A senior executive missed out on a valuable LTIP award after the rules were amended by his ex-employer’s parent company.  He alleged the changes amounted to indirect age discrimination and argued that his ex-employer was liable for the discriminatory actions of its “agent” – the parent company.  The Court of Appeal rejected the claim, finding no agency relationship between the two entities and concluding that, in any event, the amended LTIP rules were a proportionate means of pursuing the legitimate aim of retaining key staff during a turbulent time for the business.

What happened in this case?

The Claimant was employed by Reckitt Benckiser Health Ltd (RB Health), a wholly owned subsidiary of Reckitt Benckiser Group plc (RB Group).  The Claimant was entitled to participate in a group-wide long-term incentive plan (LTIP), operated and administered by RB Group.  The 2017 LTIP award was due to vest on 31 December 2019, conditional upon a certain level of growth of RB Group’s earnings per share.

The Claimant entered into a settlement agreement with RB Health, under which he would retire on 30 June 2019.  However, it was agreed that he would be treated as a “good leaver” for the purposes of the 2017 LTIP award and his award would vest post-termination, provided the vesting conditions were met.  The vesting conditions were not met; therefore, no awards were made.  This was a problem for RB Health as the LTIP awards promoted staff retention.  The absence of any award risked senior employees leaving the business. 

On 18 September 2019, the Remuneration Committee of RB Group resolved to amend the vesting conditions of the 2017 LTIP award.  The amendment provided that 50% of the award would vest regardless of the performance of RB Group’s shares, although the vesting was delayed from 31 December 2019 to May 2020.  However, receipt of an award was made contingent on being employed on both 18 September 2019 and on the May 2020 vesting date, rendering the Claimant ineligible to receive an award.

The Claimant claimed that being deprived of the 2017 LTIP award was indirect age discrimination, on the basis that older people were more likely to have left the business by the new vesting date.  He brought the claim against his ex-employer, RB Health, and against RB Group, arguing that it was the “agent” of RB Health.  If this was correct, RB Health could be liable for the discriminatory actions of RB Group and RB Group could also be liable as the agent.

What was decided?

Decisions of the Employment Tribunal and EAT

The Employment Tribunal agreed that RB Group had acted as an agent for RB Health.  However, it went on to dismiss the age discrimination claim. Although it found that the requirement for LTIP participants to be employed on 18 September 2019 indirectly discriminated against those aged over 57 (including the Claimant), it was a proportionate means of achieving the legitimate aim of retaining staff. 

The Claimant appealed the discrimination decision, while RB Health and RB Group cross-appealed the agency decision.  The EAT upheld both appeals – meaning that the Claimant still lost.  It found that the requirement to be employed on 18 September 2019 could not contribute to the retention of staff. It held that it was not a means of achieving that aim at all, let alone a proportionate means, because “good leaver” beneficiaries like the Claimant had already left employment and could not be retained.  However, it ruled against the Claimant on the agency point, finding that RB Group was not acting as agent for RB Health since RB Health had no control over RB Group’s actions or decisions regarding the LTIP and nor was there any basis to say that RB Health had authorisedRB Group to act on its behalf in relation to the LTIP.

Again, both parties appealed, this time the Claimant on the agency decision and RB Health and RB Group on the discrimination decision.

Decision of the Court of Appeal

On the agency point, the Court decided that RB Group was not an agent of RB Health.  One of the reasons the Tribunal had concluded that RB Group was acting as an agent was because RB Health’s employees would benefit from the LTIP – but that was not enough on its own​.  There was no basis to say that RB Health had authorised RB Group to act on its behalf in relation to the LTIP, nor any evidence of express or implied assent by RB Group to act as an agent.  Further, there was no evidence that RB Health had any control over RB Group in making or amending the LTIP.  Instead, RB Group’s powers derived from the rules adopted by its shareholders and directors.  In addition, they were separate legal entities, and the Courts have generally rejected the notion that agency relationships exist between different legal entities within the same group.

