Insights Worked Up, your monthly employment law lowdown – May 2023

Welcome to this month’s a’may’zing edition of Worked Up!

While many of you may be eagerly anticipating the upcoming coronation (particularly as May 6 coincides with international no diet day, meaning we can indulge in Viennese Whirls guilt-free), there’s also plenty of employment law news to keep us all occupied in the meantime.

The government has confirmed its intention to reform parental leave and pay “in due course” and has published figures showing the increased uptake of shared parental leave (SPL) year on year. Although the number of women taking SPL has almost tripled and the number of men has nearly doubled since 2015, the total number of individuals taking advantage of this family-friendly right remains relatively low. It of course doesn’t help that navigating the statutory regime is akin to solving a rubik’s cube.

The Equality and Human Rights Commission has also recommended that the government consider the biological definition of sex in section 11 of the Equality Act 2010. Sex and gender identity are topical issues that are, understandably, as complex as they are contentious. While it seems sensible for the government to consider whether the provisions on sex and gender identity remain effective given more than a decade has now passed since the enactment of the Equality Act 2010, the EHRC’s recommendation could potentially prove controversial.

In this month’s edition, we cover the latest guidance from ACAS and the government on reasonable adjustments for mental health and ethnicity pay reporting, examine the Court of Appeal’s latest ruling on the enforceability of a 12-month non-compete, explore the Home Office’s latest guidance for employers sponsoring migrant workers working remotely or on a hybrid basis, and look at a recent IR35 case where a well-known presenter was found to have been in an employment relationship.

If you would like to discuss any of the below updates, please do get in touch. Alternatively, if you would like to receive these updates directly to your inbox, please subscribe here.

The duty for employers to make reasonable adjustments for disabled employees under the Equality Act 2010 is a well-established concept in employment law. However, understanding what this means in practice, particularly for employees dealing with mental health issues, can be a tricky field to navigate. To help employers better understand their obligations and what reasonable adjustments may be appropriate, ACAS has recently published new guidance which looks specifically at mental health-related adjustments.

Under the Equality Act 2010, “disability” is defined as a mental or physical impairment that has a substantial and long-term adverse effect on a person’s ability to carry out day-to-day activities. The guidance emphasises that employers should treat mental health issues with the same care as they would a physical illness, and that the obligation to make reasonable adjustments can apply equally to both. Although this duty will only arise if the employee satisfies the legal definition of disability, the guidance sensibly suggests that employers should consider making adjustments in cases where this threshold may not be met.

As part of its recommendations, ACAS has provided a list of examples of what reasonable adjustments for mental health may look like, illustrating how wide reaching they may be:

  • Changing someone’s role and responsibilities – for example, reducing the number of phone calls or customer-facing work;
  • Reviewing working relationships and communication styles – for example, avoiding spontaneous phone calls to help reduce anxiety;
  • Changing the physical working environment – for example, relocating someone’s workplace to a quieter area to reduce sensory demands;
  • Policy changes – for example, offering a phased return to build up hours gradually in order to support recovery; and
  • Additional support – for example, providing training to build confidence in certain skills.

A key point raised by the guidance is that mental health is personal to each individual and can fluctuate over time. It’s therefore important that employers regularly review and monitor any adjustments and remain flexible to respond to changing needs.

While the guidance does not create any new legal obligations for employers, it provides a helpful benchmark of good practice not only for employers but also tribunals when assessing whether an employer has acted reasonably and fairly and whether an employer has adequately examined or implemented reasonable adjustments. It would be prudent for employers to be alert to the guidance when dealing with such cases, particularly in relation to what might be regarded as a reasonable adjustment, as some of the examples ACAS refers to may go much further than an employer might ordinarily consider.

Back to top

Boydell v NZP Ltd and others [2023] EWCA Civ 373

In this case, the Court of Appeal considered whether the decision to sever words from a non-compete clause went beyond the principles set out by the Supreme Court in Tillman v Egon Zehnder Ltd [2019] UKSC 32. 

