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What’s happening in employment law in 2023?

05 January 2023

There’s lots happening in employment law all of a sudden. 2023 looks set to be a year in which major employment law changes are shaped and fleshed out. From the post-Brexit reform agenda to a series of private members’ bills, key caselaw decisions to other planned developments, there is much change on the horizon, and little time for us to get our heads around it. Here’s our annual round-up of what to expect.

Post Brexit reform: the Retained EU Law (Revocation and Reform) Bill

This is the most significant development on the horizon, currently overshadowing everything else. The bill aims to speed up the removal of certain retained EU laws by giving ministers powers to scrap or replace them. Importantly, it also includes a “sunset clause” meaning that, at the end of 2023, many retained EU laws will disappear unless restated or replaced. This affects a huge amount of UK employment law including the Working Time Regulations, TUPE, the Agency Workers Regulations, the Maternity and Parental Leave Regulations and more.  It is reasonably likely that the 2023 deadline will be relaxed before the bill passes. Even if the deadline slips, however, we expect to see government departments getting started on shaping the reform programme from early this year. This is likely to mean a wave of consultations and proposals for creating new UK laws to replace and potentially scale back existing EU-derived versions.

The potential significance of this bill should not be underestimated; it could result in the biggest shake-up of employment laws in a generation. It’s also rarely the case that quick law = good law, so expect to see plenty of troubleshooting and legal challenges as we get to grips with the new regimes.

For more details, see What might the Brexit Freedoms Bill mean for employment law?

Private members’ bills: the Employment Bill in all but name

Towards the end of 2022, the government announced that it was backing a series of private members’ bills, boosting their chances of making it through the parliamentary process and becoming law by summer 2023. These bills would introduce several employment law reforms which were originally going to be included in an Employment Bill. The reforms are:

  • Changes to the flexible working regime to introduce a requirement for employers to consult an employee before rejecting a flexible working request, allow an employee to make two statutory requests in any 12-month period, reduce the employer’s decision period from three months to two months and remove the requirement that the employee must explain what effect the change would have on the employer and how that might be dealt with. Separately, the government has indicated that the right to request flexible working will become a day 1 right (see below).
  • A new proactive duty to take reasonable steps to prevent sexual harassment and the re-introduction of employer liability for harassment of staff by customers or other third parties. The new duty to prevent sexual harassment is intended to shift the focus towards pro-active prevention rather than reaction.  The revival of liability for third party harassment is also intended to bring about a shift to a more protective approach. Employers will have a defence to a claim of third party harassment if they can show that they took all reasonably practicable steps to prevent it. We can expect an increased focus on training not only managers but also staff themselves on how to handle unwelcome interactions with customers. Employers ought to plan carefully here: well-meaning training and guidance could easily trip into “victim blaming” territory, and that will also be a risk as and when employers are forced to address complaints about third party harassment.  
  • Extending redundancy protection beyond maternity, adoption and shared parental leave to cover any period of pregnancy and the months immediately following a return to work after family leave (expected to be 6 months). Protected employees can still be selected for redundancy but will have priority over other employees for any suitable alternative vacancies. Complying with this new law could present real practical challenges for employers in terms of tracking who has priority and which vacancies might be suitable, particularly when those vacancies span a wide geographical area or large number of group companies and could be filled on a remote working basis. Key details still need to be fleshed out, such as whether the priority will extend to new starters who are also returners from family leave and whether the protected period will be 6 months from returning from any type of leave - including very short periods of shared parental leave (which might even prompt a cynical uptake in shared parental leave). 
  • Introduction of 5 days’ carer’s leave each year, for employees who have dependants with a long-term care need. This new right will be unpaid, but employers will need to make decisions over whether to adopt a more generous policy stance.
  • Introduction of a new right to neonatal leave and pay giving new rights to paid time off to parents whose babies spend time in neonatal care units.
  • New laws on the fair distribution of tips and the introduction of a new statutory code of practice on tipping. This will have a significant impact in the hospitality sector, where businesses will need to cater for the new rules and the potential impact on the availability of staff who traditionally take home a significant portion of their earnings from tips (e.g. waiting staff).

