Key employment law updates | January 2023

Consultation on calculating holiday entitlement for part-year and irregular hours workers

The Government has launched an open consultation on calculating holiday entitlement for part-year and irregular hours workers following the response to the Supreme Court's decision in Harpur Trust v Brazel.

The decision in the case of Harpur Trust v Brazel held that holiday entitlement under the Working Time Regulations 1998 for part-year workers who were permanently engaged (e.g. under an ongoing zero hours or term time agreement) should not be pro-rated so it is proportionate to a full time worker. This effectively meant part-year workers had a larger entitlement to annual paid holiday entitlement as a proportion of the hours that they worked. It also meant that the 12.07% short-cut method of calculating holiday entitlement and pay for casual/irregular was no longer reliable.

The consultation is designed to address this disparity and seeks to take views on introducing legislation that allows employers to pro-rate entitlement for part-year workers/workers with irregular hours, so they receive proportionate leave in respect to hours worked. The proposal includes introducing a holiday entitlement reference period to ensure holiday entitlement and pay is directly proportionate to time spent working. The consultation accepts that holiday pay and entitlement legislation has become complex and leads to challenges for employers to follow due to changes in case law and that legislation is arguably no longer achieving what was originally intended.

It remains to be seen if any legislative changes occur because of this consultation, but we are hopeful it will lead to more clarity (and a more practical working solutions) than the present situation (which gives every permanently engaged worker and entitlement to 5.6 weeks holiday calculated as an average over the last 52 weeks in which they were paid, ignoring any weeks when they were not paid).

Dismissal and Re-engagement Draft Code of Practice

BEIS has recently published a draft Code of Practice on Dismissal and Re-engagement. It aims to provide a best practice guide for employers who are looking to make changes to their terms and conditions so that dismissal and re-engagement is only ever used as a last resort. There is a consultation period of 12 weeks, and the government will consider views before publishing the final version of the code.

The draft code provides recommendations for employers including that the employer should consult staff and use all reasonable steps to explore alternative options without using the threat of dismissal to put pressure on employees to accept the terms. It also states that if agreement cannot be reached, an employer should actively re-examine its business strategy before making a decision.

Employers should be aware that, as drafted, a failure to comply with the Code would be taken into account in any consequent unfair dismissal claim and could result in an uplift of an award of up to 25%.

Potential change in strike laws

The Government is considering the Strikes (Minimum Service Levels) Bill, introduced to Parliament in January 2023 (differing from the Transport Strikes (Minimum Service Levels) Bill introduced to the House of Commons last October). If made into law, it would amount to significant amendments on the process (and effect) of public sector strikes by enforcing "minimum service levels" in a number of sectors. The power to determine the minimum service levels would be reserved by the Secretary of State. For more information, please see our in-depth article.

FCA and PRA consult on removing limits to bonus cap

In December 2022, the FCA and PRA published a joint consultation paper in relation to the intention to remove the bankers bonus cap outlined by Kwasi Kwarteng in September 2022. Here, the regulators outline the proposed changes to the bonus cap, seeking to remove the current limits. The changes are to focus on the limits on pay that are adjusted by risk and performance measures.

The proposed changes intend to 'strengthen the effectiveness of the remuneration regime'. As well as this, the changes should help provide the regulators with more comfort that firms can withstand a downturn, by not increasing fixed costs through salary raises, rather through risk adjusted and performance-based bonuses or other incentive tools (dividends, discretionary pension benefits and shares).

The proposed changes would result in changes to: the Remuneration Part and the Disclosure Part of the PRA Rulebook, the Senior Management Arrangements, Systems and Controls sourcebook of the FCA Handbook; and, updates to the PRA's supervisory statement: remuneration.

The consultation will run until 31 March 2023. The final rules are anticipated to be published in Q2 2023. The regulators propose that the changes take effect on the first performance year starting after the publication of the joint policy statement – likely to be 2024/25 performance year for most. It is important for relevant employers to keep up to date with this area and to adapt current remuneration policies to meet the potential changes, taking into account the flexibility the changes would provide. That said, any increase in the proportion of variable pay due to the removal of the cap will need to be carefully monitored to ensure that employers do not fall foul of equality legislation. Look out for our upcoming article which will go into further detail on these proposed changes.

Single enforcement body for workers' rights delayed

At a BEIS committee meeting, Grant Shapps the Business Secretary, confirmed that the commitment to introduce a single enforcement body for workers' rights, which has already been delayed, is not being advanced. Mr Shapps explained that, as the government had been dealing with COVID-19 over the past two years, the government has been able to see how the individual enforcement bodies are working. The government, therefore, is more interested in making sure that the current bodies operate as effectively as possible.

The creation of a single enforcement body was put forward by the government in 2018. It was later confirmed in 2021 that a single enforcement body would be created as part of an Employment Bill. The body would have the remit to protect workers' rights in relation to national minimum wage, holiday pay for vulnerable workers, sick pay and labour exploitation. However, Mr Shapps confirmed that there was no Employment Bill on the horizon, and cited that the government was backing five private members bills. Please see our What to look out for in 2023 article for more information.

SEC whistleblowers

As part of the U.S. Securities and Exchange Commission (SEC) Whistleblower Rewards Programme, the SEC has paid out over $1,000,000,000 ($1 billion) in rewards to whistleblowers in the last decade. These rewards are funded by way of fines issued by the SEC who have generated an income of $6,000,000,000 ($6 billion) in the last decade from fines alone.

As thousands of UK companies are regulated by the SEC, employers need to be aware on how the SEC Whistleblower Rewards Programme works and how it can affect them.

The SEC is a US government agency that ensures that any company trading stock in the US adheres to securities laws (laws requiring companies to make honest and truthful disclosures, keep accurate books and records and abstain from all manners of fraud, bribery and corruption). The aim of the SEC Whistleblower Rewards Programme is to financially encourage people to report serious legal violations directly to the SEC – leaving SEC regulated employers vulnerable to anonymous reports from their own employees.

If a business becomes aware of a competitor business (whom is regulated by the SEC), an employee of the business can report an alleged competitor's violation to the SEC to seek to obtain a whistleblower reward (10-30% of the fine imposed).