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Employment Law News

 

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The state of whistleblowing in the financial services sector

Protect, the whistleblowers’ charity, has published a new report looking at the recent experiences of whistleblowers in the financial services sector.  We discuss the key findings and the learning points for employers in the sector.

The Silence in the City report was first published back in 2012 (SITC1), when Protect sought to probe why whistleblowers hadn’t raised concerns over the financial crash and Libor scandal.  The Silence in the City 2 report(SITC2) looks at how the experience of financial services whistleblowers has changed since the introduction of the FCA Whistleblowing Rules in 2016.  The findings are based upon analysis of 352 cases of individuals from the financial services sector who contacted Protect’s legal advice helpline between 1 January 2017 and 31 December 2019.

Who are the financial services whistleblowers?

• Where do they work? 73% worked in banking, finance or insurance, representing a 12% increase from SITC1.  These organisations are all subject to the FCA Whistleblowing Rules, meaning they will have been required to communicate whistleblowing policies to staff and roll out a comprehensive training programme. These steps are likely to have contributed to a greater awareness amongst staff on how to blow the whistle.
• How long have they worked for their employer? 47% had under 2 years’ service, which is slightly lower than the level recorded in SITC1 (53%), but still relatively high. One explanation for this is that newer staff are more likely to have fresh perspective and notice wrongdoing which has become normalised to longer serving employees.
• What roles do they perform? 39% occupy senior roles with managerial responsibilities (i.e. director, executive, partner or manager level roles) which was similar to the level recorded in SITC1.  The figures were much lower for junior or technical-based roles.  Protect’s view is that the sector faces the challenge of empowering junior staff to raise concerns.
• What is their employment status? About two thirds were raising concerns about a current employer’s practices and about a third about a former employer’s practices. These levels were similar to those seen in SITC1.  It’s important to remember that employees who blow the whistle after they have left employment still acquire whistleblower protection (see Onyango v Berkeley Solicitors Ltd) and so care should be taken not to subject such employees to any form of post-employment detriment.

What types of wrongdoing do the whistleblowers witness?

• What types of wrongdoing form the subject of whistleblowing complaints? The top six areas were:
  • Breach of legal or regulatory obligations – 19%
  • Fraudulent or criminal activity – 11%
  • Incorrect reporting to a client or third party – 9%
  • Breaches in data protection or client confidentiality – 7%
  • Competence or conduct of staff – 5%
  • Discrimination or harassment – 5%

• The rise of discrimination and harassment: notably, discrimination and harassment did not feature as one of the top forms of wrongdoing in SITC1. Its elevation may be due to the heightened attention on such issues as a result of the global #MeToo movement.  Protect notes that whistleblowers raising concerns about discrimination and harassment are identifying a wider cultural problem in their place of work, rather than a personal grievance.  They say: “…it may be more effective for a whistleblower, even if they are also a victim of harassment or bullying, to use whistleblowing arrangements because it has this wider public interest significance”.
• Did reports tend to concern one-off or recurrent issues? 78% raised concerns about recurring issues rather than one-off incidents. Employers should analyse whether the whistleblower’s colleagues also reported concerns (as they would likely have been aware of a recurrent problem).  Further, over 57% of the concerns raised were characterised as “organisation-wide” issues, which, again, suggests that they would be recurrent and widely known about.

Where do whistleblowers raise their concerns?

• Are whistleblowing raising concerns internally? The good news is there is a greater level of trust amongst whistleblowers to use internal whistleblowing arrangements. This rose from 78% in the SITC1 to 93% in the SITC2.  This suggests that the introduction of the FCA Whistleblowing Rules have promoted greater awareness and use of internal procedures.
• Who are the most popular recipients? The top seven recipients of concerns changed depending on the number of times the whistleblower had raised the concern (see table below). These results show that whistleblowers initially have confidence in their managers to resolve the matter, with 52% reporting either to their line manager or a director in the first instance and only 7% reporting externally to the FCA or PRA.

