Global HR News

Ontario Court of Appeal challenges RSU forfeiture provisions on termination

A recent decision from the Ontario Court of Appeal has significant implications for employers that use Restricted Stock Units (RSUs) and other forms of equity-based compensation as part of employee reward packages. The ruling suggests that common forfeiture provisions, which seek to end vesting immediately upon termination, may be unenforceable where they conflict with minimum employment standards legislation.

The case

The decision arose from a dispute involving an employee who had received substantial RSU grants as part of his compensation package following the acquisition of his business by Dr. Daniel Wigdor's employer. The relevant RSU agreements provided that unvested awards would be forfeited immediately upon termination and that vesting would not continue during any notice period, whether contractual, statutory or common law.

Following his dismissal, the employee challenged the enforceability of those provisions and sought compensation for RSUs that would have vested during the applicable notice period.

Court finds conflict with employment standards legislation

The Ontario Court of Appeal concluded that the forfeiture provisions contravened Ontario's Employment Standards Act (ESA). The Court found that RSU entitlements formed part of the employee's compensation package and constituted a "term or condition of employment" protected during the statutory notice period.

The decision emphasises that employees who receive pay in lieu of notice should generally be placed in the same financial position as they would have been had they worked through the statutory notice period. As a result, provisions that automatically terminate vesting rights during that period may be vulnerable to challenge.

Significant financial consequences

The practical impact of the case was substantial. The Court awarded compensation for RSUs that would have vested during the applicable notice period, resulting in an award worth approximately US$4.7 million. While the value involved was unusually high, the principles established by the decision could affect a broad range of equity incentive arrangements.

Implications for equity incentive plans

The judgment raises important questions for employers that rely on equity plans containing automatic forfeiture provisions. In particular, employers should not assume that clear contractual wording alone will be sufficient where the provision conflicts with statutory employment protections.

The Court focused on the fact that the RSUs formed part of the employee's overall compensation and were incorporated into the employment relationship through contractual and plan documentation. This reinforced the conclusion that the awards attracted protection during the statutory notice period.

Notably, the Court did not determine that all forms of equity compensation automatically constitute wages under the ESA. Instead, its analysis centred on the protection afforded to terms and conditions of employment during the statutory notice period.

Practical steps for employers

Employers with Canadian operations, particularly in Ontario, may wish to review:

• RSU, share option and other equity incentive plans
• termination provisions within employment contracts
• vesting and forfeiture language contained in plan documents
• corporate transaction agreements that include equity-based compensation arrangements
• existing practices relating to notice periods and compensation continuity.

For multinational organisations, the decision also highlights the importance of ensuring that global equity plans are reviewed against local employment law requirements rather than relying on a single standard approach across jurisdictions.

Ontario Court of Appeal brings greater certainty to termination causes

Ontario employers have received welcome guidance from the Ontario Court of Appeal following a series of conflicting decisions regarding the enforceability of termination provisions in employment contracts. In two recent appeals, the Court confirmed that commonly used wording allowing an employer to terminate employment "at any time" or "for any reason" will not automatically render a termination clause unenforceable.

Background to the dispute

For several years, Ontario courts have closely scrutinised termination clauses, often striking them down where they appeared inconsistent with the minimum standards set out in the Employment Standards Act, 2000 (ESA). Employers faced increasing uncertainty as seemingly minor drafting issues could result in termination provisions being declared unenforceable, exposing employers to significantly larger common-law notice obligations.

The recent Court of Appeal decisions arose from two cases that reached different conclusions regarding similar contractual wording. The Court took the opportunity to clarify how termination clauses should be interpreted and confirmed a more practical and common-sense approach to contractual interpretation.

"At any time" does not automatically breach the ESA

A key issue was whether wording allowing an employer to terminate employment "at any time" or "for any reason" was inherently inconsistent with the ESA because the legislation prohibits dismissals in certain circumstances, such as during protected leave or as retaliation for exercising statutory rights.

The Court concluded that this type of language should not automatically invalidate an otherwise lawful termination clause. Rather than focusing on highly technical interpretations of isolated words, courts should consider the agreement as a whole and assess its objective meaning in context.

Clarification on "just cause" provisions

The Court also addressed provisions dealing with dismissal for cause. It confirmed that a clause permitting termination for just cause without notice or compensation may remain enforceable where it expressly preserves any minimum entitlements required by the ESA.

This aspect of the decision is particularly significant because deficiencies within "for cause" provisions have frequently been used to invalidate broader termination arrangements. The Court's ruling narrows the circumstances in which such arguments are likely to succeed.

A more practical approach

Perhaps the most important takeaway is the Court's endorsement of a common-sense approach to interpreting employment agreements. Rather than searching for theoretical conflicts based on isolated language, the focus should be on the parties' overall intention and whether the agreement, properly interpreted, complies with statutory minimum standards.

The decision is expected to provide greater predictability for employers and reduce some of the uncertainty that has surrounded termination clause drafting in Ontario in recent years.

Practical considerations for employers

Despite the positive outcome for employers, the decision should not be seen as a licence to rely on outdated contractual wording. Organisations should continue to review employment agreements regularly to ensure compliance with evolving case law and statutory requirements.

AI-generated employment claim results in rare costs order

A recent decision of the Australian Fair Work Commission highlights the risks of relying on artificial intelligence to pursue employment claims without properly reviewing the accuracy and relevance of the material produced. In an unusual outcome, a self-represented former employee was ordered to contribute towards his former employer's legal costs after pursuing an unfair dismissal claim that had no reasonable prospects of success.

The background

The case involved a former employee of ALDI who lodged an unfair dismissal claim shortly after his employment ended. To bring such a claim, employees must satisfy a minimum period of service requirement. In this case, the employee had been dismissed just three days before completing the necessary qualifying period.

Despite receiving repeated explanations from the Fair Work Commission that he did not meet the eligibility requirements, the employee continued to pursue the claim using submissions that were largely generated with the assistance of AI. The Commission found that the submissions repeatedly failed to address the central legal issue affecting the claim.

AI is not a substitute for legal judgment

The Commission stressed that the problem was not simply the use of AI itself. Rather, the issue was the employee's failure to critically assess the AI-generated material or engage with the guidance and evidence provided throughout the proceedings.

Although some of the AI-generated legal authorities and arguments were broadly accurate, they did not address the fundamental reason why the claim could not succeed. The employee ultimately accepted at the hearing that he was not eligible to bring the unfair dismissal claim and withdrew the application.

Rare costs order

The Australian Fair Work Commission is generally a jurisdiction where each party bears its own legal costs. Costs orders are therefore relatively uncommon and are usually reserved for exceptional circumstances.

In this case, the Commission concluded that the employee had acted unreasonably by continuing to pursue the proceedings despite multiple warnings that the claim lacked merit. As a result, he was ordered to contribute AUD$1,230 towards ALDI's legal costs.

New AI disclosure requirements

The decision comes at a time of increasing concern about the use of AI in employment litigation. According to information released by the Fair Work Commission, AI-assisted applications are becoming increasingly common. In response, the Commission has announced that from October 2026 litigants will be required to disclose their use of AI and confirm that any AI-generated material has been reviewed and verified for accuracy. The aim is not to prohibit AI use, but to reinforce the principle that parties remain responsible for the content of their submissions regardless of how they are prepared.

For employers, the ruling reinforces a familiar principle: robust documentation and a clear understanding of the relevant legal issues remain the strongest defence against unmeritorious claims, regardless of whether those claims are drafted by a lawyer, an employee or an AI tool.

AI is not a substitute for legal judgment

The Commission stressed that the problem was not simply the use of AI itself. Rather, the issue was the employee's failure to critically assess the AI-generated material or engage with the guidance and evidence provided throughout the proceedings.

Although some of the AI-generated legal authorities and arguments were broadly accurate, they did not address the fundamental reason why the claim could not succeed. The employee ultimately accepted at the hearing that he was not eligible to bring the unfair dismissal claim and withdrew the application.

Rare costs order

The Australian Fair Work Commission is generally a jurisdiction where each party bears its own legal costs. Costs orders are therefore relatively uncommon and are usually reserved for exceptional circumstances.

