BREXIT: What Next?

BREXIT:  What Next?

What next following the Supreme Court Decision?

On Tuesday 24 January 2017 the Supreme Court upheld an earlier High Court ruling that Article 50 (the mechanism through which the UK will commence the formal process of leaving EU) cannot lawfully be triggered without an Act of Parliament.

So what happens next?

Brexit so far:

As Members will be aware on 24 June 2016, the result of the EU referendum was declared with a majority of voters deciding that the UK should leave the EU. Following the resignation of David Cameron, the new Prime Minister Teresa May announced that she would trigger Article 50 before the end of March 2017.

The government’s proposal for triggering Article 50 was challenged by judicial review in proceedings before the High Court of England and Wales (Miller and Santos) and the High Court of Justice in Northern Ireland (R (McCord and others) v HM Government and others.

The key findings arising from those proceedings were:

  • the government could not issue notice under Article 50 by way of the Royal prerogative and would require the authorisation of an Act of Parliament; and
  • there was nothing in the 1998 Good Friday Agreement to prevent the government triggering Article 50.

The Supreme Court considered appeals in respect of both of these points and held:

  1. An Act of Parliament is required before Article 50 can be lawfully triggered

    The Supreme Court ruled by a majority of eight Justices to three that MPs and peers must give their consent via an Act of Parliament before the government can trigger Article 50 and formally initiate Brexit.

    In reaching its Decision the majority of Justices found that whenever EU institutions make new laws, those new laws become part of UK law. Therefore, EU law is an independent source of UK law until Parliament decides otherwise. The withdrawal of the UK from EU Treaties will result in a source of UK law being cut off and certain rights enjoyed by UK citizens will change. In light of this the Supreme Court found that the government cannot trigger Article 50 without Parliament authorising that course.

  2. Northern Ireland challenge: There is no requirement to consult the devolved assemblies

    The Supreme Court Justices reached a unanimous decision that the government is not legally obliged to separately consult the Scottish Parliament and Welsh and Northern Ireland assemblies on triggering Article 50.

    Members will be aware that Northern Ireland voted to remain in the EU referendum by a majority of 56% to 44%.

    There were two legal challenges from Northern Ireland to the UK leaving the EU – the first, brought by a cross-party group of Stormont politicians, argued that the consent of the assembly was needed as well as legislation in Westminster. The second, brought by victims’ campaigner Raymond McCord, argued Brexit was a constitutional change and the 1998 Good Friday Agreement meant Westminster had given sovereignty of Northern Ireland over to the people of Northern Ireland.

    However, the Supreme Court Justices said the peace deal covered Northern Ireland’s place in the UK, not its place in the EU. They found that the devolution acts “were passed by parliament on the assumption that the UK would be a member of the EU, but they do not require the UK to remain a member” and that “the devolved legislatures do not have a veto on the UK’s decision to withdraw from the EU”.

So what happens next?

On Thursday 26 January 2017 the government published its bill to trigger Article 50 and this will now be debated in the House of Commons. Whilst a number of MPs have stated they will vote against the bill, it is widely expected that it will pass, leaving the government free to trigger Article 50. Many consider the requirement to obtain the consent of Parliament a “technicality” as it is not envisaged that the bill will be defeated, a number of amendments to the bill have already been tabled.

What is the likely impact on the UK and Northern Ireland in particular?

Clearly the outcome of Brexit negotiations will have major ramifications for the UK across the board, and in particular for Northern Ireland which is the only part of the UK that shares a land border with the EU.

From a pure HR perspective, the future of the free movement of labour is high up there on the negotiating priority list. Will UK employers still be able to recruit EU nationals? What about EU nationals already working in the UK? There is also the question of UK nationals working in the EU.

The specific implications for Northern Ireland, and the border, are as yet unknown. The customs union currently allows tariff and paperwork-free trade between the UK and the Republic of Ireland. However the Prime Minister has stated, “full membership of the customs union prevents us from negotiating our own comprehensive trade deals” so she will now seek to negotiate a new customs deal with the EU, which would allow tariff-free trade to continue.

