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The Little Book of UK Employment Law for US Employers Handling Dismissals in the UK
“Two countries separated by a common language”. (George Bernard Shaw)
Welcome Employment Contracts: anti at will! But Statutory Rights Rule Remember the Contract! Unfair Dismissal Follow the ACAS Code! Costly Consequences Redundancy Collective Consultation Discrimination Whistleblowing Employing Expats Options on Termination Top tips for US Employers on Managing an Employee’s Dismissal About the Team 2 4 5 7 10 15 19 21 25 27 28 29 32 34 36
Welcome Although there are many similarities between US and UK employment laws, there are also fundamental differences. Adherence to policies and procedures is key to any employment relationship in the UK; inadequate rationale and/or lack of process can result in legal claims and damages awards. We thought it might help our American friends and colleagues if we provided a Little Book which sets out the key issues to consider when dismissing an employee in the UK in a practical and accessible manner. 2
While we refer to the UK throughout this Little Book for ease, there are in fact different legal systems in the UK. This Little Book concerns English employment law. It features the work of talented illustrator, David Orme. Very best wishes The Team at CM Murray LLP info@cm-murray.com | +44 (0) 207 933 9133 This booklet is only a brief overview of relevant English employment law and is for general purposes only. Specific legal advice should be taken on particular circumstances – please do contact us and we would be pleased to help you. Information is correct as of January 2021. 3
Employment Contracts: anti at will! In contrast to the US, employees are not employed “at will” in the UK. Employees have two sets of rights: contractual and statutory. Contractual rights are mainly contained within written contracts. UK law requires that employees receive a written statement of terms within 2 months of starting work. The contract should contain matters such as the parties’ names, the date employment (and continuous employment) began, the rate of pay, hours of work, holiday entitlement, sick pay, pension arrangements, notice period, job title and place of work. 4
But Statutory Rights Rule Employees are also entitled, subject to certain conditions, to a number of key minimum benefits which override lesser contractual provisions. These include: • 28 days’ holiday a year (including 8 public holidays) • statutory sick pay for 28 weeks in any 3 year period • a pension scheme provided by the employer • not to work more than 48 hours a week (and ability to opt out of that right) • a statutory redundancy payment and • minimum statutory notice of termination of one week for every year of service, up to a maximum of 12 weeks’ notice. 5
I don’t care where you’ve been Mr Armstrong – your vacation was not approved 6
Remember the Contract! Employees are generally entitled to notice of termination of their employment except in cases of gross misconduct; this is usually set out in their contract. Employees must receive at least statutory minimum notice (this overrides any lower notice in their contract). Other entitlements due may include: • Accrued pay and benefits • Outstanding holiday pay • Business expenses • Bonus and • Stock options or shares. 7
Check the employee’s contract and any applicable bonus/share scheme rules before taking any steps to dismiss. Failure to pay out contractual entitlements may result in legal proceedings. It may also affect the enforceability of post-termination restrictive covenants. 8
American colleagues, dismissal may come in various guises The boot The elbow The sack The old heave-ho Marching orders 9
Unfair Dismissal A dismissed employee with at least two years’ service has statutory unfair dismissal protections (there are limited circumstances in which this service threshold is not required). This means that when contemplating dismissing an employee, employers should: 1. Have a fair reason to dismiss and 2. Follow a fair procedure otherwise the dismissal will be unfair. 10
Failure to satisfy both steps 1 and 2 can result in compensation being payable to the employee. This is a fundamental difference between UK and US law. Whereas in the US, an employer can dismiss an employee very quickly, in the UK, this process can take weeks or even months to complete. 11
We are going to have to let you go. 12
Fair Reason There are five potentially fair reasons for dismissal, as follows: • Conduct (e.g. theft, persistent lateness) • Capability (e.g. underperformance) • Redundancy • Where continued employment would breach a statutory requirement (e.g. loss of visa) and • Some other substantial reason (e.g. reorganisation or relationship breakdown). An employer needs to have evidence to support a fair reason before taking the decision to dismiss, otherwise the dismissal will not be fair. It is usually best if an employer picks one reason on which to rely and clearly documents its rationale in writing. 13