In this case, the Commission concluded that the employee had acted unreasonably by continuing to pursue the proceedings despite multiple warnings that the claim lacked merit. As a result, he was ordered to contribute AUD$1,230 towards ALDI's legal costs.

New AI disclosure requirements

The decision comes at a time of increasing concern about the use of AI in employment litigation. According to information released by the Fair Work Commission, AI-assisted applications are becoming increasingly common. In response, the Commission has announced that from October 2026 litigants will be required to disclose their use of AI and confirm that any AI-generated material has been reviewed and verified for accuracy. The aim is not to prohibit AI use, but to reinforce the principle that parties remain responsible for the content of their submissions regardless of how they are prepared.

For employers, the ruling reinforces a familiar principle: robust documentation and a clear understanding of the relevant legal issues remain the strongest defence against unmeritorious claims, regardless of whether those claims are drafted by a lawyer, an employee or an AI tool.

Proposed work-from-home rules could have wider workplace implications

Australian employers should keep a close eye on a proposed new work-from-home provision for the Clerks – Private Sector Award 2020. Although the proposal is aimed at clerical and administrative employees, developments under this award are often viewed as a testing ground for broader workplace reforms and may influence future changes across other sectors.

No automatic right to work from home

Importantly, the proposal would not create a general entitlement for employees to work remotely. Instead, it would introduce a formal framework through which employees could request to work from home or from another employer-approved location. Any arrangement would still require employer agreement.

This reflects the Fair Work Commission's attempt to recognise the growing prevalence of hybrid working while maintaining flexibility for employers to determine whether remote working is appropriate in particular circumstances.

What would the new clause require?

Under the proposed framework:

• employees would be able to submit written requests for work-from-home arrangements
• requests would need to specify the proposed remote-working days
• employers and employees could agree to modify certain award provisions dealing with matters such as working hours, meal breaks, shift arrangements, make-up time and time off in lieu
• any agreement would need to be documented in writing
• the arrangement would be voluntary and capable of being ended in accordance with agreed terms
• employers would be required to retain records of the arrangement and provide copies to affected employees.

Why the proposal matters beyond clerical staff

The significance of the proposal extends beyond the clerical workforce. The Clerks Award is one of Australia's most widely used modern awards and has often been used to pilot administrative and workplace reforms before broader implementation elsewhere. As a result, changes introduced here may influence future award provisions covering other categories of employees.

The Fair Work Commission has specifically recognised that remote working has become deeply embedded in many clerical and administrative roles and may have wider implications for workforce participation and workplace flexibility.

A shift towards formalising existing practices

Evidence reviewed by the Commission suggested that many employers already operate informal work-from-home arrangements. One concern identified during the review process was that some existing arrangements may not fit comfortably within the current structure of award provisions, potentially creating compliance risks for employers.

The proposed clause is therefore designed to provide a clearer legal framework for arrangements that are already commonplace in many workplaces.

Why this matters

The proposal demonstrates that remote and hybrid working remain an active area of employment law reform in Australia. While it stops short of creating a legal right to work from home, it would establish a formal mechanism for requesting and documenting remote-working arrangements. If implemented, it could become an important model for future award modernisation across a wider range of occupations.

Proposed non-compete ban could be far broader than expected

Australian employers should prepare for what may become the most significant reform to post-employment restraints in decades. Following publication of the draft Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026, it is now apparent that the Government's proposals extend far beyond simply restricting non-compete clauses for lower-paid workers.

What was expected?

Most commentators anticipated restrictions on traditional non-compete clauses for lower-income employees, reflecting the Government's earlier policy announcements. These are provisions that prevent an employee from joining a competitor or establishing a competing business after leaving employment.

However, the exposure draft released in September 2026 goes considerably further.

A wider restraint reform than anticipated

According to the draft legislation, the proposed reforms would:

• prohibit non-compete clauses for employees earning less than the high-income threshold
• prohibit clauses preventing former employees from recruiting or 'poaching' colleagues
• restrict the use of cascading or waterfall restraint clauses
• introduce new limitations on certain non-solicitation provisions
• make broader changes to competition law affecting workforce and remuneration arrangements between businesses.

This means employers may need to reassess not only non-compete clauses but also a wider category of post-employment protections that are commonly used in employment contracts -and executive agreements.

Why this is significant

Historically, Australian employers have relied on post-employment restraints to protect client relationships, confidential information, workforce stability, goodwill and business connections, investments in employee development etc.

While Australian courts have always scrutinised restraints carefully and required them to be reasonable, employers have nonetheless retained the ability to enforce appropriately drafted restrictions in many circumstances.

The proposed reforms could substantially alter that position for a significant portion of the workforce.

Potential impact on existing contracting practices

Many Australian employers currently rely on layered restraint provisions, often using cascading time periods and geographic restrictions to maximise enforceability. The exposure draft specifically identifies these styles of clauses as an area of concern.

The proposal also raises questions about the future effectiveness of employee non-solicitation provisions and team-move protections that employers have traditionally used as alternatives to broader non-compete arrangements.

If post-employment restrictions become harder to enforce, employers may place greater emphasis on:

• robust confidentiality clauses
• intellectual property protections
• garden leave provisions (where available)
• stronger employee retention initiatives
• succession and client relationship planning.

Shanghai: Major change to sick leave pay rules creates cost-saving opportunities for employers

Shanghai employers are facing one of the most significant employment law changes in recent years following the expiry of the long-standing local sick leave rules known as Circular 83. From 16 August 2026, Shanghai has effectively moved away from its historically generous local regime and reverted to the national minimum standards, potentially giving employers far greater flexibility in determining sick leave pay.

What has changed?

For many years, Shanghai operated under a local framework that required employers to calculate sick leave pay using a service-based formula. Under Circular 83, employees with longer service could receive a relatively high proportion of their normal salary whilst absent due to illness.

However, Shanghai allowed Circular 83 to expire on 15 August 2026 without replacing it. The Shanghai labour authorities have confirmed that, in the absence of new local rules, the national standards now apply, and no replacement Shanghai-specific regime is currently planned.

The new minimum standard

Under the applicable national rules, employers must continue paying employees during their statutory medical treatment period, but the amount can be significantly lower than under the former Shanghai model. The key requirement is that sick leave pay must not fall below 80% of the local minimum wage.

Based on Shanghai's current monthly minimum wage of RMB 2,740, the minimum permissible sick leave payment is now RMB 2,192 per month.

Importantly, this is a statutory floor rather than a prescribed payment rate. Employers remain free to offer higher levels of sick pay if they choose.

Why employers welcome the change

The end of the service-based regime removes a significant cost burden for some employers, particularly in sectors where long-term sickness absence has created substantial salary continuation obligations. The new framework allows greater flexibility to design sick leave policies that reflect an organisation's commercial priorities and reward philosophy.

For multinational employers operating in China, the change may also help bring Shanghai into closer alignment with employment practices elsewhere in the country.

Existing policies may still create problems

The change does not automatically allow all Shanghai employers to reduce sick leave pay immediately. One of the most important points highlighted in the commentary is that existing employment contracts, employee handbooks and internal policies may continue to be legally binding if they provide for more generous sick leave benefits.

This means employers must distinguish between what the law now requires and what the organisation has already promised employees contractually or through internal rules.

EPFO wage ceiling increased to INR 25,000 – A significant expansion of social security coverage

India has introduced one of the most significant changes to its Provident Fund regime in more than a decade. The Ministry of Labour & Employment, following approval by the Union Cabinet, has increased the wage ceiling for mandatory coverage under the Employees’ Provident Fund Organisation (EPFO) from INR 15,000 to INR 25,000 per month, effective 17 September 2026. This is expected to bring approximately 5.1 million additional employees within the scope of mandatory social security coverage.

What has changed?

The revised wage ceiling was introduced through Notification No. S.O. 5109(E) dated 17 September 2026 under the Code on Social Security, 2020. The change takes effect immediately from the date of publication and replaces the earlier threshold established under Notification S.O. 2702(E).

