The Legal 500

This article looks at the plans in detail, including the proposals to extend the minimum paid holiday entitlement for employees. It also looks at a recent ECJ opinion on the question of rolled-up holiday payments.

Summary of proposals
In summary, the proposals include:

• an extension of the paid period of maternity leave;
• the introduction of the right to additional paternity leave;
• clarification of employer/employee contact and notice obligations during maternity leave; and
• the extension of the flexible working request regime to carers of adults.

Current Maternity leave regime
The key features of the current maternity leave regime are as follows:

• 26 weeks’ ordinary maternity leave (paid) (OML);
• 26 weeks’ additional maternity leave (unpaid) (AML);
• 26 weeks’ statutory maternity pay (SMP) (six weeks at a higher rate and 20 weeks at the applicable statutory rate);
• to be eligible for SMP and AML an employee must have been employed for a continuous period of 26 weeks ending with the 15th week before the expected week of childbirth (EWC);
• SMP is payable on a weekly basis;
• 28 days’ notice is required of commencement of OML, early commencement of OML, and early return from OML or AML; and
• there is a contractual notice obligation if a maternity leaver is not returning from maternity leave.

Proposed maternity regime
The proposed maternity regime is as follows:

OML period
The OML period will remain six months (no change).

AML period
This will remain six months. However, the number of employees eligible for AML will expand as all employees who qualify for OML will qualify for AML.

Maternity pay
SMP will be payable on a daily basis, meaning that the commencement of maternity leave and the payment of SMP can be aligned. Currently, SMP can only be paid on a weekly basis, which generally means that maternity leave commences before SMP can be paid.

The SMP pay period will be increased to 39 weeks (ie nine months) from April 2007, with a view to a 12-month payment period by the end of next Parliament.

Notice obligations
An employee who wishes to return early from or extend her maternity leave will have to provide eight weeks’ notice. Employers will therefore have a greater degree of certainty to plan and arrange cover more effectively.

Decision not to return
Employees who do not intend to return from maternity leave will continue to be obliged to comply with their contractual notice obligations. However, where an employee gives advance notice of the intention not to return she will be protected from the loss of accrual of other entitlements (eg holiday) and her contract cannot be terminated earlier than the expiry of the notice period. It is unclear at this stage whether the protection from dismissal afforded to maternity leavers who indicate they do not intend to return from maternity leave will prevent them from being dismissed on the grounds of redundancy (eg in a total closure situation) or in the event of gross misconduct.

Contact
Employers will be entitled to have ‘reasonable contact’ with the employee at any stage of maternity leave in relation to workplace issues, such as vacancies, redundancy exercises, plans for returning to work and so on, with greater certainty that such conduct will not constitute harassment.

‘Keep in touch days’
Maternity leavers will be entitled to work for a limited number of days during their maternity pay period without losing their SMP payments for that week (eg for training). This is in contrast to the current position where maternity leave comes to an automatic end and the entitlement to SMP is lost if an employee works during any period of receipt of SMP (for example, if she comes to work to attend an appraisal).

Additional paternity leave
If a maternity leaver elects to return from the AML period early, the child’s father may then be eligible for additional paternity leave (APL) (possibly paid), subject to satisfying qualifying criteria (see below).

Current paternity leave regime
Key features of the current paternity leave regime are as follows:

• an employee can take blocks of ordinary paternity leave (OPL) of one or two weeks’ duration;
• statutory paternity pay is payable at the applicable rate of SMP;
• OPL is to be taken within 56 days of the birth;
• OPL is available for an adoptive parent not taking adoption leave;
• the employee is protected from detrimental treatment and unfair dismissal;
• the employee has the right to return to the same job;
• OPL is available for any employee with 26 weeks’ continuous employment by the end of the 15th week before the EWC if he expects to have responsibility for the child’s upbringing and is the biological father or is the partner (married or unmarried of the child’s mother).

Proposed paternity leave regime
The proposed paternity leave regime is as follows:

APL
A maximum 26 weeks’ APL period will be available for eligible fathers. APL must be taken in single blocks.

The eligibility criteria for APL will be ‘similar’ to existing paternity leave eligibility provisions. (Further consultation on this will take place. However, eligibility is likely to be linked to continuity of service.)

APL is only available if the mother returns to work during AML.

The employee must give eight weeks’ notice of the intention to take additional paternity leave.

Additional paternity pay
Additional paternity pay will be available (at the prevailing SMP rate) if certain criteria are satisfied, ie the father is eligible for APL and the mother has not exhausted her SMP allowance before she returns to work. For example, if the mother returns to work after nine months, the father will, if eligible for paternity leave, be entitled to three months’ unpaid APL. In contrast, if the mother returns after six months’ OML, the eligible father is entitled to six months’ APL, during three of which he will receive additional paternity pay.

