UK: The Top Ten Things You Should Know About UK Employment Law

What 2016 lacked in employment law changes, it made up with political surprises (Brexit) and sweeping data protection changes (the GDPR). Due to these dynamic changes and in anticipation of what lies ahead, our UK employment team published the Top Ten Things to Know About the UK Employment Law Landscape in 2017. In this briefing, we highlight recent legal developments, look ahead to what's coming in 2017 and provide practical steps companies can proactively take to respond to this ever-changing landscape.

1. Brexit

The UK's vote to leave the EU, on 23 June 2016, surprised many, including commentators, the political establishment and businesses alike. Questions about how and in what way the UK will disentangle itself from the EU still remain.

In client alerts we examined what Brexit meant for the UK and for employment law. We also looked at the impact that Brexit would have on data protection in a blog post in June. Since then, it has been confirmed that the General Data Protection Regulation will apply to the UK, despite Brexit.

In terms of changes to employment law, though employment law is often cited as an area where European legislation has a big impact on UK law, and despite the danger of making predictions, we do not anticipate there to be any radical changes in either the short, medium or long term. We expect this to be the case for the following reasons: (i) much of UK employment law is UK specific e.g. statutory notice periods, and the national minimum wage; (ii) indeed the UK has introduced some rights such as shared parental leave, that are significantly beyond EU minimum standards; and (iii) some of the EU legislation such as the discrimination laws are derived from UK laws, and in any case where these rights have been refined, they are now so enshrined in UK employment law and culture that we do not anticipate that they will be radically altered. However, the law will not remain static. In particular, we anticipate that EU-derived rights in respect of atypical workers, such as the rights of part-time, agency and fixed term workers, will be subject to close scrutiny, particularly in light of an increased focus on the burgeoning "gig" economy, and UK-specific laws may develop that depart from EU law. A sign of this are the various ongoing inquiries and consultations into the "gig" economy (see section 4. below)

2. General Data Protection Regulation

The General Data Protection Regulation (Regulation (EU) 2016/679) ("GDPR") was finally agreed after many years of controversy, negotiation and wrangling. It comes into force automatically in each EU Member State on 25 May 2018. It has also been confirmed that the GDPR will come into force in the UK despite Brexit. The GDPR, contains numerous, substantial and far-reaching amendments to the EU Data Privacy Directive (95/46/EC) that was implemented in each EU Member State through national legislation in differing ways. In the UK it was implemented through the Data Protection Act 1998.

The GDPR aims to harmonise data privacy laws across the EU and also takes into account the technological advances and developments over the past 20 years. Its changes include:

  • Data will need to be processed fairly, lawfully and transparently. This will require businesses to provide information about how and why data is processed in a clear and intelligible way. Businesses will not be able to hide behind technical jargon.
  • If consent is used, it must be "freely given, specific, informed and unambiguous". In cases of sensitive personal data it must also be "explicit".
  • Public authorities and those businesses whose activities involve "regular and systematic monitoring of data subject on a large scale" or the large-scale processing of "special categories" of personal data will need to appoint a Data Protection Officer to oversee compliance.
  • Its scope is expanded so that it will not apply just to businesses based in the EU but also to businesses that target the EU, i.e. also those that offer goods or services to EU citizens or monitor behaviours of EU citizens.
  • The maximum penalty for non-compliance will increase materially to become the higher of EUR 20 million and 4% of an undertaking's worldwide turnover.

It is noteworthy that there is a carve out for employment data so that Member States can ascribe higher protection than that given in the GDPR to employment data. We have published various blog post on the GDPR such as here and here.

We expect guidance on various aspects of the GDPR over the coming year from the European Commission as well as the UK's data protection authority, the ICO, which will enable businesses to prepare for the substantial changes to the protection of personal data required by the GDPR. Indeed guidance in relation to the right to data portability, identifying the lead supervisory authority for a controller or processor, and data protection officers has already been published by the European Commission. You will find a blog post about that here.

