Employment and employee benefits in UK (England and Wales): overview
A Q&A guide to employment and employee benefits law in the UK (England and Wales).
The Q&A gives a high level overview of the key practical issues including: employment status; background checks; permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; intellectual property; restraint of trade agreements and proposals for reform.
To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits: Country Q&A tool.
The Q&A is part of the global guide to employment and employee benefits law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-guide.
Scope of employment regulation
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Laws applicable to foreign nationals
Most laws regulating the employment relationship apply to foreign nationals wholly or ordinarily working in the UK, just as they do to British citizens. The law chosen by the parties in the employment contract will govern any contractual disputes, but it will not otherwise stop UK legislation applying to the employment relationship.
Laws applicable to nationals working abroad
UK employment law may apply to UK nationals working abroad, depending on the strength of the connection between their employment relationship and the UK.
Categories of worker
An individual may be an employee, a worker, or self-employed. The distinction is important, as it determines an individual's statutory employment rights, and how he is taxed.
Assessing an individual's status is not just determined by how the parties label the relationship. It is a question of law and fact.
An employee is an individual who has entered into, or works under, a contract of employment. A contract of employment may be in writing, but can also be found to exist by virtue of how matters operate in practice. In determining whether an individual is an employee, an Employment Tribunal will assess his integration into the workforce, considering:
The degree of day-to-day control exerted over the individual by the business.
Whether the business is obliged to provide work for the individual, and he is obliged to do it.
Whether the individual is required to provide services personally or can send a substitute.
The more these elements are present, the more likely the individual is to be deemed an employee.
The category of worker is slightly wider. It includes employees, but will also include an individual who has entered into a contract personally to perform any work or services for another party, as long as that other party is not the client or customer of any business carried on by the individual. Identifying an individual's employment status is not always straightforward, and categorisation of individuals as workers has proven particularly contentious over recent years (notably in the context of LLP members, who are now highly likely to be regarded as workers).
An individual is self-employed if he provides services to another party in the course of running a business or profession in his own right.
Entitlement to statutory employment rights
Employees are entitled to the full range of statutory employment rights discussed in this chapter. This includes rights during employment, such as the right to a written statement of terms, and certain statutory minimum payments in the event of illness and some forms of family-related leave. It also includes rights on termination, including the right to a statutory minimum notice period, and some protection against dismissal. Some of these rights only apply after the employee has attained a minimum period of service (for example, unfair dismissal protection) (see Question 20). Subject to certain formalities (including the execution of an appropriate "employee shareholder agreement" (ESS Agreement)), employees may give up some of the core statutory employment rights (in particular, the right to claim unfair dismissal in most cases and the right to a statutory redundancy payment) in exchange for at least GB£2,000 worth of shares in their employer (or a parent company of their employer). Currently, shares granted under an ESS Agreement qualify for certain income tax and capital gains tax reliefs, but the Government now plans to abolish these reliefs for employee shareholder shares acquired in consideration of an ESS Agreement made on or after 1 December 2016.
Workers are entitled to a more limited range of statutory employment rights. Like employees, they are entitled not to be discriminated against on the basis of a statutorily protected characteristic and to accrue a statutory minimum amount of holiday. However, they do not enjoy the same level of protection against dismissal as employees.
Self-employed individuals have few statutory employment rights, but are still entitled to certain minimum rights, such as a safe working environment when working at a client's premises.
An individual's employment status is not determined by how long arrangements have been in place. Time periods are, however, relevant in the case of employees, who do not accrue some statutory rights until after they have served a certain period of continuous employment with the same employer (see Question 14).
Grants or incentives
The Government runs various schemes which aim to increase employment and training opportunities for young people. These include the National Apprenticeship Service (www.getingofar.gov.uk) which provides funding to employers who hire apprentices.
Before employing its first employee, an employer must usually register with the tax authority, HM Revenue and Customs (HMRC). It must set up payroll processes to ensure that all employees receive an individual written pay statement, and that HMRC is aware of all employees' national insurance numbers and earnings.
Employers in certain sectors may also have to make filings in respect of new employees with the appropriate regulatory body (for example, the Financial Conduct Authority in the financial services sector, and the Solicitors Regulation Authority and Law Society in the legal sector).
Employers must provide employees whose employment is to continue for more than one month with a written statement of certain terms of their employment. This written statement of particulars (often referred to as the section 1 statement) must be given to employees no later than two months after their employment begins. Particulars may be given at different times provided they are all given by the end of the two-month period. In practice, such particulars will typically be included within an employee's contract of employment (see Question 7).
There are limits on an employer's (or a prospective employer's) ability to lawfully obtain and act upon personal information regarding an applicant including, in particular, an applicant’s criminal record or medical history. Typically, any checks should be made only once a successful applicant has been chosen, as a condition of any offer of employment.
Furthermore, employers should take care only to request information from an applicant that is relevant to his application, and should make it clear to applicants how and when such information will be processed and verified. Helpful guidance has been issued by the UK Information Commissioner's Office (the body responsible for enforcement of the Data Protection Act 1998) in relation to the:
Verification of information provided by applicants (such as checking that details are accurate and complete, taking up references, and so on).
Vetting of applicants (such as making independent enquiries from third parties about an applicant's background and circumstances).
Criminal record checks
There is no express prohibition on an employer (or other organisation) seeking voluntary disclosure from a job applicant, employee, worker or volunteer about their criminal record. However, the Rehabilitation of Offenders Act 1974 (ROA 1974) limits the obligations that an employee has to disclose such information, and also limits the extent to which the employer may base its decisions on such information. Subject to certain exceptions, a person who has been convicted of a criminal offence but who does not re-offend during a specified period from the date of conviction (the rehabilitation period) is considered to be rehabilitated and their conviction becomes spent. Then, unless one of the exceptions under the ROA 1974 applies, they will be entitled to hold themselves out as having a clean record. During the rehabilitation period, the conviction is unspent and should be disclosed in response to a request for details of the individual's criminal record.
For certain roles, typically positions of trust (including working with children and vulnerable adults), employers may be permitted to seek verification of an applicant's criminal convictions record from the Disclosure and Barring Service (the DBS). The DBS has produced a guide (www.gov.uk/government/publications/dbs-check-eligible-positions-guidance) on which roles are eligible for checks. It is now a criminal offence for an employer to try to circumvent these provisions by requiring a job applicant or employee to use a subject access request to obtain a copy of his own criminal record as a condition of employment or continued employment. Organisations receiving standard or enhanced disclosure information (including registered and umbrella bodies and recruiters) must abide by the DBS code of practice for registered persons and other recipients of disclosure information (www.gov.uk/government/publications/dbs-code-of-practice).
Employers should also be careful about how they use information provided by the DBS. Certain UK criminal convictions are deemed spent after a set period of time has passed, so are not subject to disclosure by the individual concerned, and should not be used by the employer as the basis for refusing to employ an applicant. There are certain exceptions to this in the DBS legislation (for example, roles in the teaching, medical and legal professions, where all prior convictions must be disclosed, however old or trivial). However, following a successful judicial review of these exceptions in 2016, employers should ensure that, subject to any industry specific guidance, they exercise independent judgement in considering the weight to attach to such disclosures.
More general vetting of an applicant (for example, background checks by third parties) is considered highly intrusive, and should only be used where there are particular and significant risks to the employer, its customers, clients or others, and there is no less intrusive and reasonably practicable alternative. It should generally be used to obtain specific information, rather than for general intelligence-gathering, and at a late stage in the recruitment process (so that the number of applicants subject to vetting is minimised).
Similar considerations apply where an employer wishes to access an applicant's medical records or conduct a health check as part of the recruitment process. Employers should look to obtain specific information that is relevant to the role (for example, a vision test, for a role requiring a particular level of eyesight), or necessary to identify any reasonable adjustments required for a disabled applicant, rather than seeking general disclosure of an applicant's medical history. Where information is requested from an applicant's own doctor, the applicant must first consent under the Access to Medical Reports Act 1988.