Fair Process An employer should follow the process set out in the ACAS Code of Conduct on Disciplinary and Grievance Procedures in most disciplinary and dismissal matters (excluding redundancy). This process applies even where an employee is only given a written warning. The importance of following due process when operating in the UK cannot be underestimated. Failure to apply such a process (including providing a right of appeal) could result in a 25% increase in compensation if the employee succeeds at the Employment Tribunal. In cases of underperformance, unless the error is fundamental, employees should also be given an opportunity to improve and be helped with development needs before any dismissal takes place. 14
Follow the ACAS Code! The basic steps in the ACAS Code of Conduct dealing with disciplinary procedures include: a) notifying the employee in writing of the employer’s complaint/proposed reason for dismissal b) undertaking full investigations c) holding a meeting to discuss and considering both sides of the matter d) allowing witnesses to be called if appropriate e) writing to the employee with the decision and providing a further right of appeal 15
Off with her head! Not really ACAS procedure... but you’re the boss 16
f) holding a further meeting to consider the grounds of appeal and g) providing the employer’s final decision to the employee in writing. An employee also has a right to request to be accompanied at any disciplinary meeting by a work colleague or a trade union representative, with whom they can confer. The employer should be represented by a person who chairs the meeting and another employee should take notes. Failure to adhere to the Code can be taken into account by a Tribunal when determining whether a dismissal is unfair and how much compensation to award. 17
Despite extra training John continues to underperform... 18
Costly Consequences Employees can usually bring claims in the Employment Tribunal within three months of their employment ending, subject to mandatory early conciliation through ACAS. Although employees can seek to be reinstated or re-engaged after being dismissed, this is rarely awarded. The most common remedy is compensation. Any award is normally made up of a basic and a compensatory award. The basic award is based on a maximum weekly wage, age and length of service. 19
The compensatory award is based on the employee’s lost earnings flowing from the dismissal, subject in most cases to a maximum limit. This is currently the lower of a year’s actual pay or the maximum award which is around £85,000 (subject to annual reviews). It is subject to reductions for pay from any new job which the employee has secured or reasonably could have been expected to secure. 20
Redundancy A redundancy situation occurs under UK law when an employer: • Closes down their business (or intends to do so) or • Closes down a particular workplace (or intends to do so) or • Has a reduced requirement for employees to carry out the particular work for which they have been employed. The term redundancy is similar to the US term “Reduction in Force”. Different rules apply depending on the number of employees that an employer is making redundant. 21
Certain procedural steps are required in order to make the redundancy fair. These include: • Ensuring that the position is genuinely redundant (with adequate documentation to support this) • Identifying the pool of employees at risk of redundancy (this should include all employees who do similar/ interchangeable jobs) • Applying objective selection criteria when determining who is redundant e.g performance review scores, skills, relevant experience (reliance on discriminatory criteria will be unlawful) 22
• Consulting fully with the employee and considering ways to avoid the proposed redundancy • Looking for suitable alternative roles within the business • It is recommended practice to provide a right of appeal if the employee is made redundant. Failure to follow these steps may result in a claim for unfair dismissal and an award of compensation as set out above. 23
I know what you’re thinking: ‘Did he fire six employees or only five?’ Well to tell you the truth, in all the excitement, I’ve kinda lost track myself. 24
Collective Consultation Where an employer is planning large-scale redundancies, it must also undertake collective consultation with union or elected employee representatives. Consultation must commence 30 days before the first redundancy takes effect where 20-99 redundancies are planned and 45 days before where 100 or more redundancies are planned, both within a 90 day period. Failure to consult can result in an award of up to 90 days’ pay per redundant employee. A formal notice must also be sent to the UK Government within 30 or 45 days (as appropriate) before dismissals otherwise a conviction and fine may result. 25
b e f a i r t o f a c i a l h a i r follicle tolerance 26
Discrimination In addition to unfair dismissal rights, similar to the discrimination protections in place in the US, employees are protected from being discriminated against because of: • Sex • Marital (including civil partnership) status • Pregnancy and maternity • Gender reassignment • Race • Religion or belief • Sexual orientation • Age (both younger and older employees) or • Disability. 27