3. Privacy Shield

In other data privacy developments, the replacement for Safe Harbor, the EU-US Privacy Shield, came into force on 1 August 2016. It includes obligations on companies handling data, safeguards and transparency obligations on U.S. Government access, protection of individual rights. However, and significantly, it does not address all of the concerns raised by other notable interested parties including, the influential Article 29 Working Party (a group that contains representatives from each of the EU Member States' data protection authorities). In this regard, in what could be viewed as a form of compromise, despite their outstanding concerns, the Article 29 Working Party announced that data protection authorities in the EU will not challenge the adequacy of the Privacy Shield until at least after the first review in May 2017 to give time to evaluate the effectiveness of the Privacy Shield in practice. Despite this, an Irish privacy advocacy group, Digital Rights Ireland, has already filed a legal challenge against the Privacy Shield, asserting that it provides inadequate protections. In addition, the Hamburg data protection authority (in Germany) is looking to challenge the Privacy Shield.

In relation to the standard contractual clauses and binding corporate rules, there are pending CJEU decisions that may impact the validity of these methods of transfer. While this uncertainty remains, there is still no "risk-free" method for data transfers to the U.S.

Our blog posts on the Privacy Shield, here, here, here, and here contain further information.

4. On-Demand Economy

One of the hottest topics in 2017 will be the "gig" economy and what rights those in it should have. This is increasingly an issue as a record number of people in the UK are now self-employed (4.79 million, July-August 2016) and there are a significant number individuals employed on a temporary basis (1.66 million). These individuals are also often (but by no means always) low paid. There have also been a number of high-profile news stories and first instance cases and/or decisions about working practices and conditions concerning well-known companies such as City Sprint, Deliveroo and Asos. There are several ongoing inquiries and consultations into this. The Business, Energy and Industrial Strategy Committee (a Commons Select Committee which is a cross party committee that can examine issues in detail) has launched an inquiry into the changing nature of work and the status and rights of agency workers, the self-employed and those working in the "gig" economy and the Work and Pensions Committee has also launched an inquiry into self-employment and gig economy. The Department for Business, Energy & Industrial Strategy has published a Green Paper (a preliminary report of Government proposals/consultation intended to provoke discussion) to consider what changes might be appropriate to corporate governance, including looking at executive pay, corporate governance in large private businesses and strengthening employee and customer voice. In addition, the Taylor review has been announced which will review modern employment practices across the country. Given all of this work, it is not unreasonable to expect legislative developments in this area. This is all the more so given Brexit, which could act as a catalyst to a review of existing EU-derived legislation on atypical workers with the aim of creating a new legislative framework tailored to the UK.

5. Gender Pay Gap

Further to this client alert from April, and as recently reported in this blog post, the Equality Act 2010(Gender Pay Gap Information) Regulations 2017 (the "Regulations") will come into force in April 2017.

The Regulations require private sector employers with at least 250 employees and workers to publish their gender pay gap. Broadly, the data that will now need to be published is:

  • the difference between the mean and median hourly rate of pay for men and women;
  • the difference between the mean and median bonus payments paid to men and women over the period of 12 months ending with the "snapshot" date of 5 April;
  • the number of men and women who were paid bonuses; and
  • the number of men and women in each quartile of the pay distribution. The Government has recently published the final draft regulations that include some modifications, following a consultation, to the draft legislation.

The time for publishing the reports has moved so that reports will now need to be published by 4 April 2018 based on pay and bonus data for the 12 months prior to 5 April 2017, and annually thereafter.

"Relevant employee" has also been broadened to include employees, workers, self-employed contractors though some data for workers and self-employed contractors can be excluded in certain circumstances.

There is also a new reference in the Explanatory Notes to a failure to comply with the Regulations constituting an "unlawful act" such that the Equality and Human Rights Commission would be able to take enforcement action. However, there are still no specific civil or criminal penalties for a failure to comply. However, even absent these, it is possible that the requirement to publish information will lead to a change in practices, not least to avoid the potentially negative publicity of "naming and shaming" businesses with significant pay gaps.