In her recent speech the Prime Minister set out a number of further negotiating objectives for Brexit:

  • the UK will leave the single market, but the Prime Minister wants “the freest possible” trade deal with the EU, including privileged access for industries such as cars and finance;
  • in order to be able to strike its own trade deals outside Europe, the UK will also leave the EU’s customs union which will release it from the common external tariff;
  • the government will consider making some payments into the EU budget, but the “vast” contributions of the past will end.
  • Mrs May would like a trade agreement with the EU to be settled within two years, and Parliament will get a vote on the final deal.

Whilst the Prime Minister also made a direct reference to maintaining the Common Travel Area with Ireland and an insistence that there should not be a hard border, many query how this can be achieved and there remains the possibility that it could lead to the return of some form of customs checks along the Irish border.

In the meantime, Brexit uncertainty is also likely to slow NI’s economic growth in 2016 and 2017 – the most recent Quarterly Sectoral Forecast report published by Danske Bank, suggests that Northern Ireland’s economy will grow by 1% this year and 0.5% in 2017. This has been revised down from the previous report, in which growth of 1.6% had been expected for this year and 1.9% 2017.

Whilst the future shape of UK and EU immigration rules and trade agreements remains under discussion EEFNI will continue to closely monitor the situation and make representations on our Members’ behalf. We will be discussing Brexit and its implications at our Annual Review Conference on 7 June 2017.

Childcare Vouchers During Maternity Leave

The question of whether the employee remains entitled to childcare vouchers during Maternity Leave has been a vexed one. It arises as during Maternity Leave (and other family friendly leave) leaving aside entitlement to Statutory Maternity Pay (SMP), the employee has no legal entitlement to remuneration but is entitled to her non-cash benefits. Childcare vouchers are generally a form of salary sacrifice i.e. the employees sacrifice some of their salary/remuneration in return and purchase childcare vouchers that have a tax and national insurance saving.

Although there was some uncertainty about whether childcare vouchers should be maintained during Maternity Leave, the generally accepted position (which was endorsed by HMRC) was that these childcare vouchers were a non-cash benefit and not remuneration and had to be continued during Maternity Leave. The thinking was that they were not ‘sums payable to the employee’ and they were not transferrable as cash but could only be converted into vouchers.

EAT Decision

However, in early 2016 EAT case of Peninsula Business Service -v- Donaldson the employer had a contractual clause stating that the employee’s entitlement to childcare vouchers would be suspended during any period of Maternity Leave. Mrs Donaldson who was their employee, refused to enter into the scheme on the basis that the terms were discriminatory. The Employment Tribunal in the first instance agreed with her and held it was discriminatory for an employee to lose her vouchers during Maternity Leave. The employer appealed to the EAT. The EAT reversed the decision and held that the childcare vouchers did represent part of the employee’s remuneration since pay had been substituted with vouchers under a salary sacrifice scheme. On this basis, the EAT held they were to be regarded as remuneration and could be discontinued during Maternity Leave. The EAT’s rationale included that Parliament could not have intended that employees receive such an additional windfall during Maternity Leave. They were influenced by the fact that this would have had the effect of putting many employers off offering what was otherwise a very valuable scheme for both employers and employees. However, the EAT made it clear that the position would be different if childcare vouchers were being provided, ‘in addition to’ an employee’s salary as opposed to via salary sacrifice. If that were the case they would be a benefit and must be continued during Maternity Leave.

Practical Advice

This is a welcome decision for employers wishing to stop entitlement to salary sacrifice childcare vouchers during Maternity Leave or other family friendly leave. However, the EAT is not binding in Northern Ireland but our Tribunals are persuaded by their law. Whether or not the Tribunals here would follow the case may depend on the Employment Judge hearing it.