The previous threshold of INR 15,000 had been in place since September 2014. The Government has stated that the increase reflects wage growth, rising incomes and the expansion of formal employment over the intervening period.

Expanded mandatory coverage

The practical effect of the reform is that employees earning between INR 15,001 and INR 25,000 per month may now fall within mandatory EPFO coverage, subject to the usual statutory eligibility rules.

These employees will gain access to:

• provident Fund benefits
• employees' Pension Scheme (EPS) benefits
• employees’ Deposit Linked Insurance (EDLI) coverage.

This significantly enlarges the population of workers receiving statutory retirement and social security protection.

Impact on employers

Employers will need to identify employees whose statutory wages fall within the newly covered salary band and assess whether mandatory enrolment now applies. Practical actions are likely to include:

• reviewing payroll data
• identifying employees earning between INR 15,000 and INR 25,000
• registering newly covered employees with EPFO where required
• updating payroll and contribution calculations
• reviewing employee communications regarding benefits and deductions.

The reform may result in increased employer contribution obligations for organisations with significant numbers of employees in this earnings band.

Existing EPF members remain covered

The increase does not affect the continuing membership status of employees who are already EPF members. The principle remains that once an employee becomes a member, subsequent salary increases above the statutory threshold do not automatically remove them from the scheme.

Consequently, employers cannot simply stop contributing because an existing member's salary subsequently exceeds INR 25,000.

Interaction with the new Labour Codes

The change also brings renewed attention to the definition of "wages" under the Code on Social Security, 2020. Employers must be careful when assessing whether employees fall within the new threshold because the Labour Codes adopt a statutory definition of wages that differs from historical payroll practices.

The definition generally includes:

• basic salary
• dearness allowance
• retaining allowance (where applicable).

Certain allowances remain excluded, although the Labour Codes contain the well-known 50% rule that may result in portions of some excluded allowances being treated as wages for statutory purposes.

Why this matters

This is the largest increase in the EPFO wage ceiling since 2014 and represents a significant expansion of India's social security framework. For employers, the key challenge will be identifying newly covered employees and ensuring that payroll and enrolment processes are updated promptly. For employees, the change extends provident fund, pension and insurance protections to a broader section of the workforce.

Practical takeaway

Employers should immediately review employees earning between INR 15,000 and INR 25,000 per month, assess whether mandatory EPFO coverage now applies and update payroll systems accordingly. The revised wage ceiling became effective on 17 September 2026 and may significantly increase both coverage obligations and contribution costs.

Supreme Court clarifies time limits for employee-invention compensation claims

Employers operating innovation-driven businesses in South Korea should take note of a recent Supreme Court ruling that provides important clarification on employee-invention compensation claims. The decision addresses both the legal nature of these claims and the point at which the limitation period for bringing a claim begins to run.

Understanding employee-invention compensation

Under South Korea's Invention Promotion Act, employees who assign rights to inventions developed in the course of their employment, or grant exclusive licences to their employer, may be entitled to compensation. These so-called 'employee inventions' are common in industries such as technology, pharmaceuticals, engineering and manufacturing where innovation forms a significant part of the employment relationship.

The recent Supreme Court decision considered whether such compensation rights arise from contractual arrangements established by employers or whether they are statutory rights created by law.

Compensation rights are statutory rights

The Court reaffirmed that an employee's entitlement to compensation for a service invention is fundamentally a statutory right rather than a purely contractual one. This remains the case even where an employer has established internal policies, compensation schemes or employment contract provisions governing the payment of invention-related rewards.

According to the Court, company policies generally serve to implement or supplement the statutory entitlement rather than replace it. As a result, employers cannot assume that contractual provisions alone determine the existence or scope of an employee's rights.

Clarifying the limitation period

Perhaps the most significant aspect of the judgment concerns when the limitation period for bringing an employee-invention compensation claim begins to run. Prior to this decision, there had been uncertainty regarding the appropriate starting point.

The Supreme Court clarified that the limitation period may begin either:

When the employer acquires the rights to the employee's invention or on the date specified in the employer's compensation policy for payment of employee-invention compensation.

This guidance provides greater certainty for both employers and employees when assessing whether claims remain enforceable.

Implications for employers

The decision highlights the importance of maintaining carefully drafted invention compensation policies and ensuring that internal procedures clearly identify how, when and on what basis compensation will be paid. Organisations that rely heavily on employee innovation may wish to review:

• employee invention policies and procedures
• employment contract provisions relating to intellectual property ownership
• compensation arrangements for patents, inventions and other intellectual property
• record-keeping relating to the transfer or assignment of invention rights
• the timing and documentation of compensation payments.

The ruling provides greater legal certainty in an area that is increasingly important for research-intensive and technology-focused businesses. By confirming the statutory nature of employee-invention compensation rights and clarifying when limitation periods begin to run, the Supreme Court has established a clearer framework for the administration of invention reward programmes and future disputes.

New tribunal guidance raises the stakes for terminations

A recent decision of the Singapore Employment Claims Tribunals (ECT) has provided important guidance on when a dismissal may be regarded as being 'without just cause or excuse' under the Employment Act. The ruling serves as a reminder that compliance with contractual notice requirements alone may not be sufficient to protect employers from claims.

Contractual compliance is not the end of the story

Traditionally, many employers have assumed that a termination would be legally sound provided they gave the required notice, or made a payment in lieu of notice, in accordance with the employment contract. The ECT has now clarified that this is only part of the analysis. A dismissal can still be found to be 'without just cause or excuse' even where the employer has complied fully with the contractual termination provisions.

The decision highlights the distinction between a lawful contractual termination and a dismissal that satisfies the statutory protections available to employees under Singapore's employment legislation.

The burden may shift to employers

The ECT confirmed that employees bringing a claim must initially produce evidence suggesting that the dismissal was without just cause or excuse. However, once the employee presents evidence that raises legitimate questions about the employer's decision, the evidential burden may shift to the employer to explain and justify the dismissal.

As a result, although employers are not necessarily required to provide detailed reasons at the point of termination, they should expect to justify their decision if a claim is subsequently brought.

Documentation becomes increasingly important

A key message emerging from the decision is the importance of maintaining clear and contemporaneous records. Employers should be able to demonstrate the basis for termination decisions through objective evidence, particularly where performance issues, conduct concerns or business reasons underpin the decision.

The tribunal's approach reflects a broader trend in Singapore employment law towards closer scrutiny of employer decision-making processes and the evidence supporting them.

Practical considerations for employers

Employers operating in Singapore may wish to review their termination processes to ensure that:

• decisions to dismiss are supported by clear business, conduct or performance-related reasons
• evidence supporting the decision is retained and readily accessible
• performance and disciplinary processes are properly documented
• managers understand that contractual notice provisions may not, on their own, eliminate the risk of a wrongful dismissal claim
• records are maintained to demonstrate that decisions were reached fairly and objectively.

Wider implications

The decision forms part of a developing body of Singapore case law that is giving greater substance to statutory protections against wrongful dismissal. Employers should be aware that tribunals are increasingly willing to examine the underlying reasons for a termination rather than simply confirming whether contractual notice requirements were met.

Commission guidance fails to answer key questions on Pay Transparency Directive

With the implementation of the EU Pay Transparency Directive (PTD) already creating significant compliance challenges for employers, many organisations had hoped that recently published guidance from the European Commission would provide practical answers. Instead, the new FAQ document may have created almost as many questions as it answers.

Background: a major new compliance framework

The EU Pay Transparency Directive introduces far-reaching obligations to strengthen equal pay protections and reduce gender pay disparities across Europe. The measures include greater transparency over pay structures, employee information rights, gender pay gap reporting obligations and enhanced enforcement mechanisms.

As employers continue preparing for implementation across multiple jurisdictions, many have been seeking further guidance on how some of the Directive's more complex requirements should operate in practice.

Commission FAQ provides limited practical guidance

The European Commission recently published a document intended to address frequently asked questions about the Directive. However, critics argue that the document falls short of providing the practical clarity many employers had been hoping for.