Most of these bills are enabling bills meaning that, if they pass into law, the government needs to introduce further regulations to enact the rights. Although some changes could be introduced in 2023, most reforms are unlikely to take effect until 2024. For more detail, see Government backs new laws on carers sexual harassment flexible working redundancy protection.

Flexible working: day 1 right to ask

As it stands, employees can only make a statutory request to work flexibly after 26 weeks. Separately from the private members’ bills mentioned above, the government has committed to making the right to request flexible working a “day 1” right. The timetable for this change is currently unknown.

The introduction of a day 1 right to ask to work flexibly is a significant change to the current legal regime but Covid has already accelerated a significant cultural change in many sectors, where flexible working is increasingly considered the norm and employers continue to face pressure to be flexible over job design to attract and retain good people. Changes to the legal regime will, however, give other parts of the economy the chance to catch up, and the government will hope that this helps bring more people into the workforce.

For more detail see Modernising flexible working - day one “right to request” but no “right to have”.

Statutory EHRC Code of Practice on harassment: raising the bar

The Equality and Human Rights Commission has been tasked with re-writing the Code of Practice on Harassment. The new Code is likely to raise the bar in defining what employers need to do to prevent workplace harassment in a post #metoo world. This will impact whether employers are able to defend claims from individuals who have been harassed by colleagues or managers. It is also likely to describe how employers can meet the new pro-active duty to prevent harassment and protect employees from third party harassment, assuming those proposals (mentioned above) are passed into law.

Statutory Acas Code of Practice on fire and rehire

A new draft Acas Code of Practice on “fire and rehire” was supposed to have been published in 2022 but never materialised. It is now expected in early 2023. Tribunals would be required to take the new code into account when considering the fairness of dismissals and will have the power to award a 25% uplift to any compensation if an employer fails to comply. The Code is likely to build on Acas guidance published at the end of 2021. In practice, this continues to be a sensitive topic where employers sometimes have to balance the potential reputational risks associated with the practice of “fire and rehire” against the need to make changes in a worsening economic climate.

Modern Slavery Act: to be toughened up?

The government has previously said that it would toughen up the Modern Slavery Act (which applies to employers with a turnover exceeding £36m) to make existing reporting areas mandatory (rather than advisory), change the reporting deadline to 30 September each year, and require statements to be published on a new registry.  A new bill was expected in the current parliamentary session but has not been brought forward yet.

Gender pay gap reporting: review?

The existing gender pay gap regime was set to be reviewed in the first half of 2022. There is no sign of this having happened but a review remains likely. The Liz Truss administration announced that, as a matter of general policy going forward, businesses with under 500 employees should be exempt from reporting regulations. It is unclear if the current administration would want to change the existing pay gap reporting regime to increase the threshold in this way.

Ethnicity pay reporting: guidance on voluntary reporting?

The government has decided not to make ethnicity pay reporting mandatory but did say that a requirement would be introduced for employers that choose to publish their pay gap data voluntarily to also publish a diagnosis and action plan. The government also indicated that it would provide guidance to the (increasing number of) organisations reporting on a voluntary basis. We could see progress on this in 2023. We are certainly seeing pressure from candidates and other stakeholders for greater take-up and a more uniform approach, as attitudes to diversity, equity and inclusion continue to influence career decisions.

Trade union reform: minimum service levels and more?

The government has brought forward a bill to mandate minimum service levels during transport strikes, which is likely to pass into law in 2023, on the basis that this bill implements a manifesto commitment. However, this bill would only be the start of the process, with numerous sets of additional regulations required to make the new legal framework operative.

In addition, in a press release at the start of 2023, the government indicated that, in light of significant ongoing levels of industrial action across a range of public services, it would now look to introduce a new bill covering minimum service levels across all of the “important public services” covered by the Trade Union Act 2016: health, education, fire and rescue, transport, nuclear decommissioning and border security. Nonetheless, there is no guarantee that any reforms would pass the House of Lords (which blocked numerous additional reforms when the Trade Union Act 2016 was passed, in which the government does not have a majority, and which is not bound to pass reforms that were not a manifesto commitment).

