Key employment and business immigration developments for employers.

  1. In the news
  2. Immigration radar
  3. Case watch
  4. New law
  5. Watch this space
  6. Our work

1. In the news

New PM - what does it mean for HR?

The United Kingdom has a new prime minister but what could Liz Truss MP's appointment mean for employment law?

  • Possible reform of EU-derived law. As part of her leadership campaign, Liz Truss said she would review all remaining EU law post-Brexit and remove anything that does not support UK growth or boost investment, by the end of 2023. Although no specific employment laws have been targeted, trade unions have voiced concern over what this could mean for worker rights. Some reports suggest that Liz Truss is considering a review of working time rights, including the 48-hour limit on weekly working time.  
  • Possible reform of strike laws. Currently, for industrial action to be lawful, it must be supported by a ballot in which a majority of eligible trade union members vote in favour and at least 50 percent of eligible members turn out to vote. A higher threshold applies for ballots in important public services. Liz Truss has pledged that she would raise the threshold so that lawful action would require at least 50 percent of all eligible workers to vote in favour of the action (not just those who turn out to vote, meaning a higher turnout would often be required).  
  • Possible reform of the off payroll working rules. Liz Truss has said that she would review the off payroll working rules. The rules require large and medium-sized businesses to review the employment status of any contractor supplying their services via a personal services company. Where the contractor would be considered an employee but for the personal services company, the rules require them to be subject to income tax and national insurance contributions like an employee. Liz Truss MP has spoken about the unfairness in taxing contractors like employees where they do not have the same rights or benefits as employees.  
  • Removal of the health and social care levy. The levy was introduced on 6 April 2022 to help fund reforms to the NHS and care sector. It began as an increase to employer and employee national insurance contributions and was to take effect as a separate tax from April 2023. Liz Truss has promised to reverse this increase in national insurance.

Employment Update will report developments as the Government's employment law agenda becomes clearer.

2. Immigration radar

Visa processing times

The Home Office has reinstated the priority processing option for sponsored work visa applications made abroad. The priority processing option had been suspended earlier this year to allow the Home Office to focus on Ukrainian visa applications. However, the option has now been reinstated, meaning applicants for Skilled Worker and Global Business Mobility visas can, in many jurisdictions, pay an additional fee to have their application processed within five days instead of several weeks. This is welcome news for employers and visa applicants, as it will significantly reduce the time taken to secure a visa for many (where available). However, priority services for new family visa applications continue to be suspended.

New scale-up visa 

A new Scale-Up Worker visa was introduced on 22 August 2022. This route is designed to make the process of sponsoring visas quicker and easier for employers who are experiencing rapid growth, such as start-ups. To be eligible, the employer must first apply for a sponsorship licence under the "Scale-Up" route. The employer will need to demonstrate annualised growth of at least 20 percent in either staff count or turnover over the three years prior to applying, and that it had a minimum of 10 employees at the start of the three-year period.  Candidates for sponsorship would also need to be earning at least £33,000 (or the going rate for the role if higher) and be able to demonstrate sufficient English language ability. Provided these criteria are met, the visa application process would be fast-tracked by the Home Office. The downside for the employer (from a retention perspective) is that candidates for a Scale-Up worker visa only require sponsorship for the first six months, and after that, are free to leave and work elsewhere.

Employers who believe they are eligible under the "Scale-Up" route may wish to apply for a sponsor licence under this category (whether or not they hold an existing licence under other categories). A licence under the "Scale-Up" route is valid for four years but cannot be renewed beyond four years, as the route is designed to support businesses during the period of growth.

Sponsor licence compliance checks

The Home Office can conduct compliance checks of any organisation which holds or applies for a sponsorship licence. Such checks can be before or after the licence is granted and will typically involve a visit by Home Office officials to ensure the sponsor has the right systems and processes in place to comply with its duties as a sponsor (e.g. record-keeping and reporting duties). The Home Office has updated its guidance to confirm that such checks can be carried out physically in person or remotely via video conferencing facilities. In addition, the Home Office has confirmed that employers operating virtual business models (with little or no physical office space) are likely to receive a compliance check prior to a licence being granted. This will usually involve a visit to the physical address of the organisation's Authorising Officer.

3. Case watch

Holiday for casual workers

The Supreme Court has delivered an important ruling on the correct way to calculate holiday pay for workers whose hours vary, such as casuals and zero hours workers.

