Paying Those Who Work for You Gross of Tax Is a High-Risk Strategy!

Paying those who work for you without deducting tax at source is a high-risk strategy which leaves the door wide open to dispute. A man found that out to his cost after a woman who provided him with childcare and property management services failed to pay tax on her income for seven years.

HMRCWhen the woman was taken on, she was informed in writing that she would be paid in the form of a management fee and would bear responsibility for paying her own tax. She did not do that, however, and later claimed that the man had failed in his duty to operate a PAYE system for her and other employees and that information had been manipulated to give the impression that she was self-employed.

Unpaid tax and late payment penalties in respect of sums she had received from the man were estimated at around £100,000. After she was dismissed, she lodged Employment Tribunal (ET) proceedings, claiming that her dismissal was wrongful, unfair and amounted to detrimental treatment for whistleblowing, contrary to the Employment Rights Act 1996.

The ET found that she was not dismissed because of her protected disclosures, but because she wanted the man to pay her outstanding tax bill. Her dismissal was unfair, in that there should have been one further meeting beforehand. It was also wrongful because she should have been given 10 weeks’ notice. However, in refusing to grant her relief, the ET found that she was not entitled to enforce her contract because she had performed it illegally by failing to pay tax.

In ruling on her challenge to that outcome, the Employment Appeal Tribunal (EAT) found that any detriment she had suffered was not materially influenced by her protected disclosures. The ET was also entitled to find that, by reason of illegality, she would not have been able to enforce her contract throughout the seven-year period during which she failed to pay tax.

In upholding her appeal in part, however, the EAT noted that any illegal performance of the contract for which she was responsible ceased about three years prior to her dismissal. There was no bar on her enforcing her contractual and statutory rights during that period and no public policy reason why she should be precluded from presenting her unfair and wrongful dismissal claims. The EAT heard further argument as to how effect should be given to its conclusions.

Diplomatic Immunity Defence Trumps Servant’s Modern Slavery Claim

It might seem obvious that the law should come to the aid of domestic servants who are trafficked into Britain and set to work in conditions of modern slavery – but what if they are employed by overseas diplomats? The Employment Appeal Tribunal (EAT) tackled the burning issue of diplomatic immunity in a ground-breaking decision.

Passport ControlA woman of Philippine nationality was brought to the UK by a foreign diplomat to work as a servant in his official residence. She was issued with a visa on the basis that she would be a private servant in a diplomatic household. Her employment contract stated that she would be expected to work 50 hours per week, with one day off per week and one month off per year. She was to be provided with sleeping accommodation and paid the National Minimum Wage.

However, she asserted that those terms bore no relation to the circumstances in which she was in fact required to work. Claiming to be a victim of international trafficking, she said that she had been exploited by the diplomat and his family and that her treatment amounted to modern slavery.

After her employment came to an end, she complained to an ET of, amongst other things, wrongful constructive dismissal, unlawful deductions from wages and breaches of the Working Time Regulations 1998. The diplomat, who denied all her allegations, applied to strike out her claims on the basis of the diplomatic immunity from suit which he enjoyed under the Vienna Convention on Diplomatic Relations 1961, as enacted into domestic law by the Diplomatic Privileges Act 1964.

In refusing his application and directing a full hearing of the woman’s claim, the ET found that, in employing the woman, the diplomat was engaged in a commercial activity, exercised outside the remit of his official functions, and that his diplomatic immunity defence therefore failed.

In ruling on the diplomat’s appeal against that decision, the EAT noted that the law on the question of what constitutes unofficial commercial activity by a diplomat is far from clear. In a previous case involving almost identical facts, the Court of Appeal and, by a majority, the Supreme Court had reached different conclusions on the issue.

Under the doctrine of precedent, the Supreme Court’s ruling meant that the Court of Appeal’s decision was no longer binding. However, it remained persuasive and the EAT found that, given the emphatic minority opinions of the two dissenting Supreme Court justices, it continued to represent the current state of the law on the issue.

The EAT noted that it required no persuasion of the natural impulse to provide legal redress for victims of human trafficking and modern slavery. However, the concept of diplomatic immunity involved countervailing issues of high international policy. The diplomat’s appeal was allowed and the woman’s claims were struck out.

