Morgan Russell Solicitors

Key Issues on Recruitment and Termination of Employees in England and Wales

1.     General introduction 

Compared with the United States, where there is no requirement for a written or verbal contract of employment and employers and employees can terminate the employment relationship at any time, for any lawful reason, and without notice; the laws governing recruitment and termination of employees in England and Wales may seem onerous.  However, compared with some other countries in Europe, hiring and firing employees in England and Wales is relatively straightforward.  There is no doubt, however, that the laws of the European Community are bringing the countries of Europe ever closer.  This article reviews the different factors to consider when hiring and firing employees in England and Wales.

2.     Recruitment

The key issues for employers to consider when hiring employees in England and Wales are:

  1. Cost
  2. Equal Opportunities
  3. Immigration

Each of these issues will be considered in turn below.

3.     The cost of hiring employees in England and Wales 

The principal costs to employers when hiring employees in England and Wales, other than the usual costs involved in training and setting up a new employee in a company are the base salary of the employee, and employer’s National Insurance contributions.

National Insurance Contributions (“NICs”)

NICs are payable by both the employee and the employer.  Rates depend on whether or not employment is contracted-out of the state second pension (see below) and the contracted-out rates are significantly lower.  These are deducted at source.

Employer’s NIC contributions are payable once the employee’s weekly earnings exceed £110.01 per week.  For non contracted-out employees the NIC rate is 12.8% and there is no upper earnings limit. For contracted-out employees, the NIC rates depend on whether the employee is contracted out to a salary-related scheme or a money purchase scheme. 

Pension Contributions 

There are two parts to the state pension – the basic state pension and the state second pension.  Individuals will be eligible to receive the basic state pension if they have paid sufficient NICs during their working life.  The state second pension is also based on the NICs the individual has paid, however it aims to provide a more generous additional state pension for low and moderate earners and certain carers and long-term disabled people, by treating such people as having made the necessary minimum NIC’s.

Although employers often set up private pension schemes for their employees, or match the contributions made by their employees, there is currently no obligation in England and Wales for employers to pay contributions into employees’ pension schemes. 

However since October 2001, employers have been required to ensure that employees at least have access to a low-cost form of pension, which is termed a “stakeholder” pension scheme.  Employers are also required to arrange for employees’ contributions to be deducted and paid to the scheme.  The key exception to this is if the employer offers an occupational pension scheme or contributes an amount equal to at least 3% of employees’ salaries to a group personal pension scheme.

From between 2010 and 2016 (depending on the size of the business) employers will have to automatically enrol all eligible employees in a qualifying pension scheme and make contributions to their plan, along with employee salary deductions.  The obligation is being “phased in”.  The minimum employer contribution, when it applies, will be 3% of “qualifying earnings”.

Additional Costs

The key compulsory costs to employers in England and Wales when hiring employees are set out above and other costs incurred are generally in respect of additional benefits the employer decides to give the employee but is not required to.

By contrast, in some European countries, there are additional costs to consider when recruiting employees.  For example, costs are payable in respect of inserting particular clauses into the employment contract.  For example,  in Belgium, if an employer wishes to impose restrictive covenants in an employee’s contract of employment which are to be effective after termination of the employee’s contract (such as to prevent the employee from setting up in competition with the employer), in order for these to be enforceable, the employer must pay the employee a sum of money at the end of the period of time for which the employee is bound by the restrictions if the employee has complied with those restrictions.

4.     Equal opportunities in recruiting employees 

In England and Wales, the general common law rule is that an employer is free to offer employment to whoever he chooses.  However, largely as a result of EC Directives preventing discrimination in the workplace, this common law freedom has been restricted by statute.

Discrimination

Anti-discrimination legislation not only applies to employees already in employment, but also to those applying for employment. Anti-discrimination laws have recently been consolidated into one Act, the Equality Act 2010.

It is unlawful for a person, in relation to employment by him at an establishment in Great Britain, to discriminate against a person

a)    in the arrangements he makes for the purposes of determining who should be offered that employment, or

b)    in the terms on which he offers him or her that employment, or

c)    by refusing or deliberately omitting to offer him or her that employment.

In recruiting employees, employers must be careful not to discriminate against employees on the grounds of race, colour, nationality, ethnic or national origin, sex, disability, age, religion or belief, sexual orientation, gender re-assignment, marital or civil partner status and trade union membership.

Employers should also consider whether the job needs to be performed on a full-time basis or whether it is open to job-sharing, part-time working or home-working. A requirement for a job to be performed on a full-time basis must always be capable of objective justification by reference to the requirements of the job.

