UK Employment Law Reforms 2013

by Pillsbury Winthrop Shaw Pittman LLP

There are a number of important reforms being made to UK employment law this year, largely due to the enactment of the Enterprise and Regulatory Reform Act 2013 (“ERRA”). Many of the reforms under ERRA are being implemented over a period of time from 2013 and beyond, following a period of intensive consultation by the UK Government. Keeping track of all the proposed reforms can be a challenge. This Client Alert summarises the key reforms which have recently come into force and provides a timetable for the implementation of other key proposed reforms so that employers can start planning more effectively to accommodate the changes.

Reforms Which Have Recently Come Into Effect

Changes to the Collective Consultation Period
From 6 April 2013, the minimum consultation period where an employer proposes to make 100 or more employees redundant was reduced from 90 days to 45 days before the first dismissal takes effect. This will help reduce the burden of consultation in large scale redundancies and allow for swifter restructuring; however, the reduction in time will obviously place some added pressure on employers to progress large-scale redundancy exercises in an efficient manner. It remains essential to ensure that staff are fully involved and engaged in such consultation exercises from the outset. The 90-day period for calculating headcount remains unchanged as does the maximum 90-day protective award period.

Whistleblowing Rules Changed to Avoid Abuse
From 25 June 2013, ERRA introduced a requirement that an employee or worker making a disclosure will only be protected from dismissal or detriment if they reasonably believe that the disclosure is in the “public interest”. This means that it will no longer be possible to bring a whistleblowing claim which arises from disclosures relating to the whistleblower’s own interest, such as alleged breaches of an individual’s employment contract, unless the disclosure is in the public interest. An example might be a concern raised about bullying in the context of an employment dispute where it may be arguably in the public interest that other workers are protected from similar behaviour. ERRA does not define what is meant by the “public interest”; hence litigation on this point can be expected.

ERRA also removed the requirement that the disclosure be made in good faith; however, Employment Tribunals may reduce compensation awarded by up to 25% if bad faith can be proved. In other words, the whistleblower’s motivation no longer matters; provided the provided the whistleblower has a reasonable belief that the disclosure is in the public interest, they will be protected from dismissal or detriment even if motivated by bad faith.

Finally, ERRA introduces vicarious liability if the person making the protected disclosure suffers any detriment caused by the employer’s workers, employees or agents. To successfully defend such claims, employers must ensure that they have clear policies that such action is unacceptable and take swift and appropriate action if it occurs.

Repeal of Third Party Harassment and Statutory Discrimination Questionnaire
From 25 June 2013, employers will no longer be liable for the harassment of an employee by a third party. ERRA has removed the provision on third party harassment from section 40 of the Equality Act 2010, which required employers to take reasonable steps to prevent persistent discriminatory harassment of their employees by third parties, such a customer or supplier. The Government has recognised that imposing such a duty was unworkable because employers have little direct control over the actions of a third party. However, employees could still potentially argue that failure to prevent third-party harassment itself amounts to “unwanted conduct” so it would be prudent and good employment practice for employers to appropriately deal with complaints from their employees about third-party harassment.

The statutory discrimination questionnaire procedure, whereby an employee gathers information from his or her employer, was also abolished on 25 June 2013. Although this formal procedure has been removed, employees can still ask questions through pre-action requests or information disclosure.

Automatic Unfair Dismissal Due to Political Affiliation or Opinions
From 25 June 2013, an employee will not need any qualifying period of service to bring a claim for unfair dismissal where the reason for the dismissal was the employee’s political affiliations or opinions. Such dismissals are now automatically unfair.

New Limit on Unfair Dismissal Compensation
From 29 July 2013, the limit on unfair dismissal compensatory awards has been capped at the lower of 52 weeks’ gross pay or the statutory limit, which is currently £74,200. A week’s pay is based on the statutory definition which excludes pension contributions, benefits and discretionary bonuses.

Introduction of Employment Tribunal Fees
The Employment Tribunal Fees came into effect on 29 July 2013. Employment claims have been categorised into two tiers – Type A and Type B claims – and the fees are different for each tier. Type A claims contains a definitive list of straightforward claims such as unlawful deduction of wages. The majority of claims, such as unfair dismissal and discrimination, will fall into Type B claims. The fees are broken down into an issue fee and a hearing fee which is payable when the claim progresses to a hearing. Type A claimants will be required to pay an issue fee of £160 and a hearing fee of £230, a total of £390. Type B claimants will be required to pay an issue fee of £250 and a hearing fee of £950, a total of £1,200. In group actions where there are multiple claimants there will be a single issue fee and hearing fee. The fee amount is determined by the number of claimants. In Employment Appeals Tribunals the issue fee is £400 and the hearing fee is £1,200, a total of £1,600.

Other fees are also payable, such as for issuing a counterclaim, review of default judgements and reconsideration of decisions. The introduction of fees in the Employment Tribunal system is likely to deter employees from bringing spurious claims and is also likely to encourage early settlements of claims. Not surprisingly this has proven deeply unpopular with many employee-friendly organisations. The trade union Unison has been granted permission to judicially review the Government’s decision to introduce fees. Unison is arguing that the introduction of fees will make it harder for employees to enforce their rights (in breach of European Law) and also directly discriminate against women, who generally earn less than men. If Unison’s application is successful we can expect further developments on this issue.

Pre-Termination Negotiations Inadmissible in Certain Tribunal Complaints
From 29 July 2013, an employer can enter into pre-termination negotiations with an employee with such discussions being automatically confidential and inadmissible in ordinary unfair dismissal cases. The new statutory provision in ERRA runs in parallel with the umbrella protection of “without prejudice” and will cover situations where there is no existing dispute.

