HR briefing - legislative reform

16 November 2023

In the latest episode of our podcast, Matthew Ramsey explores the Government’s proposals for reform of three key areas.

Matthew Ramsey discusses:

  • TUPE;
  • holiday pay; and
  • working time record-keeping.


Speaker: Matthew Ramsey

So welcome to the November edition of the Macfarlanes HR and Employment Law podcast. I am Matthew Ramsey. I am the senior knowledge lawyer in the Employment team. I’m afraid you’ve got no other voice on this month’s edition. It’s just me. That’s not because nothing’s happened this month or because the rest of the team has suddenly fallen into a chasm, it’s just that we thought we’d do a relatively straightforward legislation update and that’s probably something that falls within my purview rather than any of the other team members. The background to the proposed legislation that the government put out last week is a series of consultation papers that the government published last year and the beginning of this, and really they are driven by Brexit, so on the back of Brexit as no doubt you will all know the government has made much of the supposed freedom that being outside the European Union gives us as an economy, as a country. That, though, they have balanced with constant commitments not to dampen or diminish employment protection. And that balancing act has been quite difficult to square in practice. You’ll remember also that the original plan for Brexit was to have a wholesale repeal of all legislation that was concomitant on our membership with only those specific pieces of legislation that the government targeted to retain being maintained on the UK statute book. There was then a wholesale U-turn on that position so that the default became one of keeping all legislation until it was specifically repealed. And that affects employment law in a number of interesting ways and the government has tried to address some of those concerns by specifically implementing what has been for a long time the case law of the European Courts of Justice and we’ll see how they’ve done that in four different areas today. So we’re going to talk about TUPE, about working time record-keeping, about holiday and then a little bit about discrimination.

So we’ll talk about TUPE first, and here really the changes are not very substantial at all. Many of you no doubt will know that TUPE applies in two different situations: either where there’s a transfer of an undertaking, so a business or an asset sale; and also on the change of service provider, so an insourcing outsourcing contractor change, those kinds of scenarios. One of the key points about TUPE is that any employee who is affected by either of those transfer scenarios is entitled to be informed about it so that they can make a decision about whether the fact they want to work for somebody new, the transferee in the jargon. There’s always been some concern about how that information process should be carried out in very small organisations because the strict wording of the regulation required quite a complicated process of election and employee representatives and then consultation with that representative group, and obviously in very small organisations that’s not really practical or desirable. So for a little while now there’s been a so-called micro-business exemption for any employer with fewer that 10 employees and that really is quite a small group of an organisation. The government now proposes to widen that exemption so that businesses with fewer than 50 employees are no longer required to go through that employee election process, they can just consult and then inform their employees direct and that same exemption is proposed to apply whether there are fewer than 10 transferring, so those are both broadly sensible changes that probably replicate the relatively nous approach to compliance that many employers have taken in practice over many years. Importantly though, even though TUPE still has a large number of quite quirky provisions that are quite difficult to work through in practice, so who exactly is caught, how you deal with split transfers, the circumstances in which you can really harmonise terms just for commercial ease, all of those things remain problematic and the government has decided not to take away those at all.

Looking then at working time, no doubt everybody listening will know that there is a maximum working week in the UK, 48 hours, but that that can be overridden by an opt-out, so employees are able to opt out of that maximum. The working time regulations though give employers an obligation to keep a check, keep a record of what their workers are doing in terms of maximum working hours. The obligation is to maintain adequate records. And unusually in employment law a failure to maintain adequate records actually carries a criminal sanction. The position though in the UK was made very complicated by a decision in the European Court in a case called CCOO v Deutsche Bank which on the face of the judgment seems to require every employer for every one of their employees to provide pretty detailed records on a daily basis, “objective”, “reliable” and “accessible” are the words that they used to describe the records that have to be maintained, and you can obviously see that goes a long way beyond the word “adequate” on the face of the working time regulation. The government’s decided that adequate is the test that they want to maintain, and so they’re going to make that even more clear on the face of the legislation, and that’s probably broadly sensible.

The third area, and this is probably the biggest one, is all about holiday. So loyal listeners will remember that Jason Galbraith Marten gave us his thoughts on the Supreme Court’s decision in Agnew last month which is all about holiday pay, and we talked about the difficulties that that decision gives rise to because of the way that the working time regulations structure holiday in the UK. So you’ll remember that we’ve got four weeks of paid leave which comes ultimately from the European Working Time Directive, and that has to be paid at “normal pay” which includes commission, overtime, payment for tasks that are intrinsic to the role. Then we’ve got, separately dealt with on the face of the legislation, 1.6 weeks of additional leave and that’s really designed to replicate bank holidays, and that has to be paid at basic pay. So you’ve got two different elements with two different pay rates unless employers decide just to make their lives easier by paying the higher rate for everything. And I guess if you had additional contractual holiday on top of those two statutory elements you could theoretically have three different pay rates. The government has consulted on whether to roll those 1.6 and four weeks of differently dealt with holiday into one pot, and have decided against it, so we’ve maintained the position that there are two different sources of paid holiday in the UK and potentially they carry two different pay rates. How one squares that with the Supreme Court’s view in the Agnew case that we talked about last month, that holiday is to be regarded as a composite pot with no differentiation between the four weeks, the 1.6 weeks and anything that’s contractual on top is really quite difficult. We have to give some thought to how employers can intelligently grapple with the maintenance of two different pay rates.

