1. GENERAL INTRODUCTION
UK employment law makes a distinction between employees who work under a contract of employment and independent contractors who work under a contract for services.
An employee enjoys more legal rights than an independent contractor. However, some rights apply to both. There is also a more recently developed third category of “worker”. All employees are “workers”. Some independent contractors are also “workers”. (The distinction is important because although employees have the majority of rights, workers are entitled to paid holiday, national minimum wage and other provisions of the Working Time Regulations apply).
Some of the statutory employment rights also require additional qualifications, for example, for protection against unfair dismissal, a one-year period of continuous employment is necessary.
2. APPLICABLE LAWS AND REGULATIONS
Employment law in the UK is derived from three principal sources: common law, domestic legislation and European law.
Disputes are resolved in Employment Tribunals for statutory employment claims and some contractual issues and in the civil courts for contractual issues.
3. THE EMPLOYMENT RELATIONSHIP
3.1 The Contract of Employment
A contract of employment exists only between an employer and an employee. An employment contract is a contract like any other in that it is governed by common law and for there to be the formation of a contract, there must be an offer and acceptance, consideration and an intention to create legal relations. However, contracts of employment are special in that the courts will imply certain rights and obligations into them. Also employees have certain statutory protections. In addition to the contract itself, the employment relationship is governed by the following:-
That is, what have expressly been agreed. For example, an agreement to pay wages of £10 per hour.
The courts will commonly imply certain rights and obligations into an employment contract. For example, the duty of mutual trust and confidence.
This is where an express term in another document is incorporated into a contract. An example of this would be a collective agreement, a memorandum or a policy statement. For example, provisions in a staff handbook.
Statutory minimum protection
Elements of the employment relationship are dictated by statute and there are a number of statutory provisions which will either ensure that terms incorporated into the contract will override express terms or will vary them.
For example, there is a minimum notice period set by statute, depending on length of service. (See section 6.1 below).
3.2 Statutory Minimum Statement of Employment
An employee is entitled to a statutory minimum statement of employment terms within 2 months of commencing employment. Failure to provide such a statement attracts a penalty of 4 weeks’ pay (currently capped at £430 per week- effective February 2012). However, an employment tribunal will only hear such a claim on ‘the back’ of another claim.
The statement must contain the following information:
identity of the parties;
date employment began;
date continuous employment began (taking into account any relevant employment with a previous employer);
scale or rate of remuneration and intervals of pay;
hours of work;
any terms relating to:
holidays including public holidays and holiday pay;
sickness and sick pay;
pensions and pension schemes;
If there are no particulars to be entered under any of the heads above, that fact must be stated. Although the statement must be given to the employee, it may refer him to a readily accessible document which contains full details of the terms relating to disciplinary, grievance rules and the pension scheme.
Penalty for failure to provide – 4 weeks’ pay (capped at £430 per week - effective February 2012).
4. WORKING TIME
The Working Time Regulations (derived from the European Directive) provides the following restrictions on working time:-
All full-time workers are now entitled to at least 28 days (5.6 weeks) paid annual leave per annum. Part-time workers are entitled on a pro-rata basis to receive annual leave equivalent to 28 days (5.6 weeks), irrespective of which days of the week they usually work.
Such leave may not be replaced by a payment in lieu except where the employment relationship is terminated.
Employers can include time off for bank and public holidays within the statutory entitlement.
Parties are otherwise free to agree terms regarding holidays. Some employers give extra holiday entitlement related to length of service.
There is no qualifying period which employees will need to work, in order to be entitled to the statutory minimum periods of paid annual leave. They will be entitled to the increased entitlement in full, as soon as they start work.
A maximum 48-hour working week. Currently, employees may opt out of this restriction but must have a right to opt back in on not more than 3 months’ notice.
Restricted to 8 hours.
A right to a rest break of 20 minutes in every 6 hours.
A right to a daily rest period of 11 hours uninterrupted.
A right to a weekly rest period of 24 hours uninterrupted.
5.1 The National Minimum Wage
All workers are entitled to be paid a national minimum wage (“NMW”) provided they have reached school-leaving age and ordinarily work in the UK.
Current rates (as at 1st October 2011)
Basic ‘adult’ rate (for those aged 21 and over) - £6.19 per hour.
Youth rate (for 18-20 year olds and those aged 21 and over who are carrying out accredited training in the first 6 months of their employment) - £4.98 per hour.
16 and 17 year olds - £3.68 per hour.
Workers under the compulsory school age. (In England and Wales, a person is no longer of compulsory school age after the last Friday of June of the school year in which their 16th birthday occurs.)
Apprentices who are either 18 years old or are 19 to 26 years old and are in the first year of their apprenticeship.
Students and trainees who are working or on placements under a range of defined training schemes and programmes.
