Employment Update - May 2025

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SUPREME COURT GENDER RULING

On 16 April 2025, the Supreme Court handed down a ruling on the meaning of "sex" within UK equalities legislation. The decision (For Women Scotland Ltd v Scottish Ministers) has been widely reported and generated much debate. It also raises complex practical issues for employers, including how to classify gender for the purposes of workplace diversity initiatives and workplace facilities such as toilets and changing rooms.

In response to the ruling, the Equality and Human Rights Commission (EHRC) has published an interim update on the practical implications (with final revised guidance expected in the next few weeks). The EHRC advises that employers should make single-sex facilities available only to those of the same biological sex and, where possible, provide additional mixed-sex facilities. However, the guidance leaves a number of questions unanswered, including how to ensure adequate provision for transgender staff and balance the competing concerns of different groups of employees.

A retired High Court judge is also seeking to challenge the Supreme Court ruling in the European Court of Human Rights.

In the meantime, we have published a briefing note which summarises the legal and practical considerations for employers and steps employers might consider, such as reviewing policies on diversity and use of facilities, as well as communications to reassure staff concerned about the ruling. Please speak to your usual Employment department contact if you would like to discuss the impact of the ruling on your workplace.

Immigration Radar

PROPOSED IMMIGRATION CHANGES

The UK Government has published an Immigration White Paper which sets out a number of significant reforms to the UK's immigration system. There is no timeframe yet for the majority of reforms, but the changes reflect the Government's aim of reducing immigration levels. Key changes affecting employers include:

the minimum period required for those on work visas to qualify for settlement or indefinite leave to remain in the UK will increase from five years to 10 years;
the skill level required for Skilled Worker visas will increase from RQF 3 (around A level standard) to RQF 6 (degree level), meaning significantly fewer roles will qualify for Skilled Worker visas;
the minimum salary levels for Skilled Worker visas will increase, with higher thresholds for those bringing dependants;
the English language level required for those on Skilled Worker visas will increase and adult dependants will also have to satisfy new English language requirements;
the period of post study work allowed for Graduate visas (following successful completion of a degree in the UK) will reduce from 24 months to 18 months; and
the immigration skills charge – which employers must pay for sponsored work visas – will increase from £1,000 to £1,320 per person per year of the visa.

For further details, please see our recent briefing on the White Paper. Employment Update will report developments.

RIGHT TO WORK CHECKS

The UK Government is planning to extend employers' duties to conduct right to work checks to cover gig economy and zero-hours workers in sectors like construction, food delivery, beauty salons and courier services. Currently, these checks are required only for employees and apprentices with an employment contract, but not the broader category of workers. This announcement is part of the UK Government's efforts to clamp down on illegal working across various sectors. No date has been given yet for the extension.

Case Watch

MISCONDUCT – IMPORTANCE OF POLICIES AND TRAINING

A recent Court of Appeal ruling highlights the importance of policies and training in misconduct dismissals. The employee in this case was an inspector for Ofsted. During a school inspection, he brushed rainwater off the hair and forehead of a pupil and put his hand on their shoulder. The school complained that, while there was no safeguarding concern, this was inappropriate and made the child feel uncomfortable. Following a disciplinary hearing, the employee was dismissed for gross misconduct and loss of trust and confidence. The employee brought a claim for unfair dismissal.

The Court of Appeal ruled that the dismissal was unfair. Ofsted had no written policy on appropriate physical contact and the employee had received no training or guidance on this. In these circumstances, dismissal for a single instance of physical contact – where there was no suggestion of any improper motive – was unfair. Ofsted argued that the reason for dismissal was not just the incident but also the fact that the employee had continued to insist he had done nothing wrong. However, the Court said that this was not enough to 'bump up' the seriousness of the conduct, particularly where the employee had said he would not do it again and would be prepared to undergo training.

This case highlights the importance of having clear policies and training for staff on acceptable workplace conduct. Where there is no policy or other guidance on what is acceptable, an employer will normally face an uphill struggle to justify disciplinary action or dismissal (unless the misconduct is so bad that any reasonable person would understand dismissal is a likely outcome).

