Legal

UK vs US employment law: what HR needs to know

27 Feb 2017 By Malcolm Mason

There are many differences between US and UK employment law – and they may become more significant after Brexit

President Trump’s recent comments on post-Brexit US and UK relations indicate a speedy trade agreement, and struck a different chord to those made by President Obama, who suggested that the UK would be at the ‘back of the line’. This is great news for UK and US multinationals already trading across the pond. It also potentially positive for UK SMEs that have, until now, generally concentrated their cross-border activities to the EU.

As the UK exits the single market, it will need to secure new deals with those EU member states that want to continue trading with it. Many of those that currently conduct substantial trading with the UK will wish to continue to do so, and with the benefit of some form of trade agreement. The terms of the deal will need to be negotiated carefully and individually by the UK government with the member states or groups of member states, or perhaps there will even be a new trade agreement with the EU.

Whatever new intra-European trade deals merge, UK businesses will also need to consider the benefits of trade relationships within the US under a US-UK trade agreement.

International trading relationships necessitate businesses to consider the laws and practices of the other trading partner. When the single market was launched in 1993, businesses and their advisers had to consider the laws and practices within all EU member states. Many areas had already started on the EU trend of harmonising through myriad EU directives issued since the mid-1970s. However, there remained significant differences in many areas.

More often than not, the issue of taxation, corporate structure and finance usually trump (no pun intended) employment and labour laws – despite management often stating that a business is only as good as its workforce. Until recent years, penalties and reputational issues connected with employment usually paled when compared to taxation-finance issues and penalties.

A US-UK trade agreement raises similar initial concerns – taxation, corporate structure, employment and labour – and will again need to be considered. There is a common presumption that because the UK and US share a common language, there is a commonality of laws and practices. This is typical when it comes to employment laws in that they both emanate (historically) from the English common law. But this assumption is far from correct. There have been countless examples of companies making dreadful and costly mistakes in this area based on this erroneous presumption. Aside from the potential embarrassment and expense, this sends a powerful message to the local workforce of a lack of regard when it comes to their employment laws and practices.

Only with the benefit of experience in both countries can one appreciate what is falling through the cracks and, ultimately, being missed by both sides.

Below is a list of key differences in employment and labour laws that US and UK business should take into account when trading in each other's country:

US

  • Separate laws at federal, state and municipal (city) levels.

  • Few laws governing the employment relationship, but extensive federal, state and municipal anti-discrimination laws often requiring administrative agency investigation before commencing court claims.

  • No legal requirement for a written document or contract evidencing the employment relationship. A simple offer letter sometimes issued addressing fundamental terms such as salary, title, bonus (if any) and holidays. 

  • Different classification of employees, particularly for overtime and labour issues. 

  • Discrimination claims heard before a civil jury. Awards are uncapped and sometimes reach the multimillion-dollar mark following years of litigation, which involves a great deal of time and expense. 

  • Most US states follow the employment-at-will doctrine and employers typically issue only an offer letter and have an HR handbook. Both state that the employment is at-will and can be terminated at any time by either side without notice and without any payment. US businesses will rarely consider an employment contract for all but a small number of their senior managers. 

  • Labour law is complex and administered by separate courts and agencies. 

  • Restrictive covenants are not enforceable in all US states, although many state courts are now beginning to take a more employer-friendly approach in this area. 

UK

  • One set of laws with some minor differences in Scotland and Northern Ireland. 

  • A very high level of statutory employment laws dealing with such issues as: working time, holidays, holiday pay, overtime, minimum notice periods, family and pregnancy leave and pay, sickness leave and pay, protection of employees on sale of a business, works councils, unfair dismissal, redundancy (RIFs) and anti-discrimination laws. 

  • All employees to be provided with a written statement setting out the fundamental terms prescribed by statute. In practice, many employees are provided with a detailed written contract. 

  • All employees (from the CEO to the mailroom assistant) have the same basic statutory employment rights. 

  • Employees with two years’ service have the right not to be unfairly dismissed. For a dismissal to be fair the employer must show a statutory fair reason and demonstrate that the employer went about the termination process in a fair and equitable manner. Normally a capped award of £78,962 or 52 weeks’ gross pay, whichever is the lower. The most recent median award for a successful unfair dismissal claim is £7,332. 

  • Discrimination awards are not capped but six-figure awards are very rare, with median awards over all forms of protected discrimination in the £7,000-£20,000 range. 

  • Statutory employment claims must be brought in the employment tribunal and not in the civil court. 

  • Contractual and common law employment claims (non-statutory rights) are brought in the civil court where the losing party is normally required to pay part (60-70 per cent) of the winning party‘s legal charges and expenses. 
    • NB: Civil juries were abolished for all but a few claims in 1933. 

  • Labour matters are dealt with by the Central Arbitration Committee and the civil courts. 

  • Restrictive covenants are widely used to protect employers’ legitimate business interests at many levels. Restrictions for a period of more than 12 months are rarely enforced. 

Malcolm Mason is a dual-qualified UK employment solicitor and US attorney at Keystone Law

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