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Employment and Share Incentives Quarterly Bulletin
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Employment and Share Incentives Quarterly Bulletin
7 May 2010
Headlines:
- Election 2010: implications for employment law and employee pay
As we go to press, Britain is heading towards its first hung Parliament for 36 years. With the Conservatives failing to secure an overall majority, and Liberal Democrat leader Nick Clegg emerging as potential kingmaker, there is uncertainty about what form any coalition government might take. Here we set out a reminder of some of the parties' key policies in relation to employment law and employee pay. - Protecting your international workforce - restrictive covenants across Europe and Asia
With the scramble for global talent high on employers' agendas, our international restrictive covenants guide looks at what employers can do to protect their employees and their business. - Strike action and injunctions
There has been plenty of media coverage of strike ballots and industrial action. British Airways cabin crew and railworkers have turned the spotlight on the complexities of the legislative requirements for unions to ballot members. - Budget 2010 and employee share schemes
This article sets out the various measures announced in the 2010 Budget which will have an impact on employee share schemes and employee remuneration. It highlights a future consultation and review by HMRC on the tax regime applying to employment related securities and employee benefit trusts and changes to the disclosure regime for tax avoidance schemes. - Counting the cost of volcanic ash
As UK flights resumed employers and employees began calculating the cost of the disruption caused by the Icelandic volcano. A key question for employers and employees is who should pay the price for staff absences caused by the travel disruption. - Remuneration in financial institutions - some recent developments
This article is based on our recent publication The bank of the future: an update which provides a summary of the principal developments at global, European and UK level in a number of key areas, including remuneration. - SAYE bonus rates
HM Revenue & Customs announced a change to the bonus rates for SAYE contracts on 19 April 2010, which take effect on 14 May 2010. - Fit for purpose? Will the GP's new fit note reduce sickness absence?
From 6 April 2010, a new statement of Fitness for Work (the fit note) has replaced the handwritten sick note issued by GP’s to explain an employee’s absence from work due to sickness or to assess fitness to return to work. Will the new fit note reduce sickness absence? - Team moves - Tullett Prebon v BGC
On 19 March, judgment was handed down by the High Court in Tullett Prebon v BGC, the much anticipated ‘team move’ case involving rival inter-dealer brokers. Our briefing summarises the decision and distils some of the key points arising from it.
Election 2010: implications for employment law and employee pay
As we go to press, Britain is heading towards its first hung Parliament for 36 years. For those with long memories, a coalition government is not such bad news for all-employee share schemes - profit sharing share schemes, the predecessor of HMRC approved share incentive plans, were a product of the last 'Lib-Lab pact'. With the Conservatives failing to secure an overall majority, and Liberal Democrat leader Nick Clegg emerging as potential kingmaker, there is uncertainty about what form any coalition government might take.
Set out below is a reminder of some of the parties’ key policies in relation to employment law and employee pay.
| Employment law | |||
| Conservatives | Labour | Liberal Democrats | |
| Parental leave | Introducing a new system of flexible parental leave that enables parents to share leave | Increasing paid paternity leave to four weeks and introducing shared entitlement to parental leave | Introducing shared parental leave for a period of up to 18 months |
| Equality | Imposing equal pay audits on any employer found to be discriminating on the basis of age | Following enactment of the Equality Act 2010, encouraging employers to make greater use of pay reviews and equality checks | Introducing mandatory pay audits for employers with over 100 employees |
| Retirement age | Abolishing the default retirement age |
Abolishing the default retirement age |
Abolishing the default retirement age |
| EU Directives | Ending the “gold-plating” of EU Directives (such as the Agency Workers Directive) and returning control of employment legislation to the UK | Not renegotiating rights emanating from the EU | Ending the “gold-plating” of EU Directives |
| Employee pay | |||
| Conservatives | Labour | Liberal Democrats | |
| Remuneration in the financial sector | Responsibility for bank regulation will be transferred from the Financial Services Autority (FSA) to the Bank of England which will be empowered to crack down on ‘risky bonus arrangements’ | Giving the FSA additional powers in relation to remuneration and requiring banks to put their remuneration policies to shareholders for explicit approval | Ensure that the bonus system does not encourage banks to put the financial system at risk or offer reward for failure. Public companies will be required to disclose any remuneration of £200,000 or more |
| NICs | Reducing NIC costs by raising both the primary and secondary threshold for NICs (by £24 and £21 a week respectively) | Have brought in a rise in NICs by 1% effective from April 2011 (Finance Act 2010) | When resources allow, reverse the rise in NICs |
If you would like further information on this topic please contact Simon Evans or Kathleen Healy in the first instance or your usual EPB contact.
