UK: Employment Law: Ongoing Consultations And Government Proposals

There have been a number of Government Consultations affecting employment practice over the last 18 months. The Consultations in this section closed for comment earlier in 2023 and the Government's response on each of them is awaited.

Consultation on controversial dismissal practices ("fire and rehire")

What do we need to know?

• In January 2023, the Government launched a Consultation on introducing a new statutory Code of Practice aimed at cracking down on unscrupulous employers using controversial dismissal tactics such as 'fire and rehire'. This describes a situation when an employer fires employees and offers them new contracts on less favourable terms.
• This Consultation followed the well-publicised case of P&O Ferries sacking over 700 employees without any consultation. The Government was coming under significant political pressure to be seen to take action. Government cracks down on 'fire and rehire' practices – GOV.UK (www.gov.uk)
• The Consultation closed in April 2023 and the Government has not yet published its response. Increasing worker protections will form a key part of Labour's election battle ground so we can expect to hear more on this Consultation as the parties start to set out their stalls in advance of the general election .
• The Consultation proposes introducing a Code of Practice that has statutory 'teeth' and directs employers not to use threats of dismissal to pressurise employees into accepting new terms.
• Courts and Employment Tribunals will be able to take the new statutory code of practice into account in employment claims and will have the power to apply a 25% uplift to an employee's compensation where the employer is found to have breached the code.
• The proposed Code of Practice does not interfere with or change the current collective consultation requirements to collectively consult if more than 20 dismissals are proposed in a 90-day period.

Consultation on restrictions on non-compete clauses

What do we need to know?

• In its policy paper, 'Smarter regulation to grow the economy' Smarter regulation to grow the economy, the Government proposed limiting to a maximum of 3 months the duration of clauses preventing employees and workers from working with competitors after employment ends. This limitation would not apply to the length of garden leave or notice periods; nor would it affect other types of restrictive covenant such as those preventing solicitation of customers or employees.
• What isn't clear is whether existing non-compete clauses in contracts would become unenforceable past 3 months or whether it would only apply to new clauses agreed after the proposed law comes into force. It is also unclear whether it would still be possible to agree non-compete clauses longer than 3 months in a settlement agreement in return for a payment.
• In any event, it seems unlikely that anything will happen in the foreseeable future. The Government have said they will introduce it when 'Parliamentary time allows' and it isn't a topic likely to stir up much interest as part of election campaigning.
• If it does come into force, employers will want to look at whether to increase the length of garden leave and/or notice clauses in certain cases to ensure business interests are adequately protected. For example, where the risk of a key employee working for a competitor soon after termination would present a significant and tangible business risk.

Consultations under the Retained EU Law (Revocation and Reform) Act 2023

Headline points

• The Retained EU Law (Revocation and Reform) Act 2023 gives ministers substantial powers to change and repeal European-derived laws that accumulated during the UK's membership of the EU. The Act won't automatically revoke EU-based worker protections, but it does give the Government the power to repeal or make significant changes to existing EU-derived laws.
• In reality, scope for reform is limited by the UK/EU trade deal agreed in December 2020 which commits the UK to a concept of "non-regression" of social and labour protections. There won't be a 'bonfire of employment rights' as originally suggested by some commentators.
• If the current Government stays in power, we are likely to see some employer-friendly tweaks being made to existing employment law under the Retained EU Law Act. The Government is currently proposing a number of changes and has launched Consultations on the reforms outlined below.

Consultation on calculation of holiday pay:

What do we need to know?

• The Government is proposing to simplify existing complexities around holiday entitlement and pay and bring about a harmonisation.
• The issue it is seeking to fix is a technical anomaly. There are currently two sets of legal rules applying to holiday entitlement with different provisions on calculation of pay and carry-over.
• One set of rules, derived from the Working Time Directive and known as "EU leave", is more favourable to workers and the other set of rules, derived from domestic law and known as "UK leave", is less so. The Government proposes to harmonise the law so that the same set of rules on calculation of holiday pay and carry-over apply to both types of leave.
• On paper, this might sound sensible. However the Consultation does not indicate which set of rules would apply so further clarification is needed when the Government issues its response.
• A Conservative Government may change the law to adopt, wholesale, the "UK-leave" approach. If this happens, employers who currently apply the "Euro-leave" approach to all holiday leave will have a decision to make. Moving to the less generous system would have inevitable employee relations implications. In any event, "Euro-leave" may well be embedded into existing employment contracts so difficult to change without risking claims for breach of contract. As far as new starters go, would employers want to adopt a less favourable holiday pay calculation for them if this would effectively create a two-tier workforce?
• A Labour government is more likely to favour the more generous "Euro-leave".
• It's fair to say that this Consultation raises more questions than it answers.

The detail: what is the difference between "Euro leave" and "UK leave"?

Workers' paid holiday entitlement is 5.6 weeks per year and currently consists of two elements:

• four weeks holiday entitlement derived from EU law ("Euro-leave")
• an additional 1.6 weeks derived from UK law ("UK-leave")

UK case law, guided by principles in the EU Directive on Working Time, has determined that pay for "Euro-leave" must include all elements of a worker's pay including overtime and commission. This does not apply to "UK-leave".

There are also different rules around carry-over of the two different types of leave into a future holiday year.

Many employers apply the "Euro-leave" approach to the full 5.6 weeks' entitlement and pay recording and payroll systems are set up to do so. This is often simpler than trying to apply two different pay calculations. However, in some sectors (notably the social care sector) tight profit margins mean that the two-tier approach to calculating holiday pay may be used.

Consultation on making the practice of paying rolled-up holiday pay lawful

What do we need to know?

• The practice of rolling up holiday pay into wages is currently unlawful in the UK because European courts have held that it could disincentivise workers from actually taking their holiday entitlement.
• Despite this, many UK employers do, in practice, pay holiday pay on a rolled-up basis. As long as the employer clearly sets out the element of rolled up holiday pay in the worker's payslip then the sum paid can be set off against any claim for holiday pay, which effectively disincentivises claims. In many cases, both employer and worker find this arrangement works well for them.
• If the Conservative party retains power, it is foreseeable that this Consultation will result in rolled up holiday pay being made lawful. That is less likely to be the case in the event of a Labour Government.

Consultation on measuring working time

What do we need to know?

• Employers are currently required, as a result of EU-derived laws on working time, to have systems for measuring daily working time in order to comply with laws around rest breaks and maximum weekly working time.
• The Government is proposing to remove this requirement.
• This isn't likely to make a huge difference to employers because most employers monitor and record working time in any event for practical or regulatory reasons such as ensuring compliance with the National Minimum Wage rules.

Consultation on TUPE information and consultation

What do we need to know?

• The Government is proposing to remove the obligation on employers to inform and consult with elected representatives in a transfer of undertakings (TUPE) situation where they have fewer than 50 employees or where there are fewer than 10 employees transferring, assuming there are not any existing employee representatives already in place.
• This isn't a particularly controversial proposal and could well make the information and consultation process during a TUPE transfer smoother for employee and employees alike.

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