Back in February we identified a number of proposed legislative changes for 2023 in Employment essentials, the 2023 forecast: Part 1 – The legislative horizon. As we began 2023 we had several Private Members Bills on specific aspects of employment and equalities law adopted by the Government and making their way through Parliament. And, of course, the ‘biggie’ – the Retained EU Law (Revocation and Reform) Bill 2022-23 (‘REUL Revocation Bill’). Uncertainty was the theme.
Mid-way through the year and some progress. Four of the eight employment specific Bills have been passed, although they all require secondary legislation before their provisions come into force with no confirmed dates for when that may be. Another four are still making their way through Parliament with a couple now looking increasingly doubtful. As for the ‘biggie’, the REUL Revocation Bill, on 10 May 2023 we had a dramatic reversal of the sunset clause, and the Bill passed into an Act on 29 June 2023, becoming the Retained EU Law (Revocation and Reform) Act 2023 (REULA 2023). While we are no longer facing a bonfire of all EU-derived employment legislation, it is not as simple as saying ‘no change’.
As much uncertainty remains, here Gowling WLG’s Employment, Labour & Equalities team look at the current position on the expected employment legislative changes. What do we know for certain and what remains to be determined? In Part 2, we will share our pick of 10 expected case law developments.
- A Brexit clearout?
- Working time and holiday pay
- Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)
- Family time
- Allocation of tips
- Flexible working
- Industrial action
- Business protection
- Government reviews
- Non-financial reporting requirements
- Whistleblowing framework
- Artificial intelligence (AI)
- New and updated guidance
- Subject Access Requests
- Positive action
- Ethnicity pay gap reporting
- Reasonable adjustments for mental health at work
1. A Brexit clearout?
On 10 May 2023, the Government announced that it was abandoning the sunset clause in the REUL Revocation Bill to provide “certainty for business by making it clear which regulations would be removed from [the] statute book”.
On 26 June 2023, the House of Lords agreed to the final Government motions on the REUL Revocation Bill rather than press for amendments on environmental protection and parliamentary scrutiny. This enabled the Bill to proceed to Royal Assent (passed into an Act) on 29 June 2023 and will come into effect from the end of 2023.
As originally drafted, the vast majority of EU law was to be automatically revoked at the end of 2023, unless a statutory instrument was passed to preserve it. That position has essentially been reversed. Now, everything will continue to be retained (at least for the moment) unless specifically revoked. In terms of employment legislation, only three regulations are going which relate to posted workers and European Cooperative Societies (which have been irrelevant since the end of the Brexit transition period anyway). The Government has expressly confirmed that it does not intend to reform family leave rights, ‘atypical’ workers’ rights, and information and consultation rights, save for a small change in relation to TUPE. In addition to the relatively small proposed change to TUPE, significant changes are proposed to aspects of the Working Time Regulations (see below).
However, REULA 2023 remains controversial due to the wide-ranging ministerial powers to unilaterally restate, revoke, replace or make alternative provisions for EU derived legislation without Parliamentary oversight using secondary legislation. Also, a significant degree of uncertainty remains as the Act abolishes the general principles of EU law from applying and it also gives UK courts and tribunals greater discretion to depart from retained EU case law. This may lead to a potential increase in litigation with lengthy appeals as claimants and respondents seek to overturn the effect of long-standing embedded EU case law.
2. Working time and holiday pay
On 12 May 2023, the Department for Business and Trade published the ‘Consultation on reforms to the Working Time Regulations, Holiday Pay, and the Transfer of Undertakings (Protection of Employment) Regulations‘.
The majority of the consultation relates to changes it proposes to make to the Working Time Regulations 1998 (WTR) – the poster-child for complaints that EU regulations undermine flexibility, increase costs of hiring staff and cause unnecessary red-tape.
The Government is consulting on proposals to:
- WTR record keeping obligations by clarifying that employers do not have to record daily working hours of their workers for WTR purposes as held by the Court of Justice of the European Union (CJEU) shortly before Brexit.
- To simplify holiday pay for employers, the consultation makes the following linked proposals:
- Creating a single annual leave entitlement of 5.6 weeks.
- Clarifying the minimum rate of holiday pay and what counts as “normal remuneration” – suggestions sought.
- Changing the method for calculating leave in a worker’s first year of employment to remove an anomaly in the WTR.
- Removing the exemption allowing carrying over of leave due to COVID-19 as no longer needed.
- Allow rolled-up holiday pay.
Under proposal 2, regulations 13 (4 weeks’ leave derived from EU law) and 13A (1.6 weeks’ leave derived from UK law) of the WTR would be replaced with one regulation setting out a single entitlement to 5.6 weeks of paid annual leave under which:
- Up to 1.6 weeks’ of the single leave entitlement can be carried over into the following leave year if there is a written agreement between the worker and their employer.
