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The Big Potential of the Small Business, Enterprise and Employment Act

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About The Author

Hannah Larsen (Writer)

Hannah graduated from the University of Bristol in 2013, with a LLB Hons. Hannah works for an organisation issuing multinational employers with guidance on employment law and labour relations across the globe, and is undertaking her BPTC part-time at BPP Holborn.

In the run up to the general election, the Coalition have snuck a piece of legislation through Parliament which on first glance appears to instigate powerful changes in our employment sector. However, as the effect of many provisions of the Small Business, Enterprise and Employment Act 2015 (‘the Act’) depend on the implementation of further guidance or regulations, the impact of the Act will be determined by the next Government. Moreover, many provisions could simply dissipate if the next Government do not implement the commencement orders necessary to make them effective.

Part 11 of the Act sets out those provisions that relate to employment, whilst the rest of the Act focuses on a variety of matters affecting businesses, from insolvency to the appointment of directors. A checklist of controversial matters are covered in Part 11: equal pay, whistleblowing, minimum wage and zero hour contracts, with employment tribunal awards and public sector exit payments also being mentioned for good measure. In this article, each provision will be reviewed in turn.  

Equal Pay

The Office for National Statistics highlighted in November 2014 that, on average, men are still being paid 19.1% more than their female counterparts. Clearly, equal pay is an issue we are still struggling with in the UK. As discussed in my article ‘Equal Pay Disaster’, part of the difficulty is understanding just how prevalent the issue is, as complex pay systems and uncooperative employers often mask what employees are really being paid. The Act seeks to eliminate these difficulties by requiring employers in the private and voluntary sectors with over 250 employees to report on gender pay differences within their business. It is anticipated by HR Bullets that this will require employers to note differences between starting salaries, basic pay rates, total average earnings and other components such as bonuses. 

Section 147 of the Act brings to life the mothballed section 78 of the Equality Act 2010, which requires the Secretary of State to consult on, and create, implementing regulations within the next 12 months. It also marks the transition from voluntary to compulsory reporting, rendering the ‘Think Act Report’ programme, which had merely encouraged employers to assess and publish data of gender pay gaps in their business, redundant. 

The requirement will impose extensive responsibilities on employers who had previously only been required to undertake equal pay audits when required by an Employment Tribunal, following an established breach of equal pay laws by the employer. It is unclear whether the reports will be published as produced or if the ‘Think Act Report’ programme data provided by employers will be used to substantiate reports and form case studies. However, difficulties will remain in accounting for all of the variables affecting pay and it is questionable how the statistics can be kept clear when considering factors such as continuous service, experience and the overall proportion of men in a particular job.

The deterrent effect of fines is questionable as it is estimated that the penalties would not exceed £5,000 and they are likely to have no effect at all where the cost of resolving the gap far exceeds this. However, the wider reporting of such issues and potential reputational damage to employers who realise large gender pay gaps is bound to have a greater impact. Not only will it damage the employer’s reputation with the public, but it is likely to have knock on effects such as the attraction and retention of employees. 

Whistleblowing

Legal protection from detrimental treatment and dismissal is afforded to ‘whistleblowers’. Whistleblowers are people who believe that they are acting in the public interest by making a particular disclosure and that the disclosure relates to a prescribed matter set out in section 43B of the Employment Rights Act 1996 (ERA), such as a failure to comply with a legal obligation, endangerment of health and safety  or covering up a failure to comply with one of the listed obligations. 

Section 148 of the Act adds to the ERA by requiring certain prescribed persons to report to the Secretary of State on the number of whistleblowing reports made each year. Prescribed persons are those designated by the Department for Business Innovation and Skills as the appropriate person for employees to report concerns if they do not wish to approach their employer. At present there are 60 ‘persons’, most of which are professional bodies who have an overarching view of employers within that profession, such as the General Dental Council. However, the reports made to the Secretary of State will have to be drafted in such a way that individual employers, and the affected employees, cannot be identified.  

The Government reports that the motive behind such a provision is to encourage employers to “embrace whistleblowing as an effective governance tool and to investigate any issues raised by whistleblowers”. It is clear that the intended effect is to prevent the mistreatment of employees who raise concerns as to the practice or behaviour of people within their organisation. The Department for Business Innovation and Skills has also issued a code of practice for employers on whistleblowing

Particular concern exists for the treatment of whistleblowers in the NHS: not only are 29% of NHS staff unsure whether it is safe for them to raise a concern, but Sir Robert Francis QC noted in his review ‘Freedom to Speak Up’ the shocking treatment of employees who had raised concerns. Counter allegations, disciplinary action, victimisation and bullying are amongst the reactions that the review found as commonplace for whistleblowers. The case of Dr Raj Mattu was widely reported last year after he succeeded in proving that he had been unfairly dismissed because of whistleblowing. Dr Mattu, a cardiologist, raised concerns about overcrowding in Coventry Hospital which resulted in the death of two patients. As a result he found himself vilified and bullied, as well as suspended and subsequently dismissed. Before raising concerns Dr Mattu had never been the subject of disciplinary proceedings and it was held by the High Court that Dr Mattu ’did not cause or contribute to his dismissal.’ It is imperative that these issues are resolved, bearing in mind that the remedy of those concerns withheld by employees could make the difference between life and death for many patients. 

The Act implements particular protections for NHS employees as section 149 again amends the ERA by requiring the Secretary of State to create regulations prohibiting NHS employers from treating job applicants less favourably or discriminating against them because they appear to have made a protected disclosure. Ensuring that whistleblowers are not discriminated against in the NHS is particularly important bearing in mind its near monopoly on health services and the limited alternative employment options for whistleblowers, although the position of job applicants did not gain much attention in the Freedom to Speak Up review.

