Retained EU Law reform: turning back the clock on Working Time Regulations

Amendments to the Working Time Regulations 1998 (“WTR”) and rolled-up holiday pay

A draft Statutory Instrument has been published which largely relates to amendments to holiday entitlements for irregular-hours and part-year workers in the WTR, namely:

In order to protect certain elements of holiday rights post-Brexit, the legislation will specifically provide for the carry over of leave under the WTR in various situations where leave could not be used in the relevant holiday year, including sickness, failure to recognise employment status, failing to afford the right to paid annual leave, and being unable to exercise the right because of statutory family leave and
Defining “normal pay” for holiday pay purposes to incorporate case law, so that it includes other regular remuneration such bonus pay, commission and overtime payments and not just basic weekly pay.

A critical further reform relates to the UK Government’s review of the 2022 Supreme Court decision in Harpur Trust v Brazel regarding “rolled-up” holiday pay, and its finding that 5.6 weeks’ annual leave accrues for part-year workers over the whole period of their contract regardless of the amount or frequency of hours they work, and that 12.07% rolled up holiday pay does not comply with the WTR.

Legislation changes

The draft legislation confirms that from the 1st of January 2024, leave for those working part-time and irregular hours only will accrue holiday entitlement at the rate of 12.07% of hours worked, and be paid at the rate of 12.07% of pay in a pay period. This is a major shift away from the principle established in Harpur Trust v Brazel, which ruled that all workers are entitled to 5.6 weeks leave each year, regardless of how infrequently they work or if they have long periods of inactivity over the course of a year. This will be a significant legislative intervention and will be a source of relief for many employers who rely on irregular hour workers and use 12.07% rolled up holiday pay to meet any holiday pay liability.

The UK Government has also confirmed that it will not seek to merge the current “basic” (4 weeks) and “additional” (1.6 weeks) leave entitlements under the WTR/EU law to create a single annual leave entitlement of 5.6 weeks. However, it has confirmed it will legislate further to clarify what must be included in normal remuneration for holiday pay purposes, in addition to “more fundamental reforms to the rate of holiday pay”. We will post updates on this as soon as we become aware of the changes.

TUPE

Reforms to other EU-derived law, namely the Transfer of Undertakings (Protection of Employment) Regulations 2006 has also been confirmed, by expanding the microbusiness exemption from TUPE information and consultation requirements to small business of fewer than 50 employees (up from 10 employees previously), and also exempting transfers involving fewer than 10 employees. If this microbusiness exemption applies, and there are no pre-existing worker representatives of the affected employees, then employees can receive the written information required under TUPE directly, as opposed to via employee representatives.

Implications

The above represents some of the first and most significant reforms to employment rights deriving from EU law since Brexit, and is a direct intervention by the UK Government to partially reverse the decision of Harpur Trust v Brazel which brings the use of 12.07% rolled up holiday pay back into widespread use in calculating holiday pay for irregular-hours workers. The reforms also codify some significant developments in EU-based law, namely the carry over of leave and definition of normal pay for holiday pay purposes. The Government has also made relatively minor adjustments to TUPE, but could represent a prelude to further significant reforms to other EU-based employment rights, depending on the outcome of next year’s UK General Election. It is anticipated that employment rights will be a clear dividing line between the main political parties as they ramp up their electoral campaigns.