Here we round up four key developments for employers in the hospitality sector to have on their radar

The way we work: the Taylor Review recommends wholesale change of working practices in the UK

The Taylor Review of Modern Working Practices (the Review) was published on 11 July 2017 and makes wideranging recommendations for the reform of working practices in the UK. The overriding ambition of the Review is to make the case for all work in the UK to be fair and offer a realistic scope for development and fulfilment. If implemented, the proposals will affect all employers across all sectors. However, the following proposals have the potential to have a particularly significant impact on working practices in the hospitality sector:

  • New employment status of “dependent contractor” – the proposal is that workers who are not employees should be rebranded as dependent contractors and the test for acquiring this new status should place much greater weight on the control the employer has over the individual, than on a requirement for personal service. What this means is that those who are currently classified as self-employed contractors because of the presence of a “substitution clause” in their contract (i.e. a clause which allows them to send someone else in their place to do the work) could move to the new dependent contractor status in future. This will bring with it a set of enhanced obligations and costs for employers such as providing paid holiday, rest breaks and pensions auto-enrolment.
  • New higher rate National Minimum Wage for nonguaranteed hours of work – the proposal is that there should be a new uplifted rate of National Minimum Wage payable for hours worked which are not guaranteed under the contract. As well as enhancing pay for those engaged on zero hours contracts, this proposal would also uplift the rate of pay for nonguaranteed overtime hours.
  • Zero hours workers who have been engaged for 12 months or more to have the right to request guaranteed hours – this proposal would give long-serving zero hours workers the right to request a guaranteed hours contract which reflects the number of hours they typically end up working. Although this is only a right to request, rather than a right to have, employers will have to put in place appropriate procedures and consider such requests reasonably. The Review also proposes that employers should be required to publicly report on the number of requests received and how many were accepted.
  • Change in the calculation of holiday pay for those who work irregular hours – the proposal is that the reference period used to calculate holiday pay should be increased from 12 to 52 weeks to take account of seasonal variations in work. This will benefit workers who work irregular hours by ensuring that their holiday pay is not depressed after a period of working fewer hours. Conversely, it would also help employers by ensuring holiday pay is not inflated after a period of working more hours, for example as typically happens in the hospitality sector over the Summer and Christmas periods.
  • Better protections for agency workers – the Review makes a number of recommendations aimed at improving the position for agency workers, who are commonly used within the hospitality sector. The proposal include: providing clearer information on pay arrangements and giving agency workers the right to request a direct contract of employment after 12 months working for the same end user. Significantly, the Review also proposes the abolition of the “Swedish derogation” which allows agencies to avoid matching end-user pay rates. If abolished, employers could see the cost of engaging affected agency workers increase as they would become entitled to the same rate of pay as comparable employees after 12 weeks. The Review also suggest that employers above a certain size should be required to publicise their employment model and use of agency workers.

Employment Tribunal fees system quashed – what next?

In 2013, the Government began charging claimants a fee to bring a claim against their employer in the Employment Tribunal. A further fee was payable in advance of the hearing of the claim. The amount payable depended on whether the claim was brought by a single claimant or a group, and whether the claim was classified as “Type A” (generally simpler claims) or “Type B” (this included claims such as unfair dismissal, equal pay and discrimination. A single claimant would pay £390 in total to bring a Type A claim or £1200 in total to bring a Type B claim. 

The trade union, UNISON, instigated proceedings for judicial review, arguing that the system was unlawful and interfered with the right of access to justice. Despite evidence showing a sharp decline in the number of claims being brought each year (approximately 70%), the High Court and Court of Appeal declined to rule that the system was unlawful. This led many commentators to believe that the system was here to stay.

However, following a further appeal, the Supreme Court dramatically decided that the fees system was unlawful because it had the effect of preventing access to justice. The consequence was that the fees system was rescinded with immediate effect on 26 July 2017 and individuals no longer need to pay a fee to bring an Employment Tribunal claim. Furthermore, all fees paid since 2013 will have to be refunded by the Government at an estimated cost of £27 million.

So, what happens next?
  • It’s likely that the removal of the Tribunal fees system will lead to an increase in the number of claims brought against employers, although it may take time to reach the pre-fees level. As a consequence, employers may wish to take a more cautious approach in dealing with internal employment disputes given the higher risk of a Tribunal claim being pursued.
  • It’s possible that the Government will seek to reintroduce the fees system, with the fees being set at a lower level. However, this would require a new Act of Parliament to be passed and it is not clear when this would happen (given the focus on Brexit) or whether it would successfully pass (given the Government’s minority position).

We’re all going on a Summer holiday – but what do we need to pay our staff?

While we all paused to put our feet up over the Summer, employers may be forgiven for scratching their heads when it comes to working out what to pay their staff for their well-earned breaks. The law surrounding the calculation of holiday pay has been in a state of flux over the last few years. Here we summarise where things have got to on some key components of pay. Of particular interest to employers in the hospitality sector will be the recent ruling on the inclusion of voluntary overtime pay.

