The year in employment law

Despite Brexit continuing to dominate the political agenda last year, there were some significant decisions in the courts and proposals for reform. Looking ahead to 2020, various Good Work Plan reforms are coming into effect in April and the Government is planning to introduce a new Employment Bill, which will pave the way for a number of further employment law reforms.

What happened in 2019?

Sexual harassment and confidentiality. Concerns arising from the #MeToo movement about the extent of sexual harassment and similar misconduct at work continued to be a high-profile topic in 2019, particularly concerning the legitimacy of employers using non-disclosure agreements (“NDAs”) in this context. Towards the end of the year, we produced a table setting out all the current legal and regulatory requirements, best practice and future proposals for using NDAs and confidentiality provisions in settlement agreements and employment contracts. Among other things, the Government is expected to bring forward legislation in this area (see below) and the Equality and Human Rights Commission is developing a statutory Code of Practice on sexual harassment.

Employment status. The flow of court decisions about worker status in the context of the gig economy (and otherwise) slowed down a bit last year, but several cases remain in the pipeline including the Uber case in the Supreme Court (“SC”) – see below. There was a surprise Employment Tribunal decision, with potentially wide-ranging ramifications, that “workers” transfer under TUPE as well as traditional “employees”. And the SC ruled that judges are workers for whistleblowing purposes – a judgment illustrating how European human rights law can be used to interpret domestic legislation and effectively add to it where appropriate. Perhaps unsurprisingly, there has so far been no news on government plans to bring forward “detailed plans” to reform the current legal framework for employment status. (These were announced back in December 2018 in the Good Work Plan, responding to the Taylor Review.)

Family rights. In the long-running cases of Ali and Hextall, about shared parental pay, the Court of Apppeal (“CA”) ruled that it is not direct or indirect sex discrimination, or breach of equal pay rights, to provide enhanced pay for maternity leave and statutory pay only for shared parental leave. (These cases are, however, being appealed - see below.)

Working time. A case referred to the European Court of Justice (“ECJ”) from Spain caused some consternation, ruling that employers must keep a record of all hours worked by their workers each day, in order to ensure compliance with the rules on maximum weekly working time and rest breaks. In light of the challenge for employers across Europe in responding, we recently produced a heatmap showing the differing levels of risk across the EU.

Pay reporting. Gender pay gap reporting is now well established, with employers in scope of the legislation now preparing their third annual report (due in April 2020). It appears the Government has no immediate plans to build upon or reform the current gender pay gap reporting rules. There was no reference to this in the Conservative election manifesto, nor any mention of introducing publication of pay-gap data in relation to ethnicity (which was subject to consultation some time ago). However, the launch of CEO pay ratio reporting seems to be on track for this year (see below).

Whistleblowing. A new EU Directive designed to set a minimum level of common protection for whistleblowers was adopted last October and member states have until 17 December 2021 to implement it. Whether the UK is required to do so will depend on the outcome of the Brexit negotiations. Meanwhile the law on whistleblowing continues to develop through case law. The SC has ruled that a dismissing manager doesn’t have to know about an employee’s protected disclosures in order for their dismissal to be automatically unfair. The claimant’s dismissal was by reason of her protected disclosures and unfair, where the decision-maker had been manipulated by another manager. Meanwhile, the CA dealt with a difficult but potentially significant case about liability of overseas co-workers for whistleblowing detriment.

Holiday pay. The correct calculation of holiday pay continues to be a thorny topic, with various issues arising in the courts during 2019. In a major NHS case, the CA confirmed that the EU Working Time Directive requires voluntary overtime to be included in holiday pay if it is sufficiently regular and settled to amount to normal remuneration. The forthcoming increase in the reference period for calculating holiday pay from 12 weeks to 52 weeks (see below) will help employers reduce the impact of seasonal variations in overtime. Another CA ruling established that holiday entitlement and pay for workers on permanent contracts should not be prorated for term-time workers, in a case highlighting the complications of working out holiday pay for “part-year” staff.