If it does become law, the legislation may still not be effective without numerous additional sets of regulations, industry agreements and even court rulings, which would actually set the particular minimum standards. Even then, unions can be expected to resist the new requirements and will almost certainly challenge any enforcement action against them on human rights grounds on the basis of their potential incompatibility with Article 11 of the European Convention on Human Rights on freedom of association (in the same or a similar way as the government’s reforms in the summer of 2022 on the use of agency workers to cover for those on strike will already be judicially reviewed in the High Court in March 2023). Minimum service levels also actually risk prolonging strikes, by preventing unions from being able to generate sufficient leverage through causing disruption to secure their demands.

Finally, the Labour Party has already promised to repeal the legislation if enacted. So, with the polls as they are, these reforms may be of no lasting significance in any event.

National Living Wage rises by nearly 10% and other increases to rates and limits

The National Living Wage will rise to £10.42 from April 2023, an increase of 9.7%. This is the largest increase to the NLW since its introduction in 2016 and reflects the steep rise in inflation and cost-of-living crisis. Employers may find they employ more people on the cusp of NLW rates and therefore may need to pay greater attention to NLW compliance.

Statutory sick pay will go up to £109.40 in April (from the current rate of £99.35) and the weekly prescribed rate of statutory maternity pay (and pay for other types of leave) will be £172.48 (up from £156.66).

Other employment law developments

A review and call for evidence on the Senior Managers and Certification regime (SMCR) is expected in early 2023, which could potentially result in the lessening of some obligations on financial services employers in line with the chancellor’s recently indicated policy positions (although no details have been published yet).

There will be an extra bank holiday on Monday 8 May 2023 to mark the coronation of King Charles III (as with the extra day for Queen Elizabeth’s funeral, this does not automatically mean that everyone gets the day off).

Caselaw decisions to watch out for in 2023

We expect some key court decisions in 2023 including:

  • IWUGB v CAC (on whether Deliveroo riders have freedom of association rights given their lack of employment relationship).
  • Chief Constable of the Northern Irish Police v Agnew (on calculation of holiday pay and whether a 3-month gap between underpayments of holiday pay extinguishes a claim).
  • Bailey v Stonewall, Higgs v Farmor’s School, Mackereth v DWP (these all concern the rights of people to manifest so-called “gender-critical” views. The “clashing of rights” in the workplace looks set to continue as a theme for 2023, following high-profile cases last year, including in the Forstater case).
  • Manjang v Uber Eats (on whether Uber’s usage of facial recognition system amounted to indirect race discrimination).
  • Kocur v Angard (on the rights of agency workers to be considered for vacancies).
  • HMRC v Professional Game Match Officials (on whether HM Revenue and Customs were right to have determined that match officials should be taxed as employees).
  • Mercer v Alternative Future Group (on whether an employer may take action short of dismissal against workers who have gone on strike).
  • R v Northern Derbyshire Magistrates Court (on the liability of administrators for a failure to file a Form HR1 in the context of proposed collective redundancies).
  • USDAW v Tesco (on whether employees may secure an injunction to stop them being dismissed and offered reengagement on inferior terms).

Other trends and policy areas to watch

We could see an increased focus on getting the long-term sick back to work, given the recent spotlight on the large numbers of working age people who are economically inactive due to health conditions. Legal reforms are possible in the longer term, although in the nearer term the government may focus on occupational health support and other softer initiatives.

An employee-friendly ruling in Agnew (see above), which might mean liability for underpaid holiday pay becomes more significant than previously thought, could also result in greater urgency and emphasis on the apparent desire to re-design the law on holiday and working time, as part of the government’s so-called bonfire of regulations.

In the meantime, employers will continue to need to finely balance competing priorities and difficult market conditions.  Many employers will be embarking on redundancy or restructuring programmes, but will likely remain focussed on how to support remaining staff through the ongoing cost-of-living crisis.

Alongside the economic downturn, there is an ongoing skills shortage and battle to attract and retain good people so we can expect to see ongoing efforts to “do the right thing” and create the right culture. That might mean menopause policies becoming mainstream, fertility policies gaining traction, and employers under continuing pressure to embrace flexible and remote working including remote working from overseas locations. It might also result in employers becoming bolder in embracing positive action initiatives to improve on diversity & inclusiveness. Will climate and sustainability feature more highly on the employer agenda? We hope so.

If that wasn’t enough to be getting to grips with, you can read about what to expect in immigration here and what’s happening in Northern Irish employment law here.

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