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Retained EU law bill becomes law: what’s the practical impact on employers?

29 June 2023

New legislation designed to speed up the process of reforming EU-based laws is now in force. As the government’s bill to exploit the regulatory freedoms of Brexit becomes law, we look at the immediate, mid-term and longer-term impact on employment law from the employer’s perspective.

The new Retained EU Law (Revocation and Reform) Act aims to dramatically speed up the process of removing and replacing laws derived from the EU. After a bumpy passage through parliament, being passed back and forth between the Commons and the Lords, it has finally become law. It has suffered some knocks along the way, including the loss of the “sunset” clause which would have deleted EU-based laws automatically.

In the short term, there is no change to employment law although some claimants may choose to put claims in ahead of future change. In the mid-term, there will be modest employment law reforms and a new option to call for references on points of law to the higher courts. Longer term, we expect re-litigation of key points, but the legislative reform agenda is soon going to be overtaken by the manifesto commitments for the next general election.

The new Retained EU Law Act: what does it do?

In summary, the new Act, in its amended form, does the following key things:

  • Gives government ministers new powers to reform EU-based laws. This applies to any EU-based law introduced into UK law by a statutory instrument (e.g. the Working Time Regulations 1998). It does not apply to EU-based laws that have been signed into law by an act of Parliament (e.g. the Equality Act 2010).
  • Ends the supremacy of EU law on 31 December 2023, and removes all directly effective EU rights on that date too.
  • Encourages the Court of Appeal and Supreme Court to make more use of their existing powers to overturn EU-based caselaw. This includes both ECJ decisions and UK decisions that have been determined or influenced by ECJ decisions. The new test emphasises “the fact that decisions of a foreign court are not usually binding”.
  • Introduces a new reference process, enabling a lower court which is bound by EU-based caselaw to refer a point of law to the Court of Appeal or Supreme Court (which are not bound) so they can decide if it should be overruled.
  • Gives the Attorney General the power to intervene in cases where the courts are considering overruling EU-based caselaw and even make references to higher courts if the lower court hasn’t done so.
  • Gives a new label to the EU-based laws we are keeping. From 2024 they will be called “assimilated laws”.
  • Requires the government to update its Retained EU law dashboard and report to Parliament on its progress with revoking and reforming retained EU law and future plans.
  • Deletes the EU-based laws listed in a schedule. The schedule has replaced the original sunset clause. Instead of automatically deleting EU-based laws, the new Act keeps everything for the time being unless listed for deletion. Apart from some minor/obsolete regulations, there are no employment laws in the list.

Up until now, many of the debates about the bill have been theoretical and abstract. As it finally hits the statute books and becomes a reality, how will employers experience the impact in practice?

Immediate impact: from now until the end of year, law stays the same but watch out for claims

There’s no change to existing employment law immediately. Retained EU employment laws are all still in place. UK employment laws still need to be interpreted in line with EU requirements, and EU law still reigns supreme.

Change is on the horizon, however (see below) and, because of that, employers might face claims based on the current law as the window for making those claims closes. Holiday pay claims are the most likely example here.

Mid-term: new court reference procedure and modest legislative change

Lower courts (including the employment tribunal) will continue to be bound by EU-based case law, but will have new powers to refer legal points to the higher courts to use their powers to overturn this law. The government needs to specify the date when the new court reference procedure comes into force. In practice:

  • References seem more likely to be called for by employers rather than employees, since EU-based caselaw arguably tends to be employee-friendly.
  • The employment tribunal may make a reference where retained EU-based caselaw is relevant to the proceedings and the matter is of general public importance. The need for “general public importance” is like the current test in relation to “leapfrog” appeals from the High Court to the Supreme Court (bypassing the Court of Appeal). This is quite a high bar in that context, but it’s possible that employment tribunals will adopt a lower bar for points of employment law which impact large numbers of employers and employees.
  • Either party to the proceedings can ask for a reference but the employment tribunal doesn’t have to make one. If it chooses not to do so, there’s no right of appeal. The employment tribunal can also make a reference of its own initiative.
  • Practical examples of points that could be relitigated by the reference procedure include:

    • What counts as working time.
    • How to count up the numbers of redundancies for collective redundancy purposes.
    • What happens to employees when a service is TUPE transferred to multiple new providers.
    • (Depending on how quickly new legislation is in place) what should be included in holiday pay and when unused holidays can be carried forward.
  • Parties should not rush to ask for references, even if the new process comes into play quickly. In practice, there may be little point if the facts of the case occurred before 31 December 2023. Until then, the higher courts are technically able to overturn ECJ cases but are still obliged to interpret UK law in line with EU requirements. That said, parties may wish to think tactically about asking for references in some cases.
  • Who pays the legal costs involved in a reference? That is currently unclear. Since the employment tribunal or Attorney General can make references even if the parties have not asked for it, it seems likely that higher courts would exercise their discretion not to make employees bear costs for references they haven’t called for, but there’s no guidance on this point yet.

