For U.S. companies contemplating an expansion into the U.K., there are a number of employment-related factors to consider, as the requirements for employers and rights of employees differ significantly across the pond. Here is a brief overview highlighting the differences between some of the key employment concepts in the two countries.
Employment Contract
U.S.
Executive or more senior level employees in the U.S. may have an employment agreement, but most employees sign a less formal offer letter. There is no legal significance to using one form or the other—either operates as an enforceable agreement. Irrespective of whether an employer uses an employment agreement or offer letter, these documents are generally limited to compensation-related terms. As a best practice, confidentiality and intellectual property provisions, among other covenants, typically are contained in a stand-alone document without any compensation information in it.
U.K.
All U.K. employees are entitled to a written contract containing basic terms, including salary, work location and hours, notice period, holiday entitlement, sickness absence entitlement and pension. Most employers will provide a much more comprehensive employment contract with protections such as express confidentiality obligations, assignment of intellectual property and post-termination restrictions. Generally, all contractual employment terms are contained in one document. There is no separate confidential information and invention assignment agreement (CIIAA), unlike in the US.
Confidentiality and Intellectual Property
U.S.
It is common and highly advisable to have employees enter into a form of a CIIAA at the outset of employment. A properly drafted CIIAA prohibits an employee's unauthorized use or disclosure of company proprietary information. It also requires the employee to assign to the company all rights to any invention or other form of protectable idea or property related to the business of the company or developed using company resources. A CIIAA also may include other restrictive covenants, such as noncompete and nonsolicitation provisions, to the extent allowed by federal and state law.
U.K.
Confidential information and intellectual property protections should be set out within the employment contract. In the absence of express contractual confidential information protections, only the most valuable and sensitive of trade secrets will be protected as a matter of law.
Generally, an employer in the U.K. has automatic ownership of patents, copyright, database rights, unregistered designs and registered designs in works created by its employees, but it is advisable for employers to include express intellectual property protections in the employment contract.
Noncompetition and Nonsolicitation
U.S.
Some employers may require employees to enter into contractual post-termination restrictions. This is an area highly regulated by federal and state law. Some states allow broader restrictions, while others will take a very narrow view of whether and to what extent an employer can impose such restraints. For example, California prohibits post-employment noncompetition provisions except in certain limited circumstances, such as the purchase of a business. The U.S. Federal Trade Commission also is pursuing proposed regulations that would heavily restrict the usage of noncompetition agreements under federal law.
U.K.
Contractual post-termination restrictions are permissible if the employer can show that it has a legitimate proprietary interest that it is appropriate to protect, and that the protection sought is no more than is reasonable. This will involve limiting the covenant, including by reference to the restricted activities themselves, the period of restraint and the geographical extent of its application. Covenants should be tailored to each specific employee and the business in which they operate. Post-termination restrictions are generally included within the employment contract.
Notice Period
U.S.
Employment in the U.S. is presumed at will unless altered by contract—which is very rare—or under state law in Montana. This means that the employer or the employee may end employment at any time with or without cause or advance notice, for any or no reason. However, some mass layoffs require advance notice to employees of up to 90 days. U.S. law also does not require that severance be paid to a separating employee. Companies may establish a general plan or policy providing severance under certain types of terminations, and employees may independently negotiate their own severance benefits.
U.K.
All U.K. employees are entitled to receive statutory minimum notice—one week's notice during the first two years of employment and, thereafter, one week's notice for each complete year of service up to a maximum of 12 weeks' notice. However, most employees will have a notice period of at least four weeks; senior employees will often have three- to six-month notice periods. Notice periods are usually reciprocal, meaning that the employee must give the same amount of notice as the employer is required to give.
Overtime
U.S.
Unless classified as exempt under federal and state laws governing payment of wages and overtime, U.S. employees must receive overtime pay—generally calculated as one and one-half their regular hourly rate. Federal law requires overtime pay for hours worked in excess of 40 in a week, but state law may set more generous benefits—for example, California requires overtime for working more than eight hours in one day. Nonexempt employees also may be legally entitled to certain other benefits, such as required meal and/or rest periods. Managers, executives and others may qualify as exempt from these laws if their salaries meet a certain minimum amount and they engage in duties that otherwise qualify them for applicable exemptions. This area is highly fact-sensitive and governed by federal and state law. It also is heavily litigated and can carry significant liability.
U.K.
There is no categorization of employees as exempt or nonexempt in the U.K., but nonmanagerial employees may be paid overtime at or in excess of their normal rate of pay.
Vacation and Sick Time
U.S.
Vacation and designated sick time ordinarily are separate categories of leave in the U.S. Vacation time is not required by law, but many companies offer it as an employee benefit. In contrast, many states and localities have or are considering adopting paid sick leave laws that would require companies to provide a minimum number of paid sick days per year.
