The year in employment law
09 January 2019
Brexit continued to dominate the headlines in 2018, leaving employment law reform (along with many other areas) far down the Government’s agenda.
Despite this, there have been some significant court decisions, particularly on the issue of employment status which continues to be a hot topic. The fallout from various high-profile allegations of sexual harassment and the resulting #MeToo movement has continued, with the use of non-disclosure agreements in harassment cases provoking particular debate. There are also various reforms planned following the Government’s response to the Taylor Review.
Employment status. The eagerly awaited judgment of the Supreme Court in the Pimlico Plumbers case confirmed the finding that a “self-employed” plumber was a worker. Although the outcome turned on the facts of how the working relationship between the parties operated in practice, the decision did provide some guidance on the legal tests, with a focus on the obligation of personal service and the high levels of control which the company had over the individual. The Employment Appeal Tribunal (“EAT”) has confirmed in separate judgments that cycle couriers and drivers working for Addison Lee are workers rather than self-employed. In December, the latest gig economy appeal saw the Court of Appeal (“CA”) upholding by a majority the finding that drivers engaged by Uber are workers rather than self-employed, whenever they are signed into the relevant app and ready to work. Continuing to buck the trend, Deliveroo successfully defended a challenge to the Central Arbitration Committee’s decision that its riders were not workers for the purposes of an application for collective bargaining rights.
Employment tribunals. The abolition of fees in 2017 has resulted in a large increase in employment tribunal (“ET”) claims. The latest statistics (for April to June 2018) show that the number of single claims had increased by 165% as compared to the same period the previous year. Unfortunately, this has led to the ET system becoming overloaded, meaning that parties are now facing a significant wait to get their cases heard. In November 2018, the Ministry of Justice (“MoJ”) announced that ET fees might be reintroduced, although there were no firm plans to do so at the present time. Meanwhile, the Courts and Tribunals Service published a progress report on its reform programme, including some details of a new service which will enable some cases to be resolved online and by video, and the Law Commission launched a consultation about the relationship between ETs and the civil courts.
Family benefits. The EAT has delivered judgment in two cases on shared parental pay. In Capita Customer Management v Ali, the EAT ruled that it was not direct sex discrimination to fail to pay full salary to a father taking shared parental leave, in circumstances where a mother taking maternity leave during the same period would have received full pay. But, in Hextall v Chief Constable of Leicestershire Police, the EAT indicated that enhancing maternity pay only may give rise to an indirect sex discrimination claim by fathers. The Government has also introduced a new right to parental bereavement leave, giving parents two weeks’ paid leave if they lose a child under 18. Regulations giving the detail of how the right will work in practice are expected to be introduced in 2020. There has been no news on the proposal from 2016 to extend shared parental leave and pay to working grandparents.
GDPR and data protection. The EU General Data Protection Regulation (“GDPR”) came into force in May, taking effect across all EU member states and imposing more severe fines for non-compliance. This is very relevant for employers, who will process personal data about all of their staff, and the new rules will need to continue to be followed by employers in the UK irrespective of the type of Brexit. Meanwhile, employers have been in data protection trouble due to the actions of their employees. Heathrow Airport was fined £120,000 after a lost data stick containing the sensitive personal information of a number of staff members was found by a member of the public, and Morrisons was liable for the wrongful disclosure of payroll data on 100,000 staff by an aggrieved employee.
Holiday pay. Cases about the correct calculation of holiday pay continued to appear in the courts. The EAT ruled in July that both non-guaranteed and voluntary overtime should be included in the calculation of holiday pay under the NHS Terms and Conditions of Service. Although this was of particular significance for the NHS, the EAT also confirmed the general approach that voluntary overtime should be included in the calculation of holiday pay if it is regular and settled.
Minimum wage. In July, the CA decided that care workers carrying out “sleep-in” shifts are not entitled to the national minimum wage (“NMW”) for the whole shift, but only when they are required to be awake and working. The ruling has overturned various earlier decisions and contradictory guidance from HM Revenue & Customs which would potentially have exposed the care sector to claims for arrears of pay worth hundreds of millions of pounds.
Pay reporting. The new rules on gender pay gap reporting resulted in all 10,000 or so employers within scope of the new law reporting their pay gap within the first year of its operation. With the next reports due in April 2019, Acas has published guidance encouraging employers to implement an “action plan” aimed at reducing the gender pay gap in their workplace, and the Government Equalities Office and the Women’s Business Council has published “toolkits” providing practical advice for organisations on closing the gender pay gap. The Equality and Human Rights Commission (“EHRC”) has also published a report urging employers to provide narratives alongside their gender pay gap statistics. In a related move, the Government has introduced CEO pay reporting, requiring directors of a UK-listed company with 250 or more employees to report annually on the difference in pay between their CEO and average workers. The first reports will be due in 2020. In addition, the Government launched a consultation on ethnicity pay reporting, looking in particular at the sort of information that employers should be required to publish.