Job Descriptions and Advertisements

Employers should take particular care with the wording of job descriptions and advertisements for positions, as some criteria may explicitly or implicitly exclude particular classes of candidates.   For example a criterion that the candidate must be "lively" might implicitly exclude older candidates or "mature" may exclude younger candidates contrary to age discrimination legislation.  Other requirements, such as “the ability to work long hours and/or travel” may indirectly discriminate against female candidates with childcare responsibilities.  Such a requirement would have to be objectively justified.

Fair and Objective Selection Criteria

Similarly, when selecting which candidate to offer the job to, employers must ensure that they have objective selection criteria to apply to all of the candidates applying for the role.  Employers should ensure that they document the recruitment process so that there is a paper trail in the event of any complaint or litigation, including a record of the decision-making process.

Equal Opportunities Policy

It is best practice for employers to have an equal opportunities policy in place and to ensure that all staff undergo equal opportunities training, especially those that will be involved in the job application, selection and interview process, to ensure that recruitment decisions are not tainted by discrimination.

Exceptions

Before the Equality Act came into force there were certain exceptions contained within some of the anti-discrimination legislation which permitted employers to employ certain classes of employees over others.

For example, the Sex Discrimination Act provided an exception where being a man or a woman is a “Genuine Occupational Qualification” (“GOR”) and discrimination against the other sex was permissible, for example where the nature of the job requires a man or woman for reasons for physiology (excluding physical strength and stamina) or for reasons of authenticity, for example in a dramatic performance; or where the job needs to be held by a man or a woman to preserve decency or privacy.

However, in these circumstances, that employer was required to show that there was both a GOQ and  show that the treatment was reasonable in view of the circumstances.

There are certain very limited exceptions contained within the Equality Act which permit employers to employ certain classes of employees over others.  What we have under the Equality Act is the concept of an “Occupational Requirement” (“OR”) which is a defence if the OR can be shown to be a proportionate means of achieving a legitimate aim.

In practice in most cases, the new wording won’t make much, if any, difference, to the position before the Equality Act. Where it may create uncertainty is where an employer has been relying on a GOQ. It will not affect employees already employed but employers should ensure that they comply with the new rules on OR’s, in particular, ensuring that the discriminatory criterion they are applying is a “proportionate means of achieving a legitimate aim” (note that this wording is the same as the wording used for the objective justification test).

5.     Immigration

As the trend towards globalisation and mobility continues, immigration and visa requirements play a bigger part in the recruitment process and in business operation considerations.  There has been a raft of new immigration legislation over recent years in the UK, with much more onerous obligations on employers.  Employers must be wary when complying with the legislation however, to avoid discrimination.

The new Points-Based System (“PBS”)

Much of the PBS scheme has been a rebranding of previous immigration categories, but many aspects are significantly different to the “old” system and legal advice should be obtained on the “new” system.  The Home Office has streamlined the previous vast number of immigration categories (80 plus) into five tiers:

Tier 1 - highly skilled migrants

Tier 2 - skilled workers

Tier 3 - low-skilled workers

Tier 4 – students

Tier 5 - temporary or exchange workers.

Due to the scale of the reforms, the PBS was launched in phases. All of the above tiers are now active with the exception of Tier 3 which is unlikely to ever be launched.

In relation to each of these categories, the migrant has to earn points in order to come to the UK for work or study.  In the case of all tiers except Tier 1, migrants will have to be sponsored before they come to the UK to work or study. Under the system of sponsorship, an employer sponsor has to comply with onerous record-keeping and reporting obligations.

Once the sponsor has issued the migrant with a certificate of sponsorship, the migrant has to obtain entry clearance before entering the UK. Previously, in certain circumstances, the migrant could obtain permission from the immigration officer at the port of entry.

The new system removes the administrative burden of processing applications to work in the UK from the United Kingdom Border Agency (“UKBA”) and places it firmly on the sponsor and migrant worker.  As part of the points-based system, migrants have to meet certain requirements, for most tiers, in relation to English language and maintenance.

Sponsor registration

Under Tier 2 of the PBS, employers must first register as sponsors and obtain a licence in order to employ any migrant worker under the new regime.

Once the licence is issued, the employer will issue a certificate of sponsorship, through an online Sponsor Management System (SMS).

When applying for the licence, the sponsor agrees to undertake the following responsibilities:

  • Ensure any migrant workers are legally entitled to perform the roles in question.
  • Provide copies of any required professional registration.
  • Not employ anyone without permission and cease to employ anyone whose permission lapses for any reason.
  • Only issue certificates of sponsorship to migrants who meet the criteria and are likely to comply with their conditions of leave.