On the objective justification point, the Court agreed with the Tribunal, ruling that there was no age discrimination.  The requirement that LTIP participants had to be employed on 18 September 2019 wasa proportionate means of achieving the legitimate aim of keeping staff in post between 18 September 2019 and May 2020.  The EAT had also overlooked the wider context in which this requirement had operated, namely the desire to retain the top layer of senior employees during a period of turbulence for the business.

What does this mean for employers?

This ruling provides clarity for employers – especially those operating in group structures – on three key fronts:

• Employers are not automatically responsible for the actions of a parent company. HR teams in group structures should note that a parent company’s decisions will not automatically make a subsidiary liable unless there is a clear agency relationship. Shared group policies or benefits alone are insufficient to establish liability. 

• Design and operate incentive plans with care.  When administering LTIPs or similar schemes across a group, it is crucial to be clear about which entity is making decisions and how those decisions impact different employee populations.  This may help to defeat an argument that a parent (or another group company) is acting as an agent for the employer entity.

• Post-termination exclusions may be justified. Excluding “good leaver” former employees from incentive schemes may be contentious but it should not be discriminatory if it supports legitimate business aims, such as retaining key talent, and is applied consistently and proportionately.  However, it should be remembered that a disgruntled ex-employee in this position may be able to pursue other legal avenues, such as a breach of contract claim, which underlines the need for careful application of any changes.

Fasano v Reckitt Benckiser Group plc and anor

BDBF is a leading employment law firm based at Bank in the City of London. If you would like to discuss any issues relating to the content of this article, please contact Amanda Steadman (AmandaSteadman@bdbf.co.uk) or your usual BDBF contact.

On 10 October 2024, the Government published the Employment Rights Bill, which will take forward many of its proposals for workplace reform.  In the fourth article in our series analysing the Bill, we consider the proposals concerning contracts and pay. 

Running to more than 150 pages, the Employment Rights Bill (the Bill) puts forward a vast array of reforms affecting the workplace, including family-friendly rights, dismissals, equality law, contracts and pay, trade unions and industrial action and labour market enforcement. In the fourth in our series of articles explaining the Bill, we consider all the proposals affecting contracts and pay.

Zero and low hours contracts

A zero hours contract is one where the employer does not guarantee any number of hours of work, but the worker is obliged to accept work whenever it is offered, without any certainty of how much work there will be or when.  Sometimes the contracts are less onerous, and the worker is permitted to reject the work offered if they wish.  A low hours contract is similar, save the employer will guarantee some hours of work, but it will be at the employer’s discretion as to when the work is performed.  Before the election, the Labour Party promised to ban “exploitative” zero hours contracts.

Importantly, the Bill does not go as far as banning zero (or low) hours contracts.  Instead, it introduces two key changes, which will restrict the use of such contracts and penalise employers who abuse them.

First, zero and low hours workers who have worked a certain number of hours regularly over a “reference period” will have a new statutory right to have those hours guaranteed in their contract.  The meaning of low hours worker will be defined in regulations, as will the qualifying number of hours to be worked and the reference period (the Next Steps to Make Work Pay document talks of a possible 12-week reference period).  The rules governing this new right are extremely complex, but, in summary, require that at the end of each reference period, the employer must make a guaranteed hours offer to any worker within scope.  That offer must meet certain minimum requirements set out in the Bill (and to be further set out in regulations), including that it must set out the proposed working days and hours (or specific working pattern) which must reflect the working hours over the reference period.  Further, in most cases, the terms of the offer may not be less favourable to the worker, for example, making an offer on a lower rate of pay.  A failure to make the offer, or making one incorrectly, will give rise to an Employment Tribunal claim for which compensation may be awarded. 

