Regulatory Outlook | Employment & Contingent Workforce | July 2019

Current issues

Preparing for IR35 reforms

HMRC have published draft legislation fort the 2020 off-payroll IR35 tax reforms. The proposed regime is largely modelled on those introduced already into the public sector, but take account of the different needs of private sector employers and also the lessons learned since the new rules in the public sector came into force. The reforms are expected to come into force from 6 April 2020.

These reforms will affect both users and suppliers of personal service contractors in private and public sector situations. Under the proposals, responsibility for determining tax status of workers who supply services via a personal service company or other intermediary will transfer to the end-user. Liability for unpaid tax will also change.

It is essential that end-users understand the proposed reforms and the potential implications for them so that risks can be identified and so far as possible minimised or eradicated, and the financial implications understood.

For more on these reforms, see our Insight.

Non-disclosure agreements

We are still awaiting the outcome of the government consultation into confidentiality clauses (also known as non-disclosure clauses) in respect of workplace harassment and discrimination. The consultation closed at the end of April 2019 and feedback is due to be published over the summer.

Pending the outcome of the government's consultation and in light of guidance issued by regulators (including the Solicitors Regulation Authority, with which in-house and private practice legal advisers must comply) and concerns raised by the Women and Equalities Select Committee, employers should ensure they are taking steps to address the key issues including:

• How discrimination and harassment complaints are dealt with.
• How non-disclosure clauses are used and ensuring these comply with any regulatory guidance in ensuring employees are not prevented from raising matters with the police, regulator or other appropriate body, and are clear and understandable.
• Ensuring employees are aware of procedures for raising grievances or concerns around discrimination and harassment in the workplace and the support available.

Employers must also remain alert to any trends or patterns in any allegations put to them and which may point towards there being a 'problem' – either culturally or with regard to a specific individual – within the organisation.

Holiday pay

Calculating statutory holiday pay still remains a grey area, with employers dependant on case-law to determine what elements of pay should be included. The Court of Appeal has now ruled on voluntary overtime, confirming that it should be included in holiday pay calculations where it is sufficiently regular and settled to be considered normal remuneration. However, we may see a further appeal on this to the Supreme Court. Employers must also remain alert to the risk of contractors, arguing that they are in fact workers entitled to holiday pay extending back to the start of their engagement.

From April 2020, legislation will be introduced (arising from the government's response to the Taylor Review – discussed below) extending the reference period for calculating statutory holiday pay from 12 to 52 weeks.

Employment status and the 'gig economy'

Following the Taylor Review, in April 2020, new rules are due to come into force:

• Repealing the so-called 'Swedish derogation' – which currently enables agency workers to be employed on a contract at a lower rate than permanent counterparts.
• Extending the existing 'section 1' statement right to a day-one written statement of rights for employees and workers, which will also set out details on other rights such as eligibility for sick leave and pay and other types of paid leave, such as maternity and paternity leave.
• Extending the holiday pay reference period from 12 to 52 weeks, ensuring those in seasonal or atypical roles get the paid time off they are entitled to.
• Lowering the threshold required for a request to set up information and consultation arrangements, from 10% to 2%.

The government has also committed to legislate to improve the clarity of the employment status tests to reflect the reality of modern working relationships.

We are also waiting for the Supreme Court and the Court of Appeal to hear appeals in two gig worker cases – one involving drivers and the other involving cycle couriers. In the meantime, the EU has introduced a new directive on transparent and predictable working conditions, which seeks to strengthen rights of those in the gig economy. The UK has three years to implement the directive (subject to the outcome of Brexit and any deal reached).

Increasing diversity and pay transparency

The government has been consulting on a reporting requirement for ethnicity pay gaps, gathering views on what information should be reported and by whom. The consultation closed in January and a response is expected soon. Last year, the government introduced a voluntary disability, mental health and wellbeing reporting framework. Employers should be alert to the fact that the government may at some point look to make this reporting framework mandatory, in the same way that gender gap reporting was initially voluntary, before becoming mandatory.

The third round of gender pay reporting is due in April 2020 and employers should ensure that they are already looking at what steps they should be taking to close the gap and any commitments they have made to taking specific actions to address identified issues.

The revised Corporate Governance Code and the new reporting requirements for quoted companies are also now in force, applying to financial years beginning on or after 1 January 2019. All quoted companies with over 250 UK based employees are required to report and explain the ratio of their Chief Executive's total pay over a financial year to that of their employees across specific quartiles. The first statutory disclosures will be provided from January 2020, although early disclosures by some companies are expected.