The Equality Act 2010 stipulates that, other than in certain limited circumstances, a prospective employer must not ask about the health of an applicant before offering work to him (or including the applicant in a pool of applicants from whom the employer will choose a successful candidate). This is intended to stop employers using an applicant's medical records as a selection tool.
Permission to work
Employers must prevent illegal working, and those who do not comply with their obligations can face criminal and civil penalties. It is therefore important that employers establish the approvals required for foreign nationals working in the UK.
Nationals of countries in the European Economic Area (EEA) and Switzerland do not currently require prior approval to live and work in the UK.
Other foreign nationals generally need to apply for prior approval to work in accordance with the UK's Points-Based System for immigration (PBS). There are some exceptions, for example the spouses and civil partners (and, in certain circumstances, unmarried partners) of British citizens, EEA nationals, Swiss nationals and their dependants.
Procedure for obtaining approval. Under the PBS, there are five tiers through which an individual might acquire the right to work in the UK. The most relevant tiers for potential employees are:
Tier 1: the highly-skilled tier aimed at individuals who will contribute to the UK's productivity and growth. It has various sub-categories, including entrepreneur, investor and person of exceptional talent, although some of these are now closed to new applicants.
Tier 2: comprises skilled workers who are coming to the UK under the general or intra-company transfer sub-categories, to fill a gap in the UK labour market, and who have a job offer from an employer with a sponsor licence.
Tier 5: comprises certain temporary workers and migrants under the youth mobility scheme, who have a job offer from an employer with a sponsor licence.
Typically, employers seek permission for potential employees using Tier 2. This requires the employer to obtain a UK Visas & Immigration (UKVI) sponsor licence before making a job offer to the chosen candidate.
The licence can be obtained by successfully submitting an application form and supporting documents to UKVI to establish the employer's credentials as an appropriate licence-holder. In deciding whether to grant a licence, UKVI will consider factors including the applicant's human resources systems and compliance record.
Once an employer obtains a licence, the next steps to engage a candidate under the PBS depend on the sub-category into which he falls.
The sponsoring employer is likely to have to:
Demonstrate that the role cannot be filled by the resident labour market, unless the candidate or role is exempt from this requirement.
Ensure that the candidate meets all requirements of the relevant category, and does not have any adverse immigration history that could affect his application.
Deal with any issues regarding dependants of the candidate.
Apply to the UKVI for approval to issue the candidate with a certificate of sponsorship (COS), which is akin to a work permit (although issued by the employer, rather than the UKVI).
Unless an individual meets the criteria for an unrestricted COS (for example, because he will earn GB£155,300 per year or more), the employer must apply for a restricted COS, which are subject to an annual quota. To comply with this quota, in any given month, the UKVI scores all applicants for a restricted COS against the PBS, awarding points for various factors, including:
Level of salary.
Whether the job is on UKVI's list of shortage occupations.
Whether the resident labour market test has been conducted.
Prospective employers of the top-scoring candidates are then authorised to issue a COS to those individuals. This will last for a set period of time (for example, the initial length of stay under a Tier 2 COS is three years, but can be extended).
Expiry and renewal. An individual can apply for permission to extend the length of his COS (and in certain circumstances to settle permanently in the UK, usually after five years' continuous residence under an eligible category).
If an individual makes any such application before the end of his existing authorised stay, he can continue living and working in the UK under the terms of his existing COS until UKVI determines his application, so long as the terms of his employment (for example level of salary) continue to satisfy the appropriate criteria.
However, if he does not apply until after his existing authorised stay has ended, he is not entitled to remain or work in the UK while the application is under consideration, and must usually leave the country unless and until his application succeeds and he can return.
An employer must also issue a new COS if an individual moves to a new role categorised under a different Standard Occupation Classification (SOC) code to his original role.
Cost. The cost of a visa depends on the category of visa, the applicant's nationality and whether the application is made from within or outside the UK. At the time of writing, for example, the fee for an employer to assign a COS to an individual is GB£199 for a Tier 2 COS, and GB£21 for a Tier 5 COS (although other fees may also apply). Further information can be found on the UKVI website (www.gov.uk/government/publications/visa-regulations-revised-table).
Time frame. Individuals can use the UKVI website to track the typical time it takes to process an application from their country. Generally, UKVI indicates that the majority of applications that do not involve requests for indefinite leave to remain (that is, permanent settlement in the UK) are resolved within three weeks of application, and the vast majority within 12 weeks. Settlement applications may take longer.
Sanctions. Employers have a duty to prevent illegal working. Failure to identify migrants who require permission to work in the UK or to undertake prescribed document checks can result in criminal and civil penalties for the employer, including imprisonment for up to five years; fines; having their businesses closed; and/or earnings made through the use of illegal workers seized. Fines can be up to GB£20,000 per illegal worker under the civil penalty system, and are potentially unlimited where criminal liability is found. In June 2016, the criminal offence of knowingly employing an illegal migrant was extended to include circumstances where an employer has "reasonable cause to believe" that a person is an illegal worker.
Sanctions depend on when the worker started employment with that employer. Employers who did not check staff employed before 27 January 1997 will not be liable to sanctions if those individuals are found to be illegal migrant workers.
Non-EEA or non-Swiss nationals can visit the UK as business visitors for up to six months without going through the full PBS process. Further information can be found on the UKVI website (https://www.gov.uk/standard-visitor-visa).
Sanctions. An individual who fails to satisfy the immigration authorities that he is a genuine business visitor risks being denied entry to, and removed from, the UK. An individual who breaches immigration rules or is removed from the UK also risks a mandatory ban from the UK for up to ten years.
Skills charge. From April 2017, all employers who bring category Tier 2 migrant workers to the UK to work could be levied with a new "skills charge" of up to GB£1,000 per migrant worker per year. The skills charge is intended to encourage employers to invest and recruit from the UK workforce.
UK referendum. In a referendum held on 23 June 2016, the UK voted to leave the EU (Brexit). At the time of writing, it remains unclear what steps will be taken by the UK Government to trigger the formal withdrawal process required by Article 50 of the Treaty on European Union which will start a two-year exit negotiation process. What is clear is that during this two-year period, pending any agreement being reached, there will be no change to the current rights of EEA and Swiss nationals and their families to come to the UK. After this two-year period, however, the right of free movement enjoyed by workers within the EEA and Switzerland to come to work in the UK (and bring their family) may no longer be automatic, depending on the terms of the agreement reached between the UK and the EU.
Restrictions on managers and directors
Managers and company directors must usually be at least 16 years old. There is no upper age limit.
There are no nationality restrictions on who can be a manager or company director.
An individual cannot be a company director without express permission from the UK court that made the relevant disqualification or bankruptcy order if he either:
Has been disqualified from acting in this capacity.
Is an undischarged bankrupt.
Regulation of the employment relationship
Written employment contract
An employer must give each employee a written statement of the particulars of his employment within two months of employment starting. The statement must contain:
Names of the employer and employee.
The employee's job title or a brief description of his role.
The employee's start date (and when his continuous employment began, if earlier).
The place of work, and (if different) the employer's address.
How much and how often the employee will be paid.
Terms and conditions relating to hours of work.
Terms and conditions relating to holiday entitlement.
Terms and conditions relating to sickness absence and sick pay.
Terms and conditions relating to pensions (including whether the employee's pension is covered by a contracting-out certificate).
Notice periods to terminate employment.
For a non-permanent employee, how long the contract is expected to continue (or if it is for a fixed term, the date on which it will end) (see Question 15).
Details of disciplinary and grievance procedures that apply to the employee.
Details of collective agreements that apply to the employee.
Certain further information must also be provided to employees expected to work outside the UK for periods of more than one month.
English law implies certain terms into employment contracts. These include:
The duty of mutual trust and confidence.
Obligations on the employee to:
serve the employer faithfully;
obey the employer's reasonable and lawful orders;
exercise reasonable skill and care in performing his duties; and
not, during the employment relationship, disclose the employer's confidential information or disrupt its business.
