Can Employers Increase a Disciplinary Sanction on Appeal?

Can Employers Increase a Disciplinary Sanction on Appeal?
24th July 2014

It is perhaps not an uncommon belief, amongst managers conducting disciplinary appeal hearings, that they are entitled to look at all matters afresh and reach their own conclusions. Indeed that is often instilled into them by HR teams, keen to emphasize that an appeal hearing is not a tick box exercise but rather a thorough review of the facts and the procedures followed to date.

A recent decision handed down from the Court of Appeal (McMillan v Airedale NHS Trust) has however confirmed that in some cases the extent of the appeal manager’s authority does not include increasing the disciplinary sanction imposed. In other words, the appeal manager may not be able to increase the sanction from, for example, a final written warning to a dismissal.

The recent McMillan v Airedale NHS Trust case involved a doctor. The Trust initiated disciplinary proceedings against her and issued her with a final written warning. She appealed against this sanction. The appeal panel upheld the complaints against her and proposed to reconvene to reconsider the appropriate sanction. However Miss McMillan, then concerned that a worse sanction may be imposed (ie: dismissal) brought proceedings seeking to prevent the Trust from changing the sanction. She argued that the Trust’s disciplinary procedure did not allow the appeal panel to increase the sanction.

The Trust’s disciplinary procedure provided that an employee ‘can appeal against a written warning or dismissal’, it set out the appropriate procedure and stated that ‘there will be no further right of appeal’, but it did not spell out the Trust’s powers in relation to the sanction on appeal.

The Court of Appeal, in reaching its decision that the sanction could not be increased, took into account the ACAS Guide “Discipline and Grievance at Work”. The Guide, although not legally binding, states that appealing the decision should not result in any increase in penalty as this may deter individuals from appealing in the first place.

The Court of Appeal however also went on to say that this did not mean that an employer could never increase the sanction imposed on appeal. But, in order to be able to increase the sanction on appeal, an employer must expressly provide a right to do so in the disciplinary policy.

It is likely that the disciplinary policies of most employers will not provide a specific right to increase the sanction on appeal. Employers would therefore be well advised to consider reviewing their policy as otherwise they may face breach of contract claims and/or unfair dismissal claims arising out of procedures followed at the appeal stage.

Whilst employers minds over the Summer may be focussed on the thorny issues arising from the challenge to calculating holiday pay (with cases due to be heard by the EAT on 30th and 31st July), they should ensue that other housekeeping matters such as the operation of their disciplinary procedures are also keeping apace with current law.

Jacqueline McCluskey
Partner
+44 (0) 131 222 9803
JMcCluskey@hbjgateley.com

Wider powers for HMRC to combat pension liberation

Wider powers for HMRC to combat pension liberation
Posted on July 25, 2014

Having received royal assent on 17 July 2014, the Finance Act 2014 will increase the range of powers available to HMRC in its battle to combat the growing problem of pension liberation.

What is pension liberation?

Pension liberation is, broadly, the unauthorised use of pension monies. Usually members are offered the chance to access their pension fund before their normal minimum pension age (NMPA), often for a fee payable to the individuals who are running the scheme. Members may be encouraged to transfer their benefits to pension schemes (which are legitimate in the sense that they have been registered with HMRC) with the promise of early access.

Accessing a pension fund before MNPA, otherwise than in specific circumstances of serious ill health, is likely to constitute an unauthorised payment, in respect of which significant tax charges will be payable by the member. If the perpetrators leave members uninformed and misled as to the consequences of early access, this behaviour can amount to fraud.

According to the Pensions Regulator, pension liberation schemes have received £400m since 2008. Following the introduction of the Finance Act, how has HMRC’s position been strengthened? We list below some of HMRC’s new powers and other changes which have been made.

Registration

HMRC now has the power to refuse to register a new scheme where:

in its view, the scheme has been established for a purpose other than the provision of pension benefits;
the scheme administrator has failed to comply with an information notice (which, as its name suggests, is a notice issued by HMRC requesting information) or deliberately obstructed an officer of HMRC during an inspection; and
it believes that the scheme administrator (and in most cases the trustee) is not a “fit and proper person”.
HMRC may also de-register a scheme on these grounds with effect from 1 September 2014, regardless of when the scheme was registered.

Information

When considering whether or not to register a pension scheme, HMRC will have enhanced powers to gather information, including entering business premises to inspect documents.