Sexual harassment and non-disclosure agreements. The extent of sexual harassment at work and whether it is acceptable for employers to “sweep it under the carpet” using non-disclosure agreements (“NDAs”) has been a hot topic of debate this year. There have been two inquiries. The EHRC solicited evidence about sexual harassment in the workplace, and the results were set out in their report published in March which made various recommendations for improving the situation. The Government’s Women and Equalities Committee (“WEC”) published a report in July which supported many of the EHRC’s recommendations, and condemned the use of NDAs in sexual harassment cases where the effect was to prevent the victim from being able to talk about what had happened. The Solicitors Regulation Authority has also issued a “warning notice” about the use of NDAs. Towards the end of the year, NDAs came under renewed scrutiny when the CA granted an injunction preventing the Daily Telegraph from publishing details about “discreditable conduct” by an unnamed executive.
Taxation of termination payments. The tax treatment of termination payments changed in April. All payments in lieu of notice are now subject to income tax and national insurance contributions (“NICs”) in full, whether or not the payment is a contractual entitlement. The related requirement for employers to pay employer NICs on any part of an ex gratia termination payment that exceeds the £30,000 tax-exempt threshold have been put on hold until April 2020.
Looking forward to the year ahead, the most significant reforms and cases in the pipeline are outlined below.
Employment status. Uber has been given permission to appeal the CA ruling discussed above to the Supreme Court. In the meantime, the Government has responded to recommendations on employment status made in the Taylor Review in its Good Work Plan. This promises to “bring forward detailed proposals” on how the employment status frameworks for the purposes of employment rights and tax should be aligned, and there will also be legislation to “improve the clarity of the employment status tests” – although with no further information yet about what this will involve. The Government has commissioned further independent research on those with uncertain employment status to help inform its approach.
New IR35 rules. Changes to the operation of IR35 regime are due to take effect from 6 April 2020. Private-sector businesses which engage contractors - individuals who supply their services via their own personal service company or partnership (“Intermediary”) - will become responsible for determining whether IR35 applies. If the business considers that IR35 applies, the person paying the Intermediary will be responsible for operating PAYE and NICs on the fees it pays to the Intermediary. Small businesses will be exempt from the new rules, although no information has been released yet on which businesses will qualify as “small” for these purposes.
Discrimination and equal pay. The CA is due to decide a number of important cases in this area. We are currently awaiting the CA’s ruling in the appeal against the EAT’s decision that workers in Asda’s retail stores (who were lower paid and mostly women) can compare themselves with distribution centre workers (who were higher paid and mostly men). We are also expecting a decision in various joined cases (including the Asda case) on whether multiple equal pay claims can be included on one claim form if they involve different jobs - which is of great practical significance in large equal pay cases. In February, the CA is due to consider whether it is unlawful to discriminate against an employee because of a perceived disability, the EAT having ruled at the end of 2017 that this was unlawful even if the employee is not actually disabled under the legal test.
Good Work Plan. The Government has made a number of proposals for employment law reform in its Good Work Plan in response to the Taylor Review, which are primarily designed to help those with non-standard or variable contracts. There is to be a new right to request a more predictable and stable contract, and a break in service for the purpose of continuous employment rights is to increase from one to four weeks. The “Swedish Derogation”, a loophole which allows agencies to avoid matching pay for agency workers, will be removed from 6 April 2020. Also coming into effect on this date is the extension of the right to a statement of employment particulars for all workers from day one, and an increase in the reference period for calculating holiday pay from 12 to 52 weeks. To help with enforcement of employment rights the Government is planning to introduce a “name and shame” scheme for employers who fail to pay Employment Tribunal awards, linked to the current penalty scheme. From 6 April 2019 the limit on financial penalties for aggravated breached by employers will be increased from £5,000 to £20,000, and there are plans for new sanctions in respect of repeated breaches by the same employer.
And finally… Brexit. In our review of 2017, we expressed the hope that the future of EU employment rights may become clearer throughout 2018. And yet, with less than three months to go to the projected date for the UK’s departure, it is impossible to predict how Brexit will unfold.
- If the current version of the withdrawal agreement is approved, we will be into the relatively straightforward territory of a transition period until 31 December 2020, during which the status quo would broadly be maintained and all EU employment laws will continue to apply.
- If not, the European Union (Withdrawal) Act 2018 ensures that the UK will leave the EU at 11pm on 29 March 2019.This sets out a series of complex provisions on how far EU law and decisions of the European Court of Justice will continue to apply after exit day - all of which will be relevant to EU-derived employment law such as TUPE and the Working Time Regulations.There is also an outside chance that Brexit may be postponed or even revoked altogether, which would involve amending or repealing this Act.
- Adding to the complications, the Irish Backstop Protocol contains broad and strong commitments from the UK on employment law matters, which in essence mean that the UK would be prevented from introducing changes to any EU-derived employment laws until the backstop is dissolved.
In short, it looks unlikely that there will be any imminent or major changes to employment law, irrespective of the type of Brexit (if any) that happens in March. But the only real certainty at the moment is that nothing is certain!