Self-Employment Has Its Benefits – But Also Its Serious Disadvantages

PaintbrushSelf-employed people enjoy certain tax benefits and often place a high value on their independence. However, an instructive Employment Tribunal (ET) decision in the context of the building industry illustrated the serious disadvantages of not having employment status.

The operator of a general building firm had engaged a man to carry out painting and decorating jobs for him. After their working relationship ended, the man lodged ET proceedings, alleging, amongst other things, unfair dismissal and breach of contract. The ET only having jurisdiction to consider those complaints if the man were an employee, his status was considered as a preliminary issue.

Ruling on the matter, the ET noted that the man had been in business on his own account for many years before he even met the operator. There was no written contract between them and the man had been engaged on the clear understanding that he was a self-employed independent contractor.

The operator had carefully checked that the man was registered as self-employed with HM Revenue and Customs and had paid him an enhanced hourly rate on the basis that he would be responsible for paying his own Income Tax and National Insurance Contributions, which he in fact did.

He raised invoices for his services, which he was not contractually bound to perform personally, and was free to carry out jobs for others whilst engaged by the operator. He was not entitled to holiday or sick pay and the operator, who had no employer’s liability insurance, had no control over the manner in which he performed his work.

Having ruled that the man was self-employed, the ET dismissed his unfair dismissal and breach of contract claims for want of jurisdiction. He did not press alternative arguments that he enjoyed the status of a ‘worker’, within the meaning of Section 230(3) of the Employment Rights Act 1996, and withdrew further complaints in respect of alleged unlawful deductions from wages and arrears of holiday pay.

Shipping – EAT Spots Uncomfortable Gap in Anti-Discrimination Laws

The Employment Appeal Tribunal (EAT) has expressed deep concern about a gap in the law which enables overseas recruiters of British seafarers to engage in flagrant discrimination if the vessels on which they wish to serve are foreign-flagged and operate outside UK territorial waters.

Deck on shipA British woman who had qualified as a cadet deck officer applied for work to a Hong Kong-based agency which provides personnel to serve on foreign-registered vessels outside UK waters. Her application was made in England. She was outraged after being informed that the agency recruited only men, not women, to work on its clients’ ships. Although describing itself as an equal opportunities company, the agency said that it could not offer an appropriate on-board environment for female cadets.

After the woman complained to an Employment Tribunal (ET), the agency admitted that her treatment amounted to direct sex discrimination. It argued successfully, however, that the ET had no jurisdiction to hear her claim. The ET found that the combined effect of Section 81 of the Equality Act 2010 and Regulation 4 of the Equality Act (Work on Ships and Hovercraft) Regulations 2011 was that the anti-discrimination provisions of the Act did not apply to protect the woman in respect of her recruitment in England to work on foreign-flagged vessels outside UK waters.

In rejecting her appeal against that ruling with regret, the EAT could find no fault in the ET’s interpretation of the legislative and regulatory provisions. However, it noted that the surprising effect of those provisions was to confer complete immunity on foreign-based recruiters of seafarers on UK soil in respect of what would ordinarily be viewed as abhorrent acts of discrimination, including harassment.

Expressing profound discomfort at the inescapable outcome of the case, the EAT noted that it was at least doubtful whether the Regulations conform with the provisions of Directive 2006/54/EC (the Equal Treatment Directive). However, the woman had no possible remedy against the agency because it was not an emanation of the state, and the only potential cause of action open to her was against the UK itself. The EAT considered that the government would be wise to review the scope of the Regulations as a matter of urgency.

Investigating Sexual Harassment Claims – Employment Tribunal Guidance

Workplace disciplinary inquiries must be thorough, fair – and prompt. The point was made by an Employment Tribunal (ET) in the case of an underground railway worker who was kept in a state of limbo for almost 16 months whilst sexual harassment allegations against him were investigated.

London UndergroundOne of the man’s female colleagues had accused him of plaguing her with numerous highly inappropriate sexualised comments. He denied any wrongdoing and it was a case of his word against hers. Following the long investigation, during which he was suspended from work, the woman’s account was preferred. After his internal appeal was rejected, he was dismissed on grounds of gross misconduct.

In upholding his unfair dismissal complaint, the ET found that the investigation was fundamentally flawed in that relevant managers had throughout shown a significant tendency to accept the veracity of the woman’s account without challenge. Potential inconsistencies in her version of events, and possible motives she might have had for making false allegations, had not been adequately explored.

