HR in Hospitality Employment Law Update

1. HR in Hospitality Employment Law Update DLA Piper: Breakfast Seminar 22 October 2014 Vinita Arora Partner vinita.arora@dlapiper.com +44 20 7796 6611 • Jonathan Exten-Wright • Partner • jonathan.exten-wright@dlapiper.com • +44 207 796 6619

2. Agenda • Holiday pay • Shared parental leave Breakfast Seminar 22 October 2014

3. Holiday For Workers – Headache for Employers? • What is the legal entitlement to holiday and holiday pay for workers and employees? • What happens when employees are absent from work on account of sickness or maternity leave? • How do you calculate holiday entitlement and pay for atypical workers? • What are the implications for calculating holiday pay following the decision in Williams? Breakfast Seminar 22 October 2014

4. The European Right To Paid Leave • The European Working Time Directive (WTD) was introduced as a health and safety measure and mandates • "minimum safety and health requirements for the organisation of working time" • Art 7 of the WTD requires all Member States to: • Ensure that all workers are entitled to paid annual leave of at least 4 weeks • Provide that the minimum period of annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated Breakfast Seminar 22 October 2014

5. The Right To Leave In The UK • The Directive is implemented in the UK by the Working Time Regulations 1998 (as amended) (WTR) • The WTRprovide that: • A worker is entitled to be paid in respect of any period of annual leave at the rate of a week's pay in respect of each week of leave • Either the worker or employer may give notice to take leave • Leave may not be replaced by a payment in lieu except where the worker's employment is terminated • Leave may only be taken in the leave year in respect of which it is due • Workers are entitled to 5.6 weeks' leave Breakfast Seminar 22 October 2014

6. Bringing The Contract Into The Mix … • No legal obligation to provide holiday in respect of bank/public holidays • Employers are obliged to set out details regarding holiday in the written particulars of employment • Many employers provide additional holiday rights for employees under the contract • This can result in 3 types of leave/entitlement and potentially 3 tiers of protection: • 4 weeks' leave under the WTD • 1.6 weeks' leave under the WTR • additional leave under the Contract of Employment Breakfast Seminar 22 October 2014

7. Calculating Holiday Pay • Reg 16(1) WTR provides that a worker is entitled to be paid in respect of annual leave to which he is entitled… at a rate of a week's pay in respect of each week of leave • Reg 16(2) WTR specifies the method for calculating the rate of a week's pay • Sections 221 to 224 of the Employment Rights Act 1996 (ERA) shall apply • For the purposes of the calculation employees fall into 2 broad categories • Employees with "normal working hours" • Employees without "normal working hours" Breakfast Seminar 22 October 2014

8. Normal Working Hours • There are 3 types of "normal working hours" employees • Employees whose remuneration varies according the day/time they work their normal hours (shift workers) • Employees whose remuneration varies according to the amount of work done during their normal hours (pieceworkers) • Employees whose remuneration does not vary (time workers) • For the first two categories a week's pay is calculated by averaging their remuneration over the 12 week period immediately preceding the calculation date • For the last category, a week's pay is the amount payable by the employer under the contract of employment Breakfast Seminar 22 October 2014

9. Determining Normal Working Hours • How do you determine whether an employee has "normal working hours"? • s234 ERA provides that where an employee is entitled to overtime pay when employed for more than a fixed number of hours this amounts to normal working hours • The normal working hours are the fixed working hours or • (if greater) the minimum number of hours the employee is contracted to work • So it should follow that where an employee has normal working hours, overtime does not count to calculating a week's pay unless the contract requires that a number of overtime hours be worked • But does this apply when applied to the WTD? Breakfast Seminar 22 October 2014

10. Voluntary Overtime • Bamsey v Albon Engineering & Manufacturing plc • Is the ERA compatible with the WTD? • Employees regularly worked overtime and were obliged to work overtime if required to do so • Employer not obliged to offer overtime • Court of Appeal ruled that: • though workers compelled to work overtime because employer not obliged to offer overtime exception did not apply • holiday pay was to be calculated without reference to overtime • the statutory provisions within the WTR and ERA are consistent with WTD Breakfast Seminar 22 October 2014

