European Union: HR Horizons: Winter 2024

Learn more about government strategy and Labour Party proposals: background, what's next, things to consider, partner comment

Background

We reported in the last edition of this report that employers should expect greater scrutiny of compliance with labour rights, such as holiday pay, minimum wages, statutory sick pay and prevention of modern slavery, ahead of the creation of a new Single Labour Market Enforcement Body. Momentum on this proposal has now stalled. The government's current position is that it is reviewing what the creation of a new Enforcement Body would mean in the light of limits on parliamentary time (see page 18, House of Commons Business and Trade Committee report, July 2023).

We flagged in our last update that the government had published a Future of Work Review, to determine labour market policy and strategy (including the government's response to the Taylor Review on Good Work). There is no significant progress to report on the Future of Work Review, except that the MP leading the review has recommended that the government focuses on four areas in greater detail: AI and automation, skills, place and flexibility, and workers' rights.

What's next?

The government proposes to meet some of the objectives of a Single Enforcement body through its 2023/2024 labour market enforcement strategy (published on 23 October 2023). The government's strategy states that it is considering how to improve joined up monitoring, thinking and communication between existing enforcement bodies, such as HMRC and the Employment Agency Standards Inspectorate.

Should the Labour Party win the General Election due to take place by January 2025, employers can expect significant changes to the employment law landscape. These have been set out by the Labour Party in their Green Paper, New Deal for Working People, in the speech of the Shadow Deputy Prime Minister (Angela Rayner MP) to the 2023 Labour Party Conference and reports in the press. The Labour Party have pledged to introduce an Employment Bill within the first 100 days of entering office.

Key employment reforms proposed by the Labour Party include the following.

• A standard six-month time limit for bringing all Employment Tribunal claims (currently usually three months)
• Removal of statutory caps on compensation for unfair dismissal.
• Removal of the two-year qualifying period of employment for unfair dismissal claims, so that the right to be fairly dismissed becomes a 'day one' right.
• Removal of minimum service levels (MSLs) during strikes. Labour would repeal the Strikes (Minimum Service Levels) Act 2023, which provides for MSLs in specific services such as health, transport and education.
• The introduction of electronic balloting and bolstering trade union rights to access within workplaces. The Labour Party has also pledge to "boost" collective bargaining, starting with a Fair Pay Agreement in adult social care.
• Ending 'fire and re-hire' and extending information and consultation procedures so that employers are required to reach agreement about contractual changes with their workforce.
• Introducing a new 'right to disconnect'. This would introduce a new statutory right to be unavailable for work outside of specified hours. There would also likely be linked protections from harassment and victimisation for exercising the same right.
• The Labour Party's Green Paper originally pledged to create a single status of 'worker' (rather than existing categories of 'employed/self-employed/worker) but it has been reported in the press that the Labour Party is now rowing back from that and instead will introduce two categories of employment: workers and the genuinely self-employed.
• Create a single enforcement body to enforce workplace rights (similarly to the body proposed by the existing government – see above).
• Ban zero-hours contracts.
• Introduce mandatory disability pay gap reporting for larger employers
• Require organisations with more than 250 employees to introduce menopause action plans.
• Possible re-introduction of the obligation to protect employees from third-party harassment and extending the forthcoming obligation to take reasonable steps to prevent sexual harassment to take all reasonable steps to prevent harassment (as originally proposed by the current government).

Things to consider

Although legislation creating a standalone enforcement body has been put on hold for now, and seems unlikely to see legislative light of day before the next General Election, employers are unlikely to entirely avoid increased scrutiny of compliance with employment rights. Government policy has tended to focus on greater compliance and enforcement of existing obligations to staff rather than introducing new legal requirements.

Employers must, therefore, remained focused on audit and compliance given the cost and reputational risks of being investigated by an enforcement body such as HMRC on National Minimum Wage or the Information Commissioner's Office on data security.

Given that current opinion polls are pointing strongly to a Labour Party victory in the next General Election, it would be prudent to expect significant employment law reform in the medium-term future. The extension of the three-month time limit for bringing Employment Tribunal claims would immediately open employers to increased risk of claims, with the potential cost of claims increasing with the removal of the statutory cap of one years' wages for unfair dismissal claims. However, it is the removal of the two-year qualifying period for claims of unfair dismissal which would probably have the most significant impact for employers: if passed, it would mean that from day one of employment, all employees would be entitled to fairly dismissed. This would involve significantly increased legal risk, cost and management time for all employers.

The proposed introduction of a legal right to disconnect echoes similar protections in a range of other countries. For more information on what this might mean for employers if enacted, please see our recent article in People Management magazine.

"It is worth remembering that governments of all shades have for decades used employment/labour law reform as a relatively cheap way of attempting to send a message as to their political priorities and values- think the trade union reforms of the 1980s, the introduction of the national minimum wage and tribunal fees. Although we can expect some rowing back from pre-election pledges, a substantial swing in favour of enhanced individual rights and possibly increased trade union influence, is looking increasingly likely."