 

1st time	2nd time	3rd time
Line manager (28%)	Director (22%)	FCA/PRA (33%)
Director (24%)	FCA/PRA (22%)	Compliance / legal (21%)
Whistleblowing champion or equivalent (11%)	Compliance / legal (12%)	Director (18%)
HR (10%)	HR (11%)	Whistleblowing champion or equivalent (13%)
Compliance / legal (9%)	Whistleblowing champion or equivalent (9%)	HR (13%)
Senior manager (8%)	Senior manager (9%)	Senior manager (10%)
FCA/PRA (7%)	Line manager (6%)	Line manager (5%)

 

• Are whistleblowers persistent? Whistleblowers are becoming more persistent. In 2012 only one in five was willing to raise a concern for a second time.  That figure has increased to almost one in three which is a marked improvement, again, suggesting greater trust in the system.  Interestingly, the figures for those willing to raise it a third time were the same for 2012 and 2019, at around one in ten.
• When are whistleblowers likely to go to the FCA or PRA? By the time concerns are raised for a second and third time, confidence in the line manager drops to just 6% and then to 5%.  By contrast, the willingness to go to the FCA or PRA jumps to 22% and then to 33%.  This underlines the importance of training managers on how to identify and respond to whistleblowing complaints.
• How useful are whistleblowing hotlines? Interestingly, the report also showed that whistleblowing hotlines were not at all popular with whistleblowers. No-one raised their concerns with a hotline in the first instance and only 1% did so in the second instance (down from 8% in SITC1).  Again, this suggests that whistleblowers have more confidence in the face-to-face internal channels available for reporting.  Whilst hotlines are a useful part of a whistleblowing strategy, it’s clear they should not be the central focus for employers.

What treatment did the whistleblower face?

• What are the outcomes for whistleblowers? The reported outcomes for whistleblowers were overwhelmingly negative. Whistleblowers reported the following outcomes:
  • Victimised or disciplined by management – 31% (representing a 9% increase since 2012)
  • No action taken – 30%
  • Dismissed – 22%
  • Resigned – 12%
  • Victimised by co-workers – 4%
  • Suspended – 1%
  • Thanked – 0% 

• The prevalence of victimisation: an astonishing 35% of whistleblowers reported having been victimised by management or co-workers. The research also shows that when the victimisation was reported to the employer, over half took no action (58%) and almost a quarter rejected the complaint (24%).

• Failure to comply with the FCA Whistleblowing Rules: these figures suggest a failure by some firms to give full effect to the FCA Whistleblowing Rules, which require a proactive approach to tackling victimisation. Indeed, in November 2018, the FCA reviewed how the rules were bedding in and noted that a number of firms still needed to develop or enhance their arrangements regarding protecting whistleblowers from victimisation, especially educating employees by way of training.  Protect calls for the FCA to take a more robust approach and hold both firms and senior managers to account where whistleblowers have been victimised.

What action was taken on their concerns?

• Are firms taking action? 33% said that their concerns were ignored by the firm.  14% of concerns were denied.  Only 15% were either admitted by the firm or otherwise resolved.  In the remaining cases the investigation was ongoing, or the firm’s actions were unknown.  Linked to this is the fact that 75% of whistleblowers said they had received no feedback at all on the concerns they had raised.  This represents a failure by firms to embrace the spirit of the FCA Whistleblowing Rules, which require firms to provide feedback “whenever feasible and appropriate”.  Firms need to review their approach here to make sure complaints are not being ignored and that whistleblowers are provided with appropriate feedback and are not frozen out.

Conclusion

So, what are the top five practical take-aways for employers operating in the financial services sector?

