January 31, 2011
In this client alert we identify key developments in UK employment law expected in the coming year and highlight those steps which employers should be taking to prepare their UK businesses for these developments.
A headline summary is provided below. A more detailed explanation and analysis is available by clicking on the appropriate link. For further details or for assistance on any UK Employment or Labour law matter, please contact James Cox or Daniel Pollard in Gibson Dunn’s London office.
The coalition Government has recently announced a major review of the way that employment disputes are resolved. Although Employment Tribunals, created in the 1970s, were designed as a low cost and accessible way of resolving workplace disputes, in recent years the number of claims has dramatically increased and employers have complained of the very substantial costs that they incur in defending claims – many of which are, in our experience, entirely without merit.
The highlights include:
Whilst the bulk of the changes are good news for employers there is a sting in the tail. The Government propose that employers who are found to have breached an employee’s rights will face a fine of up to £5,000 payable to the Government. This would be in addition to the remedies already available to the employee which are mainly but not exclusively compensatory in nature.
The proposals are all subject to a detailed consultation exercise and much of the detail has yet to be fleshed out.
On 1 January 2011, the Financial Services Authority’s revised Remuneration Code (the "Code") came into force and now applies to approximately 2,500 FSA registered firms. For a detailed analysis of the Code and UK and European Remuneration Reform please click here.
The deferred components of both cash and share based remuneration will be subject to performance adjustment and run the risk of forfeiture. This means that Code Staff can expect to receive just 20-30% of variable remuneration by way of an "up front" cash payment.
While the Code does not mandate that vesting should be subject to a requirement that the employee be "in employment" at the relevant vesting date, neither does it prevent employers from imposing such requirements. Employers seeking to deter key employees from leaving should consider making continued employment a condition of vesting of deferred awards. Such a requirement could help employers protect themselves against losing high profile teams to competitors. For further guidance on retaining key employees, please click here.
The Bribery Act 2010 (the “Bribery Act”) was originally scheduled to come into force in October 2010 and was then delayed until April 2011. However, following the announcement of a last minute ministerial review, Justice Minister Ken Clarke has today announced that the implementation of the Bribery Act will be further delayed pending the outcome of the review.
The Bribery Act is likely to dramatically impact the criminal exposure of corporations that carry on a business in the United Kingdom. For a detailed analysis of the provisions of the Bribery Act, subject to the outcome of the review, please click here and here.
The Bribery Act was to have direct consequences not just for UK companies but for all companies that carry on any part of a business in the UK, as it was to criminalise their corrupt behaviour regardless of the location of bribe or its receipt. The Bribery Act, which addressed the bribery of public officials and private parties alike, created personal criminal liability for senior officers of a company that commits a bribery offence with the consent or the connivance of that senior officer. Significantly, among the Bribery Act’s four new bribery offences is the corporate offence of failing to prevent bribery. The only defence to this new strict-liability offence was to be that the company had in place "adequate procedures" for tackling bribery at the time of the conduct.
What elements of a compliance program qualify as "adequate procedures" was and remains unclear. Draft guidance from the Ministry of Justice was published in September 2010 (click here for details) and the final guidance will follow the outcome of the ministerial review. Regardless of what the Ministry of Justice recommends, it is clear that companies will need to take a hard look at their compliance programs to ensure they adequately address the specific corruption risks facing their particular businesses around the world.
Gibson Dunn has extensive experience in evaluating and designing corporate anti-corruption compliance programs. This includes assessing the structure and effectiveness of corporate compliance programs, reviewing reporting mechanisms, internal payment controls, and compliance messaging, and drafting new compliance materials, such as ethics and anti-corruption handbooks.
During the consultation on the Bribery Act that has taken place, Gibson Dunn attorneys have twice met with representatives of the Serious Fraud Office to discuss the practical implementation of the Bribery Act. Please click here for further details.
The bulk of the Equality Act 2010 (the "Equality Act") came into force on 1 October 2010. The key practical changes are summarised in our previous client alert here and include a limit on the enforceability of pay secrecy clauses, a prohibition on generic questions about the health of a job applicant at pre-offer recruitment stage, an enhancement to the protection afforded to disabled employees who are absent on long-term sickness leave and an extension of the existing duty of employers to prevent harassment by third parties on the grounds of sex to cover most other protected characteristics (such as race, sexual orientation, religion, disability, etc.) (please click here for further details).
On 1 April 2011 one of the most controversial measures in the Equality Act will come into force. Employers in the UK will be permitted for the first time to prefer a "protected characteristic" candidate over a non-protected characteristic candidate for recruitment or internal promotion in circumstances in which both candidates are equally well qualified.
In order to engage in such positive discrimination, employers will first need to satisfy themselves that either: (a) persons who share a protected characteristic suffer a disadvantage connected to the characteristic; or (b) that the persons with the protected characteristic are underrepresented in the job in question. Employers will then need to show:
Unfortunately, the statutory language is ambiguous and will require considerable clarification by the courts and tribunals.
Clients who have not already done so should review their internal policies, contracts and application forms to ensure that they have been updated to reflect the changes implemented by the Equality Act 2010.
Employers in a variety of sectors make use of temporary agency workers ("temps") as a flexible and cost effective away of fulfilling their temporary staffing needs. Typically the worker is provided by an employment business and there is no direct contractual relationship with the hirer/client.
The UK Agency Worker Regulations 2010 shall come into force from 1 October 2011 from which time:
Employers should review the arrangements whereby they engage agency workers and the terms upon which they engage them in preparation for 1 October 2011.
Currently employers are able to dismiss employees by reason of retirement on or after their default retirement age (usually but not always 65) without exposure to compensation for age discrimination or unfair dismissal.
Age discrimination laws introduced in 2006 retained a special exemption which allowed an employer to retire an employee at its default retirement age (usually but not always 65) provided that a required procedure had been followed (the "Mandatory Retirement Exemption").
The new coalition Government has announced that they will abolish the Mandatory Retirement Exemption later this year.
Confusingly for employers, whilst the Mandatory Retirement Exemption is to go, employers may still be able to operate a blanket mandatory retirement rule. However, rather than relying upon a clear statutory exemption, they will instead need to prove that: (a) mandatory retirement at the age in question is objectively justified as being a proportionate means of achieving a legitimate aim; and (b) that the dismissal was fair in all the circumstances. At the time of writing the final statutory provisions have yet to be published and the leading domestic authority may be subject to an appeal to the Supreme Court, which means that employers who wish to continue with mandatory retirement ages should take specific legal advice on a case-by-case basis.
Significantly the change does not mean that employees will be compelled to work on but means that they will not be forced to leave employment before they are ready. The Government intends that the majority of employers will instead reach agreement with employees about retirement dates and, if this is not possible, employers will have to manage out poorly performing older workers.
As part of the review, the Government has recognised the disproportionate costs associated with providing certain insured benefits (such as life assurance) to older workers and has announced that it will introduce an exception to the age discrimination legislation allowing employers to specify a maximum age of 65 for participation in certain insured group risk benefits. Legislation is awaited.
Employers should act now to review the age profile of their workforce before the changes take effect.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these and developments. Please feel free to contact the Gibson Dunn lawyer with whom you work or the following lawyers in the firm’s London office:
© 2011 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.