- Individuals who live in the family home, such as au pairs or nannies.
5.2 Sick Leave and Pay
Subject to specified exemptions, all employees earning more than the lower weekly earnings limit for national insurance liability (currently £107 per week) are entitled to receive statutory sick pay (“SSP”) from their employers of up to 28 weeks in a 3-year period of £85.85 per week (as from 6 April 2012).
SSP is generally not payable for the first three days of sickness which are called ‘waiting days’.
Employers can recover an amount paid out as SSP if it exceeds 13% of their liability to pay national insurance contributions (“NICs”) in the income tax month in question. The employer is obliged to keep certain records for SSP purposes.
Employers frequently provide contractual sick pay for their employees over and above the SSP rates for up to a set period in any 1 year. The amount of contractual sick pay is often the difference between SSP and the employee’s normal wages for a specified period.
Currently employers need not make any contributions to employees’ pension schemes but employers with five employees or more must facilitate employees’ entry in to what is termed a “stakeholder” pension scheme. This is due to change from October 2012 when new laws are being phased in gradually over a 5-year period requiring employers to automatically enrol eligible job holders into a pension scheme that meets certain criteria and to make certain contributions into that scheme.
The two key elements of the auto-enrolment are:
- A new requirement on employers to automatically enrol “jobholders” into a workplace pension scheme that meets certain qualifying criteria. Employers can either use their own existing pension scheme or enrol jobholders in NEST (the central Government established scheme)
- Mandatory minimum employer pension contributions on behalf of those employees who join their workplace pension scheme. From a “staging date” that is assigned, all employers will be required to automatically enrol a “jobholder” who is aged at least 22 and has not reached state pension age, as an active member of an “automatic enrolment scheme” with effect from the date they become eligible. Staging will take place month by month over the period from 1st October 2012 to 1st September 2016, with large employers becoming subject to the duties before small employers. Until employers are bound by these new laws regarding auto enrolment, they are not required to make any contributions to employees’ pension schemes but employers with 5 or more employees must facilitate employees’ entry into what is termed a ‘“stakeholder’” pension scheme if a compliant company scheme is not in place. Employers who fail to fulfil these obligations risk a fine of up to £50,000.
5.4 Income Tax and Social security as of 6 April 2012
If a worker is not an employee but an independent contractor, the contract between him and the engaging party will be a contract for services. An independent contractor will be taxed under the Income Tax (Trading and Other Income) Act 2005 and will be responsible for making those payments himself.
An employee is taxed under the Income Tax (Employment and Pensions) Act 2003 and such tax will usually be deducted at source (PAYE). The basic rate is now 20% for income to £34,370, and 40% for income over £34,370 and up to £150,000. As from 6 April 2010 there is an additional rate of income tax for taxpayers with savings and earned income greater than £150,000 of 50%. Individuals are entitled to certain allowances.
National Insurance Contributions (“NICs”) are payable by both the employee and the employer. Rates depend on whether or not employment is contracted-out of the State Second Pension (see section 5.3 above) and the contracted-out rates are significantly lower. These are also deducted at source.
Employees have a nil NIC rate band for earnings up to £146 per week (the earnings threshold (“ET”)).
Therefore, for earnings from £102 to £146 per week, the NIC amount is 0%.
On earnings above £146.01 and up to £817 per week (the upper earnings limit (“UEL”)), the NIC rate for non contracted-out employees is 12% on earnings above the ET, up to and including the UEL plus 2% on earnings above the UEL.
Employer NIC contributions are payable once the employee’s weekly earnings exceed £146.01 per week. For non contracted-out employees the NIC rate is 13.8% and there is no UEL.
6. TERMINATION OF EMPLOYMENT
6.1 Wrongful Dismissal
All employees have a right not to be wrongfully dismissed.
Wrongful dismissal is a dismissal in breach of contract. To avoid a wrongful dismissal claim you must ensure that all contractual rights are observed or compensation paid in lieu of damages. A claim for wrongful dismissal is usually primarily a claim for pay and benefits during the notice period. You should ensure, therefore, that at the first stage of any consideration of dismissal of an employee you review the individual employee’s contract - notice periods should be noted having regard to the statutory minimum.
The statutory minimum notice period is as follows:
- One week’s notice if the employee has been employed by the employer continuously for a period of one month but for less than two years; or
- Two weeks’ notice if the employee has been employed by the employer continuously for two years; and
- One additional week’s notice for each further complete year of continuous employment, up to a maximum of 12 weeks’ notice.
Where a contract provides for less than the statutory minimum, the statutory minimum applies.
There is no qualifying period of employment required to bring such a claim. If the claim is brought in the Employment Tribunal there is a cap on the award, currently £25,000. However, as this is essentially breach of contract, a claim can be brought in the civil courts where there is no cap.