Your organisation should exercise some caution if it wishes to cease salary sacrifice benefits during family friendly leave on the back of this decision. We say that for a number of reasons which include:

  1. The EAT is not binding in Northern Ireland but its decisions are persuasive. Whether or not our Tribunals follow the decision may indeed depend on the facts of your case and Employment Judge hearing it with some more likely to follow than others.
  2. Secondly, the EAT itself was unusually tentative in its findings acknowledging that, ‘it may not have identified all the provisions which might be relevant.’ This may make the decision more susceptible to appeal.
  3. You should consider closely the terms on which you currently operate your childcare voucher scheme and what is said in policies and any contractual documents. Employers who have committed to maintaining vouchers during Maternity Leave as part of the employment contract will have difficulties in receding from that position without risking breach of contract claims/unlawful deduction from wages claims.

Any employer who is considering changing their rules regarding the operation of salary sacrifice schemes who requires further information on this issue should speak to one of the legal team before taking any action.

Holiday Pay & Commission

In February 2016 the EAT delivered its eagerly awaited decision in Lock v British Gas Trading Limited, confirming that commission should be included in holiday pay.

Background

Since late 2014 there have been a number of key Decisions handed down addressing the correct approach to the calculation of holiday pay, most significantly:

In November 2014 the Employment Appeal Tribunal (EAT) in Great Britain ruled, in the case of Bear Scotland v Fulton, that the calculation of Working Time Directive holiday should include non-guaranteed overtime;

In addition to this the ECJ in Lock v British Gas considered the correct approach to the calculation of holiday pay where a worker’s remuneration consists of basic salary plus commission.

Lock v British Gas

Mr Lock was employed by British Gas as a salesman. As well as his basic salary, he was entitled to receive commission based on sales which amounted to approximately 60% of his total earnings. The case centered on whether commission payments should be included in the calculation of his holiday pay.

The ECJ stated that:

Following the ECJ Decision the case returned to the Tribunal which concluded the UK Working Time Regulations (WTR) could be interpreted to give effect to the ECJ Decision; wording would be added to the Regulations to this effect.

British Gas appealed, arguing that the Tribunal was wrong to conclude that the WTR could be interpreted in accordance with the ECJ decision. British Gas argued that the decision in Bear Scotland v Fulton was distinguishable as it related to overtime payments and not commission, and also argued that it was incorrectly decided and not binding upon the EAT. The EAT rejected these arguments.

What next for employers?

It is clear that UK law requires commission to be included in holiday pay, however there are still a number of unanswered questions, most notably what the appropriate reference period should be for calculating the holiday pay of workers who earn commission.

It is likely that a further Tribunal hearing will be required to determine the compensation due to Mr Lock by British Gas, which may provide some guidance on the appropriate length of reference period.

Whilst this guidance will be welcome, employers are reminded that as this guidance will be from a Tribunal it will not be binding. There is also the possibility that British Gas will seek leave to appeal the EAT Decision and thereby create a further period of uncertainty around whether commission payments should be included in the calculation of holiday pay. Even if there is such an appeal, the view of EEF Northern Ireland is that ultimately the settled position is likely to be that commission payments should be included in the calculation of holiday pay.

Overtime & Holiday Pay

In November 2014 the Employment Appeals Tribunal (EAT) in England delivered a landmark Decision in the co-joined appeals Bear Scotland Ltd v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Limited v Law and others. The EAT ruled that “non-guaranteed” overtime should be included when calculating statutory holiday pay but limited the extent to which workers can make claims for historical underpaid holiday.

Background

In Northern Ireland all workers are entitled to 5.6 weeks holiday under the Working Time Regulations (NI) 1998, as amended (WTR.) This is made up of 4 weeks (or 20 days) holiday derived from the European Working Time Directive (WTD) and a further 1.6 weeks (or 8 days) holiday enhanced by national law.

Workers are entitled to be paid at a rate of a week’s pay for each week of leave. When assessing a “week’s pay” the Employment Rights Order (NI) 1996 distinguishes between:

Importantly, this Decision of the EAT, the case law to date had stated that non-guaranteed/non-compulsory overtime was not included in the calculation of a week’s pay.

Decisions from the CJEU over the past few years have continued to change the legal landscape regarding holiday entitlement and pay. The CJEU judgments in the cases of Williams v British Airways and Lock v British Gas held that workers are entitled to receive their “normal remuneration” during periods of annual leave. In Williams the Court held that in addition to basic salary, a worker is also entitled to receive any remuneration “intrinsically linked to the performance of the tasks which he is required to carry out under his contract.” In Lock the Court held that normal remuneration also includes commission payments that were determined by reference to sales achieved.