Returning to work
If the father returns to work during APL, this will lead to loss of remaining paternity leave entitlement and any remaining paternity pay.

Eligibility
For employers to assess eligibility for APL and additional paternity pay it is currently proposed that evidence would be provided via a form completed by the mother, the father and the mother’s employer.

Uncertainties
How the proposals will operate in practice will be set out in guidance and regulations in relation to which further consultation is to be carried out. At this stage a number of issues remain uncertain:

• Will employees returning from APL have the same rights as returners from OML or OPL, ie the right to return to the same job? If so, this is quite onerous on the employer, who will have to keep the job open and may be unable to find suitable cover.
• Will employees absent on paternity leave be protected in the same way as maternity leavers in the event of a redundancy exercise, ie will they be entitled to be offered suitable vacancies ahead of other comparable redundancy candidates?
• Where employers operate enhanced maternity pay schemes during the AML period, will employees on APL be entitled to similar enhanced payment on the grounds that the absence is essentially for the same purpose (albeit that it is labelled differently) and that a failure to provide the same level of pay and benefits constitutes sex discrimination? The government has stated that there will be no legal obligation on employers to provide enhanced contractual payments for fathers taking additional paternity leave. However, the legal basis for avoiding a sex discrimination claim in this respect is not entirely clear.
• In reality, given the present modest take-up rate of statutory paternity leave, it is unlikely that the take up rate of APL will be much greater given that a maximum of three months of leave is payable at the applicable SMP rate and in some cases may not be payable at all. It is likely the take-up will be greatest where the economics of the household are such that it is economically more viable for the mother to return to work after OML and for the father to remain at home caring for the child.

Flexible working request regime
At present, eligible employees are entitled to ask their employers to put flexible working arrangements in place to allow them to meet their childcare requirements, and employers have a duty to consider seriously such requests. However, there is no absolute right to flexible working arrangements. To be eligible to make such a request, an employee must satisfy the following conditions:

• they must have at least 26 weeks’ continuous service at the date of the request and be either:
  1. the biological parent, guardian, adopter or foster carer of the child; or
  2. married to, or the partner of, a person listed at (i) above and living with the child; and
  3. responsible for the upbringing of the child;
• the child must be under the age of six (or 18 if a disabled child) at the date of request;
• the application must be made in writing and be to enable the employee to care for the child; and
• no similar flexible working request should have been made in the preceding 12 months.

Carers of disabled or sick adults
Under the proposed regime the right to request flexible working arrangements will be extended to carers of adults from April 2007. The broad intention is that employees who have carer responsibilities for disabled or sick adults who are unable to care for themselves will have the right to make such a request. The adult need not necessarily be related to the employee and could be a friend or distant relative.

The precise scope of who will be covered by the extended rights will be dealt with in guidance and subsequent regulations. However, the category of carers covered is potentially quite broad. It is expected that the draft regulations will be issued for consultation in 2006.

Under the current regime, a flexible working request may only be made once every 12 months. It is anticipated that this ‘one request a year limit’ will be removed in relation to requests to accommodate care arrangements for adults as a higher degree of flexibility may be required, for example, to deal with care needs arising from an unexpected accident. It is likely that the procedure for dealing with adult carer flexible working requests may be expedited to deal with the urgency of emergency situations that may arise. It is not yet clear whether the agreed flexible working arrangements would be on a permanent basis, or whether they would be limited to the duration of a temporary crisis.

The right to request flexible working arrangements will not be extended to the workforce at large.

Paid holiday entitlement
At present the Working Time Regulations 1998 (WTR) provide that workers are entitled to four weeks’ paid leave per holiday year except in cases where an employee joins or leaves part-way through. For a full-time employee the minimum entitlement is therefore 20 days. It is not uncommon in some industry sectors for employers to grant the minimum holiday entitlement and to state that it is inclusive of all bank holidays.

As part of the Work and Families Bill the government proposes to extend the minimum holiday entitlement to four weeks exclusive of bank holidays.

Rolled-up holiday payments: when are they allowed?
The WTR provide that workers are entitled to four weeks’ paid leave per holiday year. No payments may be made in lieu of holiday except on termination of employment.

In the context of employees or workers who have atypical working arrangements (eg casual employees, shift workers and consultants with no fixed number of hours’ or days’ work per week) it is often very difficult to assess what the precise holiday entitlement is because there is no ‘normal’ working week.

In addition, it is often impractical for holiday to be taken during the active part of the employment. The worker is therefore paid a rolled-up rate of pay deemed to be inclusive of holiday pay and is encouraged to take holiday at the end of an assignment or during periods of down time.