Protecting your international workforce - restrictive covenants across Europe and Asia
With the scramble for global talent high on employers' agendas, our international restrictive covenants guide looks at what employers can do to protect their employees and their business.
If you would like further information on this topic please contact Caroline Stroud, Kathleen Healy or Paula Volkmer in the first instance or your usual EPB contact.
There has been plenty of media coverage on strike ballots and industrial action in recent months. Interest has naturally focussed on ballots involving high profile unions and employers operating across industries where strike action would have a direct impact on the general public, allowing unions to heighten publicity in relation to their ongoing disputes with employers. The recent injunctions granted against the Rail Maritime and Transport Union (RMT Union) and Unite the Union (Unite) have also turned the spotlight on the complexities of the legislative requirements that must be met for unions to ballot their members successfully and the difficulty in getting the process right.
It is evident from union dialogue that they feel their members have "put up with enough". The last few years have been challenging and have seen widespread downsizing or changes to terms and conditions (e.g. in the case of British Airways employees). Unions seem to be in the mood to fight back against such strategies, which of course have a longer "tail" because changes agreed in a recession will also apply during any recovery.
There is often a tactical question for employers as to whether they look to the law to defend their businesses against strike action by challenging the validity of the ballots and seeking injunctions to prevent the strikes from going ahead. Legal action is often an attractive option where members of the public are directly affected by industrial action.
On 17 December 2009, the High Court granted an injunction against a 12-day walkout by British Airways cabin crew. More recently, Network Rail managed to prevent a four-day national rail strike due to irregularities in the ballot. The advantage for employers in obtaining an injunction is not only immediate relief from disruption but also a practical one; the union will be forced to go back to square one during which time the employer can make contingency plans in respect of future strike actions and campaign to persuade employees not to support industrial action. Although Unite successfully reballoted after the injunction was granted, the process cost them three months (and the expense of a further ballot).
A trade union which has endorsed industrial action involving employees breaching their contracts of employment will probably have committed an industrial tort (e.g. inducing a breach of contract). However, the provisions of Part V of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) provide trade unions with immunity from liability in tort if the various technical requirements are met. In broad terms, immunity is available if industrial action is taken in contemplation or furtherance of a trade dispute and not for a prohibited purpose, provided that it does not amount to secondary action or unlawful picketing. The action must also have been approved by a properly-organised ballot and the union must have complied with the procedural requirements in sections 226 to 234A of TULRCA; it is these procedural rules which are particularly complex and where it is easy for unions to falter.
There are three key procedural requirements in relation to which it is crucial for the union in question to have correctly determined those employees that are entitled to vote and those that are not. First, the union in organising the ballot, must send to the employer of any employees who are entitled to vote a notice of the ballot at least seven days before the ballot and a copy of the voting papers at least three days before the ballot. Second, the ballot rules provide that every union member whom the union reasonably believes will participate in the strike action must be given an equal opportunity to vote by post (save for minor accidental breaches – see below). No one else should be allowed to vote (including those that are no longer employed or will have left employment before the industrial action starts). Finally, there is a strictly interpreted obligation to announce the result of the ballot, as soon as is reasonably practicable, to those employees that were entitled to vote in the ballot and to their respective employers. Metrobus managed to obtain an injunction against Unite in 2009 on the basis that a delay of 20 hours was not reasonable.