Appeals process

There has been a change to the current position, where there is no time limit within which HMRC must make a decision on whether or not to register a scheme. If within six months of the application to register, a decision has not been reached, the scheme administrator can lodge an appeal in the same way as it could have done previously in the event that HMRC had decided not to register the scheme.

Tax liability

From 1 September 2014, independent trustees appointed to a registered scheme will no longer be liable for tax liabilities incurred prior to their appointment. Instead, it will be the previous scheme administrator that retains liability for these tax charges.

Going forward, HMRC will be able to research more thoroughly a scheme which applies for registration, and to take action if it suspects that an existing, registered scheme is being used to liberate members’ funds before NMPA. The enhanced powers given to HMRC should lead to greater protection for members who may be vulnerable to the temptation of early access but who do not appreciate the significant financial consequences they will face.

In addition, it will be interesting to see whether the reforms being introduced by the Government to allow individuals easier access to their pension pots will lead to a reduction in pension liberation. Individuals will not be able to access their pots before NMPA without tax consequences, but they may be less likely to be attracted by the promise of early access, if they will be permitted to access their entire pension once they reach NMPA.

For more information, email blogs@gateleyuk.com.

Making litigation cheaper – part four

Making litigation cheaper – part four
Posted on July 24, 2014

Forget it or fight

If you have not managed to settle your claim then your choices are either to:

Forget it and write the claim off
Fight
If you have got this far, you have probably decided to fight and that sees you enter litigation. You may be a defendant on the receiving end of litigation and this leaves you no choice.

The remaining parts of our series are divided into two:

Funding
Tips on controlling costs in the procedure
The process of working our way to trial in English civil procedure is a huge subject and our Court procedure guide runs to 3,800 pages or thereabouts. This is necessarily a brief look!

Funding

Before you get started, you need to clarify how you are going to pay for your litigation.

Plainly, what usually happens is that fees are paid month on month in accordance with estimates until the claim is resolved.

Increasingly, lawyers and clients embrace ways of paying which share risk, or acknowledge that there may need to be a lower price if the client is spending a very large amount of money in large complex and long running dispute, or sending many repeat instructions for his lawyers. There are many different species of funding arrangements but common examples are:

‘No win, no fee’ agreements (known to lawyers as conditional fee agreements)
Part or ‘hybrid’ conditional fee agreements
Third party funding of a claim in return for a share of the winnings
Damages based agreements (where a lawyer takes a percentage of winnings on certain agreed and prescribed terms dependent on how much is won in damages)
Deferred or part deferred payment dependent on success.
All of these agreements have at least two common denominators that is:

They will need to be money or assets from which the deferred payment is sure to be recovered; and
They will almost always only be available if there is a decent chance of winning.
Remember, the fact your lawyer will not share the risk does not mean you have a poor case, but if you are concerned about costs, such agreements may be an option.

You need to understand however, when lawyers enter into these agreements there will always be a cost for the lawyer taking on the risk.

You manage the risk, you understand the ground rules and have been through the pre-action protocol. Now look out for part five of our series of blog posts ‘making litigation cheaper’ – tips to control costs in the procedure.

To view the previous parts of this series, please see the links below. For more information, email blogs@gateleyuk.com.

Part one – Advance risk management

Part two – A few home truths and engaging your solicitor

Part three – The pre-litigation process

Appropriate in all circumstances?

Appropriate in all circumstances?
Posted on 24/07/2014

The standard JCT forms of contract include provisions relating to defects which come to light during the rectification period – this is the agreed time between the contractor and employer (usually 12 months) following completion of the works.

Usually those provisions allow the architect/contract administrator (or the employer in the case of the design and build form) to make an “appropriate deduction” in the event that the contractor is not asked to rectify those defects.

In a recent case* , the Courts were asked to consider what is meant by an “appropriate deduction”?

The case involved alleged substantial defects in respect of work carried out to a dwelling in Kent**.

Instead of asking the contractor to rectify those defects, others were engaged to do so and the employer sought to recover the cost of rectification from the contractor.

The employer issued proceedings against the contractor claiming damages in excess of £1million in respect of defects as well as alleged overpayment.

The Court was asked, as a preliminary issue, whether an appropriate deduction could be made by the employer from the contract sum for the contractor’s failure to progress the incomplete and/or defective works. If so, how the “appropriate deduction” would be calculated:

a) Contract rates/priced schedule of work

b) Costs of the contract or remedying the defects

c) Reasonable costs to the employer of engaging another contractor to remedy the defects

d) Particular factual circumstances and/or expert evidence relating to each defect and/or the proposed remedial works.

