Welcome to our latest round up of employment law developments and what they mean for employers.
The Court of Appeal has recently considered the issue of holiday pay in the long-running case of Smith v Pimlico Plumbers Ltd  EWCA Civ 70. We revisit the case and consider the impact of the Court of Appeal’s decision on workers’ rights to paid annual leave.
Following P&O Ferries’ decision last month to fire 800 workers without consultation and replace them with lower paid agency workers, the Government has announced a new Statutory Code will be published on ‘fire and rehire’ practices.
The world of work has been turned on its head over the last two years and both employers and employees have had to adapt rapidly and adopt new working practices in order to cope with the challenges of the pandemic. We have hopefully weathered the worst of the storm and are now entering calmer waters, but employers are still facing various tricky issues. We explore some of those key issues here.
The Court of Appeal has recently considered the issue of holiday pay in the long-running case of Smith v Pimlico Plumbers Ltd  EWCA Civ 70 and has specifically looked at the question of whether a worker who took unpaid leave was in fact entitled to be paid for those leave periods throughout the whole of his period of employment.
Paid Holiday Leave – a Reminder
There are 3 types of paid holiday leave in the UK:
- The European Working Time Directive (“WTD”) leave of 20 days per annum;
- The UK’s Working Time Regulations (“WTR”) leave, which implements the WTD and then allows UK workers an additional 8 days to make 28 days’ statutory leave in total;
- Any extra contractual entitlement agreed with the employer.
Almost all workers are legally entitled to the 28 days, or 5.6 weeks, paid statutory leave per year (pro rata’d for part-time workers).
Gary Smith was a heating and plumbing engineer working for Pimlico Plumbers Ltd (“Pimlico Plumbers”) from 2005 until 2011. He was a self-employed independent contractor who had no entitlement to paid annual leave, however he did routinely take leave on an unpaid basis.
He was suspended in May 2011 which he took to be fundamental breach of his contract, conferring on him the right to terminate his contract. He subsequently brought multiple claims against Pimlico Plumbers in the Employment Tribunal including for unpaid holiday entitlement, which he sought to pursue under the WTR and as an unlawful deduction from wages claim under the Employment Rights Act 1996 (“ERA”). His claim in this respect totalled £74,000.
Initially his claim rested on his employment status and the question of whether he was a worker for the purposes of the WTR and ERA. The Supreme Court held that he was, meaning that he was, in principle, entitled to paid holiday leave.
The claim was referred to the Employment Tribunal for consideration.
Employment Tribunal decision
Mr Smith sought to rely on the case of King v The Sash Windows Workshop Limited, which held that a worker who had not taken any holiday during a period of employment because the employer refused to pay for it, and the worker was therefore deterred from taking such leave, must be permitted, under Regulation 14 of the WTR, to carry that leave over and accumulate it for the whole period of employment.
The Employment Tribunal disagreed that the decision in King applied stating that King did not concern annual leave that was actually taken but unpaid. It was evident that Mr Smith had been able to take annual leave during the course of his employment.
In any event, the Employment Tribunal dismissed his claim on the basis that it was time-barred, i.e. it had been submitted more than 3 months after the relevant holiday period, and, further, that as there was a gap of three months or more between holidays Mr Smith was unable to claim for a series of unlawful deductions from wages under the ERA (following the principle in Bear Scotland Limited v Fulton UKEATS/0047/13/BI).
The EAT agreed. Mr Smith appealed to the Court of Appeal.
Court of Appeal decision
The Court of Appeal overturned the ET and EAT decisions and found in favour of Mr Smith. In reaching their decision they looked at the Charter of Fundamental Rights of the European Union and identified that the single composite right which is protected by law is the right to paid annual leave, which is, in turn, necessary for the health and safety of workers. An employer’s refusal to provide paid annual leave is likely to impact a worker’s ability to rest and relax whilst on leave and, ultimately, to deter the worker from taking their full leave entitlement.
In considering the King case, the Court of Appeal found that the principles established by that case applied even where a period of unpaid leave had been taken. Their view was that Mr Smith had been prevented from taking paid annual leave as Pimlico Plumbers had disputed or denied his right to payment. Therefore, following the principles of King, in accordance with Regulation 14 of the WTR he must be entitled to carry over the right to paid leave.
The Court of Appeal went on to establish that where a worker’s right to take paid leave is disputed or denied - for example, as in this case, where the individual is a self-employed contractor - the right will only lapse where the employer can prove they:
(i) specifically and transparently gave the worker opportunity to take paid holiday,
(ii) encouraged them to do so, and
(iii) informed the worker that the right would be lost at the end of the leave year if they did not take it.