6.2 Unfair Dismissal
Employee’s whose employment commenced before 6th April 2012 must have at least 1 year’s continuous service before they acquire the right not to be unfairly dismissed. However, the period of continuous employment has increased to 2 years for those whose employment commenced on or after 6th April 2012.
Employers beware, however, as there are some significant exceptions where employees do not have to have a qualifying (1 or 2 years’) period of service to bring a claim.
To avoid a successful claim for unfair dismissal, an employer must:
be able to rely on 1 of the 5 statutory grounds for dismissal as the reason for the dismissal;
have act fairly;
have followed the ACAS Code of Practice on Disciplinary and Grievance Procedures.
The 5 potentially fair reasons (also known as the statutory grounds) are:-
- some other substantial reason justifying dismissal
The employer must establish that one of the statutory grounds is the reason for dismissal. However, that is not enough. (see below)
(Note that planned retirement is no longer a potentially fair reason for dismissal since October 2011.)
The employer must also follow a fair procedure (i.e. warnings, consultations, etc (as appropriate)). Employers have both a general obligation to act reasonably, and an obligation to follow the ACAS Code of Practice on disciplinary and grievance procedures. The ACAS Code is not complex but a failure by the employer to follow these procedures could lead to an increase of up to 25% in any award.
An award is made up of a Basic Award calculated in the same way as statutory redundancy pay:-
Number of years service x ½, 1, 1½ (depending on age) x week’s pay (capped at a maximum of 30 weeks at a rate of £430 per week - effective February 2012)
and a Compensatory Award based on what is just and equitable, capped at £72,300 (effective February 2012):-
A tribunal will look at an employee’s actual losses in deciding the compensatory award. For example, if an employee obtained alternative employment at an equivalent remuneration immediately following an unfair dismissal, any award would be minimal.
Redundancy is a potentially fair reason to dismiss. There is a statutory definition of redundancy. Statutory redundancy pay is calculated in the same way as the Basic Award for unfair dismissal and is payable without deductions for tax. Failure to consult with individuals could lead to an unfair dismissal claim.
6.4 Compromise Agreements
In order to settle an employment claim, the parties must enter into an agreement in statutory form. The employee must have independent legal advice. Without this (known as a Compromise Agreement) the employee is still free to pursue the employer.
7. COLLECTIVE RIGHTS AND BARGAINING
7.1 Collective Consultation
Where an employer proposes to dismiss 20 or more employees he must collectively consult with a recognised trade union, if there is one, or give the affected employees the opportunity to appoint an employee representative for the purpose of consultation.
TUPE – see section 8
7.2 European Works Council
The 1994 European Works Councils (“EWCs”) Directive provided that where requested by an employee, an EWC or a procedure for informing and consulting employee representatives is to be established in “Community-scale” undertakings or groups of undertakings. This was implemented in the UK in 1999.
A “Community-scale” undertaking is essentially an undertaking with at least 1,000 employees within the European Economic Area (“EEA”), and at least 150 employees in each of two or more member States.
In the event that an employee makes a valid request, then a Special Negotiating Body (“SNB”) must be established made up of employee representatives from each EEA member State within which the undertaking has operations, with the aim of negotiating an agreement with the undertaking on the Information and Consultation arrangements to be introduced.
7.3 The Information and Consultation Regulations 2004 (“ICE”)
The United Kingdom has now fully implemented the National Information and Consultation Directive 2002 through the Information and Consultation Regulations 2004, which give employees in businesses with 50 or more employees, rights to be informed and consulted on a regular basis about issues in the business for which they work. The regulations will not apply to businesses with less than 50 employees.
The requirement to inform and consult is triggered by a formal request from employees for an Information and Consultation (“ICE”) agreement. The employer must implement the prescribed procedure with a view to negotiating an ICE agreement. Under an ICE agreement, an employer will have three separate information and consultation obligations. These are:-
to produce a “state of the nation” report;
to consult with the ICE body regarding probable development of employment, including threats to employment; and
to consult in relation to decisions likely to lead to substantial changes in work, organisation or contractual relations.
7.4 TU Recognition
There is no labour code in the UK. Trade Union rights derive from a variety of sources. The power of the Trade Unions was dramatically reduced in the late 1970s through to the late 1990s.
The Labour government introduced legislation giving the Trade Unions more powers, for example, a statutory right of recognition. Provisions came in to force in 2000 requiring compulsory recognition of a Trade Union where the formal procedure is invoked, 40% of the workforce vote and of those a majority favour recognition. However, the trade unions are not powerful in the UK and in our opinion are not likely to ever become as powerful as they were in the 1970s.
7.5 Industrial Action
English Law does not give workers a positive right to organise and participate in industrial action (unlike many other countries) and lawful industrial action can be difficult to achieve because of the detailed requirements that must be fulfilled for the action to be lawful.