In the courts. In addition to cases already mentioned above, the following judgments in 2019 were particularly noteworthy:

• Post-termination restrictions. Last year saw the first ever SC judgment about restrictive covenants in employment contracts, in Tillman v Egon Zehnder Ltd. Although a six-month non-compete clause went too far by restricting an employee from holding a minority shareholding in a competing business, the SC ruled that the key part of the clause could be rescued by severance and enforced by the employer. Read more about the three key restrictive covenant cases of 2019 here. 
• Equal pay. In Asda Stores Ltd v Brierley, the CA upheld the decision of the Employment Appeal Tribunal (“EAT”) 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) for the purposes of claiming that their work is of equal value. This case will be going to the SC (see below).
• Disability discrimination. The CA confirmed that it is unlawful to discriminate against an employee on grounds of a perceived disability (Chief Constable of Norfolk v Coffey). On the facts, this meant that it was unlawful to discriminate against the claimant because of a mistaken belief she had a progressive condition which would make her unable to perform the full functions of her role in future.
• Disciplinary investigations. There was a helpful EAT decision last October concerning employment lawyers advising on investigation reports (Dronsfield v University of Reading), which provided a measure of reassurance on when solicitors’ involvement in a disciplinary process might make a subsequent dismissal unfair.
• Collective bargaining. The CA decided, in Kostal UK Ltd v Dunkley, that offers made directly by an employer to its employees in relation to pay and working hours did not amount to an unlawful attempt to bypass collective bargaining. Effectively, therefore, trade unions do not have a veto in this type of situation. (The union in this case, Unite, has said it is seeking permission to appeal to the SC.)

What’s coming up in 2020?

It is clear that the Government’s main priority is “getting Brexit done”, but we can expect several employment law reforms to be progressed during the course of this year, many of which are to be included in the proposed new Employment Bill.

Brexit. The prime minister has brought the Withdrawal Agreement Bill back to Parliament, and expects MPs to ratify it prior to the UK leaving the EU on 31 January 2020. The Government has, at least for the time being, ruled out extending the transition period beyond 31 December 2020. The Conservative manifesto contained no detail about long-term plans for employment law, though did include a pledge to ensure high standards of worker’s rights. For more information about the implications of the current divorce deal, and the scope for long-term divergence from the EU on employment rights, see our Brexit hub.

New IR35 rules. Changes to the operation of IR35 regime are due to take effect from 6 April 2020. Private-sector businesses engaging contractors who supply their services personally via an intermediary (e.g. a personal service company) will become responsible for determining whether IR35 is applicable. If the business considers IR35 applies, the person paying the intermediary will be responsible for operating PAYE and national insurance on the fees it pays. Companies affected should urgently prepare for these important changes by, for example: auditing their labour supply chain to identify contractors using intermediaries; deciding on a methodology for assessing their status; and reviewing their onboarding process and documentation for contractors going forward. Before the general election, the Chancellor Sajid Javid said there would be a review of the proposed IR35 changes to ensure they were “right to take forward”. It seems more likely than not the reforms will proceed in April, so it remains sensible to continue preparations.

Written statements. One of several reforms being implemented from the Government’s Good Work Plan is a revamp of the rules requiring employers to supply staff with a written statement of key particulars of their employment. From 6 April 2020, statements will have to be provided to those with “worker” status in addition to employees, by day one of employment. More information will need to be set out in the statement, including details of the full benefit and remuneration package. Many employers are likely to be recruiting for April starters, so now is the time to start reviewing and amending their standard documentation.

Agency workers. The law on agency workers is also changing in April. When the UK first implemented the EU Agency Workers Directive, it enacted the so-called “Swedish Derogation”, which provides that certain agency workers are not covered by the principle of equal treatment. This is being abolished with effect from 6 April 2020. Businesses will need to decide what to do about any agency workers on Swedish Derogation contracts and, where appropriate, migrate them onto standard agency contracts or take them on as direct hires.

Holiday pay. The reference period for calculating holiday pay is increasing from 12 weeks to 52 weeks on 6 April 2020. This change may create practical problems in relation to people who work intermittently for just some weeks of the year. Employers should review their current approach to calculation and identify any changes required, and perhaps conduct a dry run to assess any cost impact.