If the employer can show these steps have been taken, then the right to paid annual leave is lost at the end of the leave year; if they can’t, the right carries over and accumulates until the termination of the employment contract.
In respect of Mr Smith, the Court of Appeal found that he was entitled to carry forward into each subsequent leave year his paid annual leave entitlement, capped at the 4 weeks per year granted under the WTD. At the point that his employment terminated in 2011, the right to payment crystallised and Pimlico Plumbers’ subsequent failure to make that payment in lieu of the holiday entitlement upon termination of the employment relationship led to a breach of the WTR.
The claim has been remitted to the Employment Tribunal to determine Mr Smith’s award.
Unlawful deductions under the ERA
Given the decision on Mr Smith’s claim for holiday pay under the WTR, the Court of Appeal did not then need to consider his claim for unlawful deduction of wages under the ERA.
Nevertheless, they did examine whether the EAT’s decision in Bear Scotland Limited v Fulton was still good law. The EAT held in that case that a gap of more than three months between non-payment or underpayment of wages breaks the “series” of deductions for the purpose of bringing an unlawful deduction of wages claim under the ERA. This has the effect of limiting any claim for backdated holiday pay.
Obiter comments by Lady Justice Simler gave a “strong provisional view” that this decision is wrong which could pave the way for claimants to pursue backdated claims spanning a much longer period.
The Court of Appeal will consider this further in the case of Chief Constable of Northern Ireland Policy v Agnew.
Two-year back-stop for historic claims
Unfortunately, the previously legislated two-year back-stop on historic claims for holiday pay had no impact on Mr Smith’s claim against Pimlico Plumbers.
Through the Deduction from Wages (Limitation) Regulations 2014 the Government has taken steps to limit the ability of claimants to pursue historic claims for holiday pay by restricting Employment Tribunals to only look back two years from the date of the complaint. However, these Regulations apply to unlawful deduction of wages claims under the ERA and not to the claim brought by Mr Smith under the WTR.
What is does the Court of Appeal’s decision actually mean for employers?
Employers who engage self-employed contractors, workers in the gig economy, or any staff who may be able to establish themselves as workers rather than self-employed, who have not previously been able to exercise their right to paid annual leave for whatever reason, could now face an increase in claims for holiday pay on termination going back many years. Provided such a claim is brought within 3 months beginning with the date of termination of employment, it will be in time.
There are a number of practical steps that employers can take to mitigate future risk:
- To prevent the carry-over of annual leave, establish a clear policy and communication strategy to ensure:
- Workers are aware of the opportunity to take paid annual leave;
- They are encouraged to do so each year;
- They are informed that if they don’t take it they will lose it;
- Management is equally clear on the requirements.
- Review the contingent workforce. If engaging self-employed contractors who are not entitled to holiday pay, assess whether they could legally be workers, having in mind the working relationship, and keep this under review.
- Review contracts to ensure transparent and comprehensible provisions regarding holiday entitlement. Where holiday pay is paid, this should also be explicit on the worker’s pay slip or remittance advice to avoid future allegations of non-payment. The more transparency, the better.
- Check holiday pay calculations to ensure compliance.
- Be proactive in monitoring workers and their annual leave entitlement. Preventing workers from taking annual leave or not paying them for it where so entitled is likely to lead to a claim under the ERA or WTR. The more visibility, the better.
- If in doubt, seek advice. The legalities around holiday pay are complex and ever-changing.
In light of the recent P&O Ferries fiasco, the Government has announced a new Statutory Code on the practice of fire and rehire. The Code is intended to give clear and practical guidance to employers who wish to make changes to employees’ terms and conditions, and to re-enforce the Government’s position that in all circumstances companies are expected to treat their employees fairly.
What is “fire and rehire”?
This refers to a practice of dismissing workers (aka “firing”) to then offer those same individuals work on new, less favourable terms and conditions (aka “rehiring”). It may be used by companies as a mechanism to avoid engaging in meaningful consultation about proposed changes to employees’ contracts of employment.
What did P&O Ferries do?
Last month, via a pre-recorded Zoom message, the Chief Executive of P&O Ferries informed 800 workers that their employment was being terminated with immediate effect. Whilst it did not offer a “rehire” option, it did instead line up agency workers, on lesser pay, to replace some of those being made redundant.
The company has since admitted that there was a conscious decision not to engage in any consultation process with the existing workforce or their union representatives ahead of the announcement, stating that the redundancies were necessary in order for the business to survive.
