In a year dominated by the Brexit vote in June, 2016 also saw a number of developments that will have a significant impact on UK employment law. This alert provides a brief summary of those developments and looks at what employers in the UK may expect in the year ahead.

  • The impact of Brexit on the labour market, particularly in relation to immigration
  • New developments in relation to employment status and the beginning of a crackdown on the so-called “gig economy”
  • The continuing pitfalls of calculating vacation pay

Impact of Brexit on Employment Law

It is difficult to estimate the significance of the result of the Brexit referendum on 23 June 2016. It gave the Government a political mandate to begin the exit process from the European Union and led to the resignation of Prime Minister David Cameron on 24 June 2016. His replacement, Theresa May, is now expected to steer the country through the choppy Brexit waters.

What to Expect in 2017:

The High Court determined, in November 2016, that Article 50 (the notice which the UK must give the EU to trigger the exit process) cannot be invoked without Parliamentary approval. The Supreme Court dismissed the Government’s appeal against that decision on 24 January 2017. This means that the Government will need to get the approval of both the House of Commons and the House of Lords before invoking Article 50, which may push back the self-imposed deadline of March 2017.

There is, as yet, no clarity as to what Brexit means in any detailed or meaningful way. The Supreme Court’s decision addresses no more than the constitutional mechanics of how to effect the divorce of the UK and the EU. Additional clarity on Brexit’s broader impact on UK employment law, it seems, will have to wait.

That said, it is unlikely that employment law issues will be high on the agenda in determining what the post-Brexit legal landscape will look like. Indeed, the Prime Minister has already confirmed that there is no intention to dilute worker protections. But concerns about immigration dominated the referendum campaigns and will likely continue to be a key issue. Any restriction on the freedom of movement between the EU and the UK will surely affect the European businesses of U.S. corporations, potentially threatening the right of EU nationals to maintain residence in the UK and preventing UK nationals from making a home in the EU. Employers may find that recruitment in the UK becomes more challenging too, as the possibility of increased immigration hurdles may deter or prevent EU (and non-EU) nationals from coming to work in the UK even before Brexit becomes a practical reality.

One practical step which can be taken at this stage is to encourage current UK employees who are EU nationals to apply for the UK permanent residence card. EU nationals can apply for this once they have completed five years’ working/studying in the UK, and once granted, this should (on current rules) be a guarantee of the future right to live and work in the UK.

When Is a Person an Employee and Why Does It Matter?

In the UK, the question of when is a person an employee is particularly important as employment status indicates not only the employment rights to which an individual worker is entitled but also how their earnings should be taxed—in simple terms, the employer pays a higher price for engaging a person as an employee, compared to engaging them as a contractor, a consultant or as a casual worker. There is no clear definition of “employee” nor “worker” in the law. Rather, the classification hinges on a number of factors, including mutuality of obligation and control.

In some cases it is possible to structure an engagement such that it is not an employment relationship but this should be treated with considerable caution, as the Uber case (Aslam,Farrar & Others v Uber)—heard by the UK employment tribunal in October 2016—demonstrates. Uber’s argument that it simply provided a platform between the drivers and the passengers was roundly rejected by the tribunal. It was held that the drivers were “workers” under UK law, despite the lengths to which Uber had gone to provide contractual documentation establishing the drivers as independent, self-employed contractors.

The clear message from the tribunal was that employment status is based on what happens in practice and not what the contractual documentation says: just because you call something an elephant does not mean that it is an elephant. Based on how the relationship worked in practice (and given the amount of control that Uber exercised over the drivers as well as other factors), the tribunal held that the drivers were workers and immediately increased the company’s labour costs by giving all Uber drivers (of whom there are some 30,000 in London alone) the right to paid vacation.

What to Expect in 2017:

Perhaps unsurprisingly, Uber has indicated its intention to appeal this decision. But the tide appears to be turning against businesses structuring their workforces so as to avoid potentially costly employment rights: the Uber case is just the first in a long line of cases to be heard. In January 2017, for example, an employment tribunal found that the bicycle couriers engaged by CitySprint were also workers and not self-employed. More such cases are expected this year.

It is estimated that 15% of the UK’s labour market is now “self-employed” and working in the gig economy, carrying out jobs with little or no security and few legal protections. There are currently no less than three Government/independent reviews on the changing nature of the workplace and the issues around determining employee status, all of which are due to report back in 2017. The outcomes of these reviews, in addition to the pending case law, are likely to affect how businesses are structured in terms of staffing going forward.