Key Updates for UK Employers: What Needs to be on Your Radar for the Second Half of 2023

The last few months have seen some important and significant developments in UK employment law. Amongst other things, we have seen new guidance published on ethnicity pay gap reporting, positive action, and employee rights to access personal information. Additional protections for parents and carers have been confirmed and the UK Government has announced proposals to reform rules on working time, holiday pay, and non-compete clauses. Set out in this alert is a brief round-up of the key developments from the last couple of months that will be of particular interest to international employers of UK-based employees.

Ethnicity pay reporting and positive action

In April 2023, as part of its ‘Inclusive Britain’ action plan, the UK Government published guidance for employers on ethnicity pay gap reporting and positive action in the workplace, actions 16 and 70 respectively of a 74‑action point list.

Ethnicity pay reporting

Many employers in the UK voluntarily publish data on the ethnic make-up of their workforce alongside their gender pay gap reports, particularly in respect of pay and diversity at senior management level. Ethnicity pay reporting is, however, more complex than gender pay reporting and the approaches taken by employers differ to an extent that can make meaningful comparison difficult. The stated purpose of the UK Government’s new guidance is to assist employers in developing a consistent, methodological approach to ethnicity pay reporting, which can then lead to meaningful action, while remaining proportionate and without unduly burdening their business.

The guidance explains how employers in the UK can lawfully collect employees’ ethnicity data, make ethnicity pay calculations (by reference to ethnic groups and hourly pay, and also factoring in ‘prefer not to say’ or no response answers), understand the results of these calculations, and develop an appropriate action plan to address any identified disparities.

The first step—collecting ethnicity data—is often seen by employers as the most challenging, both in terms of data categorisation (what to ask) and ensuring that the information is used meaningfully and lawfully. Employers are strongly encouraged to use the Government Statistical Service’s ethnicity harmonised standard when collecting ethnicity data from their UK workforce, which gives employers a ready-to-use set of tested and legally sound questions but also helps to ensure comparability across employers. In collecting this data, employers need to ensure compliance with UK data protection laws (e.g., the UK GDPR) and also have regard to other obligations owed to employees, such as the duty of trust and confidence. Given the potential pitfalls, employers are advised to seek specialist advice prior to implementing data collection.

For a discussion on the collection and monitoring of workforce diversity data in the UK and across Europe please refer to Lokke Moerel’s guest blog for Future of Privacy Forum.

Positive action

Positive action is a permissive power under the UK’s Equality Act 2010 enabling employers to lawfully target employment initiatives to disadvantaged or under-represented groups within their workforces. The Government’s new guidance, which supplements guidance set out in the Equality and Human Rights Commission Employment Statutory Code of Practice, covers the two types of positive action contemplated by the Equality Act:

1. “General” positive action comprises proportionate steps to address situations where employees who share a protected characteristic (e.g., sex, race, religious belief, etc.) suffer a disadvantage connected to that characteristic or have differing needs or are underrepresented in certain activities. General positive action can apply to all aspects of employment—for example, career development initiatives, targeted or bespoke training to meet the specific needs of a particular group, and providing additional support through mentoring or shadowing schemes.
2. The second type of positive action—“recruitment and promotion”—is often referred to as the ‘tie‑break’ provision. In tightly prescribed circumstances, employers are allowed to treat one candidate more favourably because they have a protected characteristic. Specific criteria apply, including that the candidates must be of equal merit for the post/promotion, there must not be a policy of treating people who share the protected characteristic more favourably, and, finally, any action must be a proportionate means of encouraging people who share the protected characteristic to overcome or minimize the disadvantage or to participate in the activity.

The new guidance details the factors to consider when determining what action might be proportionate and what amounts to a disadvantage and provides examples of positive action and considerations for implementing a “positive action plan”.

The guidance also draws key distinctions between positive action and unlawful positive discrimination. One important point for international employers to note, particularly those with large US workforces, is that positive action should not be equated with the concept of “affirmative action” first introduced in the United States. Affirmative action, which often involves use of quotas, could constitute unlawful discrimination in England and Wales. Employers hoping to harmonise their practices across jurisdictions are advised to seek specialist advice prior to implementing any positive action measures.