Duty to Inform and Consult
In the UK, where an employer identifies potential redundancies within its business, leading to a change in employees’ terms and conditions, it has a duty to inform and consult with affected employees beforehand. Where 20 or more roles are to be made redundant at a single establishment within any 90-day rolling period, the employer is under a duty to collectively consult with recognised trade unions or employee representatives. The consultation process should be genuine with the aim of reaching agreement on the redundancy plans with the representatives.
How will the Code prevent similar situations?
P&O Ferries recognised that their actions were in breach of UK employment law; they proceeded nonetheless, preferring to compensate workers through enhance redundancy packages instead of engaging in any form of consultation over changes to their terms and conditions. As has been clear from the pursuant media attention, this has caused significant reputational damage for P&O Ferries and its parent company, a negative impact on employee relations and a legal claim (albeit only one that has been reported in the media).
The new Statutory Code is intended to give greater guidance to employers to avoid “unscrupulous” companies from using fire and rehire tactics when trying to renegotiate employment terms and to give some legal force to the Government’s expectations that employers behave fairly in these often-difficult circumstances.
The Government states in its press release that the new Statutory Code “will detail how businesses must hold fair, transparent and meaningful consultation on proposed changes to employment terms” and will set out practical steps for an employer to follow.
What does it mean for employers if they don’t follow the new Code?
Tribunals and courts are required to consider whether an employer has followed and complied with a relevant Statutory Code when determining legal proceedings. A failure to follow the relevant guidance could result in an uplift of 25% of an employee’s compensation.
The Government recognises that a business must be able to retain the ability to effect changes to its operations in the face of financial difficulties and as such has previously indicated that it will not introduce legislation prohibiting fire and rehire practices. However, the hope is that this new Statutory Code will, when published, act as a deterrent to those employers seeking to use fire and rehire as a negotiation tactic. Whilst it may not stamp out the practice entirely it will also, hopefully, give some protection to employees who are on the sharp end of this unfair treatment.
Who could have predicted a little over two years ago just how much the workplace would be forced to adapt, change and develop over such a short space of time.
From the pre-covid culture of daily commutes and presenteeism, to the enforced working at home of the pandemic, through to the rather more flexible, even nebulous working culture that has developed of late, it’s clear that the typical working day has changed.
Even for those who had no choice but to continue working on site throughout the lockdown, working life changed dramatically, with PPE, social distancing, endless hand sanitising and, pre-vaccine at least, an undercurrent of fear. Many of these measures remain in place in sectors such as social care and health but measures have certainly relaxed elsewhere, such as retail, hospitability and leisure.
We’re certainly not out of the woods yet, but working life is nevertheless returning to some degree of post-covid normality. But this brave new world is still a difficult landscape to navigate for employers so we set out below answers to some of the more common questions that our clients are asking.
Can I insist on a full time return to the office?
Most contracts of employment are likely to stipulate that an employee’s place of work is their office/workplace address. So, on a purely contractual basis, you could seek to enforce that contractual requirement and insist that employees do now attend the office on a full-time basis.
Many people, however, have become used to working from home and find that they greatly benefit from the flexibility that this offers. An insistence on full-time return is therefore likely to create employee relations issues at the very least. A heavy-handed approach to this could even result in constructive unfair dismissal claims where the employee feels that trust and confidence has been irretrievably breached.
Most employers seem to be operating a hybrid approach, allowing people a level of flexibility as to how often and when they come into the office.
Whatever you decide, of key importance is clear communication as to expectations. If you are going to require attendance at the office for a prescribed percentage of time, this should be clearly explained. Employees should also be given a change to consider, respond and adapt before any changes to current working practices are implemented.
What if I am happy for my employees to work at home?
If you are comfortable that home-working will be a permanent arrangement, you could consider amending the contracts to reflect a change in the normal place of work. However, if you do this, it will be harder in the future to insist on a partial, if not full, return to the office should circumstances require it.
A more flexible solution is to leave the contractual place of work as the office, but to agree a side-letter recording the fact that, for the time being at least, it is agreed that the employee will work at home, whether some or all of the time. This allows for the possibility of adapting the arrangement should circumstances require it. It also means that the employee may not claim travel expenses for attending the office on those days where attendance is required for meetings, team building etc.
You should also have a clear policy or written record of any agreement which relates to requirements as to occasional attendance at the office for meetings, appraisal etc. This should also set out expectations as to availability during the working day, health and safety, insurance, training and professional development, objective and targets and so on.