  • Compulsory, non-guaranteed overtime payments – the EAT ruled in November 2014 that any payments made in respect of compulsory overtime not guaranteed by the employer should be included in the calculation of a worker’s holiday pay provided it could be said that such payments are part of the worker’s “normal pay”. This means that the payment has to be one which is regularly received and made over a sufficient period of time to justify the label.
  • Voluntary overtime payments – although several Employment Tribunal decisions had pointed towards adopting the same approach for voluntary overtime, none of these decisions were binding upon employers. Finally, in July 2017, a binding decision on the issue was given by the EAT. The EAT said that payments for voluntary overtime should also be included in holiday pay, where it could be said they represented “normal pay”. The question will be whether the voluntary overtime extends for a sufficient period of time on a regular basis to justify the description of “normal”. It is not yet known whether this decision will be appealed.
  • Commission payments – the Court of Appeal ruled in October 2016 that results-based commission payments which can be said to be part of a worker’s “normal pay” should be included in the calculation of that worker’s holiday pay. They rejected the argument that our domestic Working Time Regulations 1998 did not allow for the inclusion of such payments.

Employers considering adjusting the calculation of holiday pay in light of these rulings should bear the following points in mind:

  • These payments only strictly need to be included for EU-derived holiday (i.e. 20 days per year for a full time worker) and not the additional UK-derived holiday (i.e. 8 days per year for a full time worker). However, some employers may opt to make the changes on a wholesale basis on the grounds of administrative simplicity.
  • It’s possible that there may be a further appeal on the question of including voluntary overtime and so this may justify deferring a decision on this element of pay until the outcome is known.
  • There are still uncertainties surrounding how the calculation should be made in practice. First, what is the correct reference period to be used to calculate pay? Is a 12-week reference period appropriate, or should a longer reference period (e.g. 52 weeks) be used? Second, when will a payment be considered sufficiently regular to warrant inclusion in holiday pay? How irregular does a payment have to be to fall out of scope (e.g. is once a year, every year, regular or irregular)? In the absence of any guidance from the Tribunals or the Government, employers will have to make their own judgement on these points.
  • If the UK leaves the EU and does not have to comply with EU law, it is possible that the Government will rewrite the Working Time Regulations 1998 to provide that holiday pay should be basic pay only. Therefore, if adjusting, employers may wish to preserve a degree of flexibility by reserving the right to adjust the calculation of holiday pay in accordance with applicable law.

Brexit and your EEA migrant workers – where are we?

The UK has until March 2019 to negotiate and agree the terms on which it leaves the EU. What that departure looks like, and the ultimate impact of Britain leaving the EU on the immigration status of EEA migrants, is far from clear. The European Union (Withdrawal) Bill, also known as the Repeal Bill, was introduced to Parliament on Thursday 13 July 2017. However, the Bill was decidedly quiet on any issues relating to immigration, which will be set out in a separate immigration-specific bill.

The content of any such immigration bill and future immigration policy more widely is likely to depend on the extent to which the UK government is able to succeed in its negotiations with the remaining 27 Member States over the coming two years. To help inform those negotiations, in July, the government commissioned the Migration Advisory Committee (MAC) to examine the contribution made by EU nationals to the UK economy and society, and draw up proposals to align the UK immigration system with a modern industrial strategy. This will run alongside the government’s own fact finding and evidence gathering.

The government outlined its ultimate objectives in its letter to the MAC, stating its intention to “achieve sustainable levels” of net migration and introduce a phased system away from the current free movement regime. The letter suggested that EU nationals will still be able to come to the UK during a transitional period after Brexit but will have to go through a “registration and documentation” process, which may last until 2022. This transitional period will be followed by the final, third phase, which will determine the long-term arrangements relating to the migration of EU citizens based on the UK’s social and economic needs “and reflecting our future deep and special partnership with the EU”.

The impassioned pre-General Election rhetoric, with various no-nonsense pledges to crackdown on immigration from the EU, therefore appears to have been tempered by the General Election result itself. The government’s more recent stance – whilst still evolving– is more pragmatic and implicitly acknowledges that both EU citizens, employers and the UK economy will benefit from a longer transition than the two year countdown the triggering of Article 50 initiated.

In the meantime, the uncertainty has caused and is likely to continue to cause difficulty for recruitment, particularly in retail and hospitality sectors. Reports in the media have already identified a slowdown in applications for positions in the UK from EEA workers, and some businesses with high numbers of EEA migrant workers, such as Pret A-Manger are adapting their recruitment methods to appeal to British candidates.

Widening the scope of where employers in the hospitality sector advertise roles, as Pret have done, is likely to result in applications from a broader demographic of society and could lead to more applications from suitably qualified workers whose right to work in the UK is unaffected by Brexit. Another means by which businesses could perhaps tap in to increased sources of labour could be through programmes with schools and other education establishments, as well as through the use of apprenticeships.

So, whilst negotiations are afoot, and as long as the UK is within the EU, there is no change to the immigration status of EEA migrant workers based in the UK - they are able to continue to exercise their right of free movement, and work freely in the UK. Looking further forward, and as with many Brexit-related issues, what the UK immigration system looks like post-March 2019 is currently a case of watch this space…

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Key Contacts

Lucy Sturrock

Lucy Sturrock

Partner, Real Estate / Head of Leeds Office
United Kingdom

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