The Judge came to the conclusion that the reference to an “appropriate deduction” is “… a relatively neutral term. What may be appropriate in one set of circumstances may be inappropriate in another. In my judgment, what “appropriate deduction” means is a deduction which is appropriate in all the circumstances.”

For example, the “appropriate deduction” should reflect the extent to which the contractor could have repaired the work more cheaply.

Although this judgement relates to the JCT Intermediate Building Contract 2005 Edition, it is of general application to other JCT contracts which contain similar provisions.

This case provides guidance to employers who should think very carefully before instructing third parties to repair defective work and be aware that by doing so they run the risk of having any entitlement to claim against the original contract reduced to nil.

The reason employers issue instructions to third party contractors is because they simply don’t want the original contractor to return to site, normally because a dispute has arisen.

However, before issuing such instructions, contract administrators and those that advise them should take care to ensure that, by employing a third party contractor to remedy defects, the employer will not be found to have failed to mitigate its loss. Otherwise, the maximum “appropriate deduction” in the circumstances is likely to be the cost of the original contractor remedying the defects.

In this situation, the worst case scenario for the employer is that this cost is nil because the contractor could have got its sub-contractors to do the work for them at no cost to the contractor.

The Judge in this case gave some examples of when an employer might be found not to have failed to mitigate despite employing other contractors to remedy defects. Contract administrators would do well to observe these examples and ask themselves the following questions before issuing an instruction to a third party contractor to remedy defects.

Is the scale of the defects such that no reasonable employer could be expected to have the contractor back on site?

Has there been any fraudulent behaviour on the contractor’s part relating to the works?

Has the contractor made it clear that they are not prepared to return to site to put right the defects?

Has the contractor made a number of previous failed attempts to remedy the defects, and no reasonable employer could be expected to allow the contractor a further chance?

Has the contractor offered to undertake remedial works, but not those required by the contract administrator?

Has the contractor unreasonably delayed in carrying out the remedial works?

Obviously every case is different, but unless the questions above can be answered in the positive, it’s likely that the employer might not have mitigated its loss. In such circumstances, the employer may not be entitled to simply deduct the cost of employing another contractor to remedy defects.

For more information, email blogs@gateleyuk.com.

*Oksana Mul v Hutton Construction Limited [2014]

**JCT Intermediate Form of Contract 2005 Edition

Not just senior, but super senior!

Not just senior, but super senior!
Posted on 24/07/2014

Earlier this month, frozen food retailer, Iceland Foods, announced that it had refinanced its existing debt with a high yield bond issue and a super senior revolving credit facility. So, what is a super senior facility?

Market changes

The contraction in traditional bank lending in the wake of the financial crisis gave rise to an increased use of bond financing, both secured and unsecured, in the leveraged acquisition market. However, such financing does not have the necessary flexibility for working capital and operational requirements; therefore, where there is a secured bond issue, it has become the practice to combine it with a super senior revolving credit facility (RCF).

LMA documents

Towards the end of 2013, the Loan Market Association (LMA) introduced a recommended form of agreement for super senior RCFs and an associated intercreditor agreement. These are based on the existing LMA recommended forms of documents for use in leveraged transactions using only bank debt, so much of the framework will already be familiar. There are, however, some important differences:

With a super senior, there is only a revolving facility and no term debt
Ranking – the super senior lenders and the bondholders rank equally, although the super senior lenders take priority as regards enforcement proceeds (this is in contrast to the senior lender/mezzanine lender relationship where the ability of mezzanine lenders to receive payment and act on default is restricted)
As with the existing structure, security is held by a security trustee; however, in a super senior structure, either the super senior lenders or the bondholders can require enforcement
Control of enforcement proceedings – this stays with the bondholders for a period, but can flip to the super senior creditors in certain circumstances (the ‘non-controlling’ creditors are protected by agreed security enforcement principles).
The new forms of LMA document are intended to be a framework for the parties. As always, lenders and bondholders will need to decide what they are comfortable with on any particular transaction.

For more information, email blogs@gateleyuk.com.

New Pensions partner signals growth for Gateley

New Pensions partner signals growth for Gateley
23rd July 2014

Top 50 national law firm Gateley, has made a key hire which is set to further augment its successful Pensions team in Birmingham. Partner, Kate Lloyd will be welcomed into the team on 11 August 2014.

Kate joins the firm following 11 years with Squire Sanders and has a great deal of experience advising both corporate sponsors and trustee boards on a wide range of pensions law issues.

