UK Employment Law: 2019 Highlights and 2020 Forecast

WHAT?

“Off-Payroll Working” Tax Change

From 6 April 2020, the “off-payroll working” (IR35) tax rules in the private sector will change to move the tax risk of a worker providing services through a personal services company (PSC) that properly has employee tax status from the PSC to the client.

Click here for our overview of the changes.

SO WHAT?

For organisations that engage independent contractors via PSCs, this is the potential big issue of 2020.

During the election campaign, the three main political parties announced that they would be reviewing the proposal, in the face of significant objection to the change from the tech sector.

The Government has this week (7 January 2020) launched a review regarding the new rules “to address any concerns from businesses and affected individuals about how they will be implemented” and to “determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms, which are due to come into force in April 2020”. Click here for further details of the review.

In the meantime, therefore, it would be prudent for affected organisations to proceed on the basis that the changes will take effect from 6 April 2020 as planned. This will involve assessing the true employment status of each individual worker engaged via a PSC and potentially renegotiating the basis of that relationship before 6 April 2020.

WHAT?

Statement of Employment Terms

From 6 April 2020, the current right for employees to receive a statement of employment terms (a section 1 statement) will apply:

• To workers as well as employees
• From the first day of employment or service, rather than within two months, as now

Certain additional information must also now be provided:

• Any terms and conditions relating to normal working hours, the days of the week the worker is required to work, whether the working hours may be variable and how any variation will be determined
• Any paid leave to which the worker is entitled
• Any other benefits provided by the employer
• The duration and conditions of any probationary period
• Details of any training entitlement provided by the employer (including whether such training is mandatory and whether it must be paid for by the worker)

SO WHAT?

There is no standalone claim for failure to provide a section 1 statement, but it can be tacked onto another claim. In that case, the maximum that can be awarded is two weeks’ pay.

This is, therefore, mostly an issue of good housekeeping. For those starting work on or after 6 April 2020, steps should be taken to make sure that contracts/statements of particulars (suitably updated to reflect the changes) are ready before the start of the employment or service, or on day one.

WHAT

Taxation of Termination Payments

Currently, the first £30,000 of a termination payment is payable without deduction of income tax or National Insurance contributions (NICs). Any amount over £30,000 is subject to income tax, but currently not NICs. From 6 April 2020, payment in excess of £30,000 will be subject to employer’s NICs (but not employee’s NICs). This change has been on the horizon for a while, but this time apparently it’s really happening.

SO WHAT?

If employers negotiate termination/ex gratia settlement payments during Q1 2020 that are in excess of £30,000, there will be a cost efficiency to agreeing to payment on or before 5 April 2020.

After that, it will cost more, as employer NICs will also have to be paid on the amount.

WHAT

Calculation of Holiday Pay

Holiday pay must be based on “normal remuneration”, such as contractual or regular patterns of overtime, pay allowances and certain commission payments. An employer must look back at the 12 weeks before the holiday to work out what “normal” is. That reference period has caused problems, because fluctuations in pay can lead to higher holiday pay if leave is taken following peaks, and lower holiday pay if it is taken following troughs.

From 6 April 2020, the reference period will increase to 52 weeks (or the number of weeks of employment if less than 52 weeks).

SO WHAT?

This change will require some administrative adjustment. Check that your payroll provider is on top of the change and ready to implement it.

WHAT

Agency Workers

The “Swedish Derogation” currently means that employment/staffing businesses that engage agency workers on permanent contracts and pay them in between assignments are not obliged to provide equal pay with direct employees of end user clients. The Swedish Derogation will be removed from the Agency Workers Regulations 2010 from 6 April 2020.

SO WHAT?

Temporary employment/staffing businesses must inform affected agency workers of the change by 30 April 2020.

This change could increase the risk of pay parity claims from agency workers engaged in this way. Temporary employment/staffing businesses and end user clients may therefore wish to take this opportunity to review their staffing models.

WHAT?

Parental Bereavement

From April 2020, if the most awful of things does happen, it is expected that parents and primary carers with at least 26 weeks’ service will be granted the right to take up to two weeks’ paid leave following a still birth after 24 weeks or the death of a child up to 18 years. The draft legislation is currently subject to a government consultation.

SO WHAT?

Once approved, this change should be reflected in internal polices dealing with bereavement.

