Employing in England
and Wales
This article seeks to give a general overview of
some of the key issues and considerations to be borne in mind when employing
people in England and Wales.
Initial considerations
Recruiting staff can be an expensive and time
consuming exercise. Those
businesses without a UK presence but with plans to set up business in the UK
may consider seconding an employee from outside the UK to a newly formed UK
entity in order to lay the foundations.
Secondments of this kind will often be a loose and undocumented
arrangement between two group entities.
The employer’s intention will usually be that the seconded employee does
not become an employee of the UK entity. However, it may be that the seconded
employee acquires the protections given to those who qualify as employees or
workers under English law, particularly if the seconded employee is responsible
for the day-to-day running of the UK entity’s business.
This may be unavoidable but should be kept in
mind when deciding whether the seconded employee’s entitlements (e.g. to
holiday) will be changed to reflect UK minimums for the duration of the
secondment, if not already provided.
The seconding entity may also need to ensure that any post termination
and confidentiality restrictions in the seconded employee’s employment contract
are wide enough to cover the employee’s activities for the UK entity. If not, new restrictions may have to be
introduced.
If the new UK entity wishes to recruit
employees, an important preliminary step will often be to register as an
employer with HM Revenue & Customs (HMRC). Income tax and national
insurance contributions must be deducted by the employer from employment income
through the Pay As You Earn (PAYE) system. The existing tax rates in the UK are
10% (the starting rate), 22% (the basic rate) and 40% (the higher rate). In addition to deducting the employee’s
tax and national insurance contributions, the employer will also have to pay
its own employer’s national insurance contributions at a rate of 12.8% of an
employee’s total earnings. In
order to ease the administrative burden, businesses will often use payroll
agencies to run their payroll.
The employment contract
Employers in England and Wales are by required
by statute to give employees a written statement of their terms and conditions
of employment within two months of the employee starting work. The statement must contain certain
basic terms, including in relation to pay, hours of work, calculation of sick
pay, holiday and pension. It is
often sensible, however, for the employer to put in place a more comprehensive
contract, which incorporates the required statutory terms and includes further
protections for the employer. This
is particularly so for key staff who may have access to confidential
information and/or create intellectual property whilst working and so pose a
greater risk to the business when employment ends.
There are many points to consider when drafting
an employment contract. However,
the following may be useful to note:
Notice - there is no concept of employment being “at
will” under English law. Employees
are entitled to at least the minimum period of written notice if the employer
wants to terminate employment.
This starts at one week and increases by one week for each complete year
of service, up to a maximum of 12 weeks’ notice. Often the contract will provide for longer periods of
notice, particularly where the employee is important to the business.
If the employer wants to “test the water”, the
contract may provide for a probationary period during which the notice required
to terminate may be shorter than is otherwise the case but it can be no less than
one week’s notice in the first year.
In contrast to the Netherlands where the probationary period for an indefinite
contract should not exceed two months, no such restriction applies under
English law. Commonly, a
probationary period will be between three to six months.
Holiday – full time employees and workers are
entitled to a minimum of 24 days’ paid holiday in a holiday year. This can be inclusive of the eight days’
public holidays in England and Wales.
From April 2009, however, this minimum will increase to 28 days’ paid
holiday inclusive of public holidays.
The contract should state how holiday pay is calculated.
Sickness – as a minimum, employers must pay
Statutory Sick Pay (“SSP”) from the fourth day of incapacity onwards. The current weekly rate of SSP is £75.40 for employees with average weekly
earnings of £90 or more. If an
employer wishes to apply a more generous sick pay policy, this should be set
out in the contract.
Pension –
the contract should state what pension arrangements are in place for the
employee. If the employer has five
or more employees it must, as a minimum, provide access to a stakeholder
pension to its employees, although no contributions have to be paid in by the
employer. However, plans for a new
obligatory pension system (the “Personal Accounts System”) are currently been
debated by Parliament. Under the
proposed system, employers would be required to contribute 3% of pay where the
employee contributes 4% or more. The new system will be introduced in 2012.