Obligations on the employer to:
pay wages (provided the employee is willing and able to perform work), unless there is a contractual right not to do so;
take reasonable care of the employee's health and safety; and
promptly give the employee a reasonable opportunity to obtain redress for any grievances.
Collective agreements are typically made between an employer and a trade union. Such agreements are not legally binding. Their terms do not form part of an individual's employment contract, unless they are apt for incorporation and incorporated into an employee's contract. Collective agreements are less common in the UK private sector than in the public sector.
An employment contract can permit an employer to make limited unilateral changes to the terms and conditions of employment. However, such "flexibility clauses" are given a restrictive interpretation by the courts, and their exercise is also limited by various implied terms (like the obligation to exercise the flexibility in a way that does not breach the mutual trust and confidence between employer and employee).
An employer who wishes to impose changes that go beyond those authorised by the contract without the employee's express consent has two main options:
Impose the changes and accept the potential consequences, which could range from successful implementation (if the employee acquiesces to the change) through to potential claims (for example, breach of contract and/or constructive unfair dismissal) if the employee objects and brings a legal claim.
Give notice to terminate the employee's employment and simultaneously offer re-engagement, on the terms the employer wishes to impose, commencing immediately after the existing employment terminates. Employees with sufficient service might bring a claim for unfair dismissal in response, but such claims can be potentially defensible (see Question 20). However, this approach is somewhat aggressive, and could also trigger collective consultation obligations if sufficient numbers of employees are affected (see Question 22, Consultation).
All UK workers who are over school leaving age (currently 16) must be paid the National Minimum Wage (NMW). The NMW hourly rate depends on the worker's age. Rates are updated annually. Current rates with effect from 1 October 2016 are:
GB£3.40 for apprentices aged under 19 (or apprentices aged 19 or over in their first year of apprenticeship).
GB£4.00 for workers aged 16 to 17.
GB£5.55 for workers aged 18 to 20.
GB£6.95 for workers aged 21 to 24.
GB£7.20 for workers aged 25 or over.
If the employer provides the worker with free accommodation, it can offset the value of this against his NMW entitlement, by deducting up to GB£6.00 per day from his pay. No other benefits in kind count for these purposes.
Employers should keep records that confirm eligible employees have been paid at least the NMW. It is a criminal offence to pay eligible employees less than the NMW.
Restrictions on working time
Workers are not generally permitted to work more than 48 hours per week (normally averaged over a 17-week period). However, most workers can, and do, opt out of this limit, although they can opt back in at any time, by giving written notice to the employer. The minimum notice required by statute is seven days, but this can be extended to up to three months by the contract of employment.
Generally, a worker whose daily working time is over six hours is entitled to a 20-minute rest break away from his work station. Most workers are also entitled to a:
Daily rest break of 11 hours of continuous rest in every 24-hour period.
Weekly rest break of 24 hours of continuous rest in every seven-day period (or 48 hours of continuous rest in every fortnight).
Workers may be entitled to compensatory breaks if they are required to work during periods which would otherwise be a rest break or rest period.
Exceptions apply to certain workers, for example, those working in sectors requiring continuity of production. Special provisions also apply to night workers, and young workers (those under the age of 18).
Shift workers are generally entitled to rest breaks on the same basis as other workers, but there are exceptions to this position, like where a shift worker changes shift and cannot take a rest break between the end of one shift and the beginning of the next, or is engaged in split shifts that involve periods of work split up over a day (for example, cleaning or catering staff). If a shift worker cannot take his rest entitlement in the usual manner, they are entitled to compensatory rest instead.
Minimum paid holiday entitlement
All workers have the right to 5.6 weeks' paid holiday each year. For these purposes, a week means a normal working week for that individual (although the maximum statutory entitlement is 28 days, regardless of how long the normal working week is). If a worker starts or ends work part way through a holiday year he is entitled to paid holiday on a pro rata basis.
Holiday pay is paid at the same rate as normal pay, and should include any elements of pay directly linked to the work that the worker is required to carry out. Recent case law indicates that this may, amongst other things, include commission, shift allowances and at least some forms of overtime (for example, where there is a settled pattern of work and a correspondingly regular overtime payment), at least in respect of the 20 days' holiday conferred by the underlying European legislation. This issue is still being debated in the courts, with further judgments on the issue expected in the coming year.
It is unlawful to pay a worker in lieu of holiday entitlement except on termination, when a payment can be made in lieu of holiday that has accrued but not been taken.
There are currently eight permanent public and bank holidays in England and Wales. Although these can be (and frequently are) included in the minimum holiday entitlement of an employee, an employer does not have to let a worker take holiday on these days, if it otherwise provides him with his statutory holiday entitlement.
Illness and injury of employees
Entitlement to paid time off
Employees who are unable to work due to illness or injury for four or more consecutive days are entitled to receive statutory sick pay (SSP), provided they meet the qualifying conditions. Employees do not receive SSP for the first three days of any sickness absence. The current weekly rate of SSP (from 6 April 2016) is GB£88.45. The maximum entitlement is 28 weeks' SSP during any period of incapacity for work (or any series of linked periods).
An employee may also be entitled to contractual sick pay (that is, pay during sick leave at a higher rate than SSP) if the employer offers this benefit.
Entitlement to unpaid time off
Employees do not have a specific statutory right to take a set period of time off work in the event of illness or injury. However, it is generally recognised that there will be times when an employee is unable to attend work for these reasons.
An employee's written statement of particulars of employment (see Question 7) should contain (or refer to) the terms that apply if he is unable to work due to illness or injury, including any sick pay to which he may be entitled.
Employers should also be aware that, if an employee becomes ill before or during a period of pre-booked holiday, he may request that the time off be re-classified as sick leave, so that he can take the holiday at a later date once he is well. Employers should ensure that appropriate measures are put in place for the reporting of sickness, and supporting medical evidence, in these circumstances to guard against potential abuse.
Recovery of sick pay from the state
SSP, and any contractual sick pay, is paid by the employer. Since 6 April 2014, it has not been possible to recover this cost from the state.
Statutory rights of parents and carers
Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?
Carers (including those of disabled children and adult dependants)?
Currently, all pregnant employees are entitled to both:
26 weeks' ordinary maternity leave (OML).
26 weeks' additional maternity leave (AML).
Employees do not have to take all 52 weeks of their maternity entitlement, but must take two weeks' compulsory leave directly after the baby is born (or four weeks, in the case of some factory workers).
Employees entitled to take maternity leave are also entitled to receive up to 39 weeks' statutory maternity pay (SMP) if they meet the requirements for:
Length of service (at least 26 weeks' continuous service at the end of the 15th week before the expected week of childbirth (EWC)).
Minimum earnings (which must be above the lower earnings limit for NICs, currently GB£112 per week).
Employees who meet these requirements are entitled to SMP at the rate of:
90% of their average weekly earnings (calculated according to the set statutory formula), for the first six weeks.
The lesser of GB£139.58 per week or 90% of their average weekly earnings, for the remaining 33 weeks.
If an employee does not qualify for SMP, she may qualify for maternity allowance, which is a social security benefit paid by Jobcentre Plus (and currently available at the same rate as SMP). Except for remuneration, employees remain entitled to the benefit of contractual terms and conditions of employment during OML and AML.
An employee returning from OML is entitled to return to the same job she held before her absence, on the same or no less favourable terms of employment (unless a redundancy situation has arisen in the interim, in which case she is entitled to certain preferential treatment). An employee returning from AML has similar rights, unless it is not reasonably practicable for her to return to the same job, in which case the employer must let her return to another suitable and appropriate role.
Shared parental leave (SPL)
Shared parental leave (SPL) and shared parental pay (ShPP) enables two eligible parents effectively to share the OML/AML and SMP entitlement currently available to the mother (see above, Maternity rights), or a couple of adopters to share the statutory adoption leave (SAL) and statutory adoption pay (SAP) entitlement currently available to the primary adopter (see below, Adoption rights), on the general basis set out below.