- The whole of the single leave entitlement cannot be carried-over except where a worker has been unable to take it due to “being on long-term sick leave or being on maternity, paternity, adoption or parental leave”.
As for clarifying the minimum rate of holiday pay, currently reg 13 leave must be paid based on ‘normal remuneration’ covering some additional payments such as regular overtime and commission following much EU case law. However, reg 13A leave is only required to be paid in accordance with ss221 to 224 Employment Rights Act 1996 – for those with normal working hours and whose pay does not vary with amount of work done, this is simple basic pay without any additional bonuses or overtime. The consultation recognises that requiring employers to pay ‘normal remuneration’ for all 5.6 weeks could cause significant additional costs, while reducing the minimum to basic pay would have a financial impact on workers. The consultation does not contain any concrete proposals for how holiday pay should be calculated, simply that defining ‘normal remuneration’ in legislation would be ‘significantly challenging’ and asks for views from employers and workers on how holiday pay should be defined. There is no easy or obvious answer here.
While no concrete proposals for how holiday pay must be calculated generally are set out, proposal 3 does propose making rolled-up holiday pay lawful. Rolled-up holiday pay arrangements provide that a specific part of a worker’s wages represents holiday pay. As payment in respect of a period of holiday is spread throughout the year, the worker is then paid nothing when they physically take the holiday. The Government is proposing allowing rolled-up holiday pay to be paid at 12.07% of pay, as this is the proportion of statutory annual leave in relation to the working weeks of each year. This will have significant benefits for use in relation to casual/irregular hours workers.
This consultation does not address how these proposals will fit with the (now closed) ‘Consultation: Calculating holiday entitlement for part-year and irregular hours workers‘ on other reforms to holiday entitlement for workers who work only part of the year or irregular hours.
The earlier consultation deals with how annual leave accrues for part-year and irregular hours workers as opposed to how that leave should be paid. The proposed change is that workers only accrue leave in proportion with the total annual hours they work. For part-year workers, the annual holiday allowance would be based on hours worked in the previous 52 weeks (including weeks not worked) × 12.07% and for agency workers based on 12.07% of the hours worked at the end of each month of an assignment.
One to watch!
As for TUPE, the ‘Consultation on reforms to the Working Time Regulations, Holiday Pay, and the Transfer of Undertakings (Protection of Employment) Regulations‘ proposal relates to information and consultation where a small number of employees are being transferred.
Currently under the Transfer of Undertakings (Protection of Employment) Regulations 2006, micro businesses with fewer than ten employees may inform and consult affected employees directly if there are no existing appropriate representatives in place (for example, if there is no recognised trade union). Larger businesses, however, are required to arrange elections for affected employees to elect new employee representatives if they are not already in place, which can add to the complexity of the TUPE transfer process. The Government is proposing to remove the requirement to elect employee representatives for the purpose of TUPE consultation for:
- Businesses with fewer than 50 employees irrespective of the size of the transfer; and
- Businesses of any size involved in a transfer of fewer than ten employees.
These changes simply extend the current exception for micro businesses and in the latter case will most likely apply to small service provision changes such as outsourcing part of a function. In both situations, businesses meeting these criteria will be able to consult directly with employees, but only where no existing employee representatives are in place. If employee representatives are already in place, then the employer would still be required to consult with them.
While there are no other changes are being proposed to TUPE, the consultation does make a general call for how the TUPE regulations ‘could be improved’ beyond these proposals.
4. Family leave
On 24 May 2023, three new Acts were passed that will give parents and unpaid carers new protections at work. All three new Acts will require secondary legislation to bring the provisions into force “in due course” with some significant detail awaited.
- The Protection from Redundancy (Pregnancy and Family Leave) Act 2023, allows for the extension of existing redundancy protections (priority for suitable alternative employment) while on maternity, adoption or shared parental leave to also cover pregnancy and ‘a period of time’ after a new parent has returned to work. In July 2019, the Government Consultation Response proposed extending protection from the date an employee notifies the employer of her pregnancy until six months after the end of the leave period. However, it is understood that the ‘up to six months after’ is still ‘under consideration’. Also ‘under consideration’ is that regulations will impose a minimum threshold, so that only those who have taken six weeks of qualifying leave or more will qualify for the post return extended protection. As for implementation ‘in due course’, this is not expected to be before April 2024 (at the earliest), possibly April 2025.
- The Carer’s Leave Act 2023 creates a new statutory entitlement to at least one week of unpaid leave per year for employees who are caring for a dependent with a long-term care need. The period of leave entitlement and blocks in which it may be taken is left to secondary legislation. As for implementation ‘in due course’, this is not expected to be before April 2024 (at the earliest), possibly April 2025.