Areas of continuing uncertainty

The treatment of so-called "bogus self-employed" workers and who should determine whether individuals fall within that category, the interaction between the Directive and collective bargaining arrangements, and which elements of remuneration should be included for reporting and disclosure purposes all remain grey areas. Also, the relationship between the Directive's transparency obligations and data protection requirements under the GDPR is an area that still needs clarification. Many employers are particularly concerned about how to assess "work of equal value" across different positions, and the FAQ document provides little guidance in this respect either.

Limited legal status

One important point for employers is that the FAQ itself does not carry binding legal authority. The document expressly recognises that only the Court of Justice of the European Union can ultimately provide authoritative interpretations of EU law.

As a result, while the FAQ may provide an indication of the Commission's thinking, it does not eliminate the possibility of future litigation or differing interpretations by national courts and regulators.

Implications for multinational employers

For organisations operating across multiple EU jurisdictions, the guidance reinforces the continuing complexity of PTD implementation. This is particularly relevant because implementation across Member States remains uneven, with some countries having progressed further than others in incorporating the Directive into domestic legislation.

Employers should therefore continue preparing for compliance while recognising that a number of important questions may only be resolved through future legislation, regulatory guidance or court decisions.

New guidance on garden leave and company cars during notice period

The German Federal Labour Court has provided important clarification on the use of garden leave provisions and the withdrawal of company car benefits during an employee's notice period. The decision offers valuable guidance for employers reviewing employment contracts and termination practices.

Garden leave clauses require a case-by-case assessment

The Court confirmed that an employee's resignation does not automatically justify placing them on garden leave. Under German law, employees have a recognised interest in continuing to work, even after notice has been given. This interest may include maintaining professional relationships, preserving skills and experience, and avoiding any negative perception associated with being removed from active duties.

As a result, employers cannot rely solely on broad contractual provisions that permit garden leave in every termination scenario. Instead, employers should be prepared to demonstrate that their business interests outweigh the employee's interest in remaining at work in the specific circumstances of each case.

Review existing employment contracts

The ruling does not prevent employers from using garden leave. However, it highlights the risks associated with blanket clauses that provide an unrestricted right to exclude employees from the workplace during their notice period. Contracts are more likely to be enforceable where they identify legitimate grounds for garden leave and make clear that a balancing of interests will be undertaken before the provision is exercised.

Company car benefits

The Court also considered the withdrawal of company cars during the notice period. Where a company car forms part of an employee's remuneration package and is available for private use, employers should exercise caution before removing the benefit. Any contractual right to withdraw the vehicle must be drafted carefully and applied fairly, taking into account the employee's contractual entitlement and the circumstances of the termination.

Practical steps for employers

Employers with operations in Germany should consider reviewing their employment contracts and termination procedures to ensure that:

• garden leave provisions are not drafted as automatic or unrestricted rights
• the business reasons for imposing garden leave can be clearly justified
• decisions are made on a case-by-case basis and documented appropriately
• company car clauses clearly define when the benefit may be withdrawn during a notice period
• termination practices align with current German labour law requirements.

The decision reinforces the German courts' emphasis on balancing employer and employee interests during the notice period. Employers relying on standard garden leave wording or seeking to remove contractual benefits such as company cars should ensure their contractual documentation and procedures are fit for purpose.

Proposed reform could make it easier to exit high-earning employees

The German government is considering employment law reforms that could significantly change how employers manage the departure of highly paid employees. If implemented, the proposals would allow employers greater certainty when terminating certain high earners, potentially reducing severance costs and limiting the risk of reinstatement following successful unfair dismissal claims.

What is being proposed?

As part of its 'Programme for Growth and Employment', the German coalition government has announced plans to introduce new rules from January 2027 affecting employees whose earnings exceed a specified threshold. Based on current figures, this threshold would be approximately €177,000 per year, although the exact amount would change annually because it is linked to Germany's social security contribution limits.

The proposal would apply to only a small proportion of the workforce but could have a significant impact on senior executives and other highly remunerated employees.

Current position

Under existing German employment law, the general principle is that an employment relationship continues if a dismissal is found to be invalid. In most cases, a successful employee has the right to remain employed, creating the possibility of reinstatement even after lengthy litigation.

Although courts can already order the termination of employment in exchange for severance in certain limited circumstances, these exceptions generally apply only to specific categories of employees or situations where the employment relationship has irretrievably broken down.

What could change?

The proposed reform would introduce a broader right for employers to seek judicial termination of the employment relationship for qualifying high earners. Importantly, this could be available even where the employer loses an unfair dismissal case. Instead of being required to reinstate the employee, the employment relationship could be terminated upon payment of court-determined severance.

The validity of the original dismissal would still be subject to judicial scrutiny. However, the practical consequence could be a shift away from reinstatement and towards financial compensation as the primary remedy.

Impact on severance negotiations

One of the most significant implications may be the effect on settlement discussions. At present, the possibility of reinstatement often strengthens an employee's negotiating position when seeking severance payments. If employers can obtain a court-ordered termination more easily, the leverage associated with reinstatement claims may be reduced.

In addition, German law already places statutory limits on severance awards ordered by the courts. As a result, employers may gain greater certainty regarding the financial exposure associated with disputes involving highly paid employees.

Practical considerations for employers

While the proposals have not yet been enacted, multinational employers with operations in Germany should monitor developments closely. If implemented, the reforms could increase certainty when managing senior employee exits and reduce the risk of being required to reinstate high-earning employees.

Proposed reform could double the maximum length of fixed-term contracts

The German government has announced plans to significantly increase employer flexibility when engaging staff on fixed-term contracts. If implemented, the reforms would allow employers to engage employees on fixed-term contracts without needing to provide an objective justification for up to four years, compared with the current two-year limit.

What is proposed?

Under current German law, employers can generally engage an employee on a fixed-term contract without objective grounds for a maximum period of two years, with no more than three extensions during that period. The proposed reform would extend this to four years and permit up to six contract extensions.

The changes form part of the German government's wider programme aimed at promoting economic growth and labour market flexibility. However, at the time of writing, draft legislation has not yet been published, meaning the final shape of the reforms remains subject to change.

Greater flexibility for employers

If enacted, the reforms would provide employers with increased flexibility when managing recruitment, workforce planning and project-based staffing requirements. Businesses would have a longer period in which to assess employees before deciding whether to offer permanent employment. This may be particularly attractive for organisations operating in uncertain economic conditions or industries with fluctuating demand.

Questions remain over rehiring former employees

One of the most notable elements of the proposal is the concept of a 'renewed initial hiring' by the same employer. Current German rules generally prevent employers from engaging an individual on a fixed-term contract without objective grounds if that person has previously been employed by the organisation, subject to limited exceptions developed through case law.

The proposed reforms appear to relax this restriction, but no detail has yet been published regarding how the new rules would operate. Important questions remain regarding whether waiting periods will apply and under what circumstances former employees could be rehired on a further fixed-term basis.

Existing contracts and transitional arrangements

The treatment of existing fixed-term contracts is another area of uncertainty. Until legislation is published, employers cannot be certain whether existing agreements will be permitted to benefit from the extended four-year limit or whether the changes will apply only to new hires. Transitional provisions are therefore likely to be a key feature of any future legislation.

What employers should do now

While the reforms have not yet become law, employers with operations in Germany should monitor developments closely and consider how longer fixed-term engagement periods could impact their workforce strategy. In particular, organisations may wish to review their current use of fixed-term contracts, identify workforce areas where additional flexibility would be beneficial, and consider how any changes may affect recruitment and retention planning.

Workplace relations commission classifies Employer of Record arrangement as agency work

A recent decision of the Irish Workplace Relations Commission (WRC) provides important guidance on how Employer of Record (EOR) arrangements may be viewed under Irish employment law. While EOR structures have become increasingly popular for international businesses seeking to hire employees in Ireland without establishing a local entity, Irish legislation does not expressly recognise the EOR model. The decision therefore offers a valuable indication of how these arrangements may be characterised in practice.

The background

The case involved an employee engaged as a visual effects supervisor through an EOR provider. The employee carried out her day-to-day duties for a third-party organisation, while her employment contracts were signed with the EOR provider. Following the end of her engagement, she brought various employment-related claims, including claims relating to redundancy, notice and payment entitlements.