In a maternity context, if an expectant mother chooses to take SPL with her partner (instead of taking OML/AML herself), the couple can share up to 50 weeks' SPL and up to 37 weeks' ShPP, between them. This is broadly equivalent to the maternity rights that the mother would otherwise have had, with the exception of:
The two weeks' compulsory maternity leave directly after the baby is born, which the mother must still take.
The rate of ShPP, which is equivalent to the lesser "flat rate" of SMP only (as there is no higher rate for the first six weeks of leave).
Each parent can request SPL in up to three separate blocks of leave, to be taken either at the same time as each other or separately. Various advance notification requirements apply, and the employer's flexibility in responding to a request depends on the manner in which the SPL is requested:
Where a parent requests a single continuous period of SPL, the employer must agree to the request.
Where a parent requests multiple discontinuous periods of SPL, the employer can agree to the request, refuse it, or propose alternatives. If the employer refuses the request, the employee can choose to take the total amount of leave requested as a single continuous period instead (rather than in separate blocks), or can withdraw the request.
Where the parents work for different employers, the employers do not have to contact each other to discuss their employees' respective leave requests, although in practice it can be helpful to do so.
Employees taking SPL have broadly similar rights to return to work as under the relevant maternity or adoption leave regime (see Maternity rights and Adoption rights).
Eligible employees are entitled to two weeks' paternity leave (PL) and statutory paternity pay (SPP). To be eligible an employee must meet the requirements for:
Length of service (at least 26 weeks' continuous service by the beginning of the EWC).
Minimum earnings (which must be above the lower earnings limit for NICs, currently GB£112 per week).
A sufficient connection with the child and mother/fellow adopter in question.
An employee who takes paternity leave may also be eligible for SPP if he meets the necessary criteria. SPP is currently paid at the lower of GB£139.58 per week or 90% of the employee's average weekly earnings (calculated according to the set statutory formula). Employees on paternity leave receive the benefit of all contractual terms and conditions of employment during PL except remuneration (which is replaced by SPP).
An employee returning from PL is entitled to return to the same job he held before his absence, on the same or no less favourable terms of employment, unless the PL was not an isolated period of leave, or was combined with other statutory leave (for example, parental leave exceeding four weeks). In the latter case, the employer is entitled to propose a suitable and appropriate alternative job for the employee, if it is not reasonably practicable for him to return to his old role.
Surrogate mothers are entitled to take maternity leave and pay if they meet the relevant criteria (see above, Maternity rights).
Adoption and paternity leave are available for parents under a surrogacy arrangement if they adopt the child. There is no entitlement to maternity leave for the female adopter of a child born by way of a surrogate.
An eligible employee who has elected to be the primary adopter of a child is entitled to SAL, whether adopting from the UK or overseas (although slightly different procedural requirements apply in each case).
Eligible employees are entitled to 26 weeks' ordinary adoption leave (OAL) and 26 weeks' additional adoption leave (AAL), provided they fulfil the necessary evidential and procedural requirements.
For a child placed for adoption after 5 April 2015, the adopter no longer needs to meet the previous requirement for 26 weeks' continuous employment before the start of the week when matched with the child by the adoption agency. However, this requirement still applies for an employee to be entitled to SAP. Employees who satisfy the criteria are paid SAP at the lower of GB£139.58 per week or 90% of the employee's average weekly earnings (calculated according to the set statutory formula), for up to 39 weeks.
An employee returning from OAL is generally entitled to return to the same job held before absence, on the same or no less favourable terms, unless the OAL was not an isolated period of leave, or was combined with other statutory leave (for example, parental leave exceeding four weeks). In this case, as on the return from AAL, the employer can propose a suitable and appropriate alternative job if it is not reasonably practicable for the employee to return to his old role.
An eligible couple adopting can choose to take SPL/SPP instead of any SAL/SAP entitlement (see above, Shared parental leave (SPL)). This effectively lets them share the SAL and SAP entitlement previously only available to the primary adopter, in a similar manner to maternity leave and pay. Adoption leave can also apply in surrogacy cases (see above, Surrogacy).
Parental leave allows eligible employees to take unpaid time off to care for a child or make arrangements for the child's welfare. An eligible employee can take off up to 18 weeks' unpaid parental leave for each child, up to the child's 18th birthday.
Flexible working rights
Any employee with at least 26 weeks' continuous service can make a flexible working request if certain criteria are met. If granted, such requests involve a permanent change to the employee's terms and conditions, for example, by allowing him to work particular hours or to work from home. They are therefore often made by employees with caring responsibilities (although this is no longer a prerequisite).
An employer has three months to consider and respond to an employee's flexible working request, and must do so in a reasonable manner. ACAS has published useful guidance outlining how an employer might comply with this requirement (www.acas.org.uk/media/pdf/f/e/Code-of-Practice-on-handling-in-a-reasonable-manner-requests-to-work-flexibly.pdf).
An eligible employee may only make one flexible working request within any 12-month period. An employer is not obliged to agree to a request if a statutory reason for rejection applies, for example, cost, impact on performance, or inability to reorganise work among other staff.
Continuous periods of employment
Statutory rights created
Employees only acquire some statutory rights after a certain period of continuous service with an employer. These include the rights to:
Request a flexible working arrangement (after 26 weeks' service).
Some forms of family-related leave (generally after 26 weeks' service).
Not be unfairly dismissed (after two years' service).
A statutory redundancy payment in the event of redundancy (after two years' service).
An increased period of statutory minimum notice of termination of employment from the employer (see Question 19).
Consequences of a transfer of employee
If an employee transfers to another entity associated with his employer (typically another company in the same group), his continuity of service is generally preserved.
Continuous employment is also preserved where an employee's employment transfers to another employer by operation of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) (see Question 24).
Fixed term, part-time and agency workers
A fixed-term employee is an employee employed for a fixed period of time, rather than on a permanent basis. If an employer wishes to engage employees temporarily or for a specific task itself, rather than via an employment business (see below, Agency workers), it will often do so on a fixed-term basis.
Generally, an employer should not treat a fixed-term employee less favourably than a comparable permanent employee in relation to his contractual terms, or subject him to any detriment because of his fixed-term status, unless that treatment can be objectively justified. An employer can objectively justify a difference in contractual terms if the fixed-term employee’s terms, taken as a whole, are at least as favourable as those of a comparable, permanent employee. Remuneration and benefits may also generally be applied on a pro rata basis to reflect the time actually worked.
Fixed-term employees accrue employment rights in the same way as permanent employees (see Question 14). In addition, a fixed-term employee will be considered automatically unfairly dismissed if the reason for his dismissal was that he sought to assert a right conferred on him by the legislation governing fixed-term employees.
Employers should also be aware that an employee who is continuously employed under a series of fixed-term contracts for at least four continuous years will be deemed to be a permanent employee. The employer must also be able to objectively justify continuing to use fixed-term contracts after this time.
The term "agency worker" is usually used to describe an employee who is employed by an employment business, but assigned to work for a particular client (usually, but not always, on a fixed-term basis).
The default position is that, if a qualifying agency worker spends 12 continuous weeks working for a particular client, he becomes entitled to the same basic working and employment conditions he would have received if the client had recruited him directly. Broadly, this means an entitlement to the terms and conditions that ordinarily apply to the client's own staff, potentially including the right to an equal rate of pay.
However, this situation can be avoided if the employment business in question employs the agency worker on a permanent basis, and his employment contract meets certain minimum requirements (for example, a minimum amount of pay between assignments).
Qualifying agency workers are also entitled, from the start of an assignment, to be treated in the same way as direct employees in relation to:
Access to collective facilities and amenities (unless differential treatment can be objectively justified).
The employment status of agency workers can be complicated. Clients should take care to clearly document the arrangement, and confirm that the employment business (not the client) is the employer of the agency worker, and will comply with its obligations accordingly.
A part-time worker is an individual paid wholly or partly by reference to the time he works, and who works fewer hours in a given period than a comparable full-time worker. A part-time worker can be engaged on a permanent or fixed-term basis.