One of the most common grounds for challenge is that the union has not taken reasonable steps to determine which employees should be allowed to vote and has thus fallen foul of the procedural requirements noted above. Accordingly, it is very important for unions to maintain up-to-date information on all of their members before carrying out a ballot. Although there is much discontent among unions as to the difficult nature of this task, the recent injunctions granted against Unite and the RMT Union will no doubt focus union minds on getting this right in the future. British Airways for example successfully argued that Unite should have made inquiries as to membership in November and December 2009 considering that they had done so in October 2009 and was aware that a substantial number of their members would be leaving during that time. In the case of the ballot for the proposed national rail strike, the High Court found that the RMT Union had failed to take “simple steps” to check information which had been available to it from Network Rail.
There is, however, scope for unions to argue that there has been an accidental minor breach of the balloting rules where votes are either denied to those entitled or given to those that are not. Where the breach is accidental and on a scale that is unlikely to affect the result of the ballot, such breach will be disregarded. “Accidental” was interpreted very narrowly in the British Airways case where the High Court held that an unintentional error was not the same as an accidental error for the purposes of the TULRCA legislation, and thus even though the errors in the ballot were relatively small and could not possibly have affected the overwhelming 92% majority in favour of strike action, Unite’s defence failed.
It is likely that strike actions will continue to be challenged on the basis of the strict balloting requirements.
If you would like further information on this topic please contact Nicholas Squire or Kathleen Healy in the first instance or your usual EPB contact.
Budget 2010 and employee share schemes
This article sets out the various measures announced in the 2010 Budget which will have an impact on employee share schemes and employee remuneration. It highlights a future consultation and review by HMRC on the tax regime applying to employment related securities and employee benefit trusts and changes to the disclosure regime for tax avoidance schemes.
Company Share Option Plans (CSOPs)
The Finance Act 2010 implements legislation preventing HMRC approved CSOP options being granted and exercised over shares in a subsidiary of a listed company. The legislation seeks to counter a small number of schemes which granted CSOP options over special classes of low value highly geared subsidiary company shares in order to secure capital treatment for potentially significant gains. However, the legislation will also affect innocent arrangements and has the potential to impact approved CSOPs on future takeovers. Where a company which has granted CSOP options over its own shares is taken over by a listed company and becomes that company’s subsidiary, it will not be possible for those options to be exercised in a tax approved manner after the takeover. It is common for CSOPs to allow options to be capable of exercise for between 1 and 6 months after a takeover. The changed treatment on takeovers will only start to have a real impact from September 2013 since the new legislation only applies to options granted on or after 24 September 2010 and these will not be eligible for a tax approved exercise until 3 years after grant.
Any existing plans which grant options over shares in a subsidiary of a listed company can be amended up until 23 September 2010 so as to meet the new requirements - presumably resulting in the conversion of options into options over the parent company shares. Whether such an amendment will require shareholder approval will depend on the CSOP rules.
Share Incentive Plans (SIPs)
The government has introduced changes to HMRC approved SIPs legislation to counter a small number of arrangements which seek to manufacture corporation tax deductions for payments to SIP trusts as part of a tax avoidance scheme. The changes will not affect genuine SIPs whose purpose is to provide shares to employees.
Enterprise Management Incentive schemes (EMIs)
Companies will be able to grant EMI options if they have a permanent establishment in the UK, and will not as previously have to carry on a trade wholly or mainly in the UK. This relaxation had been introduced to comply with the EU State Aid rules.
Entrepreneurs’ Relief
The lifetime limit on capital gains qualifying for entrepreneurs’ relief is increased from £1m to £2m for disposals on or after 6 April 2010. The relief operates so that capital gains tax on gains within the lifetime limit is charged at an effective CGT rate of 10% rather than 18%. Entreprenueurs’ relief is available to an officer or employee of a trading company of which he is a 5% or more shareholder to reduce capital gains arising on his disposal of shares in such a company.
