Employment Law and the Retained EU Law Act 2023

On 29 June 2023, the Retained EU Law (Revocation and Reform) Act 2023 completed its passage through Parliament and was granted Royal Assent.  Its journey has not been a smooth one.  From the outset, the Act provoked controversy, uniting trade unions, industry bodies and employers against it for the uncertainty it threatened to introduce.

The Act was introduced to “restore Parliamentary sovereignty” following the UK’s departure from the EU and to enable the government to create regulations “tailor-made to the UK’s needs” by ending the special status of retained EU law in the UK.

In May 2023, the government undertook a major reversal in approach when it removed the key sunset provision from the Act.  Originally, the government had intended that the Act would revoke all EU-derived secondary legislation (including TUPE and the Working Time Regulations), as well as retained direct EU legislation.  However, having acknowledged the scale of the task involved in identifying all such legislation, the government replaced the sunset provision with a list of around 600 pieces of legislation which will be repealed at the end of 2023.  (None of the legislation contained in the list is significant from an employment law perspective.)

While the new approach provided some immediate certainty for businesses, the Act contains other sunset provisions which impact the content and operation of retained EU law and rules of interpretation.  From January 2024, the Act will:

  • Abolish directly effective rights
  • Bring an end to the principle of supremacy of EU law and
  • Remove EU interpretative principles from UK law

These changes will have far-reaching consequences for employment law.

Abolition of directly effective rights – impact on equal pay

Currently, directly effective rights from EU treaties can be invoked by claimants before UK courts.  Courts can look beyond the wording of UK legislation to enforce such rights.  However, from the end of 2023, directly effective rights will no longer be recognised or enforceable.  

An important example of a directly effective right is article 157 of the Treaty on the Functioning of the EU, which enshrines the principle that men and women should receive equal pay for equal work.  Although claimants will still have the protection of the equal pay provisions of the Equality Act 2010, article 157 allows for comparisons with workers who were not employed by the same or an associated employer, but whose terms and conditions were attributable to a single source.  

Article 157 is currently being relied upon by thousands of female supermarket workers in their claims for pay parity with male distribution workers. Although their claims can continue, article 157 cannot be relied upon by future claimants in respect of acts occurring after the end of 2023.

Sunset of supremacy of EU law

The Act brings an end to the principle of the supremacy of EU law in the UK.  Under this principle, EU law takes precedence in the event of an incompatibility with UK law.  This principle has led courts and tribunals to read words into the Working Time Regulations 1998 to achieve an interpretation compatible with the Working Time Directive.  The effect has been to substantially improve worker rights, including in relation to the rate of holiday pay to which they are entitled, and the ability to carry over holiday in the event of sickness, maternity leave or in circumstances where an employer refused to recognise a right to take paid annual leave.  

Removal of general principles of EU law 

At the end of 2023, general principles of EU law will cease to form part of UK law.  This means that courts will no longer consider questions of interpretation in line with EU principles, including proportionality, purposive interpretation and legal certainty.  EU principles have been a particular feature of TUPE cases, including in relation to fundamental questions on the application of TUPE, such as how to define an “economic entity” and what constitutes the transfer of an undertaking.  

Impact of the Act

Going forward, the Act will change the way that EU-derived law is interpreted in the UK, but it will also undermine the existing body of case law, creating doubt about the scope, meaning and application of key EU-derived employment rights.  This uncertainty will make it difficult for businesses to understand their obligations and for employees to understand their rights.  Challenges, disputes and litigation are likely to flow. 

What next?

Six months remain until the Act’s sunset provisions take effect.  Before then, it is possible that the government will use its powers under the Act to restate or amend secondary retained EU legislation.  We have already seen some steps in this direction with the government’s Smarter regulation to grow the economy paper in which changes were proposed to working time rules and TUPE obligations.

The power to revoke, restate or amend applies until 23 June 2026 and may be used in respect not only of secondary legislation but also primary legislation, where retained EU law provisions were inserted by secondary legislation.  This would include certain provisions of the Trade Union and Labour Relations (Consolidation Act) 1992.

The government also has the option to write back into domestic law the principles established in retained EU case law in order to avoid an unintended change in the effect of employment rights.  As yet, the government has given no indication as to how or whether it will use this power to codify aspects of employment law.  

With the employment law landscape set to shift, we will be keeping a close eye on government policy announcements over the coming months. 

For more detail on the Retained EU Law (Revocation and Reform) Act 2023, please see our client alert.