UK: UK Employment Law Developments

Last Updated: 13 March 2008
Article by Chris Bracebridge

At A Glance

Various legislative changes are proposed or will be occurring in several areas of importance to UK employers, and an important new employment law case with international implications will affect employers during certain business transfers.

1. Legislation

1.1 Employment Bill: Repeal Of Statutory Dismissal And Grievance Procedures Confirmed

The Employment Bill (Session 2007‐08) (the "Bill") is now working its way through the UK Parliament. It is likely to be passed this summer but most of its provisions will come into force at a later date, some via secondary legislation. The Government has not yet confirmed a date, but it is anticipated that some provisions may come into force as early as April 2009. The Bill changes UK employment law in various ways. The major changes for employers are:

  • Repealing the much-criticised UK statutory dismissal and grievance procedures. The government-appointed Gibbons Review was tasked with reviewing them and proposing a better alternative (as covered in our Stay Currents of February and April 2007).
  • Giving Employment Tribunals discretion to increase or decrease compensation awards by up to 25% if either employer or employee unreasonably fails to comply with a statutory Code of Practice. The most obvious applicable Code is the Advisory, Conciliation and Arbitration Service ("ACAS") Code of Practice on Disciplinary and Grievance Procedures.
  • Extending ACAS' powers of conciliation and removing the fixed conciliation periods that currently apply in Employment Tribunal claims
  • Changing the methods of enforcing the national minimum wage and calculating arrears.
  • Amending UK law so that trade unions can exclude current or former members of particular political parties from membership. This change is necessary to comply with the European Court of Human Rights case Aslef v UK (Application no. 11002/05).

    The Bill only partially details the new employment dispute resolution regime. However, it appears to be similar to the pre-2004 regime in place before the introduction of the statutory dismissal and grievance procedures. Further details should be forthcoming later this year.

The Bill, with explanatory notes, can be accessed at: http://services.parliament.uk/bills/2007-08/employment.html

1.2 Pensions Bill: Further Reforms Affecting Employers

In 2006, the UK Government put forward plans to reform the pension system in the UK, by (i) improving state pensions, and, (ii) encouraging individuals to improve their private pension provision.

The Pensions Act 2007 (in force from 26 July 2007) reformed pensions by:

  • Reducing the qualifying period for the basic state pension, and basing annual increases on earnings, not price, increases.
  • Increasing state pension age for men and women to 68 by 2046.
  • Reforming contracting-out of the state second pension.
  • Setting up the Personal Accounts Delivery Authority, which will put in place the initial framework for the personal pension accounts system - in advance of its planned introduction in 2012.

The Pensions Bill laid before Parliament on 5 December 2007 will further the reform process by:

  • Requiring that, starting in 2012, employees (including temporary and agency workers) are automatically enrolled on the first day of work in a qualifying workplace pension scheme or a new trust-based personal accounts pension scheme. Employees must be given the right to opt out if they choose.
  • Starting in 2012, requiring employers to make minimum contributions to the personal accounts scheme or their own qualifying scheme of around 3% of the jobholder's qualifying earnings (earnings between £5,035 and £33,540 per annum).
  • Setting up the central personal accounts scheme, including its trustee board.
  • Charging the Pensions Regulator with ensuring employers' compliance with the new regime. The Pensions Regulator will be given a range of enforcement powers, including the ability to issue compliance and other notices, and to order financial penalties. A person who "wilfully" fails to comply with key requirements will be guilty of a criminal offence, and subject to a fine or imprisonment or both.

The Pensions Bill, with explanatory notes, can be accessed at: http://services.parliament.uk/bills/2007-08/pensions.html

1.3 Sex Discrimination Act 1975: Amendments Imminent

The UK Government was ordered by the High Court to implement changes to the Sex Discrimination Act 1975, following a successful judicial review challenge by the Equal Opportunities Commission ("EOC") (Equal Opportunities Commission v Secretary of State for Trade and Industry [2007] EWHC 483 (Admin)). The High Court agreed with the EOC that the Employment Equality (Sex Discrimination) Regulations 2005 did not amend the Sex Discrimination Act 1975 sufficiently to implement the amended EU Equal Treatment Directive (76/207/EEC). The needed changes and other changes have been set out in the draft Sex Discrimination Act 1975 (Amendment) Regulations 2007. The effect of the amendments would be to:

  • Expressly state that sexual harassment and harassment on the grounds of sex with respect to access to, and the provision of, goods, facilities, services or premises is unlawful.
  • Extend protection from discrimination on grounds of gender reassignment to the provision of goods, facilities and services.
  • Expressly state that it is unlawful in the provision of goods and services to treat someone less favourably because of pregnancy or maternity.
  • Provide that sex-based underwriting of financial and insurance products must be based on relevant and accurate data, which must be compiled, published and regularly updated.

The Government originally agreed to implement the amendments by 1 October 2007. Having missed this deadline, it intends to implement the changes during February 2008.