Offences

Employers can be liable for the following offences if they employ someone without permission to work in the UK:

  • A criminal offence of knowingly employing someone without permission to work in the UK. An employer that commits the offence will be liable to a custodial sentence of up to two years and/or an unlimited fine.
  • Liability to a civil penalty where an employer negligently employs someone without permission to work in the UK. An employer that commits the offence will be liable to a fine of up to £10,000.

An employer may have a statutory defence to the civil penalty if it checks certain original documents before employing the individual. What documents need to be checked will depend on the individual's circumstances, and legal advice should be sought in this regard. However, the employer will not be able to rely on the defence if it carried out the checks but knew that the individual was working illegally.

6.     Termination of employment in England and Wales 

At common law, an employer can dismiss any employee whenever he chooses, whether he has good reason or not, provided he gives full notice and otherwise complies with the contract.  In order to give some protection against dismissal at the whim of the employer, the statutory claim of unfair dismissal introduced the concept of fairness into termination of contracts of employment.  When firing employees in England and Wales, employers need to ensure that they have a fair reason for dismissing an employee, and that they have acted fairly in the way the dismissal is handled.

7.     Termination of employment

Wrongful Dismissal 

All employees have a right not to be wrongfully dismissed.

Wrongful dismissal is a dismissal in breach of contract.  To avoid a wrongful dismissal claim, employers must ensure that all contractual rights are observed or compensation paid in lieu of damages. A claim for wrongful dismissal is usually primarily a claim for pay and benefits during the notice period.  Employers must ensure, therefore, that at the first stage of any consideration of dismissal of an employee, they review the individual employee’s contract - notice periods should be noted having regard to the statutory minimum, which will apply if the contract provides for less than the statutory minimum.

Unfair Dismissal

All qualifying employees with over 1 year’s continuous service with an employer have a right not to be unfairly dismissed.  (Note that there is no qualifying period where a dismissal is for certain unlawful reasons, e.g. a pregnancy-related dismissal).

To avoid a successful claim for unfair dismissal, an employer must:

  1. Rely on 1 of the 6 statutory grounds for dismissal
  2. Act fairly
  3. Follow the ACAS Code of Practice

The 6 potentially fair reasons (also known as the statutory grounds) are:- 

  1. illegality
  2. misconduct
  3. incapability
  4. redundancy
  5. some other substantial reason justifying dismissal
  6. planned retirement (Note that this will no longer apply from October 2011. The last date for notice is April 2011. Please take advice if carrying out a planned retirement.)

The employer must establish that one of the statutory grounds is the reason for dismissal. However, that is not enough.

Act fairly

Grounds 1, 2, 3 and 5

The employer must also follow a fair procedure (i.e. warnings, consultations etc (as appropriate)). 

Employers have both a general obligation to act reasonably, and an obligation to follow the ACAS Code of Practice (with respect to grounds 1, 2, 3 and 5).  A failure by the employer to follow these procedures can lead to an increase of up to 25% in any tribunal award if the failure is considered “unreasonable”.   

The ACAS Code of Practice

The new ACAS Code will only apply to “disciplinary situations”, a concept which includes misconduct and poor performance but explicitly excludes dismissals on grounds of redundancy or the non-renewal of a fixed term contract.

The Code is supplemented by a non-statutory guide, Discipline and grievances at work: The ACAS guide, which gives further guidance on best practice.

The key points in handling misconduct and poor performance under the Code are:

  • The employer should investigate the issues
  • The employer should inform the employee of the issues in writing
  • There must be a disciplinary meeting or hearing
  • The employer should inform the employee of the decision in writing
  • The employee has a right of appeal.

Retirement Procedures for Planned Retirement (Ground 6)

An employees employment may be ended at retirement age (which generally must not be below 65 years) PROVIDED the prescribed retirement procedure is followed (including the employers obligation to consider a request to extend retirement).   A failure to follow the procedure may lead to an unfair dismissal claim.   Note also that the legal position is currently under review is likely to change effective April 2011.

Redundancy (Ground 4)

Redundancy is a potentially fair reason to dismiss.  There is a statutory definition of redundancy.  Failure to consult with individuals could lead to an unfair dismissal claim. Although the ACAS Code of Practice does not strictly apply in redundancy situations, it is still best practice to follow the procedure set out above given that redundancy is a dismissal, and we strongly advise you to do so in order to avoid claims for unfair dismissal.  Please note however that this procedure does not apply in collective redundancy situations.

Where an employer proposes to dismiss 20 or more employees he must collectively consult with a recognised trade union, if there is one, or give the affected employees the opportunity to appoint an employee representative for the purpose of consultation.  This is an additional requirement to the obligation follow a fair procedure (which requires individual consultation). 

 

Further Information

If you have any questions regarding the above or require additional information or assistance, please contact Melanie Smith on +44 (0)1372 461411.

The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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