The second part of holiday is all about rolled up holiday pay. So rolled up holiday pay is where you’ve got people who work irregular hours and it’s much easier to pay them a small percentage on account of holiday pay whenever they work rather than trying to pay them separately for holiday pay when it’s so intermittent. The European Court of Justice ruled in 2006 that that was not an available option but the UK government has really turned a blind eye to that for many years and provided that holiday pay was clearly itemised on a payslip and was transparent, the government’s now going to make that explicitly permitted so that as long as, again, it’s on the payslip with paid at 12.07% of basic pay, you’re going to be allowed to do it, but only for two different categories of worker. And those two new categories are new to employment law – they are called irregular workers and part year workers. So irregular workers are those whose paid hours we equal per month are wholly or mostly variable and part year workers are those where they have a period on work and a period off work. So for instance, teachers who work during term time and don’t work during holiday time. And the desire to include part year workers comes from another recent Supreme Court case called Harpur v Brazel in which this problem of what you pay and when you pay it was a really live point in the litigation. So where you’ve got either irregular or part year workers they’re now permitted to, you’re going to make use of rolled up holiday pay if you so wish, it’s not mandatory but it will be an option for firms to consider and so the action points then are going to be to make sure that “normal pay” includes those various elements, commission, overtime and so on, so that you’re paying people the correct amount for their EU derived leave and then to decide whether or not you really want to try to pay different rates for different types of leave, and if you do, how are you going to get comfortable with the Supreme Court decision in Agnew on this composite point.

As Jason said on the podcast last month we think that as long as you contractually deal with the order in which different types of holiday are taken that ought to be okay and so the fundamental point is whether it’s administratively too complex to have different pay rates will be the key point to decide for employers there. Then we’ll need to check whether any irregular or part year workers exist in your employee cohort and if so whether you want to make use of the rolled up holiday flexibility. And then there needs to be some sort of system in place to remind people to take their holiday. Rolled up holiday, even if you use it, doesn’t relieve you of the obligation to remind people to take their leave. Holiday, as the courts are fond of reminding us, is originally a health and safety measure and so the right to paid time off is an important thing for employees’ mental health, physical wellbeing and so on. And that point about reminding people to take leave is particularly important when we are looking at carrying over holiday, and that’s another point that the government’s going to tidy up in the legislation again simply to replicate the position in the European jurisprudence. So where somebody has been miscategorised as a contractor but is actually a worker when the position will be that they are entitled to carry over leave without limit, where somebody is being prevented from taking paid annual leave because they’ve been either on family leave or on sickness absence then the position is a tiny bit more complicated where they’ve effectively missed out on annual leave because they’ve been on maternity leave for instance, then they will be entitled to carry 5.6 weeks of leave, so their full statutory entitlement into the next leave year and use that but where somebody has not been able to take annual leave because they’ve been on sickness absence then they’ll only be entitled to carry four weeks of leave, so the part of their allotment that comes from European law, and they’ll be able to use that within the 18 months following, so that’s a slightly longer time period but for slightly less leave. The good thing about that clarification once it’s enacted is that it will stop the concern that many employers have grappled with over many years – what happens if you have somebody who’s off sick for a very extended period – do they continue to accrue leave for the whole of that period so that there’s a huge outstanding sum due on termination or when they come back to active work? So this limitation on how much can be carried over and when it has to be used by will be helpful in that respect.

And then the last bit of tidying up is in relation to discrimination law and these points are very technical and I don’t propose to go into them in any detail, but just to sort of flag their general categories. There’s some new drafting on associative discrimination, there’s some new definitional work on how we look at what counts as disability, there’s some new drafting on equal pay and on breastfeeding and on pregnancy and maternity discrimination and on recruitment. And so if you have any concerns in any of those areas and would like more details then as always my contact details are in the episode description.

Those are all the points that we were going to cover today, so all that remains for me to do is to say thank you once again for listening. If you have feedback on the podcast or any subjects you’d particularly like us to address, then please do get in touch, either with me or any of the rest of the employment team and I’ll see you for a December edition in a little while.

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