The question of whether the payment of a rolled-up rate of pay is permissible for the purposes of the WTR is the subject of a certain amount of judicial uncertainty – the Scottish and the English courts have come to different conclusions on the issue.

Scottish case
The Scottish Employment Appeals Tribunal (EAT) and subsequently the Scottish Court of Session in MPB Structure Ltd v Munro both held that the only means of ensuring that the provisions of the WTR could be met was for the holiday pay at the appropriate rate to be paid as and when the holiday was taken.

The decision was reached on the basis that the underlying objective of the WTR was to ensure that workers receive adequate holiday and that requiring employees to retain funds from week to week for holiday purposes militated against this objective.

The Court of Session also held that the employer could not claim credit for that portion of the rolled-up rate attributable to the holiday pay.

English cases
However, in Gridquest Ltd (t/a Select Employment) and others v Blackburn and others the English EAT held that the WTR does require credit to be given for a holiday pay element included in the total weekly remuneration received by an employee.

In 2003, in the consolidated cases of Marshalls Clay Products Ltd v Caulfield and others and Clarke v Frank Staddon Ltd, the EAT held that rolled-up rates of pay could be paid without infringing the WTR.

In 2004 the Court of Appeal approved this decision, stating that there is nothing in the language of the Working Time Directive itself that requires workers to be paid at the time they take their holiday. It then referred to the ECJ two questions in relation to rolled-up holiday pay:

‘1) Is [the Working Time] Directive 93/104/EC consistent with the provisions of national law [ie the Working Time Regulations 1998] which allow pay for annual leave to be included in a worker’s hourly remuneration and paid as part of remuneration for working time but not paid in respect of a period of leave actually taken by the worker?

2) Does [the Directive] preclude the national tribunal from giving credit to an employer for such payments when it seeks to give the applicant an effective remedy according to powers contained in national regulations?’

The Advocate General’s opinion has now been handed down in Caulfield. It stated that rolled-up holiday pay would not contravene the Working Time Directive provided that the workers have an effective possibility of actually taking the minimum annual leave to which they are entitled.

In the Advocate General’s view, a worker is unlikely to have an effective possibility of taking holiday where the contractual agreement is confined to providing a payment for minimum annual leave to be made together with payment of the basic pay without regulating – possibly in a further agreement – the taking of leave itself.

To comply with the Directive the agreement must also identify the precise proportion of holiday pay in remuneration in a transparent fashion, and must represent a genuine increase in the total amount paid.

The opinion also stated that the Directive did not prevent sums shown to have been paid by way of holiday pay from being set off against any claims the worker may have.

The Advocate General’s opinion is not dissimilar to the guidance laid down by the EAT on how to avoid breaching the WTR when using rolled-up rates of pay in Smith v A J Morrisroes & Sons Ltd and J J Cafferkey & Co Ltd v Byrne. The guidance was as follows:

• there must be mutual agreement for genuine payment for holidays, representing a true addition to the contractual rate of pay for time worked;
• the provision for rolled-up holiday pay should be clearly incorporated into the contract of employment
• the percentage or amount allocated to holiday pay (or particulars sufficient to enable it to be calculated) should be identified in the contract, and preferably also in the payslip;
• records should be kept of holidays taken (or of absences from work when holidays can be taken, eg sick leave or general closures); and
• reasonably practicable steps should be taken to ensure that workers take their holidays before the end of the relevant holiday year.

Comment
It remains to be seen whether the Advocate General’s opinion will be followed by the ECJ. If it is, employers may have to be more proactive in terms of actively encouraging or requiring employees to take their holiday. It may also be appropriate to limit the ability to carry holiday forward into the next holiday year. Until the ECJ resolves this issue employers should ensure that, as a minimum, they adhere to the EAT’s guidance in Smith.

Gridquest Ltd (t/a Select Employment) and others v Blackburn and others [2002] IRLR 168; EAT case no 598/00

Marshalls Clay Products Ltd v Caulfield and others; Clarke v Frank Staddon Ltd [2003] IRLR 552; EAT case nos 0198/03, 0589/02

Clarke v Frank Staddon Ltd; Caulfield and others v Marshalls Clay Products Ltd [2004] EWCA Civ 422

Opinion of Advocate General Stix-Hackl, 27 October 2005, on joined cases
C-131/04, CD Robinson-Steele v RD Retail Services Ltd; and C-257/04, Clarke v Frank Staddon Ltd and Caulfield v Hanson Clay Products Ltd, formerly Marshalls Clay Products Ltd

Smith v A J Morrisroes & Sons Ltd and J J Cafferkey & Co Ltd v Byrne [2005] IRLR 72, EAT case nos 0563/04/SM and 0790/03/SM