The case also shows that a lack of insight or remorse by an employee will not necessary 'bump up' the seriousness of misconduct to justify dismissal, unless the conduct itself was already serious enough. However, there may be cases where there has been a persistent failure to recognise wrongdoing and dismissal is justified because there is a real risk the employee will continue to commit the same or more serious misconduct. Similarly, where the conduct itself is serious enough to justify dismissal, a lack of remorse or insight might be a reason not to reduce the sanction to a lesser penalty, such as a final written warning.

HEWSTON V OFSTED

TUPE AND THIRD-PARTY LIABILITIES

This case involved a claim for damages from a former in-patient at a hospital. She claimed that the hospital was vicariously liable for the actions of two employees who had caused her loss. However, the hospital was sold and the two employees transferred under TUPE to a new owner. A question arose as to whether the new owner became liable for the patient's loss or whether this remained with the previous owner.

The High Court ruled that vicarious liability for the actions of the employees did not transfer to the new owner under TUPE but remained with the previous owner. The liability was owed to the patient, who was not an employee, and so did not transfer under TUPE, as the purpose of TUPE is to protect employees rather than third parties.

TUPE protects employees on the transfer of a business or part of a business, e.g. on a business sale, an outsourcing or a change in outsourced service provider. Where TUPE applies, employees who are wholly or mainly assigned to the relevant part of the business transfer with the business being sold or the services being outsourced. All rights and liabilities in connection with the transferring employees also transfer to the new employer.

This case confirms that vicarious liability to third parties, e.g. because of the negligence of an employee or employees, will not transfer under TUPE even if the employees responsible transfer. In contrast, where an employer owes a liability to an employee for e.g. personal injury or discrimination or harassment, that liability would transfer under TUPE along with the employee. Where the liability transfers, previous case law suggests that the benefit of any insurance cover would also transfer. The case highlights the need for employers involved in the sale of a business or an outsourcing arrangement to check carefully which liabilities transfer, assess whether any insurance applies and, if necessary, seek appropriate indemnity protection where possible.

ABC V HUNTERCOMBE (NO.12) LTD & OTHERS

New Law

COMPENSATION FOR DISCRIMINATION

Compensation for successful discrimination and harassment claims is made up of two elements – the employee's financial loss and injury to the employee's feelings. The so-called "Vento bands" were created to guide tribunals what to award for the injury to feelings element. On 6 April 2025, the Vento bands were increased in line with inflation, and the current bands are now as follows:

Lower band: £1,200 to £12,100 (for a low-level, one-off act of discrimination or harassment)
Middle band: £12,100 to £36,400 (for something more serious)
Upper band: £36,400 to £60,700 (for the most serious acts, such as an ongoing campaign of discrimination or harassment).

There is technically no cap that can be awarded for injury to feelings, and in exceptional cases, tribunals can award compensation which is higher than the upper band. There is also no limit on the compensation which can be awarded for financial loss in discrimination and harassment claims.

EU PAY TRANSPARENCY RULES

A new EU pay transparency directive comes into force on 7 June 2026 which will introduce gender pay gap reporting obligations across Europe. It also introduces pay assessments, as well as other measures to increase pay transparency in recruitment and in the workplace. The directive applies to people working in the EU, irrespective of where their organisation is headquartered.

Under the directive, the timing and frequency of the reporting requirements depend on the size of the employer:

employers with 250 or more workers will be required to report gender pay gap figures from 2027 and annually thereafter;
employers with 150-249 workers will be required to report from 2027 and every three years thereafter;
employers with 100-149 workers will be required to report from no later than 2031 and every three years thereafter.

Individual EU countries may also choose to extend the requirement to smaller employers.

Under the directive, where there is a pay gap of more than five percent which is not justified, employers will be required to conduct a joint pay assessment with worker representatives. The directive also introduces measures relating to pay transparency in recruitment and promotion including:

a requirement for employers to inform job applicants about the starting salary/pay before interview;
a ban on asking job candidates about their pay history;
a right for workers to ask employers for information about pay levels and pay and promotion criteria.

For further information about the new EU pay transparency rules and what steps in scope employers can take to prepare, please see our briefing.