Amy Stokes
Partner

Learn more about ED&I and ESG workforce issues: background, what's next, things to consider, partner comment

Background

The legal, commercial and reputational benefits of a strong Equality Diversity and Inclusion (ED&I) programme are now widely understood by employers. And ED&I forms an important part of the 'S' in an organisation's ESG (Environmental, Social and Governance) credentials. ESG are the three key factors used to measure the sustainable and ethical impact of an investment in a business. These include, for example, whistleblowing practices, ethical pay practices, a organisation's carbon footprint, employee relations, diversity and working conditions.

Increasingly, employers are expected to be accountable on equality and diversity issues, whether this comes from social media-based movements or new reporting requirements from government. But a strong ED&I programme will also benefit employers with staffing concerns: an ED&I programme is seen as a 'baseline' requirement for younger job seekers (according to research by Deloitte), and a positive approach to equalities will also ensure that employers are recruiting from the widest possible pool and on merit alone.

Not only is an ED&I programme now a standard expectation for large employers, it also reduces the risk of damaging harassment and discrimination litigation. And should an employer face a complaint of discrimination or harassment in an Employment Tribunal, it will go towards establishing the defence that "all reasonable steps" were taken to prevent discrimination or harassment from occurring.

What's next?

As we reported in the last edition of this update, the current trend is for businesses to step in to address equality and diversity where there are gaps in legislative requirements. We expect this to continue into 2024, with the focus on ESG set to expand, alongside some specific new ED&I legislation coming down the line.

Key developments to expect are set out below.

• We reported on the publication of the government's National Disability Strategy (NDS) in the last edition of this update. Awareness of the 'disability employment gap' is receiving more media attention, as statistics show that there is a disability pay gap of around 14%, with the gap for disabled women being 30% (see the TUC's November 2023 analysis) . The NDS was paused whilst it was subject to an (unsuccessful) judicial review for lack of meaningful consultation. We are currently awaiting a further update from the government on the implementation of the Strategy, but the government has indicated in Parliament that it does not intend to introduce mandatory disability pay gap reporting. The Labour Party has announced that it would introduce mandatory disability pay gap reporting for larger employers.

• Despite business and cross-party support, there has been no change in the government's stance on mandatory ethnicity pay reporting: it will not be introducing this.

• 'Socio-economic' disadvantage is not expected be addressed by the government through new legislation, policy or guidance, but there is a growing awareness of social class as a barrier to progression. Recent research by the Social Mobility Foundation has found that people from a working-class background are paid over £6,000 less than more privileged individuals in the same occupation. Alan Milburn, chairman of the Social Mobility Foundation, called for government action to mandate the reporting of socioeconomic background data to address the issue.

• The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have made it clear in their 2023 consultations that they expect the financial services sector to improve diversity and inclusion and tackle discrimination and harassment. The consultations were published following feedback received on the discussion paper jointly published by the FCA, PRA and the Bank of England in July 2021. The consultations make it clear that the regulators consider that non-financial misconduct falls squarely within their remit. The consultations were open until 18 December 2023, and the regulators propose to bring the final rules into force 12 months from publication of the subsequent policy statements. Final policy statements will be published in 2024, with the rules coming into force in 2025 (one year after the publication of the policy statements).

• As we reported in our last edition, women's health is a key area of concern for employers. This issue is set to stay at the top of the agenda for the year ahead, with a survey of over 2000 women published by Menopause Mandate in October 2023 finding that 96% of menopausal women surveyed said that their quality of life had suffered as a result of their symptoms, 64% said that they were negatively impacted by the menopause, but only 29% said their employers had a menopause policy. Although the government has declined to legislate to make the menopause a standalone protected characteristic under equalities legislation, an All Party Parliamentary Group has published a 'Manifesto for Menopause' – employment aspects of which include calls for

(1) legislation requiring large employers to introduce menopause action plans,

(2) specific guidance for SMEs on supporting employees experiencing the menopause and

(3) tax incentives for employers integrating menopause into occupational health.

The Labour Party has committed to the first two reforms, should it win the next General Election. The current government has published its plans to improve menopause support, via a policy paper, No Time to Step Back: the government's Menopause Employment Champion. Sector based workshops will be rolled out in the early part of 2024, and a four point plan will be implemented, including an online repository for employers to share best practice. For more information, please see our November 2023 article in People Management magazine. The four-point plan includes:

(1) a portal for employers within sectors to share best practice

(2) a sector-based allyship programme for women

(3) 'menopause friendly' employers to act as advocates within sectors and

(4) a sector-based communication plan.

• Whilst Westminster has confirmed that its Human Rights Bill has been dropped, the Scottish Parliament has announced it will introduce a Human Rights Bill. The Bill will incorporate into Scots law international economic, social and cultural rights, and rights relating to women, disabled people and people who experience racism. Consultation on the Bill closed on 5 October 2023, and there is no timescale available yet for its introduction.