6. Holiday Pay

The long running saga of how commission and overtime should be dealt with when calculating holiday pay has continued in 2016 and looks set to continue in 2017. In the latest instalment of Lock v. British Gas Trading Ltd, the Court of Appeal (2016 EWCA Civ 983) upheld the previous decisions of both the Employment Appeal Tribunal (UKEAT/0189/15) and the Employment Tribunal (ET/1900503/12) in holding that contractual results-based commission must be included when calculating holiday pay. However, the Court of Appeal did not go any further in deciding how such holiday pay should in practice be calculated. British Gas intends to appeal the decision to the Supreme Court. The big question that remains to be resolved, is how such holiday pay will be calculated. There are a variety options (all of which are potentially consistent with the legislation). The uncertainty as to which option applies is causing employers headaches. It seems that such guidance will need to come from the Supreme Court or from Government.

7. Modern Slavery Act

The Modern Slavery Act came into force on 29 October 2015. One of the key provisions was s54(1). This requires organizations, who are incorporated in the UK or carry on business in the UK (regardless of where they were located), with an annual global turnover in excess of £36 million to publish a statement on the their website setting out the steps they are taking or have taken during the fiscal year to ensure that slavery and human trafficking is not taking place in their supply chain, or in any part of their business. The first statements had to be published as soon as reasonably practicable after the end of the financial year starting with the financial year ending 31 March 2016, and ideally within 6 months of the financial year end to which the statement relates. Per the Act, there are now many examples of these statements available online which vary considerably in their level of detail. We have also seen that those organizations with operations in California and the UK have often prepared a joint statement to cover both the California Transparency in Supply Chains Act 2010 and the Modern Slavery Act 2015 requirements.

We have prepared a blog summarising the requirements for clients as well as a blog for how the requirements would impact those in private investment funds space.

8. Taxation of Termination Payments

We expect draft legislation to come into force in relation to revised rules for the taxation of termination payments, such that the changes will come into place in April 2018. The key changes align the rules for income tax and employer NICs on compensatory payments so that employer NICs will be payable on the excess of any compensatory payment above £30,000, and tax and make subject to NICs any payment that the employee would have received if he or she had worked his or her notice period. You can find more information about the changes here.

9. Whistleblowing Cases

In the context of whistleblowing, there were a number of decisions that provided food for thought, including the decision of Royal Mail Group Limited v Jhuti (UKEAT/0020/16) which looked at what knowledge the decision-maker who dismissed an employee who had made protected disclosures to others within the business could be imputed as having. In that case, the Employment Appeal Tribunal found Ms Jhuti's dismissal was automatically unfair because her line manager (to whom she had made protected disclosures) had engineered her dismissal by misleading the person who decided to dismiss her. A causal link could therefore be made between the protected disclosures made by Ms Jhuti, and the decision to dismiss her, such that her dismissal was deemed to be because of her having made protected disclosures. This decision has been appealed and is due to be heard in June 2017. Our alert on this case can be found here.

The long awaited appeal in Chesterton Global Ltd (t/a Chestertons) and another v Nurmohamed, will also be heard in June 2017. This is an important case looking at the meaning of "in the public interest" and is the first case to do so following changes to the whistleblowing legislation that came into force in 2013 (which for the first time required disclosures to be in the public interest in order to attract whistleblowing protection). In the case (UKEAT/0335/14/DM), the Employment Appeal Tribunal held that 100 senior managers was a sufficient group of the public to amount to the disclosure being a matter "in the public interest". The decision therefore suggested that courts would adopt a liberal interpretation to "in the public interest". Our alert on this case can be found here.

10. Trade Union Act

The Trade Union Act 2016 became law in May 2016 but the main changes, making balloting requirements for lawful industrial action for certain public services more stringent, will come into force on 1 March 2017. As to these changes, the regulations specify which public services are deemed important enough such that 40% of eligible voters must vote in favour of a strike (in contrast to a 50% minimum turnout for other services and a majority vote in favour of the industrial action). These public services cover some medical services, some transportation services, certain teaching services, some firefighting services and certain border control services.

The Government has also announced an independent review on electronic balloting as required by the act to assess secure methods for delivery. The report is expected by the end of December 2017.

The Top Ten Things You Should Know About UK Employment Law

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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