Following the initial draft of the Employment Rights Bill (which we discussed in detail here), significant amendments have been introduced as the legislation continues its journey through Parliament. This article provides an overview of the key changes that HR professionals and business managers should be aware of.
Zero hours contracts and shift changes
One of the more obvious loopholes in the original draft Bill was that employers could simply use agency workers to avoid a number of the new provisions – in particular, those which limited the use of zero hours contracts and those which prevented last-minute shift changes. To address this, agency workers will now be entitled to broadly the same rights as employees.
The Bill requires employers to offer guaranteed hours contracts to workers who are currently contracted to work zero hours or a small amount of hours per week, but who are regularly working substantially in excess of their contractual hours. Under the amended Bill, the responsibility to offer these guaranteed hours will fall on the end hirer as opposed to the recruitment business. The thinking behind this is that the end hirer will be the entity best positioned to forecast workload needs. However, genuine temporary assignments due to seasonal demand are still permissible, and hirers can cease the engagement if there are genuine capability or conduct concerns, provided they act reasonably. The Conduct Regulations, governing temp to perm fees, will continue to apply.
The obligation to provide reasonable notice of shift changes is shared between the agency and the hirer, depending on who failed to give sufficient notice. Compensation for lack of notice will primarily come from the agency, but they can recoup costs from the hirer as a temporary measure under statute, with expectations that this arrangement will be reflected in business-to-business terms in the future. Some shifts may be designated as 'excluded shifts', though the specifics of when these may arise are yet to be determined.
Anti-avoidance measures are in place to prevent employers from manipulating contracts to circumvent the new regulations, such as suppressing hours or terminating contracts to stay below thresholds. Maximum compensation levels for such avoidance will be set by forthcoming regulations.
Interestingly, a new provision states that collective agreements can be used to opt out of the rules relating to shift changes and zero hours contracts entirely. This could be very helpful for some employers. However, whether unions will be minded to agree to this, or whether they use it as a negotiating chip to encourage an employer to agree to voluntary recognition, remains to be seen. The relevant collective agreement for temporary workers will be the one between the union and the agency, rather than the collective agreement of the end hirer.
Statutory sick pay
The first draft of the Bill made it clear that workers who previously fell under the Lower Earnings Limit (LEL) would be entitled to statutory sick pay, but it was not clear how much pay they would receive. The amended Bill sets the entitlement at 80% of their salary.
Bereavement leave
The Bill will introduce an entitlement to two weeks' leave and pay for individuals who have suffered a miscarriage before 24 weeks of pregnancy. However, it appears that paid leave is currently only available in cases where a child is lost, with broader types of bereavement yet to be addressed. Clarification on this matter may be provided through future regulations.
Enhanced protections for pregnant employees
Protections for pregnant employees and those in the 'protected period' (the period of maternity leave and for a short while after they return to work), have been extended beyond redundancy situations. This is quite a significant development, as those in the protected period currently only benefit from priority treatment in circumstances where there are vacancies during a redundancy exercise. The amended Bill allows for Regulations to specify circumstances under which any dismissal, (whether for redundancy or not), of a pregnant employee or an employee in their protected period may be deemed unfair. It is anticipated that the Regulations will set out exact procedures and required notices that will be required in such situations, effectively making dismissals unfair unless exceptional circumstances exist.
Fire and rehire practices
The Government's crackdown on the practice of 'fire and rehire' was originally contemplated to include a right of interim relief for those who had been dismissed. This would have allowed those whose employment had been terminated by an employer looking to implement less beneficial terms and conditions to be reinstated (or paid a salary) up to the point of the Tribunal hearing, irrespective of whether they won their case or not. This provision has been dropped from the Bill, but dismissals related to fire and rehire remain automatically unfair, save where the employer faces an existential financial threat. Even in those circumstances, a Code of Practice must be followed, and the failure to adhere to it can result in a 25% uplift in compensation and, if 20 or more individuals are dismissed, an increased protective award (see below).
Redundancy procedures
Currently, a statutory information and consultation obligation is triggered if an employer proposes to dismiss 20 or more employees at a single establishment within a 90 day rolling period. The original Bill removed the 'establishment' test, so if 20 or more employees were to be dismissed anywhere across an entire organisation, the statutory procedure would be triggered. This gave a number of employers cause for concern, not least as it could be difficult to keep track of the number of dismissals across a multi-site business, particularly if the dismissals were unrelated. The amended Bill reinstates the need for the dismissals to be at one establishment, but it also lays the groundwork for the possibility of an additional test to be introduced in due course where consultation may be triggered if a large number of redundancies are proposed across the entire organisation, irrespective of the number of at-risk employees at any single establishment.
Currently, employers who have triggered collective consultation obligations are required to conduct consultations with the appropriate employee representatives 'with a view to reaching agreement'. Under the amended Bill, employers will not be required to consult all representatives together, nor aim to reach the same agreement with all reps. This is designed to allow unconnected local redundancies to be handled more appropriately and efficiently.
When 100 or more employees are at risk, employers must commence consultations at least 45 days before the first dismissal takes effect. However, until now, employers only needed to submit an HR1 Form (providing the Government with notice of the redundancies) 30 days prior to the first dismissal. Under the amended Bill, this period has been extended to 45 days' notice.
Significantly, the maximum protective award for a failure to inform and consult has been doubled from 90 to 180 days' pay for each affected employee, providing a powerful disincentive for employers thinking of cutting corners. However, it should be noted that many protective awards are made against insolvent businesses, who will be unable to pay in any event.
Record-keeping for annual leave
A new duty mandates employers to keep records demonstrating compliance with annual leave and pay requirements for six years. Failure to maintain these records will constitute a criminal offence, punishable by fines. This is likely to make the job of the Fair Work Agency considerably easier when it comes to enforcement (see below), and focus the minds of employers on how to ensure their employees are given the correct entitlement to leave and pay. However, it is likely to create quite a large administrative burden on employers.