• A new obligation to take reasonable steps to prevent sexual harassment of employees is being introduced. The Worker Protection (Amendment of Equality Act 2010) Act 2023 will come in force in October 2024. This Act also provides that if an Employment Tribunal finds that an employer has failed to take reasonable steps to prevent sexual harassment at work, it can apply an uplift of 25% to compensation for sexual harassment at work. Note that the provisions of the Worker Protection (Amendment of Equality Act 2010) Act 2023 were significantly watered down during their passage through Parliament: originally, the Act would have re-introduced protection from third-party harassment and would have obligated employers to take all reasonable steps to prevent harassment, rather than simply 'reasonable' steps. The Labour Party has suggested that it may revisit these issues if elected to government.

• Reforms to the right to request flexible working are on their way in 2024, with the Employment Relations (Flexible Working) Bill receiving Royal Assent in July 2023. The Act

(i) removes the requirement for an employee to explain what the effect of a flexible working arrangement would be on the employer or how that might be dealt with;

(ii) allows employees to make two requests within any 12-month period;

(iii) prevents an employer from refusing a request without consulting the employee first; and

(iv) reduces the time in which an employer must decide on the request from three to two months.

These changes are expected to come into force in July 2024 (but some commentators have suggested that the implementation date could be brought forward to April 2024). Following on from this, Acas has published a new Code of Practice on dealing with flexible working requests, which will come into effect at the same time as the revised flexible working regime. The current requirement for 26 weeks' qualifying service to obtain the right to request flexible working will be abolished from 6 April 2024, so the right to request flexible working will become a 'day one' right.

• A new right to request a more predictable working pattern, under the Workers (Predictable Terms and Conditions) Act 2023 will be introduced in September 2024. The Act will introduce a statutory right for workers and agency workers to request a predictable working pattern, and employers will be required to deal with such requests in a reasonable manner.

• The existing requirement to offer suitable alternative employment to employees at risk of redundancy during maternity, adoption or shared parental leave is likely to be extended. Draft regulations expected to come into force in April 2024 provide that (very broadly) this special redundancy protection will apply from the start of a pregnancy and for eighteen months from the birth/adoption of the child.

Turning to the 'G' in ESG, the Economic Crime and Corporate Transparency Act 2023 received Royal Assent on 26 October 2023. It will introduce a new corporate crime of a 'failure to prevent fraud' for large organisations (amongst other corporate reforms, for which see our update New Economic Crime and Corporate Transparency Act introduces far reaching reforms – TLT LLP). The new 'failure to prevent fraud' offence will apply where an employee, agent or person performing services on behalf of an organisation commits a specified fraud offence which benefits (directly or indirectly) the organisation (or any person to whom the associate provides services on behalf of the organisation).

Things to consider

Ahead of the introduction of the new positive duty prevent sexual harassment, employers should be thinking about how they are going to comply with this duty now. In doing so, employers should take account of The Equality & Human Rights Commission technical guidance on sexual harassment and harassment at work because this is likely to be updated in light of the new duty. It will also form the basis of a statutory Code of Practice in due course, meaning that compliance will be mandatory. Employers may also wish to review the Australian Guidelines for Complying with the Positive Duty, under their Sex Discrimination Act 1984, because a positive duty to prevent sexual harassment has been in place in Australia for over a year and their guidance contains a set of standards and principles which might usefully be incorporated into UK employers' anti-harassment frameworks.

In relation to flexible working, the revised right to request flexible working will require forward thinking not only in terms of reviewing and updating relevant policies and procedures but also being prepared to deal with increased demand for employers to deal with requests, once the right is opened out to all workers from day one of employment (not just those with at least 26 weeks' service) from 6 April 2024 onwards. Flexible working/family friendly policies and procedures will need to be revised to take account of the new Acas Code of Practice on Flexible Working. Note that some commentators have suggested that the government may bring forward the new flexible working procedure to April 2024. Training and awareness amongst line managers and HR teams will be important. It would also be prudent for senior leaders to review their organisations' strategy on flexible work with the new flexible working regulations coupled with major workforce/societal shifts in attitudes to flexible working remaining with us, even though the enforced Coronavirus agile working arrangements are now a thing of the past. In 2019 – i.e. pre-pandemic - there were as few as six remote working Employment Tribunal claims; whereas 2021-2022 Employment Tribunal data shows an increase of 50% in claims concerning remote working, and flexible working claims increasing by 52% from 2019/2020 to 2020/21. The trend is continuing to date, with 25 cases related to remote working already recorded in the first half of 2023.

Mandatory publication of data and workforce practices has, for some time now, been used to drive good practice – for example, 'modern slavery' statements and gender pay analytics. And this approach has proved to be effective. Evidence suggests that that transparency is linked to improved equality outcomes at work. Equality of outcome is closely linked to equality of opportunity and focus on this issue is set to stay for the foreseeable future. Some employers – including TLT – are voluntarily reporting on ethnicity pay as well as gender pay and employers considering adopting this approach should review the guidance referred to above. Employers considering voluntary reporting of ethnicity pay may wish to review the government's April 2023 guidance - Ethnicity pay reporting: guidance for employers - GOV.UK (www.gov.uk) and the Chartered Institute for Personnel Development (CIPD) guide for employers. Employers may also want to review the Equality and Human Rights Commission guide to measuring and reporting on disability and ethnicity pay gaps.

