What's new in the world of work? Global People and Reward Update
Welcome to our international newsletter. This Fall 2018 edition focuses on legal developments which took place internationally and in the EU, Belgium, France, Germany, the Netherlands, Russia, Spain, and the UK over the past 4 months.
Digital transformation and workplace organisation - A global guide to the key HR legal issues
Digital transformation is impacting the workplace in many ways. It is causing businesses to rethink the way they are organised, leading them to implement innovative new working structures and to overhaul reporting structures. It is also allowing them to monitor employee performance in ways which were not previously possible. These types of workplace organisational changes inevitably give rise to HR legal issues. In our latest guide we discuss the HR legal issues that might arise in 12 key jurisdictions across the Americas, Europe and Asia.
People Analytics: The Opportunities and Legal Risks of a Brave New World
Advances in technology and artificial intelligence are allowing companies to solve strategic issues in ever quicker, more innovative ways. These advances are just as applicable to people management. People Analytics is the application of digital tools and algorithms to data about or relating to people, including through profiling. The data that is collected, processed and interpreted by People Analytics tools can allow employers to make better HR decisions and run their businesses more efficiently through cost reductions and enhanced operational capabilities.
In our briefing we discuss the benefits, the challenges and the legal risks associated with the use of People Analytics.
Bangladesh Accord arbitration cases officially closed
The Permanent Court of Arbitration has announced the official closure of two cases against multinational fashion brands brought under the Bangladesh Accord on Fire and Building Safety which was established in 2013 following the Rana Plaza disaster that killed and injured thousands of workers. The arbitrations were filed in July 2016 and October 2016 by global unions IndustriALL and UNI. The brands have met all terms of the settlements, including paying over USD2.3 million towards remediating unsafe conditions in Bangladesh ready-made garment factories. Under the terms of the settlement the identity of the brands will remain confidential.
The first Accord expired on 31 May 2018 and a second agreement went into effect June 1 of this year, which extends the protections until 31 May 2021.
EU / Japan data flows
Moving one step closer to adopting a formal adequacy decision in respect of Japan, the EU Commission published its draft decision on 5 September 2018. Once the decision is finalised it will enable free flow of personal data between the two jurisdictions without the need for separate authorisation from any regulator.
This is good news for EU businesses that send personal data to Japan, including intra-group.
EU data protection law prohibits the export of personal data from the EEA to countries that don’t provide ‘adequate’ data protection. There are certain exceptions to this, including where the data exporter and importer agree to comply with obligations in the EU’s model contract clauses on data protection. The EU Commission has previously declared that certain other countries’ data protection laws are ‘adequate’ - including partial adequacy decisions for Canada and the US. This is the first time the EU has agreed a reciprocal adequacy arrangement, meaning Japanese and EU businesses can mutually exchange personal data.
Read more about the draft decision in our blog here.
In an attempt to address legislative fragmentation on whistleblowing at EU level, on 23 April 2018 the European Commission unveiled a legislative proposal setting out “common minimum standards” to protect whistleblowers against retaliation for uncovering breaches of specific EU policy areas, such as financial services, product safety and protection of privacy and personal data. The Commission’s proposal safeguards individuals who report information they have acquired through their work-related activities, irrespective of their nature. If the proposal is adopted in its current form, this could mean that not only employees, but also the self-employed (possibly “gig workers”), contractors, interns and job applicants would benefit from protection against retaliation.
Please read our briefing which examines the Commission's proposed Directive in detail.
We recently also produced a global guide on whistleblower protection, touching on the scope of legislative protection, remedies and rewards offered to whistleblowers in 16 key jurisdictions across the Americas, Europe and Asia.
Revised Posted workers Directive in force
After two years of negotiations, on 29 July 2018 the revised Posted Workers Directive (available here) entered into force. The key differences from the previous 1996 Directive (Directive 96/71) are:
- the maximum duration a posted worker can work before all provisions of the labour law of the host country must be met is now reduced to 12 months, with a possible extension of six months (through a notification by the company to the competent authority in the host country);
- 'equal pay for equal work': posted workers should benefit from the same rules as local workers from day one, considering all elements concerning remuneration (including several different types of bonuses). Travel costs, accommodation and meals costs will no longer come under employee remuneration and will have to be reimbursed by the posted worker’s employer;
- in order to tackle abuses in subcontracting situations and to protect posted workers’ rights, Member States should take appropriate measures to ensure subcontracting liability;
- the new elements of the Directive will apply to the transport sector once the sector-specific legislation (currently under negotiation) is applied; until then the rules of the 1996 Directive will continue to apply.