Regulation of employment businesses and umbrella companies
Significant changes are on the horizon for umbrella companies, which have historically operated with minimal regulation in employment law. Such companies, often used to employ workers referred by temp agencies to end hirers, will now fall under the definition of 'employment business'. This change brings them under the oversight of the Employment Agency Standards Inspectorate, soon to be part of the Fair Work Agency (FWA).
As a result, responsibility for Pay As You Earn (PAYE) tax deductions will also shift to the agency or end-user client, depending on the circumstances, effectively closing existing loopholes. Those working under umbrella companies are also likely to find it easier to show that they are entitled to holiday pay and other benefits available to workers.
Changes affecting trade unions
Industrial action
Currently, industrial action needs to be supported by a majority of those eligible to vote, and at least 50% of those eligible must vote (so at least 25% plus one must vote in favour of industrial action for it to be lawful). This threshold was originally going to be removed in the original draft Bill, but it remains in place for now. Electronic balloting (e-balloting) is anticipated in future amendments, which may coincide with the removal of the turnout threshold.
The required notice period for industrial action that unions must give employers has been reduced from 14 days to 10 days (rather than the proposed seven days in the original Bill).
At present, a ballot will remain valid for six months (or nine months if agreed), after which a fresh ballot must be taken for any industrial action to be protected. Under the amended Bill, this period will be extended to 12 months, with no possibility of extension by agreement. This will make it much easier for unions to call for industrial action during long running disputes.
Union recognition and access rights
The revised Bill extends the power of the Central Arbitration Committee (the "CAC") to intervene if employers engage in so-called unfair practices during union recognition campaigns (not just during the ballot stage). Further, the time limit for filing complaints of unfair practice has increased from one day to five days after the ballot closes.
One of the most controversial aspects of the original Bill was the introduction of the right of unions to gain access to employer's premises before they had been recognised by the employer. This right has been extended to virtual access as well as physical access (for example, by way of all-staff emails or pages on an employer's intranet). Employers cannot use the provision of virtual access to deny physical access rights and vice versa. The amended Bill also makes clear as to how this right will be enforced: if an employer refuses a request from a union, the CAC may intervene and impose a binding access agreement after a 20-day negotiation window. Parties may agree to extend this window by up to 10 days.
To prevent employers from manipulating the size of bargaining units to skew ballots against unions, new joiners will be excluded from certain calculations. Additionally, a swiftly arranged agreement with a non-independent union ('sweetheart agreement') will not obstruct the statutory recognition process.
Enforcement by the fair work agency
Notice of underpayment
The amended Bill gives the FWA the authority to issue notices of underpayment concerning holiday pay and statutory sick pay. Employers will have a 28-day window to rectify underpayments, calculated at the rate on the day the notice is issued (not when the pay was originally due). This, coupled with the new record-keeping requirements mentioned above, may cause issues for defaulting employers.
In addition to the requirement to pay the shortfall, the FWA also has the power to impose penalties, amounting to 200% of the underpaid sum, with a maximum of £20,000 per affected individual and a minimum of £100. Much like parking tickets, the penalty will be reduced if payment is made within 14 days of the notice. It would appear that penalties will be the default response, as the Bill refers to forthcoming Regulations which will set out circumstances where penalties will not be imposed.
Employers will have the right to appeal against notices and penalties issued by the FWA.
Expanded powers of the FWA
In a significant development, the powers of the FWA will be extended to enable it to bring claims on behalf of workers in the Employment Tribunal, except where a notice of underpayment has been used or if the claim concerns agricultural wages in Scotland or Wales. It is important to note that this power extends to any employment claim, even to matters which sit outside the FWA's statutory remit when it comes to regulatory enforcement.
Moreover, the FWA can provide legal advice and representation to workers, even in cases involving mixed employment and commercial issues. While this assistance does not include facilitating settlement agreements, the FWA can act as an independent adviser, signing off on statutory settlement agreements but, (unlike other advisers), without having the need to have insurance in place to cover against claims against it for negligent advice.
The FWA will be able to pursue costs, both in relation to claims it brings in the Employment Tribunal as well as to recover underpayments from employers.
These new powers will theoretically give the FWA real teeth when it comes to enforcement of employment rules, and could be a way of reducing the burden on the overstretched Employment Tribunals. However, whether they will be effective remains to be seen: details of how the FWA will be funded are yet to emerge.
Not included in the amendments
While the scope of the recent amendments has surprised many commentators, there are some provisions that are notably absent from the latest draft – particularly the right to disconnect from work, which appears to have been quietly dropped by the Government. Those waiting for more detail in relation to the probationary period (or 'Initial Period', in the words of the Bill) that will apply in unfair dismissal cases did not find what they were hoping for in the latest draft: we are still awaiting more information as to how this will operate. However, employers who thought that they would rely on recruitment businesses to avoid probationary headaches should be cautious: the amendments to the zero hours provisions show that the Government is willing to bring agency workers into the scope of the protections contained in the Bill, and further amendments may follow as more details of the Government's plans emerge. Many gaps also remain to be filled by way of secondary legislation, which we are expecting to see in the coming months.
Conclusion
We are expecting the Bill to become an Act of Parliament later this year, with some of the more complex provisions coming into force over the next 18 months. Employers need to start preparing now by starting to think about how they are recruiting and the long term strategic needs of their businesses. The Employment Rights Bill is likely to shift the labour market from a 'just in time' supply model to something that provides more certainty and security to workers. Those businesses that rely on flexible working conditions may need to rethink how to approach their staffing needs.