- The Neonatal Care (Leave and Pay) Act 2023 allows eligible employed parents whose new-born baby is admitted to neonatal care to take up to 12 weeks of paid leave. This is in addition to other leave entitlements such as maternity and paternity leave. As for implementation ‘in due course’, with amendments needed to several parts of tax legislation, as well as HMRC and payroll systems, it is not expected to be brought into force before April 2025.
In July 2019, the Government announced it is considering ‘high level’ reforms for reforming parental leave and pay ‘with a view to achieving greater equality in parenting an at work’. The review was to consider options ranging from tweaks to exiting forms of leave to a bold ‘wiping the slate clean and start again’ to develop a new modern comprehensive suite of family-related policies.
On 29 June 2023, the ‘Parental Leave and Pay Good Work Plan: Proposals to Support Families Government Response‘ was finally published after COVID-19 delayed matters. Tweaks or bold action? Well, as the Government states in the Response ‘we recognise that these changes to parental leave are not the radical reforms that some respondents argued for’ – so very minor tweaks.
Only three tweaks are proposed to paternity leave. Paternity leave is available to employed fathers/partners who have completed six months’ service with their employer into the 15th week before the week the baby is due. They can take up to two weeks’ paid (at statutory rate) paternity leave to support the mother and to care for the child (equivalent provision also applies in relation to adoptions). The majority of the existing provision for paternity leave and pay will remain unchanged save for:
- Currently the leave can be taken either as one week or two consecutive weeks of leave. This will be changed to either two consecutive weeks of leave or two separate blocks of one week of leave.
- Currently the leave must be taken within eight weeks of birth/placement for adoption. This will be extended to within 52 weeks.
- Currently for new births, notice as to their entitlement to take leave, how much leave they wish to take and when they want the leave to start must be given by the 15th week before the expected week of childbirth, unless this is not reasonably practicable. The start date can be changed by giving 28 days’ notice. This will be changed so that only the entitlement to take the leave must be given by the 15th week before the expected week of childbirth, unless this is not reasonably practicable and only 28 days’ notice of the dates that they intend to take each period of leave.
These changes will be introduced via secondary legislation and expected to take effect from April 2024.
The Response also confirms that no changes are proposed to shared parental leave and unpaid parental leave.
5. Allocation of tips
The fourth new piece of employment-related legislation is The Employment (Allocation of Tips) Act 2023 which was passed on 2 May 2023. The Act will make it unlawful for businesses to withhold tips from their employees. The measures are expected to come into force some time on or after 2 May 2024, following a consultation and secondary legislation with the official date of commencement to be confirmed later this year.
The Act will be supported by a new statutory Code of Practice which will provide businesses and staff with advice on how tips should be distributed.
6. Flexible working
Two flexible working employment Bills are still making their way through Parliament.
- The Employment Relations (Flexible Working) Bill 2022-23 will enhance employees’ rights to request flexible working by:
- removing the 26 week qualifying period;
- extending the number of flexible working requests an employee can make during a 12-month period from one to two;
- requiring an employer to consult with an employee before refusing a flexible working request;
- requiring employers to respond within two months rather than the current three month period; and
- removing the requirement for the employee to set out how the effect of their request may be dealt with.
The current list of business reasons for rejecting flexible working requests will remain unchanged. Its third (and final) reading in the House of Lords is scheduled for 14 July 2023 and is likely to receive royal assent shortly thereafter.
- The Workers (Predictable Terms and Conditions) Bill 2022-23 will give workers and agency workers the right to request a predictable work pattern where:
- There is a lack of predictability as regards any part of their work pattern (fixed term contracts of 12 months or less are presumed to lack predictability).
- The change relates to their work pattern.
- Their purpose in applying for the change is to get a more predictable work pattern.
The Bill mirrors the statutory framework for flexible working applications (as to be amended) in several respects, notably two applications may be made in a 12-month period. Also, employers, temporary work agencies or hirers (as the case may be) will be able to reject applications based on statutory grounds. However, it is likely that a 26-week service requirement will apply via subsequent implementing regulations. Previously considered measures such as compensation for shift cancellation or curtailment without reasonable notice are not contained in the Bill though calls to add such powers remain. The Bill is still at Committee stage. Whether, it will be passed before the end of this Parliament is looking in doubt.
The Worker Protection (Amendment of Equality Act 2010) Bill which, amongst other things will re-introduce protection from third-party harassment subject to an ‘all reasonable steps’ defence, is now very much in doubt.
In light of concerns largely over freedom of expression and exercise of academic freedom, more than 40 amendments have been added by the House of Lords to dilute the Bill and even more significantly parliamentary time is likely to run out before the Bill can be passed.