Kate commented: “The Pensions team at Gateley has already established a fantastic reputation and I am keen to build on that. In addition to bringing my own experiences and skills to the firm, I know I will be working with a great team with whom I can continue my own development.”

Michael Collins, head of Gateley’s 14-strong Pensions unit said: “Since we established our Pensions team five years ago we have gone from strength to strength and Kate’s appointment is an exciting next step in our growth plans. We’ve secured several new key clients recently and we look forward to introducing Kate to both them and our more established clients so they can benefit from her expertise as soon as possible.”

The Pensions team will be further strengthened in September when one of its former trainees, Rebecca Ryding, returns to the team following her qualification as a solicitor.

The news comes on the back of positive 2013/14 financial figures which saw the firm increase its fee income by 7.5% to £71 million. Gateley also won Law Firm of the Year at the 2014 Birmingham Law Society Awards and Legal Team of the Year at the 2014 East Midlands Insider Dealmakers Dinner. Firm wide, 99 Gateley lawyers were ranked as ‘Leading Individuals’ in the 2014 edition of Chambers legal directory.

The permanence of permanent

The permanence of permanent
Posted on July 23, 2014

The Deputy Pensions Ombudsman has held in a recent determination (Mullen PO-3356), that in situations where a pension scheme’s ill health early retirement (IHER) rule does not contain an express requirement for a condition to be permanent, it is nevertheless reasonable for trustees to imply such a requirement into the rule. This decision is in line with previous case law* and provided a clear response to the Pensions Advisory Service, which had written to the trustees asking why a requirement for permanence had been implied.

The Deputy Ombudsman also reconfirmed the criteria to be applied by trustees when making a decision on an IHER case.

The facts of the case

Mr Mullen went on long-term sick leave with psoriatic arthritis in 2012 and applied for an IHER pension from the Heidelberg Group Pension Scheme. The incapacity test in the scheme rules had two limbs:

1. The member must be permanently unable to continue in his occupation in the opinion of a registered medical practitioner.

2. Upon receiving evidence of this, the trustees must believe the member is unable to carry on ‘any paid employment’.

The rules further provided the trustees could revisit any IHER pension if the member recovered.

Mr Mullen was referred to a doctor who reported that:

Mr Mullen was ‘permanently unfit for his normal duties’, but also stated
He (the doctor) was unable to reach a conclusion in respect of any other paid employment, as this depended on “future progress with time and/or further treatment”.
The trustees sought clarification on this second point but no further information was provided. However, the doctor also sent a letter to the employer and one of the trustees noting that there were further treatments for Mr Mullen’s condition which he was still considering trying, but the trustees did not consider this information. Subsequently, they rejected Mr Mullen’s application on the basis that there had been no confirmation that he would remain unfit to carry out any paid employment. Mr Mullen then complained to the Ombudsman that the trustees had incorrectly decided he should not be awarded an IHER pension.

Principles

The Deputy Ombudsman restated the well-established principles that should be adhered to by trustees when considering if a member meets the incapacity test. Trustees should:

take into account all relevant, but no irrelevant factors;
direct themselves properly in law (in particular, they must adopt a correct construction of the scheme rules);
ask themselves the correct questions; and
they must not arrive at a decision that no reasonable decision maker who was properly directing himself could make.
Determination

The Deputy Ombudsman upheld Mr Mullen’s complaint as the trustees had failed to consider a relevant factor, namely the letter written to the employer which advised of potential treatments available.

The Deputy Ombudsman noted that the second limb of the incapacity test did not require the condition to be permanent. However, it was reasonable for trustees to imply this requirement as not doing so might lead to a situation where a member who was only temporarily unable to carry out other paid employment would be eligible for an IHER pension. It was also noted that the rules provided for the trustees to revisit IHER pension awards in circumstances where a member had recovered from incapacity, and where therefore permanence did not in fact turn out to be permanent.

The Deputy Ombudsman therefore referred the case back to the trustees for their further consideration and directed them to pay Mr Mullen £200 for distress and inconvenience caused by their maladministration. Ironically, this might prove to be a pyrrhic victory for Mr Mullen, as consideration of the doctor’s letter to the employer which stated that certain treatments might alleviate Mr Mullen’s condition might make it less likely that the trustees will conclude that he passes the second limb of the incapacity test in the rules.

This post was contributed by Stuart Evans and Hannah Algrafi. For more information, email blogs@gateleyuk.com.

*Harris v Shuttleworth