Information and consultation. The final April 2020 Good Work change is a reduction in the threshold for demanding information and consultation arrangements under the Information and Consultation of Employees Regulations 2004 from 10% to just 2% of employees.

Termination payments. After significant changes to the tax treatment of termination payments were introduced in April 2018, a related requirement for employers to pay employer NICs on any part of an ex gratia termination payment exceeding £30,000 was put on hold. This change will now come in on 6 April 2020, making termination payments more expensive.

CEO pay ratio reporting. The first reports will be due this year under the new legislative regime requiring directors of UK-listed companies with 250 or more employees to report annually on the difference in pay between their CEO and average workers.

Parental Bereavement (Pay and Leave) Act 2018. A new right to parental bereavement leave, giving parents two weeks’ paid leave if they lose a child under 18, is expected to come into force sometime this year. Regulations setting out details of how the right will operate are still awaited.

Discrimination. The Government has promised to implement a planned reform to provide priority access to redeployment opportunities for pregnant women and new parents in a redundancy situation. The new Employment Bill will include provisions to implement these new rights.

Regulation of NDAs. The Government is expected to bring forward legislation introducing new restrictions on confidentiality clauses in employment contracts and settlement agreements. This follows the publication of a consultation response on the issue last July. There is no draft legislation yet and the implementation date is unknown.

Family and carers’ rights. The Government will be taking forward plans to allow parents to take extended leave for neonatal care (following a consultation published last July). The Employment Bill will also provide for a new right for carers to take a week’s leave each year. The Conservative manifesto said they would look at ways to make it easier for fathers to take paternity leave, but no further details have been released.

Making flexible working the default. The Government intends to encourage flexible working arrangements and consult about making them the default unless employers have a good reason otherwise. Details are not yet clear, but the plans could go further than the proposals currently under consultation that would require employers to say if flexible working is available in job adverts and publish their flexible working policies..

Employment status and protections. Despite the unresolved issue of employment status (see above), the Conservative manifesto did promise that workers would gain the right to request a more predictable working contract. This is something which had already been promised in the Good Work Plan, and forms part of the requirements of the EU Transparent and Predictable Working Conditions Directive. The right to a more predictable working contract will form part of the new Employment Bill. The manifesto also mentioned other “reasonable protections”, which may refer to rights to reasonable notice of work schedules and compensation for shift cancellation, which are already under consultation.

Staff tips. The new Employment Bill will provide for legislation requiring employers to pass on all tips. The Government also plans to introduce a new Statutory Code of Practice to ensure that tips are distributed fairly and transparently.

New state enforcement body. The Conservative manifesto also pledged to create a new state enforcement body to tackle non-compliance in the labour market, following a consultation published last year. The plan outlined in the consultation was to bring together the existing patchwork of enforcement under the remit of a single body, and then expand its remit to cover holiday pay for vulnerable workers and umbrella companies operating in the agency workers sector. The Government is likely to focus on targeting the most exploitative employers.

Upcoming cases in 2020. Important employment cases to be decided this year include the following:

• Data protection. The case of Morrison Supermarkets plc v Various claimants was heard by the SC last November and the judgment is expected soon. Morrisons is appealing against the CA’s ruling that it was liable for the wrongful disclosure of payroll data on around 10,000 staff by an aggrieved employee.
• Minimum wage. In February, the SC is due to hear Royal Mencap Society v Tomlinson-Blake, a case of huge significance for the care sector. The CA decided that care workers carrying out “sleep-in” shifts were not entitled to the national minimum wage for the whole shift, but only when they are required to be awake and working.
• Employment status. In Uber BV v Aslam and others, a case of major interest for the gig economy, the CA upheld 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. The SC is scheduled to hear Uber’s appeal in July.
• Equal pay. As mentioned above, Asda Stores Ltd v Brierley is likely to be decided by the SC this year. A hearing date for Asda’s appeal is awaited.
• Shared parental pay. An SC hearing date is also awaited for the appeals in Ali and Hextall (above), on whether there are circumstances in which it may be direct or indirect sex discrimination to provide enhanced pay for maternity leave and statutory pay only for shared parental leave.