Monthly Highlights – UK Employment Law – December 2023

In this month’s instalment, our team discuss the regulations for the Protection from Redundancy (Pregnancy and Family Leave) Act 2003 and the Carer’s Leave Act 2003 that were laid before Parliament on 11 December 2023. We also highlight a recent case where the Employment Appeal Tribunal held that an agreed contractual compensation payment due on termination of employment did not make it just and equitable for the tribunal to cap its award for whistleblowing detriment and dismissal. We further discuss changes that will come into force on 1 January 2024 under the Retained EU Law (Revocation and Reform) Act 2023 and discuss HMRC’s guidance for businesses working with umbrella companies as well as the Prudential Regulation Authority (PRA) and the Financial Conduct Authority’s (FCA) policy on remuneration requirements for small firms.

1. The Protection from Redundancy (Pregnancy and Family Leave) Act 2023

The draft Maternity Leave, Adoption Leave and Shared Parental Leave (Amendment) Regulations 2024 were laid before Parliament on 11 December 2023. Currently, employees on maternity leave, shared parental leave or adoption leave already have special protection in a redundancy situation insofar that they have the right to be offered a suitable alternative vacancy, if one is available, before being made redundant.  If passed, the following additional redundancy protections will apply: 

• Pregnancy and maternity leave – The redundancy protection period during pregnancy will start when an employee tells their employer about the pregnancy. If the pregnancy ends and the employee is not entitled to statutory maternity leave, the protected period ends two weeks after the end of the pregnancy. Redundancy protection will continue during statutory maternity leave for a period of 18 months after the expected week of childbirth (or 18 months after the exact date of childbirth, provided the employee notifies the employer of the date of childbirth before the end of the statutory maternity period, or as soon as reasonably practicable thereafter). The regulations that make provision for the protected period of pregnancy will apply where the employer is informed of the pregnancy on or after 6 April 2024. The regulations extending the period of protection for a further 18 months after childbirth will apply where the employee's statutory maternity leave ends on or after 6 April 2024.
• Adoption leave – The protected period is extended to 18 months after the child is placed with the employee for adoption. The regulations will apply where the employee's statutory adoption leave ends on or after 6 April 2024.
• Shared parental leave – The protected period is extended to 18 months after the child was born or placed with the employee for adoption, provided the employee has taken six or more consecutive weeks of shared parental leave and has not taken maternity or adoption leave. The regulations will apply where the employee's shared parental leave ends on or after 6 April 2024.

Key takeaways

As more employees will qualify for priority status, employers considering or planning redundancies in 2024 will need to ensure they have properly considered the implications of the new protections. Employers may want to consider adopting methods for identifying potentially suitable roles across their organisations, including group companies, and ensure this is kept up to date. In the event an employer fails to offer a priority status employee a suitable alternative role, an employee will be able to bring a claim for automatic unfair dismissal (there is no qualifying service for this claim), and the compensatory award is uncapped.

2. The Carer’s Leave Act 2023

On 11 December, the draft Carer’s Leave Regulations 2024 were laid before Parliament. The Carer’s Leave Act 2023 will give employees who are unpaid carers up to five days unpaid leave from work a year in support of their caring responsibilities and will come into force on 6 April 2024. Here are several key points to note:

• The right is a day one employment right.
• The right applies to employees who have a dependant with a long-term care need and those who want to be absent from work to provide or arrange care for that dependant.
• Employees are required to give notice to their employer and the notice period must be twice the length of the leave being requested.
• Employees will not be required to produce evidence of their entitlement to take the leave.
• Employers can postpone a request if it would unduly disrupt the operation of the business. If the employer does postpone the leave, it must give notice of the postponement before the leave was due to begin and explain why postponement is necessary. The employer must allow the employee to take the leave within one month of their original request.
• Employees are protected from detriment and dismissal because they take, or seek to take, carer’s leave (or if an employer believes they are likely to do so).

Key takeaways

Employers should consider updating policies to reflect the right to carer’s leave and implement a system to keep track of the number of days taken.

3. Agreed contractual compensation payment did not make it just and equitable to cap tribunal award

In SPI Spirits (UK) Ltd v Zabelin, the Employment Appeal Tribunal held that an agreed contractual compensation payment due on termination of employment did not make it just and equitable for the tribunal to cap its award for whistleblowing detriment and dismissal.

The Facts

The respondent argued that it would be ‘just and equitable’ for the claimant’s remedy to be capped at £270,000, as this was the maximum liability on termination stated in the contract of employment. The respondent argued that the award should not be uplifted for failure to follow the Acas Code of Practice, as the claimant’s written grievance did not contain any protected disclosures – instead, these were made verbally by the employee at a later date. The Employment Tribunal disagreed, applied a 20% uplift to compensation and awarded the claimant over £1 million. The respondent appealed.