The law encourages conciliation, mediation and arbitration.
The ability to take industrial action takes the form of statutory immunity for action which would otherwise attract legal liability. If lawful then employees are protected from dismissal for eight weeks of industrial action. This will only apply if, inter alia, the action taken was in contemplation or furtherance of a trade dispute and if the action had the support of a ballot.
Only those members whom it is reasonable for the union to ballot should be called upon in the industrial action and no others must be balloted.
8. BUSINESS TRANSFERS
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) (replacing the old 1981 Regulations) now implement the Acquired Rights Directive.
Pursuant to TUPE, all employees substantially employed in any undertaking transferred to another as a going concern will transfer to the transferee. The effect of TUPE is to transfer all the employees of the undertaking on the same terms and conditions as they enjoyed with the transferor (with the exception of occupational pension schemes for which separate rules and obligations apply). All of the transferor’s rights and obligations under or in connection with those contracts also transfer.
There is an obligation upon both the transferor and the transferee to inform employee representatives of the fact of the proposed transfer. If there is a recognised Trade Union the obligation is to provide the appropriate information and enter into consultation with Trade Union representatives.
There are also disclosure requirements on the transferor.
Dismissal for a reason connected with the transfer is automatically unfair unless the employer is able to show that the dismissal was for an economic, technical or organisational reason.
Note that TUPE 2006 goes further than the local laws of many other European countries in that it expressly provides for its application where there is an outsourcing of services.
9. EQUAL OPPORTUNITIES
Employees are protected from Discrimination on the grounds of sex, race, marital status, disability, religion and belief, sexual orientation and age. Employees also have a right to equal pay for work of equal value and have protection from less favourable treatment as part time workers or fixed term workers.
10. MATERNITY, PATERNITY, ADOPTION AND PARENTAL LEAVE
10.1 Statutory Maternity Leave
All female employees are entitled to one year’s statutory maternity leave, comprised of 26 weeks’ ordinary maternity leave (“OML”) and 26 weeks’ additional maternity leave (“AML”) regardless of length of service.
Any employee wishing to return early from maternity leave must now give eight weeks’ notice.
Employees are entitled to work for up to ten days (“KIT days”) during the course of their maternity leave, without bringing an end to such leave.
Employees are also entitled to paid time off for ante-natal appointments, health and safety protection whilst pregnant and breastfeeding, priority consideration for alternative employment in redundancy cases, the right to request flexible working on return to work and protection from dismissal, suffering a detriment or being subjected to discrimination by reason of pregnancy or maternity.
10.2 The Right to Return to Work
Employees have the right to return to the same job after OML, on the same terms of employment (unless a redundancy situation arises).
After AML the right is to return to the same job unless it is not reasonably practicable for her to do so in which case the right is to return to another job which is both suitable and appropriate.
10.3 Statutory Maternity Pay (“SMP”)
Employees who have been continuously employed for a period of 26 weeks up to and including the 15th week before the expected week of childbirth (“EWC”), and who have average earnings of the lower earnings limit for National Insurance during the eight week period ending with the 15th week before EWC, are entitled to SMP.
SMP has been extended to 39 weeks to employees who have complied with the notification requirements.
SMP is payable at the following two rates:
- The “earnings-related rate” (90% of average weekly earnings) for the first six weeks.
- The “prescribed rate” (or the earnings-related rate if lower) currently £135.45 for the remainder of the period (effective April 2012).
‘Small employers’ (i.e. those who pay £45,000 a year or less by way of gross National Insurance Contributions (“NICs”)) can deduct from their NICs an amount equal to 103% of SMP payments made that month. All other employers can recover 92% of their monthly SMP bill. An employer is obliged to keep payment records for SMP purposes.
Large employers frequently provide for enhanced contractual maternity rights.
10.4 Protection from dismissal
A woman is protected from dismissal by reason of pregnancy. Any dismissal connected with her pregnancy will be automatically unfair and no qualifying period is necessary. Such a dismissal may also amount to sex discrimination. Special protection exists where the employee’s job becomes redundant whilst she is absent. In that case, she is entitled to be offered redeployment opportunities by her employer or an associated or successor employer ahead of other employees.
Employees have similar rights to Adoption Leave & Pay and Paternity Leave & Pay. Also, under the Flexible Working Regulations, returning employees may request to work part-time, which request must be seriously considered by the employer.
11. OTHER RIGHTS
Workers are also protected in the event of “whistle-blowing”; the Data Protection Act protects personal data and the Human Rights Act 1998 implements the European Convention of Human Rights.
Issued: June 2010 / Updated: May 2012
If you have any questions regarding the above or require additional information or assistance, please contact Melanie Smith on +44 (0)1372 461411.