UK employment law: a short guide for US and international businesses
18 October 2023
UK employment law is often unintuitive and surprising for international businesses looking to hire talent in the UK, particularly US-based companies. The gradual parting of ways between US and UK law is very apparent in the field of employment, which has developed in the UK via prominent labour movements, important developments in case law, and, of course, the UK’s former membership of the EU. This can make navigating UK employment law a difficult task for US and international businesses. In this article, we give a brief overview of key differences between UK and US employment law, in particular focusing on five key areas: termination; redundancy; contracts of employment and implied and express terms; maternity rights; and holiday.
Termination: employment ‘at will’?
Whereas in the US, employment ‘at will’ is usually presumed, allowing the employer to hire and fire with significant autonomy, in the UK, the employer is more constrained. Terminating without cause is potentially lawful only in the first two years of employment; even during this period, employees are protected against dismissal for prohibited reasons including pregnancy, whistleblowing, discrimination, and the assertion of trade union rights. UK employees must also be given at least the minimum statutory notice, which is one week for each year of service up to a maximum of 12 weeks.
After two years of service, UK law requires that there be a ‘fair reason’ to dismiss and that the employer follows a ‘fair procedure’. There are five potentially fair reasons for dismissal in law, which are:
The employee’s capability to carry out their role;
The employee’s conduct;
Redundancy of the employee’s role;
Statutory restriction; and/or
Some other substantial reason (a catch-all category which can apply in a variety of circumstances).
If the employer dismisses the employee without a fair reason or does not follow a fair process, the employee can bring an unfair dismissal claim. This is principally a claim for compensation arising from the dismissal. The maximum award for unfair dismissal is subject to a statutory cap which is currently c. £125,000. It’s important to note that this cap does not apply to certain claims including discrimination and whistleblowing.
Redundancy
Whereas in the US, severance payments may be made at the discretion of the employer, in the UK, any employee dismissed for redundancy with two or more years’ continuous service must be paid a statutory redundancy payment (SRP). An SRP is calculated based on the employee’s age, pay, and length of service, with a current maximum of £19,290. Some employers will enhance an SRP with an additional severance payment, which is sometimes made conditional on signing a settlement agreement waiving all claims against the employer. However, the SRP itself cannot be made conditional in this way.
For an employer to fairly dismiss for redundancy, the dismissal must be wholly or mainly due to the fact that:
the business has closed/will close; or
the employee’s workplace has closed/will close; or
there is a reduction in the requirement for work of the kind that the employee is carrying out.
A fair redundancy procedure must also be followed, which involves:
Fairly selecting employees to be made redundant, which usually includes creating an initial pool of employees and then scoring them using objective criteria;
Consultation with all affected employees before a final decision is made; and
Considering alternatives to dismissal, including offering any suitable positions available elsewhere in the business.
If an employer proposes making 20 or more redundancies at a single workplace in a 90-day period, they must comply with collective consultation requirements. These include notifying the Secretary of State and providing written information to employee representatives; to this extent, there is some analogy with the US WARN Act 1988. However, the UK requirements are more burdensome on the employer, since it is under an obligation to consult with an open mind on reducing dismissals or avoiding them altogether. The employer cannot take any final decision, for example, to close a workplace, until the consultation is complete. If these requirements are not met, a tribunal may order the employer to pay all affected employees up to 90 days’ pay (a so-called ‘protective award’). This will not be reduced by pay already received.
Contract of employment and implied and express terms
Unlike in the US, where the express contract between the parties will often be in the form of an offer letter and a separate confidentiality and intellectual property agreement, UK employees should have a detailed written contract of employment. Under UK law, the employment contract needs to contain extensive information on all of the terms of employment.
In addition to the written contract, UK employment contracts also contain a number of unwritten terms which are implied by law or modified by statute. Terms which are modified by statute include the minimum notice periods referred to above and the requirements to pay the statutory minimum wage and to abide by limits on working time. Terms implied by law include the employee’s duty of fidelity (to act honestly and in good faith), a fiduciary duty for directors and senior executives, and the key term of ‘mutual trust and confidence’. These implied terms give rise to many duties which constrain the employer’s actions and which can even modify the way the employer exercises express contractual terms. For example, an employer may have a contractual right to change the employee’s workplace location (a ‘mobility clause’) or a power to award discretionary bonuses, but these powers must still be exercised reasonably in accordance with the implied term of mutual trust and confidence.
US businesses should also be aware that any ambiguity in the terms of a UK employment contract will typically be construed in favour of the employee. This rule of contractual interpretation means that it is particularly important that a UK employment contract is carefully drafted and ambiguity is avoided.
Maternity rights
In the UK, all employees, regardless of length of service, qualify for 52 weeks’ statutory maternity leave. Employees may return to work at earlier than 52 weeks if they wish, but an employer cannot compel this. However, the first two weeks following childbirth are compulsory maternity leave, and employers are criminally liable if they allow employees to work during this period.
Employees with 26 weeks’ continuous service at the end of the 15th week before the estimated week of childbirth have a right to receive statutory maternity pay (SMP), which is payable for up to 39 weeks and is currently paid at 90% of contractual salary for six weeks and £172.48 per week thereafter. Many UK employers also enhance SMP with contractual maternity pay.
Following maternity leave, employees have a right to return to the same job or, in some circumstances under which this is not reasonably practicable, a suitable alternative job with terms not less favourable than those of the previous role.
If an employee’s role becomes redundant while she is on maternity leave, she must be offered any suitable alternative vacancy in preference to affected employees who are not on maternity leave, which is a rare example of lawful positive discrimination (which is typically not permitted in the UK).
Employees are protected from pregnancy and maternity discrimination from the start of pregnancy until they return to work. Dismissing an employee or selecting her for redundancy for reasons related to pregnancy or maternity will result in an ‘automatic unfair dismissal’ claim.
Holiday
UK law, as with all jurisdictions in the EU, considers holiday to be a facet of health and safety law. Holiday leave and pay are heavily protected in law, and this has been an area of significant litigation. UK employees are entitled to a minimum of 28 days’ holiday per year, including bank holidays. Many UK employers offer more than this minimum entitlement (around 33 days per year being typical).
As a result of the health and safety aspect of UK holiday requirements, there are important differences with the US concept of ‘paid time off’ (‘PTO’). In the UK, for example, holiday cannot be paid in lieu by the employer (apart from on termination) or traded between employees, since either would be deemed to undermine the purpose of the law. The popular US concept of ‘unlimited PTO’ is also an awkward fit with UK holiday law, due to the relatively generous minimum UK holiday entitlement and the mandatory nature of holiday leave and pay in the UK.
How we can help
We often advise US and international businesses on their UK operations, providing pragmatic, commercial solutions which minimize disruption to our clients’ organisations. If you have any questions on how to navigate UK employment law, please contact the team at Synchrony Law.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.