1. Analyse the seniority of those raising concerns through internal channels and consider whether further communications and/or training should be targeted towards junior level staff to empower them to raise their concerns.
2. Be mindful that employees are increasingly likely to use whistleblowing channels to report concerns about discrimination and harassment. Employers should ensure that HR teams and managers are trained in whistleblowing and are able to spot when (i) an employee raises issues which amount to both a personal grievance and a wider whistleblowing complaint and/or (ii) there is a pattern of similar complaints which indicates an underlying cultural problem.
3. Analyse reports concerning recurrent or organisation-wide issues and try to understand why others did not also blow the whistle. Is there a lack of awareness of the internal process?  Or a lack of trust in the process?  Either way, seek to address the issue.
4. Focus on how you will protect whistleblowers from victimisation. Consider putting in place a system of regular check ins with the whistleblower for up to 18 months after the report has been raised to check that they are not being victimised.  Ensure that all-staff training programmes clearly explain what victimisation is and how perpetrators will be dealt with.
5. Regularly benchmark your internal procedures against the FCA Whistleblowing Rules and ensure complaints are not ignored and feedback is provided to whistleblowers were possible.

If you would like to discuss any of the issues raised in this article, then please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

 

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Black livelihoods matter

At a time when racial inequality is at the forefront of everyone’s minds, new figures revealing the continuing underrepresentation of black people in senior positions in the UK have led to calls for action to secure more diverse workforces.

New figures published by Business in the Community have shown that despite making up over 3% of the population of England and Wales, black people held only 1.5% of the 3.7 million director and manager level roles across the public and private sectors in 2019.  This represents a meagre 0.1% increase in the 6 years since the Race at the Top report was last published in 2014.   In contrast, white people held 89.6% of such positions in 2019, which exceeds the white population figure of around 86%.  These figures have led to calls for change.

Sandra Kerr CBE, race director at Business in the Community, said: “Black livelihoods matter and employers need to take urgent action to ensure that their organisation is inclusive and a place where people of any ethnic background can thrive and succeed.”

At the same time, 29 senior business leaders co-signed a letter to The Sunday Times calling for greater diversity at senior levels within British businesses.  Senior leaders from businesses such as BT, Tesco, Sainsbury’s, ITV and John Lewis said that firms needed to address “systemic racism”.  The 29 signatories also committed to setting diversity targets for candidate slates for every vacancy within their business.

What can employers do to address the representation gap?

Business in the Community has devised a Race at Work charter calling for signatories to take the following five steps:

• Appoint an executive sponsor for race within the business to provide visible leadership and drive key actions: this approach has been adopted with some success in the context of improving gender equality within the workplace. For example, annual gender pay gap reports must be signed off by a director or equivalent within the business, and many reports now open with a statement by that person, outlining the company’s values and progress in that arena.
• Gather and report data: gathering ethnicity data from the employee population is essential to be able to monitor and report progress over time. This data will also be necessary if, and when, businesses are required to report on their ethnicity pay gap (see below).  However, there are many hurdles around collecting, analysing and reporting ethnicity data.  For example, employees are not legally obliged to disclose their ethnicity to their employer and research shows that self-declaration can be as low as 50%, meaning data sets will be incomplete.  Employers need to think carefully how they can encourage self-declaration (e.g. by demonstrating that the data will be kept secure) and ensure that it is collected at different points (e.g. at the recruitment stage and then again at the onboarding stage) and at regular enough intervals to enable progress to be monitored effectively.
• Zero tolerance of harassment and bullying: 25% of black and ethnic minority employees report having witnessed or experienced racial harassment or bullying from managers. Board level commitment should be secured to stamp this out.  In addition, appropriate training should be delivered across the workforce, clear policies must be put in place and a consistent approach taken towards any offending behaviour.
• Make supporting equality in the workplace the responsibility of all leaders and managers: for example, performance objectives could be tied to such responsibilities. Again, this is something we have seen used to good effect in gender equality arena.  In December 2019, senior executives at TSB had their bonuses cut for failing to meet gender equality targets.
• Take action that supports ethnic minority career progression: taking positive action has the potential to make the biggest impact on representation rates. Many employers will have embraced (or be prepared to embrace) soft forms of positive action, such as deploying targeted advertising and outreach work and offering mentoring, training and networking opportunities.  However, few employers within the private sector will have used positive action at the point of recruitment, largely for fear of “reverse discrimination” claims. BDBF have published a detailed paper and presentation on Positive Action in the Workplace, which aims to demystify this area of the law.