Consultations

DISABILITY AND ETHNICITY PAY GAP REPORTING

Employers operating in the UK with 250 or more employees are required to report annually on their gender pay gap figures. The UK Government has launched a public consultation setting out proposals to introduce mandatory disability and ethnicity pay gap reporting. The new reporting requirements would mirror the existing framework for gender pay gap reporting and also apply to employers with 250 or more employees. However, the Government notes that there are distinct considerations for ethnicity and disability, particularly with regard to data collection and analysis.

It is proposed that, in addition to pay gap figures, employers would be required to report on the overall breakdown of their workforce by ethnicity and disability, as well as the percentage of employees not disclosing their personal data for these characteristics. The Government is also seeking views on whether employers should be required to produce action plans, to help identify the causes of any gaps and action to close them. Like gender pay gap reporting, employers would be required to report their ethnicity and disability pay gap figures online annually. The consultation closes on 10 June 2025, with the new pay gap reporting duties not expected to come into force until 2026.

STRENGTHENING EQUALITY LAW

The UK Government has published a call for evidence on strengthening equality law, which includes proposals to expand the rules on equal pay as well as other equality measures.

Expanding the equal pay rules

Under the Equality Act, women are entitled to the same pay as men who are doing the same work or work of equal value (and vice versa). The Government wants to hear from anyone with relevant evidence on its proposals to:

expand the equal pay rules under the Equality Act to cover disability and ethnicity;
improve enforcement by establishing an Equal Pay Regulatory and Enforcement Unit with the involvement of trade unions; and
introduce measures to ensure that the outsourcing of services cannot be used to avoid equal pay.

In relation to outsourcing, the Government is exploring whether it should allow outsourced workers to compare themselves with 'inhouse' employees of the client for the purpose of establishing equal pay rights. This would mean that, for example, a female employee of the outsourced service provider could bring an equal pay claim on the basis that they are paid less than a comparable male employee of the client (which is not possible under the current rules). The Government is also seeking evidence about where liability for such claims should lie.

Other equality measures

The call for evidence also seeks views on a range of other equality measures, including:

allowing claims for discrimination based on a combination of protected characteristics (for example, where a person has been discriminated against because of their combined age and sex, rather than because of their age or sex alone);
introducing pay transparency measures (for example, a ban on asking job candidates about their salary history, a requirement to specify a specific salary or range in job adverts, and a requirement to provide employees with information about pay, pay structures and criteria for progression);
considering the effectiveness of equal pay audits for employers found to have breached the equal pay rules; and
setting out in regulations the steps employers must take to prevent sexual harassment and considering whether protection for sexual harassment should extend to volunteers.

The call for evidence is open until 30 June 2025.

Watch this Space

CULTURE IN FINANCIAL SERVICES

In March 2025, the Financial Conduct Authority (FCA) announced that it will not proceed with its proposed rules on diversity and inclusion (D&I) for the financial sector. The rules would have required larger financial services firms to set D&I targets and report annually on D&I metrics. These rules will now not be implemented, although the FCA says that it will continue to support voluntary industry initiatives.

In contrast, the FCA will proceed with proposed new rules on non-financial misconduct (e.g. bullying, harassment and discrimination). The FCA plans to outline next steps on its approach to non-financial misconduct by the end of June 2025. Draft rules were published for consultation in 2023 which clarified the circumstances in which non-financial misconduct would breach the FCA's Conduct Rules, and where it would affect fit and proper assessments and regulatory references. Further detail in this area is expected in June 2025 and Employment Update will report developments.

Community Engagement

In recent weeks, our team has been involved in a variety of pro bono work for organisations such as the Impact Investing Institute, Evotrack, Tyre Collective and Future Dreams.

Our Work

Since the last edition of Employment Update, our work has included:

advising on TUPE protections for an incoming service provider on a second generation outsourcing arrangement
acting for a listed company on the departure of an executive director, including negotiating settlement terms and advising on RNS announcement obligations
advising an insurance client on a team move, restrictive covenant breaches and a commercial settlement with the team's new employer
advising on the exit of a listed company CEO
advising and supporting a global insurance business through a collective redundancy process.