In May 2023 we reported how the UK government made a series of announcements in respect of proposed reforms to two areas of law derived from the EU – the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and the Working Time Regulations 1998 (WTR) – and launched consultations on its proposals. The government has now published a response to those consultations and the reforms it intends will go ahead, and which ones will not.
This blog explores the changes which will take effect, and which are expected to be in force from 1 January 2024.
What is TUPE and what changes were proposed?
TUPE is a set of rules, derived from EU law, which protect the rights of employees when their employment transfers to another employer when there is a relevant business transfer or change in service provider. The rules provide valuable protections for employees in respect of their terms and conditions of employment and security of employment. They also place a number of requirements on employers in respect of provision of information and consultation ahead of a transfer taking place.
The consultation focused on consultation with staff ahead of the transfer. Under the current rules, there is an obligation to consult with the representatives of affected staff on all TUPE transfers, except where the micro-business exemption applies (i.e., where the employee has fewer than 10 employees) when consultation can be carried out directly with the staff concerned. However, the government consulted on expanding this exception to employers with fewer than 50 employees, and in cases where transfers involve fewer than 10 employees regardless of business size.
What changes will be made to TUPE?
The consultation obligations will be changed as proposed, meaning that businesses with fewer than 50 employees, and businesses of any size who are proposing a transfer of fewer than 10 employees, will be permitted to consult with employees directly rather than through representatives. In both cases, direct consultation applies only where there are no existing employee representatives in place.
What are the implications for employers?
These reforms are likely to be welcomed by employers. While consulting with representatives can be helpful for larger scale transfers, it can be burdensome and time consuming to go through the process of electing representatives when the number of employees transferring is relatively small. While this is recognised in the current law for micro-businesses, the rules did not reflect that the same burden applied for larger businesses carrying out small-scale transfers. In reality, direct consultation does often still happen in those circumstances, but under the rules this can only happen where attempts to elect representatives have failed. The new rules should make the whole process much more straightforward for employers and affected employees alike, avoiding the need for an election process and allowing the consultation process to start much sooner.
The change in consultation rules will not prohibit employers consulting via elected representatives in smaller scale transfers if this is still their preference; the new rules simply provide the flexibility for employers to deviate from that in the prescribed circumstances, if they wish.
It is important to remember that the new rules will only permit direct consultation where there are no existing representatives in place. This is likely to be the case in many situations, as representatives are often elected purely for the purpose of the TUPE consultation. However, employers who already have employee representatives in place, e.g., trade unions or existing employee bodies with a mandate covering the TUPE transfer, will need to be mindful that they must still consult with them.
What are the implications for employees?
It is not anticipated that the changes will have any material impact on employees. The changes do not affect the content of consultation, and many will welcome getting information and starting discussions earlier than they might under current rules. Discrimination laws continue to apply to protect individuals, and the government has provided reassurance that the reforms do not undermine collective bargaining arrangements.
Is anything else proposed for TUPE?
Not at the moment. The consultation raised a few additional areas for further consideration, particularly clarity around who TUPE applies to and transfers to multiple transferees, and making it easier to change terms and conditions post-transfer. The government has no plans to make changes to the existing rules around terms and conditions, but has committed to keeping the case law around multiple transferees under review and take action if required.
What changes were proposed to the WTR?
The WTR are a set of rules, derived from EU law, which govern workers’ rights around working time, rest breaks, and holiday. They have become known for being burdensome and complicated to navigate, especially following decades of case law (both domestically and from the EU) which have created complexity and uncertainty in a number of areas. As a result, it is not surprising that the government has now taken the opportunity to revisit certain parts of the legislation. The proposals were limited to the following:
- Looking at record keeping requirements as European case law had developed in a way which potentially increased record keeping requirements on employers include records on daily working hours;
- Allowing rolled-up holiday pay, a practice which is currently not permitted, for workers who work irregular hours, or part of the year;
- The method of calculation for accruing annual leave for workers who work irregular hours, or part of the year, again in light of case law developments complicating this area;
- Having one set of annual leave entitlement, with one set of rules, rather than the current ‘basic’ and ‘additional’ leave;
What changes will be made to the record keeping requirements under the WTR, and what are the implications?
Although employers will still need to keep adequate records to demonstrate their compliance with the WTR, the effects of EU case law increasing this burden will be removed.
Employers will still need to keep records as prescribed in the WTR and so in that sense their responsibility remains unchanged. However, employers will not be burdened with the cost and responsibility of any increased record keeping on daily working hours arising out of the EU case law decisions.
What is happening with rolled-up holiday pay?
Rolled-up holiday pay is a concept whereby rather than receiving holiday pay only when annual leave is taken, a worker receives an enhancement to their pay to cover their holiday pay.
It is not currently permitted, although is often called for as a better and less burdensome approach for those working irregularly or only part of the year as it avoids employers having to make complicated annual leave calculations. The concern around its introduction has tended to be around worker health and wellbeing and wanting to avoid workers from being disincentivised to take time off.
Weighing up the issues and feedback from the consultation, the government will introduce rolled up holiday pay as a legal and legitimate way of dealing with holiday pay for those working irregular hours, part of a year, and some agency workers. It will not apply to those working full time or across a full year.
How will holiday accrual be calculated for part year workers, or those working irregular hours?
The government will legislate to introduce an accrual method which calculate holiday pay at 12.07% of hours worked in the particular pay period (which could be weekly, fortnightly or monthly depending on the individual pay arrangements). This is the approach typically used by employers, and their usual practice before a Supreme Court decision earlier this year which concluded that a pro-rated approach was more appropriate. The accrual approach is generally seen as the fairest way to calculate holiday pay and so legislation to clarify the correct approach will be welcomed by employers who are faced with this issue,
Are different holiday allowances being combined?
No. The consensus from the consultation is that having one single statutory leave entitlement would not make calculating holiday pay any easier, nor reduce the administrative burden on employers, and so this change will not be going ahead.
This means the current set-up will stay, maintaining two separate ‘pots’ of annual leave with two separate rates of holiday pay, namely 4 weeks at their normal rate of pay and 1.6 weeks at basic rate of pay.
Are any changes proposed to the calculation of holiday pay?
The government recognises that case law has developed in a way that has caused some confusion and uncertainty over the calculation of ‘normal remuneration’ for calculating holiday pay. It has indicated an intention to legislate in order to clarify the law in this area, and the consultation response talks of ‘fundamental reforms’ but we will have to wait and see what it has in mind.
What else has the government said about holiday entitlements?
In addition to addressing the issues explicitly covered in the consultation, the government has confirmed its intention to ensure that the carryover of annual leave when a worker has been unable to take leave due to sickness or maternity/family related leave is restated in domestic law. These concepts had arisen out of EU case law and are not new for employers to navigate.
The government has also said it intends to introduce a method of accrual of annual leave for those working irregular hours or part of a year when calculating their entitlements after sickness or family related absences.
Finally, provisions which were put in place during the pandemic to allow the carry-over of holiday will have a back-stop date of 31 March 2024.