What about pay inequality for black and ethnic minority workers?

As well as tackling representation gaps, employers are also now being urged to tackle ethnicity pay gaps.  One of the recommendations coming out of the 2017 McGregor-Smith Race in the Workplace report was that large employers should be required to publish ethnicity pay information as a means of improving workforce diversity.  In October 2018, Theresa May’s Government opened a consultation on introducing a system of mandatory ethnicity pay reporting, similar to the gender pay gap reporting regime. That consultation closed in January 2019 and the Government has yet to respond to it or take any action to introduce legislation.

Fast forward 18 months and a petition signed by over 100,000 members of the public has triggered a debate in Parliament on the issue, The Government’s response to the petition is that it is “still analysing” the responses to the consultation that closed in January 2019.  An 18-month window for producing a response seems like ample time (even allowing for Brexit and COVID-19) making it hard not to draw the conclusion that the proposal had been kicked into the long grass – until now.

The date for the Parliamentary debate has not yet been set and it remains to be seen whether this proposal will be resurrected.  With the figures reported by Business in the Community, and the powerful impact of the Black Lives Matter movement, it’s probably a case of “if not now, then when?”

If you would like to discuss any of the issues raised in this article or how BDBF can help your business navigate race at work issues,  then please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

 

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Can an employer require a potentially redundant employee to go through a competitive interview process for an alternative role?

In the wake of the coronavirus pandemic, some employers will be facing the prospect of reorganising their businesses and making redundancies.  Employers in this position should take note of this recent decision by the EAT which highlights the risks of getting the process wrong.

What does the law say?

In the case of Williams v Compair Maxam, the EAT laid down the general redundancy process to be followed by employers who recognised trade unions.  In summary, such employers should:

• provide as much warning as possible of impending redundancies and consider alternative solutions such as alternative employment (either within the specific undertaking or elsewhere);
• consult with the trade union and agree the criteria to be applied for selecting which employees from a pool would be made redundant. The selection criteria should be objective, capable of independent verification and applied fairly; and
• consider offering alternative employment.

When it comes to selecting which employees from the pool should be offered alternative employment, subsequent cases have confirmed that a rigorously objective selection process is not required (in the way that it is required when selecting who to make redundant).  A degree of subjectivity is permitted.

Where a brand new role has been created, the appointment to that role is likely to require something more like a competitive interview process, in order to test the skills and competencies of the employees against the requirements of the new role.  Indeed, in the case of Morgan v Welsh Rugby Union (Morgan), it was accepted that the approach of applying selection criteria to a pool of potentially redundant employees will not necessarily be appropriate where a brand new role has been created.

What happened in this case?

The two Claimants were teachers who were employed by the Council to work at secondary school (School 1).  Following a reorganisation of education provision in the area, the Council decided to close School 1 and replace it with a school for children aged between 3 to 18 years of age (School 2).   School 1 was to close at the end of the Summer term in 2017 and the School 2 was due to open in September 2017.

The Council did not consult with the Claimants (or their trade union) about the redundancy procedure at School 1 or the recruitment procedure at School 2.   Instead, it invited the Claimants to apply for new roles within School 2.  However, the “new” roles were substantially similar to their old roles at School 1.  The Claimants were interviewed for the positions but were unsuccessful.  In May 2017, the Council gave them notice of dismissal by reason of redundancy, with a termination date of 31 August 2017.  The Claimants were not offered the opportunity to appeal their dismissals.

The Claimants succeeded in their claims for unfair dismissal.  The Employment Tribunal held that the Council’s procedure had been unfair for a number of reasons, including the lack of consultation and appeal, but also the fact that the Claimants had been required to “apply for either an identical job or substantially similar job”.  In other words, this was not a Morgan-type situation and the use of a competitive interview process was unreasonable.  The Council appealed.

