On Notice February 2009 Authors: Paul Callegari +44 (0)20.7360.8194 paul.callegari@klgates.com Jackie Cuneen +44 (0)20.7360.8184 jackie.cuneen@klgates.com Noel Deans +44 (0)20.7360.8187 noel.deans@klgates.com Lisa Perelman +44 (0)20.7360.8256 lisa.perelman@klgates.com Daniel Wise +44.(0)20.7360.8271 daniel.wise@klgates.com K&L Gates comprises approximately 1,700 lawyers in 29 offices located in North America, Europe and Asia, and represents capital markets participants, entrepreneurs, growth and middle market companies, leading FORTUNE 100 and FTSE 100 global corporations and public sector entities. For more information, visit www.klgates.com. www.klgates.com In this month’s On Notice, we introduce Daniel Wise, who joined the firm as a partner on 12 January. We then follow up last month’s alert on the European Court of Justice decision in Mrs C Stringer and Others (right to holiday entitlement during sick leave). We also summarise the Court of Appeal decisions in English v Sanderson Blinds Ltd (harassment on grounds of sexual orientation) and Clark v Clark Construction Initiatives Ltd (when a controlling shareholder is an employee), as well as the Employment Appeal Tribunal decisions in Seldon v Clarkson (age discrimination) and Amicus v Glasgow City Council (post-transfer TUPE consultation). Welcome to Daniel Wise We are delighted to welcome Daniel Wise to the firm. Daniel joined K&L Gates as a partner on 12 January 2009, from Speechly Bircham. Daniel is widely experienced in contentious and non-contentious employment law with a particular emphasis on team moves and restrictive covenant work, complex discrimination cases and high level bonus disputes. Daniel also has considerable experience in transactional work advising companies on indemnities and warranties, senior executive service agreements and termination packages. A worker does not lose the right to paid annual leave which has not been taken due to sickness On 20 January the ECJ gave its judgment in HMRC v Stringer and others. Our alert of 21 January highlighted the main points of this decision and further practical consequences for employers are noted below. In summary, in the original case, the Court of Appeal had decided that the right to paid holiday leave does not accrue during lengthy periods of sickness absence. This was referred by the House of Lords to the ECJ which concluded: 1. T hat a worker who is on sick leave is entitled to a period of four weeks’ paid annual leave at some point. 2. T he right to paid annual leave is not extinguished at the end of a leave year if the worker was on sick leave for the whole of that year, or if he was absent on sick leave for part of the year and was still on sick-leave when his employment terminates. This leave must be carried over to the next year. However the ECJ did decide that it is up to the national courts to decide whether paid leave can be taken during a period of sick leave, or whether it should be carried over to another year. The House of Lords will be free to decide if Mrs. Stringer was actually entitled to take her annual leave while she was off sick, although it cannot decide that she was not entitled to it. So if their Lordships decide that holiday cannot be taken during sick leave, then it must be carried forward or paid in lieu. This means that currently, healthy workers are in a worse position than sick workers because an employer can demand (under the Working Time Regulations) that healthy workers take any annual leave by the end of the year or risk losing it, whereas a worker who has been prevented from taking the leave because of sickness does not lose it. On Notice However the House of Lords decides this issue, this is not going to be a popular decision with employers as it will mean that they will, at some point, have to pay workers on sick leave their holiday entitlement. An immediate action point for employers is to review their annual leave policies, including maternity leave policies, to ensure that any holiday which is given to employees over and above the basic minimum legal entitlement under the WTR is excluded from the scope of this decision in order to offset some of the potential costs that might arise from this judgment. The EAT decision has now been overturned by the Court of Appeal which, by a majority, decided that the case does fall within the Regulations. The Court of Appeal decided that it was irrelevant whether the claimant was of a particular sexual orientation. What was required was that the claimant’s sexual orientation, whether real or imagined, was the basis of harassment directed at him or her. A claimant in such a case need not show that he is actually of any particular sexual orientation in order to succeed in a claim. Employers must also review their sickness absence policies and make sure they can manage sickness effectively and efficiently. If absence goes on and on, substantial holiday entitlement might be built up. This might have large financial consequences or organisational consequences, if an employee returns from sick leave only to take more time off for holiday. Therefore, employers should also consider whether to offer less generous sick pay entitlements to offset these costs. The Equality and Human Rights Commission supports this judgment fully and it will be interesting to see how this affects the other strands of discrimination law. Similar definitions of harassment are contained in the race, religion or belief and age legislation. Will this decision open a “Pandora’s box” of similar “teasing” claims to be brought in these areas? It will also be interesting to see how the Government addresses the issue in the forthcoming Equality Bill which will unify all the strands of discrimination. For more information please contact Paul Callegari and Daniel Wise. Is homophobic banter covered by the Sexual Orientation Regulations? In the April 2008 edition of On Notice we summarised the EAT decision in English v Sanderson Blinds Ltd where the EAT ruled on the scope of the protection against harassment “on grounds” of sexual orientation given by the Employment Equality (Sexual Orientation) Regulations 2003. In that case, Mr English was subjected to sexual innuendo