The Employment Appeal Tribunal agreed with the Employment Tribunal, finding that:

• The fact that the contractual clause was freely negotiated did not mean it would be ‘just and equitable’ to apply the cap. For whistleblowing cases, there is no cap and compensation should reflect the loss caused.
• Any attempt to limit liability for statutory employment claims in contractual documentation will be ineffective.
• Although a grievance needs to be in writing for the Acas Code to apply, in this case, it was sufficient that the oral protected disclosures were made in a meeting about a grievance that had been put in writing and as such, the Acas Code applied, entitling the claimant to the full Acas uplift.

Key takeaways

Employers should note that a provision in an employment contract that purports to restrict the financial culpability of a respondent in the event of termination of employment cannot be used to cap the amount of compensation that the tribunal awards.

4. Retained EU Law (Revocation and Reform) Act 2023 commencement regulations published

On 15 December 2023, the Retained EU Law (Revocation and Reform) Act 2023 (Commencement No. 1) Regulations 2023 were published. The regulations bring into effect those aspects of the Retained EU Law (Revocation and Reform) Act 2023 (REULA) that will repeal certain EU-derived legislation at the end of 2023. The following changes will come into force on 1 January 2024:

• The principle of the supremacy of EU law will be abolished. Instead, the courts will apply standard domestic principles of interpretation to retained EU law (with the exception of certain aspects of data protection law), which will be known as “assimilated law” from the end of 2023.
• REULA will abolish the influence of general principles of EU law on the interpretation of domestic legislation. Indeed, EU general principles such as proportionality, protection of fundamental rights and the principle of equal treatment will no longer be available as an aid to interpretation of EU legislation. Instead, standard domestic principles of interpretation will apply.
• A court will be required to make an “incompatibility order” if it finds that a provision of retained direct EU legislation is incompatible with any domestic legislation.

REULA therefore provides courts with greater scope to depart from retained EU case law, opening up the possibility of greater divergence in a number of areas. This may lead to increased litigation, with claimants and respondents alike seeking to depart from retained EU case law.

5. HMRC’s guidance for businesses working with umbrella companies

Employment businesses (sometimes referred to as recruitment agencies) source workers for end-user clients by engaging with “umbrella” companies. An umbrella company functions as the official employer for contract workers hired by an employment business. The umbrella company handles administrative payroll, compliance duties and tax on behalf of the employment business, which allows the employment business to offload its employer liabilities.

However, HMRC’s new guidance makes it clear that employment businesses cannot completely avoid employment duties when relying on umbrella employment arrangements. The HMRC guidance sets explicit expectations around pay rate transparency, proper information disclosures and ongoing payslip monitoring. The key points to note from the guidance is that employment businesses must:

• Submit quarterly employment intermediaries return for workers the employment business places with end-user clients where the business does not operate PAYE including umbrella company employees.
• Operate PAYE where the workers the employment business supplies to a UK end-user client are employed by an overseas employer such as an umbrella company with no UK presence, under the rules for offshore intermediaries unless someone else operates PAYE on the businesses’ behalf.
• Follow the VAT requirements for operating self-billing with an umbrella company.
• Pay tax and any National Insurance contributions on any cash incentives or rewards their employees receive directly from an umbrella company.
• Prevent illegal working, including checking that umbrella companies carry out and record right to work checks on temporary workers, as set out in the Immigration, Asylum and Nationality Act 2006.
• Not agree to or accept gifts including money which encourage any part of the supply chain to perform their functions or activities improperly or rewards them for having already done so, as set out in the Bribery Act 2010.

The guidance also makes clear that non-compliance with the above may result in HMRC taking action against the employment business. Such action includes:

• Prosecution for failure to prevent facilitation of tax evasion in the supply change.
• Issuing an enablers penalty if an employment business uses an umbrella company that is operating tax avoidance.

Key takeaways

HMRC’s guidance provides clarity as to where in the chain responsibility for employment rights, pay and tax lies. End-user clients may wish to consider building a contractual right regarding tax and national insurance obligations into the commercial terms held with the employment business.

6. PRA and FCA finalise policy on remuneration requirements for small firms

To ensure that remuneration rules for smaller, less complex dual-regulated firms are proportionate to the risks they post to consumers and markets in the UK, the PRA and FCA have introduced new proportionality levels which relax some pay rules for “small firms.” Such firms will not be required to apply “malus and clawback” (as required under the FCA’s relevant remuneration codes and practices rules) for performance years starting on or after 8 December 2023.