What was decided?

The EAT dismissed the Council’s appeal, holding that the Employment Tribunal had applied the law correctly.  Notably, the EAT drew a distinction between the process to be used where:

• the previous role is no longer needed and a newly created alternative role available; and
• there has been a reduction in the overall number of roles needed but some roles (or substantially similar roles) remain available.

In the first scenario, which the EAT described as “forward looking”, it would be reasonable to use a competitive interview process to identify the candidate best suited to fill the new post.  However, in the second scenario, the right approach would be to place all of the “at risk” employees in a redundancy pool and score them according to objective criteria.

In this case, the roles in School 2 had been identical or substantially similar to the roles in School 1 and so a competitive interview process was not appropriate.

What are the learning points for employers?

It remains reasonable for employers to use a competitive interview process to decide who to appoint to a newly created role following a reorganisation.  However, there are limitations on when this approach can be used.  Where the alternative role is the same or very similar to one performed by the redundant employees, then the fair approach is to apply selection criteria to the employees in the pool.  Employers should give careful thought to which approach is right for their situation before proceeding.

It’s also important to remember that even where a competitive interview process is legitimate, this will not necessarily remove the need for consultation with the affected employees about the process.  Indeed, in this case, the EAT noted that consultation “may remain relevant” depending on the facts of the particular case.

Gwynedd Council v Barrett

If you would like to discuss any of the issues raised in this article or how BDBF can help your business navigate a redundancy process,  then please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

 

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Flexible furloughing begins on 1 July 2020 – key points to note

The second phase of the COVID-19 Job Retention Scheme (Scheme) begins on 1 July 2020 and will allow employers to bring furloughed employees back to work on a part-time basis.  The Government contributions to the wage costs of furloughed employees will also gradually decrease until the Scheme closes on 31 October 2020. 

A raft of new guidance has recently been published, together with a new Treasury Direction, which sets out the legal framework for the second phase of the scheme.  This briefing highlights the key points for employers to note.  Our full guidance note for employers covers the second phase of the Scheme in detail and is available here.

What is flexible furlough?

• From 1 July 2020, an employer can agree with a furloughed employee that they will be furloughed on a part-time basis and carry out some work on a part-time basis. It is open to the employer and employee to agree whatever working pattern they wish, but it must be less than the employee’s usual working hours.
• Alternatively, employees can continue to be fully furloughed. Employees can also be rotated between periods of full furlough and part furlough.  Employees will be described as “flexibly furloughed” whether they are furloughed on full or part-time basis.
• From 1 July 2020, employees can be furloughed for any length of time – there will no longer be a minimum 3-week furlough period (although the minimum claim period will be 7 consecutive days).
• Whilst on furlough, it remains the case that the employee is unable to carry out any work for the employer. The rules on this area haven’t changed.

Who can be flexibly furloughed?

• The rules governing which members of the workforce are eligible to be furloughed haven’t changed. However, the last possible date to furlough new entrants to the Scheme was 10 June 2020 (in order for the minimum 3-week furlough period to have been completed by 30 June 2020).   The only exceptions to this rule are:
  • • employees returning from various forms of paid statutory parental leave after 10 June 2020; and
    • armed forced reservist employees returning from service after 10 June 2020.
• Where an employee has previously been furloughed for at least 3 weeks at any time between 1 March 2020 and 30 June 2020, they will still be eligible to be furloughed after 1 July 2020 (i.e. it’s not necessary to have actually been on furlough on 30 June 2020).  Where such an employee has been rotated between periods of furlough and work, and started a new period of furlough after 10 June 2020, then at least 3 weeks must elapse before they can be regarded as flexibly furloughed.
• From 1 July 2020, the maximum number of employees that an employer can include in a claim must not exceed the highest number of employees that it had furloughed in any period before 30 June 2020 (save that those who were absent on from various forms of paid statutory parental leave and armed forces reservists absent on service may also be counted).

Will a new furlough agreement be needed?

