Proposed reform to Employment law rights – what are the most significant?

This article was originally published on 17 December 2018 and updated on 5 February 2019

It’s being hailed by the Government as the “largest upgrade in workers’ rights in over a generation”, taking forward almost all the recommendations of the Taylor Review, but are the changes proposed by the Government in the “Good Work Plan” in December last year really as dramatic as that? We consider the main proposals and how significant they might be.

Right to a written statement of terms from day one

From April 2020, the Government will introduce the right, for both employees and workers, to a statement of terms on first day of the job and specific information for agency workers. Currently only employees are entitled to a written statement and it only has to be given to the employee within 2 months of starting the job. The new right will also be expanded to include eligibility for other types of paid leave e.g. paid maternity leave; the duration and conditions of probationary periods; any remuneration or benefits which may not otherwise be specified, e.g. vouchers; any training entitlements or requirements (including where the employer will not bear the cost); and which specific days and times the employee/worker is expected to work including whether working hours may be variable, and if so how they vary or how their variation is determined. This will place an additional burden on employers to get the information in place by day one and ensure that managers making job offers are aligned with HR departments in the details of the job from the outset. Administratively it could be harder work for larger employers where sometimes HR departments are informed after the event of the terms agreed.

The right to a written statement of terms with its additional requirements as set out above could also be available to existing employees from April 2020 if they request it, and also whenever an employer makes a change in relation to the terms it will have to specify under section 1 Employment Rights Act 1996, once the legislation comes into force.

Alongside this, agency workers will be entitled to a Key Facts page from employment businesses to give them clear information about who is paying them, any deductions or fees and other factors that can sometimes be buried in small print.

Right to request a more stable work contract

All employees and workers (including agency workers) will have the right to request a more stable contract (e.g. guaranteed number of working hours) after 26 weeks’ service. Frances O’Grady, General Secretary of the TUC described this “right to request” as “no right at all”. In addition, presumably it would be dependent on the individual first establishing that they were a “worker” and not “self-employed”, as many gig economy workers are currently categorised. There is also no mention in the Government’s proposals of the grounds on which an employer might be able to refuse such a request or what recourse the employee/worker might have if it did refuse. If it were similar to the right to request flexible working, currently the remedy for an employer’s refusal is very limited and most claimants resort to a discrimination claim rather than the very limited remedy of an order to reconsider the request, or an award of up to eight weeks’ pay (which is also subject to the statutory cap on a week’s pay). If this new “right to request” mirrored the right to request flexible working, many workers/employees might have no claim against the employer or be limited to a similar remedy, except for rare cases where the worker/employee can point to a discriminatory refusal.  It may be that reputational issues will drive meaningful change, similar to the new “self-employed plus” model recently announced by delivery firm Hermes (although this creates problems of its own – see further below).

Aligning tax and employment status

Perhaps one of the most significant (and logical) proposals is the intention to align the employment and tax status frameworks. The Government says it will produce legislation to improve clarity of employment status tests and improve guidance and online tools. It agrees with Matthew Taylor’s point that the emphasis should be on control rather than, typically, the right to send a substitute thereby allowing businesses to avoid responsibilities towards those who would otherwise be workers rather than self-employed. However, the Government has given no indication of how this could be achieved, only that it has commissioned independent research to assist with this task. In light of the significant shortcomings of the online tool used for establishing employment status for off-payroll working in the public sector (private sector to follow from 2020), as well as the very fact-specific nature of each situation, it is hard to see how such legislation, let alone an online tool, can be effective. Employment status case law has developed over many, many years and codifying it into legislation will be a very difficult task. However, the intention is a significant step forward.

Initially the tax system was outside the scope of Matthew Taylor’s review, but it is clear that any meaningful changes to the categories of employment status need to be alongside changes to the tax system. This was recently highlighted by the so-called “self-employed plus” status which is being introduced by Hermes: whilst the drivers would be entitled to some benefits of “worker” status (and may factually be classed as workers anyway, whatever their contracts say), it is highly possible that HMRC would seek to put such workers on PAYE and require employers and workers to pay NIC contributions as employees. Currently tax rules do not recognise the intermediate employment law category of “worker” and many are classed, for tax purposes, as employees not self-employed. Due to the complexity of it, any changes are likely to take a long time.

