In this series of insights, Gowling WLG's Employment, Labour & Equalities team bring you a quick round-up of the need-to-know employment law developments from January to April 2021.

In Part 1, we looked at COVID-19 related developments and in Part 2, equalities issues.

Here in Part 3, we look at the latest developments concerning 'workers' and pay

  1. Employment status: Supreme Court rules that Uber drivers are 'workers'
  2. Holiday: Limit on carry over for misclassified 'workers'
  3. IR35: Off payroll working
  4. National Minimum wage (NMW): (1) Sleep-in shifts (2) NMW April 2021 rate increases
  5. Public sector exit payments

In our final Part 4, we consider the latest developments concerning the two Ts: TUPE and tribunals.

1. Employment status

Supreme Court rules that Uber drivers are 'workers'

On 19 February 2021, the Supreme Court ruled in the long-running and high profile case of Uber BV and ors v Aslam and ors. Rejecting Uber's appeal, the Supreme Court upheld the findings that Uber drivers are 'workers' for the purpose of rights under the Employment Rights Act 1996, the Working Time Regulations 1998 and the National Minimum Wage Act 1998.

The Supreme Court rejected the appeal on the basis that the contractual documentation did not reflect the reality of the agreed working relationship, but has gone much further saying the contractual documents were never the starting point in the first place. Whether or not an individual is a worker is primarily a question of statutory interpretation, not contractual interpretation. When you are deciding whether a particular individual is a worker or not, you do not start with the contract and see whether that is the sort of contract a worker would have. Instead, you start with the statutory provision - for example the right to the minimum wage - and see whether they fall into the statutory definition of a worker 'irrespective of what had been contractually agreed'.

The modern approach to statutory interpretation is to look at the purpose of a particular provision and to interpret it, so far as possible, in the way that best gives effect to that purpose. In this case, the purpose of the legislation is to give protection to vulnerable individuals who have little or no say over their pay and working conditions because they are in a "subordinate and dependent position in relation to a person or organisation who exercises control over their work".

Businesses such as Uber operate a business model under which operatives are intended to appear to clients of the business as part of the business (and are heavily marketed as such). But at the same time, the business itself seeks to maintain that, as between itself and its operatives, there is a legal relationship of client or customer and independent contractor, rather than employer and worker (or employee). Here, the Supreme Court emphasised that the 'touchstone' of subordination and dependence was the degree of control exercised - the greater the control, the stronger the case for classifying the drivers as workers. For more see, The Worker's Evolution (Uber edition): Who is a 'worker' in modern workplaces?

2. Holiday

Limit on carry over for misclassified 'workers'

Calculating holiday pay should be straightforward, but often has proved to be anything but, providing a seemingly endless stream of legal challenges. This year we await a trio of important Supreme Court judgments: East of England Ambulance Service NHS Trust v Flowers on 22 June; Chief Constable of the Police Service of Northern Ireland and another v Agnew and others on 23 and 24 June; and The Harpur Trust v Brazel (UNISON intervening) on 9 November. See `What's on the horizon for employment law in 2021? Part 3: Beyond the elephants in the room'.

Back in 2017, the Court of Justice of the European Union (CJEU) held in King v Sash Window Workshop Ltd and another, that a worker is entitled to be paid on termination for any periods of annual leave that have accrued during employment if they have been discouraged from taking that leave because it would have been unpaid. In this case the employer misclassified a worker as a self-employed contractor. There was no limit on the amount of leave that could be carried over in this type of case because an employer that does not allow workers to take paid leave must bear the consequences.

An Employment Appeal Tribunal (EAT) judgment from March 2021 now significantly limits the impact of the CJEU ruling in King. In the long-running case of Smith v Pimlico Plumbers Ltd, having succeeded in establishing 'worker' status, Mr Smith has so far been unsuccessful in his holiday back pay claim. The EAT has held that the CJEU's 2017 ruling in King does not mean that a worker has a right to carry over payment for annual leave in circumstances where the worker took annual leave but was not paid for it. Although King established that a worker is entitled to carry over, without limit, any annual leave untaken because the employer refuses to remunerate it, the CJEU's judgment does not apply where leave was in fact taken, albeit unpaid.

As regards the holiday taken but which was unpaid, Mr Smith's claim under the Working Time Regulations 1998 (WTR) was out of time, having been presented more than three months after the date of the most recent failure to pay holiday pay. Likewise, the EAT also held he was precluded from claiming for a series of deductions of wages under the Employment Rights Act 1996 because there was more than a three-month gap since the last deduction that was in time, in accordance with the 2014 EAT judgment in Bear Scotland Ltd and others v Fulton and others.

The EAT's judgment significantly restricts the impact of the judgment in King limiting potential substantial holiday pay back claims. A further appeal in this case is expected as to the restricted application of the CJEU ruling in King on carry–over under the WTR. The separate issue of whether the EAT in Bear Scotland was correct to conclude that a gap of more than three month breaks any potential series of deduction of wages claim under the Employment Rights Act 1996, is part of the appeal to the Supreme Court in Agnew.