Also in the mid-term, the government will start using its new powers to reform EU laws. Planned employment law reforms have already been published for consultation and we’ve written about these here. They include modest reforms to TUPE, a plan to allow rolled-up holiday pay and the possibility of holiday pay reverting to basic pay only. We don’t know the timetable but we expect the government will try to get new legislation in place quite quickly, to avoid the courts being clogged up with references about these controversial points when the ultimate intention is legislative reform. In practice:

  • Employers can expect legislative reform towards the end of this year/beginning of next year on the topics under consultation. The planned reforms are modest but likely to be welcomed by employers as reducing over regulation or disproportionate complexity.
  • If holiday pay does revert to basic pay (with no inclusion of commission/overtime etc) then employers who’ve changed employment contracts to reflect EU holiday pay requirements might want to consider changing terms, although we expect that many will choose not to do so.

Longer term: courts bogged down in litigation? Further legislative change? But the election will soon dominate the agenda.

At the end of 31 December 2023, EU supremacy ends. UK employment laws will no longer have to be interpreted in line with EU Directives such as the Working Time Directive. Directly effective EU rights (such as the right to equal pay) will no longer apply from this date too (although equal pay law remains in place – see below).

Anything which happens from 1 January 2024 will be judged on the basis of the wording of UK law, which will no longer have to give way to EU law. Note that it depends on when the events took place, not when the claim is lodged.
EU-based caselaw remains technically binding but its status will be more uncertain.

In practice:

  • We are likely to see re-litigation of EU-based caselaw points when EU supremacy ends. This includes ECJ cases and UK cases based on ECJ cases or based on the need to interpret UK legislation in conformity with EU requirements. The reference procedure described above might already be in force by this point, but it becomes much more potent for cases involving events after 1 January 2024, when parties can start to argue that UK law should be interpreted differently now that it does not need to give way to EU requirements. Examples of issues that might be re-litigated are set out above.
  • To co-ordinate caseload, we could see the emergence of lead cases on key points with other cases stacked up behind them. Given the delays in the current court and tribunal system, it could take years for caselaw on post-2024 facts to emerge.
  • Will the UK courts be persuaded to turn away from this body of EU-based caselaw? This is far from guaranteed. The UK courts themselves are arguably taking an increasingly purposive approach to interpreting employment law (the Supreme Court’s decision that Uber drivers were workers being the prime example). It is not clear that UK courts will start making very different decisions than the ECJ on matters such as, for example, what counts as working time and when indirect discrimination might be justified.
  • The impact of removing directly effective rights is also uncertain. The main example of a directly effective EU employment right is the right to equal pay (this is in the EU treaty rather than an EU Directive). The UK has its own rights to equal pay, however, and these are staying put. In practice, the right to equal pay will remain but claims will no longer be able to draw on EU rights so may be more difficult in some situations.

The government can use its new powers to reform EU-based laws until June 2026. The scope for future reform, however, is limited in two (opposing) ways – on the one hand, laws made under the new powers must be “deregulatory” but, on the other hand, the trade deal struck with the EU commits the UK to maintaining certain standards. In practice:

  • It’s possible that we will see more reforms to TUPE (the current consultation calls for ideas).
  • After that, the focus is likely to turn to the next general election. It’s possible that the Conservative party will promise making further use of its Brexit freedoms. A Starmer-led Labour party would, however, take employment law in a very different direction, as we are exploring in a series of articles (the first one is here).

While the Act applies to the UK, there are important differences in Northern Ireland. For example:

  • in relation to the mid-term impact covered above, as employment law is devolved for the Northern Ireland Assembly to legislate on, the planned employment law reforms to working time, holiday pay and TUPE do not currently extend to Northern Ireland. The current lack of a functioning Assembly and Government in Northern Ireland also makes it impossible to predict with confidence what may happen in Northern Ireland regarding these proposals; and
  • in relation to the longer-term impact, as a result of arrangements relating to individual rights set out in Article 2 of the Protocol on Ireland/Northern Ireland, which we explained in this insight, equality and anti-discrimination legislative change in Northern Ireland may not follow the same course as that in Great Britain.

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