RECAP OF KEY DEVELOPMENTS FROM 2019

• Sick leave and holiday. Case law has established that, when a worker is sick, they must be able to carry over their accrued but untaken holiday to the next holiday year. The Court of Justice of the European Union confirmed that this only applies to the core four-week entitlement required by EU law, as expected.
• Status. It is almost impossible to be certain whether an individual who provides services through a PSC is really an employee for tax purposes. The Tax Tribunal delivered judgments in a number cases with similar facts but different outcomes.
• TUPE. TUPE might apply to workers as well as employees. The definition of “employee” in the TUPE regulations has not changed, and since its inception, has always been broader than the traditional definition of employee used in the Employment Rights Act—although that fact has been mostly ignored by those involved in the regular transfer of contracts. However, an Employment Tribunal found that, yes, a worker could be covered by TUPE.
• Shared parental pay. The Court of Appeal found that it is definitely not, on the face of it, unlawfully discriminatory for an employer to offer women enhanced maternity pay but to offer men only statutory shared parental leave pay.
• Motive behind decision to dismiss. It had been thought that when considering the reason for a dismissal, only the mental processes of the person who made the decision to dismiss should be taken into account. However, the Supreme Court has decided that Employment Tribunals can look beyond that if there is evidence that the true reason for the dismissal was hidden from the decision maker. In the case in question, an employee had blown the whistle, and her manager then pretended that she was underperforming. The employee was signed off sick from work, and the employer appointed another officer to decide whether she should be dismissed for poor performance. That officer was provided with various evidence concerning the alleged underperformance. The employee was unable to attend the disciplinary hearing and, having no reason to doubt the truthfulness of the evidence provided of the alleged performance, the officer decided to dismiss due to that underperformance. This situation is unlikely to be a common one in practice, but decision makers within employers should nevertheless explore whether there might be a hidden reason motivating disciplinary or performance concerns.
• Injury to feelings awards in discrimination and whistleblowing cases. Unlike in unfair dismissal cases, where only economic loss is recoverable, successful claimants in discrimination and whistleblowing cases can recover compensation in the employment tribunal for non-economic loss—otherwise known as “injury to feelings awards.”

  Although there is theoretically no limit on the compensation which may be awarded in discrimination and harassment cases, employment tribunals must follow official guidelines when making awards for injury to feelings. These guidelines set out three bands of compensation, depending on the seriousness of the discrimination and its effect on the victim.

  For claims made on or after 6 April 2019, the amount that might be awarded for injury to feelings was increased as follows (the previous maximum amount is shown in square brackets):

  • Lower band: £900 to £8,800 [£8,600] (less serious cases)
  • Middle band: £8,800 to £26,300 [£25,700] (cases that do not merit an award in the upper band)
  • Upper band: £26,300 to £44,000 [£42,900] (the most serious cases)

  Meanwhile, employment tribunals will be able to award up to £20,000 for an aggravated breach of a worker’s employment rights from 6 April 2020. The maximum figure was previously £5,000.

• Term time working and holiday. The Court of Appeal ruled on how to calculate holiday entitlement for permanent employees who work for only part of the year. They are entitled to a minimum of 5.6 weeks’ holiday per year. Surprisingly, employers cannot pro-rate their holiday entitlement to reflect the number of weeks actually worked. The Court of Appeal noted that its ruling could produce odd results in extreme circumstances (for example, a cricket coach working one term in a year, or exam invigilators only working during exam periods). However, the Court considered that these workers would more likely be engaged on a freelance basis than a permanent contract and so would not be affected by its ruling. Employers who employ workers on permanent contracts to work part of the year will need to review the way they calculate holiday pay. Employment contracts and practices may need to be adjusted to ensure part-year workers are entitled to 5.6 weeks’ paid holiday per year, with no pro-rating to reflect the number of weeks worked.
• Post-termination restrictions. The Supreme Court held that drafting in post-termination restrictions (PTRs) which could be interpreted as restraining the departing employee from holding shares in a competitor falls within the scope of restraint of trade laws. In the case in question, drafting in a non-compete which prevented the employee from being “interested in” a competitor could arguably prevent the employee from owning a single share in the entity. That would go beyond what was needed by the employer to protect its business interests. As such the restriction was potentially unenforceable.

However, the Court softened the blow by also finding that there was a solution. The power of the UK courts to remove language from the drafting of PTRs is not, as previously thought, limited to separate covenants or trivial or technical matters. Rather the court can sever language from otherwise unenforceable PTRs if the unenforceable part can be removed/deleted without needing to add to or change the wording that remains, and if the removal of the unenforceable part does not significantly change the overall effect of all PTRs in the contract. Applying these principles to the case, the Supreme Court found it a straightforward matter to sever the words “or interested” from the PTR, leaving the rest of the restriction enforceable.

While it’s good news that severance is an option, prevention is better than cure. PTRs should be reviewed regularly to ensure that they are reasonable in terms of the business and the employee.