Brexit and employment law – What’s happening?

The Revocation and Reform Bill and “bonfire of employment rights”

Back in September 2022, during the short period when Liz Truss was Prime Minister, we reported on the Retained EU Law (Revocation and Reform) Bill. In short, this provided for the automatic revocation of all European Union-derived subordinate legislation and retained directly applicable EU legislation, by the end of 2023, under a so-called “sunset” clause. The Bill was partly a response to frustration in some quarters around a perceived lack of legislative change since the UK left the European Union back in 2020.  This article looks at recent developments in connection with the Bill, and how they will impact UK employers.

The Bill raised concerns among many commentators around a “bonfire of employment rights”, with many long-standing protections in scope to be abolished. The Bill also created some uncertainty. It was not clear what laws would be revoked and what would be kept and there were questions around whether there was enough manpower within the civil service to implement all the associated changes.

In response to some of these concerns, the Bill has recently been amended so the list of legislation that will be automatically revoked has been substantially slimmed down. There are no employment laws in the list, apart from some regulations that are very minor or are genuinely obsolete following Brexit, for example around the concept of “posted workers” and European Co-Operative Societies.

The amended Bill came into force at the end of June and has become an Act. Despite the change to the sunset clause, the Act still gives government ministers significant new powers to reform EU-derived laws. The scope for such reform is technically somewhat limited, as the trade deal that the UK and EU agreed in December 2020 commits the UK to maintaining certain standards. Specifically, the trade deal includes a concept of “non-regression”, such that neither the UK or the EU can weaken its levels of social and labour protections in a manner that would affect trade or investment between the parties.

Consultation on reforms to retained EU law

The government is still proposing some changes to EU-derived employment laws. In May, the government launched a consultation on reforms to retained EU law, seeking views in three areas:

1. Holiday pay:

   The UK’s Working Time Regulations 1998 implement the EU’s Working Time Directive, and govern working time and paid holiday.

   In the UK, statutory holiday currently comprises two elements: four weeks’ holiday (which is the entitlement derived from EU law) and an additional 1.6 weeks’ which comes solely from UK law. All of the total 5.6 weeks’ entitlement must be paid.

   There is significant complexity around how these two types of holiday are treated.  UK case law that derives from principles in the EU Directive, and has taken into account judgments of the European Court of Justice, has found that pay for the 4 weeks’ EU-derived holiday must be paid based on all of the components that comprise a worker’s usual pay, including for example overtime pay and commission.  This case law does not apply to the additional 1.6 weeks so there is more flexibility for employers on how pay for this element of leave is calculated. There are also different rules for each of the two elements of holiday in relation to carry over into future holiday years. The government is therefore proposing to merge the two elements so that they are no longer treated as distinct categories of holiday. However, the government has not stated its position on how pay for this merged holiday will be calculated: whether the more generous approach applicable to the four weeks’ EU-derived leave will apply , or to extend the rules applicable to the additional 1.6 weeks to all statutory holiday, which would benefit businesses. The government acknowledges that it would be challenging to clearly define the rate of pay into legislation so employers may face continued uncertainty in this area.

   The government is also proposing to make changes to so-called “rolled up” holiday pay. This involves paying additional pay which is designated as holiday pay but is “rolled up” into a worker’s pay for the time when they are performing work, rather than paid for the period when they are on holiday. This method has traditionally been common for some categories of workers such as workers on zero hours contracts in the gig economy, where irregular work patterns make the calculation and payment of holiday pay for time off particularly complex. Rolled up holiday pay is  technically unlawful due to concerns around whether workers who receive it are sufficiently incentivised to actually take holiday. However, the government is considering making it lawful for all workers.
   
   

2. Working time records:

   In 2019, the European Court of Justice held that employers must have a system for measuring daily working time, to ensure that laws around rest breaks and maximum weekly working time are complied with (Federación de Servicios de Comisiones Obreras (CCOO) v Deutsche Bank SAE). The government is now proposing to confirm that this case does not apply to the UK. Of course, many UK employers monitor working time for other reasons and are likely to continue to do so, including under the existing record-keeping requirements in the Working Time Regulations, and to ensure workers are paid for the right number of hours and receive the National Minimum Wage. 
   
   

3. TUPE:

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) governs what happens to employees impacted by transfers of businesses or the contracting out/in and retendering of outsourced services.

Under TUPE, employers are required to inform and consult with appropriate representatives of their affected employees prior to the transfer. This often involves setting up and going through time-consuming election processes, even where employees may be happy (or in fact prefer) to be consulted directly. The government is proposing to relieve businesses from the obligation to inform and consult with elected representatives where they have fewer than 50 employees or where there are fewer than 10 employees transferring, assuming there are not any existing employee representatives already in place.

Many commentators consider that these relatively limited proposals reflect a more pragmatic approach than the original approach under the Retained EU Law (Revocation and Reform) Bill. The consultation closed in July and the government’s response is awaited.

Beyond Brexit, the government has proposed or is already implementing changes to UK employment law that are entirely separate from the EU and Brexit. These changes are at various stages and further details are beyond the scope of this article, but the changes include:

• Changes to the flexible working regime, including allowing employees to make two requests per year.
• Extended redundancy protection for women who are pregnant or have recently returned from maternity leave (with equivalent protection in relation to adoption leave and shared parental leave).
• A new proactive duty on employers to prevent sexual harassment.
• Proposals to limit the duration of post-termination non-compete restrictions to 3 months.

Finally, it is worth considering a change that could well impact all of the changes currently proposed by the government. There is likely to be a general election in the UK in 2024 or possibly 2025. If polls are to be believed, the current Conservative government could well be replaced by a Labour government led by Keir Starmer. In recent years the Labour party has made statements around changes they propose to make if elected to government, including making unfair dismissal protection a day one right, rather than employees needing to have at least two years’ service with their employer, as well as changes to the controversial “fire and rehire” process for implementing changes to terms and conditions of employment. It remains to be seen whether these proposals make it into Labour’s manifesto, or indeed whether they win the general election. However, a Labour government may adopt a much more worker-friendly employment law regime than the more employer-friendly approach of the current Conservative government.

In conclusion, after a period of relatively little change in employment law in the UK, there are a large number of developments on the horizon. For many changes, it is unknown whether or not they will happen, and when. Employers should keep the situation under review and be prepared to act swiftly to adapt to those that make it into law.