Employers that do choose to provide vacation time to employees must comply with state laws, which may regulate the accrual, use and payment of vacation time.
Some employers combine vacation and sick time into one aggregated time-off category commonly referred to as "paid time off" (PTO). In that case, the PTO bank usually must satisfy the applicable requirements for both vacation and sick time.
U.K.
Vacation (or "holiday") time and sick leave are two separate concepts in the U.K., and employees are entitled to a minimum of 28 days of holiday time in each holiday year. This can be made up of 20 days of holiday pay plus the eight usual public holidays, but it is common for employers to offer 25 days of holiday time plus the public holidays (being 33 days in total).
Subject to certain qualification criteria, all employees are entitled to statutory sick pay (SSP) from day four of any period of absence due to illness or injury. There is no entitlement to SSP on the first three days of the absence. SSP is paid at the rate set by the government each year. However, many employers offer to continue to pay employees their normal basic rate of pay during a specified period of sickness absence—for example, for sickness absence totaling four weeks in any rolling period of 12 months.
Commissions and Bonuses
U.S.
Companies are not required by law to pay commissions or bonuses in the U.S. Of course, companies can offer such incentives to a range of employees. State law often imposes certain rules around incentive compensation, including limits on the ability to claw back earned incentive compensation. Companies may elect, or be legally required to adopt, written incentive compensation plans to set out eligibility requirements to prevent disagreements in the future. This is another heavily litigated area and crafting adequate incentive compensation plans in the U.S. is critical.
U.K.
Companies are not required by law to pay commissions or bonus, but both forms of remuneration are common in the U.K. There is a growing body of regulation affecting both private and listed companies that governs the way in which bonuses are paid and, in some cases, the quantum of bonuses. Regulation is especially prevalent in the financial services sector, and it is important for companies to have specific incentive compensation plans in place to set out the applicable rules.
Health Care and Other Benefits
U.S.
Many U.S. employers offer employees a retirement program, mostly via a 401(k) plan in which employees contribute a portion of their salary on a pre-tax basis into the plan, and the company may make additional matching contributions. Such benefits are discretionary, but a common practice.
Employers with 50 or more full-time employees who work 30 or more hours per week are required to offer those full-time employees health coverage that meets certain affordability and minimum value standards or face potential tax penalties. States and localities may have additional health care coverage requirements that may apply to smaller employers.
In addition to the benefits listed above, many U.S. employers offer a wider range of benefits including short- and long-term disability insurance, life insurance, and dental and vision insurance. A few states, such as California, and some localities have additional required benefits that must be offered to employees (for example., commuter benefits) or which employees may apply for (for example, state disability or family leave benefits).
U.K.
All employers in the U.K. must automatically enroll employees into a workplace pension scheme that meets certain requirements, including a minimum level of employer pension contribution.
In addition to the minimum legally required pension, many employers offer a wider range of benefits, including an enhanced company pension scheme (for example, with an employer pension contribution of 5 percent of an employee's salary), private medical insurance, permanent health insurance (long-term disability coverage) and life assurance (death in service).
Data Protection
U.S.
Although California is the only state that currently requires a privacy notice for employees, many U.S. companies provide employees with a privacy notice as a best practice.
The California Consumer Privacy Act includes within its scope data about employees, and employers need to provide a notice to their California employees that discloses:
- The categories of "personal information" it collects.
- The sources from which the personal information is collected.
- The categories of third parties to whom the business discloses personal information
- The business or commercial purpose for collecting, selling or sharing personal information.
Employers are also required to extend to employees certain individual rights, including the right to access and request copies of their personal information, request deletion of their personal information, opt out of the sale or sharing of personal information, and the right to limit the use and disclosure of sensitive personal information.
U.K.
The U.K. General Data Protection Regulation requires all employers in the U.K. to inform employees which employ-related data—known as "personal data"—that the employers collect or hold, how that personal data is processed, the legal basis for processing and employees' rights regarding their personal data. Employers cannot rely on employees' consent as the legal basis for the processing of their personal data and its transfer outside of Europe—for example, to the U.S. Each employee instead should be provided with a stand-alone employee privacy notice that includes the legal basis for processing the employee's personal data.
Chris Stack and Ann Bevitt are attorneys with Cooley LLP in London. Wendy J. Brenner is an attorney with Cooley LLP in Palo Alto, Calif., and the Los Angeles-Santa Monica, Calif. office. Ross Eberly is an attorney with Cooley LLP in its Los Angeles-Santa Monica office and Los Angeles-Downtown office. © 2023 Cooley LLP. All rights reserved. Reposted with permission of Lexology.