Employment-related securities
The Budget 2010 announced a wide-ranging review of and consultation on the taxation of employment-related securities and geared growth arrangements e.g. ratchets, hurdle shares, growth or flowering shares and joint ownership plans, which are designed to fall within the capital gains tax regime rather than being subject to income tax. The review will undoubtedly include carried interest type arrangements as used by private equity houses. This review is expected to be undertaken irrespective of the government in power after the election and will have particular significance in light of the differential between capital gains tax rates (18%) and income tax rates (now 50%).
Employee Benefit Trusts (EBTs)
The government announced that anti-avoidance legislation will take effect from 6 April 2011 to prevent the use of EBTs and "other arrangements" which attempt to avoid income tax and National Insurance Contributions (NICs). Whilst the scope of the legislation is currently unclear, it is likely to address the use of EBTs by close companies, the use of family benefit trusts or sub-trusts within standard EBTs and perhaps the use of partnership structures instead of more straightforward corporate employment structures.
Disclosure of Tax Avoidance Schemes (DOTAS)
The Finance Act 2010 provides for the introduction of regulations which will extend the disclosure regime for tax avoidance schemes. These are expected to be effective in Autumn of 2010. The regulations are anticipated to extend the descriptions or "hall marks” of schemes required to be disclosed. A 2009 consultation document issued by HMRC referred to the need to include "employment schemes" that seek to avoid tax in relation to employment income. HMRC's response to the consultation published at the time of the Budget, states that the hallmarks “need to be extended to capture various types of avoidance schemes that are not currently being disclosed” and goes on to say, “In particular the employment scheme hallmark will be recast as a positive list of schemes to be disclosed". HMRC have said that they will develop final regulations in an iterative process with stakeholders over the summer. The extension of the DOTAS regime and its application to tax planning in employment arrangements will need to be kept under review.
If you would like further information on this topic please contact Jocelyn Mitchell or Simon Evans in the first instance or your usual EPB contact.
Counting the cost of volcanic ash
As UK flights resumed employers and employees are now calculating the cost of the disruption caused by the Icelandic volcano. A key question for employers and employees is who should pay the price for staff absences caused by the travel disruption.
In the absence of any wording in an employee handbook (some employers used the travel disruption caused by the snow earlier this year to amend their handbooks) or other contractual documentation dealing with staff absences caused by freak weather conditions or natural disasters, it is likely that employees will have no right to be paid for missed work days. Employers could require employees to take the missed days as annual leave or treat the missing days as unpaid leave.
Difficulties arise where an employee has been able to continue to work remotely – which is likely to be the case for many employees given ‘hot-desking’ and flexible working policies are increasingly encouraging employees to work from home with employees having the relevant tools (such as blackberries, laptops and mobiles) at hand to be able to do so. If an employee can show that he was working whilst stuck abroad, an employer cannot use the fact that the work was done out of the office as an excuse not to pay him – this is even if the employee was not able to work to 100% of his usual productivity.
Employees stranded abroad on business trips will have incurred additional hotel expenses and flight costs. These additional costs are likely to fall on the employer, provided charges incurred by the employee have been incurred reasonably and in accordance with the company’s expenses policy.
For many employees, the inability to attend work was due to the need to provide emergency childcare in the absence of teachers or nannies stranded abroad following the Easter holiday. These employees are likely to benefit from the provisions of 57A and 57B of the Employment Rights Act 1996 which allow parents reasonable time off in specified circumstances - including where the reason has been unexpected disruption of arrangements for the care of a dependant. Time off taken in accordance with these provisions is however, unpaid.
ACAS has published Iceland volcano - the impact on business, which offers guidance and some commonly asked questions in relation to the recent travel disruption.
If you would like further information on this topic please contact Caroline Stroud or Sarah Thomas in the first instance or your usual EPB contact.
Remuneration in financial institutions - some recent developments
This article is based on our recent publication The bank of the future: an update which provides a summary of the principal developments at global, European and UK level in a number of key areas, including remuneration. To request a copy of the report and the original publication, please visit Bank of the future: an update (March 2010).
