Employment law (UK)

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1. Contract of employment
Defining employment
The Employment Rights Act 1996 (ERA) defines employees as: “…an individual who has entered into or works under a
contract of employment”

A contract of employment, according to the ERA, is a “contract of service”, whereas a self employed person works
under a contract for services.

1. The Control Test - based on the master/servant relationship so does not work well for modern employment situations.
As it considers the control by the employer over what work a person does, how they do the work, when and where
they work, it is particularly inappropriate for skilled workers who have a high degree of autonomy.

2. The Integration Test - this test is more appropriate for skilled workers and looks at whether the person’s work is
an integral part of the business or whether they are merely tagged on for a specific project.

3. The Multiple (or Economic Reality) Test - looks at the context and the ‘bigger picture”, but in particular, the
following three factors to determine whether a contract of service exists:

1. In consideration of a wage, the worker will provide his own work in the performance of service for the employer

2. The worker agrees that in the performance of that service he will be subject to the other’s control in a sufficient
degree to make that other master

3. The other provisions of the contract are consistent with it being a contract of service.
Examples of factors the court will take into consideration are:

• whether the individual is paid gross or through an employer’s PAYE scheme

• whether the individual does the work themselves or sends a substitute

• does the individual provide their own equipment?

• whether the individual works exclusively for one employer

• the degree of control exercised by the employer

• whether the individual is paid on a regular basis

The importance of the distinction

Employee Self employed

Taxation The employer deducts income tax and
national insurance at source through PAYE
Statutory protection Entitlement to sick pay and holiday pay
under the ERA
Rights on dismissal Can bring an action for unfair dismissal (see
later)
Vicarious liability Employer usually vicariously liable for
negligence of their employees
Contractual terms The ERA implies certain terms into
employment contracts
Insolvency Rank as a preferential creditor (for certain
things) in the event of the liquidation of the
employer
Paid gross, and must submit a self assessment
tax return and account to HMRC for income tax
No entitlement to sick pay or holiday pay
Only able to bring a contractual claim for
wrongful dismissal (see later)
Generally no vicarious liability
No such terms are implied into contracts for the
self employed
Rank as unsecured creditors in the liquidation of
the employer
The contract of employment
The ERA requires a written statement of employment particulars to the employee within two months of employment
commencing. Any change to the employment particulars must be given to the employee within one month.

Implied terms - common law

Employee duties

Duty to obey lawful and reasonable orders - this is a duty of obedience, but it does not extend to the employee being
required to obey an illegal act

Duty of faithful service - an employee is required to account for any secret profit received during the course of their
employment, and not to divulge trade secrets.

Duty of reasonable care and skill - the employee must act with reasonable care when carrying out their employment
duties. What is reasonable will depend very much upon what type of job the employee is employed to do.

Personal service - in contrast to self employed people, an employee may not delegate their work to a third party
without the employer's consent.

Employer duties

Duty to pay wages - in the absence of any express contractual terms regarding pay, they will be implied into the
contract. If there is no amount fixed, the duty is to pay reasonable remuneration.

Duty to exercise reasonable care - this duty is primarily about health and safety in the workplace. It is a duty to take
reasonable care. This duty is also codified in statute.

Duty to provide work - this is not a general duty to all employees, but only arises in certain circumstances e.g. if an
employee needs to keep working to maintain their skills or if they are paid on a piecemeal or commission basis.
Duty to provide a grievance procedure - employers should have in place an adequate grievance procedure

Duty of mutual trust and confidence - this is an obligation on the employer not to behave in a way that would damage
the relationship of trust and confidence between the employer and its employees

Duty to provide a reference - there is not automatically a duty to provide a reference, but if an employer does provide
one, there is a duty to ensure that it is correct.

Implied terms - statute

Equality Act 2010 The Act makes it an offence to discriminate against an employee on the basis of disability,
age, sex, race, religion, sexual orientation or pregnancy

Employment Rights Act Right not to be unfairly dismissed, a right to a redundancy payment if made redundant
1996 and the right to a minimum notice period

Heath and Safety at The employer has a duty to e.g. provide safe systems of work, employ competent fellow
Work Act 1974 employees, provide adequate training and supervision and maintain a safe place of work

National Minimum Wage It is a criminal offence for a company not to pay its employees the statutory minimum,
Act 1998 which is currently £6.70 for those aged 21 or over. The rate is reviewed annually

Working Time The Regulations provide that an employee should not exceed 48 hours work per week and
Regulations 1998 is entitled to one day off per week and four weeks’ paid leave per year. The Regulations
can be contracted out of by the employee in writing

Employment Act 2002 Contains maternity, paternity and adoption leave rights and the right to request flexible
working
2. Dismissal and redundancy

Termination by notice
Statutory minimum notice periods:

• If the employee has been continuously employed for 1 month - 2 years = 1 week

• If the employee has been continuously employed for 2 - 12 years = 1 week per each complete year employed

• If the employee has been employed for over 12 years = capped at 12 weeks

An employee with four weeks+ continuous service is required under the ERA to give at least one week’s notice to their
employer.

If the employment contract provides for longer notice periods, this will override the statutory minimums.

Wrongful dismissal
Wrongful dismissal is termination in breach of contract by failure to give the correct notice period. A common law
remedy (i.e. a contractual claim), it is available to all workers i.e. both employed and self employed people.