The case involved a visiting music teacher who worked at a school during term time only. She was employed on a permanent contract, with no guaranteed hours. Her hours varied week to week and she was only paid for the hours actually worked. At the end of each term, the employer calculated her holiday at the rate of 12.07% of her earnings for the term and paid this to her. She was then required to take her holiday during the school holidays. The 12.07% was based on Acas guidance and reflects the rate at which 5.6 weeks' holiday accrues over the working year. However, the employee brought a claim arguing that the 12.07% approach is wrong and that she had been underpaid her holiday.

The Supreme Court agreed with her. It ruled that the correct way to calculate holiday pay for workers whose hours vary is to take an average of their earnings in previous weeks, to arrive at their average weekly pay. In doing so, any weeks in which the worker has done no work are ignored. The worker must then get 5.6 weeks' worth of holiday at their average weekly rate of pay. For the employee in this case, this meant that holiday pay accrued at the rate of 17.5% of earnings, rather than 12.07%, and she had therefore been underpaid for her holiday.

HARPUR TRUST V BRAZEL

This case is significant for any worker who has a permanent contract but who does not work 52 weeks a year, such as term-time only workers and casuals or zero hours workers who do not work every week. It confirms that employers can no longer calculate holiday pay for such workers based on 12.07% of the worker's earnings. Instead, holiday pay should be calculated by taking an average of weekly pay over the 52 weeks before taking holiday, ignoring any weeks where the worker does no work. The worker must receive 5.6 weeks' holiday paid at their average weekly rate of pay (regardless of how many weeks they work in a year). 

This approach requires significantly more administration for employers, who must recalculate holiday pay each time the worker takes leave. More importantly, ignoring weeks where no work is done artificially inflates the average weekly pay of anyone who does not work the full year – for example, a casual who works fulltime for a number of weeks with significant gaps in between would then be entitled to 5.6 weeks' holiday at full pay; the same as an employee who works fulltime for the entire year. The Supreme Court recognised this anomaly but ruled that any other way of calculating holiday pay would go against the Working Time Regulations.

In terms of casuals and zero hours workers, the ruling only applies where the worker has a permanent, overarching contract. It does not apply to "true casuals" i.e. those engaged on an as needed basis with no overarching contract between assignments. Such workers can still have their holiday pay paid at the end of the assignment, based on 12.07% of earnings on the assignment, because their "employment" ends at the end of each assignment. Employers may therefore wish to engage casuals on short, discrete contracts for specific assignments, rather than on permanent overarching contracts. 

Fire and rehire

The Court of Appeal has overruled an injunction restricting Tesco from "fire and rehiring" employees in order to change their terms.

The background to the ruling is that Tesco recognises the trade union USDAW for collective bargaining purposes. During a reorganisation, Tesco had agreed with the union to give employees an element of "retained pay" as an incentive for employees to remain with the company and relocate to a new site, instead of taking redundancy. The "retained pay" became a contractual entitlement. Tesco said in communications with staff that "retained pay" would remain an entitlement as long as the individual remained employed in their current role and that it could not be negotiated away, except in limited circumstances. A collective agreement with the union also described it as a "permanent feature" of the employment contract.

Years later, Tesco announced its intention to remove "retained pay". It offered employees the chance to give up "retained pay" in return for a lump sum compensation payment, otherwise it said employees would be dismissed and offered new terms which excluded "retained pay". However, a court initially granted an order preventing Tesco from dismissing employees to remove "retained pay"; the court said Tesco had promised it would be permanent. The Court of Appeal has now overruled that decision. The Court said that, despite the language used in communications, it was not the intention of the parties that "retained pay" could never be removed. The Court also said that it would rarely be appropriate to grant an injunction preventing an employer from dismissing an employee indefinitely.

USDAW & OTHERS V TESCO STORES LTD

This case confirms that it would be highly unusual for a court to stop an employer from using "fire and rehire" to change terms and conditions. Having said that, the use of "fire and rehire" has come under scrutiny in recent years, as it involves implementing changes by terminating employees' contracts and offering them the same job on amended terms. Because of the public and employee relations risks, "fire and rehire" should only be used as a last resort where agreement cannot be reached through consultation with employees or their representatives.

The case is also a reminder that employers should be careful to avoid any promise or suggestion that a benefit or element of pay is "permanent". Wherever possible, employment contracts should make it clear that the employer can amend or withdraw benefits in future to avoid any arguments that such benefits are set in stone.

Whistleblowing

The Court of Appeal has considered whether an employer can dismiss an employee who has blown the whistle for the manner in which they have done so.