Similarly to fixed-term employees (see above, Fixed-term employees), a part-time worker is entitled to be treated no less favourably than a comparable full-time worker by reason of his part-time status, unless the employer can objectively justify the differential treatment. Remuneration and benefits may also generally be applied on a pro rata basis to reflect time actually worked.
Part-time employees accrue employment rights in the same way as full-time employees (see Question 14). In addition, a part-time employee will be considered automatically unfairly dismissed if the reason for his dismissal was that he sought to assert a right conferred on him by the legislation governing part-time workers.
Employees' data protection rights
In the course of employment, an employer will typically obtain, process and store personal data (including sensitive personal data) about its employees. For data protection purposes, this makes the employer a data controller (and data processor), and the employee a data subject, in each case with corresponding rights and obligations.
Employers should therefore be aware that an employee has the usual rights of a data subject in relation to any of his personal data that the employer holds. This includes the right to be notified of the employer's data policies and procedures and the purposes for which personal data may be collected and used.
An employee can also make a data subject access request to obtain details about the personal data that his employer holds about him (including information about the nature of the data held, the purposes for which the employer processes it, and the recipients to whom it has been disclosed).
To make such a request, the employee must follow a prescribed statutory process. Unless an exemption applies, the employer must respond to a request within 40 days of receipt or face possible enforcement action by the Information Commissioner's Office (ICO) (which can include significant fines) or an application to the court.
Employers' data protection obligations
An employer has obligations as a data controller and data processor of its employees' personal data, and must ensure that it complies with applicable legislation (currently the Data Protection Act 1998) and related guidance (such as that published by the ICO).
Broadly, this means ensuring that personal data is processed securely, in a proportionate manner, for legitimate reasons. "Processing" can cover a wide range of actions, including obtaining, using, disclosing, transferring, storing, securing and archiving the personal data in question. Particular restrictions and safeguards apply if an employer intends to transfer personal data outside the EEA (whether to third parties or other group companies).
A new EU-wide General Data Protection Regulation (GDPR) will apply in the UK and across all other EU member states from 25 May 2018, two years following its entry into force on 24 May 2016. The GDPR will be a single directly enforceable pan-European data protection law giving data subjects greater rights and placing additional obligations on data controllers and processors. In a referendum held on 23 June 2016, the UK voted to leave the EU (Brexit), though it is not anticipated that this will occur until the end of 2018 at the earliest. In that regard, the UK Government and the ICO have confirmed that the GDPR will come into force in the UK as planned in May 2018. It currently remains to be seen exactly what data protection laws the UK will adopt following Brexit, although it is anticipated that they will retain broad equivalence with rights and obligations under the GDPR.
Discrimination and harassment
Protection from discrimination
It is unlawful to discriminate against job applicants and workers on the basis of any of the following protected characteristics:
Marital or civil partnership status.
Race (including colour, nationality and ethnic or national origin).
Religion or belief.
Pregnancy and maternity.
Job applicants and workers are protected from various forms of discrimination, including:
The forms of discrimination apply to each of the protected characteristics to varying degrees.
A worker does not need any qualifying period of service before bringing a discrimination claim (or even to have started work at all, in the case of job applicants). The amount of compensation that can be awarded in the event of a successful claim is uncapped, although it is generally linked to actual and/or potential future loss suffered by the individual, in the usual way.
Protection from harassment
Harassment is a form of unlawful discrimination. It is prohibited if it relates to any of the protected characteristics (see above, Protection from discrimination) (except for marital or civil partnership status, or pregnancy and maternity).
An employer is liable for harassment if it is found to have engaged in unwanted conduct related to a relevant protected characteristic, that either:
Has the purpose or effect of violating a worker's dignity.
Creates an intimidating, hostile, degrading, humiliating or offensive environment for that individual.
The test for whether the conduct had either of these effects is partly subjective, and partly objective. The first step is to consider whether the individual in question perceived the conduct as having this effect. If so, the next step is to determine whether it was objectively reasonable for the conduct to have had that effect or whether the individual was being hyper-sensitive in perceiving it as such.
An employer should also take care in dealing with any situation involving the harassment of its workers by third parties (for example, customers). Even though employers are no longer specifically liable for third-party acts, it is potentially arguable that an employer's reaction (or failure to react) to this situation could amount to harassment by the employer itself in certain circumstances.
Whistleblowers are protected by the Public Interest Disclosure Act 1998 (PIDA) which inserted various provisions into the Employment Rights Act 1996. If a worker makes a protected disclosure in accordance with the PIDA, he has the right to not be subjected to a detriment or dismissed because he made that disclosure, provided he has a reasonable belief that the disclosure was made in the public interest.
A worker who is subjected to a detriment (or, in the case of an employee, dismissed) in these circumstances can bring a claim for compensation regardless of his length of service. If the Employment Tribunal finds that an employee was dismissed because he made a protected disclosure, the dismissal will be automatically unfair. Compensation in the event of a successful claim is uncapped, although any compensatory award made to a worker may be reduced by up to 25% if the Employment Tribunal considers that the worker did not make the relevant disclosure in good faith.
Termination of employment
All employees are entitled to receive from their employer the minimum notice of termination to which they are entitled by statute.
An employee who has been continuously employed for more than one month but less than two years is entitled to receive one week's notice. Thereafter, he is entitled to receive an additional week's notice for each complete year of service, up to a maximum of 12 weeks. By contrast, the statutory minimum notice that an employee must give to his employer does not increase with time but remains fixed throughout employment at one week.
It is common for employment contracts to provide for notice periods that exceed the statutory minimum, in which case the longer contractual period will apply. Employment contracts also often give employers the discretionary right to make a payment in lieu of an employee's notice period, although care should be taken in drafting and exercising such provisions.
An employee may be dismissed summarily (that is, without any notice period) if he commits a repudiatory breach of the employment contract that would justify this (for example, gross misconduct).
An employee who has been continuously employed by his employer for two years is entitled to a statutory redundancy payment (SRP) if he is dismissed on grounds of redundancy. SRP is calculated in accordance with a statutory formula based on the employee's age, salary and length of service (see Question 21).
There are no further statutory rights to severance payments, although an individual's employment contract may provide for some form of severance payment. On termination, the employee is entitled to any amounts he has accrued under the contract that have not yet been paid.
An employee who has the required length of service and brings a successful claim for unfair dismissal (see Question 20) may also be awarded a compensation payment. This will consist of:
A basic award (calculated in the same way as SRP but only payable if the employee has not already received this).
A possible compensatory award based on an employee's actual and/or potential future financial loss. This is currently capped at the lower of GB£78,962, or 52 weeks' actual gross pay at the time of dismissal.
Currently, any redundancy payment or other such compensation payment may be paid free of tax up to GB£30,000 in aggregate and without payment of National Insurance contributions. However, certain changes to this will take effect from April 2018 (see Question 33).
Procedural requirements for dismissal
An employer should comply with any contractual obligations regarding termination of employment to avoid giving rise to a breach of contract claim.
A fair and reasonable process is required in dismissing any employee who has acquired the right not to be unfairly dismissed. It is also good practice for an employer to follow such a process in other cases, to reduce the risk of other claims that might arise from the dismissal, for example, discrimination claims.
What constitutes a fair and reasonable process depends on the circumstances and the reason for the dismissal. For example, when dealing with misconduct issues, employers should comply with the ACAS Code of Practice on Disciplinary and Grievance Procedures (Code) (www.acas.org.uk/media/pdf/f/m/Acas-Code-of-Practice-1-on-disciplinary-and-grievance-procedures.pdf).
The Code states that any process for dealing with misconduct issues should typically involve:
Conducting a reasonable investigation.
Determining whether it is appropriate to instigate the disciplinary procedure.
Informing the employee of the allegations against him.
Holding a disciplinary hearing.
Providing an opportunity to appeal.