• In most cases, a furlough agreement (or written confirmation confirming the agreement) will have been put in place to cover the pre-1 July 2020 furlough arrangements.
• Where an employee is to move on to a part furlough arrangement, such agreements will need to varied to reflect that the employee agrees to be part-furloughed and to outline the proposed working pattern. Even where the employee is to remain fully furloughed, it’s possible that agreements will need to be varied (e.g. to extend the period of time that the employee will be furloughed or to reflect other changes such as the reduction or removal of benefits).
• The Treasury Direction confirms that furlough agreements must be in place before the relevant claim period but can be varied at a later date to reflect agreed variations. Accordingly, it should not be necessary to prepare brand new furlough agreements to cover the post-1 July 2020 arrangements.  Instead, employers will need to agree any changes with the employee (this could be done by a way of a phone call) and then confirm the agreement by way of a letter or email which varies the original furlough agreement.  However, this should be done prior to the relevant claim period.
• There remains no requirement for the employee to confirm their agree in writing, although this will typically be sought in practice.  All written communications should be retained until 30 June 2025. In addition, where an employee is on a part furlough arrangement there are additional record-keeping obligations.  The employer must retain details of the usual and actual hours worked for 6 years.

What must be paid to the employee?

• Employers must pay the employee their normal rate of pay (i.e. 100%) for any hours worked under a flexible furlough arrangement. The employer will not be able to recover any contribution towards this cost from the Government.
• Employees remain entitled to be paid 80% of their pay for any time spent on furlough (up to a maximum of £2,500 per month, although this cap will be pro-rated to reflect any periods of work).

What can employers claim from the Government?

• Employers can continue to claim under the Scheme for any hours that employees spend on furlough.  If the employee is part furloughed, this is calculated based on the employee’s usual working hours minus the hours they have actually worked.
• However, the Government’s contribution towards the furloughed employee’s wage costs will reduce each month as follows:
  • • From 1 July 2020 employers will be able to recover 80% of the employee’s pay for the furloughed hours (capped at £2,500 per month), together with the costs of the employer’s NICs or employer’s pension contributions associated with the furloughed hours.
    • From 1 August 2020 employers will only be able to recover 80% of the employee’s pay for the furloughed hours (capped at £2,500 per month).  They will no longer be able to recover the costs of the employer’s NICs or employer’s pension contributions associated with the furloughed hours.
    • From 1 September 2020 employers will only be able to recover 70% of the employee’s pay for the furloughed hours (capped at £2,187.50 per month).  The employer must pay the other 10% (meaning the employee still receives 80%).
    • From 1 October 2020 employers will only be able to recover 60% of the employee’s pay for furloughed hours (capped at £1,875 per month).  The employer must pay the other 20% (meaning the employee still receives 80%).
    • The Scheme will close on 31 October 2020 and no claims will be possible for wage costs incurred after this date.
• The cap on the maximum amount that can be claimed will be pro-rated so that it is proportional to the number of hours spent on furlough.
• When claiming for part furlough periods, employers are advised to wait until they have certainty over the actual hours the employee will work before they submit a claim (to avoid over or under payments).
• No claim can be made in respect of any period of unpaid leave taken between 1 July 2020 and 31 October 2020.

Can an employee be furloughed during a redundancy consultation and/or their notice period?

• The Scheme guidance suggest that employers may furlough employees who will ultimately be made redundant.
• However, the Treasury Direction states (at paragraph 2.2) that it is “integral” to the purpose of the Scheme that the amounts are used by the employer to “continue the employment of employees in respect of whom the CJRS claim is made”. One reading of this is that claims cannot be made for employees who are to be made redundant or who are serving notice, because their employment is not going to continue.  Clarification has been sought from HMRC as to the intended meaning of this wording.  In the meantime, employers should seek specific legal advice on this point where relevant.

BDBF is currently advising many employers and employees on the challenges presented by the coronavirus.  If you or your business needs advice on furlough or other coronavirus-related matter please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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