Second, employers will be required to give zero and low workers (and any other worker who does not have a set working pattern), reasonable notice of shifts and changes to shift, with a right to compensation where late notice is given.   Again, the rules are extremely complex.  In a nutshell, they require employers to give affected workers reasonable notice of a shift that the employer wants or requires the worker to work, specifying the day, time and hours to be worked.  Similarly, they must give notice of any change to, of cancellation of, a shift.  Regulations will set out the minimum amount of notice that must be given.  Where an employer cancels, moves or curtails a shift at short notice, it must make a payment of a specified amount to the worker.  Regulations will set out how much that payment must be.  A breach of any of the notice or payment requirements will give rise to an Employment Tribunal claim for which compensation may be awarded. 

What will these changes mean for employers in practice?

• These changes do not make zero or low hours contracts unlawful, but they will make them considerably more difficult for employers to manage and introduce risks for getting it wrong.  The requirement to monitor working hours within a reference period on a rolling basis will be administratively cumbersome, particularly where an employer has multiple zero or low hours workers.  Similarly, the employer is required to make repeated offers of guaranteed hours contracts at the end of each reference period.  The drafting of the Bill suggests that these offers must continue to be made even where a worker has made it clear that their preference is to remain on a zero or low hours contract.  Could one unintended consequence of the Bill be that workers who genuinely prefer to work on a zero or low hours basis feel pressured to accept a guaranteed hours contract by virtue of the repeated offers from their employer?

• As far as giving notice of shifts and changes to, or cancellation of, shifts are concerned, it remains to be seen what the minimum notice required will be.  If it is generous, this raises the risk of employers tripping up on the notice requirements, meaning they will be liable to make a specified payment to the worker and leave themselves open to an Employment Tribunal claim (which given the levels of public interest in these proposals would be likely to spark high levels of media coverage). 

• All in all, employers may feel the benefit of a flexible workforce is not worth the potential cost and lead to a move away from the use of zero and low hours contracts, which is perhaps the intention behind these provisions.  It could lead to a switch in the use of agency workers, who would not be covered by these rules (although the Bill reserves the right to introduce similar rules for them in the future). 

Statements of particulars of employment

Currently, employers must provide employees and workers with a statement of the particulars of their employment when they start work.  The scope of those particulars is set out in section 1 of the Employment Rights Act 1996 (the ERA).

The Bill provides that employers must give workers a written statement that the worker has the right to join a trade union, and this must be given at the same time as the statement of particulars under s.1 of the ERA and at “other prescribed times”.  Regulations may prescribe what information must be included in the statement, the form of the statement and how it must be given to the worker.   A failure to provide the statement will give rise to an Employment Tribunal claim.  A Tribunal may determine and amend the particulars and, if the worker has been successful in certain other substantive claim before the Tribunal, compensation of between two to four weeks’ pay (currently capped at £700 per week) may also be awarded.

What will this change mean for employers in practice?

• This is a small change that should be easy for employers to deal with.  Although there is no obligation to include the statement within the statement of particulars of employment, in practice this will be the easiest way for employers to meet this requirement.  In most cases, employers discharge the obligation to provide a statement of particulars by way of the contract of employment. 

• It remains to be seen what is meant by providing the statement at “other prescribed times”.  

Pay measures

Statutory Sick Pay (SSP)

The Bill makes some small tweaks to SSP regime.  First, the “waiting days” will be removed, meaning that SSP will be payable from the first day of sickness, rather than from the fourth day as is currently the case.  Second, the lower earnings limit for SSP – which currently sits at £123 per week – will be removed meaning that workers will be entitled to SSP regardless of income levels.  However, nothing is said about raising the rate of SSP (currently £116.75 per week).

Tips and gratuities

Legislation regulating the allocation of tips introduced earlier this year requires affected employers to have a written policy on how it deals with tips and gratuities.  That policy must include information on whether the employer requires or encourages customers to pay tips, gratuities and service charges and how the employer ensures that all qualifying tips, gratuities and service charges are dealt with in accordance with the law, including how they are allocated between workers.

