Employment Law considerations for the new UK Government – September 2022

It has been an unusual first month in office for the new Prime Minister Liz Truss. Just two days after being asked to form a government by the Queen in Balmoral, Her Majesty the Queen passed away and Parliament was suspended.

Following the funeral, attention is now turning to the new PM’s in-tray, including any legislative changes that she may seek to implement over the coming months.

In this article, we look at which areas of employment law may be a focus for the new government.

As a reminder, following the Brexit deal the UK government can, in principle, repeal UK laws that derive from EU laws, save that the concept of “non-regression” means that if the UK weakens or reduces the level of labour and social protections such that it affects trade and investment between the UK and EU, the EU could ultimately impose “rebalancing measures” such as tariffs (and the same applies vice versa).

However, on 22 September 2022 the government published the Retained EU Law (Revocation and Reform) Bill. This Bill is complex but, in summary, it provides for the automatic revocation of all EU-derived subordinate legislation and retained directly applicable EU legislation, from the end of 2023. The only exceptions will be areas that are specified in regulations made by a minister or devolved authority, and such retained laws will be known as “assimilated law”. There are also provisions to limit or remove the effect of EU case law in UK courts and tribunals. EU-derived employment legislation includes the Working Time Regulations 1998, the Transfer of Undertakings (Protection of Employment) Regulations 2006, and the Agency Workers Regulations 2010, as well as some elements of discrimination legislation. Assuming that the Bill becomes law in its current form, it remains to be seen which employment laws will be revoked and which will be retained.

Trade unions:

Along with the hot, dry weather, strike action was one of the defining features of the summer, and many expect further strike action over the coming months as prices continue to rise faster than wages.

Back in July 2022, legislation came into force to increase the maximum damages which may be ordered against a union for unlawful industrial action, and to remove the restriction on agencies supplying temporary staff to replace striking workers.

Liz Truss has now proposed various additional restrictions on industrial action, most notably introducing minimum service levels for critical national infrastructure such as transport.

Other possible changes include:

• Increasing minimum notice periods for strike action from two to four weeks.
• Requiring a “cooling off” period so that unions cannot strike as many times as they want in the six-month period after a ballot.
• Increasing ballot thresholds so that 50% of employees entitled to vote for industrial action must vote in support (up from 40%).

Working Time Regulations:

The Working Time Regulations 1998 (WTR), which derive from an EU directive, provide for a broad range of rights and protections, including working time limits, rest breaks, and entitlement to paid holiday. Jacob Rees-Mogg, the recently appointed Secretary of State for Business, Energy and Industrial Strategy, has previously voiced his concerns around the WTR and, as outlined above, it may be that the WTR would be revoked in accordance with the Retained EU Law (Revocation and Reform) Bill.

For some, the 48-hour limit on average weekly working time is symbolic of the EU’s interference in the ability of UK businesses to manage their workforce, and would be a prime target for repeal. In our experience, many businesses routinely ask their workers to expressly ‘opt out’ of the limit, such that the limit has limited practical effect in many sectors.

In our view, a more likely target for change or revocation would be the rules around holiday pay, which have been the subject of extensive litigation in recent years, with various rulings indicating that paid overtime, bonuses and commission may need to be taken into account in the calculation of holiday pay. The legal position and associated calculations are complex, and getting it wrong can expose businesses to substantial liability for back pay. This is an area in which reform may be welcomed by many businesses. That said, given the complex and evolving history of holiday pay, it may not be entirely straightforward to simplify the position.

IR35:

During the leadership contest, Liz Truss stated that if she became Prime Minister she would review the off-payroll rules (also referred to as the IR35 regime), whereby the end users of self-employed contractors who provide services via certain types of intermediary (most commonly a personal service company) must assess the contractors’ employment status and operate PAYE on the fees paid to the intermediary if the contractors are deemed to be employees. Truss argued that the reforms to the IR35 regime introduced in 2021 have resulted in many genuinely self-employed people being incorrectly deemed to be employees.

It has now been confirmed that the IR35 rules introduced for the private sector in 2021 will be repealed from 6 April 2023. This will essentially represent another reduction in potential tax revenues (as self-employed individuals typically pay less tax on their pay), along with the cancellation of the health and social care levy. For many businesses this move will be popular, as it shifts the burden (and associated legal risk) of assessing the employment status of workers who provide their services via a personal service company away from the end user company and back to the personal service company. At the same time, substantial work may be needed to reflect the changes and unwind changes only recently made to comply with to the recent reforms to the IR35 regime.

TUPE:

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) is regularly discussed as a target for change, especially the restrictions it places on harmonisation of employees’ terms and conditions following the transfer of a business. Arguably, for many businesses, the requirements and restrictions of TUPE are not, in reality, a significant hindrance to M&A activity. However, as with the WTR, TUPE is EU derived law and could be revoked under the Retained EU Law (Revocation and Reform) Bill.

What next?

There are of course many pressing issues for Truss and the government to address, including the energy crisis, the rising cost of living, and fears of economic recession. With a Conservative government in power for 12 years, and the Brexit deal having been agreed nearly two years ago, some have argued that if there was a genuine desire to make these changes then they would have been made already.

However, there are strong indications that changes may well be made, and the already-announced reversal of IR35 rules demonstrate that this government is willing to undo even recent changes made by the Conservative administration. The Covid pandemic forced the government to focus on immediate issues, but thankfully the worst of the pandemic seems behind us. At the same time, Truss may seek to use changes to employment law as a tool to improve the competitiveness of UK business. Employers should therefore watch this space and be prepared for possible changes in the coming months.