Minimum Wage

Flouts of the National Minimum Wage Act 1998 are more common than you may think with H&M and Welcome Break guilty of underpayments. 55 employers have been publicly listed as flouting the minimum wage requirements since the power to name and shame was introduced by the Government in October 2014. A consolidated guide to the policy was issued by the Department for Business Innovation and Skills in March 2015.

Where an employee is paid less than the minimum wage that employee is entitled to receive the amount of the underpayment from their employer, and to ensure that this happens HM Revenue and Customs has been appointed as an enforcement officer by the Secretary of State. Following its own investigation or a complaint from an employee, HMRC can issue the employer with a ‘Notice of Underpayment’ setting out the amount to be paid. A Notice may relate to many employees but can only impose one fine of up to £20,000, such that employers are fined ‘per notice’.

Following the introduction of section 152 of the Act, fines of up to £20,000 will be imposed per employee who is underpaid rather than per notice. This is sure to have a much greater deterrent effect than the feeble amount per notice.

Zero Hour Contracts

The Act provides the first legislative definition of a zero hour contract by inserting the following clause into the Employment Rights Act (after section 27):

‘zero hours contract’ means a contract of employment or other worker’s contract under which—

(a) the undertaking to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker, and (b) there is no certainty that any such work or services will be made available to the worker.

This definition is broad and unremarkable, but at least it puts the controversial contracts on a statutory footing, especially as they are bandied around the political playing field. The Office for National Statistics (ONS) has estimated, in its 2015 study, that approximately 2.3% of the British workforce worked on zero hour contracts between October and December last year. The average working time amongst these employees, of which there were 697,000, was 25 hours per week.  More interesting is the purported ban on exclusivity clauses used in conjunction with zero hour contracts. Such clauses prevent employees from undertaking employment with other employers at all or without the consent of the primary employer, hence limiting them to one employment contract where there is no certainty that they will be provided with any work. 

Concern at the ease in which employers could avoid the ban, for example by placing employees on a contract agreeing to provide 2 or 3 hours of work per week, prompted the Government to consult on how such behaviour could be avoided. The results of the Consultation have led to the drafting of the Zero Hour Workers (Exclusivity Terms) Regulations 2015 (annexed to the Consultation results). The Regulations will provide employees who have suffered detriment as a result of working for another employer, a right to commence a legal claim against their employer and they could receive compensation if successful. The Regulations will also ban low-income contracts which are to be determined by reference to the minimum guaranteed hours in the contract in comparison to an established minimum income threshold. The prohibition will not extend to employees who are paid more than £20 per hour. 

Although these bans provide an explicit warning to employers to resist using exclusivity clauses, it would be beneficial for the Government to produce codes of practice or guidance for employers on how to fairly and best utilise zero hour contracts, as regulation in this area is becoming increasingly complex. It is also noteworthy that the Regulations are still in draft form and as such may not become legislation when in the hands of the next Government. 

Payment of employment tribunal awards

In her speech to the House of Lords during the parliamentary consideration of the Act, Baroness Neville-Rolfe set out that at present only 40% of employers are honouring tribunal awards and making payment to successful employees within 6 months. Such awards could include, for example compensation for an unfair dismissal or a repayment of deductions made unlawfully from an employee’s wages.

Section 150 of the Act attempts to ‘incentivise the prompt payment of tribunal awards and to prevent employers ignoring judgments by employment tribunals’ (Baroness Neville-Rolfe), by imposing a financial penalty equivalent to 50% of the unpaid sum, of at least £100 but not more than £5,000, on the employer. Further to this, employers who fail to pay the awards will also face the risk of being publicly named and shamed

The provision will also apply to unpaid settlement sums which had been agreed following an ACAS conciliation process. The penalty is not, however, paid to the employee, who is almost certainly going to be in need of some financial relief in light of the costs of pursuing a legal claim against an employer which itself may be in respect of e.g. the loss of the employee’s job or unlawful deductions from their pay. The penalty is instead payable to the Secretary of State. A date for the implementation of this provision has not yet been set. 

Public sector exit payments

The Act also touches on the repayment of exit payments by public sector employees who are made redundant but return shortly after to the public sector. For example, in December 2013 the Health Select Committee highlighted that of 19,000 employees who had been made redundant by the NHS, nearly 17% were rehired within one month and most had been rehired within one year. Barbara Keeley stated in response to the presentation that such a situation ’smacks of carelessness with public money’. Controversy stems not only from the amount of employees who return to the sector but the amount of money that some of them receive, with public outrage sometimes focusing on the amount alone regardless of whether the individual subsequently returns. For example, Mike Kennedy the former CEO of the Crown Prosecution Service received an exit package worth more than £515,000 just 18 months before he could have retired.

Section 154 introduces the power for regulations to be implemented requiring employees to repay their exit payments. How much the person will be required to repay is dependent on the time between their exit and return to the sector. Again, the fatal flaw of this section is that it is dependent on the next Government implementing further legislation to make it effective. Further, the Employment Lawyer’s Association expressed concern whilst the Act was still being discussed that the section will cause multiple problems, such as the risk of contracts being varied retrospectively and difficulties in recouping the correct amount where the payment is made up of lots of smaller installments, both of which could ultimately lead to more litigation. Further, the section does not distinguish between employees who leave the public sector because of the employer’s initiative or because of their own decision. It is arguable that in certain circumstances it may be unjust to require an employee to repay an exit payment for a job termination that had been beyond their control.

Big potential?

It is clear to see that the Act could greatly contribute to the remedy of many outstanding issues in our employment relationships and culture. However, the true potential of the Act will only be possible with the cooperation of the next Government and ultimately it may be realised that these sections of the Act only equated to a publicity stunt by the Coalition parties in the lead up to the election. 

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Tagged: Commercial Law, Discrimination, Employment Law

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