When formulating policies, procedures and employee training on women's health issues, employers should keep a watching brief on whether the legislative reforms outlined above gain any traction, but it is unlikely that there will any concrete legislative developments for the foreseeable future. What is more likely is increased awareness of women's health issues at work and the growing importance of having appropriate policies (along with appropriate training, guidance and support) in place. In particular, menopause and work should be addressed, but employers may also wish to consider implementing a menstrual health policy and, possibly, even menstrual leave. For more information on menopause support, please listen to our Menopause in the workplace podcast and download our comprehensive Menopause toolkit for employers.

Whilst there is no existing or expected specific employment law protection for those from a lower socio-economic background, employers are voluntarily taking steps towards offsetting socio-economic disadvantage and this may be something to add to the agenda for the coming year. It has been reported in the HR press that the majority of graduate employers are dropping a 2:1 degree requirement, as part of a drive to promote inclusivity and social mobility (alongside a more sophisticated approach to recruitment). Research by the Social Mobility Foundation has found that 81% of young people they surveyed would be more enthusiastic about applying to work for an organisation which was positive about social mobility. Employers that wish to tackle social mobility may wish to review the Social Mobility Unit's employer toolkit on socio-economic diversity and inclusion.

Early scoping, work allocation and budgeting in advance of the new 'failure to prevent fraud' offence coming into effect during 2024 will need to start now for employers covered by this legislation i.e. employers which meet at least two of three following criteria:

• more than 250 employees
• turnover of more than £36million
• assets of more than £18million.

Planning for the new 'failure to prevent fraud' offence is important because there will be a 'reasonable procedures' defence if an organisation can show that at the relevant time it had 'reasonable' or 'adequate' controls to prevent employees from committing fraud. However, detailed planning and a timetable for introducing controls will have to await publication of government guidance, which is expected in the middle of 2024. Consideration will need to be given to which team will be responsible for compliance with the Act. Familiarisation, scoping and work allocation will be the first steps in preparing, followed by a careful review of the guidance when published – which is likely to follow a similar model to the existing defence to the offence of failing to prevent bribery. For more information and guidance see our In Focus page on Navigating the Economic Crime and Corporate Transparency Act 2023 and please click here for our Q&A for employers on the new fraud offence.

The FCA/PRA consultations on improving diversity and inclusion in financial services closed on 18 December 2023. Financial services employers will need to keep a watching brief on the outcome of the consultations and publication of final policy statements. Employers will then have one year from the publication of the new policy statements before the new rules will be in force. However, given that the proposals in the consultations are wide-ranging, significant and raise important issues (especially around non-financial misconduct) it would be prudent for financial services firms to put in the groundwork now, particularly given that the consultations focus on reforms which will take significant time and investment to implement. Initiatives firms may consider include

• improved data gathering/analysis,
• cultural audits,
• reviewing whistleblowing procedures and
• implementing robust equalities training and procedures with visible and active senior support.

The removal of the cap on bonuses may also provide firms with scope to link behaviours with remuneration. This would align with expectations set out in the FCA's Dear Remuneration Committee letter (published 31 October 2023) which references gender neutral pay and the importance of diversity and inclusion.

"Amidst the ongoing development of broader policy areas like menopause, there are some very specific changes that will take place in 2024. The existing rules on preferential treatment in relation to suitable alternative employment for employees on maternity leave who are at risk of redundancy have long been a trap for unwary employers, and the extension of these rights has the potential to impact many redundancy processes. At a more macro level, it will be interesting to see if one of the fallouts from the current Post Office Horizon scandal is an increased focus on the "G" in ESG."

Esther Smith
Partner and TLT's Equality, Diversity and Inclusion Champion

Learn more about employment contracts and pay: background, what's next, things to consider, partner comment

Background

Private contractual arrangements between employers and employees are only 'private' to a certain extent: the legal framework operates alongside individual contractual arrangements to regulate arrangements between parties – for example, by implying a contractual duty of mutual trust and confidence and setting a lower limit on wages.

The extent of the operation of implied terms in employment contracts was examined by the Court of Appeal in 2022 in USDAW v Tesco Stores Limited, with the Court finding that there was no implied term that would prevent Tesco from issuing notice to staff entitled to generous pay protection arrangements, with a view to re-offering those same employees new employment on the same terms but at a lower rate of pay. That decision, coupled with the high-profile mass dismissals of P&O Ferries staff and Union criticisms of 'fire and rehire' resulted in a government review of dismissal and re-engagement procedures.

Focus on contractual arrangements has also centred around vulnerable workers in recent years. In particular, those working under 'zero-hours' arrangements and online platform workers, engaged via mobile phone apps such as Deliveroo and Uber. The government has declined to produce concrete proposals to tackle the complex issue of employment status, whether in relation to those working in the 'gig economy' or the traditional labour market. However, exclusivity clauses in zero-hours contracts have been banned, and the government is now seeking to address the issue of 'one-sided flexibility', first raised in the 2017 Taylor Review of the Modern Workplace.

Also, in line with recommendations which flowed from the 2017 Taylor Review of the Modern Workplace, the government pledged back in its 2019 Queen's Speech that it would introduce legislation dealing with the fair allocation of tips and gratuities.