The EOR provider argued that it was the employee's legal employer under a series of fixed-term contracts and that the employment relationship ended simply because the final fixed-term contract expired. The employee, meanwhile, maintained that the organisation for whom she performed her day-to-day work should be regarded as her true employer.

WRC finds EOR arrangement constituted agency work

A significant aspect of the decision was the WRC's consideration of the EOR structure itself. The Adjudicator concluded that the arrangement fell within the statutory definition of agency work and characterised the EOR provider as an employment agency. Importantly, however, the WRC also confirmed that the EOR provider remained the employee's employer for the purposes of the complaints before it.

In reaching this conclusion, the Adjudicator accepted that the client company exercised day-to-day operational control and supervision over the employee's work. However, the WRC considered this to be consistent with an agency work model and not sufficient to transfer employer status away from the EOR provider.

Claims rejected

Having examined the contractual arrangements and the circumstances of the engagement, the WRC rejected the employee's claims under redundancy, minimum notice, wage and TUPE-related legislation. The Adjudicator accepted that the fixed-term contract had expired in accordance with its terms and that the statutory claims advanced were not made out on the facts.

While the employee was unsuccessful in her claims, the wider significance of the decision lies in the WRC's treatment of the EOR model itself.

Wider implications for businesses using EOR services

The decision will be of particular interest to multinational employers that rely on EOR arrangements to engage workers in Ireland. Previous commentary from Irish employment lawyers has highlighted uncertainty regarding how Irish courts and employment bodies would classify these arrangements because there is no specific legislative framework governing EOR providers.

By characterising the arrangement as agency work, this creates a significant risk to the end user that they will be deemed the employer for the purpose of any claims by an employee under the Unfair Dismissals Acts.

New contractor classification decision shows the limits of The Karshan Test

A recent decision of the Irish Tax Appeals Commission has provided a noteworthy development in the ongoing debate over employee versus contractor status in Ireland. In a recent case the Appeal Commissioner rejected a contractor's argument that he should be treated as an employee for tax purposes, despite a working arrangement that shared many characteristics traditionally associated with employment.

Background: The Karshan framework

The case is particularly significant because it was decided under the five-stage framework established by the Irish Supreme Court in the landmark Karshan (Domino's Pizza) decision in 2023. That judgment is now the leading authority on employment status in Ireland and has generally been viewed as lowering the threshold for finding that an employment relationship exists.

Under the Karshan framework, the analysis considers:

• whether work is performed for remuneration
• whether the worker provides personal service
• whether the engager exercises sufficient control
• whether the overall factual matrix is more consistent with employment
• whether the relevant legislative context requires a particular approach.

The facts

The individual had provided IT services to two companies under a series of written contractor agreements. The arrangement displayed many features that might normally point towards employment:

• more than a decade of continuous and exclusive service
• full-time personal service
• no practical right to provide a substitute
• overtime payments
• significant control by the client companies
• external presentation as part of the businesses.

The contractor argued that these factors demonstrated the existence of a contract of employment.

Passing the first three tests was not enough

The Appeal Commissioner accepted that the arrangement satisfied the first three Karshan "gateway" tests:

• there was work for remuneration
• services were provided personally
• the companies exercised a degree of control over the worker.

However, the contractor failed at the fourth stage of the analysis, which requires a broader assessment of whether the overall relationship is truly consistent with employment.

Economic reality remained important

The Commissioner placed significant emphasis on factors showing that the contractor had consciously structured the arrangement for his own economic benefit. Key considerations included:

• issuing VAT invoices
• claiming business expenses
• absence of holiday pay
• absence of sick pay
• no pension benefits
• the fact that the contractor had helped establish the commercial structure himself.

As a result, the Appeal Commissioner concluded that the arrangement was not, on balance, consistent with a contract of employment despite satisfying the initial tests.

Why the decision is important

The ruling is noteworthy because it demonstrates that the Karshan framework does not automatically transform long-term contractor relationships into employment. While Karshan increased scrutiny of contractor arrangements, this case confirms that the overall commercial reality of the relationship continues to matter.

It is also significant because many advisers had interpreted Karshan as creating a relatively low threshold for employment status findings. The Commissioner's decision suggests there remains scope for genuine contractor arrangements to survive scrutiny where the facts support independent business status.

Despite this employer-favourable outcome, businesses should not view the decision as reducing classification risk. Irish authorities continue to scrutinise contractor arrangements closely, and the Karshan framework remains the primary assessment tool used by Revenue and other regulatory bodies.

Misclassification can have implications across:

• PAYE, USC and PRSI liabilities
• employment rights claims
• social insurance obligations
• potential retrospective assessments and penalties.

INPS Extends Sick Leave Protection to the Day Before the Medical Certificate

Italy's National Social Security Institute (INPS) has introduced an important change to the treatment of sick leave that will benefit employees who are unable to obtain an immediate medical appointment. Under INPS Circular No. 92 issued on 4 September 2026, sickness protection can now extend to the day immediately preceding the issue of the medical certificate, even where the medical examination takes place in a doctor's office rather than during a home visit.

What has changed?

Traditionally, for social security purposes, a sickness absence was generally considered to start on the date the medical certificate was issued.

This date is important because it affects:

• the calculation of the waiting period
• entitlement to sickness benefits
• benefit payment rates
• the maximum compensable period
• associated medical control obligations.

Previously, INPS recognised the day immediately before the certificate only in limited circumstances, principally where the doctor had conducted a home visit. The new guidance expands this protection to include outpatient consultations at a doctor's surgery.

Why was the change introduced?

INPS acknowledged the practical challenges facing employees in obtaining same-day medical appointments. The Institute specifically referred to:

• a reduction in the number of general practitioners.
• increased workloads for family doctors.
• the growing use of scheduled outpatient appointments.
• broader changes in the organisation of healthcare services.

The reform is intended to prevent workers from losing social security protection simply because they cannot secure a medical appointment immediately after becoming ill.

Conditions for backdating

The protection is not automatic. To benefit from the additional day the following must apply:

• the attending doctor must expressly certify that the employee was ill from the previous day
• the relevant field in the electronic medical certificate ('declares to have been ill since...') must be completed
• the backdating can only extend to the immediately preceding day.

The circular does not permit backdating beyond one day.

Important exceptions

The extended protection does not apply where the preceding day was:

• a Saturday
• a Sunday
• a weekday public holiday.

In such circumstances, employees are expected to make use of continuity-of-care or out-of-hours medical services instead.

Impact on employers

While the change is primarily aimed at protecting employees, employers should understand that the recognised start date of sickness absence may now differ from the date of the medical consultation itself.

This may affect:

• sick pay calculations
• waiting-period calculations
• payroll processing
• absence management procedures.

The waiting period remains particularly important because, under many arrangements, the first three days of sickness are treated differently from subsequent periods covered by INPS benefits.

Major expansion of employer information obligations from 5 October 2026

Employers with operations in Spain should prepare for a significant increase in employment information and transparency obligations following the introduction of Royal Decree 723/2026. The new rules, which come into force on 5 October 2026, partially implement the EU's Directive 2019/1152 on Transparent and Predictable Working Conditions and replace the existing regime under Royal Decree 1659/1998.

A significant compliance change

The new framework substantially expands the information employers must provide regarding the essential terms of employment and working conditions. Importantly, employers must comply from 5 October 2026 even though the Spanish Government has not yet published the official guidance document that is intended to assist with implementation.

For multinational employers, this is likely to require a review of Spanish employment contracts, offer letters, onboarding documentation and employee information packs.

Expanded information about employment terms

Under the new rules, employers must provide significantly more detailed information concerning the employment relationship, including:

• identity of the parties
• start date
• expected duration (where applicable)
• place of work
• job duties
• professional group or category
• adequate description of the role.

One particularly noteworthy change is that a simple job description may no longer be sufficient. Employers will generally need to identify the employee's professional category or occupational group expressly.

Greater transparency around pay

The Royal Decree significantly expands pay-related disclosure obligations.

