June 12, 2023
Welcome to June’s edition of Worked Up, the go-to destination for all your employment law updates.
As the days get longer, so does the list of exciting new employment law updates for us to delve into. It’s been a busy year for some MPs as a string of Private Members’ Bills received royal assent last month. One such bill is the Carer’s Leave Act 2023 which will provide one week’s unpaid leave each year for employees providing or arranging care. The leave can be taken flexibly, allowing individuals to take either a continuous block of five days or opt for individual or half days in order to suit their specific caregiving responsibilities. The new right will apply to any employee who is responsible for the care of older individuals, disabled individuals, or seriously ill loved ones.
In this month’s edition, we also cover the recently announced three-month limitation period for non-competes, consider a recent case that sheds further light on holiday pay, examine the new Neonatal Care (Leave and Pay) Act which affords additional protections for new parents whose newborn is in neonatal care and discuss new protections from redundancy for pregnant employees and employees returning from maternity, adoption or shared parental leave.
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This month's headlines
Non-compete restrictions to be capped at three months
The enforceability of non-competes, which are a type of post-termination restriction often included in employment contracts to restrict key employees from setting up or joining a competitor for a set period of time post-termination, has been under government scrutiny for the last few years. Non-competes are not currently regulated by statute and the law in this area has always been developed by the courts with an eye on public policy considerations. Generally, there is potential to enforce a non-compete clause where it can be shown to (i) safeguard a legitimate business interest and (ii) go no further than is reasonably necessary to protect that interest. There is therefore no regulated maximum duration for a non-compete, with courts having demonstrated that in specific cases they are willing to enforce restrictions lasting 12 months post-termination and, in some cases, even longer than that. However, in its policy paper, ‘Smarter regulation to grow the economy’, the government has now announced its intention to regulate to limit the maximum length of a non-compete to just three months.
Whilst for some roles this may prove extremely concerning to employers, it could also potentially provide useful clarity in this area so employers understand what will and won’t be enforceable. However, the devil will naturally be in the detail, and the government has yet to provide any real details of how this will be implemented. For example, would this just apply to a standard form ‘non-compete’ or would it apply equally to broadly drafted non-solicitation provisions which can often have a very similar effect? And how would such a change affect existing employment contracts which already contain longer non-compete provisions? Additionally, there is no clear timescale to the proposed changes, which could mean that legislation in this area may be some time away if in fact it ever arrives.
We will continue to keep you updated on changes in this area but, until legislation comes into force, it isn’t necessarily a bad time for businesses to review their existing restrictions in key employee contracts to ensure these are reasonable and do not overreach.
Similarly, it may be advisable to start exploring alternative methods of protecting these business interests for new hires in senior or sensitive positions. For example, incorporating longer notice and garden leave provisions, relying more heavily on other restrictions such as non-solicitation or non-dealing clauses, or carrying out a review of confidentiality provisions.
Additional redundancy protection to come into force for pregnant employees and employees returning from family friendly leave
A Bill concerning protection from redundancy during or after pregnancy or after periods of maternity, adoption or shared parental leave has now received royal assent and will come into force as the aptly named Protection from Redundancy (Pregnancy and Family Leave) Act 2023 within the coming months.
Currently, only employees who are taking maternity, adoption, or shared parental leave receive redundancy protection, as employers are required in such cases to offer the employee the right to first refusal of a suitable alternative role if their current position is being made redundant. The new legislation will extend this protection to cover pregnant employees from the point that they inform their employer about their pregnancy until 18 months after the birth. This 18-month period guarantees that mothers coming back from a year of maternity leave will have an extra six months of protection against redundancy (albeit redundancies will still be possible, provided that the first refusal considerations referred to above have been met). This protection will also apply to individuals returning from adoption and shared parental leave.
The decision to legislate in this area was first prompted by research published by the Equality and Human Rights Commission, who found that approximately 11% of mothers surveyed were dismissed, made compulsorily redundant (while others in the workplace were not), or treated so poorly that they were compelled to leave their job. Moreover, a staggering three out of four mothers reported negative or potentially discriminatory experiences during pregnancy, maternity leave, or upon returning from maternity leave.
Whilst employers already have a responsibility to be mindful of their duties towards pregnant employees and employees on or returning from maternity, shared parental or adoption leave, these new regulations make it all the more important that employers thoroughly evaluate any redundancy procedures before moving forward with them, particularly when pregnant employees or those who have recently returned from maternity will be affected by the proposed redundancy.