1.4 Employment Judges: New Title for Old Position

Employment Tribunal Chairman are now called "Employment Judges", more accurately describing their function.

1.5 Immigration: Overhaul Of UK System

New legislation in force from 29 February 2008 imposes civil penalties on employers who negligently hire illegal workers. Employers will be subject to a maximum penalty of £10,000 for each illegal worker employed or engaged. An employer will have a defence if the employee provided it with certain documents on or before the start of the employment. Employers who are found to have knowingly hired illegal workers may incur an unlimited fine (or, if an officer of a body corporate, a maximum prison sentence of two years).

These changes form part of a general overhaul of the UK immigration system over the next 12 months. The Border and Immigration Agency ("BIA") will, during the first quarter of 2008, introduce a Points-Based System ("PBS") to replace the current work permit system.

The PBS provides that all non-European Economic Area migrant workers, with the exception of Highly Skilled Migrants, will require sponsorship from a UK employer before applying for entry clearance. To sponsor an employee, an employer must obtain a licence from the BIA entitling it to issue "Certificates of Sponsorship". To issue a Certificate, an employer must complete a form setting forth details about the worker and, where appropriate, an explanation as to how the job satisfies the Resident Labour Market Test.

The BIA will monitor the system by checking whether the sponsor is complying with its duties, such as keeping records of its workers and reporting any absenteeism or other defaults.

The new sponsorship system is designed to give licensed sponsors some autonomy in recruiting migrant workers, but also ensures that they will play a role in regulating and monitoring those workers.

2. Cases

2.1 TUPE Applies to Cross-Border Business Transfers

The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") gives effect in the UK to the EU Acquired Rights Directive (2001/23/EC, formerly 77/187/EC). If there is a relevant transfer of an "undertaking" or part of an undertaking, TUPE will transfer to the transferee employer any of the transferor employer's employees assigned to the undertaking (or part) transferred, together with nearly all rights and liabilities connected with the transferring employees' employment contracts.

Until now, whether TUPE will apply where the UKlocated business is transferred outside the UK (commonly referred to as "offshoring"), has – surprisingly – been untested in UK law. In practice, most parties to such a transfer act as if TUPE did not apply and instead treat UK employees as redundant. In Holis Metal Industries Limited v GMB & Newell Limited (UKEAT/0171/07), the Employment Appeal Tribunal ("EAT") held that TUPE can apply to offshoring.

Newell Ltd sold part of its UK manufacturing business to Holis, an Israeli company. Affected staff were told that they would transfer to Holis when the business purchase took place and that, unless they agreed to move to Israel, they would be made redundant after the transfer.

The employees declined to move to Israel and were made redundant by Holis shortly after the transfer. The GMB trade union, representing the redundant employees, issued proceedings against Holis alleging failure to inform and consult under TUPE (and also under collective redundancy consultation legislation). Holis asked the Employment Tribunal to strike out the claim on the basis that TUPE does not apply to crossborder business transfers. The Employment Tribunal refused to do so and this decision was upheld by the EAT.

The EAT found, as a matter of principle, that TUPE could apply to an offshoring. However, whether it would apply in any particular case was to be determined on the facts of each case.

Employers must now actively consider TUPE obligations arising in an offshoring situation, i.e., the obligation to inform and consult with affected employees, to disclose any proposed employment changes occurring posttransfer and to provide employee information to the purchaser within a statutory timeframe. The employer to whom the business transfers now has to decide whether to take on the transferring employees - offer them jobs in the offshore country - or to breach TUPE.

In practice, there may be room to argue that TUPE still does not apply if the business that transfers does not retain its identity post-transfer – a key feature of TUPE. Each offshore transfer will need to be analysed carefully.

3. What Employers Should Be Doing Now

HR professionals and in-house employment law counsel should keep aware of the proposed timetable for change to the UK employment dispute resolution regime. Once its form becomes clearer, employers will need to begin planning changes to handbooks and policies, and employee training.

Employers should factor in the cost impact of required contributions to personal pension accounts starting in 2012, particularly if the employer currently is not making pension contributions.

The planned UK immigration changes are extensive. Employers that routinely require non-EU employees to work for them in the UK should seek immediate advice on the changes.

TUPE can now apply to any transfer of a business out of the UK. Employers involved with such transfers should seek legal advice to ascertain whether TUPE applies and, if it does, to ensure compliance with it.

4. Looking Ahead

There will be more UK employment dispute resolution, employee pension, and immigration legislation this year and in the future. These areas will continue to evolve and require employers to be alert to change.

We believe that the trend in employment scenarios towards more, and more complex, cross-border legal issues (as illustrated by the Holis case in this Stay Current, and by the Samengo-Turner and Duarte cases reported in our October and December 2007 Stay Currents) will continue to grow. This will make necessary a greater focus on the contractual structure, and the preferred jurisdiction and choice of law, of international employment arrangements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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