Whistleblowing An employee is also protected in certain circumstances if they make a whistleblowing complaint. Remedies If an employee is dismissed for a discriminatory reason/whistleblowing, they can claim for lost earnings (there is no cap but they need to mitigate losses) and for injury to feelings (this rarely exceeds £40,000). Unlike the US, tribunals do not generally award punitive damages awards in employment law cases. 28
Employing Expats US employees working in the UK may obtain statutory rights even if there is a US choice of law clause in their agreement. Under European law, those US employees cannot be denied the benefit of UK statutory protections for which they are eligible; these should be considered before any steps are taken to terminate an employee’s employment. A US arbitration clause will not, in many UK based employment disputes, be enforceable by the US employer to override the UK courts’ jurisdiction. This also applies in other EU countries. This is a complex area and each case needs to be considered carefully. 29
Always take local advice in the main countries in which the expatriate normally works or will work and also where their employer is based, before hiring, firing or making any other major changes to their working arrangements. It is also important for employers to draft any expatriate contracts carefully when employing US employees in the UK. Key points to consider include: • Structure – is it employment, a secondment or multiple employments etc? • Law and jurisdiction of the contract (subject to earlier comments) 30
• The length of the assignment • Expatriate benefits to be provided and for how long • Any period of notice and other termination provisions • Repatriation (and in what circumstances) • Tax and • Confidentiality and non-compete provisions. 31
Options on Termination Employers have several options when deciding how to terminate a UK employee’s employment. Employers need to determine what their ultimate goal is before agreeing a final strategy. The approach taken will depend on several factors, including: • Legal framework • Attitude to risk • Cost • Timing • Business needs. 32
It is important to take advice before taking any steps to dismiss an employee in order to put the business in the strongest position going forward. It may be possible to reach a settlement out of court, either before litigation has started or once proceedings have begun. If settlement is reached, terms should be contained within a settlement agreement. The employee will need to take legal advice from an independent lawyer to make the agreement binding and to waive legal claims. Employers and employees can also have a so-called ‘protected conversation’ to agree the terms of an exit. Strict rules apply and advice should be sought. 33
Top tips for US Employers on Managing an Employee’s Dismissal 1. Start the appropriate process early with the relevant employee(s) to allow necessary consultations to take place. 2. Follow policies and procedures where possible to minimize financial risk. 3. Communicate with employees about future restructuring/reduction in force plans. 4. Accept that there will be a time lag between the decision having been made to dismiss and the actual termination taking place. 34
5. Keep good notes documenting all decisions, corroborating reasons and evidence for decisions taken. 6. Remember employees will normally have both contractual and statutory rights. 35
About the Team Clare Murray Managing Partner clare.murray@cm-murray.com +44 (0) 207 933 9134 David Fisher Partner david.fisher@cm-murray.com +44 (0) 207 933 9133 Sarah Chilton Partner sarah.chilton@cm-murray.com +44 (0) 207 933 9125 Zulon Begum Partner zulon.begum@cm-murray.com +44 (0) 207 933 9123 36
Beth Hale Partner and General Counsel beth.hale@cm-murray.com +44 (0) 207 933 9131 Merrill April Partner merrill.april@cm-murray.com +44 (0) 207 933 9139 Emma Bartlett Partner emma.bartlett@cm-murray.com +44 (0) 207 933 9133 37
CM Murray LLP is a specialist UK Employment & Partnership law firm. Chambers and Partners: Ranked Band 1 for Employment: Senior Executives “ Leading senior executives-focused firm, with notable expertise in whistle-blowing, discrimination claims, and restrictive covenants and their enforcement. Acts for clients from a range of sectors including technology and the financial services.”
Legal 500: Ranked Tier 1 for Employment: Senior Executives “ CM Murray LLP’s ‘first-rate’ practice provides ‘prompt, to-the-point and professional’ advice for senior executives, often handling mandates with cross-border elements.”
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CM Murray LLP First Floor, 36–38 Cornhill, London, UK EC3V 3NG www.cm-murray.com T: +44 (0) 207 933 9133 Out of hours: +44 (0) 7957 383079 Twitter: @CMMurrayLLP 1 2 0 2 P L L Illustrations by David Orme dorme@hotmail.co.uk Design by toucari.live Y A R R U M M C ©