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Budget 2016: Amendments to taxation of termination payments

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Anyone who has ever been party to a settlement agreement will most likely be aware that an employee gets the first £30,000 of any termination payment tax-free, with any excess subjected to income tax as normal. The current position is that, even for the portion of a termination payment which exceeds the threshold and is taxable, National Insurance Contributions (NICs) are not payable.

In the 2016 Budget, the Chancellor George Osborne has announced that this will change. From April 2018, the rules for employers’ NICs will mirror those for income tax, so that employers must factor in NIC payments for the portion of any termination payment which exceeds £30,000.

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Regulators decide not to apply CRD IV bonus cap to small firms

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The Financial Conduct Authority and the Prudential Regulation Authority have announced that they will not be applying the European CRD IV bonus cap to small firms.

The FCA and PRA made the announcement via a statement on their compliance with the European Banking Authority’s guidelines on sound remuneration policies, which were published in December 2015.

The CRD IV Directive limits variable pay (including bonuses) to 100% of a person’s fixed remuneration (or 200% with shareholder approval). The Directive also contains a ‘proportionality principle’, whereby firms are required to comply with the rules to an extent which is appropriate to their size and the kind of work they do. The EBA’s guidelines stated the view that the proportionality principle would not lead to the rules being disapplied for certain firms.

The regulators’ response confirms its proportionate, risk-based stance; namely, that it will not be applying the rules to firms which it designates as being small. This includes all banks, building societies and full scope investment firms which have total assets of under £15 billion, plus all limited licence/limited activity investment firms.

The FCA and PRA are currently considering whether this approach will require any rule changes and will consult if necessary.

http://www.bankofengland.co.uk/publications/Documents/news/2016/037.pdf

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Updates from the Employment Tribunal – awards and statistics

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As of 6 April 2016, Employment Tribunal awards will increase. The maximum compensatory award will be the lower of a year’s pay and £78,962 (increasing from £78,335). The upper limit on a week’s pay, which is relevant to various calculations including statutory redundancy payments and basic awards for unfair dismissal, rises to £479 from £475.

The Ministry of Justice also recently reported the quarterly Tribunal statistics for the period October to December 2015. During that period, the number of single claims received by Employment Tribunals was 4,338. This figure is around the same as the number received in the same period last year, but 71% fewer than before fees were introduced in 2012. These figures support the impression that the Employment Tribunal fees regime is discouraging potential claimants from bringing claims.

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What is a ‘fair and reasonable’ level of split commission?

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An employer’s decision regarding the split of a commission pool between offices was unreasonable in circumstances where the rules set out in the commission plan were not followed.

Mr Hills was employed as Niksun’s regional sales manager in the UK. He was entitled to commission, the payment of which was governed by the employment contract and compensation plan. The commission plan stated that Niksun would determine a fair and reasonable level of compensation. The plan also stated that commission would be split between regions depending on (amongst other things) the location of the ‘point of influence’ – that is to say, the place where a particular deal is negotiated or managed.

Mr Hills negotiated a deal in the UK with Credit Suisse with some help from the US office. Niksun decided that the US was the point of influence in that deal and allocated only 48% of the commission to the UK. Mr Hills argued that 100% of the commission should be sent to the UK and, as a result, he had been underpaid by almost £7,000.

The Court of Appeal held that the point of influence should have been the UK, so Mr Hills had been underpaid. Evidence from Mr Hills’ manager indicated that the US decision-maker had promised ‘the lion’s share’ of the commission to the UK, which he understood to mean two thirds. As Niksun did not provide any evidence from the US manager as to how the 48% split was calculated, the conclusion could only be that it was not reasonable according to the terms of the commission plan.

Whilst this is a case which largely turned on its facts, particularly the wording of the commission plan, there is a point to be taken from it. Namely, employers should cast a critical eye over any calculations, tests or statements of discretion drafted for their contractual documents, as they can expect to be held to them by the court.

Hills v Niksun Inc [2016] EWCA Civ 115

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Bristol company introduces ‘period leave’ policy

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A Bristol-based company has introduced a ‘period policy’ to allow female staff to work flexibly around their menstrual cycle.

Coexist, which employs 17 women and 7 men, have said that the policy is intended to “create a happier and healthier working environment” and boost company productivity. Bex Baxter, the company’s director, said that the idea for the measures came from seeing female members of staff doubled over in pain and suffering in silence rather than feeling able to go home. Baxter stressed that the leave would be optional, so that women need not take time off if they do not want to.

The company is believed to be the first in the UK to introduce the measures, although such policies are already in place in Japan, South Korea, Taiwan and parts of China.

http://www.hrgrapevine.com/markets/hr/article/2016-03-02-company-to-implement-period-leave-in-attempt-to-improve-productivity

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When is an employer liable for harm caused by its staff?

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In some circumstances an employer can be held accountable when its staff do something wrong. In two recent cases, the Supreme Court has given useful guidance on the kinds of circumstances in which that will be so.

The principle of vicarious liability – i.e. where the employer is indirectly to blame for the actions of those working for it – comprises two elements. Firstly, there has to be the right kind of relationship between the employer and the person who caused the harm. Secondly, the actions which caused the harm must have a sufficiently close connection to the employment.

In Cox v Ministry of Justice, the first question was under consideration. Should the Ministry of Justice be held liable for an injury caused by a prisoner (not employed by the MoJ) who had negligently dropped a 25kg bag of rice onto the back of the prison’s catering manager? The Supreme Court held that it should. In its judgment, whilst the prisoner was not an employee, he was working to the benefit of the prison service. This was enough to establish the necessary relationship.

The second question was at the heart of Mohamud v WM Morrison. Mr Mohamud entered a Morrison petrol station kiosk and asked the attendant, Mr Khan, whether he could print some documents from a USB stick. Mr Khan refused, using foul and racist language as he did so. Mr Mohamud left the kiosk and entered his car, only for Mr Khan to pursue him and physically attack him. Whether Morrison was liable for the assault on Mr Mohamud depended on whether it could be regarded as closely connected with Mr Khan’s job in the petrol station kiosk. The Supreme Court held that it was; Morrison employed Mr Khan to deal with customers and respond to their enquiries, and Mr Khan was responding to Mr Mohamud’s enquiry when he became violent.

A feature of cases such as these is that, as something terrible has happened to someone, public policy dictates that someone should be held to account. This requires a broad view of which situations will satisfy the test, as these cases demonstrate.

Cox v Ministry of Justice [2016] UKSC 10 and Mohamud v WM Morrison Supermarkets plc [2016] UKSC 11

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