Financial Stability Board Peer Review (the Review)
In March 2010, the Financial Stability Board (FSB) published its peer review of the global application of its April 2009 Principles for Sound Compensation Practices (Principles) and September 2009 Implementation Standards (Standards). The endorsement of the Principles and Standards by the G20 Leaders acknowledged the need for a consistent international approach to reforming remuneration practices. In their September 2009 Pittsburgh statement, the G20 Leaders tasked the FSB “to monitor the implementation of FSB standards and propose additional measures as required by March 2010.”
The Review analyses the steps being taken or planned by FSB member jurisdictions to ensure effective implementation of the Principles and Standards, as well as progress to date in implementation by significant financial institutions. It makes several recommendations to support emerging best practice and further convergence.
The key points made in the Review are as follows.
- Implementation is far from complete and there must be a drive towards full implementation of the Principles and Standards by the end of 2010. To that end, FSB members should finalise and implement regulatory and/or supervisory initiatives related to the Principles and Standards in 2010.
- There is a need for consistency and coordination. On the whole, there has been material progress and a move towards greater convergence across FSB member jurisdictions but there remain differences in the approach to and pace of implementation.
- There has been significant progress in terms of rule-making in the area of governance. Many jurisdictions issued domestic rules in 2009 that were largely aligned with the Principles and Standards – in some jurisdictions, implementation has been by way of a mix of enforceable rules and supervisory oversight (eg UK), whilst in others, implementation has primarily been by way of supervisory guidance and expectations backed by supervisory reviews (eg Spain).
- There is a lack of alignment of compensation with prudent risk-taking. The FSB concludes that “differences remain in approach, emphasis and degree of detail” and firms must continue to make progress in this area. The FSB calls on the Basel Committee to develop a report for consultation on the range of methodologies for risk and performance alignment of compensation by the end of October 2011.
The FSB will conduct a follow-up review on compensation in 2011 to assess the impact of national regulatory and supervisory measures and also to report on industry progress in the implementation of the Principles and Standards.
The Financial Services Act 2010
The Financial Services Act contains important provisions on remuneration matters. First, it gives statutory weight to FSA powers in relation to remuneration. Section 11 of the Financial Services Act inserts a new section 139A into the Financial Services and Markets Act 2000. Section 139A requires the FSA to make rules requiring each authorised person (or each authorised person of a specified type) to have, and abide by, a remuneration policy which regulates the remuneration of specified officers, employees and "other persons". The rules must require any remuneration policy to be consistent with the effective management of risks and the FSB Implementation Standards. The rules may also prohibit persons being remunerated in a specified way, provide that a term of any agreement which breaches such a prohibition is void, and provide for recovery of any payment made under such a void term.
In March 2010, the government published the draft Executives’ Remuneration Reports Regulations. These give effect to the disclosure regime recommended in the Walker Review. Walker recommended banded (not named) disclosure of aggregate remuneration by reference to ‘total expected value’ of high end employees (ie those who perform a ‘significant influence function’ or whose activities have ‘a material impact on the risk profile of the entity’ in line with the FSA Remuneration Code) on a statutory basis (not ‘comply or explain’). The draft Regulations are somewhat tougher than Walker – notably having a £500,000 earnings threshold, rather than the £1million envisaged in the Walker Review. They apply to ‘relevant banking institutions’ (i.e. those with 1,000 or more employees and balance sheet assets of more than £100 billion or a member of a financial group with aggregate assets of £100 billion, and their ‘relevant executives’ (i.e. those who are employed by a relevant banking institution whose aggregate remuneration is more than £500,000).
The table below illustrates what the aggregate remuneration disclosure might look like.
Bank payroll tax
Bank payroll tax is a one-off 50% tax, payable by ‘taxable companies’, on bonuses over £25,000 awarded to certain employees in the period from 9 December 2009 to 5 April 2010. The Chancellor’s 2010 Budget confirmed that the bank payroll tax will not be extended beyond 5 April. The government’s stated aim in introducing the tax was to encourage banks to consider their capital position and make appropriate risk adjustments when setting bonus levels this year. It is a one-off measure designed to bridge the gap until banking remuneration practices are changed by other measures (eg the FSA Remuneration Code and the relevant provisions of the Financial Services Act 2010).