The claimant, Dr Boydell, worked for a niche pharmaceutical company, NZP Ltd. His contract contained a 12 month non-compete clause which prevented him from being involved in any activity for the benefit of any third party that carried out any business which would compete with NZP or any other company in the group. When Dr Boydell resigned to work for NZP’s main competitor, NZP relied on this restriction and sought injunctive relief. The High Court severed part of the clause which referred to group companies and granted the injunction.

In Tillman v Egon Zehnder Ltd, the Supreme Court established a three-stage test for the severance of restrictive covenants:

  1. The unenforceable provision must be capable of being removed without the necessity of adding to or modifying the wording of what remains (often referred to as the “blue pencil” test);
  2. The remaining terms must continue to be supported by adequate consideration; and
  3. Removal of the provision must not generate any major change in the overall effect of the post-employment restraints in the contract.

Dr Boydell appealed the High Court decision. He argued that the clause prevented him from working in the general pharmaceutical industry and therefore went beyond what was reasonably necessary to protect NZP’s legitimate interests and was too wide to be enforceable (even after severance).

The Court of Appeal rejected the appeal and found that Dr Boydell’s construction of the non-compete clause as preventing him from working for any company which produced general pharmaceutical products was “fantastical” and not within the parties’ contemplation when the contract was signed. Although the clause was drafted widely, the fact that Dr Boydell was employed in a highly specialised business made the drafting of the clause easier to justify. If Dr Boydell were to move to a competitor, it may be unrealistic to insulate him from competitive activity.

Although the 12-month non-compete was upheld in this case, it’s worth noting that the judgment highlights the fact sensitive nature of restrictive covenants and that “the Courts must continue to adopt a cautious approach” with respect to severance in this area. A key factor in the decision was the specialist nature of NZP’s work within the pharmaceutical industry. In order to stand the best possible chance of post termination restrictions being deemed enforceable, employers should try to ensure that the restrictions are drafted narrowly and give due consideration to the business need for the restriction on a case-by-case basis.

Back to top

As part of its Inclusive Britain action plan, the government has recently published new guidance for employers looking to report and address ethnicity pay gaps in their workforce. Although companies are currently not legally obliged to report in this way, many are choosing to do so as a means of identifying and investigating disparities in pay between different ethnic groups within their organisation.

The aim of the guidance is to develop a consistent, methodological approach to ethnicity pay reporting “while remaining proportionate and without adding undue burdens on business”. The best way of collecting ethnicity data is to ask employees to self-report. However, there should always be an option for individuals to opt-out (for example, including a “prefer not to say” option). The guidance recommends using the harmonised standards for collecting data (the self-classification system used by the government) and the questions contained in the 2021 census.

In terms of preparing the ethnicity pay calculations, the guidance broadly mirrors the gender pay gap reporting regime and recommends producing the following:

  • Mean and median ethnicity pay gap;
  • Mean and median bonus gap;
  • Percentage of each ethnic group receiving a bonus;
  • Percentage of each ethnic group in each hourly pay quarter;
  • Percentage of employees in different ethnic groups; and
  • Percentage of employees who chose not to disclose their ethnicity.

The government highlights two potential issues which may arise when analysing the data. Firstly, to comply with the General Data Protection Regulation (GDPR), it must not be possible to identify an individual from the information put into any report. Secondly, it is important that there are a certain number of employees in each ethnic group otherwise the data is liable to change significantly with the addition or removal of a few people. To combat both these issues, the guidance recommends setting a ‘minimum category size’ for each ethnic group. This should be between 5 and 20 employees if an employer intends to publish the analysis internally and a minimum of 50 employees if planning to publish the analysis externally.

If ethnic groups are below the ‘minimum category size’, organisations may need to aggregate some ethnicities into larger groups. The guidance suggests that as many ethnicity categories as possible should be included and strongly discourages reporting only a “binary” gap between (i) white and all other ethnic minorities combined; and (ii) white British and ethnic minorities. Reporting in this way is said to “mask detail and nuance which might be vital for understanding ethnicity pay gaps”. Where people do not disclose their ethnicity, they should not be included in any of the groups used in the analysis.

The guidance frequently acknowledges the complexities of accurately reporting ethnicity pay gaps and is sympathetic to the challenges facing employers in this area. From the outset, it accepts that there may be legitimate reasons for variations in pay and that it should not be assumed that these “are necessarily a result of discrimination”. Before embarking on ethnicity pay gap reporting, employers should therefore carefully consider whether they are able to comply with their obligations under the GDPR and if they have sufficient participation and data to produce accurate results.

