January 2015 – Clawback of bonuses in the financial sector: From 1 January, Prudential Regulation Authority (PRA) authorised firms had to amend their employment contracts to ensure variable remuneration that has vested can be clawed back from individual employees for a period of at least seven years from the date on which it is awarded. The clawback requirement will only apply in relation to variable remuneration awarded on or after 1 January, 2015. Also, the grounds for applying clawback have been narrowed, and will only apply if there is reasonable evidence of employee misbehaviour or material error – or if the firm or relevant business unit suffers a material failure of risk management. April 2015 – Shared Parental Leave: A new system of shared parental leave will be available to parents of children due to be born or placed for adoption on or after 5 April 2015. This will allow mothers to share up to 50 weeks of their maternity leave (and 37 weeks of their maternity pay) with their partner. From 5 April, adoption leave will also be available to all employees regardless of their length of service. Employees with 26 weeks’ service will be entitled to an enhanced rate of adoption pay during the first six weeks of their leave, mirroring the statutory maternity pay regime. Collective redundancy consultation: The “Woolworth case”, USDAW v Ethel Austin Ltd (in administration) arose when this retailer went into administration triggering the closure of its stores across the UK. The case changed the UK law on collective redundancy consultation. The Employment Appeal Tribunal (EAT) considered whether there were 20 or more employees at risk of redundancy (which triggers collective consultation obligations in the UK) and ruled that it was no longer necessary to consider whether or not redundancies were at a “single establishment”.
Employees working in stores where fewer than 20 employees were redundant still had the right to be consulted collectively. The case has been referred to the Court of Justice of the European Union (CJEU) by the UK Court of Appeal. The CJEU should address two issues: (1) the construction of the EU Collective Redundancies Directive (including the meaning of “establishment”) and (2) whether the Directive has direct effect in the UK. The CJEU began hearing the case in November 2014, and it is hoped a decision will be issued within the next six months. Calculation of holiday pay: On 22 May, 2014, the CJEU said holiday pay must not be limited to basic salary and must include commission where this forms part of an employee’s normal remuneration. The case has been returned to the UK tribunal to consider the compatibility of this decision with domestic legislation.
In October 2014, the EAT delivered a landmark decision on whether overtime payments should be included in the calculation of holiday pay. The EAT decided they should, provided overtime was carried out regularly and therefore amounted to the employee’s “normal” remuneration. In certain cases, UK employers are facing substantial claims for historic incorrect payments as a result. However, liability will be limited where there is a break in the chain of incorrect payments of more than three months (for example where an employee has not taken a holiday for three months).
The government launched a Task Force to assess the impact these might have on UK businesses and has published draft regulations to limit the scope and the ability to bring claims for back-pay. The key proposal is that even if an employee/worker can link successive three month periods where their holiday pay has been calculated incorrectly, liability for back-pay will be limited in any event to a period of two years from the date the claim is brought and could result in an increase in holiday pay claims to try to beat the new restriction.
Employers will need to consider how they are going to calculate holiday pay in the future where workers regularly receive overtime or commission or similar payments. Those who have not historically paid holiday pay correctly might face uncertain costs regarding back-dated pay but from 1 July, 2015, any successful claim for unlawful deductions from holiday pay will only go back two years from the date the claim is brought and only where there is an unbroken series of deductions going back to that point. • Katie Russell is an associate with Shepherd and Wedderburn: www.shepwedd.co.uk