Financial Reporting Council 2009 Review of the Combined Code
Consultation on the Financial Reporting Council's (FRC) 2009 Review of the Combined Code, published in December 2009, closed on 5 March 2010. Publication of the revised Code, (which is to be renamed the UK Corporate Governance Code and which applies to all listed companies) is expected in May 2010.
The Code contains a new “supporting principle” requiring performance targets to be stretching, and designed to align executive interests with those of shareholders, and to promote the long-term success of the company. In addition, incentives should be compatible with risk policies and systems, and the criteria for paying bonuses should be risk-adjusted, provision should be made for clawback in circumstances of misstatement and misconduct, and payouts or grants under all incentive schemes (by implication, therefore, both annual and long-term) should be subject to challenging performance criteria reflecting the company’s objectives including non-financial performance metrics (such as strategic performance).
The Walker Review
The final recommendations of the Walker Review were published in November 2009 and are relevant in three main areas. First, there are recommendations relating to disclosure but these are now largely reflected in the draft Executives’ Remuneration Reports Regulations described above.
Second, there are recommendations on the operation and coverage of financial institution remuneration committees which will result in a significantly increased workload.
- Remuneration committees will be required to have some degree of responsibility for a wider population. Listed company remuneration committees have traditionally focused on executive director pay and largely left the rest to management. Following the Walker Review, they will be required to oversee ‘remuneration policy and outcomes’ for high end employees. In addition, for all employees, the committee must have a ‘sufficient understanding of the company’s approach to pay and employment conditions to ensure that it is adopting a coherent approach to remuneration’.
- Remuneration committees will need to get to grips with new pay structures, especially the relationship between pay and risk adjustment – whether by deferral of payment or the use of performance targets that price for risk by imputing a proper cost of capital in calculating the incentive. The relationship between the risk committee and the remuneration committee will need to be formalised.
- Remuneration committees will be required to articulate their work – both in terms of having a written remuneration policy and dealing with the much tougher disclosure regime envisaged by the Walker Review and Executives’ Remuneration Report Regulations.
Third, the Walker Review recommends important changes to the structure of remuneration which are envisaged to be implemented in a revised version of the FSA Remuneration Code. Its recommendations envisage that:
- deferral should provide the primary means of risk-adjustment with at least half of variable pay awarded as a long-term incentive, vesting over 3 and 5 years;
- annual bonuses should be payable over 3 years, with only one third in the first year; and
- provision should be made for clawback in circumstances of misstatement and misconduct and that there should be greater use of retention mechanisms (eg maintenance of shareholding).
If you would like further information on this topic please contact Simon Evans or Elliot Bates in the first instance or your usual EPB contact.
HM Revenue & Customs announced a change to the bonus rates for SAYE contracts on 19 April 2010. The new rates, which take effect on 14 May 2010, are:
| 3 year savings contract | 0% | 0 x monthly savings amount |
| 5 year savings contract | 1.16% | 1.8 x monthly savings amount |
| 7 year savings contract | 1.74% | 4.9 x monthly savings amount |
How is the interest rate calculated?
The interest rate applicable to SAYE savings contracts is set using a formula based on a fixed difference between market reference swap rates and bonus rates.
What happens where the rate change takes effect during an invitation period?
HMRC will permit the previous rates to apply to SAYE savings contracts if the application process started before 14 May 2010 and the contracts are entered into within 30 days of 14 May 2010.
Are SAYE scheme still attractive to employees then?
Although the zero interest rate is unfortunate, SAYE options still represent a potentially valuable incentive to employees. Options can be granted at a 20% discount to market value so there is an immediate gain on grant and the exercise of options after three years is free of income tax.
If you would like further information on this topic please contact Simon Evans, Jocelyn Mitchell or Liz Pierson in the first instance or your usual EPB contact.
Fit for purpose? Will the GP's fit note reduce sickness absence?
From 6 April 2010, a new statement of Fitness for Work (the fit note) has replaced the handwritten sick note issued by GP’s to explain an employee’s absence from work due to sickness or to assess fitness to return to work.