8. Industrial action
The Strikes (Minimum Service Levels) Bill introduced at the start of the year is currently back in the House of Commons to debate the House of Lords amendments. This highly controversial Bill will allow the Secretary of State to make ‘minimum service regulations’ for strikes in ‘relevant services’ in the fields of health, transport, education, fire and rescue, border control, and nuclear decommissioning and radioactive waste management service. As the House of Commons is unlikely to agree to the latest House of Lords amendments, the Bill will be delayed while the Government tries to find a way forward.
9. Business protection
On 12 May 2023, the Government announced that it intends to introduce new legislation to limit the duration of non-compete provisions to three months. The announcement comes alongside the long-awaited response to the 2020 consultation on the reform of non-compete clauses in employment contracts. The proposals only apply to employment and worker contracts and not to non-competes in other types of contracts, such as sale and purchase agreements. The legislation is not intended to impact non-solicitation clauses or confidentiality clauses. It is also not expected to introduce any restrictions on garden leave.
The proposals, however, raise a number of questions, including:
- What will be the impact on existing covenants? Will they be void or only enforceable up to a maximum of three months? Likely the latter.
- What will amount to an employment or worker contract? What about incentive arrangements with parent companies or settlement agreements?
- Will this lead to longer notice periods and an increased use of garden leave?
The Government’s press release does not specify when the new legislation is likely to be introduced, stating only that this will happen ‘when parliamentary time allows’. As previous calls to limit non-compete clauses by legislation have been seen as unnecessary, whether this will see the light of day is questionable.
On 11 April 2023, a failure to prevent fraud offence was added to The Economic Crime and Corporate Transparency Bill 2022 (ECCT). Under the proposed new offence:
- An in-scope organisation will be strictly liable where an employee or agent commits a specified fraud or false accounting offence under UK law with intent to benefit the organisation, or another person to whom they provide services on the organisation’s behalf.
- It will only apply to large companies and partnerships including not-for-profit organisations and incorporated public bodies, and it will not need to be proven that consent or connivance existed.
- A defence for the organisation will be available where it had in place reasonable fraud prevention procedures at the relevant time. The Government will publish guidance on the nature of reasonable procedures to prevent fraud before the new offence comes into force.
- The offence can be committed even if the organisation and the relevant employee are based outside of the UK.
- The maximum penalty on conviction will be an unlimited fine.
A new factsheet: Failure to prevent fraud offence has been added to the Government’s series of factsheets on aspects of the ECCT Bill. The Bill is currently at the report stage before the House of Lords.
11. Government reviews
- On 24 May 2023, the Department for Business and Trade and the Financial Reporting Council launched a Call for Evidence for the non-financial reporting requirements UK companies need to comply with to produce their annual report, and whether the size thresholds remain appropriate. The review includes seeking views on gender pay gap reporting and modern slavery reporting. The review closes on 16 August 2023. Once responses have been received the Government intends to develop proposals for public consultation in 2024 and, thereafter, look to legislate for any changes.
- On 27 March 2023, the Department for Business and Trade published the Review of the whistleblowing framework: terms of reference. The stated purpose is to “examine the effectiveness of the whistleblowing framework in meeting its original objectives. The review will provide an up-to-date evidence base to inform Government about policy choices to develop and improve the whistleblowing framework” and “will consider how the whistleblowing framework currently operates, including PIDA and subsequent legislative and non-legislative interventions”. It is expected that the research will be concluded by Autumn 2023, with recommendation to follow some time in 2024.
- On 29 March 2023, the Department for Science, Innovation and Technology published the long-awaited AI white paper setting out the Government’s pro-innovation approach to AI regulation. The white paper describes five principles regulators must consider to build trust and provide clarity for innovation:
- safety, security, robustness;
- appropriate transparency and explainability;
- accountability and governance; and
- contestability and redress.
UK regulators will incorporate these principles into guidance to be issued over the next 12 months. Risk assessment templates and other tools will also be issued, including assurance techniques, voluntary guidance and standards.
12. New and updated guidance
- On 24 May 2023, the UK Information Commissioner’s Office (ICO) published new guidance for organisations on responding to Subject Access Requests (SARs). The new guidance is intended to assist employers in responding to SARs appropriately and within applicable time limits and to make sure that employees are able to obtain access to their personal data when they wish to do so. Of note the new guidance clarifies:
- On 17 April 2023, the Department for Business and Trade published:
- Positive action in the workplace: guidance for employers – explains how employers could use the positive action measures under the Equality Act 2010 to help people who share a particular protected characteristic to overcome certain barriers and improve representation in the workforce; and
- Ethnicity pay reporting: guidance for employers – aims to provide a consistent approach to measuring pay differences for the purposes of ethnicity pay reporting. It sets out a voluntary system for employers to measure, report on and address any ethnicity pay differences within their workforce.
- On 17 April 2023, Acas published new guidance on reasonable adjustments for mental health at work for both employers and workers together with checklists for employers and employees.