This article was originally published in Law360, written by Head of our international Employment, Pensions & Mobility Sean Nesbitt & trainee solicitor Anneliese Amoah.
Read full insight on Law360 here
Last month, Liz Truss was appointed as the U.K.'s prime minister and seems to have already caused controversy with her review of retained EU laws in the U.K.
Truss is considering the removal of up to 1,500 EU laws by the end of 2023 in a plan to restructure employment laws and "make the U.K. more competitive."
Workers' rights could be affected as a result, and the proposed bonfire of EU regulations could lead to a reduction in rights for workers, such as equal pay and holiday pay, arguably going against the principles of the U.K.-EU Trade Cooperation Agreement, or TCA.
Background
December 2020 saw the signing of the TCA, which provided for a level playing field to restrict unfair practices by either party.
Essentially a free trade agreement, the TCA included references to labor and social standards in the form of a nonregression obligation. This restricts the parties from operating in ways that would negatively impact trade and investment as a result of Brexit, e.g., gain unfair advantage by reducing employment standards.
The deal still allowed the U.K. the flexibility to develop its own rules alongside retained EU laws.
Regression, What Regression?
Truss has said that EU regulations currently "hinder" U.K. businesses, and she aims to change this through her review of retained EU laws, but she has not said which.
Parliamentary time is short, and there has been stagnancy in domestic policy development throughout 2022, but this process will take place through the Retained EU Law (Revocation and Reform) Bill that was introduced by Parliament on Sept. 22.
The plan is to evaluate each retained EU law based on the impact it has on U.K. growth and investment and if it does not support the U.K. in these areas, it would be replaced in a new U.K. law and any law not replaced would be removed.
Unless integrated into U.K. law with any EU features removed, any EU legislation not preserved will automatically expire on Dec. 31, 2023.
Because the bill as drafted contains the power to preserve specified instruments, as well as the power to extend the revocation date until June 2026, it is unlikely that there will be a complete cliff-edge in this regard.
If this conflicts with the TCA commitment to keeping a high standard of workers' rights, there could be repercussions.
The deal between the U.K. and the EU allowed for tariffs to be prescribed if the playing field is no longer level. Although some divergence is permitted, it cannot go so far as to negatively impact trade and investment.
This means that depending on governmental action over the next year, the U.K. faces the risk of tariffs being placed on British exports if a material change to such EU laws is carried out.
Union Reaction — and the Threat of Recession
When information was released about Truss proposed changes, the Trades Union Congress urged the prime minister to be transparent, with particular consideration of the cost of living crisis.
The general secretary of the TUC, Frances O'Grady, said:
Holiday pay, equal pay for women and men, safe limits on working hours and parental leave are just a few of the rights underpinned by retained EU law. These are vital workplace protections and rights — not nice-to-haves.
The TUC has said that it will be willing to take the government to court if key workers' rights are lost as a result of potential plans to make changes to U.K. unfair dismissal rights, sick pay or working hours, among many other integral rights.
So, along with the prospect of trade tariffs internationally, there is a threat of domestic court action, such as happened with R (UNISON) v. Lord Chancellor in 2017, where the union used existing discrimination action laws to take down artificially high tribunal cost rules that disproportionately affected women.
Last month, the TUC organized legal proceedings against the government's new regulations, which "undermine the right to strike." This saw the U.K. being reported to the U.N. for breach of labour standards that were regarded as universal.
The U.K. has seen an increasing number of strikes take place in 2022. It is predicted that this will continue. Truss said that within 30 days of being appointed, she would propose legislation that would make it harder for employees to take part in industrial action and within weeks of her prime ministership, Truss promised the loss of tax-free strike pay for union members, imposing minimum staffing and service levels on critical national infrastructure during transport strikes[12] and a longer notice period for strike action.
Since July, it is now lawful for companies to bring in agency workers during a strike to reduce the impact of industrial action.
The Working Time Regulations currently set out the legal entitlement of employees to 5.6 weeks' paid holiday per year.
Holiday pay per week is calculated by reference to an employee's average hourly pay multiplied by the hours worked in a week. This could also be affected by the upcoming review.
Arguably, this area of law is ripe for reform since there has been a lot of litigation around this topic. Working time claims have dominated tribunal time in the last three years.
Truss has referenced the Equality Act 2010 as a form of legislation where retained EU law "has worked well," and she stated in her campaign that the act would not form part of her amendment or removal plans.
Many U.K. laws, like the Equality Act 2010, are not derived from the EU and could even be presented as a reflection of U.K. values, as they predate the U.K. entering the EU. This may mean that any potential reform of these key U.K. laws is unlikely.
There could be a reform of the Transfer of Undertakings (Protection of Employment) Regulations 2006, which protect the rights of employees when a business is bought or sold. These rights are transferred across to a new employer, and the regulations are unlikely to be repealed in their entirety.
The ability to carry out post-regulation contractual variations, which is seen as consistent with the principle of freedom of contract, may be on the cards.
Growth
Some proposals are driven by a belief in lower taxes and trickle-down economics theory. Linked, there are thoughts about making the U.K. a more attractive place for international workers at both ends of the spectrum.
During her campaign, Truss proposed a review of the off-payroll working rules, or IR35 — rules that in their current form place the burden on end-users to determine the tax status of individuals providing their services through intermediaries.
The chancellor's new growth plan states that from April 6, 2023, the 2017 and 2021 reforms to IR35 will be repealed, so that responsibility is shifted back to workers providing their services via an intermediary to determine their employment status and pay the appropriate amount of tax and national insurance contributions.[16]
EU rules restrict pay in financial services. When asked about bankers' bonuses, the prime minister said she was ready to make "difficult decisions" in order to make the British economy more competitive.[17]
The growth plan now involves removing the cap on remuneration in an attempt to make the U.K. more attractive to high earners.
Truss support of the seasonal worker visa scheme means that workers abroad can come to the U.K. on a visa lasting up to six months and work in cultivation.[18]
With only a few eligibility requirements, the government is seeking to reduce the U.K.'s current labour shortage in the hopes that certain sectors such as horticulture will gain more resources.
Away from business migration, Truss can implement promises during her campaign to have a particular focus on immigration, and she may reinforce deportation of asylum seekers and other immigrants to countries such as Rwanda. These would not infringe the TCA.
What Happens Now?
The U.K. awaits more information on the government's plans. The so-called bonfire is due by December 2023. The TCA is due for review in 2026.
Could there be a change in the unfair dismissal law qualifying period? Could employment tribunal fees be reintroduced? Could there be a cap placed on discrimination damages? Truss faces a balancing task, and a decision on whether to confront the EU at the same time as worker representatives.
We may find that a lot of posturing results in little substantive change in the end, even if political capital is built by heightening debate. The steps being outlined by the government may indicate otherwise, but so far a steady course has not been steered.