The important thing is that you don’t simply do nothing, on the basis that the temporary working at home arrangement is working perfectly well. The types of issues set out above will not simply be implied into a working arrangement unless you take positive steps to implement them. So simply letting a temporary arrangement become permanent by virtue of custom and practice, without building in appropriate parameters, guidelines and boundaries, risks setting in stone an ill-defined, potentially unworkable arrangement.
What do I do if my employee has covid?
The regulations which imposed a legal requirement on those testing positive to self-isolate were revoked on 24 February 2022 so people are now free to go about their daily business regardless of whether they have covid or not.
Further, on 1 April 2022 the government published new guidance on reducing the spread of respiratory infections (including covid) in the workplace. This replaces the government’s previous guide ‘Working safely during covid’.
As far as the workplace is concerned covid has been downgraded to the lowly ranks of colds, flu and other such ‘common bugs’. Further, the withdrawal of legal restrictions as to what you can and can’t do when you have covid does rather place the ball in the employer’s court as to what to do with a covid-positive employee.
So what you should do as an employer? Well, the obvious answer is that if the individual is covid positive, but not actually ill, they should work at home if they can. If they can’t do their job from home, then you should consider how safe the working environment would be, both for the individual in question but also their colleagues, if you were to allow them to attend work as normal (assuming they are asymptomatic).
If they work in a large, well-ventilated space, they may pose little risk to their colleagues by attending work (although a facemask should be encouraged). If they work in a small, enclosed space in close proximity to others, allowing them to attend work places their colleagues at increased risk of infection.
Employers have positive duties under the Health and Safety at Work Act 1974 to provide a safe working environment. Knowingly allowing someone with covid to attend work in circumstances where the risk of onward infection is high is a potential breach of those obligations.
The requirement for every employer to expressly consider covid in their workplace risk assessment has been removed, but we would recommend that employers nevertheless regularly review their risk assessment and health and safety protocols with a view to minimising the risk of onward transmission of covid in the workplace.
If you consider that an employee who has covid attending the workplace represents too much of a risk to others or, indeed, to your professional reputation, you should introduce a clear policy requirement that people who test positive must remain at home.
Remember too that although most people will not become severely ill if they contract covid, there are still vulnerable individuals in the workplace for whom covid remains potentially life threatening.
Of course, with the removal of free testing for the vast majority of the population, the more likely scenario is that people attend work with covid unknowingly.
Do I have to pay them if I send them home?
If someone is unable to attend work because they have contracted covid, even if they are asymptomatic, the underlying reason for their absence is health. So, at the very least they would be entitled to SSP. Remember, though, that the special rules regarding SSP which were introduced during the pandemic (namely, enabling employees to receive SSP from day 1, rather than day 4, of sickness absence) have recently been withdrawn.
One potential consequence of this change is that employees who test positive may not disclose this fact for fear of being sent home and losing pay. This is a situation that is not restricted to covid. There is little you can do, as an employer, if your employee chooses not to reveal a positive test result but having a clear sickness absence policy which encourages employees to disclose if they have contracted a respiratory infection at least makes your expectations clear.
As to whether they receive company sick pay (if applicable) this will very much depend on the rules of your company sick pay scheme. However, given that covid is essentially to be treated as any other illness, if someone would receive company sick pay for any other absence, it makes sense that a covid-related absence would also attract CSP.
Some employers are choosing to distinguish treatment of those employees who have been vaccinated and those who have chosen not to get the jab. So a vaccinated employee who is off sick with covid may receive company sick pay whereas an unvaccinated employee would receive only SSP. Technically speaking this is lawful, although potentially not in relation to those individuals who have a legitimate medical exemption.
Can I use covid-related absences as ‘trigger’ points in absence management?
There is no reason why covid-related absences should be treated any differently to absences for other illnesses so on the face of it, yes you can. As always, however, it is not quite as clear cut at that. Whilst a case of covid itself is highly unlikely to constitute a disability, many people have developed long-covid following a period of infection. Long-covid sufferers present with a wide range of different symptoms, including tiredness, shortness of breath, joint pains, dizziness, earaches, depression, brain fog etc. Sufferers may, in some cases, satisfy the definition of disabled for the purposes of the Equality Act 2010.
Where an individual is disabled, this triggers a positive duty on the part of the employer to make reasonable adjustments. One such adjustment may be the adaptation of any absence management process, redundancy selection process etc to exclude absences relating to their condition. Accordingly, where someone has a condition which could constitution a disability – whether or not it actually has the label of ‘long-covid’ or not- exercise caution when considering appropriate triggers in any absence management policy.
If you would like advice or assistance in relation to any workforce issues, or indeed any of the topics mentioned in this newsletter, please get in touch with a member of our Employment Team.