Member States will have until 30 July 2020 to adapt their legislation to the new posting rules and to apply them.
New EBA’s Guidelines on internal governance
On 30 June 2018, the revised EBA Guidelines on internal governance entered into force, specifying the internal governance arrangements, processes and mechanisms that credit institutions and investment firms must implement to ensure effective and prudent management. In particular, Title IV of the guidelines deals with “Risk culture and business conduct”, underlining that a strong risk culture should include:
- a tone from the top: the management body should be responsible for setting and communicating the institution’s core values and expectations
- accountability: relevant staff at all levels should know and understand the core values of the institution and, to the extent necessary for their role, its risk appetite and risk capacity. They should be capable of performing their roles and be aware that they will be held accountable for their actions.
- effective communication and challenge: a sound risk culture should promote an environment of open communication and effective challenge in which decision-making processes encourage a broad range of views,
- incentives to align risk-taking behaviour to the institution’s risk profile and its long term interest.
Stronger Social Europe
EU Member States have recently reached agreements concerning the revision of the rules governing the following matters:
- Directive on "transparent and predictable working conditions"
- Directive on work-life balance
This draft Directive modernizes existing information obligations of working conditions and has a broad personal scope of application to ensure that all workers in all forms of work are covered. The new rules on minimum rights for workers in on-demand, voucher-based or platform employment, were approved by the European Parliament's Employment Committee in October. The text will be now negotiated by Parliament and Council in order to define the final shape of the rules. The new Directive will eventually repeal the current Written Statement Directive which has existed since 1991.
The Council has agreed a general approach on the draft Directive on work-life balance for parents and careers to enable them to better balance their work and family lives and to encourage a better sharing of caring responsibilities between women and men. This will modernize the existing EU legal framework in the area of family-related leaves and flexible working arrangements. It should also help increase women’s participation in the labour market. The initiative also contains a set of non-legislative measures (e.g. protection against discrimination and dismissal for parents and carers).
New Chinese data protection framework – automated decision making
In China, a detailed national standard known as the Personal Information Security Specification (the PI Security Specification) entered into effect on 1 May 2018. This non-binding guideline contains detailed requirements on data handling and data protection. Its principles and concepts are very similar to the European General Data Protection Regulation (GDPR) – in fact it was drafted with reference to it. No penalties apply for breaches. However, given its comprehensive nature, Chinese government agencies are expected to apply the Specification as an important measure of compliance with all of China’s data protection rules (including the Cyber Security Law that came into effect in June 2017).
The PI Security Specification requires data controllers to provide methods for raising appeals or complaints in relation to automated decisions that directly impact the rights and interests of a data subject (such as decisions on credit rating and screenings of job applicants).The PI Security Specification also contains a provision at paragraph 5.6 that requires Personal Data Controllers to draft privacy policies setting out methods for restricting automatic decision making.
This differs from the way GDPR protects individuals against automated decisions (Article 22 GDPR). Under the GDPR, unless an exception applies, the data subject has the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him/ her or similarly significantly affecting him/her. Where GDPR requires some human intervention in decision making, China postpones the protection introducing an appeal mechanism.
New notice periods
The lengths of the statutory notice periods for employees with less than 6 months service are being decreased.
Since 1 May 2018, employers have to observe the following notice periods in case of termination:
|Seniority||< 3 months||3-4 months||4-5 months||5-6 months|
|Notice period||1 week||3 weeks||4 weeks||5 weeks|
The notice periods as from the sixth month of service, as well as the notice periods to be observed by employees in case of resignation remain unchanged.
Right to disconnect
A March 2018 Act imposes an obligation on employers to discuss the “right to disconnect” (i.e. the right for employees not to answer emails, phone calls or to be otherwise available outside of business hours) within the company’s health & safety committee on a regular basis – and in any case whenever requested by the employee representatives in such committee.
The employee representatives can make suggestions or address an opinion to the employer and any measures taken as a result thereof can be laid down in the company’s employee handbook or in a company-level collective bargaining agreement.