While these new provisions appear to provide comfort and protection to employers engaging in pre-termination discussions, there are important limitations to be aware of. Pre-termination discussions will still be admissible if they relate to other complaints such as discrimination or breach of contract or where the dismissal is alleged to be automatically unfair or the Tribunal believes there was improper behaviour or undue pressure placed on the employee. The statute also states that the parties must try to “agree” the terms, so an employer may not be protected where the offer is put to the employee on a “take it or leave it” basis. An employee must also be given 10 calendar days to consider the offer. The new statutory provision is supplemented by the Advisory, Conciliation and Arbitration Service (“ACAS”) Code of Practice and non-statutory guidance, which employers should also consider. An employer should therefore proceed with caution and take legal advice before engaging in pre-termination negotiations. To ensure full protection, an employer may need to conduct discussions under both the pre-termination negotiation provisions and the “without prejudice” umbrella.

Proposed Reforms in Autumn 2013

Employee Shareholder Status
One of the cornerstones of the Government’s reform is the introduction of the Employee Shareholder status under the Growth and Infrastructure Act 2013. As an Employee Shareholder the employee trades certain employment rights in return for shares with a value of at least £2,000 and a capital gains tax exemption of up to £50,000. The Employee Shareholder status is due to come into effect on 4 September 2013 and can be offered to all new joiners and existing employees, although an existing employee must not be subjected to any detriment if they refuse the offer.

At first glance the new status may appear attractive to employers; however, the rights which the employee gives up are rather limited since the employee can only waive claims for ordinary unfair dismissal, a statutory redundancy payment, the right to request a flexible work schedule and the right to make a statutory request in relation to study. An Employee Shareholder must also give 16 weeks’ notice to return to work early from maternity leave. The employer must also comply with certain formalities to make the agreement binding such as providing the employee with a written statement which contains certain specific information, paying the employee’s legal fees to receive advice on the document and giving the employee a 7-day cooling off period.

There are also other issues for the employer to consider, such as an Employee Shareholder leaving employment after a short period of service. A new employee needs two years qualifying period of service to bring a claim for ordinary unfair dismissal or statutory redundancy pay. If the employee leaves before the qualifying period is up, given the upfront costs involved, the employer will have gained very little from the arrangement. It is hard to see why companies would want to offer this new Employee Shareholder status to employees unless the company generally offers shares as a benefit to their employees and therefore should take advantage of getting a waiver from the employee, or if the employees are senior or highly paid employees and could potentially sue the company for the maximum ordinary unfair dismissal compensation.

Another key reform to UK Employment Law is the proposed changes to the Transfer of Undertaking (Protection of Employment) Regulations 2006 (“2006 Regulations”). The Government’s view is that the reforms are necessary because the 2006 Regulations are overly complicated and go beyond the requirements of the Acquired Rights Directive, for example, by expressly including outsourcing situations. Although the Government’s response to its consultation will not be published before September 2013, the Government is proposing to introduce the following changes to the 2006 Regulations in October 2013:

  • Removal of the Service Provision Changes. As a result, outsourcing, in-sourcing and re-tendering would not be brought expressly within the scope of TUPE.
  • Removal of the requirement to provide Employee Liability Information at least 14 days before a transfer and replace this with an obligation that the parties disclose information necessary for the parties to comply with their duties under TUPE.
  • Enabling pre-transfer consultation under TUPE to count towards collective consultation on redundancies and to allow smaller businesses to inform and consult with employees directly where there are no recognised trade union or existing employee representatives.
  • Allowing greater flexibility for employers to make changes to terms and conditions of employment post- transfer; however, the Government will not introduce an express provision allowing parties to agree to changes in order to harmonise terms and conditions of employment.
  • Changing the wording of the provisions giving protection against dismissal so that dismissals will only be automatically unfair where they are by reason of the transfer itself. As a result, dismissals for a reason connected with the transfer (which is currently automatically unfair) may potentially be fair, subject to the employer satisfying the normal test for a fair dismissal.
  • Limiting an employee’s right to resign in response to a material detriment to their working conditions or to claim unfair dismissal as a result.
  • Expanding the definition of Economical Technical and Organisational (ETO) reasons to include changes in the location of the workforce. This would benefit employers who, depending on the facts, might be able to argue a broader range of ETO reasons for making a fair dismissal. The Government is also seeking views on whether a transferor can rely on the transferee’s ETO reason to legitimise pre-transfer dismissals.

Some of the proposed changes will be welcomed and will ease the burden on business, such as the greater flexibility in making changes to terms and conditions of employment post-transfer or being able to make employees redundant where there is a change in the location of the workforce. On the other hand, there is likely to be a wave of new legal challenges if the proposals are implemented. The repeal of the SPC provisions is a likely hot button. The proposed elimination of the Service Provision Changes provisions will once again bring the unwanted uncertainty that surrounded the application of TUPE 1981 Regulations, with the multi-factorial test being applied inconsistently in European case law.

Next Steps
The UK Employment law landscape is changing rapidly. Employers must keep reforms on their radar to ensure that they remain compliant and avoid any potential pitfalls. There are also other reforms on the horizon which will come into effect in 2014 and beyond, such as mandatory pre-claim conciliation with ACAS and shared parental leave. A number of the reforms discussed above are complex and employers should seek legal advice when dealing with pre-termination negotiations, employee shareholder status or TUPE issues. Employers should also undertake a review of their policies and procedures and ensure that they are up to date. For example, employers should review their whistleblowing policy and make any necessary amendments to factor in the removal of the bad faith provision and the introduction of vicarious and personal liability.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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