and banter by his work colleagues suggesting he was homosexual, although he was not and his colleagues had never believed him to be. He brought a claim against his employer under the Regulations. The EAT decided that the claim failed because the unwanted conduct was not “on grounds” of his sexual orientation. The banter was a means of teasing him. However, it was not based on a perception or incorrect assumption that he was gay and was therefore not covered by the Regulations. For more information please contact Paul Callegari. Age discrimination – compulsory resignation from a partnership at 65 In Seldon v Clarkson, Wright and Jakes (UKEAT/0063/08) the EAT was faced with the situation where a partnership (who were solicitors) had a provision in its partnership agreement requiring its partners to resign at the age of 65. This was challenged on the basis that it constituted unjustified direct age discrimination. The Employment Equality (Age) Regulations 2006 prohibit discrimination on the grounds of age. However, age discrimination differs from the other strands of discrimination because direct age discrimination can be objectively justified where the treatment is a “proportionate means of achieving a legitimate aim”. The Employment Tribunal agreed that the retirement age requirement constituted age discrimination. February 2009 | 2 On Notice However, it also found that it was objectively justified. The respondent relied on various aims to show objective justification, including ensuring that associates were given the opportunity of partnership, ensuring a turnover of partners, allowing planning of the partnership so that there were realistic expectations about when vacancies would arise and an assumption that performance tails off at around this age. The ET found that all of the above were legitimate aims. The claimant appealed. The EAT allowed the appeal to the extent that it found that the last justification (the assumption that performance dropped off at 65) was not supported by any evidence and involved stereotyping. This was not to say that such a provision could not be justified if there were evidence for it, but there was no evidence for it in this case. The matter has therefore been sent back to the ET to consider whether the other justifications (which were legitimate) were sufficient to justify the retirement rule. It should be noted that this case involved partners, rather than employees. As far as employees are concerned, the Age Regulations permit employers to dismiss employees aged 65 and over simply by reason of retirement. The same principle does not apply to partners. There is a case currently before the ECJ in which the legality of that provision is challenged (the Heyday litigation), in which the Advocate General has given his Opinion but a final decision is awaited. For more information please contact Noel Deans. TUPE transferees’ obligation to consult In a decision of considerable practical importance, in Amicus v Glasgow City Council UKEAT/0007/08/ MT, the EAT was faced with the question whether a new employer under TUPE was obliged to consult with transferred employees after a transfer, in relation to “measures” it proposed taking in relation to them. The EAT’s clear answer was no and it declined to make a reference to the ECJ on the issue. new employer and the transferred employees is pretransfer. The potential transferred employees need to know pre-transfer about what might happen to them so they can decide if they want to transfer to the new employer. Once the transfer has occurred, however, the transferred employees’ rights to consultation under TUPE do not continue. For more information please contact Jackie Cuneen. When a majority shareholder is an employee The April 2008 edition of On Notice summarised the decision in Clark v Clark Construction Initiatives Ltd, where the EAT gave useful guidance on the factors to be considered in assessing whether a majority shareholder of a company was its employee. In brief, the EAT said that the mere fact that an individual had a controlling shareholding did not of itself prevent that person from also being an employee. Similarly, the fact that the individual had built the company up or would profit from its success did not prevent an employment relationship from arising. If the parties conducted themselves as if a contract of employment was in existence then that would be a strong pointer towards the contract being binding (and vice versa). In the case of Mr Clark, however, the EAT agreed with the ET’s original decision that there was no employee / employer relationship. The Court of Appeal has upheld that decision and dismissed Mr. Clark’s appeal. Accordingly, the useful guidance given by the EAT still stands. A fuller treatment of the case can be found in the April 2008 edition of On Notice. For more information please contact Lisa Perelman. The EAT judge made it clear that the required communication about proposed “measures” between both the old employer and its employees and the February 2009 | 3 On Notice K&L Gates comprises approximately 1,700 lawyers in 29 offices located in North America, Europe and Asia, and represents capital markets participants, entrepreneurs, growth and middle market companies, leading FORTUNE 100 and FTSE 100 global corporations and public sector entities. For more information, visit www.klgates.com. K&L Gates comprises multiple affiliated partnerships: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and maintaining offices throughout the U.S., in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), and in Shanghai (K&L Gates LLP Shanghai Representative Office); a limited liability partnership (also named K&L Gates LLP) incorporated in England and maintaining our London and Paris offices; a Taiwan general partnership (K&L Gates) which practices from our Taipei office; and a Hong Kong general partnership (K&L Gates, Solicitors) which practices from our Hong Kong office. K&L Gates maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners in each entity is available for inspection at any K&L Gates office. This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. ©2009 K&L Gates LLP. All Rights Reserved. February 2009 | 4