Search and find what you need faster.

The potential pitfalls of unlimited annual leave

Posted on: March 20th, 2024 by Natasha Cox

Many employers including LinkedIn, Netflix, Eventbrite and Dropbox are now offering their employees unlimited annual leave.

Unlimited leave reflects a significant uplift on the statutory minimum position. Under the Working Time Regulations 1998, full-time employees are legally entitled to 5.6 weeks’ paid holiday each year, which translates to 28 days, including bank holidays. Part-time staff are also entitled to 5.6 weeks, the number of days being dictated by how pro-rated their working time is.

While undoubtedly a great selling point to potential new recruits, is unlimited annual leave more hassle than its worth for an employer?

Potentially, yes. Employers need to be extremely careful when implementing an unlimited annual leave policy because failing to set appropriate expectations and creating a clear and well-structured policy could lead to significant problems. For example, how does one calculate the annual leave owing (or owed) when an employee’s employment comes to an end if this is not specified in their contract or the leave policy? Likewise with the continued accumulation of leave during a period of family leave.

No employer is likely to be content with an employee taking 52 weeks’ annual leave in a leave year, not least because they won’t be able to do the job that they’re employed to do. If you are offering unlimited annual leave, employers must ensure adoption of and adherence to minimum performance criteria, as well as having robust performance measures in place to objectively assess how well the employee is performing.

Further, employees will still need their manager’s permission to take time off, which could result in the policy being enforced differently from one manager to another. This may lead to accusations of favouritism, or differing treatment of employees in relation to any of the nine protected characteristics under the Equality Act 2010.

Lack of cover during an employee’s holiday may also discourage them from taking time off, undermining the incentive for annual leave altogether.

It is ultimately important to strike a balance between the needs of the business for employees to carry out the jobs they are employed to do, and the ability to attract and retain the right talent. While offering unlimited annual leave is certainly likely to assist with recruitment and retention, its implementation needs careful handling to avoid unintended consequences.

Talk to us if you would like to discuss the pros and cons of enhanced employee benefits.

Proposal to reintroduce employment tribunal fees

Posted on: January 10th, 2024 by Natasha Cox

The government has announced a consultation on the proposal to reintroduce fees for bringing employment tribunal claims.

First introduced in 2013, employment tribunal fees saw claimants having to pay separate fees to issue their claims and to have them heard. Fee levels differed according to the nature of the claim.

On 26 July 2017, the Supreme Court declared employment tribunal fees to be an unlawful interference with the common law right of access to justice and the fees were subsequently abolished.  

However, the government has now announced proposals to reintroduce tribunal fees. Under the proposed scheme, tribunal issue fees would be at the flat rate of £55 per claim. In the event of a multi-claimant claim, the fee would be unchanged, with the multiple claimants being treated as a single entity. No separate hearing fee would be payable.

The £55 fee would also apply on lodging an appeal in the Employment Appeal Tribunal (EAT), however the fee would apply per tribunal decision, direction or order being appealed. Therefore, an appellant seeking to appeal more than one tribunal decision or direction could incur multiples of the £55 fee.

A fee exemption would apply in the case of claims in which individuals are seeking a right to payment from the national insurance fund. Further, individuals could apply under the Help with Fees remission scheme where eligible. 

Based on 2022-23 volumes, the government estimates that the proposed fees could generate between £1.3 million and £1.7 million a year from 2025-26 onwards. It is expected that, if the consultation is successful, these new fees will be implemented from November 2024. For now, the status quo remains and claimants may continue to submit claims free of charge. However given the modest level of proposed fees and the cost of administering the employment tribunal, it is arguably not unreasonable to expect that fees will be reintroduced.

Round up of 2023 employment law

Posted on: December 18th, 2023 by Natasha Cox

As 2023 draws to an end, the employment team at Lawrence Stephens examines employment law developments of 2023 and what we’re expecting in 2024.

Holiday and holiday pay

Changes have also been made to the Working Time Regulations 1998.

All employees are entitled to 5.6 weeks’ annual leave entitlement per leave year. The 5.6 weeks is split into two ‘pots’: one pot of ordinary leave, which is four weeks, and one pot of 1.6 weeks additional leave.

Ordinary annual leave should be paid at the employee’s ‘normal’ rate of pay. This does not necessarily apply to the additional leave.

The government is amending regulations to set out what elements of pay are to be included as ‘normal’ for the purposes of the first four weeks’ leave entitlement. Unfortunately, the regulations do not list specific payments that should be included, and instead refer to certain categories, including:

  • payments, including commission payments, which are ‘intrinsically linked’ to the performance of tasks that a worker is contractually obliged to carry out;
  • payments for professional or personal status relating to length of service, seniority or professional qualification; and
  • other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation.