This is particularly important when dealing with employees who are entitled to claim unfair dismissal, as failure to follow the Code can result in an employee's compensation award being increased by up to 25%, in the event of a successful claim. Similarly, an employee who fails to comply with the Code could suffer a reduction in his compensation award of up to 25%.
Protection against dismissal
Employees who have been continuously employed by an employer for two years or more have a right not to be unfairly dismissed.
An employee is unfairly dismissed unless an employer can establish that both:
One of the five statutory reasons for dismissal applies, namely:
breach of statutory restriction; or
some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held.
It acted reasonably in treating that reason as sufficient to justify dismissal of that employee. In practice this generally requires that, among other things, the employer follows a fair and reasonable process in effecting the dismissal (see Question 19).
Some specific categories of employee are not entitled to claim unfair dismissal, generally key roles in the public sector (for example, members of the armed forces and police service employees).
Employees who successfully bring a claim for unfair dismissal may be entitled to compensation (see Question 19).
An employee who does not meet the minimum service requirement can still claim unfair dismissal in certain situations, for example where the dismissal relates to:
His political beliefs or affiliations.
His membership or non-membership of a trade union, or participation in union-related activity.
His participation in health and safety-related activity.
His status as an employee representative (or candidature for such a role).
His status as a fixed-term employee or part-time worker.
A protected characteristic possessed by the employee (see Question 17) or a claim of discrimination previously made by the employee.
A protected disclosure made by the employee.
taking maternity, paternity, adoption, parental or shared parental leave;
taking time off to care for dependants or to study or train; or
exercising a statutory right to request a flexible working arrangement.
Definition of redundancy/layoff
An employee is made redundant when he is dismissed by his employer wholly or mainly as the result of any of the following:
Business closure (the employer closing down, or intending to close down, the business for which an employee works).
Site closure (the employer closing down, or intending to close down, the particular site where an employee works).
Reduced need for employees (the employer needing fewer employees to carry out work of a particular kind, either across the business or at the particular site where the employee works).
An employee is "laid off" when his employer exercises a contractual right not to provide him with work, or, therefore, pay during a given period.
The following answers focus on redundancy only.
Redundancy is a potentially fair reason for dismissal if a genuine redundancy situation exists. However, for the dismissal to be fair (when dealing with employees who have accrued unfair dismissal rights, see Question 20), the employer must also act reasonably in treating the redundancy situation as sufficient to justify dismissal. In practice, this means that the employer should follow a fair and reasonable redundancy process. What constitutes a fair process depends on the circumstances, but it will generally involve:
Making a fair assessment of which roles are at risk of redundancy.
If appropriate, using a fair and objective method of selecting which individuals are to be put at risk of redundancy.
The employer should also consult affected employees about:
The proposed redundancy.
The selection process.
Any potential alternatives to redundancy, such as any suitable alternative vacancies in the employer's organisation into which those at risk of redundancy might be redeployed.
If redundancies are confirmed, those dismissed should be given an opportunity to appeal. The employer may also have to comply with collective consultation obligations (see below).
Employees with two or more years' continuous service are entitled to receive SRP if they are made redundant.
SRP is calculated on the basis of a set formula, that takes account of the employee's age, salary and length of service at the termination date. An employee is entitled to receive:
Half a week's pay for each complete year of employment while under the age of 22.
One week's pay for each complete year of employment between the ages of 22 and 40.
One-and-a-half week's pay for each complete year of employment at the age of 41 or over.
The amount of a week's pay for these purposes is capped by statute at GB£479, and the maximum amount of SRP payable to any employee is capped at GB£14,370.
An employer must consult collectively with elected employee representatives if it proposes to dismiss as redundant 20 or more employees within a period of 90 days or less. Recent case law has confirmed that the figure of 20 is drawn from redundancies proposed at one establishment, rather than across the employer's entire workforce (although what is meant by "establishment" will depend on the facts in each case).
Employers should also be aware that, for these purposes, a "dismissal" will include any dismissal proposed for a reason that does not relate to the particular employee. Dismissals proposed should an employee not agree to changes in his terms and conditions (see Question 8) will therefore count towards the total as well as redundancies (although the non-renewal of a fixed-term contract when it expires will not).
Absent any pre-existing arrangements (see Question 22), an employer's collective consultation obligations include making arrangements for the election of employee representatives, and consulting with those representatives about whether there are any:
Alternatives to the proposed redundancies.
Ways to mitigate the impact of the proposed redundancies on affected staff.
Consultation should start in good time before any redundancies are confirmed. Any dismissals should not take effect until at least:
30 days after an employer's consultation obligations have been triggered if between 20 and 99 redundancies are proposed.
45 days after an employer's consultation obligations have been triggered, where 100 or more redundancies are proposed.
For the consequences of failure to collectively consult, see Question 23. Further guidance on managing collective redundancies generally is provided by the ACAS guide "Handling large-scale redundancies" (www.acas.org.uk/media/pdf/c/p/Handling-large-scale-collective-redundancies-advisory-booklet.pdf).
Employee representation and consultation
Employees do not have a statutory right to management representation. Employers and employees can enter into a collective agreement that provides for some form of management representation, but these are rare, particularly in the private sector.
Employers are under no general duty to consult with employees regarding issues that affect them, unless a works council or information and consultation body exists in relation to their workforce. In this case, the employer should comply with its obligations under any relevant agreement reached with the works council or consultation body.
For an employer's consultation obligations in the event of collective redundancies, see Question 21.
There is no statutory obligation to consult employees in the event of a proposed sale of their employer's shares.
However, an employer will have obligations to inform (and potentially consult) staff if it intends to be party to a transaction to which TUPE applies (for example, an asset/business acquisition or a service provision change). For further details, see Question 24.
If an employer fails to comply with its obligations to collectively consult in a redundancy situation, the affected employees (or their representatives) can bring a claim for compensation of up to 90 days' (uncapped) pay each.
If an employer fails to inform (and, if necessary, consult with) employee representatives when required to do so by TUPE, it faces a similarly stringent claim for up to 13 weeks' (uncapped) pay per affected employee.
The amount of any such "protective award" is assessed on a sliding scale, so the employer should get credit for any steps towards compliance that it does take in either case.
If an employer breaches its information/consultation obligations, affected employees or their representatives may bring a claim against it as set out above, but they cannot block the transaction/redundancy programme in question from going ahead.
Consequences of a business transfer
Automatic transfer of employees
TUPE protects the employment of employees affected by a business transfer or a service provision change. It automatically transfers the employment of all those assigned to the undertaking in question (that is, the part of the business being sold, or the function being in/outsourced) to the transferee (that is, the buyer of the business, or the provider of the in/outsourced services).
Transferring employees' terms and conditions of employment are protected and transfer intact (except for any terms relating to old age, invalidity and survivor's benefits under an occupational pension scheme, to which different rules apply).
Protection against dismissal
In tandem with the automatic transfer of their employment, employees with unfair dismissal rights (see Question 20) also receive additional protection from dismissal, before and after the transfer.
Dismissal is automatically unfair if the sole or principal reason for it is the transfer itself.
A dismissal will also be unfair if the sole or principal reason for it is an economic, technical or organisational reason that entails changes in the numbers or functions (or a change in the workplace) of the workforce (an ETO reason), unless the employer can also show that a fair process was followed.
Harmonisation of employment terms
Employers often wish to change the terms of any employees inherited under TUPE to harmonise them with their existing workforce.
However, this can be difficult to achieve in practice, because TUPE provides that any change to a transferring employee's terms and conditions of employment will be void and unenforceable if the sole or principal reason for the change is the transfer itself.
However, TUPE does not prevent a change to an employee’s contractual terms if either:
The terms of the contract itself permit the employer to make that change.
The sole or principal reason for the change is an ETO reason, and the employer and employee both agree to the change.
An employer also has scope to change terms that are incorporated into an employee’s contract from a collective agreement (see Question 7), so long as the change takes effect more than one year after the transfer date, and overall leaves the rights and obligations in the contract "no less favourable" to the employee than previously.