Post termination restrictions – employers are able to
protect their legitimate business interests through post termination
restrictions. Generally, the interests capable of protection can be categorised
as trade secrets, trade connections and the stability of the workforce. Post termination restrictions,
therefore, often seek to prevent an employee from setting up in competition or
being employed by a competitor, from soliciting the employer’s customers/clients
and other staff members and from dealing with the employer’s customers/clients.
Where the restrictions are wider than is necessary to protect the employer’s
legitimate business interests, they will fail.
Care should be taken when drafting such
restrictions as they will be heavily scrutinised if proceedings are taken to
enforce them. English courts will
not rewrite covenants if they are unclear or wider than is necessary to protect
the employer’s legitimate interests.
Their scope should be formulated taking into account the subtleties of
the business and the employee’s role in it. Whereas in some jurisdictions employers should
continue a level of payment during the restricted period, this is not necessary
under English law.
It is sensible to also include a full
confidentiality clause clearly stating what information the employer regards as
confidential. Employers may also find it useful for the contract to allow them
to place an employee who is working out his/her notice on ‘garden leave’. During the garden leave period, the
employee will continue to be paid but will not work and therefore, will not
have access to important customer connections. Without the clear right to do this in the contract, the
employer runs the risk of being in breach of contract by placing an employee on
garden leave.
In addition to any express contractual terms, certain terms are implied
into an employment contract by English law. One such implied term is the duty of mutual trust and
confidence. Whilst in theory this
term applies both ways, it is most commonly cited by employees to show that the
employer has fundamentally breached the contract of employment, allowing them
to resign and claim constructive unfair dismissal.
Unfair dismissal
Employees have the right not to be unfairly dismissed. This means that in order to fairly
dismiss, an employer must have one of five statutory fair reasons for doing so.
Generally, employees only have the right to claim unfair dismissal after being
employed for a continuous period of one year. However, there are limited exceptions to this. Where an employer dismisses on certain
grounds (due to maternity, where the employee has asserted a statutory right or
because the employee is a “whistleblower”, being some examples), the employee
can claim unfair dismissal without needing to have worked continually for one
year. These limited circumstances
aside, employers will have a one year grace period to work out whether the
employee is the correct fit for the business, without the risk of an unfair
dismissal claim.
An employer should follow the statutory dismissal procedure when dismissing
or risk a finding of automatic unfair dismissal where the employee has over one
year’s service. In summary, this
involves sending a letter to the employee setting out the issues the employer
has with the employee, holding a meeting to discuss those issues and holding an
appeal, if requested. Should the
statutory procedure not be complied with by the employer, this will be
reflected in an employee’s compensation.
Further procedural requirements, in addition to the statutory dismissal
procedure, are also likely to be necessary depending on the reason for the dismissal.
After mounting criticism since they were introduced in 2002, it has finally
been recognised that the statutory disciplinary (and
grievance) procedures are burdensome for both employers and employees
alike. It is proposed that they
will be abolished in 2009 and replaced by a new Code of Conduct.
Unfair dismissal claims generally have to be brought within three months of
the dismissal, although extensions may be obtained. Specialist employment
tribunals may award compensation or, less commonly, reinstatement.
Compensation for unfair dismissal is designed to compensate the employee
for the financial loss suffered due to the dismissal. A tribunal will award what it considers “just and equitable”,
making an assessment of how long it will take the employee to obtain future
employment. Employees are required
to mitigate their loss and any subsequent earnings from new employment will be
taken into account to reduce compensation.
Discrimination
Employers must not discriminate against workers because of their sex, race,
disability, age, sexual orientation and religion or belief. This applies at every stage of the
relationship, including recruitment, promotion and dismissal. It is not necessary for employees to
have one year’s service in order to bring a claim of discrimination. It has recently been announced
that a new single equality bill will be introduced which will replace the many
different pieces of equality legislation in England and Wales.
In addition to loss of earnings, employees can claim compensation for
injury to feelings resulting from discrimination which, generally, can range
from £500 to £25,000, depending on the nature of the discriminatory conduct.
Richard Green
Memery Crystal LLP
For further information, please contact Richard Green on +44 207 242
5905,
e-mail rgreen@memerycrystal.com,
or your usual Memery Crystal contact.
