9 minute read | December.01.2023
In this month’s instalment, our team highlights key changes to employment laws and what they mean for employers. We also discuss the Supreme Court’s recent ruling holding that Deliveroo riders do not have an “employment relationship” for trade union recognition purposes, a decision which will be of particular interest to the gig/platform economy. We also highlight the Employment Appeal Tribunal’s recent ruling that engaging in a grievance or appeal procedure is not likely to affirm the employment contract.
1. Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023
On 8 November 2023, the government published the draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, which are expected to come into force on 1 January 2024. The Regulations contain significant changes to existing legislation. Employers will need to consider the implications for their business and make any necessary changes ahead of the anticipated effective date. We consider the key changes below.
Holiday pay to include overtime and commission
Currently, employees have two separate holiday entitlements:
Pursuant to EU case law, the four weeks’ leave based on EU law must be paid at ‘normal’ pay, which means including regular overtime and commission in the calculation. The additional 1.6 weeks’ leave can generally be paid at basic pay only.
As we discussed in our employment update in May, the government had proposed merging the two types of leave into a single pot of 5.6 weeks’ annual leave. However, it has decided to keep these as two distinct pots of annual leave. This means workers will continue to have a minimum entitlement of four weeks at “normal” pay and 1.6 weeks at basic pay. Whilst the Regulations do not explicitly confirm what is meant by “normal pay”, they do state that pay for the four weeks’ leave based on EU law must include:
The Regulations also restate EU case law in relation to carryover of annual leave when a worker is unable to take their leave due to being on family-related leave, such as maternity leave, paternity leave, or sick leave, but also add some further new considerations for employers in relation to carryover. The Regulations will allow carryover of annual leave in the following circumstances:
Employers should therefore consider updating policies and contracts to make it clear that workers will lose any untaken holiday entitlement at the end of the holiday year, except in the circumstances in which carryover is permitted and should, as a matter of best practice, now remind employees of these rights on a regular basis. Further, employers may want to build procedures into their holiday pay systems to ensure that leave is not inadvertently carried forward.
Changes for atypical workers
The Regulations also make key changes to holiday rights for certain atypical workers, namely those with irregular hours or who only work part of the year (e.g., teachers in the education sector). These changes will only apply for holiday years starting on or after 1 April 2024. The changes include:
Following the case of Harper v Brazel, there was much confusion around calculating holiday entitlement for atypical workers. Indeed, this case ruled that part-year workers could accumulate a greater holiday entitlement than part-time workers who had worked the same total number of hours across the year.
It also ruled that employers should not use the 12.07% calculation for holiday pay. Nevertheless, the Regulations reverse that decision and provide that employers can calculate holiday entitlement for irregular-hours workers and part-year workers using the 12.07% accrual method, which will be capped at 28 days of annual leave in any leave year. This method better reflects the hours that workers have actually worked in the current leave year, as annual leave is accrued based on time worked each pay period.
Rolled-up holiday pay is where employers pay their workers a sum in addition to their normal hourly rate of pay to represent their holiday pay entitlement. However, this practice is unlawful under EU law. The Regulations have removed the ban of rolled-up holiday pay for part-year workers and irregular-hours workers. This means that employers can now choose to pay such workers an enhanced amount of 12.07% on top of their normal pay to cover holiday pay, as opposed to paying them when they take annual leave. This change will be welcomed by many employers who employ such staff, as it will help to reduce the administrative burden and complexity for employers when calculating holiday pay.
The requirement to keep detailed records of working hours and rest breaks for all staff has been removed, provided that the employer is able to demonstrate compliance with the Working Time Regulations 1998 without doing so. As such, employers will still be required to keep adequate records; however, records will only need to be adequate and proportionate and will not necessarily need to include each worker’s daily working hours.
Employers should review and adjust holiday calculations to comply with the Regulations, as much of the previous case law has now been placed into statute by the Regulations. If an employer does not currently include commission, overtime and allowances in holiday calculations, this will likely require significant changes to their payroll systems and working practices. Further, employers with part-year and/or irregular-hours workers should consider implementing updated systems for calculating holiday accrual and determine how they wish to approach rolled-up holiday pay.
2. Amendments to the Equality Act 2010
The government has also published draft amendments to equality legislation in the Equality Act 2010 (Amendment) Regulations 2023. The purpose is to carry across aspects of retained EU law into domestic law to ensure the same level of protection is afforded once the EU-based equality laws cease to apply at the end of the year. We highlight the changes below.
Indirect discrimination by association
To bring an indirect discrimination claim under the Equality Act 2010, an individual must possess the protected characteristic against which the employer’s provision, criterion or practice is discriminatory. However, EU law permits individuals to bring an indirect discrimination claim if they suffer the same disadvantage, even if the individuals themselves do not possess the relevant protected characteristic. The Regulations add a provision to the Equality Act, allowing a claimant without a protected characteristic to bring a claim of indirect discrimination. This change will likely widen the scope for indirect discrimination claims, and it is therefore crucial that employers are aware of this change.
Definition of “disability”
The definition of “disability” is wider in retained EU law than under the Equality Act, as the focus is on an individual’s ability to participate in their working life, whereas the Equality Act refers to the “ability to carry out normal day-to-day activities.”
The Regulations clarify the meaning of “normal day-to-day activities” within the definition of “disability” in the Equality Act to include the “ability to participate fully and effectively in working life.”
Direct discrimination related to maternity and breastfeeding
Single-source test in relation to equal pay
EU law allows equal pay claims to be brought using comparators with terms and conditions from the same single source. The Equality Act requires employees to use comparators who are employed by the same or an associated employer.
The Regulations amend the Equality Act so the EU “single-source” test applies to domestic law. This means that workers will not have to have the same employer, or even an associated employer, to be able to make an equal pay comparison. Instead, provided a single body is responsible for the inequality and has the ability to restore equal treatment, workers will be able to compare their pay with that of other workers.