Another issue which has been on the government's radar for some time is the potential for post-termination restrictions to be curtailed or banned entirely. Back in 2016, the government held a call for evidence on the use and impact of post-termination restrictions, seeking views on whether such clauses hampered innovation and entrepreneurship and should be restricted. The general response to the call for evidence was that post-termination restrictions are useful and necessary, but could be subject to reform – triggering the launch of a consultation in December 2020, the response to which was published in May 2023.

The vexed question of holiday pay for atypical workers has arisen again recently, with the Supreme Court's decision in Harpur v Brazel causing headaches for employers who engaged workers under 'part year' contracts (rather than part-time contracts). Further back, another holiday pay headache has been caused by European caselaw which said that employers are not entitled to pay workers on variable hours 'rolled up holiday pay' i.e. holiday pay which is 'rolled up' into a worker's wages instead of being paid separately during a holiday absence (although, in reality, many employers make use of this practice).

What's next?

Employment status

The long-promised proposals for reform of the employment status tests under the Employment Rights Act 1996 are still awaited and it is unlikely that any such proposals will be formulated before the 2024 general election. In any event, the current government believes that a Law Commission report would be required, which would be at least five years away from concluding. As outlined above (see Government Strategy and Labour Party Proposals ) if elected, the Labour Party would reform employment status, reducing the current categories of 'worker', 'self-employed contractor' and 'employee' to two categories: (1) worker (to include those currently categorised as employees), and (2) self-employed contractors.

A new EU Directive has been proposed by the European Commission, which would require online platform companies, such as Uber and Deliveroo, to reclassify workers as employees. The Directive would be intended to improve protections for platform workers in the 'gig economy'. Businesses would also be required to inform workers of how algorithms are used for monitoring and evaluation, allocating work and setting fees. The UK would not be required to comply with the Directive but any organisations with operations within the EU would have to comply.

Right to request a more stable contract

In our last update, we anticipated that a new Employment Bill would be introduced, containing a new right for employees to request a more predictable contract of employment. The Employment Bill is no longer on the legislative agenda but a new right to request a more stable contract of employment will be introduced under the Workers (Predictable Terms and Conditions) Act 2023. This is expected to come into force in Autumn 2024. Acas is currently consulting on a Code of Practice on making and dealing with requests. The consultation closes on 17 January 2024 and proposes a similar model to that used for dealing with requests under the right to request flexible working.

Post-termination restrictions

We reported in the previous edition of this update that the government was seeking views on whether post-termination restrictions in employment contracts should be

(1) banned entirely; or

(2) whether new restrictions on these clauses should be introduced, such as requiring that ex-employees are paid for the duration of the restriction or whether they should have a statutory maximum duration.

The government has now published the result of its consultation on post-termination restrictions. The response confirms that the government will not seek to ban post-termination restrictions altogether or require payment for their duration. Instead, non-competition clauses will be subject to a three-month cap.

However, this reform will require new primary legislation and it is not likely that the government will be able to push this through before the forthcoming general election.

Dismissal and re-engagement

In response to widespread public concern in relation to unscrupulous use of 'fire and re-hire' practices, a new statutory Code of Practice on changing terms and conditions of employment will be introduced. The legislation underpinning these processes will remain unchanged, but Employment Tribunals will be required to take the Code into account and any failure to do so will result in an uplift on compensation of up to 25%. A draft Code of Practice was published for consultation and the model of the Code follows general good employment relations practice: it sets out a step-by-step process that an employer should follow to explore alternatives to dismissal and to engage in meaningful consultation to find an agreed solution. The Code states that employers must not use threats of dismissal as a negotiating tactic. No timeline has been provided for consideration of consultation responses or publication of the final Code of Practice.

Holiday pay and entitlement

In January 2024, new legislation will come into force which aims to simplify several aspects of holiday pay. In line with existing caselaw, legislation will codify what is considered 'normal' remuneration for the purpose of calculating holiday pay, to confirm that it includes payments such as bonuses, commission payments, length of service payments and overtime payments.

For holiday pay years starting from 1 April 2024, 'rolled-up' holiday pay will also become a lawful practice, but only for irregular hours workers and part-year workers. The new holiday pay reforms will also ensure that all employers that choose to use rolled-up holiday pay calculate it based on a worker's total earnings in a pay period, calculated to be at least 12.07% of a worker's pay.

The new holiday pay legislation will introduce an accrual method to calculate entitlement to holiday at 12.07% of hours worked in a pay period for irregular hours workers and part-year workers (12.07% is used because this represents the proportion of a worker's 5.6 weeks' statutory annual leave in relation to the remaining 46.4 working weeks in a whole year.) However, for workers on sick leave or other statutory leave, such as maternity leave, a 52-week reference period will be required. Please click here to read our update on the January/April 2024 holiday pay reforms and please click here for the government's guidance on these reforms.