Employees must receive information regarding:

• basic salary
• salary supplement
• variable remuneration arrangements
• calculation methods and eligibility criteria
• method and frequency of payment.

For international employers accustomed to more general contractual remuneration clauses, this may require a greater level of contractual detail than is currently used.

Detailed Working Time information required

The new rules also increase transparency obligations concerning working time.

Employers must provide information covering:

• working hours and schedules
• shift arrangements
• overtime and compensation
• holiday entitlement
• procedures for scheduling changes
• irregular working-time arrangements where applicable.

The focus reflects the broader EU trend towards greater predictability and transparency in working conditions.

Additional information obligations

The scope of required disclosures extends beyond basic contractual terms and includes information relating to:

• probationary periods
• employer-provided training
• termination procedures
• notice requirements
• applicable collective bargaining agreements
• social security arrangements
• pension-related information.

Additional commentary also notes obligations relating to:

• algorithmic decision-making systems
• equality plans
• harassment prevention measures
• LGBTI equality measures
• certain procedures concerning changes to employment or termination.

Existing employees are also affected

While there is generally no requirement to reissue all existing employment contracts automatically, existing employees may request the newly required information.

Where such a request is made, employers will generally have 30 working days to provide it.

This means employers cannot focus solely on future hires; they should also prepare for requests from current employees once the legislation takes effect.

Practical steps for employers

Spanish employers should consider reviewing employment contract templates and assess whether existing HR systems can support the enhanced information requirements and prepare a process for responding to requests from existing employees.

Supreme Court warns employers of the risks hidden within group structures

A recent decision from the Swiss Federal Supreme Court provides an important reminder that, even within multinational corporate groups, employers cannot assume that one group company can act on behalf of another when managing employment relationships. The Court ruled that a parent company could not validly terminate an employee's employment or enter into a separation agreement where the employee was legally employed by a subsidiary.

The facts

The case concerned a senior executive who was originally employed by the parent company of an international group. His employment was later formally transferred to a subsidiary, with the transfer documented in writing and accepted by the employee. Following the transfer, the subsidiary became responsible for paying his remuneration and remained the contractual employer.

Despite this, the executive continued to occupy highly senior group-wide roles. He served in positions including Global Chief Operating Officer and Deputy CEO of the parent company, participated in executive management activities, reported directly to the Group CEO and performed duties across the wider corporate group.

Several years later, the executive entered into a separation agreement with the parent company providing for the termination of his employment and significant compensation payments. When a dispute arose, the matter reached the Swiss courts.

Parent company was not the employer

The Swiss Federal Supreme Court held that the separation agreement was void because the parent company was not the employee's contractual employer. The Court reaffirmed a fundamental principle of Swiss law: a corporate group is not treated as a single legal employer. Each company within the group remains a separate legal entity with its own rights and obligations.

Although the executive worked closely with the parent company and held senior group-wide responsibilities, those operational realities did not alter the legal identity of his employer. The decisive factor was the employment relationship established through the parties' contractual arrangements and their documented intentions.

Operational control does not equal employer status

The judgment will be particularly relevant for multinational businesses where employment structures can be complex. The Court's decision confirms that such arrangements do not automatically transfer employer status. The entity that is party to the employment contract generally remains the legal employer unless there has been a proper transfer of the employment relationship.

Before negotiating a termination or separation agreement within a multinational group, employers should verify which entity is the employee's legal employer. Senior reporting relationships, management responsibilities and group-wide functions may not be enough to give another group company authority to terminate the employment relationship.

Labour Court confirms right-to-work requirements can override employment protection rules

A recent decision from the Swedish Labour Court highlights the importance of immigration compliance and confirms that, in certain circumstances, an employer may terminate employment without applying the usual protections contained in Sweden's Employment Protection Act (LAS). The case concerned an employee who did not hold the work permit required to work lawfully in Sweden.

The facts

The case involved an employee who was an Afghan national holding permanent residence status in Greece and working for a Swedish restaurant business. The employee argued that his Greek residence status allowed him to work in Sweden for limited periods without obtaining a separate Swedish work permit.

The Swedish Labour Court disagreed. It found that while certain immigration rules may permit short-term stays in Sweden, those rules do not remove the separate legal requirement to hold a valid Swedish work permit where one is required. The Court concluded that the employee did not possess the necessary work authorisation at the time his employment ended.

Employment contrary to law

A key aspect of the judgment was the Court's finding that the employment relationship itself was contrary to law because the employee lacked the necessary work permit. The Court noted that employing someone without the required authorisation could expose both the employer and employee to regulatory sanctions and, in some circumstances, criminal liability.

Given those circumstances, the Court held that the employer should have terminated the employment immediately upon discovering the absence of a valid work permit.

Employment Protection Act did not apply

Ordinarily, Swedish employers must comply with the procedural and substantive requirements of the Employment Protection Act when ending employment. However, the Court determined that where an employment relationship has become definitively unlawful because a required work permit is missing, those protections may not apply.

The Court concluded that the employer was entitled to terminate the employment without following the normal Employment Protection Act procedures and was therefore not liable for damages under the legislation. Immigration compliance takes priority.

The judgment reinforces the principle that employers cannot continue employing workers where doing so would breach immigration legislation. The Court emphasised that the legal prohibition on employing an individual without the required permit created a statutory obstacle that took precedence over the normal employment protection framework.

Importantly, the employer was permitted to rely on the employee's lack of a work permit during the proceedings, even though this had not originally been stated as the reason for termination.

The decision serves as a reminder that employers should conduct thorough right-to-work checks before employment begins, monitor visa and work permit expiry dates throughout employment and act promptly where concerns arise regarding an employee's right to work.

Preparing for the next wave of Employment Rights Act Reforms in October 2026

UK employers should now be actively preparing for the next major phase of the Employment Rights Act 2025 implementation programme. Several significant changes are due to take effect during October 2026, affecting employment litigation, workplace harassment, trade union rights and immigration compliance. These changes will have practical implications across HR, employee relations, compliance and record-keeping functions.

1. Employment tribunal time limits double

From 1 October 2026, the limitation period for bringing most employment tribunal claims will increase from three months to six months. The same extension will apply to breach of contract claims in England and Wales.

Practical impact

While the longer limitation period may create more opportunity for early settlement discussions or ACAS conciliation, it will also mean:

• a longer period of uncertainty following dismissals or workplace disputes
• increased document preservation obligations
• greater reliance on employee and manager recollections many months after an event occurred
• potentially longer delays before tribunal hearings given existing tribunal backlogs.

What employers should do

• review document retention practices
• preserve investigation records carefully
• consider taking witness statements earlier in disputes
• ensure managers maintain clear contemporaneous records of key decisions.

2. Stronger duty to prevent sexual harassment

From 30 October 2026, the existing duty to take 'reasonable steps' to prevent sexual harassment will be strengthened to a requirement to take 'all reasonable steps.'

This seemingly small wording change significantly raises the standard expected of employers.

Practical impact

Tribunals are likely to ask not only whether an employer took reasonable preventative measures, but also whether there were any additional reasonable actions that could have been implemented.

What employers should do

• review anti-harassment policies
• conduct updated harassment risk assessments
• refresh workforce training programmes
• audit reporting and investigation procedures
• document preventative actions and follow-up reviews.

3. New liability for third-party harassment

Also effective from 30 October 2026, employers will face a new obligation relating to harassment by third parties. This extends beyond sexual harassment and applies to all protected characteristics.

The duty will cover situations where employees are harassed by:

• customers
• clients
• suppliers
• contractors
• members of the public
• other third parties encountered during employment.

Particular risk areas

This will be especially relevant for employers operating in retail, hospitality, healthcare, and other public-facing services, or those dealing extensively with clients such as professional services.

What employers should do

Employers should take the following steps to prepare for the change:

1. assess customer-facing harassment risks
2. review visitor and client conduct policies
3. ensure reporting mechanisms cover third-party behaviour
4. train managers on how to respond to complaints involving external parties.

4. Trade union reforms

A substantial package of trade union reforms is also expected to take effect on 30 October 2026.

The changes include:

• new worker information rights about trade union membership
• trade union access rights to workplaces
• expanded recognition and representation measures
• changes relating to industrial action protections.

