With the Conservatives winning the General Election this month by an unexpected outright majority, with no need for a coalition, there is now more clarity as to what is in store with regard to employment law in the coming year. This article looks in particular on the impact these proposed employment reforms will impact on M&A activity.

  1. European Referendum and European Convention of Human Rights

The most significant proposal is the Conservatives’ pledge to hold a referendum on the UK’s membership to the EU by 2017. The Governor of the Bank of England, Mark Carney, has already said that the referendum should take place “as soon as necessary”, warning that businesses may delay making investment decisions whilst Britain’s future is uncertain.

An “out” vote would see many existing laws disappear in their current form and would inevitably lead to a complete overhaul of employment laws. For example, laws such as working time, discrimination and the laws relating to collective redundancy consultation all stem from Europe and any changes could have huge consequences in relation to the time and costs associated with any changes in the workforce following completion of a transaction. In addition, the Transfer of Undertakings (Protection of Employment) Regulations 2006 also stem from a European Directive. If the UK ceases to be a member of the EU, then the position in relation  to the transfer of employees and the obligation  to maintain their terms and conditions in respect of asset sales or service provision changes will be unclear.

Even if the vote ultimately ends with the UK remaining in the EU, it is apparent that David Cameron has already begun negotiations with Europe and therefore in any event, we can expect the UK to have more flexibility to deviate from EU laws in the foreseeable future.

The Conservatives have also pledged to abolish the Human Rights Act and to replace this with a British Bill of Rights. It is envisaged that any British Bill would need to have similar fundamental rights to avoid significant changes in the employee/employer relationship. Of particular importance will be to keep a framework in place similar to the current Article 4 providing for the prohibition on slavery and forced labour to protect the fundamental values which underpin our employment laws. The abolition of the UK’s Human Rights Act would not prevent UK citizens taking cases to the European Court of Human Rights in Strasbourg so long as the UK remains a signatory to the European Convention on Human Rights.

  1. Devolution to Scotland

The Scottish National Party made significant headway in the election gaining a total of 56 seats in Westminster. The government has already committed to devolve more powers to Scotland. It is a likely consequence in relation to employment that Scotland will have more powers to decide their own employment laws.

Therefore, in the context of a deal where a proposed target has several sites across the UK, a different approach may need to be taken towards employees in different locations and they may not be able to be treated in the same manner.

  1. Flexible working and wage reform

When used fairly, zero-hours contracts are a good way to ensure there is flexibility within the workforce and are used in a number of sectors especially where there are seasonal peaks or fluctuations in working demands. The Conservative party has pledged to ban exclusivity clauses in zero-hours contracts (which prohibit workers from engaging in other employment outside the zero-hours contract).  In March 2015, the coalition government included a ban in the Small Business Enterprise and Employment Act 2015. Although the Act received Royal Assent, it has no commencement date as yet and it will be up to the new government to decide when, or whether, this will happen. Where a business’ activities involve workers on zero- hours contracts, careful due diligence should be undertaken to ensure that any documentation is appropriately drafted and that the target is not abusing the position in relation to zero-hours contractors.

The Conservatives have promised to make real-term increases in the National Minimum Wage (“NMW”) over the next Parliament. In their manifesto, they vowed to accept the recommendations of the Low Pay Commission to increase the NMW to £6.70 in October this year, with a view to increasing the NMW to over £8 an hour by the end of 2020, whilst encouraging and supporting those employers who can afford to do so to pay the Living Wage.  Although not yet in force, the National Minimum Wage Act 1998 has been amended to allow the maximum £20,000 penalty to apply in respect of each underpaid worker. The practice of naming and shaming employers who do not pay the NMW is expected to continue. In addition, during the coalition’s time, it was agreed that a law was required to bring into force equal pay reporting legislation – originally included in the Equality Act 2010 but never brought into force. It is anticipated that within the next year, employers with 250 or more employees will be required to publish information regarding the pay differentials between men and women.

These pay reforms mean that equal pay between men and women will need to be verified prior to any acquisition and, in the lower paid workforces, care will need to be taken during due diligence exercises to make sure that wages are above the minimum level required.

  1. Industrial Action

The Conservatives also propose to reform the area of industrial activity and, in particular, intend to introduce measures which will limit further  the circumstances in which strike action may be taken. This will include a requirement that at least 50% of the Union’s members and the affected workforce (rather than simply a majority of those voting) must vote to take industrial action.  In the public sector, the requirement may be even tougher.

In addition, any strike action will need to take place within three months after a ballot. The employer will also need to be notified of any industrial action fourteen days prior to its occurrence; this is twice the current requirement of seven days.

The effect of this is likely to be that any company which has strong Union recognition or history of industrial action will be more attractive to any potential purchaser, as the proposed reforms will make it harder for industrial action to get the go-ahead in the first place. In addition, the Conservatives plan to minimise the disruption caused by strike action and propose to repeal the current restrictions banning employers from hiring temporary staff during strikes.

  1. Employment Tribunal reform

The coalition led by the Conservatives introduced Employment Tribunal fees and with a majority Conservative government these are likely to remain in force, at least until the current challenge to Tribunal fees by Unison (which is due to be heard by the Court of Appeal in June).

To date, statistics have shown that the introduction of fees has resulted in a large decrease in the amount of Tribunal claims brought, and therefore in the context of acquisitions, a proposed purchaser may be less wary of the risk of claims, especially where these are lower value in nature.

Conclusion

There are exciting times ahead in relation to employment law over the coming year. A lot of the reforms appear to be good news for employers and in particular will make some of the thornier issues which arise in transactions less risky or costly to any potential purchaser.