EAT confirms that payment in lieu of holiday cannot be less than WTR
In this case, the Employment Appeal Tribunal (“EAT”) held that a ‘relevant agreement’ for the purpose of calculating a worker’s entitlement to payment in lieu of untaken holiday under the Working Time Regulations 1998 (“WTR”) cannot permit the employer to pay less than the amount payable if annual leave was taken during employment.
The Claimant in this case, Mr Connor, was dismissed after being signed off with depression and anxiety for the last 15 months of his employment. His employer calculated that he was entitled to 40 hours and 42 minutes of accrued but untaken holiday at his termination date. Mr Connor’s employment contract stated that payments in lieu would be based on 1/365th of annual salary for each day of leave. The Claimant worked a regular 37-hour week and, had he been working, he would have received the same sum for a week of holiday as for a week of work. However, using the payment in lieu calculation set out in his contract, Mr Connor was paid less than if he had taken the holiday. He therefore brought a holiday pay claim before the Employment Tribunal.
The Tribunal found that Mr Connor’s holiday pay had been correctly calculated according to the contractual term. It referred to Regulation 14 WTR which provides that a payment in lieu shall be ‘such sum as may be provided for the purposes of this regulation in a relevant agreement’. The Tribunal was satisfied that the contractual term was a ‘relevant agreement’ for the purposes of the WTR. Mr Connor appealed against the decision.
The EAT allowed the appeal. It noted that the taking of annual leave is “important to fulfil the health and safety purpose underpinning the legislation” and that the calculation of holiday pay is necessary because it would “undermine the purpose of the legislation if the amount paid could differ to the usual level of pay”. Consequently, any payment which falls below the usual level of pay will not be in accordance with the WTR. It was notable in the EAT’s view that Regulation 14 WTR simply provides a method of calculation supporting Regulations 13 and 13A (which sets out the annual entitlement to four weeks’ annual leave for workers) where the leave year is incomplete. The rights to annual leave and payment are not, therefore, modified by Regulation 14 WTR.
The EAT held that the reference to ‘relevant agreement’ in Regulation 14 WTR must refer to any agreement that provides a formula which is in keeping with the rights provided for in the WTR. Accordingly, a relevant agreement cannot provide for a calculation which would mean that the worker is paid less than the usual amount that they would have been paid for working when holiday pay is calculated.
This judgment is yet another reminder for employers that any payment in lieu provisions must reflect the worker’s normal remuneration and any token or reduced holiday pay on termination will not be enforceable. These sorts of provisions aren’t unusual in freelance agreements and, while they may still have their uses in some situations (for example, where worker status is questionable), there is a clear lesson here not to place too much reliance on them!
New leave and pay rights for parents whose newborn is admitted to neonatal care
The Neonatal Care (Leave and Pay) Bill received royal assent this month and will come into force “in due course” as the Neonatal Care (Leave and Pay) Act. The new legislation will mean that eligible parents will be entitled to extended leave for neonatal care from day one, which will be in addition to other family friendly entitlements such as maternity and paternity leave. Employees who take neonatal care leave will also have the same protections as individuals taking other forms of statutory family-related leave, including protection from any dismissal or detriment that arises as a result of having taken any neonatal leave.
Under the Act, parents will have the right to take up to 12 weeks of paid leave when their newborn is admitted to neonatal care for more than seven days. This leave must commence within 28 days after the child’s birth and will be added to any existing statutory parental leave that the employee is already entitled to, as family-friendly leave (such as maternity and paternity leave) cannot be stopped once it has started. The amount of leave that an employee is entitled to will be determined based on the length of time their baby was in neonatal care.
While neonatal leave will be available from day one, only employees with a minimum of 26 weeks of continuous service, earning above the lower earnings limit (currently £123 per week), and who have a parental or personal relationship with the child will be eligible for statutory neonatal care pay.
According to estimates by Bliss, a charity dedicated to supporting those with premature and sick babies, more than 90,000 (or one in every seven) babies in the UK require neonatal care each year. Some babies spend weeks or even months receiving care, resulting in parents having to use a significant portion, or in certain cases, all of their leave entitlement before their baby is well enough to be discharged. The introduction of new protections is therefore a big step forward for the many employees facing such a very challenging situation.