Education Matters – March 2023

By Dinah Patmore, Strategic HR Partner, Moore Kingston Smith HR Consultancy

2023 looks set to be an interesting year in employment law – let’s have a look at three key areas:

The Retained EU Law (Revocation and Reform) Bill Last year, the government introduced The Retained EU

Law (Revocation and Reform) Bill 2022 which will come into effect at the end of 2023. The government introduced this Bill with a view to ending the special status of retained EU law in the UK and enabling government to amend, repeal and replace retained EU law more easily.

The Bill switches off or ‘sunsets’ retained EU law automatically with effect from 31 December 2023 unless the government takes action to preserve specific pieces of legislation or replace it with UK legislation.

The Bill also:

• stops EU laws that applied directly into the UK from 1972 to the end of 2023 from continuing to be used in the UK from 2024.
• stops EU law being supreme over UK law.

Examples of the most well-known pieces of employment legislation that could be affected are the Agency Workers Regulations, the Part-Time and Fixed Term Workers Regulations, EU regulations relating to equal pay and family friendly leave, the Working Time Regulations and the TUPE Regulations.

The Bill has been criticised due to the lack of time before the end of 2023 to conduct a thorough analysis of what regulations should be preserved or replaced, leading to important rights potentially expiring.

Additionally, uncertainty is likely to be created by ending the application of previous EU case law and having to potentially ‘start again’.

There is a degree of pressure on the government on both sides of the argument; one side urging the government to stick to the sunset date of 31 December 2023 and the other urging the government to extend the sunset date to the end of 2026.

The Employment Bill

The Employment Bill was expected to be introduced in 2022 to implement some of the outstanding recommendations of the Good Work Plan. The Bill did not make it on to the Queen’s Speech, causing many to speculate when it might be introduced or whether it might be quietly shelved.

However, several private members bills have now been introduced, with government backing, which would, if they become law, implement many of the measures that would have been included in the Good Work Plan, including:

• new, enhanced flexible working rights.
• new statutory duty on employers to prevent sexual harassment by third parties.
• extension of redundancy protection for women and new parents.
• new right to a week’s carers leave each year for employees with dependents with a long-term care need.
• new right to neonatal leave and pay

The fact that these Bills have received government backing enhances their prospects of becoming law, which could either happen this year or in 2024.

Potential changes to holiday entitlement and backdated holiday pay

Following the well-known Harpur Trust vs. Brazel case which was settled in 2022, the government recently opened a consultation about the calculation of holiday entitlement for part-year workers on permanent contracts and irregular hours.

Part-year workers are currently entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year.

The government states it is keen to address this disparity to ensure that holiday pay and entitlement is proportionate to the time worked for all workers. The government is considering introducing legislation to allow employers to pro-rate holiday entitlement for part-year workers, so they receive holiday in proportion to the total annual hours worked.

The consultation document outlines the proposal for the new calculation of statutory holiday entitlement, which is effectively a return to the 12.07% method using a fixed reference period and not including any weeks without work.

This will be a welcome change for employers in the education sector, who have been very much impacted by last year’s ruling.

In not so good news for employers, we are currently awaiting the Supreme Court’s judgment in a case called Chief Constable of the Police Service of Northern Ireland and another v Agnew and others.

This is an appeal from the Supreme Court of Northern Ireland’s ruling that a gap of more than three months would not interrupt a series of unlawful deductions in an underpaid holiday pay claim.

The Supreme Court’s judgement will be binding on the whole of the UK, so depending on what the outcome is, this could change whether employers can continue to rely on making a correct payment to break a chain of unlawful deductions and avoid claims for backdated holiday pay.

Dinah is the lead HR contact for numerous sectors within the firm including Charities, Education, Manufacturing and Distribution and Real Estate and Construction.

She has wide-ranging experience working with business owners and leaders, gained within SMEs and large corporations in various industries, operating in both the private and non-profit sector. She works with business leaders to help shape their people strategy and delivers on the priorities that will enhance the employee experience and business performance.

By Dan Leaman, Partner, Moore Kingston Smith Corporate Finance

We are seeing that mergers and acquisitions in the independent schools sector has become more active due to strong market drivers such as, rising demand for independent schools and demographic trends – as well as cost pressures which push towards economies of scale.

There is continued interest from overseas investors looking for property rich businesses in the UK as well as a number of private equity backed groups consolidating in this space. Some successful schools are also expanding their reach with the acquisition of other schools to their groups, either as feeder schools, or secondary campuses, to leverage their brands and reap the benefits that come from the scale.

However, there are also a number of smaller independent schools that are struggling and we do expect to see some of these come to the market in the next year as they seek investment to fund a step change to help them transform their market proposition.

In the UK, our independent schools can be limited companies or charities and historically small prep schools have been run by private families. The merger and acquisition activity has been varied with a broad mix of charity to charity and charity to limited company.

Although the charity to charity approach does not often involve a sale with money changing hands, the acquirer will value a school depending on the costs involved with increased investment, reorganisation costs and redundancy costs.

Independent schools are generally valued by applying earnings multiple to the underlying Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) of the business. This figure is normally adjusted by adding back any exceptional costs that are not reflective of the business post transaction to reflect the normalised EBITDA a buyer can expect in the future.

In order to maximise the earnings multiple and therefore the value of a school, the following points are key:

1. Reputation – The reputation and quality of teaching are key drivers of value for independent schools.

2. Profitability – Schools with a track record of delivering consistent and growing profits are more attractive to investors looking to make a return rather than schools with marginal or inconsistent financial results.

3. Premises – A school with attractive freehold properties and facilities can attract a higher multiple. Conversely price will often be adjusted downwards for schools where maintenance and capital expenditure have been underspent in the years approaching a sale, as buyers take account of required catch up expenditure to bring the properties back into the state that they deem necessary.

4. Operational efficiency – If a school is at capacity with high occupancy and good pupil retention these are indications that the school is operating effectively and gives a buyer a high degree of certainty over future income. A school that is consistently operating at capacity will therefore drive-up value. Schools operating at capacity with a good reputation are also more likely to reinvest in their facilities, further driving up their value.

5. People – Staff/fee ratios are a key metric for acquirers as appropriately staffed schools will drive a higher margin. Appropriate permanent staffing levels are therefore attractive to potential acquirers, and conversely excessive use of agency staff is seen as unattractive. In addition to financial metrics, good staff engagement and retention are important. The cost of the Teachers’ Pensions Scheme (TPS) can also be a drag on staff/fee ratios and so schools where TPS has been successfully exited will be more attractive.

6. Parents – Schools that can demonstrate a high degree of parental satisfaction with their offer will give buyers further comfort over future income streams, when they are deciding whether to invest.

7. Results – Schools that can demonstrate consistent results for pupils in both academic terms and in entry to onward destinations can be highly sought after.

8. Pricing – Higher fee levels when combined with high occupancy and high retention show that a school is attractive to its market and those schools that can charge for a greater complexity of care are also attractive to acquirers and can drive up multiples.

9. Location – The geography of the school’s location is also important, for example, schools in London will demand a higher multiple due to the ongoing shortage of space and demand for schooling being high there.

10. Scale – Generally schools with a larger scale or groups of schools can generate higher multiples as they benefit from economies of scale.

Dan advises clients on strategy, acquisitions, sales, MBOs and fundraising. He has over 12 years’ experience in mergers and acquisitions and eight years’ experience in business as a COO/CFO. He always starts with understanding clients’ businesses and aspirations and then develops strategies to work collaboratively to deliver their goals and maximise returns.

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