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July 2010 Updates

Caps on redundancy payments and age discrimination

The Employment Appeal Tribunal decided, in Kraft Foods v Hastie, that a cap on a contractual redundancy compensation scheme (which prevented employees from receiving a redundancy payment which exceeded their salary up until retirement), did not amount to unlawful indirect age discrimination.

The cap had most impact on employees who were close to retirement. If it wasn't for the cap, the redundancy payment of the employee in question would have been around £14,000 higher. However, the Employment Appeal Tribunal found that the cap was justified, as it was a proportionate means of achieving a legitimate end. It was important to consider the fairness of the scheme as a whole, and the scheme was supposed to protect employees' incomes after redundancy.

The Employment Appeal Tribunal decided it was not improper to have a rule which saved the company the expense of giving a "windfall" to a redundant employee.

Stigma damages

In Brown v Careham Hall, the Employment Appeal Tribunal decided that "stigma damages" (i.e. compensation awarded to an individual whose reputation is unfairly tarnished, and as a consequence finds it difficult to find a new job) will only be awarded where the employee's difficulty in finding new employment is attributable to their dismissal, rather than due to an unfavourable reference.

The employee in question was a care home worker, who was automatically unfairly dismissed during her notice period amid allegations that she was rough with the residents. She claimed that her employer had destroyed her chances of securing a new job by giving her an unfavourable reference. The Tribunal concluded that, even if she had not been unfairly dismissed, her employer would still have given her an unfavourable reference. It could not, therefore, be said that the difficulties she experienced in obtaining new employment were because of the unfair dismissal. Those difficulties were due to the reference, and so she was not entitled to stigma damages.

Collective Agreements

The Employment Appeal Tribunal held, in Worrall v Wilmott Dixon Partnership, that:

  1. To incorporate a term of a collective agreement into a contract, the term must be brought to the employees' notice or be agreed. It isn't enough for the term simply to be in a readily-available document, such as a staff handbook. In this case, the Employment Appeal Tribunal held that a term in a collective agreement providing for enhanced redundancy pay had not been incorporated into the employees' contracts, as there was no evidence of it having been brought to their notice or agreed.
  2. On a TUPE transfer, an incorporated collective agreement is "frozen" at the transfer, so transferred employees cannot benefit from future changes to the original agreement. However, if legislation affects the original agreement, then it also affects the transferred agreement.

TUPE-related dismissals

The Employment Appeal Tribunal decided the following points in Nationwide Building Society v Benn:

  1. Where there has been a dismissal in the context of a TUPE transfer, a Tribunal should not take into account a breach of the consultation requirements in concluding that the dismissal was unfair, if there has been no successful claim for a failure to consult.
  2. An individual employee is not able to bring a claim for a failure to consult in a case in which employee representatives have been elected, but the consultation with those representatives is said to have been inadequate. Such a claim can only be brought by the elected representatives.
  3. In order for there to be an "economic, technical or organisational reason entailing changes in the workforce" (the defence an employer must be able to demonstrate if they want to lawfully change terms and conditions, and other things, following a TUPE transfer), it is not necessary for the entire workforce to be affected by the changes. It is sufficient for the changes to affect the transferred employees only.

Civil servants' redundancy pay to be capped by the Government

The Government announced that a Bill will be introduced to Parliament "as soon as possible" to limit the cost of future redundancy payments to civil servants, by capping all compulsory redundancy pay-offs at 12 months' pay and limiting amounts for voluntary severance to 15 months' salary. The Cabinet Office said the move was aimed at bringing civil service payments in line with best practice in the private sector. No actual date has been set for implementation of the Bill.


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SRA number 404293