The ET noted that it was wholly unsatisfactory that so many months had passed between the woman making her complaint and the man’s dismissal. Although he was paid in full throughout the investigation, there was a real risk of evidence going stale and he had been kept in a considerable state of limbo for longer than necessary. Although the delay was not in itself enough to render the dismissal unfair, it contributed to the unreasonableness of the procedure followed.

Whilst rejecting the employer’s plea that the man had, by his conduct, contributed to his dismissal, the ET found that, had a fair procedure been adopted, there was a 75 per cent chance that he would have been dismissed in any event. His compensatory award will be reduced accordingly.

The man received a basic award of £14,478 to reflect his more than 20 years of service to his employer. In the absence of agreement, the amount of his compensatory award, and any claim he might make for reinstatement in his former job, would be assessed at a further hearing.

Ethical Veganism is a Protected Characteristic, ET Rules

Vegetable soupIn a decision that broke new legal ground, an Employment Tribunal (ET) has ruled that ethical veganism is a protected characteristic under the Equality Act 2010.

Jordi Casamitjana, 55, brought a claim against his former employer, the League Against Cruel Sports, alleging that he was unfairly dismissed because of his ethical veganism. As a preliminary question, the ET had to consider whether ethical veganism is a ‘philosophical belief’ and thus falls within the protected characteristic of religion or belief under the Act.

Ethical vegans not only eat a plant-based diet but also avoid using any products associated with exploitation of animals, such as clothes made from wool or leather.

For a belief to constitute a philosophical belief, it must be genuinely held, be a belief rather than an opinion or viewpoint, concern a weighty and substantial aspect of human life and behaviour, attain a certain level of cogency, seriousness, cohesion and importance, be worthy of respect in a democratic society, and not be incompatible with human dignity or in conflict with the fundamental rights of others.

The ET ruled that ethical veganism met the definition of a philosophical belief. The issue of whether Mr Casamitjana’s ethical veganism was the reason for his dismissal will be considered at a later date.

EAT Breathes New Life into IT Worker’s Disability Discrimination Claim

Can a dismissal be an act of discrimination if the affected employee is subsequently reinstated? In a case concerning a disabled IT support analyst, the Employment Appeal Tribunal (EAT) answered that important question in the affirmative.

Railway Line 2The man’s employer, a railway infrastructure company, was aware that he suffered from ulcerative colitis. Due to that condition, which amounted to a disability, his record of absence from work was on any view high. He had been off work sick for almost five months when he was given notice of redundancy. After that notice period expired, he was dismissed.

That decision was in breach of a national agreement between the employer and trade unions that there would be no compulsory redundancies amongst workers in the man’s grade during the relevant year. Having apparently realised its error, the employer first extended the redundancy notice and then revoked it. The man returned to work and was still in the same employment when he launched Employment Tribunal (ET) proceedings.

In dismissing, amongst other complaints, his direct disability discrimination claim, the ET found that it was a genuine redundancy situation and that his dismissal was not a sham. His employer handled his dismissal poorly, but it had arisen from management ineptitude rather than from his disability. The man having in any event treated himself as employed throughout, the ET found that, on his reinstatement, his dismissal effectively vanished.

In upholding his appeal against that ruling, the EAT noted that the man was the only one amongst the employer’s large workforce to be dismissed in breach of the union agreement. There had apparently been some animus directed towards him because of his frequent absences from work and there had been no consideration of whether that was the underlying reason for the employer’s error.

His reinstatement was irrelevant to the issue of whether the employer’s failure to retract the redundancy notice before it took effect was a detriment that arose because of his disability. The same ET was directed to consider the man’s disability discrimination claim afresh in the light of the EAT’s ruling.

Part-Time Judges Come Out on Top in Supreme Court Pensions Dispute

An important Supreme Court ruling concerning the pension rights of part-time judges has removed a potential obstacle in the way of justice being obtained by part-time workers who are treated less favourably than comparable full-time colleagues.

GavelDepending on their length of service, full-time, salaried judges who were appointed on or before 31 March 1995 are entitled to receive pensions on reaching retirement age under the Judicial Pensions and Retirement Act 1993. However, the same benefit is not available to part-time, fee-paid judges on the basis that they are not qualifying judicial office-holders as defined by the Act.