The Bill amends the law to provide that before producing the first version of the policy, an employer must consult with trade union or other worker representatives, or, if none, with the workers affected by the policy.  Further, employers are required to review the policy at least once every three years, and as part of such reviews the employer must carry out further consultation with workers or their representatives.  Whenever consultation is carried out, the employer must make a summary of the views expressed in the consultation process available in anonymised form to all workers.

What will these changes mean for employers in practice?

• Employers will need to adjust payroll practices to ensure that SSP is paid from Day 1 of sickness.

• Employers affected by the tips legislation will need to undertake consultation with staff about their tips policies and remember to diarise reviews as appropriate.  There are no specific rules in the Bill governing what form that staff consultation should take, but, typically, it should include the provision of written information followed by one or more face-to-face meetings.

What are the next steps?

The Bill has just started its passage through Parliament, which will take time.  Even when passed, some of the provisions may not come in straight away.   Regulations are needed in connection with all of the zero hours measures, and consultation may also be needed.   As far as the SSP change is concerned, the Government has said it will consult on what the percentage replacement rate for those earning below the current flat rate of SSP should be.

Notably the Bill does not address changes to the National Minimum wage regime.  Before the election, Labour promised that it would “make sure the minimum wage is a genuine living wage”.  It planned to do this by changing the remit of the Low Pay Commission (the LPC), the independent body that advises Government about the minimum wage.  The expanded remit would mean that the minimum wage rates should account for the cost of living.  Labour also promised to remove the “discriminatory” minimum wage rate age bands, so that all adults would be entitled to the same rate.  Although not addressed in the Bill, the Labour Government has already taken steps to fulfil this promise by changing the remit of the LPC and asking them to recommend a new wage rate for 18-20 year olds.  It is anticipated that these changes will come into force in April 2025.

Stay tuned for our fifth article in the series, where we will consider the provisions of the Bill affecting enforcement.

BDBF is a law firm based at Bank in the City of London specialising in employment law.  If you would like to discuss any issues relating to the content of this article, please contact Principal Knowledge Lawyer Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

International Equal Pay Day, celebrated on 18 September 2024, represents the longstanding efforts towards the achievement of equal pay for work of equal value between women and men, recognising that the gender pay gap is estimated at 20% globally. It further builds on the United Nations’ commitment to human rights and against all forms of discrimination, including discrimination against women and girls.

In the UK, we’ve had equal pay legislation since 1970 but there remains a gender pay gap of 7.7% for full-time employees across the UK. This does not necessarily mean that employers are not paying men and women equally for doing the same job, although that is one factor. Other factors which contribute to the gender pay gap are the lack of representation of women in the most senior (and therefore highly paid) roles in organisations and the prevalence of gender segregation in certain types of roles and sectors with what is traditionally considered “women’s work” being historically undervalued.

An interesting development in the UK in recent years has been the number of claims being brought by large groups of claimants in the retail sector who work as sales assistants on the shopfloor (mainly women) who have argued that their work is of equal value to warehouse workers (mainly men).

In Thandi & Others v Next Retail Limited, the Employment Tribunal held that it was a breach of equal pay law for Next to pay warehouse staff a higher rate of basic pay than shopfloor staff. The Tribunal had already found at an earlier hearing that the work of both groups was of equal value. The recent hearing addressed Next’s argument that the difference in pay between the two roles was a material factor “other than the difference in sex” – what is known as the “material factor defence.”

The material factors Next had relied upon were market forces and market price, difficulty recruiting and retaining warehouse staff and the viability, resilience and performance of Next and its group of companies. The Tribunal considered whether the material factors Next had relied upon were directly or indirectly discriminatory on the grounds of sex.

It found there was no direct discrimination. Next had not decided to pay men more than women. There were men and women working in the warehouse and they received the same rate of pay regardless of their sex as did the shopfloor staff.

However, the Tribunal did find that there was indirect discrimination. Under equal pay law, if claimants can produce statistics which demonstrate “an appreciable difference in pay between two jobs of equal value, one of which is carried out almost exclusively by women and the other predominantly by men” an employer must then provide an objective justification for the difference. In Next’s case, 77.5% of its sales staff were female whereas warehouse staff were 52.8% male. In addition, Next benchmarked its pay against the market and the higher paid warehouse labour market was predominantly male.