The employee in this case was the Head of Financial Audit at a bank. She raised concerns with the Head of Legal on a number of occasions about a product the bank offered and queried the Head of Legal's legal awareness of the matter. The Head of Legal complained to the Head of HR and CEO that the employee had questioned her professional integrity and that she had "reached the end of her tether" with the employee. The Head of HR and CEO ultimately decided that the employee should be dismissed for this and other incidents which showed a "lack of emotional intelligence", and which meant colleagues did not want to work with her. The employee claimed that both the complaint about her and her subsequent dismissal were because she had blown the whistle.

The Court of Appeal ruled that the employee had blown the whistle on a number of occasions, and this was the reason the Head of Leal complained about her. This itself was an unlawful act of detriment. However, the reason for dismissal was not the fact that the employee had blown the whistle but the way she went about it. Those who made the decision to dismiss believed the employee had acted unreasonably in questioning the Head of Legal's integrity. The reason for dismissal was therefore conduct rather than whistleblowing.

KONG V GULF INTERNATIONAL BANK (UK) LTD

This case is helpful up to a point. It shows that an employer can dismiss or take disciplinary action against an employee who has blown the whistle where the manner in which the concerns are raised is inappropriate or leads to a breakdown in working relationships. In such circumstances, the reason for the dismissal or disciplinary action would be misconduct or the relationship breakdown, rather than the whistleblowing itself.

However, employers must tread very carefully here – it is often difficult in practice to completely separate the whistleblowing from the employee's conduct in blowing the whistle.  Where the reason for the dismissal or disciplinary action is found to be the fact that the employee blew the whistle (rather than the conduct), the employee will have an unfair dismissal or unlawful detriment claim, for which compensation is uncapped.

4. New law

Covering employees on strike

The Government has amended the law so that employers can now engage temporary agency workers to cover the work of employees on strike. Previously, temporary work agencies were prohibited from supplying agency workers to perform the duties of an employee who was taking part in official industrial action or the duties of any other worker who was covering an employee taking part in official industrial action. (Industrial action is official if it is authorised or endorsed by a trade union.) However, this prohibition was abolished with effect from 21 July 2022, meaning agencies are now free to supply agency workers and employers are free to engage them in these circumstances.

In practice, many employers may remain cautious about engaging agency workers during a strike because of the likelihood of escalating the industrial dispute and also the need to ensure workers have the necessary skills and qualifications to perform the work in order to comply with health and safety obligations.

With effect from 21 July 2022, the Government has also increased the cap on damages which can be claimed against a trade union for unlawful industrial action. The cap varies with the union's size, with the maximum now increased from £250,000 to £1 million for trade unions with 100,000 or more members.

Employment status update

The Government has published new guidance for HR and legal professionals on employment status and employment rights. The guidance explains the difference between employee, worker and self-employed status, and contains a specific section on recent developments in the labour market, including the gig economy, zero hours contracts, freelancers, contractors, consultants, volunteers, interns and agency workers. It also contains a checklist to help employers and engagers determine the employment status and associated rights of staff.  

The Government has also confirmed that it does not plan to amend the law on employment status at this stage. In 2018, the Government had said it would legislate to improve the clarity of the distinction between employee, worker and self-employed, and work towards aligning the tests for employment rights and tax purposes. However, it has now confirmed that it does not plan to change the legislative test and instead has published the new guidance to help improve clarity. The Government recognises the benefit of aligning the tests for tax and employment rights purposes but says now is not the right time, given the ongoing economic recovery from the pandemic.

5. Watch this space

Call for evidence on hybrid and distance working

The Office of Tax Simplification has launched a review into changing trends in the way people are working, including remote and hybrid working, and working across borders. The review will consider whether the current tax and social security rules are flexible enough to cope with such trends. The OTS is asking for information and evidence from employers and employees, as well as self-employed people, on issues such as how tax and social security work for people working across international borders, how travel expenses work in a hybrid world, the treatment of pensions and share schemes and the risks of creating a permanent establishment. The call for evidence is open until 25 November 2022 and the OTS will publish a report in early 2023. We will be responding to the call for evidence – if you have any comments you would like us to feed into our response, please speak to your usual Employment department contact.

6. Our work

Since the last Employment Update, our work has included:

  • advising a client on redundancy collective consultation obligations in the context of closing its UK business operation  
  • supporting a client on options for engaging employees in different EU countries  
  • carrying out a cultural review following allegations of sexual harassment at a client  
  • advising a US based client on setting up in the UK  
  • advising a multinational client on Employer of Record arrangements  
  • drafting a suite of enhanced family friendly policies.