In those circumstances, four current and former judges who served at least part of their time on the bench on a part-time basis complained to an Employment Tribunal (ET) of less favourable treatment, contrary to the Part-time Workers Directive (Directive 97/81) and the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.

Claims under the Regulations must be brought within three months of the date on which the alleged less favourable treatment or detriment occurs and the judges’ complaints were dismissed on the basis that they had been brought too late. The ET found that the three-month time limit began to run on the date of their appointment and that their claims were thus substantially out of time.

In ruling on their appeals against that decision, the Court noted that judicial office-holders, whether full- or part-time, are not employed under contracts. The judges might well have been able to complain of unequal treatment on the date of their appointment due to the lack of any provision for a pension, equivalent to that available to their full-time colleagues, in their terms of office.

In unanimously upholding their appeals, however, the Court found that that did not detract in any way from the less favourable treatment that they undoubtedly suffered, or would suffer, at the point of retirement. As a matter of common sense, the detriment that they suffered when compared to full-time judges was continuing and persisted throughout their periods of office. Time in respect of the three-month limitation period thus began to run on the date of their retirement. The Court made declarations to give effect to its decision.

Rules of Fairness Apply to Big and Small Businesses Alike

Hair stylistIn small family businesses, disagreements are often patched up informally. However, as an Employment Tribunal (ET) ruling showed, it is vital to remember that legal standards of fairness in employment relationships apply to them in just the same way as to giant corporations.

The case concerned a woman who had worked as a stylist in a hair salon owned by her sister for over 20 years. Heated exchanges between them were commonplace, but would generally be resolved amicably, sometimes with a bunch of flowers and an apology. Matters took a different course, however, following a row in which the stylist swore at her sister and refused to leave the premises when asked.

The stylist was served with a formal suspension letter and she was summarily dismissed following a disciplinary process conducted by her sister’s partner, who performed an administrative role in the business. After she sought to appeal, she was denied a hearing on the basis that she had put forward no further information and had stated that she did not want her job back in any event.

After she launched an unfair dismissal claim, the ET took account of the modest size of the business and its limited administrative resources. The stylist admitted having used foul language and refusing to leave the salon and her sister’s partner, who was trying to help out in good faith, had done his best to follow a fair procedure. Both he and the sister genuinely believed that the stylist was guilty of gross misconduct which justified her dismissal.

In upholding her complaint, however, the ET pinpointed flaws in the decision-making process and found that her dismissal fell outside the range of responses open to a reasonable employer. Her sister’s partner had closed his mind to her claim that she had been provoked and she had been given no opportunity to challenge her sister’s account of the argument. Those shortcomings were exacerbated by the fact that she was not allowed to appeal against her dismissal.

There was no evidence that the particular altercation between the sisters was any different from previous rows between them and the ET found that the incident could reasonably have been dealt with by issuing a warning to the stylist not to overstep the mark again. The ET nevertheless found that, given her admitted misconduct, she bore 25 per cent of the responsibility for her own dismissal. The amount of her compensation will be assessed at a further hearing.

Made Redundant Without Consultation? You Could Be Due Compensation!

DresserCompanies facing financial difficulties sadly often collapse with little notice, leaving their hard-working employees bereft. As an Employment Tribunal (ET) decision showed, however, those affected are not without legal redress and can win compensation if they have been made redundant without consultation.

The case concerned a long-established furniture manufacturing company which went into administration. All three of its plants were closed with little warning and almost 200 workers were made redundant. They launched proceedings against the company, seeking protective awards under Section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

In upholding their claims, the ET noted that at one of the plants, where there was no recognised trade union, there had been no attempt to engage in collective consultation before the redundancies were announced. The legal requirement to elect an employee representative in order to give employees the opportunity to engage in such consultation had not been complied with.

Although a number of individual employees had purportedly been consulted, the process was a meaningless sham in that the decision to close the plant had already been taken. It was at one point mooted that employees might be willing to work for a period for no pay, but such suggestions were entirely ignored. The closure of the other two plants was also infected by an absence of employee consultation.

Given the company’s failure to comply with the requirements of TULRCA, The ET made the maximum available award of 90 days’ pay to each redundant worker. If those sums could not be recovered from the company’s administrators, the workers could have recourse to the Redundancy Payments Office, part of the Department for Business, Energy and Industrial Strategy.