Cash for car
Because of a beneficial tax and social security treatment, in Belgium company cars are frequently included in employees’ remuneration packages.
A new law introduced the so-called “Cash for Car” system as from 1 January 2018. This system should lower the number of company cars driving on Belgian roads and decrease the number of traffic jams by encouraging employees to make use of alternative mobility solutions.
Employers can decide to introduce a Cash for Car system, which allows employees to convert a company car into a cash allowance that will enjoy the same favourable tax and social security treatment as the company car.
An employee who wishes to make use of such system, must file a request to the employer in writing and meet a number of conditions. The employer is entitled to accept or refuse this request (for example, if the company car is considered key for the performance of the employees’ function).
The Cash for Car system differs from the so-called “mobility budget” which is another alternative for company cars that is currently under discussion in the Belgian Parliament.
Belgian GDPR law approved
The Belgian Law of 30 July 2018 regarding the protection of physical persons with respect to the processing of personal data was published in the Belgian State Gazette on 5 September 2018. We will discuss the details in a following edition of this client newsletter.
On 5 July 2018, the Belgian Parliament adopted a draft concerning associative and occasional work. It provides a legal framework for a “secondary” occupation in addition to a main professional activity of employees, self-employed or retired workers. This complementary occupation should be related to specific cases: associative work such as for a non-profit organization (e.g. music lessons), occasional work performed for an individual (e.g. gardening for a neighbour) and a gig economy activity.
What is interesting about this law is the tax and social security debts exemption for earnings from such “secondary” activities up to a threshold of approximately EUR6000 per year. Beyond this threshold, the relevant income would be considered as coming from professional activities and taxed accordingly.
This law completes the program law of 1 July 2016 relating to the fiscal dimension of the gig economy, which allowed a favourable tax regime for income generated through a state organised online platform or a certified online platform (maintained).
Reducing the gender pay gap
Under a new law, employers with at least 50 employees are required to publish a yearly gender pay gap review with an indication as to its evolution. If a breach of the equal pay principle is revealed, employers are required to formally initiate negotiations with unions to reach an agreement on an annual or multiannual program of financial catch-up measures. Failing to reach such agreement, these measures are determined by a unilateral decision of the employer after consultation of the economic and social committee of the company.
The companies have 3 years from the date of discovery of the breach to put themselves in compliance with it. Failing this, if the indicators continue to show a pay gap above a certain minimum rate (to be determined by decree), the employer could be subject to a financial penalty of up to 1% of the total payroll.
These provisions should enter into force at the latest on 1 January 2019 in companies of more than 250 employees and at the latest on 1 January 2020 in companies with 50 to 250 employees.
Financial institutions: measures on material risk takers’ bonuses
A new draft bill (the PACTE bill) is looking at re-introducing measures on banker bonuses which got initially rejected by the Constitutional Court for procedural reasons:
- The variable compensation owed to material risk takers in financial institutions (deferred bonuses) may be reduced in whole or in part or be clawed-back whenever individuals disregarded regulations on risk taking laid down by the company, and in particular if they are liable for actions that caused substantial loss to the company or did not comply with their duties of professional care.
- The reducible or recoverable part of deferred bonuses will be excluded from the calculation of statutory severance pay and of compensation for unfair dismissal.
A number of labour and employment rules depend on headcounts thresholds (such as employees’ representation in companies employing at least 50 employees). As thresholds may hinder the growth of businesses, the PACTE bill intends to launch a process of harmonization of the various existing methods for calculating staff numbers between the different legislations concerned. In addition, it introduces a unified threshold mitigation mechanism that provides for two types of measures:
- on the one hand, a threshold will have an impact on a company only if it is exceeded for 5 consecutive civil years;
- on the other hand, a threshold will lose its binding effects for a company as soon as the headcount falls, on a given year, below this threshold.
Lastly, the draft bill groups together thresholds at similar levels and eliminates certain intermediate thresholds.
The PACTE bill has been passed by the French National Assembly and will be examined by the French Senate in January 2019.
Federal Labour Court approves Strikebreaker Premium
The German Federal Labour Court recently held that an employer is entitled to promise employees a premium if they do not participate in a strike measure.
In the case at hand, a retail company had promised the payment of a premium in the amount of EUR200 per day (later reduced to EUR100 per day) to all employees who do not follow the trade union’s call for a strike. The plaintiff – who participated in the strike action – sued the employer for payment of the strikebreaker premium that was paid to his colleagues who worked during the strike. The employee argued that he was entitled to the premium under the principle of equal treatment.