In the Bear Scotland decision, the EAT considered what constitutes “normal remuneration” and ruled that it must include non-guaranteed or compulsory overtime which a worker is required to work but an employer is not required to offer. This is considered in further detail below:

Summary of the Decision

In Bear Scotland, the employees’ contracts detailed their normal hours of work. However, their actual working hours varied from week to week as they could be required to work overtime they could not unreasonably refuse. In addition, the employees regularly worked night shifts, for which they were paid a higher rate. They also received standby payments at a flat rate for being on standby and emergency call out payments if they were called out whilst on standby. The employees were paid holiday pay at the basic rate of pay for their contracted hours only. No premium was included for night shift, standby, or overtime.

In the Hertel & Amec cases, the employees’ contracts stated they were employed on a basic working week of 38 hours. Any hours worked in excess of 38 hours were counted as overtime and attracted a higher rate of pay. Employees were obliged to work shifts and overtime as required; in practice the shift patterns meant the working week was around 44 hours. Employees received a fixed individual “productivity” allowance that was paid for all hours, and monthly payments based on team performance. When travelling to site more than 8 miles away, the employees received both a radius allowance for travelling time and fares, and a travelling time payment.

The employees were paid holiday pay according to the basic 38 hour week at the relevant shift allowance rate which included the individual productivity allowance and monthly team performance payment.

Issues decided by the EAT

  1. The EAT ruled that non-guaranteed overtime and other supplemental payments that are intrinsically linked to the performance of the tasks must be included in holiday pay calculations. In other words, “normal pay” is pay that is normally received, and the pay must have an intrinsic or direct link to the work the worker is required to carry out. In applying these principles, the EAT held that the radius and travelling time allowances (applicable to the Amec & Hertel employees) are part of normal remuneration as these are payment for time spent travelling to various sites;
  2. However, the EAT Decision applies only to holiday pay in respect of WTD annual leave (i.e. 20 days.) Therefore the 8 days of additional leave under the WTR does not have to include these amounts;
  3. Significantly, claims for historical holiday pay are expected to be limited as the EAT found that an underpayment in respect of holiday pay which is separated from the next such underpayment by a period of more than 3 months, will be out of time for a claim to be brought.

What this means in practice

  1. Holiday pay should be equivalent to a worker’s “normal pay.” In cases where the pattern of work is settled it will be easy to establish what normal pay includes. In others, Employers will need to consider whether the payment in question has been made for a sufficient period of time to justify that label. We are of the view a Tribunal will take into account the regularity and pattern of payments when assessing what payments should be included as part of “normal pay”;
  2. The types of overtime pay that must be factored into holiday pay include:
    • Overtime which is compulsory for the worker and is regularly required;
    • Overtime which cannot be unreasonably refused and is regularly required;
  3. The EAT did not deal with purely voluntary overtime (overtime the employer is not obliged to offer and the worker is not obliged to accept), however initial reactions to the Decision are generally of the view the following is likely to be applied:
    • Overtime which is voluntary but worked regularly may fall within the scope of “normal pay” and should therefore be factored into holiday pay;
    • Overtime which is voluntary, occasional and irregular may be out of scope on the basis it would fail the “normal” test
  4. It is not clear whether the Decision endorses the 12 week reference period to calculate holiday pay; we foresee issues arising where the 12 week period is not representative of normal working and pay, particularly where a worker’s pay is highly variable throughout the year;
  5. The findings apply to WTD annual leave (i.e. 20 days) only and not to the additional 8 days provided under the WTR. The likely effect of this is that workers will receive a higher rate of holiday pay (that includes overtime and various other applicable payments) for 20 out of their 28 days’ holiday per year, with the remaining 8 days being paid at basic rate. In practice this has the potential to give rise to payroll complications;
  6. What is potentially helpful is that the EAT Decision includes an opinion (which is not binding) that these 8 additional days are the last 8 days to be agreed upon by the employer and the worker in that year. Workers cannot choose which leave is covered by the WTD with a view to attracting a higher rate of pay;
  7. This may also have the effect of limiting claims for historical holiday pay. The EAT concluded that workers could not claim any holiday underpayment forms part of a series of deductions from wages (i.e. an unlawful deduction from wages claim) where more than 3 months has elapsed between the deductions. This could be a 3 month period where the worker took no holidays, or a 3 month period which includes holiday payments for WTR or contractual leave (but not WTD leave.) This part of the Decision severely restricts the scope of backdated claims as the likelihood of a worker having a long series of untaken WTD holiday over a number of years that has not been separated by a further period of WTR leave, is minimal.
Working Time – Travel Time to First Job of the Day