Remedy = damages to compensate the employee for the pay they should have received if they had been given the
correct notice period. The action will be brought in the County Court or High Court or if the claimant is an employee,
they would also have the right to bring the claim to an employment tribunal.
Summary dismissal
A form of wrongful dismissal, where the employer dismisses the employee without any notice at all. This is usually
because the employee has committed gross misconduct. If this is the case, there would be no action for wrongful
dismissal because the employee would have breached the contract first.

Unfair dismissal
Making a claim

• Claimant must be an employee

• The employee must have been continuously employed for two years (unless dismissed for an automatically unfair
reason) and serve a grievance notice on the employer

• The employee actually has to have been dismissed, and must make the claim to an employment tribunal within three
months of the date of their dismissal.

• Dismissal can occur by termination of the employment contract by the employer, by the expiry of a fixed term
contract that is not renewed or by constructive dismissal.

Reason for the dismissal

The employer has to prove that the employee was dismissed for one of five statutory fair reasons:

1. capability or qualifications of the employee for performing work of the kind which he was employed by the
employer to do’

2. conduct of the employee (case law examples include fighting at work and dishonesty),

3. the employee was redundant,

 4. the employee could not continue to work in the position which he held without contravention (either on his part or
on that of his employer) of a duty or restriction imposed by or under statute, or

5. some other substantial reason..

Some reasons for dismissal are automatically unfair, and are set out in the ERA. They include:

1. Jury service

2. Pregnancy or other grounds relating to maternity

3. Health and safety

4. Trade union membership or activities

5. Dismissal in connection with the national minimum wage

6. Seeking to enforce any of the statutory rights contained in the ERA e.g. minimum notice period and parental leave

Some reasons for dismissal are deemed automatically fair by statute, for example taking part in unofficial industrial
action or being a threat to national security.

The tribunal must decide whether the employer’s response in dismissing the employee was fair.

The ‘discipline and grievance’ code of practice issued by the Arbitration, Conciliation and Advisory Service (ACAS) gives
employers guidance on steps to follow if they are looking to dismiss an employee.

Failure to follow the ACAS code may be taken into consideration by employment tribunals and they can adjust any
awards they make by up to 25% for failure to comply with the Code.
Remedies for unfair dismissal
Reinstatement - this remedy requires the employer to treat the employee as if they have not been dismissed and
reinstate them to their original position on the same contractual terms. It cannot be awarded without the consent of the
employee.

Re-engagement - this remedy requires the employee to be offered comparable work in the same organisation. Again,
this remedy cannot be awarded without the consent of the employee and may not be appropriate.

Compensation - the amount the employee receives can be reduced if they in any way contributed to their dismissal.

The basic award

• Employees aged 41 and over - 1 1/2 weeks’ pay per year of service

• Employees aged 22–40 - one week's pay per year of service

• Employees aged 21 and under - half a week's pay per year of service

The award is capped at £479 per week and a maximum of 20 years service. so the maximum award is £14,370.

The compensatory award

The compensatory element is to take account of any additional loss of earnings, in the same way that damages for
breach of contract work. This element is capped at £78,962 currently.

The additional award

Provides extra compensation to the employee if the employer ignores an order for reinstatement or re-engagement.
The award can be between 26 and 52 weeks' pay, and is also capped at £479 per week.
Constructive dismissal
• Only available to employees.

• Occurs where the employee terminates the contract due to the employer’s behaviour. The employer’s conduct needs to
be something sufficiently serious going “to the root of the contract” therefore resulting in a fundamental breach of the
contract.

• The employee must resign and they need to do so quickly to avoid affirming the employer’s conduct.

• A successful claim for constructive dismissal could result in a breach of contract claim in the same way as a wrongful
dismissal claim would work, or it could result in an unfair dismissal with the remedies set out above available.

Employment Tribunals
• Aim to make access quicker, cheaper and easier than going through the court system.

• Much more informal than courts, and parties are able to represent themselves.

• The disadvantage of the tribunal system is that Legal Aid is not usually available.

A tribunal panel normally consists of three people, a legal qualified employment judge and two other lay persons with
experience of the particular industry in question.
Redundancy
• Redundancy must be carried out fairly, otherwise the employee is entitled to compensation for unfair dismissal

• The employee must have been continuously employed for two years

• Redundancy can occur when the employer has ceased or intends to cease (1) to carry on the business for which the
employee was employed for (2) to carry on the business in the place where the employee was employed or (3) the
requirements of that business for employees to carry out work of a particular kind has ceased or diminished.

• Selection for redundancy must be fair, for example because of the employee’s level of experience or capability.
Selection for redundancy on the basis of age, sex, disability or pregnancy would be classed as unfair dismissal.

Collective redundancy - if 20 or more employees are being made redundant in an organisation within a 90 day period,
there is a requirement that the employer notify the relevant government department and consult with employee
representatives.

In the case of the proposed redundancy of 20 - 99 employees, the consultation must start 30 days before the first
redundancy takes place, and in the case of 100 or more employees, at least 45 days in advance.

Failure to properly consult in the case of collective redundancies will likely be classed as unfair for the purposes of
dismissal.

Redundancy pay - a payment for redundancy is made using the same calculation as for unfair dismissal. If alternative
employment is offered, the employee must not unreasonably refuse it.