Employers who seek to harmonise terms will generally still run the risk that an employee might claim that any detrimental change to their old terms is not valid under TUPE, while potentially accepting any changes that do benefit them.
In practice, employers therefore often wait until some time after the transfer before making any changes, to lessen the chance an employee might claim that the change is connected with the transfer. However, the passage of time is no guarantee that a connection with the transfer will not exist. It can therefore be more effective to look for a strong ETO reason to make changes (for example, a general reorganisation of the transferee's business, affecting all employees rather than just those transferred).
Information and consultation
Transferring employees are entitled to elect representatives, whom the employer must:
Inform about the proposed transfer.
Consult about any measures envisaged in relation to the proposed transfer that will impact on affected employees.
The employer can discharge any consultation duties under TUPE by engaging in consultation with the employee representatives with a view to reaching agreement. It is not a requirement of TUPE that agreement is actually reached between the parties before the proposed transaction can proceed. TUPE does not therefore give the employees of either party a right to block a proposed transaction.
Employer and parent company liability
An employer can be liable for the acts of its employees?
A parent company can be liable for the acts of a subsidiary company's employees?
An employer can be vicariously liable at common law for damage caused by an employee acting negligently in the course of his employment.
An employer can also be liable for an employee's discriminatory acts, if these were committed in the course of employment (regardless of whether or not they occurred on the employer's property). An employer can establish a defence to such vicarious liability if it can show that it took such steps as were reasonably practicable to prevent the employee from committing the act, for example:
Conducting diversity training.
Ensuring that such behaviour is not tolerated in the workplace but always rigorously dealt with under the employer's disciplinary procedures.
Parent company liability
A parent company is not liable for the acts of a subsidiary company's employees solely because of the corporate relationship between the parent and subsidiary company. However, a parent company can be liable for an act or omission of its subsidiary company if it is deemed to have assumed a duty of care.
Employee rights on insolvency
An employee's rights on the insolvency of his employer vary depending on the type of insolvency procedure involved.
In the event of the employer entering compulsory liquidation or court-appointed receivership, each employee's contract of employment is deemed to be automatically terminated by operation of law. If the employee is not offered re-employment by the liquidator/receiver, an employee's rights in this situation are limited. He cannot claim unfair dismissal, as the termination of his contract does not constitute a dismissal for the purposes of the relevant legislation. In some circumstances, he may be able to bring a claim for wrongful dismissal (for example if, in relation to a compulsory liquidation, the moratorium on legal proceedings against the insolvent company is lifted). However, even if successful, this will rank as an unsecured claim, and so it is highly unlikely that any amount awarded would be recovered in full.
There is no automatic termination of employment contracts in other insolvency scenarios (such as creditors' voluntary liquidation, administration, administrative receivership or a creditors' voluntary arrangement). Specific rules apply to the adoption of contracts by administrators and administrative receivers. These provide for a 14-day window within which the administrator or administrative receiver may review arrangements and then decide, in his capacity as an agent of the employer, whether an employee's contract is to be "adopted" or terminated.
An employee dismissed as a result of this may be able to bring the usual range of employment claims against the company (rather than, generally, the insolvency practitioner). However, even if successful, these would rank as unsecured claims, and so it is highly unlikely that any amount awarded would be recovered in full.
An employee retained after expiry of this 14-day window is in a better position. His employment continues on the same terms as previously (unless renegotiated) and certain payments, including his wages/salary from this time onwards, will also be paid in priority to certain other debts of the company.
In either case, any outstanding remuneration owed to employees (for example wages, sick pay, maternity pay and accrued holiday pay unpaid by a business in the four-month period prior to insolvency) will be treated as a preferential debt. This gives it a higher ranking than unsecured debt – but the amount of any such preferential debt recoverable is capped at GB£800 per employee.
State guarantee fund
Certain state-guaranteed funds may assist an employee in recouping some of the debts owed to them by an insolvent company:
Employees can claim up to a maximum limit of eight weeks' arrears of pay from the National Insurance Fund (NIF), capped at GB£3,832. Employees can also claim up to 12 weeks' statutory notice pay (capped at GB£5,748), up to six weeks' holiday pay (capped at GB£2,874) and the whole or any part any unpaid SRP.
Liability for any outstanding debts owed to employees by way of SSP, SMP, SPP or SAP passes to HMRC on insolvency.
The Pension Protection Fund may assist employees whose defined benefit pension schemes have been affected by a participating employer's insolvency.
Health and safety obligations
Employers are under a statutory duty to ensure, as far as reasonably practicable, the health, safety and welfare at work of their employees. They must therefore take reasonable steps to provide a safe workplace and a safe system of work.
Employers are liable to civil and criminal penalties if they fail to comply with these statutory duties. For further information on an employer's obligations, see the Health and Safety Executive website (www.hse.gov.uk).
Taxation of employment income
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Taxation of individuals in the UK is determined by residence and domicile status. Residence is defined according to the satisfaction of certain criteria contained within a statutory residence test (SRT) and domicile is a concept that derives from case law. Domicile can be determined by origin, choice or dependency and does not necessarily align with nationality.
The SRT distinguishes between "Arrivers" and "Leavers". In outline, Arrivers are individuals who have not been resident in the UK for any of the three previous tax years and Leavers are those who have. Residence is determined by the number of days an individual spends in the UK during the tax year in question and that individual’s connections to the UK. The application of the SRT is very fact specific, however, as a basic rule, where an individual has spent 183 days or more in the UK, that individual will be considered UK resident for the tax year in question. The UK tax year runs from 6 April to 5 April. For the purpose of SRT, a "day" is defined by statute. Broadly, a day counts as a day spent in the UK where the individual is present in the UK at the end of the day (midnight).
Work carried out in the UK by a foreign national employee is taxable in the UK. This is the case regardless of where the employing entity is located.
Foreign nationals can be resident in the UK for tax purposes. Potentially, individuals resident in the UK can be liable to UK tax on their worldwide income (subject to reliefs for double taxation). However, the rules relating to residence and domicile are very complex and some short term residents and individuals who are regarded as resident but not domiciled in the UK may not be taxed on offshore income and gains if the funds are not remitted to the UK (the Remittance Basis). If a non-UK domiciled but UK resident employee who claims the Remittance Basis of taxation carries out their employment duties overseas for an overseas employer, then HM Revenue & Customs (HMRC) may accept that the overseas employment income is not subject to UK tax, to the extent that the funds are not remitted to the UK. However, HMRC would apply UK tax to overseas employment income if any duties are carried out in the UK, apart from "merely incidental" duties.
It used to be commonplace for UK resident non-domiciled individuals with employment activities in both the UK and overseas to enter into separate dual employment contracts with both a UK employer and an overseas employer in order to avoid UK tax on remuneration received for overseas duties, provided that the Remittance Basis was claimed and funds were not remitted to the UK. However, new legislation introduced from the tax year 2014-2015 has greatly restricted use of dual employment contracts in this way.
Foreign nationals who are not resident in the UK for tax purposes will pay UK tax only on UK source income and gains, including UK source investment income where that is subject to deduction at source.
Broadly, where an individual is in full time work in the UK and there is no significant break in work of over 30 days, that individual will most likely be considered resident for UK tax purposes.
For the purposes of the SRT, a "working day" means at least three hours spent working.
Nationals working abroad
Under the SRT, where an individual is employed in full time work abroad without spending significant time in the UK, they will most likely be considered non-resident for UK tax purposes.
However, UK nationals working abroad who maintain their UK tax residency would be liable to UK income tax on their worldwide income, subject to certain relief.
If a UK national living or working abroad remains outside the UK for an extended period of time, they may lose their tax status as UK resident. In this instance, they would be treated in the same way as a foreign national non-resident and would only be liable to UK tax on their UK source income and gains, including income from employment carried out in the UK and their UK source investment income where that is subject to deduction at source.
For further information, see the HMRC website (www.hmrc.gov.uk).