No deal Brexit | EU citizens' rights in the UK

Whilst we wait to see whether an agreement can be reached on the UK's exit from the EU, the UK government has made it clear that businesses should not see any significant changes to employment rights in the event of a no-deal Brexit. This follows technical amendments having been made by the government to allow existing employment laws to continue to work post Brexit.

The UK government has published a paper setting out how the EU Settlement Scheme would apply to EU nationals in the UK in the event of a no deal Brexit. The EU Settlement Scheme will continue in a no deal scenario, meaning that any EU citizen living in the UK by 30 October 2019 will be eligible to apply to this scheme and secure their status in UK law. However, as there would be no agreed implementation period, this guarantee would only apply to EU citizens who are resident in the UK by 30 October 2019. If, however, a deal is ratified along the lines of the current draft, EU nationals would be given the right to apply for settled status if they were living in the UK by 31 December 2020.

The UK government has called on the EU to protect the rights of UK nationals living in the EU in the event of a 'no deal' scenario, and has promised to support UK nationals living in the EU as far as possible. We await further guidance from the government on how they propose to do this.

Whistleblowing

The Supreme Court is set to determine whether or not a dismissal can be automatically unfair on grounds of whistleblowing in circumstances were the individual who took the decision to dismiss was unaware of the 'protected' disclosures and relied on evidence which had been tainted by another manager. The UK must also implement within the next two years the EU directive on whistleblowing (subject to the outcome of Brexit and any deal reached), which will bring changes for employers in respect of their obligations and the rights of employees.

In Focus | Regulatory powers and trends

Who are the regulators?

All employers will also be subject to the powers of a number of other regulators that relate to employees, including the Information Commissioners Office, the Health and Safety Executive, HMRC (which enforces National Minimum Wage legislation as well as tax and social security), the Equality and Human Rights Commission, the Pensions Regulator and the Gangmasters' Licensing Authority (GLA). Employers will also be impacted by the Solicitors Regulation Authority in respect of the obligations on solicitors (whether in-house or external) when drafting and negotiating non-disclosure provisions in settlement agreements and other related documentation.

Workforce solutions companies including recruitment and staffing companies and online staffing platforms are also, depending on the exact commercial models they operate, subject to the Employment Agencies Standards Inspectorate (EASI). There has been talk of EASI and GLA merging.

Workforce solutions companies are also, depending on the exact commercial models they operate, subject to Payment Services Regulations where they act as payment agents.

Employers operating in a regulated sector will also need to be aware of and comply with any applicable rules/guidelines of that regulator.

Do they have powers to compel businesses to hand over documents?

The EASI and the GLA each have powers to compel businesses to hand over documents.

Do they conduct dawn raids?

The EASI and the GLA each have powers to visit and ask for access to premises, but are generally required to give notice.

Are they able to bring criminal prosecutions (and do they do so)?

The EASI and GLA are each able to bring criminal prosecutions, and do so occasionally.

Do they bring prosecutions against individuals?

EASI / GLA can bring prosecutions against either individuals or companies.

Is there a self-reporting / leniency regime?

There is no statutory leniency scheme.

Are there any plans to introduce new powers (or use existing powers differently)?

The government's response to the Taylor Report is likely to involve increasing the powers and resources of the EASI and/or the GLA, and as discussed above, there has been some talk of the EASI and the GLA being merged.

Are there any areas of new technology that are a particular focus of regulatory attention?

Online platforms using algorithms to connect candidates / service providers with hirers / customers, and in some cases act as payment intermediaries, are a focus of attention by relevant authorities and are understood to be the subject of a number of investigations.

How has digital transformation affected the regulators' own behaviours?

The regulators are currently grappling with the challenge of applying "old" law to online marketplaces that connect candidates / service providers with hirers / customers – without undermining the efficiencies and economic benefits of such new technologies and models.

Dates for the diary

4 April 2020
Deadline for employers of 250+ employees to publish their third annual snapshot of their gender pay gap data, taken on 5 April 2019.

6 April 2020
IR35 reforms in the private sector expected to come into force.

6 April 2020
Parental bereavement right entitling parents who have lost a child under 18 to 2 weeks paid leave expected to come into force. We are currently awaiting implementing regulations.

6 April 2020
Statutory regulations, implementing measures coming out of the government's Good Work Plan, come into force, including:
Abolishing the so-called 'Swedish derogation' on agency contracts;
lengthening the reference period for determining a week's pay for holiday pay purposes from 12 weeks to 52 weeks, and
entitling all employees and workers to a statement of written particulars from day one and providing for additional information to be included in the particulars.

6 April 2020
Employers liable to pay employer's national insurance contributions on 'termination payments' above £30,000.