3. IR35: Off payroll working

Since 6 April 2021, the previously existing public sector restrictions and rules on IR35 (workers providing services through intermediaries) have been extended to medium and large private sector organisations. The purpose of the IR35 rules is to prevent the avoidance or reduction of tax and National Insurance contributions by the interposition of an intermediary between a client and worker. Under the controversial change to the rules, instead of the contractor having responsibility for determining their employment status for tax purposes, the client or hirer will need to make the call. The client or hirer could in turn be liable for any missing tax if they get the decision wrong.

On 15 February 2021, HMRC published a policy paper, 'HMRC issue briefing: supporting organisations to comply with changes to the off-payroll working rules (IR35)' outlining its approach to supporting compliance or tackling non-compliance with the off-payroll working rules. There is confirmation that the previously announced 12-month penalty holiday for inaccuracies will apply regardless of when the inaccuracies are identified. HMRC also confirms that it will not charge a penalty for mistakes in applying the rules or making status determinations if reasonable care was taken.

4. National Minimum wage

Sleep-in shifts

Treatment of "sleep-in" shifts for national minimum wage (NMW) purposes is an area that can often cause confusion. Does the full sleep-in shift constitute 'working' for the purposes of the NMW? Alternatively, is the worker only 'working' for NMW payment purposes when they are awake to carry out any relevant duties? The point is particularly significant in the care sector where sleep-in duties are commonly undertaken.

On 19 March 2021, the Supreme Court ruled in the combined judgment in Royal Mencap Society v Tomlinson-Blake and Shannon v Rampersad t/a Clifton House Residential Home that under the NMW sleep-in provisions, an individual who is expected to sleep during their shift and only be woken infrequently (a sleep-in care worker) is only entitled to the NMW when they are awake for the purposes of work. For more see, National Minimum Wage and 'sleep-in' shifts: What do you need to know?

This judgment is limited to circumstances where workers are primarily 'expected to sleep' throughout their shifts with responding to any disturbance during the time allocated for sleep being subsidiary to that purpose or objective. There is a difference between those employed to work night shifts who are expected to be awake and working ('waking night workers') and those employed to cover a sleep-in shift who are expected to be sleeping but available to deal with the occasional emergency. Having a nap between intermittent tasks is not necessarily inconsistent with a person 'working' for NMW purposes. For example, a night watchman with periodic patrolling duties throughout the night would be working throughout the shift even if permitted to sleep for short periods between patrols.

Following the Supreme Court's judgment, on 23 April 2021, BEIS updated its guidance on calculating the national minimum wage to clarify the position for sleep-in workers. The revised guidance on 'Sleep-in' shifts confirms that sleep-in workers are only entitled to the NMW when they are awake for the purposes of working and not when they are permitted to sleep. However, the position is different for workers who are expected to perform activities for all or most of a shift, and are only permitted to sleep between tasks where possible. In such cases, the NMW must be paid for the whole of the shift, including for any time spent asleep, on the basis that the worker is in effect working all of that time. The guidance also confirms that the NMW will be payable for time spent asleep if the employer does not provide workers with suitable sleeping facilities.

NMW April 2021 rate increases

1 April 2021 saw the annual increase to NMW hourly rates including the national living wage (NLW), which increases from £8.72 to £8.91. This year the NLW age band was also increased. It will apply not only to those aged 25 and over, but is extended to those aged 23 and 24 as well.

Getting NMW payments correct is important. Employers who get it wrong for any reason (including inadvertent errors) face HMRC enforcement, including penalties and 'naming and shaming'.

For the full list of the rate increases and additional important points to note see, National Minimum Wage April increases: the 2021 small print.

5. Public Sector Exit Payments

Cap revoked

As set out in our alert back in October 2020, Public Sector Exit cap in force from 4 November 2020, the long foretold but hastily implemented Government plans to introduce a £95,000 cap on the total pre-tax aggregate value of public sector exit payments came into force on 4 November 2020 with very little notice, only 21 days.

After only four months, on 12 February 2021, HM Treasury announced that after an extensive review of the application of the cap, the Government has concluded that the cap may have had unintended consequences and the Restriction of Public Sector Exit Payments Regulations 2020 were being revoked.

The Restriction of Public Sector Exit Payments (Revocation) Regulations 2021 came into force on 19 March 2021, revoking the cap from that date. The Revocation Regulations provide that anyone who received an exit payment from a relevant public sector body between 4 November 2020 and 19 March 2021 that was capped will be entitled to receive an additional payment.

But is this the end of an exit payment cap for good? Maybe not. While the 2020 Regulations have been revoked, in the February 2021 statement it was stated that, "HM Treasury will bring forward proposals at pace to tackle unjustified exit payments", so public sector employers need to watch this space.

If you have any questions relating to this insight, or employment law in general, contact Anna Fletcher or Connie Cliff.