Rate of taxation on employment income
For the 2016 to 2017 tax year, income is taxed at the following rates, depending on the level of income after any applicable allowances or relief:
Income up to GB£32,000 is taxed at 20%.
Income of GB£32,001 to GB£150,000 is taxed at 40%.
Income over GB£150,000 is taxed at 45%.
Most individuals receive a tax-free allowance, which for the 2016 to 2017 tax year is GB£11,500. This is tapered away for individuals earning in excess of GB£100,000.
Social security contributions
Employees and employers make social security contributions through paying NICs. For the 2016 to 2017 tax year, the rates are as follows:
Employees pay 12% NICs on their earnings between GB£155 and GB£827 per week. Earnings over GB£827 per week are subject to 2% NICs.
NICs made by employers depend on whether or not an employee is part of a contracted out pension scheme. Employers pay 13.8% NICs for all earnings above GB£156.01 per week for employees who are not part of a contracted-out pension scheme, and 10.4% NICs for all earnings above GB£156.01 for employees who are part of a contracted out pensions scheme.
It is common to reward and incentivise employees through the use of bonuses and similar arrangements.
These arrangements are generally a matter of contract between the employer and the employee. They are often expressed as being discretionary, but are, in fact, subject to the implied contractual duties (see Question 7, Implied terms). These require employers to exercise discretion, in relation to bonus decisions, in a manner that is not capricious, irrational or perverse.
In operating bonus arrangements, employers must also comply with various statutory duties. For example, bonuses must not be allocated in a discriminatory manner. There are further specific regulatory restrictions governing the amount, nature and composition of bonuses and similar arrangements in certain parts of the financial services sector.
Intellectual property (IP)
The general position is that IP rights created in the course of an employee's employment belong to his employer. However, the question of what is done in the course of employment can be disputed. It is therefore generally advisable to include express provisions regarding IP rights in any employment contract, to ensure that the employer can establish ownership if the need arises.
Restraint of trade
Restriction of activities
Employees are subject to certain implied duties to protect the interests of the employer during the employment relationship (see Question 7, Implied terms). Employers are advised to supplement these duties with express contractual obligations. These might include, for example:
Express confidentiality obligations.
Obligations not to have any outside interests that might have potential to damage the employer's business interests.
Post-employment restrictive covenants
Employers are also entitled to protect their legitimate business interests by restricting the post-termination activities of former employees in certain limited respects. Legitimate business interests can include confidential information, trade secrets, connections with customers and workforce stability.
The courts will only enforce a post-employment restrictive covenant to the extent the former employer can show that it:
Protects a legitimate business interest of the employer (see above).
Goes no further than reasonably necessary (in relation to general scope, geographic coverage and/or duration) to protect that legitimate business interest.
Whether a covenant goes no further than reasonably necessary is an inherently fact-specific analysis. They should, accordingly, be drafted as precisely (and narrowly) as possible to maximise potential enforcement. An employer is not obliged to make any payment to a former employee in exchange for being bound by such restrictions.
Proposals for reform
Following the 2016 referendum outcome, the Government has announced its intention to trigger the UK's withdrawal from the EU by giving notice under Article 50 of the Treaty on European Union. That notice, once given (which current Government indications suggest will be in the first quarter of 2017), will trigger a two-year deadline for the UK and EU to negotiate a withdrawal agreement, although the deadline can be extended with the unanimous consent of the remaining EU member states. During the negotiation period, EU laws and treaties will still apply to the UK, including the right for EU nationals to work in the UK. This means that all current EU-derived employment laws should remain in place for at least two years.
In theory, if the UK ultimately leaves the single market, the UK Government could propose material changes to existing employment laws, but that is considered unlikely in practice for a host of social, political and commercial considerations; future trade agreements with the EU are highly likely to require continued compliance with key EU labour laws.
Conceivably, within the scope of any withdrawal agreement, tweaks might be made to UK employment laws to make the country more attractive to outside investment and to address some of the less popular EU-derived developments (such as the continued accrual of holiday entitlement during long-term sick leave, the expansion of sums to be included in holiday pay, the difficulty of harmonising terms and conditions of employment following a TUPE transfer and the agency workers regulations), but it is likely, overall, that the impact on key employment laws will be minimal.
Developments to UK employment law anticipated in the meantime include:
Salary sacrifice arrangements. It is anticipated that tax savings on employee perks like gym membership and the provision of a mobile phone bought through a salary sacrifice scheme will be abolished in 2017, but that salary sacrifice schemes covering key employee benefits like pensions and childcare vouchers will not be affected.
Gender pay gap reporting. It is expected that, by April 2017, larger employers (private and voluntary sector employers with 250 or more employees) will be mandatorily required to publish an annual report containing data on any gender pay gap.
Free childcare. The Government is planning to double the number of hours of free childcare for three and four year old children in working families from the current 15 hours to 30 hours from September 2017.
Taxation of termination payments. From April 2018:
the existing GB£30,000 income tax exemption and employee NICs for termination payments (see Question 19, Severance payments) will continue to apply (however, employers' NICs will be due on termination payments made in excess of GB£30,000);
all payments in lieu of notice will now be taxed (even if they are non-contractual);
foreign service relief will be withdrawn;
exemptions on disability payments will be limited in respect to injury to feelings.
General Data Protection Regulation. New EU-wide data protection laws will come into force on 25 May 2018 (before the UK's anticipated withdrawal from the EU).
Grandparents' leave. The Government intends to extend SPL and ShPP to working grandparents by 2018.
Senior managers' regime. During 2018, it is expected that the current senior managers' regime (which regulates the conduct of senior managers in UK banks) will be extended to all persons regulated under financial services legislation.
Description. The official home of revised enacted UK legislation, managed by the National Archives on behalf of the government.
British and Irish Legal Information Institute
Description. Charitable organisation offering resources for British and Irish case law, European Union case law, and other case related legal material.
HM Revenue and Customs
Description. Official government website for UK tax authority.
UK Visas & Immigration
Description. Official government website for UK Visas & Immigration.
Information Commissioner's Office
Description. Official website for the UK's independent authority set up to uphold information rights in the public interest and promote openness by public bodies and data privacy for individuals.
Disclosure and Barring Service (DBS)
Description. Official government website for the Disclosure and Barring Service (DBS).
Advisory, Conciliation and Arbitration Service (ACAS)
Description. Official website for the Advisory, Conciliation and Arbitration Service (ACAS).
Katie Clark, Partner
McDermott Will & Emery UK LLP
Professional qualifications. England & Wales, 1998
Areas of practice. Employment; employee benefits and pensions; privacy and data protection.
- Advising the service provider in a number of multi-million pound newsworthy outsourcing deals.
- Acting for the respondent in a particularly significant 100+ applicant tribunal matter regarding sufficiency of collective consultation.
- Acting for the defendant in significant team poaching litigation.
- Acting for the respondent to defend high-profile discrimination claim.
- Acting for the respondent in "whistleblowing" claim (including doing the advocacy in the first interim relief application in the London Central Employment Tribunal).
Paul McGrath, Partner
McDermott Will & Emery UK LLP
Professional qualifications. England & Wales, 2008
Areas of practice. Employment; employee benefits and pensions; privacy and data protection.
- Advising on the employment implications of a significant asset purchase involving an extensive TUPE information and consultation exercise concerning more than 1,000 employees.
- Advising on the employment aspects of numerous other corporate transactions, restructurings, outsourcings and TUPE transfers.
- Acting for the respondent in the defence of a significant whistleblowing claim in the Employment Tribunal.
- Acting for the respondent in the defence of a sex and maternity discrimination claim in the Employment Tribunal.
- Advising a multinational employer on the employment and data protection compliance implications of setting-up a global whistleblowing hotline system.
- Advising employers on the implications of the General Data Protection Regulation, including in the wake of Brexit.
- Advising employers in respect of annual Slavery and Human Trafficking Statements under the Modern Slavery Act 2015.
- Advising clients on the full range of employment and HR issues, including executive appointments/exits, large scale redundancy programmes, disciplinary and grievance issues and settlement agreements.