Important changes to working time rules and TUPE

Earlier this year, the Government conducted a consultation on proposals to amend the calculation of holiday entitlement under the Working Time Regulations 1998 (WTR), to address the issues arising from the Supreme Court’s 2022 decision in the case of Harpur Trust v Brazel. This decision resulted in a holiday pay ‘windfall’ for part-year and irregular hours workers.

It subsequently issued a further consultation, dealing with additional proposed reforms to WTR and TUPE, which are now permitted as a result of the UK’s departure from the EU.

On 8 November 2023, the Government published its response to these consultations and confirmed the proposed reforms. It has also published draft regulations to implement the changes, the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.

Confirmed changes to WTR

• Record-keeping requirements: the Government has decided to “remove the uncertainty” created by the 2019 ECJ judgment in Federación de Servicios de Comisiones Obreras v Deutsche Bank SAE. Employers will not need to comply with the increased record-keeping requirements that had resulted from this decision. Instead, the WTR will make it clear that employers are not required to keep a record of the daily working hours of each worker, provided they can demonstrate compliance with weekly working limits.
• Statutory holiday entitlement: the Government has decided not to introduce a single annual leave entitlement as had been proposed in the consultation paper. It will retain the two distinct ‘pots’ of statutory holiday (under Regulations 13 and 13A WTR), which are paid at different rates as a result of ECJ and domestic case law. This means that workers will continue to be entitled to receive four weeks’ holiday paid at the ‘normal’ rate of pay and 1.6 weeks’ additional holiday calculated at the rate of a basic week’s pay, unless the employer decides to adopt a single rate of pay for all holiday.
• Holiday pay: amendments to the WTR will clarify what should be included in the calculation of holiday pay for the four weeks of holiday under Regulation 13, derived from ECJ and domestic case law. The calculation must include:
  • Payments, including commission, intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out.
  • Payments for professional or personal status relating to length of service, seniority or professional qualifications.
  • Payments, such as overtime payments, which have been regularly paid to a worker in the previous 52 weeks.
• COVID-19 carry-over: the Working Time (Coronavirus)(Amendment) Regulations 2020 (allowing the carry forward of up to four weeks of statutory leave into the following two leave years) will be repealed with effect from 1 January 2024. Workers will have until 31 March 2024 to use any leave accrued under these Regulations prior to 1 January 2024.
• Holiday accrual: the WTR will be amended to introduce an accrual method to calculate holiday entitlement for irregular hours workers and part-year workers (including some agency workers). The accrual will be based on 12.07% of hours worked in the preceding pay period, unless a worker is taking a period of sick leave or statutory leave (in which case an average, using a 52-week reference period, must be used to calculate holiday accrual). In addition, employers will be permitted to pay rolled-up holiday pay for irregular hours workers and part-year workers only, calculated at 12.07% earnings in the pay period, meaning that holiday is paid at the time the work is done rather than when the worker’s holiday is taken. Note, this will apply only in relation to leave years starting on or after 1 April 2024.
• Irregular hours and part-year workers: new definitions will be inserted into the WTR:
  • An irregular hours worker is one where, under the terms of their contract, the number of paid hours that they will work in each pay period during the term of their contract is wholly or mostly variable.
  • A part-year worker is required, under the terms of their contract, to work only part of the year and there are periods within that year of at least a week when they are not required to work and for which they are not paid. Periods of sick leave of statutory leave are ignored.
• Carrying over holiday: the amended WTR will expressly retain those rights to carry forward holiday that are derived from retained ECJ case law. This will apply in respect of workers: who are unable to take holiday due to periods of sick leave or statutory leave (such as maternity leave); whose employer has failed to recognise the right either to take holiday or to be paid in respect of holiday; whose employer has failed to give them reasonable opportunity to take holiday (or has failed to encourage them to take it), and whose employer fails to inform them that holiday not taken will be lost before the end of the leave year.

Confirmed changes to TUPE

The Government is also proceeding with its proposed reforms to existing TUPE consultation requirements.

In relation to TUPE transfers taking place on or after 1 July 2024, small businesses (those with fewer than 50 employees) undertaking a transfer of any size, and businesses of any size undertaking a small transfer (involving fewer than 10 employees) will no longer be required to hold elections to appoint employee representatives for consultation purposes prior to a TUPE transfer. Employers will be permitted to consult their employees directly, provided there are no existing worker representatives, such as trade union representatives, in place. Note, these reforms will not change the existing requirement for businesses to consult individual employees on proposed transfers.

The Birketts view

The changes being introduced to current statutory holiday rules under the WTR are significant, and in many respects will help redress some of the existing difficulties presented by categories of atypical workers, particularly resulting from the Supreme Court’s decision in the Harpur Trust case (see also Abigail Trencher’s analysis of these changes). 

The complexity of statutory working time rights is already reflected in the huge volume of historic case law derived from both domestic and European courts. The Government’s proposed amendments to the WTR include some concerning ambiguities, which will no doubt present challenges for employers and are likely to result in future litigation. The proposed definitions of ‘irregular hours’ and ‘part-year’ workers are far from straightforward to apply in practice, and the provisions dealing with what should (or not) be included in the calculation of holiday pay is also open to interpretation.

The Government has committed to publishing revised statutory guidance on the WTR, although this is not yet available. It is to be hoped that the guidance will fill in some of the gaps in the drafting of the amended legislation and help to clarify the uncertainties, but it is unlikely to prevent further legal challenges to holiday pay entitlements in the future.