RE: Federacion de Servicios Privados del sindicato Comisiones obreras -v- Tyco Integrated Security SL

This case confirmed the opinion of the Advocate General when heard by the Court of Justice of the European Union (CJEU) that travelling time from home to the customer’s premises may be regarded as working time for the purposes of the Working Time Directive. The case involved technicians installing and maintaining security equipment at various customers’ locations in Spain. There was provision of a vehicle and the technicians travelled from home to the locations to install the equipment.

Contact with the employer was made by mobile phone and it was only on rare occasions that they were required to travel to the employer’s office or a central location.

The CJE held that travelling time was not a rest period and found it to be working time. Employers should have regard to this when calculating the 48 hour working week. For further advice please contact the Association.

Important Ruling on Calculating Holiday Pay

This week the Employment Appeals Tribunal (EAT) in England delivered a landmark Decision in the co-joined appeals Bear Scotland Ltd v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Limited v Law and others. The EAT ruled that “non-guaranteed” overtime should be included when calculating statutory holiday pay but limited the extent to which workers can make claims for historical underpaid holiday. This article summaries the law and considers the impact of this Decision on our Members.

Background

In Northern Ireland all workers are entitled to 5.6 weeks holiday under the Working Time Regulations (NI) 1998, as amended (WTR.) This is made up of 4 weeks (or 20 days) holiday derived from the European Working Time Directive (WTD) and a further 1.6 weeks (or 8 days) holiday enhanced by national law.

Workers are entitled to be paid at a rate of a week’s pay for each week of leave. When assessing a “week’s pay” the Employment Rights Order (NI) 1996 distinguishes between:

Importantly, prior to this week’s Decision of the EAT, the case law to date had stated that non-guaranteed/non-compulsory overtime was not included in the calculation of a week’s pay.

Decisions from the CJEU over the past few years have continued to change the legal landscape regarding holiday entitlement and pay. The CJEU judgments in the cases of Williams v British Airways and Lock v British Gas held that workers are entitled to receive their “normal remuneration” during periods of annual leave. In Williams the Court held that in addition to basic salary, a worker is also entitled to receive any remuneration “intrinsically linked to the performance of the tasks which he is required to carry out under his contract.” In Lock the Court held that normal remuneration also includes commission payments that were determined by reference to sales achieved.

In the Bear Scotland & others Decision the EAT considered what constitutes “normal remuneration” and ruled that it must include non-guaranteed or compulsory overtime which a worker is required to work but an employer is not required to offer. This is considered in further detail below:

Summary of the Decision

In Bear Scotland, the employees’ contracts detailed their normal hours of work. However, their actual working hours varied from week to week as they could be required to work overtime they could not unreasonably refuse. In addition, the employees regularly worked night shifts, for which they were paid a higher rate. They also received standby payments at a flat rate for being on standby and emergency call out payments if they were called out whilst on standby. The employees were paid holiday pay at the basic rate of pay for their contracted hours only. No premium was included for night shift, standby, or overtime.

In the Hertel & Amec cases, the employees’ contracts stated they were employed on a basic working week of 38 hours. Any hours worked in excess of 38 hours were counted as overtime and attracted a higher rate of pay. Employees were obliged to work shifts and overtime as required; in practice the shift patterns meant the working week was around 44 hours. Employees received a fixed individual “productivity” allowance that was paid for all hours, and monthly payments based on team performance. When travelling to site more than 8 miles away, the employees received both a radius allowance for travelling time and fares, and a travelling time payment.