The key change is that GPs will now be able to certify that an employee may be fit to perform some work. GPs can use the fit note to suggest a number of common changes that the employer can introduce to assist the employee's return to work. The Government's impact assessment on amending the regulations that prescribe the current form of sick note predicts that the fit note will save the UK economy around £240 billion.
The introduction of the fit note follows a Government review into the health of the working population conducted by Dame Carol Black in 2008. Her report concluded that around 175 million working days are lost to illness each year, costing the UK taxpayer an estimated £60 billion. Around 7% of the working population are on incapacity benefits and an additional 3% are off work sick at any one time. The report concluded that facilitating an early return to work benefitted both employees and employers.
The Government published its response to consultation on the new fit note at the end of January 2010.
On 18 February 2010, the Department for Work and Pensions (DWP) published guidance for GPs and other doctors on the new fit note.
How does the latest fit note differ from the Government's original proposals?
The new fit note is aimed at benefiting not just individuals and their employers, but the economy as a whole. Following consultation, the emphasis of the new fit note is firmly on the employer-employee relationship rather than the doctor patient relationship.
- The new form will not contain a ‘refer for occupational health' tick-box as it was feared this might be an easy default option for GPs.
- The fit note will only have two options - ‘unfit for work' and ‘may be fit for some work taking account of the following advice'. The italicised words were added to acknowledge that it is not doctors but employers, in consultation with their employees, who are best placed to make the decision as to whether they can accommodate any changes. The GP should then tick one or more of the following options: phased return, altered hours, amended duties or workplace adaptations.
- The ‘fit for work' option has been removed. The Government agreed that it is for the employer (not the employee's doctor) to determine whether an individual is fit to return to work, having carried out a risk assessment.
- A fit note issued during the first six months of a patient's health condition will last three months (rather than the six months originally proposed).
Legal issues
The DWP's guidance helpfully confirms that an employer is not bound to follow a GP's suggestions in the fit note. However, ignoring a GP's recommendations contained in a fit note altogether (or failing to properly consider these) could well lead to claims for constructive and/or unfair dismissal, personal injury and disability discrimination.
Employers should therefore implement procedures to ensure that fit notes are acted upon, including appropriate consultation between employer and employee.
If a ‘fit note' discloses a disability of which the employer was not previously aware (or might support a disability) within the meaning of the Disability Discrimination Act 1995 (DDA), then the employer will need to consider whether reasonable adjustments are required to premises or working conditions for disabled employees. But simply following a GP's fit note advice will not necessarily discharge an employer's DDA obligations which are often complex to understand.
Large employers usually have well-established occupational health services and so, for them, the main change will be to encourage earlier resolution of sickness absence by improving contact during those first few tricky weeks.
But the real benefits of fit notes will be for employees and employers of small and medium-sized businesses that often have no recourse to occupational health services. Here a vague diagnosis by a GP unsupported by any practical suggestions for facilitating a return to work could lead to a long period of absence because of both parties' fear that forcing a return or indeed, contact itself, could worsen the patient's condition.
The Government has committed to monitoring and evaluating the outcomes of the fit note. A report will be published in 2012/2013.
If you would like further information on this topic please contact Kathleen Healy or Elizabeth Graves in the first instance or your usual EPB contact.
Team moves - Tullett Prebon v BGC
On 19 March, judgment was handed down by the High Court in Tullett Prebon v BGC, the much anticipated ‘team move’ case involving rival inter-dealer brokers. BGC, Mr Lynn (President and senior officer in Europe) and Mr Verrier (Executive MD and GM) were found to have entered into an unlawful conspiracy to poach ten brokers and to have induced them to breach their employment contracts. What are being referred to in the press as ‘astronomical’ damages and legal fees are to be determined at a later stage if the parties fail to agree amounts. Our briefing summarises the decision and distils some of the key points arising from it.
If you would like further information on this topic please contact Kathleen Healy, Nicholas Squire or Susan Doris in the first instance or your usual EPB contact.
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