The legal rights and obligations of employers and employees differ from nation to nation. English employment law is different in many respects even from that of similar common law jurisdictions such as the United States.
Even within the UK, the laws of Scotland and Northern Ireland differ significantly to that of England & Wales.
Given the many nuances and potential pitfalls of UK employment law, it is important for overseas employers wishing to engage UK-based individuals to understand the rights afforded to employees and other types of worker.
This article focuses principally on the rights afforded to employees in England & Wales, who derive such rights from legislation, case law, and the terms of their employment contract, and the ten key risks for overseas employers when engaging UK-based staff.
1. Written contract terms
Employees have a statutory right to receive a written statement of the terms and conditions of their employment on or before the first day of work. That statement must set out key information such job title and description, the place of work, salary and hours.
Employers should therefore ensure that any template contracts contain all the information and terms required under English law. If a non-UK template is used as a starting point this should be adapted to cover all of the relevant details.
2. Employment status
Anyone who wishes to engage the services of a UK-based individual must be careful to correctly categorise the nature of the legal relationship between them. Overseas employers will sometimes be tempted to engage an individual on what is explicitly stated to be a self-employed consultancy agreement. True self-employment will reduce the legal, tax and administrative burden on the party paying for the individual’s services, since many of the obligations described in this article will not apply.
However, courts, employment tribunals and the UK tax authorities (His Majesty’s Revenue & Customs) may disagree with how the parties sought to characterise their legal relationship. The terms of the written agreement will not be determinative, if the true nature of the individual’s role is more resemblant of an employer and employee. There are many relevant factors which will be taken into account when considering an individual’s employment status, requiring analysis on a case-by-case basis.
3. No “at will” employment
Some jurisdictions, including those in the USA, have the concept of “at will” employment, whereby employers have the ability to dismiss an employee for any reason, without notice, provided that the reason for dismissal is not illegal. An employee dismissed in these circumstances cannot bring a claim for loss stemming from the dismissal.
However, no such concept exists in England & Wales. There are minimum periods of notice to terminate employment specified in UK legislation. Employment contracts often specify a longer notice period.
Where the contract allows or the employee agrees, the employer can make a payment in lieu of notice. This allows the employer to terminate the contract of employment with immediate effect by making a payment of salary as a lump sum, rather than the employee working out their notice period.
In addition, many UK employers can require employees under notice of resignation or dismissal to remain away from work and stay out of the market during their notice period. This is typically known as “garden leave”, and may be used where there are concerns about the individual seeking to take client or supplier relationships across to a new firm after their employment terminates.
The notice period specified in the contract is not the only thing to consider, as there is also a statutory right not to be unfairly dismissed, which applies to all employees with over two years’ service. They may only be lawfully dismissed for one of five reasons, the most common of which being redundancy, capability, and conduct. Moreover, an employer must follow a fair procedure when dismissing an employee for any of those five reasons and failure to do so could lead to a claim for unfair dismissal, even if the employee’s notice period is honoured.
4. National Living and Minimum Wage
All workers over compulsory school leaving age are entitled to the national minimum wage (“NMW”). The NMW rates differ depending on the age of the worker and whether or not they are in training. It is a criminal offence for an employer to wilfully refuse to pay the NMW to an employee entitled to it. Additionally, any employee who is not paid the NMW can bring a claim before an employment tribunal.
The NMW rates are usually updated in April each year. From April 2024, the NMW for workers aged 18-20 is £8.60 per hour, and £6.40 per hour for workers under 18 and apprentices. The National Living Wage (“NLW”) applies to workers aged 21 and over and, from April 2024, it is £11.44 an hour.
5. Pensions, tax and benefits
Employers in England & Wales have a legal duty to implement and maintain pension schemes for their workers who are eligible (determined by their age, earnings, and employment status). Employers must ensure that all eligible employees are “automatically enrolled” into a qualifying workplace pension scheme. Employers must also provide eligible employees with information regarding the scheme, their rights (including the right to opt out), and how it affects their remuneration. Both employers and employees must contribute to the scheme, and the combined contribution must be at least 8% of the employee’s yearly salary.
Employers must deduct tax and national insurance (social security) contributions from an employee’s salary at source via the Pay As You Earn Scheme: they cannot be paid gross unless the individual receiving payment is genuinely self-employed. Employers should be careful when determining the employment status of a worker, as HM Revenue & Customs may disagree with the determination (see Employment Status above).
Aside from pensions, other employee benefits are not compulsory, but employers will often make other benefits available to their staff, such as private medical and dental insurance.
6. Holiday
An employee’s entitlement to paid holiday (also known as annual leave, personal time off, paid time off, or “PTO”) varies around the world. In England & Wales, workers in full time employment (i.e. working five days a week) are entitled to a minimum of 28 days paid leave each year. This entitlement can include public holidays, of which there are usually eight per year in England.
An employer must pay their employee their “normal remuneration” whilst on annual leave. This does not necessarily mean basic pay only: there are complex rules on holiday pay which mean that certain other components of pay (such as commission) ought to be included.
7. Sick leave
An employee may also be entitled to pay during a period of sickness absence. There is no statutory limit on the amount of time that employees may take off due to illness or injury. They will be entitled to “statutory sick pay” (“SSP”) after the third day of continuing absence from work and up until the expiry of 28 weeks. The rate of SSP is currently £116.75 a week.
In practice, it is common for employers in a number of sectors to pay an employee their base salary (not just SSP) for a certain period of absence due to sickness or at the employer’s discretion.
8. Family leave
Irrespective of their length of service, pregnant employees are entitled to a total of 52 weeks’ maternity leave. Employees who adopt a child or have a child by way of surrogacy are entitled to the same period of leave. This leave will be partially paid depending on whether the individual meets the statutory eligibility criteria, which requires them to have been employed for a certain period of time before the child is born or adopted. Many employers will enhance this level of pay over and above the statutory amounts.
Employees returning from maternity leave have certain rights under discrimination and employment rights legislation, such as the right to return to the same role and additional protections against redundancy.
Subject to certain qualifying conditions, eligible employees are entitled to up to two weeks of paid paternity leave.
It is possible for two parents to split the maternity leave period under the shared parental leave regime. Subject to the satisfaction of various eligibility and notification requirements, this gives parents the right to share a maximum of 52 weeks’ leave between them.
There are other family rights in UK legislation which allow parents to take time off from work, such as parental leave, time off for dependants and parental bereavement leave.
Overseas employers with UK employees should make sure they are fully compliant with the statutory regimes relating to family leave and pay.
9. Post-termination restrictions
It is common for employment contracts in the UK to contain restrictions on an employee’s activities after their employment has ended. These will typically include restrictions on soliciting or working for the former employee’s clients or customers. These will usually be limited in scope and will last for no longer than 12 months.
It is also possible, in certain circumstances, to impose a non-compete restriction, where the individual is prohibited from working for a competitor for a certain period of time after termination. This will rarely be for longer than six months and in every case may be subject to legal challenge, since there are common law rules which make overly onerous clauses unenforceable.
Although there is no outright prohibition of non-compete clauses in the UK, as is now the case in the United States following the recent Federal Trade Commission ruling, the UK government has recently considered rule changes to limit their duration or require the ex-employer to pay the individual for the period in which the restriction applies. No legislation is expected in the near future, although a change in government following the forthcoming general election may well impact the legal position.
10. Immigration – what are the options for US nationals?
Our immigration team has written comprehensively on the various immigration routes available to use by overseas employers, with a specific focus on what this means for US nationals. You can read the article here.
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