The claim was rejected in all instances. According to the Federal Court, the employer has the right to offer a strikebreaker premium as such premium is a legitimate means of industrial action. The court confirmed that in such situation there is an unequal treatment between employees participating in a strike action and those who do not, but the discrimination is justified. The employer has a legitimate interest in preventing any disturbance of the operating procedure and to react to the strike pressure put on employees by offering a voluntary premium.
The Court underlined that the principle of proportionality applies to all industrial actions including the amount of a strikebreaker premium. In the case at hand where the premium offered exceeded the regular daily income by far (premium amount of EUR200 per day versus monthly income of EUR1,480), the Court did not see a violation of the principle of proportionality.
Whistleblowing hotlines under the GDPR: German data protection authorities’ guidelines
In January 2018, the joint committee of the federal and state German data protection authorities (DSK) issued guidelines concerning whistleblowing hotlines under the GDPR. The guidelines aim to provide advice to companies concerning data protection related aspects of a whistleblowing system.
In the past, the DSK took the view that anonymous whistleblowing reports should not be encouraged since anonymity favors abuse and denunciation. In contrast, the recommendation in the guidelines reads that anonymous reports should be the preferred reporting method in whistleblowing procedures. The reason for the reconsideration are the information rights of the accused person under the GDPR which – according to the DSK – lead to an obligation of the employer to disclose the name of the whistleblower if this information has been provided.
Article 14 GDPR states that in a situation where personal data have not been obtained from the data subject (which applies in a whistleblowing situation), the controller shall provide the data subject with – inter alia – information about the identity of the controller. According to the DSK, this may also include the identity of the whistleblower. This is explicitly mentioned in the data subject’s access right in Article 15 GDPR, stating that where the personal data are not collected from the data subject, any available information as to their source have to be provided by the controller (i.e. the employer). The German law does not provide general statutory restriction of the accused person’s access rights. In other words: the secrecy of the whistleblower’s identity, crucial for the success of a whistleblowing system, cannot be guaranteed, which constitutes a risk concerning the effectiveness of the whistleblowing system if potential whistleblowers fear personal consequences and confrontation.
Article 14.3 a) GDPR states that the accused person shall receive the information within a reasonable period after obtaining the personal data, but at the latest within one month. In a situation where such information would set the investigation of the allegations at risk, the information can be postponed (Article 14.5 b) GDPR). However, the DSK underlines that a permanent concealment of the whistleblower’s identity will be in conflict with the accused person’s personal rights.
Therefore, the DSK recommends to inform a whistleblower in advance that he is free to decide whether he wants to make an anonymous report or provide his name. In the latter case, the whistleblower should be informed that his name will be passed on to the accused person and shall therefore be asked to give his consent concerning the processing of his personal data. In order for the consent to be valid, it must meet all requirements defined under the GDPR, including the information about the revocability of the consent in accordance with Article 7.3 GDPR. However, the whistleblower should be aware that a revocation may only be helpful if it is done within the first one month after the report has been made because the information may already have been passed along to the accused person afterwards.
Mandatory Basic Contract Occupational Health and Safety (OHS) Management
In our Summer 2017 edition, we informed you of changes to the Dutch Working Conditions Act. The grace period for implementation has ended on 1 July 2018, as of when employers are required to have a contract with a certified health and safety provider in place providing for basic elements such as: expert supervision and guidance in case of illness, direct access for employees to a company doctor, right for the company doctor to visit the workplace, right for employees to request a second opinion from another company doctor, and independent complaints procedure of the provider /company doctor for employees/employers who are dissatisfied with the treatment of their illness. Not having such contract in place is subject to a (maximum) fine of EUR1,500. Employers with more than 25 employees must furthermore appoint a health and safety officer.
Dutch Supreme Court rules statutory severance may also be due in case of summary dismissal
Under Dutch law, provided certain conditions are met, employees are entitled to receive a statutory severance payment upon termination. However, in case the termination resulted from seriously culpable acts and/or omissions by the employee, no statutory severance is due, unless not granting it would be unacceptable based on the principle of reasonableness and fairness. It was often argued that for a summary dismissal (i.e. a dismissal for cause) to be considered legally valid, this required seriously culpable behaviour by the employee, hence no statutory severance payment would be due in such cases. However, in a recent case, the Dutch Supreme Court ruled that, also in case of a legally valid summary dismissal, a transitional payment may nevertheless be due to the employee on the basis that the presence of an urgent cause justifying the summary dismissal does not require that the employee can be blamed for his/her acts.
