribunal claim, Acas can offer free, impartial pre-claim conciliation. The aim of the service is to help employers and employees find a solution that is acceptable to both, and avoid the costs, stress and time associated with a tribunal. According to Acas research, of the 16,000 cases referred by the end of August 2010, more than 80% of those in which employers and employees agreed to conciliate were resolved without going to tribunal. Cases resolved in this way take, on average, less than four weeks to reach a conclusion. Neither party has to fill in forms or obtain witness statements because pre-claim conciliation is about talking the problem through.

As the discussion progresses, the conciliator will try to find a mutually acceptable way forward. If both parties can agree a basis for settlement, the conciliator will offer to help them to record the terms in a binding written agreement.

Acas chief executive John Taylor says: “One or both of the parties will come to us and say ‘can we please have help’ or, and this happens less often, we would intervene and offer assistance. If we saw there was an opportunity to try to resolve issues or there was a significant issue around national interest, we would go to the parties and try to persuade them to go into conciliation. Very occasionally, we would do that publicly and invite the parties to come to Acas.”

Mediation is another voluntary alternative to conciliation. It involves an independent, impartial person helping the parties to reach a solution that is agreeable to all. Mediators do not make judgments or determine outcomes, but ask questions to uncover underlying problems, assist the parties to understand the issues and help them to clarify the options for resolving the dispute. If both parties agree, legally binding agreements may be drawn up.

Going to arbitration

One step down from a full-blown employment tribunal is arbitration, in which an impartial outsider is asked to decide a dispute. This is often seen as an alternative to a court of law because it involves the disclosure of documents and evidence. The difference is that arbitration is conducted in private and there is no formal cross-examination or swearing of oaths.

When it comes to resolving disputes before they reach arbitration or the courtroom, employers that take an imaginative approach may be able to come up with an affordable offer to prevent the dispute escalating, says Taylor. For example, employers that cannot afford to honour a pay rise could recalculate the package and stagger the increase over three years. Other deal breakers include sabbaticals, flexible working, training and other forms of concession bargaining. “Employers can look at things that have no immediate cash value but in the long term will make life better for the employee,” says Taylor.

“If you look at the private sector in this recession, you will see there has been a lack of disputes. There have been one or two high-profile ones, but the actual number of cases we are dealing with is down by 10%. It is quite difficult to predict what is going to happen [in the public sector], but if the public sector unions and managers act in a similar way to the private sector’s approach to taking out cost, we should not conclude that there will be more disputes.”

Unions can also play a role in the resolution process, as well as helping to prevent disputes from escalating. Alison Balchin, policy officer at the Trades Union Congress, says: “Staff may have workplace representatives who are allowed to come to disciplinary meetings. That can be quite positive because they have got someone who knows what they are doing and can talk through the strengths and weaknesses of the case, and if the employee is not on particularly strong ground, they will be advised of that. They will get some realistic advice and, hopefully, things will be settled before they escalate.”

So, although employers may feel at the mercy of new legislation and employees’ greater ability to navigate the legal system, there are a number of steps they can take before having to think about setting foot in the courtroom.

How to take the heat out of disputes

• Get Acas involved as early as possible by using its free pre-claim conciliation service.

• Make sure any trade union is well recognised within the workplace. Union representatives can be effective at informing employees of the strength of their case.

• After the default retirement age is abolished in October 2011, employers that force employees to retire at 65 must have a legitimate business reason for doing so.

• If employers are imaginative, it is possible to come up with dealbreakers that do not break the bank but pacify employees.

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