Posted on Friday 19th Aug 2016
Legislation in the Offing
Consultation on draft legislation has now been published on changes to the tax treatment of termination payments which, it is intended, will come into force in April 2018.
The UK Government has confirmed that the £30,000 tax free exemption for termination payments will remain in place. Proposals had been made during the recent consultation to reduce the tax free amount or link it to length of service but these proposals have been dropped.
The main changes are as follows:
• All payments in lieu of notice (“PILONs”) will be fully taxable. At present whether they are taxable or not depends in part on whether there is a PILON provision in the employment contract. This complication will be removed. In practical terms, for those clients that did not include the tax saving, the protection of a contractual PILON clause (in the absence of the clause there is the opportunity to pay PILON as a net equivalent) will be lost. This means that when the legislation is enacted there will be no reason not to have a PILON in all contracts.
• Employer National Insurance contributions will be payable on the balance of any termination payment above £30,000. Employees will still not be required to pay National Insurance contributions. This equates to a rise in the cost of all terminations equal to the employers NICs payable (currently 13.8%).
• Payments in respect of injury to feelings will be taxable. This resolves a current divergence of judicial opinion on the matter. However settlements in discrimination cases are likely to be pushed higher once the tax free status is lost.
Getting into a Tangle over References
A very interesting query came across our desk the other day. Two years or so ago our client dismissed an employee who subsequently contacted ACAS with a view to taking employment tribunal action. Before the action commenced an agreement was drawn up by ACAS on their statutory form COT3. Part of that agreement provided for the employee to be given an open reference and an agreement that any request by an employer for a reference should be dealt with by our client giving a reference in identical terms to that agreed in the COT3.
No more was heard of the matter until very recently when this former employee, having found work elsewhere, gave the name of our client as a referee. Unfortunately the person providing the reference was unaware of the COT3 agreement and she gave a reference which more truthfully reflected the ex-employee’s abilities and character than the COT3 reference. As a direct consequence of that reference the ex-employee lost his job.
Essentially and unwittingly our client has breached the ACAS settlement. This is a breach of a legally binding agreement. The courts distinguish between two types of ACAS settlements - (a) settlements and (b) "conditional" settlements. A conditional settlement is one that in addition to providing that money be paid to you, also requires you to undertake certain actions.
The COT3 in question is of the latter type.
The former employee could choose to take a case to Small Claims Court (SCC).
However there is provision for the COT3 to be set aside (avoided) through the Employment Tribunal. Had the COT3 been used to settle a discrimination case, the position of our client could have been much worse since the provision of the reference contrary to the agreement could have been seen as victimisation.
Both routes may be open to the ex-employee.
If he takes the case to the SCC he would claim loss of employment arising out of our client’s actions providing he can show that the dismissal was entirely caused by our client’s actions. What those damages might be is an imponderable. We await developments.
However, all the problems could have been avoided with better internal procedures for the provision of references. It is far better if only the most senior manager provides a reference. In larger firms where this is not practical then the former employee’s file could easily have been separated from normal filing or suitably endorsed thus avoiding this problem.
Single Act of Misconduct Dismissal
A recent case shows how a single contravention of a company’s internal rules can form the basis of a fair dismissal.
Baker Sion Donovan was dismissed by Greggs for gross misconduct as a result of failing to wash his hands having been to the locker room prior to re-entering the food production area. Greggs took the decision to dismiss Mr Donovan for gross misconduct to enforce its zero-tolerance approach to breaches of its hygiene rules.
Mr Donovan brought a claim at the employment tribunal, claiming unfair dismissal. He admitted not washing his hands in breach of the policy of which he was aware but described this as a mere “lapse”. Central to his case was that Gregg’s decision to dismiss fell outside the band of reasonable responses. The punishment, he argued was too severe. In support of his case Mr Donovan argued that in his 11 years with the company he had an unblemished disciplinary record.
Mr Donovan lost his case. The Company was able to argue that the consequences of the claimant’s failure could have been “lethal” and that given his length of service Mr Donovan should have been well aware of that.
The interesting feature of the case is that when deciding upon a suitable penalty, length of service is one factor an employer needs to take into account but in the instant case the claimant’s long service worked against him.
New Sentencing Guidelines: A Further Example
Just how the new sentencing regime (see previous Newsletters) can result in swinging fines is illustrated by the recent case involving a construction company, Monavon Construction Ltd.
Two members of the public, having an argument, were pushed up against the hoarding of a site operated by the defendant. The hoarding was flimsy and gave way. Both men fell around 4 metres to their death.
The company pleaded guilty.
A turnover of less than £2 million placed Monavon Construction in the "micro" turnover bracket for sentencing purposes. This category provides for the lowest sentencing ranges and starting points. Larger companies in the same situation would have faced a much higher fine.
The incident was assessed as category A in terms of harm and culpability (i.e. the more serious option).
Monavon Construction entered an early guilty plea which meant the fine may have been reduced by 33%.
Even so Monavon Construction received a total fine of £550,000 plus costs as a result of the fatal accident event: a very substantial fine in relation to turnover.