Russian News Alert - October 2018
For an update on recent changes in Russian legislation, which include the recommendations of the Russian Ministry of Internal Affairs regarding registration of foreign citizens for migration purposes, annual leave for employed parents, new types of reporting for employers and expiry of workplace conditions review, please click here
Insolvency proceeding and collective dismissal
In 2017, a Spanish branch of a German based group implemented a collective redundancy of all employees in Spain, on the basis of the insolvency proceeding that was taken place in Germany. However, the formalities provided by Spanish law were not complied with. Whilst in an ordinary collective redundancy, there is no need to obtain any prior approval, and after the negotiation, with or without agreement, the company might implement the relevant redundancies, in case of insolvency, any redundancy must be monitored and approved (prior to its implementation) by the relevant insolvency court. As in this case there was no approval from the judge in charge of the insolvency, the dismissal was considered null and void.
In a situation like this, the company would have had two options:
- Either go to the insolvency court in Germany, to ask for its approval of the Spanish redundancy program (proving compliance with all relevant formalities); or
- Open a mirror insolvency procedure in Spain, and implement the collective redundancy before it (including obtainment of the prior approval).
Pregnant women's terminations in collective redundancies
Further to the European Court of Justice‘s ruling in Porras Guisado v Bankia S.A C-103/16, which addressed the questions referred by the Cataluña Superior Court of Justice regarding the protection of pregnant women against dismissal in Spain, and on which we reported last February, the Spanish Court has now rendered a resolution implementing the European decision.
Please read our detailed blog post here.
Lower termination payments for fixed-term workers
On 5 June 2018, the European Court of Justice delivered two important judgments in the cases of Montero Mateos and Moreira Gómez, which reverse the criterion held by the previous case law (De Diego Porras, on which we previously reported) regarding the severance payment due upon expiry of fixed term contracts.
First UK data leak class action: employer remains liable for rogue employee’s data breach
In the case of WM Morrison Supermarkets Plc v Various Claimants, the UK Court of Appeal recently held that Morrisons was liable for a data leak by a rogue employee. This is the first UK data breach class action – the case was brought by Morrisons’ employees, whose payroll data was leaked by a disgruntled internal auditor. Morrisons has said it will appeal to the Supreme Court. Please read our blog post on this decision.
In July 2018, the UK government published a white paper which contains a section on the government’s proposed post-Brexit mobility framework. It confirms that free movement of people will end as the UK exits the EU and that the UK will design a new immigration system which works for all parts of the UK, with details of this immigration system being set out in due course. The government confirmed that it intends to seek reciprocal mobility arrangements with the EU that:
- allow UK nationals to visit the EU without a visa for short term business reasons and vice versa;
- permit ‘intra-corporate transfers’ that allow UK and EU-based companies to train staff, to move them between offices and plants and to deploy expertise where needed, based on existing arrangements with non-EU countries;
- allow citizens to travel freely without a visa for tourism and students and young people to travel freely for study;
- provide certain other defined mobility provisions including arrangements to ensure that UK citizens living in EU can continue to benefit from their pension entitlements and healthcare.
In September 2018, the Migration Advisory Committee (MAC) published its report on the impact on the UK’s labour market of the UK’s exit from the EU and how the UK’s immigration system should be “aligned with a modern industrial strategy”. In its report, the MAC recommended that following Brexit there should be a less restrictive immigration regime for higher-skilled workers than for lower-skilled workers and that the system should have no preference for EEA over non-EEA workers. On 1 October 2018 Prime Minister May confirmed this approach when she announced key elements of the UK’s post-Brexit UK immigration policy: preferential access for EU citizens will come to an end (although a deal with the EU could include mobility concessions) and highly skilled workers will be given priority and low-skilled immigration curbed. The government intends to publish a White Paper on immigration next year.