The ICO’s new employer-specific guidance on responding to DSARs

The UK’s data protection authority (the “ICO”) announced recently that it had received over 15,000 complaints about data subject access requests (“DSARs”) just in the period between April 2022 and May 2023. The majority of these complaints reflected misunderstandings on the parts of employers encountering difficulties in handling DSARs from their current or former employees. As we discuss, responding to any DSAR can be time‑consuming and costly, but a DSAR from an employee carries particular complexities.  

Recognising these challenges, the ICO’s latest guidance covers a number of commonly asked questions from employers, including regarding the scope of searches for relevant information (specifically in relation to CCTV footage, work and personal emails, and social media platforms) and when information can be withheld from disclosure. Most helpful for employers will be the additional examples provided in respect of DSARs submitted in the midst of a dispute and the extent to which these might be regarded as “manifestly unfounded or excessive”.

Additional leave entitlements and protections for parents and carers

The following new entitlements for working parents and carers have been announced:

1. Neonatal care – Eligible employed parents whose new-born baby is admitted to specialist neonatal care (in the first 28 days of their life) will be entitled to take up to 12 weeks of paid leave in addition to other family leave entitlements.
2. Carer’s leave – Employees who are providing or arranging care for a dependant with long-term care needs will be entitled to a week’s unpaid leave per year. This is to be a ‘Day 1’ entitlement, supplementing existing parental and emergency leave entitlements, and will award carers the same protection from dismissal or detriment as for those exercising rights to other types of family-related leave.
3. Redundancy protection for women and new parents – Existing redundancy protections that apply to those on maternity, adoption or shared parental leave, entitling them to priority consideration for suitable alternative vacancies, are to be extended to pregnant employees and new parents who have recently returned to work after a period of family leave.

“Smarter Regulation to Grow the Economy”

On 10 May 2023, the Government published a paper unveiling its proposals for a package of “deregulatory reforms to grow the economy, cut costs for businesses and support consumers”. While the enactment of these reforms is subject to any change in government, the following proposals will stand out for businesses with UK‑based workforces:

1. Holiday pay and working time – The Government intends to consult on adjustments to the Working Time Regulations. Proposals include: (a) removing the need to keep working hour records for almost all members of the workforce, and (b) allowing “rolled-up” holiday pay, so that workers working irregular hours can receive holiday pay with every payslip.
2. TUPE consultations – Another proposal is to remove the requirement under the Transfer of Undertakings (Protection of Employment) Regulations to elect employee representatives for businesses with fewer than 50 employees or where a transfer of the business/service affects fewer than 10 employees, thereby allowing businesses to consult directly with affected employees.
3. Non-compete clauses – In response to its 2020 consultation, the Government has confirmed that it intends to legislate to limit the length of post-employment non-compete clauses to a maximum of three months. It is not clear whether this would have retroactive effect and, if so, how existing non-compete clauses which exceed three months (which is not uncommon) would be treated, but we do have confirmation that this will not interfere with the ability of employers to rely on protection through “garden leave” or other post-termination restrictions, such as non-solicitation clauses. Part of the consultation involved consideration of whether compensation should be payable during any restricted period—as in many other European jurisdictions— but the Government has confirmed that this will not be introduced as it would be too costly to businesses.

What else should employers look out for?

Other helpful, non-statutory, guidance published recently includes Acas advice for employers considering redundancies and guidance on reasonable adjustments for mental health.

There are also a number of Government-backed employment-related bills working their way through Parliament, including the highly anticipated Employment Relations (Flexible Working) Bill which will make the right to request flexible working a ‘Day 1’ right, and another which introduces a duty to take reasonable steps to prevent sexual harassment of employees (with an uplift to compensation where this duty has been breached).

We will continue to monitor the development of these important bills along with the other Government proposals and will provide further updates as and when the position becomes clearer.

William Jay, London Trainee Solicitor, contributed to the drafting of this alert.