Extension of gap which breaks “continuous service”

The Government will extend the time required to break “continuous service” from one week to four weeks for the purposes of unfair dismissal and other rights. This is designed to stop employers artificially (or perhaps legitimately) terminating contracts and then re-engaging employees in a bid to stop them reaching the required length of service to be entitled to claim unfair dismissal or redundancy pay. This should be a relatively uncontroversial change but no timescale for this has been set.

Banning controversial opt-out with regard to agency workers

The Government will ban the use of “pay-between-assignment” contracts (the so-called “Swedish Derogation”) for agency workers which can allow employment businesses to prevent agency workers achieve the rights they would have, after 12 weeks on the same assignment, to compare their pay to those of a permanent employee at the hiring organisation. BEIS research has reportedly uncovered cases of abuse where the employment business does not actually pay the agency worker between assignments because it has found loopholes to get around it. Whilst clearly cases of such abuse are not acceptable, it does raise the question as to whether simply banning the Swedish Derogation is the right response. For some employment businesses and agency workers, the practice, used properly, is an additional and helpful potential way of engaging someone and adding to a range of options of engaging agency workers which adds to the flexibility of the workforce. Arguably the Government should be cracking down on cases of abuse and looking at the loopholes used by such businesses. It is also arguable that if this practice is going on, the Swedish Derogation is not being properly applied and therefore agency workers would be able to compare their pay with permanent staff as others can where the Swedish Derogation is not used. Draft regulations are intended to bring this change into force in April 2020.

Enforcement

The Government is promising a campaign of awareness with regard to holiday pay and potential state enforcement of underpaid holiday pay similar to NMW enforcement mechanisms. As part of this the reference period for holiday pay will be increased from 12 weeks to 52 weeks. This could directly solve the uncertainty about the inclusion of overtime in holiday pay where reference periods are still sometimes unclear. In addition, much of the uncertainty around holiday pay depends on the individual’s status, as the genuinely self-employed are not entitled to holiday pay. Arguably this is where much of the confusion has been, if individuals and businesses have different views about an individual’s employment status. Draft regulations are intended to bring this change into force in April 2020.

Aggravated breach penalties

From April 2019, there will be an increase in the penalty for an “aggravated breach” by an employer of employment rights, from £5,000 to £20,000. Employment Tribunals will also be obliged to consider the use of these sanctions where employers have lost a case on broadly comparable facts. Whether there is any increase in such penalties, which have broadly not been used by Employment Tribunals since they were introduced, remains to be seen.

There are also proposals, once again, to increase the enforcement of employers who do not pay Employment Tribunal awards. A naming and shaming scheme for such employers was set up on 18 December 2018.

The Government will also introduce legislation to ban employers from making deductions from staff tips following Government consultation.

Changes to the Information and Consultation of Employees Regulations

The Government intends to change the threshold for employees to initiate the little-used Information and Consultation of Employees Regulations, which allow employees to request a means for the employer to consult with them about various issues. Currently a valid request to instigate the process must be made by 10% of employees in an organisation (subject to a minimum of 15 employees). This threshold will change to 2% of employees (with the minimum 15 employees retained). Experience to date suggests that few employees make use of this legislation so it will be interesting to see whether lowering the threshold will lead to an increase in employee requests. The legislation only applies to employers with 50 or more employees. Draft regulations are intended to bring this change into force in April 2020.

Implementation and timescales

The Government has already laid legislation before Parliament (some of which is still currently in draft form) to bring into effect a number of these changes by April 2020, or April 2019 for the “aggravated breach” penalty.

The main pieces of legislation that have not yet been published are the increase in time required to break an employee’s continuous service from one week to four weeks; the right to request a more stable work contract; and the alignment of tax and employment status. It is likely that the latter two of these – in particular employment/tax status – will take some time to finalise.