As you are probably already aware from our previous articles, the National Living Wage (NLW) takes effect from 1 April 2016. Its name is slightly confusing, as it has nothing to do with the Living Wage as set by the Living Wage Foundation. Effectively the NLW is really just a top rate of National Minimum Wage, payable only to those aged 25 or over.
We thought it would be helpful for us to answer some of the trickier questions we are being asked about the introduction of the NLW.
We are in a sector where margins are already squeezed, and the NLW may tip us over the edge. Can we make staff cuts on the basis of which staff members cost us the most, i.e. those who qualify for NLW?
If an employee is dismissed and the reason (or principal reason) is that they qualify for the National Minimum Wage (or a particular rate, such as the NLW), their dismissal will be automatically unfair. There will be no need for a particular length of service and there would be no maximum on the compensation a Tribunal could award.
Likewise, they could argue that they are being discriminated against on the basis of their age, because in the scenario you describe it would only be those aged 25 and over who would be dismissed. For age discrimination claims there is also no minimum period of service and no compensation limit. If they brought both age discrimination and unfair dismissal claims they would not be able to claim for the same compensation twice, but as part of the discrimination claim they could claim compensation for injury to feelings, which cannot be claimed in an unfair dismissal claim.
For these reasons, I would strongly recommend that any staff cuts are not limited to groups or members of staff who qualify for NLW.
What about if we were to make contractual changes across the board (such as to overtime rates) in an effort to find the extra money we need to pay staff the NLW? If staff did not agree to the changes we may have to terminate their employment.
This is a slightly different proposition to the scenario above, because it does not just target those aged 25 and over. Although the background reason for the changes would be the NLW, in my view it is more likely that you would be able to justify the changes as a business reorganisation/change arising from the need to cut costs (i.e. “some other substantial reason for dismissal”). Although it would depend on the circumstances, I think it unlikely that any eventual dismissals would be considered automatically unfair for being related to the NLW.
Of course, regardless of NLW issues, with any introduction of contractual changes you would need to ensure you have been through a fair process in order to avoid ordinary unfair dismissal claims. This would include consulting with staff members about the reasons for the changes and responding to any comments they may have.
If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).
Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.