Wider right-to-work compliance changes

Although separate from the October ERA reforms, employers should also note that from 1 October 2026 the Home Office intends to extend illegal working liability beyond direct employees to include wider labour supply chain arrangements.

The proposed framework may affect:

• workers
• agency workers
• individual subcontractors
• substitute arrangements
• platform and gig economy labour models.

For organisations relying on contingent or outsourced labour, this may be one of the most significant compliance changes of 2026.

Holiday pay enforcement set for major overhaul

UK employers should prepare for a significant shift in holiday pay compliance, as the Government moves forward with plans to give the Fair Work Agency (FWA) new powers to enforce statutory holiday pay rights from 2027. The proposals are expected to increase regulatory scrutiny and could expose employers to substantial financial penalties where underpayments are identified.

A new enforcement regime

The Fair Work Agency, established under the Employment Rights Act 2025, is set to become the UK's central labour market enforcement body. From 2027, it will be responsible for enforcing statutory holiday pay rights across England, Wales and Scotland, marking a departure from the current system which relies heavily on workers bringing individual employment tribunal claims.

While employees will retain the right to pursue tribunal claims, the new regime will allow the FWA to investigate employers directly, recover holiday pay arrears on behalf of workers and impose penalties where appropriate.

Six years of potential liability

One of the most significant proposals is the introduction of a six-year enforcement period. Under the consultation, the FWA would be able to investigate holiday pay underpayments going back as far as six years, although enforcement would only apply to underpayments arising after 18 December 2025.

This would give enforcement authorities a much broader window than the existing tribunal system, potentially increasing employer exposure where historic holiday pay calculations have been incorrect.

Significant financial penalties

The Government is proposing to mirror aspects of the National Minimum Wage enforcement regime. Under the consultation proposals, employers could face civil penalties of up to 200% of the holiday pay arrears owed, subject to a maximum penalty of £20,000 per worker and a minimum penalty of £100.

Reduced penalties may be available where employers rectify underpayments promptly, reflecting the Government's intention to encourage compliance rather than punish genuine errors.

Focus on compliance and correction

Importantly, the Government has indicated that the FWA will initially adopt a supportive and compliance-focused approach. Recognising that holiday pay remains a technically complex area, the intention is to encourage employers to identify and correct errors voluntarily before formal enforcement action becomes necessary.

However, employers that fail to engage or repeatedly underpay workers could face investigations and enforcement action.

Record-keeping takes centre stage

The new enforcement regime comes against a backdrop of enhanced holiday record-keeping obligations that took effect on 6 April 2026. Employers are now legally required to maintain records demonstrating compliance with statutory holiday entitlement and holiday pay obligations and retain those records for six years.

The records should be sufficient to demonstrate:

• holiday entitlement calculations
• annual leave taken
• holiday pay calculations
• payments made during leave
• payments in lieu of untaken holiday on termination
• calculation methodologies used for workers with variable pay.

Practical steps for employers

Employers should use the consultation period as an opportunity to review their holiday pay practices and identify any areas of risk. Particular attention should be given to:

• workers with variable hours or fluctuating remuneration
• overtime, commission and other payments that may need to be reflected in holiday pay calculations (holiday pay must be based on the employee’s normal rate of remuneration taking into account regular commissions, overtime, bonuses, allowance etc and average over the previous 52-week period)
• rolled-up holiday pay arrangements for irregular-hours and part-year workers
• record retention processes and payroll systems
• historic holiday pay calculations that may be vulnerable to challenge.

Given the potential six-year enforcement window, employers may also wish to consider undertaking proactive audits before the FWA's enforcement powers come into effect.

Supreme Court expands protection for part-time workers

A recent UK Supreme Court decision has strengthened the legal protection available to part-time workers and may make it easier for employees to bring successful claims of less favourable treatment. The ruling is likely to prompt employers to review workplace policies and working practices that affect part-time staff.

Background to the case

The case arose from a claim brought by a part-time private hire driver who was required to pay the same weekly fee for access to his employer's booking system as full-time drivers. While the charge applied equally to all drivers, the claimant argued that the fixed fee had a disproportionately greater impact on part-time workers because it represented a higher cost relative to the number of hours worked.

The claim was initially unsuccessful in the Employment Tribunal and subsequent appeals, largely because previous case law suggested that a worker had to show that part-time status was the sole reason for the less favourable treatment.

Supreme Court clarifies the test

The Supreme Court has now confirmed that this approach was too restrictive. The Court held that a worker does not need to demonstrate that their part-time status was the only reason for the treatment in question. Instead, it is sufficient if part-time status was an effective cause of the less favourable treatment, even where other factors also contributed to the employer's decision.

In reaching its decision, the Court distinguished the wording of the UK regulations from the underlying European framework, concluding that Parliament had deliberately adopted a broader wording that provides enhanced protection for part-time workers.

Implications for employers

The decision aligns claims under the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2,000 more closely with other areas of discrimination law, where a protected characteristic need only be one of the reasons for the treatment complained of.

As a result, employers may find it more difficult to defend claims simply by pointing to alternative business reasons for a practice or policy. Where a policy has a greater impact on part-time workers, employers may increasingly need to rely on demonstrating that the arrangement is objectively justified and serves a legitimate business purpose.

What employers should consider

Organisations that employ part-time staff may wish to review:

• fixed charges, benefits or allowances that apply equally to full-time and part-time workers
• bonus, commission and incentive arrangements
• training, promotion and career development opportunities
• workplace policies that may have a disproportionate impact on part-time employees
• whether any differences in treatment can be objectively justified and documented.

Why this matters

The Supreme Court's judgment is expected to increase the scope of protection for part-time workers and could lead to a greater volume of claims under the Regulations. Employers should therefore ensure that employment practices involving part-time staff can withstand scrutiny and are supported by clear business justifications where differences in treatment exist.

Employers can no longer assume that a claim will fail simply because there were several reasons for a particular policy or decision. If an employee's part-time status is a significant factor in the treatment they receive, the Regulations may apply.

EAT reinforces protection for employees holding controversial beliefs

The Employment Appeal Tribunal (EAT) has upheld a decision in Miller v The University of Bristol, providing further guidance on the distinction between an employee's protected beliefs and the way those beliefs are expressed in the workplace.

Background

The case concerned Professor David Miller, who was dismissed by the University of Bristol following a series of public statements relating to Zionism and the activities of the University's Jewish Society. Professor Miller maintained a philosophical belief that Zionism is inherently racist, imperialistic and colonial, and should be opposed. The Employment Tribunal previously found that this belief was protected under the Equality Act 2010 and that the University's decision to dismiss him amounted to unlawful belief discrimination and unfair dismissal.

The University appealed the decision, arguing that the dismissal was based on the manner and impact of the comments rather than the underlying belief itself. The EAT, however, largely rejected the appeal and upheld the Tribunal's findings.

Key principles for employers

The decision highlights that political or controversial beliefs may still qualify for protection under the Equality Act 2010, provided they satisfy the established legal tests for a protected philosophical belief. The fact that a belief is unpopular, contentious or attracts criticism does not automatically remove statutory protection.

Importantly, the EAT emphasised that employers must distinguish between:

• the employee's underlying protected belief; and
• the manner in which that belief is expressed or manifested.

While inappropriate, offensive or disruptive conduct may justify disciplinary action, employers cannot lawfully take action simply because they disagree with the belief itself.

Proportionality remains critical

A central issue in the case was whether dismissal was a proportionate response. Although some of Professor Miller's remarks were described by the Tribunal as provocative and ill-judged, it concluded that dismissal was too severe a sanction in the circumstances and that less drastic measures could have been considered. The EAT found no error in that conclusion.

The judgment therefore serves as a reminder that, where protected beliefs are involved, employers should carefully assess whether disciplinary action is necessary and whether a lesser sanction could achieve the organisation's legitimate objectives.