The financial impact of the Supreme Court's October 2023 decision in the Police Service of Northern Ireland v Agnew will be felt by many employers in Northern Ireland during 2024, given that the lack of a two-year backstop in NI means significantly increased scope for workers to bring claims; and the Supreme Court's reversal of the 'three-month break' rule (in the same judgment) increases the potential liability for unlawful deductions from wages claims for employers across the whole of the UK (please see our Briefing on this decision for more information).

Fair allocation of tips and gratuities

The Employment (Allocation of Tips) Act 2022-23 will introduce a duty for employers to ensure that all qualifying tips, gratuities and service charges are allocated fairly to workers (including eligible agency workers), and to make payment in full no later than the end of the month following the month in which the customer paid the tip. Employers must also have a written policy on how it deals with tips. Deductions for processing tip allocations will no longer be permitted from July 2024 (originally timetabled for May 2024). A statutory Code of Practice on the fair allocation of tips will be introduced - a draft Code of Practice is out for consultation until 22 February 2024.

Things to consider

Employment status

Whilst we are not expecting the current government to put forward proposals to reform employment status before the general election, employers will need to be alive to the possibility that a new Labour government may overhaul the current employment law landscape by adjusting the definition of 'worker' to include the existing definition of employee, and removing the existing category of 'worker'. Given that employment status is the gateway to a wide range of legal entitlements, bringing workers within scope for full employment protection would be a dramatic change. That said, any such change would require primary legislation which would involve consultation and a full parliamentary process. Therefore, employers will have plenty of time to respond to proposals and prepare for any change.

Right to request a more predictable contract

Employers will need to familiarise themselves with the new obligations contained in the Workers (Predictable Terms and Conditions) Act 2023, and review the draft Code of Practice. The draft Code is unlikely to change substantively when it is published in its final form, and follows a similar model to the guidance on the dealing with requests under the right to request flexible working. Managers will need to be aware of the new right, and the linked protections against dismissal and detriment for exercising the right to request a more stable contract.

Dismissal and re-engagement

Whilst 'fire and re-hire' will not be outlawed, the new Code of Practice will need to be incorporated into planning for any dismissal and re-engagement processes which take place after the Code comes into effect. Its impact is, however, likely to be fairly limited as its requirements will probably echo statutory processes and good employment practice already undertaken by employers – for example, undertaking fair and transparent consultation on proposed changes, in good time before the changes take effect. Note that a Labour government would ban dismissal and re-engagement entirely, if used to impose less favourable terms.

Post-termination restrictions

If the government does pass legislation enacting the three-month cap on non-competition clauses, we anticipate the impact on businesses will be limited. However, this change may affect organisations which rely heavily on such clauses to protect their business. Therefore, some employers may wish to consider whether other contractual clauses can be used instead of non-compete clauses, such as 'garden leave' clauses, confidentiality or intellectual property clauses, or non-solicitation clauses. It should be noted that no information has been provided on whether existing non-competition clauses in excess of three months will fall away in their entirety if this legislation is brought into force, or if longer non-competition clauses would remain enforceable but only for three months.

Holiday pay

Administration of holiday pay for organisations that utilise workers on atypical contracts, such as 'part-year' contracts or irregular casual hours contracts will likely find calculation of holiday pay and leave less complex after April 2024. The changes to rolled-up holiday pay will effectively sanction a practice which was widely undertaken in any event; but the changes to the calculation of hours and pay for atypical workers, using pay periods and a 12.07% calculation, will be welcomed. Legislation which reflects European caselaw on 'normal pay' being paid during holidays (including commission and bonuses) codifies into legislation existing rules on calculating holiday pay. There is some potential uncertainty around the UK courts' interpretation of the new legislation in terms of what should be included in 'normal pay' for holiday absence, particularly in relation to whether annual bonuses count as 'normal' pay.

Allocation of tips

Employers in affected sectors will need to review the draft Code of Practice on tip allocation. Ahead of the introduction of new legislation and a Code of Practice on tipping, employers in affected industries should consider engaging with staff to explain the changes and start preparing draft policies and training/communications for managers. For more information, please see our article published in Pub and Bar Magazine on what employers need to know about this legislation, and our Briefing on the draft Code of Practice.

"Some of these changes may be overtaken by the General Election and reforms proposed by Labour. A change of this sort to restrictive covenants would be radical and have significant impact in the recruitment, property and finance sectors. Longer notice periods and garden leave are already often the preferred means of protection in relation to senior execs, but they are a more expensive option for employers."

Ed Cotton
Partner

Employment law was one of the key areas of jurisdiction of the European Union (EU). Following our membership of the EU, some pre-existing domestic rights were reproduced at an EU level (such as maternity rights and equal pay); and some new rights were transposed into UK employment law (for example, limits on working time and protections on the transfer of businesses).

Employment law derived from the EU was retained when the UK's membership of the European Union ended, creating a body of law known as 'EU retained law' and this became 'assimilated law' after the end of 2023.

The UK-EU Trade and Co-operation Agreement (TCA) contains "level playing field" provisions, including brief provision for workers' rights. These provisions cover

• fundamental rights at work
• occupational health and safety
• fair working conditions and employment standards
• information and consultation rights; and
• restructuring of undertakings.