New Corporate Governance Code
The Financial Reporting Council (FRC) has published the 2018 UK Corporate Governance Code and guidance on board effectiveness, which will apply to all companies with a premium listing of equity shares (whether or not UK incorporated) for reporting years starting on or after 1 January 2019. This means that reporting on the 2018 Code will begin in 2020, covering activities undertaken and information collected in 2019.
Much of the Code is the same as the version on which the FRC consulted at the end of 2017 - see here for our briefing on that draft. We have outlined below a few of the notable changes to the FRC’s original proposals. For further information, see our July 2018 briefing here.
- Engagement with workforce - The draft Code’s three stated methods for workforce engagement are unamended - ie (i) a director appointed from the workforce; (ii) a formal workforce advisory panel; and (iii) a designated non-executive director. But the 2018 Code makes clear that a combination of these methods can be used and it is open to the board to adopt a different approach, provided it explains its alternative arrangements and why it considers these to be effective. The FRC has provided guidance on the meaning of the ‘workforce’ for this purpose.
- Significant votes against resolutions - There have been clarificatory changes to the provisions for company reports where there are significant votes against resolutions (20% or more of votes), including that these only apply to resolutions recommended by the board. The 2018 Code provides that the company should publish an update within six months with follow-up disclosures in the annual report. The FRC has indicated that these provisions apply during 2019.
- Chair’s independence and tenure - Under the 2018 Code, the chair will continue to be independent on appointment but will not have to be independent throughout his or her tenure, as originally proposed. A new provision states that the chair should not remain in post beyond nine years from the date of first appointment to the board.
- Board independence - The FRC has reinstated the 2016 Code provision under which it is a matter for the board to determine whether a non-executive director is independent, even if the Code’s independence criteria (which have not been altered) have not been satisfied. The FRC has indicated that it expects to see greater detail when companies report on directors’ independence.
- Expanded remuneration committee role - The 2018 Code expands the role of the remuneration committee, but in a more limited way than originally proposed. Under the 2018 Code: (i) the committee’s remuneration-setting responsibilities are extended to include senior management; and (ii) the committee must review and take into account workforce remuneration and related policies, and the alignment of incentives and rewards with culture, when setting executive director remuneration.
New corporate governance reporting requirements
The Companies (Miscellaneous Reporting) Regulations were made on 17th July 2018. They will require:
- UK-incorporated quoted companies with more than 250 UK employees to report annually on pay ratio information comparing the CEO’s annual remuneration with the 25th, 50th and 75th percentile of the annual remuneration of the company’s UK employees;
- large privately held companies to report annually on their ‘corporate governance arrangements’;
- UK-incorporated quoted companies to provide enhanced reporting on the exercise of discretion by the remuneration committee and certain matters relating to the impact of share movement on pay;
- large companies, public and private, to report annually on how the directors have:
- complied with their section 172(1) CA 2006 duty to promote the success of a company for the benefit of its members;
- engaged with their employees and had regard to employees’ interests; and
- had regard to their business relationships with suppliers, customers and others.
Subject to Parliamentary approval, the new requirements will apply to company reporting financial years starting on or after 1 January 2019. This means that reporting on the new requirements will begin in 2020, covering activities undertaken and information collected in 2019. For further detail, see our briefing here.
Corporate Governance principles for large private companies
On 13 June, the FRC published the Wates Corporate Governance Principles for Large Private Companies for consultation. The government hopes that many large, privately held companies will adopt these principles as an appropriate framework when complying with the new reporting requirement for corporate governance arrangements. The final Principles are expected in December 2018. For details, see our briefing here.
Data Protection Act 2018
On 23 May 2018, the Data Protection Bill, which we reported on in our Fall 2017 edition, received Royal Assent and became the Data Protection Act 2018. The Act repeals the UK Data Protection Act 1998 and implements GDPR standards across all general data processing. This should ensure the UK’s status as a third country which provides an adequate level of protection for personal data post Brexit. This is required in order to facilitate transfer of personal data from the EEA to countries outside the EEA.
Age discrimination and incentive schemes
The Court of Appeal confirmed in the case of Air Products v Cockram that it is open to employers to objectively justify including ‘retirement’ as a good leaver reason in a long term incentive plan (LTIP) by reference to a specific retirement age, even though doing so constitutes direct age discrimination.
The judgment will give comfort to those employers who wish to link the retirement good leaver provision in their incentive plans to a particular retirement age and those who link their retirement good leaver provision to a retirement policy which specifies a normal retirement age. It may also encourage employers who, following the introduction of age discrimination legislation in 2006, removed ‘retirement’ as a good leaver reason from their incentive plans to include it as a reason again.