11. Calculating Holiday Pay • British Airways Plc v Williams • Pilots sought holiday pay calculated on the basis of the payments to which they were entitled whilst working to avoid being dis-incentivised from taking leave • Case relates to the Aviation Regulations (not WTR) which contain no express means of calculating holiday pay • CJEU concluded the pilots were to be put in the position, as regards remuneration, which was comparable to a period of work • any inconvenient aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract and in respect of which a monetary amount is provided must be taken into account when calculating holiday pay • Supreme Court distinguished between remuneration and expenses for ancillary costs (not incurred during leave) Breakfast Seminar 22 October 2014

12. The Williams Conundrum • The emphasis of the decision in Williams, that any payment made to workers is either pay or expenses, suggests that few aspects of remuneration escape inclusion for calculation of holiday pay • Prior to the Williams case: • Overtime is excluded where an employee has normal working hours • Commission and bonus only taken into account where the worker's pay varies with the amount of work done (e.g. productivity bonuses) Breakfast Seminar 22 October 2014

13. The Conundrum – Voluntary Overtime (1) • Does Bamseystill apply and should voluntary overtime be included when calculating Holiday Pay? • Neal v Freightliner and Fulton and anor v Bear Scotland • In both instances workers regularly work overtime • In Neal the contract requires employees to work overtime when necessary • In Bear employees are required to work "not less than 37.5 hours a week" • Two more cases (Amec and Hertel) also concerning holiday pay • All claimants are seeking backdated holiday pay which is calculated to include their overtime payments Breakfast Seminar 22 October 2014

14. The Conundrum – Voluntary Overtime (2) • In both cases the Tribunal have considered the decision in Williams and considered that any components that are "intrinsically linked", such as overtime, must be included • Both Tribunal have concluded they are entitled to read words into the Regulations to make them compatible with the WTD • These cases are being appealed in late July 2014 • The Government have been granted permission to intervene on the basis they believe the WTR and ERA properly implement the WTD Breakfast Seminar 22 October 2014

15. The Conundrum – Commission and Bonuses • Lock v British Gas Trading • Employee paid basic salary and commission on sales but holiday paid at basic rate only • Should commission payments be included in the calculation of holiday pay • ECJ decision is "yes" • Commission is an intrinsically linked component of remuneration • If not paid it would deter him from taking leave - a worker has the right to enjoy, during his period of rest, entitlements which are comparable to those relating to the exercise of his employment • for national courts to decide how should be calculated Breakfast Seminar 22 October 2014

16. Implications for Employers • Employers may need to adjust holiday pay to include other elements than basis pay – at least for WTD leave • Significant potential liability as unlawful deduction claims can go back for many years • back to 1998? Breakfast Seminar 22 October 2014

17. Possible Options • Watch and wait? • Path of least resistance in the absence of legal certainty • Reorganise working patters/commission schemes? • Practical difficulties in introducing change • Include overtime/commission now (but don't include back pay)? • Possibly make discretionary payment • Calculations will be difficult • Could trigger claims for back pay • Pay up the shortfall • Risk of significant expense Breakfast Seminar 22 October 2014

18. Holiday pay ready reckoner Breakfast Seminar 22 October 2014

19. Shared Parental Leave • A new system of statutory parental rights will be introduced on 5 April 2015 • It will apply to both employees and agency workers • The aim is to allow parents to share the statutory maternity leave and pay that is currently available only to mothers • The system will also apply to adoptive parents Breakfast Seminar 22 October 2014

20. What stays the same? • Two weeks' paternity pay • 18 weeks' unpaid EU parental leave • Although the age limit of the child does increase from eight to 18 from 5 April 2015 • Two weeks compulsory maternity leave • 52 weeks of maternity leave • 39 weeks of maternity pay Breakfast Seminar 22 October 2014