Under the provisions of the TCA, the UK commits not to weaken or reduce workplace rights below the levels of protection in place at the end of the Brexit transition period. However, this only applies in so far as it affects trade or investment between the UK and the EU, meaning it does not act as an absolute commitment not to weaken workplace rights.

The Retained EU Law (Revocation and Reform) Act 2023 was passed in June 2023 and was originally intended to 'sunset' all retained EU law on 31 December 2023. The government stepped back from that cliff edge; but the version of the EU Law Act which passed into law in 2023 does contain a number of provisions which are likely to impact the employment landscape from 2024 onwards:

• the right of individuals to enforce certain EU rights in the courts of a member state no longer exists (this was known as 'direct effect')
• the supremacy of EU law no longer applies, i.e. there is no longer any requirement for domestic courts to interpret assimilated EU law in line with the underlying Directive, and domestic courts have greater freedom to move away from EU caselaw
• general principles used to interpret EU law no longer apply. These include proportionality, respect for fundamental rights, equal treatment and legal certainty.

The government has already taken steps to retain certain rights which developed through European case law – for example, carry-over of untaken holiday, the concept of indirect discrimination by association and the concept of a 'single source' comparator test for equal pay claims (see our November 2023 Briefing for more details).

Moving into 2024 and beyond, the Supreme Court and the Court of Appeal will be able to depart from previous European caselaw, taking into account any changes in circumstances which are relevant to assimilated law and the extent to which any EU caselaw restricts the proper development of domestic law. Lower courts and tribunals may also make a reference to appeal courts on a point of retained EU caselaw if they consider the point to be of general public importance.

What's next?

Now that domestic courts have greater freedom to move away from European caselaw and principles, it remains to be seen to what extent Judges will exercise that freedom over the coming years.

For example, an Employment Appeal Tribunal case called McTear v Bennett followed a European Court ruling called ISS Facility Services v Govaerts, in finding that the employment contract of a transferring worker could be split between each of the transferees in proportion to the tasks performed by the worker. If a case was brought concerning similar facts which took place after 1 January 2024, it would no longer be necessary for domestic courts to try to reconcile the Govaerts decision with the TUPE Regulations, previous domestic caselaw on multiple transferees and the Directive underlying the TUPE Regulations.

Cases which would have relied on EU principles can no longer be brought. For example, the recent landmark holiday pay case of the PSNI v Agnew rested on the EU principle of equivalence: the claimant Police Officers (as officers, not employees or workers) would not have been entitled to paid holiday under domestic legislation; but were able to rely on equivalence to EU rights to paid holiday in order to bring their claims. So, the removal of EU principles will, to a certain extent, narrow the scope of employment litigation but the impact is likely to be limited given that cases applying EU principles are relatively rare.

To the extent that there may be some divergence from assimilated EU legislation in the longer term, likely candidates for reform are

• restrictions on working time
• information and consultation obligations
• some aspects of the Transfer of Undertakings (Protection from Employment) Regulations 2006 (TUPE) – for example, the restrictions on post-transfer harmonisation of terms of employment.

However, now that the government has published legislation on holiday pay, working time and assimilation of certain aspects of equalities legislation, no immediate changes are expected.

Things to consider

From a practical point of view, consideration would need to be given to

• any situations which fall within areas of employment law governed by assimilated EU law – broadly, equalities, working time/holiday and TUPE
• whether those circumstances concern issues which might be vulnerable to change – whether through legislative reform or divergence from EU caselaw
• whether decision making processes should be adjusted to take account of the possible impact of any anticipated challenge to retained EU caselaw.

It remains to be seen how willingly the courts will use their powers of divergence to move away from the body of domestic caselaw which applies EU assimilated law. UK judges have been reluctant to depart from EU caselaw since the end of 2020; but according to a House of Commons Briefing Paper the relaxation of rules of precedent is intended to be a "nudge" to the judiciary. As one KC put it in a recent employment law webinar, the start of 2024 marks the beginning of a period of "local laws, for local people".

"Although the new freedom for the higher courts to depart from EU law may throw out some unpredictable curveballs, there is a growing realisation that just because in theory there could be a move away from EU law, doesn't mean it is likely in practice. For instance, in one of the areas tipped for possible change, information and consultation, it is possible that a new Labour government might actually go the other way and tighten the EU inspired redundancy consultation obligations."

Stuart McBride
Partner

Learn more about immigration: background, what's next, things to consider, partner comment

Background

Throughout the year, the government have made repeated announcements regarding bringing migration levels down. Legal migration figures are also deemed to be too high and, in the government's most recent announcement, their new five-point plan set out what we can expect to see in the first quarter of 2024. The changes discussed below aim to reduce net migration, however much of the detail remains outstanding.

What's next?

Salary increases

One of the most notable changes that is to come into force in Spring 2024, is the significant rise in the minimum salary threshold for a Skilled Worker visa, from its current rate of £26,200 to £38,700. This change will also apply to family visa applications with the minimum salary requirement rising from £18,600 to £38,700. This significant rise will essentially price out many from roles which they would otherwise be eligible to fill, as it may be more financially viable for businesses to employ workers who do not require sponsorship. The review of the Graduate route, alongside the hike in the Skilled Worker salary threshold, will undoubtedly result in only more senior, more skilled and higher paid roles being sponsored.