Please see our briefing here for a detailed analysis of the Court of Appeal’s decision.
Employment status – Supreme Court judgment
On 13 June, the Supreme Court delivered its judgment in Pimlico Plumbers v Smith. The Supreme Court upheld the Court of Appeal’s decision that Mr Smith, a plumber with Pimlico Plumbers, was a ‘worker’ and not a self-employed independent contractor.
As with previous employment status cases, the judgment was very fact specific. However, the impact of the Supreme Court’s decision may mean that those wrongly classified as ‘self-employed’ when they are in fact “workers” are entitled to certain rights and protections under UK employment legislation, such as holiday pay. Overall, how ‘employee,’ ‘worker’ and ‘self-employed’ are defined in the UK is under scrutiny.
For our analysis of the Supreme Court’s decision, please see our briefing here.
Changes to the UK Pensions Regulator’s powers in corporate transactions
In March 2018, the UK government published a White Paper “Protecting Defined Benefit Pension Schemes” setting out proposals to reform the defined benefit pensions system, following a number of high profile insolvencies in the UK. The White Paper follows on from the Green Paper published in February 2017 (see Spring 2017 edition).
The White Paper included proposals to extend the UK Pensions Regulator’s powers that would impact on corporate activity for groups which operate a defined benefit pension scheme. The White Paper was followed by a consultation paper, published in June 2018, setting out further details on proposals to strengthen the Pensions Regulator’s powers in relation to corporate activity. The proposals, somewhat light in detail, were aimed at deterring behaviours by pension scheme sponsors and their corporate groups that could detrimentally impact on a defined benefit pension scheme. The consultation paper also included proposals to give the Pensions Regulator powers to impose new criminal and civil sanctions for a lack of compliance with the new/improved regime.
Key proposals that will impact on corporate activity include:
- Expanded requirements to notify the Pensions Regulator of certain corporate events along with potential civil and criminal penalties, including custodial sentences, for failure to comply.
- Corporate groups being obliged, before proceeding with any material corporate transaction, to provide scheme trustees and the Pensions Regulator with a “declaration of intent” statement on the impact of the transaction. Failure to provide this statement could result in a civil penalty up to £1m.
- New criminal penalties to punish “wilful or grossly reckless behaviour” of directors in relation to a defined benefit scheme, failure to comply with a contribution notice and failure to comply with the new framework for notifying the Pensions Regulator about corporate activity.
- A new civil penalty of up to £1m for any non-compliance with existing and new legislative requirements.
The consultation closed in August 2018 and the UK government is now considering the responses to the consultation. As a result of these proposals it will be more important than ever for corporate groups to ensure that the impact of corporate activity on their defined benefit pension schemes is carefully considered and appropriately mitigated.
For further details about the proposals in the white paper and the consultation paper, see our alerts “Pensions White Paper: Increased scrutiny for corporate transactions” and “Pensions Regulator to have stronger powers in corporate transactions”.
UK Pensions Regulator to scrutinise pension schemes, employers and corporate activity
Earlier this year, the UK Pensions Regulator adopted a strategy to be “clearer, quicker and tougher” in the way it regulates pensions schemes, as a result of criticism from UK Parliamentary Select Committees about the Regulator’s response to high profile insolvencies in the UK over the last two years, which had a significant impact on the defined benefit pension schemes operated by those insolvent companies. In September 2018, the Pensions Regulator issued a report, “Making workplace pensions work – TPR Future – our new approach”, setting out details of how it will be taking a more proactive approach to regulating pension schemes to reflect major changes in the political, economic and pensions landscape, particularly as a result of the recent high profile insolvencies.
From October 2018, the Pensions Regulator will use a new range of interventions to address risks sooner and take action where necessary, including:
- one to one supervision of 25 of the largest defined benefit, defined contribution and public sector pension schemes (to be extended to 60 schemes over the next year); and
- assessing valuations and deficit reduction plans of around 50 defined benefit pension schemes to ensure that they have complied with the Pensions Regulator’s 2018 annual funding statement.
For further details, see our alert “Pensions Alert - The Pensions Regulator’s new approach: more scrutiny of pension schemes, employers and corporate activity”.