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Employment Law Issues for the Oil & Gas Sector

The oil and gas sector has always raised complex employment law issues. Large projects, globally mobile workers, extreme conditions and the risk of accidents in what is a truly global industry.

Despite the difficulties in the petrochemical market in recent years and against a backdrop of lower oil prices, the oil and gas industry has demonstrated its resilience and adaptability. The North Sea region is now experiencing a resurgence in activity, with corresponding growth in regional workforce numbers.

The period of greatest rationalisation appears to be in the past, with companies increasingly focused on sustaining improvements and adding new activity. Operating costs have significantly reduced and there continues to be a focus on efficiencies, with energy companies continuing to streamline their operations and seek innovative ways of working.

These changes inevitably bring employment law risks that oil and gas companies have to mitigate, in addition to the challenges presented by legislative and regulatory changes.

 

Brexit 

Oil and gas companies employing EU workers, are urged to consider the implications of Brexit on workforce planning and management.

EU freedom of movement will continue to apply until the end of the Brexit transition period on 31 December 2020. The rights of EU citizens to live and work in the UK beyond 31 December 2020 will be protected provided they hold EU Settled Status as UK residents by that date. After 31 December 2020, a new immigration system is to be implemented, a points-based system based on the Australian model.

Oil and gas companies should be taking action now to prepare their organisations for 2021 and beyond, by auditing their workforce to identify EU nationals working in the UK and UK nationals working elsewhere in the EU; offering support and information to affected employees and considering the administrative and financial ramifications of hiring non-UK resident EU workers post-transition period.

Right to work compliance is also expected to be subject to reform in line with the immigration system overhaul and the end of EU free movement, requiring employers to have their personnel records up to date and in order in preparation for any transition to a new system.

 

Compliance with UK legislation & work arrangements 

As they expand into the region and export skills and labour into the region, multinational oil and gas companies must ensure continued compliance with UK rules and legislation in respect of UK-based operations. This requires an understanding of how far UK employment rights reach, both in relation to contractual and statutory provisions, with considerations such as designated habitual place of work and whether dual protections may apply.

While most protections apply to ’employees’, the statutory rights of ‘workers’ are extending in line with trends in the common working arrangments. The test of ’employment’ is also a factor, based on substance over form, with the Agency Workers Regulations 2011 providing equality in respect of pay, holidays and working conditions. Properly structured agreements are required to avert the employment relationship. Discrimination protection is also extensive compared with many other jurisdictions.

 

Off payroll working 

From April 2020, new tax rules will apply to private sector organisations which engage contractors or consultants off-payroll, for example through a personal services company. It will be the responsibility of the organisation to determine the individual’s employment status for tax purposes and to make sure the correct income tax and national insurance is paid.

Only organisations classified as “small” can avoid these new rules.

Oil and gas companies are urged to review the employment status of their contractors and consultants in preparation for the April 2020 changes.

 

Employment law changes from April 2020 

A number of employment law changes will apply from April 2020 including:

  • A statement of employment particulars must be given to all workers, not just employees as currently, and on day one of employment rather than within two months. The contents of the statement will also be expanded to include, for example, notice periods and eligibility for sick leave and pay;
  • When calculating holiday pay, the reference period for determining an average week’s pay will be extended from 12 weeks to 52 weeks;
  • The so-called “Swedish derogation”, under which agency workers who are paid by their agency between assignments are not entitled to pay parity with directly-engaged employees, will be abolished. This means agency workers who have completed a 12-week qualifying period must be paid the same as directly-engaged employees;
  • Termination payments above the tax-free £30,000 threshold will be subject to employer’s national insurance contributions;
  • The threshold required to establish information and consultation arrangements will be lowered from 10 per cent. of employees to 2 per cent. The current requirement of a minimum of 15 employees making the request will remain; and
  • New legislation conferring a right to parental bereavement leave will be introduced from 6 April 2020. Employees who lose a child under the age of 18, or suffer a stillbirth from the 24th week of pregnancy, will be entitled to two weeks’ unpaid leave. This right will apply from day one of employment to qualifying employees.

 

CEO pay reporting

New regulations require quoted companies with more than 250 UK employees to report on the ratio of CEO pay to that of UK employees whose pay and benefits put them at the 25th, 50th and 75th percentiles of all the company’s UK employees for the relevant financial year.

The first set of data must be published in 2020 annual reports looking back at financial years beginning in 2019. Thought will need to be given to the accompanying narrative wording.

 

Employee engagement

UK incorporated companies with more than 250 employees must report from 2020 on how they have engaged with their UK employees and taken account of their interests.

Additionally, under a revised UK Corporate Governance Code applicable to premium listed companies for accounting periods beginning on or after 1 January 2019, companies must adopt one of three methods for engaging with the workforce, namely a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director. Alternative arrangements may be adopted provided an explanation is given.

 

Use of NDAs 

The government is proposing legislation to make it easier for victims of sexual discrimination or harassment to come forward, expected in 2020.

The main change is that confidentiality clauses in employment contracts or settlement agreements will not be able to prevent an individual from making a disclosure to the police or to a regulated health or care professional or to a legal professional.

These limitations will have to be made clear to the individual signing the confidentiality clause.

For new joiners, the limits of any confidentiality clause in the employment contract must be included in the written statement of particulars required to be given to new employees.

A departing employee asked to sign a settlement agreement must already obtain independent legal advice. Under the new legislation, that advice must specifically cover the nature and limitations of any confidentiality clauses.

 

Need assistance?

DavidsonMorris are established advisers to the oil & gas sector. As employment solutions lawyers, from offices in Aberdeen and London we work with multinational energy companies to support with their full employment & immigration law requirements including human resource & global mobility consultancy expertise. We understand the commercial and legal challenges facing oil and gas companies, working to support our clients meet their workforce management and planning needs while reducing legal risk exposure. Contact our oil and gas sector specialists today.

Last updated: 2nd January 2020

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