We foresee that the main industries that will be impacted are hospitality, retail and construction. Health and Care Worker visas will be exempt from these increases however it is not yet known if there will be an increase for that route too.

Increase in Immigration Health Surcharge

Employers will also see a significant hike in the Immigration Health Surcharge from £624 per year to £1,035 no earlier than 16 January 2024. The discounted rate, applicable to students, their dependants, those on the Youth Mobility Scheme and children under 18, will rise from £470 to £776. This is the first time the charge has been raised since October 2020. This, in addition to visa fees rising, will put an extra burden on those applying for leave to remain in the UK. If you currently sponsor anyone whose visa is to expire in the coming months, you may wish to look at whether it is possible to apply earlier to avoid any price increases. The increases overall may also lead to more employers entering into clawback agreements with staff, where the employer is meeting the visa costs.

Dependants

Another significant change coming in the new year is in relation to dependants. From January 2024, international students will no longer be permitted to have dependants join them in the UK unless they are studying on a postgraduate research-based degree, a PhD or other similar doctorate. The government have extended this ban on dependants to those on social care worker visas, however this will not come into effect until Spring 2024.

Shortage Occupation List

Following on from the Migration Advisory Committee's report earlier this year, the Shortage Occupation List is also to be revised and we predict that the jobs on the list will be significantly reduced as previously discussed here. The Shortage Occupation List will be replaced by the Immigration Salary List however what roles will remain on that List is yet to be seen. Employers who seek to rely on the Shortage Occupation List for the reduced salary threshold will be impacted by this change. Again, it may be worthwhile considering whether you are in a position to make applications earlier where you are relying on a lower salary in line with the shortage occupation list.

Graduate route

The government is concerned that the Graduate route is being abused by individuals and therefore has asked the Migration Advisory Committee to conduct a review of the route. This route allows individuals who have successfully completed an eligible degree in the UK whilst on a student visa to remain in the UK without sponsorship.

Many businesses use the Graduate route to ensure that the individual they are employing is a good fit for the role or to buy time until they secure a sponsor licence. It allows employers to ensure that the person is a good investment, especially as the cost of sponsorship continuously increases. A review of this route is something employers should monitor, especially if it is a route that is popular amongst their employees.

Other changes in 2024

January 2024 will also see the Youth Mobility Scheme extended to include Uruguay and the age limit for South Korean citizens will rise from 18-30 to 18-35. The ballot for nationals of Hong Kong and Taiwan will also open on 31 January 2024. From the same date, Australian and Canadian nationals will be able to extend their leave under this route by one year (up to a maximum of three years).

There will also be changes to visitor activities from 31 January 2024, with the permitted activities being broadened. The ban on working directly with clients will be removed for intra-corporate staff and instead, any client facing activity planned during a visit to the UK must be incidental to the visitor's employment abroad and not amount to offshoring of a project or service to their overseas employer. Visitors will continue to be allowed to work remotely whilst they are in the UK however it should not be the primary purpose of the visit.

Illegal working penalties will also be following the general trend and be increasing significantly with the maximum civil penalty for employing an illegal worker rising from £20,000 to £60,000 from a proposed date of 22 January 2024.

Things to consider

Employers should be considering whether there is any way they can circumvent the price hikes if concerned that the significant rise in both fees, Immigration Health Surcharge and visa threshold is to impact business. It may be that applying to extend visas early, or choosing to apply for a longer visa at the outset would be more beneficial to business needs in the long run. Employers should also be considering their approach to those that they do offer sponsorship to and whether they need to set out policies outlining when sponsorship will be deemed appropriate and having clawback arrangements in place as prices continue to rise. Businesses will need to be proactive and consider their options moving forward as we see the aim to reduced overall migration continue.

The significant increase in civil penalties for illegal working should also place compliance with the prescribed right to work checks in sharper focus. Employers would be wise to review their processes and procedures to ensure they are compliant and suitably robust. This is an area of frequent change and it would be sensible to offer refresher training to your team to avoid human error exposing the business to potentially significant financial liability.

"UK immigration law continues to keep us on our toes and remain as political as ever, as the Government seeks to reduce net migration whilst meeting business and economic needs. 2024 is set to see some really significant changes for employers to navigate as we seem to be moving to a system prioritising highly skilled and highly paid roles, irrespective of whether they are in short supply. Whilst we may not see the full business impact of the changes before a general election, with a general theme of restricting immigration, increasing salary requirements for visas and the continued trend of increasing immigration costs, there will be challenges ahead – particularly for those businesses in sectors or geographic areas still recovering from Brexit and the pandemic with recruitment challenges. Along with increasing immigration costs and financial requirements, employers will have to keep a sharper focus on immigration compliance – tripled illegal working penalties are something to avoid in the current economic climate! It will be interesting to see the approach the various political parties propose on these thorny issues ahead of a general election."

Joanne Hennessy
Partner (Immigration)