The employees were paid holiday pay according to the basic 38 hour week at the relevant shift allowance rate which included the individual productivity allowance and monthly team performance payment.

Issues decided by the EAT

  1. The EAT ruled that non-guaranteed overtime and other supplemental payments that are intrinsically linked to the performance of the tasks must be included in holiday pay calculations. In other words, “normal pay” is pay that is normally received, and the pay must have an intrinsic or direct link to the work the worker is required to carry out. In applying these principles, the EAT held that the radius and travelling time allowances (applicable to the Amec & Hertel employees) are part of normal remuneration as these are payment for time spent travelling to various sites;
  2. However, the EAT Decision applies only to holiday pay in respect of WTD annual leave (i.e. 20 days.) Therefore the 8 days of additional leave under the WTR does not have to include these amounts;
  3. Significantly, claims for historical holiday pay are expected to be limited as the EAT found that an underpayment in respect of holiday pay which is separated from the next such underpayment by a period of more than 3 months, will be out of time for a claim to be brought.

What this means in practice

  1. Holiday pay should be equivalent to a worker’s “normal pay.” In cases where the pattern of work is settled it will be easy to establish what normal pay includes. In others, Members will need to consider whether the payment in question has been made for a sufficient period of time to justify that label. We are of the view a Tribunal will take into account the regularity and pattern of payments when assessing what payments should be included as part of “normal pay”;
  2. The types of overtime pay that must be factored into holiday pay include:- Overtime which is compulsory for the worker and is regularly required;
    – Overtime which cannot be unreasonably refused and is regularly required;
  3. The EAT did not deal with purely voluntary overtime (overtime the employer is not obliged to offer and the worker is not obliged to accept), however initial reactions to the Decision are generally of the view the following is likely to be applied:- Overtime which is voluntary but worked regularly may fall within the scope of “normal pay” and should therefore be factored into holiday pay;
    – Overtime which is voluntary, occasional and irregular may be out of scope on the basis it would fail the “normal” test
  4. It is not clear whether the Decision endorses the 12 week reference period to calculate holiday pay; we foresee issues arising where the 12 week period is not representative of normal working and pay, particularly where a worker’s pay is highly variable throughout the year;
  5. The findings apply to WTD annual leave (i.e. 20 days) only and not to the additional 8 days provided under the WTR. The likely effect of this is that workers will receive a higher rate of holiday pay (that includes overtime and various other applicable payments) for 20 out of their 28 days’ holiday per year, with the remaining 8 days being paid at basic rate. In practice this has the potential to give rise to payroll complications;
  6. What is potentially helpful is that the EAT Decision includes an opinion (which is not binding) that these 8 additional days are the last 8 days to be agreed upon by the employer and the worker in that year. Workers cannot choose which leave is covered by the WTD with a view to attracting a higher rate of pay;
  7. This may also have the effect of limiting claims for historical holiday pay. The EAT concluded that workers could not claim any holiday underpayment forms part of a series of deductions from wages (i.e. an unlawful deduction from wages claim) where more than 3 months has elapsed between the deductions. This could be a 3 month period where the worker took no holidays, or a 3 month period which includes holiday payments for WTR or contractual leave (but not WTD leave.) This part of the Decision severely restricts the scope of backdated claims as the likelihood of a worker having a long series of untaken WTD holiday over a number of years that has not been separated by a further period of WTR leave, is minimal.

What happens next?

Leave to appeal on all issues has been granted to the Court of Appeal. However, the EAT Judge has indicated any appeal on the issue of including non-guaranteed overtime in the calculation of holiday pay is unlikely to be successful, but that the prospect of success on the time point is more difficult to call.

The Secretary of State for Business, Innovation and Skills, Vince Cable has announced the Government is putting together a task force to look at ways to limit the impact of the Decision. Whilst employment law is a devolved matter in Northern Ireland, the trend is that we align ourselves with GB in any matters where there has been an interpretation of European law. Consequently, we anticipate Northern Ireland will adopt the same approach as GB.

Recent Posts

Archives