21. The proposed changes • Qualifying parents will be able to share up to 50 weeks of leave and 37 weeks of pay. • So, everything other than the compulsory maternity leave period. • The current system of additional paternity leave will be abolished. • It will be up to the employees to propose the pattern of leave that they wish to take, and to discuss this with their individual employers. Breakfast Seminar 22 October 2014

22. Patterns of leave • Parents will be able to take SPL: • at the same time as each other or separately. • in minimum periods of 1 week • in any combination • at any time during the 52 weeks after the birth/adoption • Employer agreement is required if the employee wants to take multiple blocks of leave. • Each employee can make up three notifications for leave or changes to periods of leave. Breakfast Seminar 22 October 2014

23. Agreement? • Employers will not be obliged to agree to the SPL pattern proposed by their employees. • The parents' respective employers will not need to contact each other to discuss their employees' leave entitlements. • The default position where agreement cannot be reached will be for a parent's portion of leave to be taken in one continuous block, to start on a date of their choice. Breakfast Seminar 22 October 2014

24. Notice requirements • Both parents must give their employers eight weeks' notice to begin SPL and claim SPP. • If they wish to take several blocks of leave, they must give their employers eight weeks' notice in respect of each period of leave. • The mother will be entitled to give notice that she wishes to end her maternity leave and start SPL before the child's birth. • However, she can change her mind within six weeks of the birth. • Employees will be required to provide a non-binding indication of their expected pattern of leave when they notify their employer of their intention to take SPL. Breakfast Seminar 22 October 2014

25. Eligibility • Each parent or prospective parent must meet employment and earnings and other qualifying conditions. • However, statutory maternity and adoption leave for a mother remain a right from day one. • For a self-employed woman with an employee partner who meets the qualifying conditions, a notional 52 weeks' leave (less the weeks that are paid as maternity allowance) can be transferred to SPL. • Her partner can also get the unpaid balance of weeks of maternity allowance as SPP. Breakfast Seminar 22 October 2014

26. SPP • SPP will be paid at the flat rate of statutory maternity pay (SMP). • This is £138.18from 6 April 2014. • Therefore, it is likely that most couples will choose to forgo no more than 33 weeks of SMP. • The first six weeks of SMP is paid at 90% of the woman's pay if that is higher than flat rate SMP. • If she takes less than six weeks, the balance of the higher rate is lost. Breakfast Seminar 22 October 2014

27. Keeping In Touch Days • Each partner has 20 Keeping in Touch (KIT) days available to use in a period of SPL or SPP. • These cannot extend the period of leave. • However, they can be used to supplement the low rate of SPP or to try out patterns of part-time work. • As with the current KIT days, pay and the nature of the work to be done are both matters to be agreed. • NB - these days are in addition to the mother's 10 KIT day entitlement during maternity leave. Breakfast Seminar 22 October 2014

28. Returning to Work • An employee returning to work from SPL will have the right to return to the same job no matter how many periods of shared parental leave they have taken, as long as they have taken 26 or fewer weeks' leave in total. • This 26-week total will include periods of maternity, adoption, paternity and shared parental leave. • Once they have exceeded 26 weeks' leave, they would only have the right to return to the same or a similar job. Breakfast Seminar 22 October 2014

29. Implications for employers? • Careful planning will be required. • Encourage and facilitate planning in advance – allowing you most certainty. • Your policies will need to be redrafted and reviewed. • Consider the impact on your business and what you can accommodate. • A key unresolved question is enhanced maternity pay and how this should be treated. • Given the sharing of leave, should the enhanced rate of pay also be applied across the workforce? Breakfast Seminar 22 October 2014

30. Implications for employers? • The notice requirements are complicated and the legislative framework is confusing. • Employees are likely to get it wrong whilst these bed down. • Employees could be negatively impacted (in terms of their SPP entitlement) by getting this wrong, so be wary. • ACAS has just released its long awaited guidance. Breakfast Seminar 22 October 2014

31. Questions Breakfast Seminar 22 October 2014