Government backtracks on automatic expiry of EU derived laws and outlines employment law reforms

The Government is making changes to the Retained EU Law (Revocation and Reform) Bill so that EU-derived laws in secondary legislation will no longer be automatically revoked at the end of 2023. It has also issued a consultation paper setting out changes it proposes to make to the Working Time Regulations 1998, holiday pay and TUPE 2006, aimed at reducing unnecessary bureaucracy.

Retained EU Law (Revocation and Reform) Bill

The original proposals

As originally drafted, the Retained EU Law (Revocation and Reform) Bill provided that all EU law contained in statutory instruments would expire at the end of 2023, unless the Government decided to preserve the particular law or to postpone its expiry to no later than 23 June 2026. The Government’s proposals created huge uncertainty for employers as so many EU-derived employment rights and protections are contained in secondary legislation, including the Working Time Regulations 1998, the Agency Workers Regulations 2010, the Part-Time Workers Regulations 2000, the Fixed Term Employees Regulations 2002 and the Transfer of Undertakings (Protection of Employment Regulations) 2006.

What’s changed?

The Government has now decided to remove these provisions from the Bill and instead only certain specified legislation set out in the Schedule to the Bill will be revoked at the end of 2023. Importantly for employers, no significant employment legislation is included in the Schedule.

Proposed changes to employment law

However, the Government has issued a consultation seeking views on proposed changes to the Working Time Regulations 1998, holiday pay and TUPE 2006, stressing that these changes are aimed at reducing unnecessary bureaucracy and it has no intention of abandoning worker rights. The consultation paper also sets out the Government’s commitment to ensuring that workers continue to enjoy key protections under EU employment law, by preserving the:

• Maternity and Parental Leave etc Regulations 1999
• Paternity and Adoption Leave etc Regulations 2002
• Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000
• Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002
• Agency Workers Regulations 2010
• Information and Consultation of Employees Regulations 2004
• Transnational Information and Consultation of Employees Regulations 1999
• Working Time Regulations 1998 and TUPE 2006 (subject to the changes it is consulting on)

Holiday entitlement and pay

Currently, workers are entitled to 5.6 weeks’ holiday which is split in two, with Regulation 13 implementing the four week holiday entitlement under the EU Working Time Directive and Regulation 13A providing for an additional 1.6 weeks’ UK holiday entitlement. As EU law only applies to the EU entitlement, this has resulted in different rules applying to the EU and UK entitlements, for example in terms of whether the holiday can be carried over into a subsequent leave year and what elements of remuneration must be included when calculating holiday pay.

Government’s proposals

The Government proposes to combine the two sets of leave to create a single entitlement to 5.6 weeks’ holiday and have one set of rules applying to this holiday entitlement. Under its proposals:

• The minimum rate of holiday pay will be clarified and set out in legislation
• Workers will continue to be able to carry over up to 1.6 weeks’ statutory holiday into the following holiday year, if permitted by a written agreement between the worker and their employer (for example, in the employment contract)
• Workers will not generally be able to carry over the rest of their statutory holiday entitlement, except where they have been unable to take it due to being on long-term sick leave, or on maternity, paternity, adoption or parental leave
• During the first year of employment, statutory holiday entitlement will accrue at the end of each pay period, rather than at the beginning of each month. The revised regulations will set out a clear method for calculating holiday entitlement for workers in their first year of work.

As regards holiday pay, the Government recognises that some employers do not distinguish between the two leave entitlements and already pay workers their normal remuneration (including overtime, regular bonuses and commission), for the full 5.6 weeks’ holiday (and not just for four weeks, as required by EU law). The Government also recognises that businesses that only pay basic pay for the additional UK holiday entitlement could face significant additional costs if required to pay normal remuneration going forwards. Likewise, it recognises the financial impact on workers if holiday only has to be paid at their basic rate of pay. The Government seeks views from employers and workers on how holiday pay is currently calculated and how it should be defined in legislation going forwards.

Rolled up holiday pay

Rolling up holiday allows an employer to include an additional amount in respect of holiday pay in each payslip (and then the worker receives no pay when they take their holiday). This practice is not permitted under EU law, due to concerns that it disincentivises workers from taking holiday (as they can earn more money by staying at work). However, the Taylor Review of Modern Working Practices noted that it has significant benefits for some workers, in particular casual and gig economy workers, and the consultation acknowledges that for workers with irregular working patterns it can be the fairest way of ensuring they receive the correct holiday entitlement and pay.

The Government proposes to allow employers to roll up holiday pay and pay it at the rate of 12.07% of the worker’s pay on each payslip (as 12.07% is the proportion of the year taken up by statutory annual leave). Employers would need to adjust this percentage where a worker’s contractual holiday entitlement exceeds the statutory entitlement. If rolled-up holiday is used, employers would be required to make their workers aware of this and the holiday pay element would have to be clearly marked on the worker’s payslip as their holiday pay.

The Government seeks views on introducing rolled up holiday pay as an option employers can use for calculating and paying holiday pay for all workers.

Working time record-keeping obligations

Under the Working Time Regulations 1998, employers are required to keep and maintain adequate records to show they are complying with the 48 hour average weekly working time limit and the working time limits for young and night workers. In 2019, the European Court of Justice ruled that EU working time rules require employers to set up a system for recording each worker’s actual daily working time. The Government believes this additional requirement is disproportionate and proposes to legislate to clarify that businesses to do not have to keep a record of the daily working hours of their workers.

TUPE consultation obligations

Under TUPE 2006, employers are required to inform and consult with appropriate representatives of employees affected by a business transfer or service provision change. If there are no appropriate representatives already in place, the employer must arrange elections. There is an exception for micro-businesses employing fewer than 10 employees so that where there are no existing appropriate representatives, they are allowed to inform and consult directly with the affected employees.

The Government proposes to extend this flexibility to consult directly with affected employees to small businesses (those employing fewer than 50 employees), and to all businesses where a transfer of only fewer than 10 employees is proposed. In both cases, the ability to consult directly with affected employee would only apply where there are no existing appropriate representatives in place.

Responses to the consultation are required by 7 July.

Comment

The decision not to allow EU derived laws to expire automatically at the end of 2023 provides much-needed certainty for employers. Together with the assurances given in the consultation paper, it will reassure those who feared that the Government was planning to dismantle many employment rights and protections overnight. Although the proposed changes to TUPE and the working time record keeping obligations fit the Government’s description of removing unnecessary bureaucracy, changing the way that holiday pay is calculated could go beyond this and result in reduced workers’ rights.

Please get in touch if you wish to discuss these proposals further or to find out more about how we can support your business in relation to employment law.