As per previous case law, results-based commission, certain overtime payments, allowances, etc., will still be caught, however there is still uncertainty about payments such as annual or semi-annual bonuses, and it remains to be seen whether this amendment changes much.

For irregular hours workers and part-year workers (both now defined in the regulations), the government is also introducing a new method to calculate their holiday entitlement. Essentially, an irregular hour worker or a part-year worker accrues annual leave at the rate of 12.07% of the number of hours worked, subject to a maximum of 28 days per leave year. A worker will be an ‘irregular hours worker’ if the number of paid hours that they work is ‘wholly or mostly variable’. A worker will be a ‘part-year worker’ if they are required to work only part of that year and there are periods of at least a week in which they are not required to work (and for which they are not paid). This change is intended to address the issues caused by the Supreme Court’s decision in Harpur Trust v. Brazel, in which it held that part-year workers were entitled to 5.6 weeks’ leave per year, irrespective of the hours they worked. 

The government is also introducing ‘rolled up holiday pay’ for irregular hours workers and part-year workers. Rolled up holiday pay is a system under which a worker’s holiday pay is included in their basic pay, rather than paying them when their holiday is actually taken. The practice has been unlawful since 2006 but will now be lawful under the updated regulations.

These changes come into force on 1 January 2024 for holiday years commencing on or after 1 April 2024.

TUPE

The government has announced its intention to change the transfer of undertaking consultation obligations so that there can be direct consultation with affected staff for businesses with fewer than 50 employees, or businesses of any size with fewer than 10 transferring employees. This assumes in both cases that no existing employee representatives are already in place. The regulations are expected to come into force on 1 January 2024 and the changes will apply to transfers that take place on or after 1 July 2024.

National Insurance and Minimum Wage

Class 1 employee NICs will be cut from 12% to 10% from 6 January 2024.

The NICs holiday for veterans in their first year of civilian employment will be extended to 5 April 2025.

For the self-employed, Class 2 NICs will be abolished, and the main rate of Class 4 self-employed NICs reduced from 9% to 8%, from 6 April 2024.

New national minimum wage rates to apply from 1 April 2024 have also been announced, along with a change to the threshold for being eligible for the highest rate. Over 21s will now be entitled to £11.44 per hour, with 18- to 20-year-olds being entitled to £8.60 per hour. 16- to 17-year-olds and apprentices will be entitled to £6.40 per hour.

Fire and rehire

The government has issued a draft Code of Practice on dismissal and re-engagement. It is designed to cover situations such those seen recently with P&O, where an employer makes changes to terms and conditions by dismissing employees under their old contracts and offers to re-engage them on new contracts (with less favourable terms and conditions).

The aim of the code is to clarify how employers should behave when seeking to change employees’ terms and conditions of employment. A court or tribunal will be able to take the code into account when considering relevant cases and they will have the power to increase an employee’s compensation by up to 25% if an employer unreasonably fails to comply with the code. They could also decrease any award by up to 25% where an employee has unreasonably failed to comply.

The consultation on the Code closed on 18 April 2023 and it is anticipated that the government’s response will be delivered in Spring 2024. While the code is still in draft form it is not binding, but any proposed fire and rehire processes should be carefully considered in the meantime.

Flexible working

The Flexible Working (Amendment) Regulations 2023 come into force on 6 April 2024. The regulations amend the existing Flexible Working Regulations 2014 so that the right to make a flexible working application becomes a ‘day one right’ on 6 April 2024. Currently employees must have 26 weeks’ continuous service to make a flexible working request under the legislation (however, nothing prevents employers and employees agreeing flexible working arrangements between themselves, whether formally through contractual variations, or informally). 

It is assumed that the other flexible working reforms contained in the Employment Relations (Flexible Working) Act 2023 will also commence on that date, but this has not yet been confirmed. These reforms will:

  • allow employees to make two flexible working applications every 12 months instead of one;
  • remove the requirement for employees to have to explain what effect they think their flexible working request will have on the employer;
  • require employers to consult with the employee before refusing their flexible working application; and
  • require employers to respond to flexible working requests within two months instead of three months.

Carer’s leave

The draft Carers’ Leave Act 2023 (Commencement) Regulations 2023 have been published, bringing the Carers’ Leave Act 2023 into force from 6 April 2024.