Discriminatory statements outside an active recruitment process
The Equality Act only prohibits discrimination in recruitment decisions against an individual due to their protected characteristic. However, the Regulations introduce a provision to the Equality Act which prohibits discriminatory statements by employers in connection with recruitment decisions.
Further, the Regulations add that an employer can be vicariously liable for statements made by somebody who is not an employee or agent if there are reasonable grounds for the public to believe that person is capable of influencing an employer’s recruitment decision; there is no need for a claimant to be personally affected by the statement nor for the employer to be actively involved in a recruitment process. This change increases the risk of discrimination claims, particularly given that a claimant does not need to have been affected by the statements.
3. Reasonable Steps to Prevent Sexual Harassment
The Worker Protection (Amendment of Equality Act) Act imposes a duty on employers to take “reasonable steps” to protect employees from sexual harassment. Whilst the Act will not come into force until October 2024, employers should take steps now to ensure they are prepared to comply.
Under the Act, employers have a duty to take “reasonable steps” to prevent sexual harassment of employees. Whilst the Equality Act 2010 already provides a defence to a harassment claim if an employer can show it had taken reasonable steps to prevent any such harassment from happening, this was simply an advisable step and not a legal requirement nor did it require positive action.
Under the Act, a claim for breach of the new duty can be made in the Employment Tribunal but it cannot be a stand-alone claim. It must be in addition to a sexual harassment claim. If an employee succeeds in a claim for sexual harassment, and the employer is found to have breached its duty to take reasonable steps to avoid the sexual harassment, the Employment Tribunal will be able to increase any compensation by up to 25%.
Most employers will already be aware of the “reasonable steps” defence in discrimination claims. Whilst establishing that reasonable steps have been taken is a high threshold, it is not expected that the Act will require employers to do anything significantly more than a prudent employer is already doing to prevent harassment in the workplace. Nevertheless, employers should consider taking the following steps to comply:
4. Lack of Employment Relationship With Deliveroo Riders
The Supreme Court has held that Deliveroo riders are not covered by the right to form and join a trade union under Article 11 of the European Convention on Human Rights (ECHR) because no “employment relationship” exists between them. This decision ends seven years of litigation involving the Riders and the Independent Workers Union of Great Britain. The finding is welcome news to platform/gig economy companies with flexible operating models in which individuals have freedom about when and whether to work.
In 2017, the Central Arbitration Committee ruled that the Riders were not “workers” within the meaning of section 296 of the Trade Union and Labour Relations (Consolidation) Act 1992, and as such, an application for trade union recognition by the Union on behalf of a group of Riders could not proceed. The Union applied to the High Court for judicial review. The High Court dismissed the application. The Union appealed to the Court of Appeal, which dismissed the case. The Union took its case to the Supreme Court.
The Supreme Court’s decision
The key issue for the Supreme Court to decide was whether the Riders fell within the scope of Article 11 of the ECHR. The Supreme Court held that they were not “workers” and that the findings by the High Court and Court of Appeal were correct. The Supreme Court stated that the right of substitution in the Riders’ contracts was “virtually unfettered” and that such a “broad power of substitution” was “totally inconsistent with the existence of an obligation to provide personal service which is essential to the existence of an employment relationship.”
Notwithstanding the weight the right of substitution carries, the Supreme Court acknowledged further indicators that were inconsistent with an employment or “worker” relationship, namely:
Although this case was not about employment status and employment rights per se, the Supreme Court’s judgment has given useful guidance to help businesses to frame their relationships with self-employed individuals and avoid employment or worker relationships. If there is a broad, genuine and unfettered right of substitution, it will be difficult for individuals to argue employee or “worker” status regardless of how often substitution is used in practice. Nevertheless, when determining status (and particularly where there is no right of substitution or a limited/fettered right), the correct approach still requires the application of a multifactorial test, including consideration of the various indicators listed by the Supreme Court and in previous gig economy cases.
Further, it is now apparent that the reference in Article 11 of the ECHR to “everyone” having “the right to form and to join trade unions for the protection of [their] interests” is limited to those who have an “employment relationship.”
5. Engaging in a Grievance or Appeal Procedure Unlikely to Affirm the Employment Contract
In Brooks v Leisure Employment Services Ltd, the Employment Appeal Tribunal (the EAT) considered whether engaging in a grievance procedure affirms the employment contract for the purposes of a constructive dismissal claim.
The Employment Appeal Tribunal’s findings:
Allowed the appeal. It ruled that exercising a contractual grievance or appeal procedure in an attempt to give an employer an opportunity to resolve the issues that resulted in a breach of contract is not likely to be treated as an unequivocal affirmation of the contract.
Held that the Employment Tribunal had failed to take the claimant’s ongoing grievance and reservation of her rights into account, and it was imperative for it to do so when considering affirmation. Indeed, use of a contractual grievance procedure will generally be no more than “continuing to work and draw pay for a limited period of time” while giving the employer an opportunity to put matters right, so generally will not amount to affirmation. As such, the Employment Appeal Tribunal remitted the case back to the same Employment Tribunal to determine whether the claimant had affirmed her contract of employment before resigning.
This case serves as an important reminder that employees may claim constructive dismissal notwithstanding their attempts to resolve their disputes via a grievance procedure. The mere fact that employees have engaged in a grievance procedure or raised an appeal does not necessarily mean they have affirmed their employment contract and waived the right to claim constructive dismissal.
Each case will depend on its own facts, but there is a clear risk that grievance or appeal provisions may remain binding even when employees consider that their employment has come to an end through breach. Employers should ensure that they deal with employees’ complaints in accordance with their policies and procedures.