Back to top

The inexorable rise of remote working arrangements, which surged as a result of the pandemic, has always sat somewhat uneasily with the sponsor regime for migrant workers. This is because a sponsor is expected to ensure that it can consistently discharge the relevant duties of sponsorship, many of which focus on ensuring that the migrant worker remains engaged with the sponsor, and that there are not prolonged or unsanctioned absences. Whilst it might be relatively easy in certain circumstances to ensure a colleague remains at work and engaged as they forget to unmute during yet another video meeting, in other cases it might be more difficult to keep tabs on remote workers when they are beavering away on a solo task.

During the pandemic the Home Office operated a variety of concessionary policies, one of which was to absolve a sponsor from reporting when a sponsored migrant worker was working from home. This has now changed – C1.19 of the latest version of the official policy guidance sets out some obligations.

A sponsor must now tell the Home Office if a sponsored worker’s normal work location (as recorded on their Certificate of Sponsorship) changes. This includes where:

  • the worker is, or will be, working at a different site, branch or office of their employer, or a different client’s site, not previously declared to the Home Office;
  • the worker is, or will be, working remotely from home on a permanent or full-time basis (with little or no requirement to physically attend a workplace);
  • the worker has moved, or will be moving, to a hybrid working pattern

There is no need to report occasional, day-to-day changes, only more permanent changes to regular working patterns. A few points arise from this. Firstly, it is important to ensure that any regular working sites are included on a sponsor’s licence record and added to the licence if necessary. Secondly, if a worker changed to a hybrid or entirely remote pattern during the pandemic, and this has remained a substantive change, it would be sensible to now report this retrospectively. Thirdly, it is crucial to be wary that if a worker is entirely remote, then it can cause the Home Office, in some cases, to question the basis for sponsorship and why the person needs to be in the UK if they are able to work entirely remotely. Good reasons for this might include organisational efficiency, proximity to clients or colleagues, tax or regulatory reasons, time zone and productivity issues (to name a few).

Large organisations with many sponsored employees might find reporting on each worker a significant task.  We’d therefore suggest asking if the Home Office will accept a bulk report on all relevant workers in such cases.

Back to top

Red, White and Green Ltd v HMRC [2023] UKUT 00083 (TCC)

The Upper Tribunal (UT) recently upheld the decision made by the First-tier Tribunal (FTT) and ruled that presenter Eamonn Holmes would have been in an employment relationship under the IR35 hypothetical contract. The former “This Morning” presenter provided services to ITV via his personal service company and carried out other activities as an independent contractor for other companies.

In its judgment, the UT agreed that there was a “sufficient framework of control” over how Mr Holmes provided his services to ITV, despite the presenter having substantial autonomy in carrying out his duties. It was found that ITV had the ultimate right of editorial control, including the right to decide what guests were interviewed and the topics that would be covered, and that it would be “career suicide” for Mr Holmes to disagree with some of ITV’s decisions. In respect of Mr Holmes working for numerous companies, the UT held that the case law establishes that an individual may be engaged under several contracts of employment and be self-employed for other engagements. The UT were also persuaded by the fact that the presenter depended on his income from ITV.

The UT rejected the argument that control over what is to be done is the most important factor and instead found that where workers were highly skilled, control over “what” is done will likely be the most crucial factor, though control over how, where and when remains relevant. Additionally, the UT ruled that although the FTT had erred in referencing the presumption of employment arising from mutuality and control (which had been dismissed in HM Revenue & Customs v Atholl House Productions Limited [2022] EWCA Civ 501), this finding did not affect the outcome of this case as the necessary “balancing exercise” was still undertaken by the FTT.

This case serves as a helpful reminder of the criteria considered when determining employment status for tax purposes. It is worth noting that just because a ‘worker’ may have other clients doesn’t automatically exempt them from being subject to IR35. This case also provides helpful guidance on the line in the sand between employment status and tax status, demonstrating that someone can be considered self-employed in terms of employment rights but still be deemed ’employed’ under IR35.

Back to top