The draft regulations set out important detail relating to the Act. They state that the legislation will cover employees in England, Wales and Scotland. To be entitled to the provision, employees need to be providing long term care. Carer’s leave will be able to be taken in half or full days, up to and including taking a block of a whole week of leave at once. In a similar way to other types of leave, the notice an employee needs to give to take the leave is twice the length of time that needs to be taken. Leave requests do not need to be made in writing.

Employees taking carer’s leave will have the same employment protections associated with other forms of family related leave. This includes protection from dismissal or detriment as a result of having taken the leave.

The draft regulations still need to be passed by Parliament and it is also expected that guidance will be made available before 6 April.

Strike action

The Strikes (Minimum Service Levels) Act 2023 was passed in July. The act gives powers to make regulations to set minimum service levels in certain industries during strike action. The government has now made regulations under these powers to set minimum service levels for ambulance, railway and border security staff. Although the regulations are not yet in force, they are expected to be by the end of the year. A draft code of practice has also been laid before Parliament, but no minimum service levels are yet in force.

Government consultation response: non-compete clauses to be limited to three months

Posted on: October 25th, 2023 by Natasha Cox

The government has announced plans to limit the length of non-compete clauses in employment contracts in its response to a 2020 consultation on their reform.

Non-compete clauses are one of several types of post-termination restrictions that are often found in employment contracts. These restrictions typically restrict an employee’s ability to work for a competitor for a set period following the termination of their employment, but can also restrict their ability to canvass or solicit clients and customers, as well as poaching colleagues.

To be enforceable, restrictions must not be any wider than reasonably necessary to protect legitimate business interests. Examples of legitimate business interests include client, supplier or customers relationships, and confidential information.

Non-compete clauses are the most restrictive option, with employees frequently seeking to argue they prevent them from securing alternative employment during the restricted period. 

In 2020, the Government published a consultation paper exploring options for reform, including mandating that non-compete clauses be unenforceable unless the employer provides compensation for the period of restraint, or making all non-compete clauses unenforceable.

The government has now rejected the possibility of making employers pay employees during a restricted period, citing concerns around substantial costs and supressing growth. Instead, it has proposed to limit the period of non-compete restrictions to just three months.

While these are just proposals, and properly drafted non-compete clauses lasting longer than three months continue to remain effective at present, employers need to carefully consider the impact on their business if the option to have a longer non-compete period is removed. It is worth considering what other protections can be put in place to achieve as near as possible the same level of protection currently afforded by a non-compete restriction.

Contact us for advice on post-termination restrictions and updating your contracts of employment.

Employment law reforms post-Brexit

Posted on: May 17th, 2023 by Natasha Cox

On 10 May, the Government published plans to make a number of changes to EU-derived employment law following the UK’s exit from the EU.

The announcements are linked to the Government’s decision to abandon the ‘sunset’ provisions in the Retained EU Law (Revocation and Reform) Bill which, if passed into law, would have repealed all retained EU law at the end of 2023.  Instead, EU law will remain binding unless specifically revoked.

Working Time Regulations 1998 (WTR)

To reduce some of the more cumbersome regulations affecting businesses, the following proposed changes to the WTR have been announced:

  • Removing the requirement for employers to record the number of hours worked by employees to ensure they do not exceed the 48-hour per week limit;
  • Allowing holiday pay to be paid with basic pay rather than at the time the holiday is taken (rolled-up holiday) which is prohibited under EU law;
  • Merging the 4 weeks ‘normal’ holiday entitlement provided by EU legislation with the 1.6 weeks ‘additional’ entitlement to create one pot of statutory annual leave of 5.6 weeks.
Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)

The Government intends to simplify TUPE rules to ease administrative obligations on employers.

It is proposed that businesses with fewer than 50 employees, transferring less than 10 employees to another business, will no longer be required to consult with employee representatives and instead can consult directly with the employees affected.

Non-Compete Clauses

Unrelated to EU law, the Government also plans to limit the duration of non-compete clauses in employment contracts to 3 months in an effort to encourage competitiveness amongst businesses and boost the economy.

This is not intended to impact upon the use of non-solicitation and confidentiality clauses, paid notice periods or gardening leave.

Comment

Given the proposals are aimed at increasing productivity by reducing administrative burdens within businesses, whilst safeguarding the rights of employees, they are likely to be welcomed by employers.

The implementation date for these changes is yet to be specified, although the intention to legislate on non-compete clauses “when parliamentary time allows” indicates the TUPE and WTR related reforms may be actioned more quickly. 

This marks the first in a series of reform proposals, so further announcements are expected to be forthcoming.