Practical considerations

Employers should ensure that managers and HR teams recognise that political and philosophical beliefs may attract protection under discrimination legislation and focus on the impact of conduct and behaviour rather than the belief itself. The employer should consider whether concerns can be addressed through warnings, guidance or other management action before progressing to dismissal and document the legitimate business reasons for any disciplinary decision and always ensure that any sanction imposed is proportionate to the conduct in question.

Court of Appeal raises the bar for training cost repayment clauses

Many employers include training repayment or 'clawback' provisions in employment contracts to recover the cost of training when employees leave shortly after benefiting from employer-funded development. A recent Court of Appeal decision highlights that these clauses will only be enforceable if they are carefully drafted and proportionate.

The case

The case involved an employee who joined an IT company as a trainee and received extensive training funded by his employer. His employment contract required him to repay training costs if he left within a specified period. After resigning to take up a higher-paid role elsewhere, the employer attempted to recover more than £8,000 in training expenses.

While the employer initially succeeded, the Court of Appeal ultimately ruled that the repayment provision was unenforceable because it amounted to an unreasonable restraint on the employee's ability to move to alternative employment.

Why the clause failed

The Court accepted that employers have a legitimate interest in protecting investments made in employee training and may, in principle, require employees to repay training costs in certain circumstances. However, any repayment obligation must be no more restrictive than is reasonably necessary to protect that interest.

The judgment confirms that a training repayment clause may be scrutinised under the legal doctrine of 'restraint of trade' where it effectively discourages employees from changing jobs. Employers therefore cannot assume that a repayment clause will automatically be enforceable simply because it is included in a contract.

Key lessons for employers

The decision provides useful guidance on how courts are likely to assess training repayment provisions:

• employers must be able to demonstrate a genuine business interest that the clause is designed to protect
• the repayment obligation should be limited to actual and identifiable training costs
• the amount recoverable should reduce over time to reflect the benefit the employer receives from the employee's continued service
• clauses that appear punitive or intended primarily to deter employees from leaving are unlikely to be upheld
• courts may consider factors such as bargaining power, fairness and the overall impact of the clause on an employee's ability to pursue other employment opportunities.

Reviewing existing clauses

Employers may wish to review existing contractual provisions, particularly where they seek recovery of broad costs such as mentoring time, supervision or general workplace development. The judgment suggests that recovering clearly identifiable expenses, such as course fees, examination costs, training materials and professional subscriptions, is likely to be easier to justify than attempting to recover wider internal costs.

Where training repayment provisions are used, a sliding scale that gradually reduces the amount repayable over time is generally more likely to be considered reasonable than an obligation requiring full repayment regardless of length of service.

Employment Data Protection documents need updating

Effective from 19 June 2026 amendments to the Data Protection Act 2018, require organisations to now inform individuals of their right to complain directly to the organisation about the handling of their personal data. Employers are also required to maintain an accessible complaints-handling process.

The new framework requires employers to:

• receive and acknowledge complaints
• investigate data protection concerns
• respond without undue delay
• operate a process capable of handling complaints effectively.

As a result, employee privacy notices should be updated to explain both the right to complain and how complaints will be managed internally.

Protected conversations – process matters as much as the conversation itself

Many employers use protected conversations under section 111A of the Employment Rights Act 1996 when exploring an agreed exit with an employee. A recent Employment Appeal Tribunal (EAT) decision serves as an important reminder that it is not enough simply to use the phrase 'protected conversation'. The way the process is conducted can be just as important in determining whether the statutory protection will apply.

What is a protected conversation?

Protected conversations allow employers and employees to discuss ending employment on agreed terms, even where no formal dispute exists. The attraction for employers is that, in most circumstances, those discussions cannot subsequently be relied upon in an ordinary unfair dismissal claim if negotiations fail.

This differs from the 'without prejudice' rule, which generally requires an existing dispute before protection arises.

Protection is not absolute

The statutory protection provided by section 111A is subject to important limitations. Most significantly, it can be lost where there has been 'improper behaviour' during the process.

A recent EAT decision highlights that tribunals will assess the entire process, not merely the words used at the meeting itself.

Why process matters

The article references an EAT decision involving an employee who was allegedly misled about the purpose of a meeting and then given only 48 hours to consider a settlement proposal. The case focused on whether the circumstances surrounding the conversation amounted to improper behaviour such that the protection could be lost.

The broader lesson is that employers cannot assume that simply labelling a discussion as 'protected' will automatically prevent the content from being scrutinised later. Tribunals will look carefully at how the discussion was initiated, conducted and followed up.

ACAS guidance remains important

The ACAS Code and accompanying guidance set out examples of conduct that may amount to improper behaviour, including:

• putting undue pressure on employees to accept offer
• threatening dismissal if an offer is rejected
• failing to provide employees with sufficient time to consider proposals
• creating circumstances that could be perceived as coercive or intimidating.

Although the examples are not exhaustive, they provide a useful framework for assessing risk.

Practical considerations for employers

When conducting protected conversations, employers should consider:

• being transparent about the purpose of the meeting
• allowing employees reasonable time to consider any settlement proposal
• avoiding any suggestion that a particular outcome is inevitable if the offer is rejected
• ensuring managers conducting discussions understand the legal limits
• maintaining detailed notes of the process followed
• ensuring the conversation is handled respectfully and professionally throughout.

Limits of protected conversations

Employers should also remember that section 111A protection is relatively narrow. It generally applies only to ordinary unfair dismissal claims and does not prevent conversations being scrutinised in discrimination claims, whistleblowing claims. breach of contract claims, unlawful deduction claims and other statutory employment claims.

Where potential discrimination or whistleblowing issues exist, employers should therefore be particularly cautious before relying solely on the protected conversation framework.

Settlement discussions are an important tool for resolving workplace issues efficiently and often avoid lengthy formal procedures or litigation. However, this latest case serves as a reminder that tribunals will look beyond the label attached to the discussion and examine whether the process itself was fair and appropriate.

Employers should prepare for the next phase of tipping reform

Businesses in the hospitality, leisure and service sectors may soon face additional obligations relating to the distribution of tips, gratuities and service charges. Following reforms introduced in 2024, the UK Government is now moving towards greater transparency and employee involvement in how tipping arrangements operate.

A shift towards greater transparency

Since October 2024, employers have been required to ensure that workers receive the full benefit of qualifying tips, gratuities and service charges. Rules introduced under the Employment (Allocation of Tips) regime were designed to prevent employers from retaining or making deductions from tips and to ensure that tips are distributed fairly amongst eligible workers.

The next stage of reform is expected to take effect in 2026 and will introduce new consultation requirements, requiring employers to engage with workers about tipping practices and policies. The reforms form part of broader employment law changes aimed at increasing transparency and worker protections.

What employers need to be doing now

Under the current framework, employers must ensure that all qualifying tips are passed on to workers and allocated fairly. This applies regardless of how the tip is paid, including cash, card payments and app-based transactions, where the employer exercises control over the distribution process.

Importantly, ‘fair’ allocation does not necessarily mean equal allocation. Employers may take account of factors such as an employee's role, level of customer interaction, seniority or working arrangements when determining how tips are shared.

Many businesses use a tronc arrangement, under which an independent troncmaster oversees the distribution of tips. Such arrangements are expected to remain permissible provided the overall allocation remains fair and transparent.

New consultation obligations on the horizon

A significant upcoming change is the proposed requirement for employers to consult workers regarding tipping policies. The Government has already consulted on how these obligations should operate and has published draft updates to its statutory Code of Practice on the Fair and Transparent Distribution of Tips.

Although the final details have yet to be confirmed, the direction of travel is clear, workers are expected to have a greater voice in how tipping arrangements are established and reviewed.

Practical steps for employers

Businesses that receive tips should consider reviewing their arrangements before the new requirements come into force. Areas for review include:

• whether an up-to-date written tipping policy is in place
• how tips are currently allocated and whether the rationale can be justified as fair
• whether agency workers are appropriately included in tip distributions where required
• what records are retained regarding the collection and allocation of tips
• how consultation with workers could be incorporated into existing employee engagement processes.

Employers may also wish to ensure that managers understand the principles underpinning fair allocation and can explain those principles clearly to staff. Transparency is likely to become increasingly important as employee consultation obligations expand.