The Tribunal found that the only reason for the difference in pay was cost-cutting. Next could have afforded to pay a higher rate of basic pay to the sales staff but had decided to keep labour costs to a minimum and maximise profitability. Next was therefore unable to justify the difference in pay as a proportionate means of achieving a legitimate aim because cost alone can never be a legitimate aim.

Interestingly, the Tribunal also said that if market forces were allowed to be a “trump card” in cases like this, it would defeat the purpose of the equal pay legislation and allow lower pay for certain types of work due to indirect discrimination to be continued in perpetuity. This case addresses head on the fact that women’s work has historically been undervalued which is the precise issue that the equal value aspect of the equal pay legislation was designed to address.

The implications of the Tribunal’s decision are very significant. The back pay and compensation claimed is said to be more than £30m – divided between 3,540 claimants. Next has said it is appealing the judgment. Tesco and Asda (among other large retailers) who are defending similar claims will be analysing the judgment carefully. All these cases are likely to be hard fought by the employers concerned because of significant compensation sought for backpay and also the cost of equalising pay for their staff going forwards, meaning the issue is unlikely to be settled by the time International Equal Pay Day 2025 comes around.

BDBF is a law firm based at Bank in the City of London specialising in employment law. If you would like to discuss any issues relating to the content of this article, please contact BDBF Partner Claire Dawson (ClaireDawson@bdbf.co.uk) or your usual BDBF contact.

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With the latest round of gender pay gap reports published earlier this month, Amanda Steadman and Blair Wassman take a look at what the process entails, what the latest figures show and what the future holds for this area of law.

What is gender pay gap reporting?

Gender pay gap reporting laws were introduced in 2017 and require all private and voluntary sector employers with 250 or more employees to report a range of “gender pay information” each year. The goal behind the regime is to close Britain’s gender pay gap within a generation. The hope is that greater transparency will encourage employers to manage their pay gaps in a proactive manner, for example by taking measures to support women to progress to the most senior and highly paid positions.

The rules apply to each separate legal entity within a group of companies which meets the 250-employee threshold.  In this context, “employee” has a wider meaning than is usually the case and includes traditional employees, workers and potentially even some independent contractors.  In some cases, those working overseas may also need to be counted if they have a sufficiently strong connection with Great Britain.

Employers who are in scope must gather and analyse their data and publicly report the results by no later than 4 April the following year.  The figures must also be sent to a central Government website.   Importantly, the obligation is confined to reporting the figures only.  There is no requirement to explain them or set out any remedial action plan, let alone implement one, although many larger employers choose to do so.  The information must be published on the employer’s website and kept there for three years.

What is the difference between the gender pay gap and unequal pay?

It is not uncommon for the gender pay gap and unequal pay to be conflated – including by the national media.  However, they address different problems.

The gender pay gap reveals the gap between the mean and median rates of pay of all men and women across an organisation, regardless of their job roles. What it often shows is that women are underrepresented at the most senior and highly paid levels within the organisation and concentrated in lower-paid roles.  It is not unlawful to have a gender pay gap.

By contrast, unequal pay refers to a disparity in pay between men and women who perform the same, similar or like work.  Unequal pay will usually be unlawful, although there are defences available, such as there being a material factor which justifies the difference in pay.

Most employers will have some sort of gender pay gap.  This does not necessarily mean that they are behaving unlawfully and paying men and women unequally.

What do employers need to do?

If the rules apply, an employer is obliged to report four separate types of information in relation to certain employees only, known as “relevant employees”.  A relevant employee is defined as someone who is employed by the employer on the snapshot date of 5 April each year.  Partners and LLP members and anyone who does not identify as either gender are excluded from this definition.  Independent contractors may also be excluded if it is not reasonably practicable to obtain the necessary data for those individuals.

The four types of information that must be reported are:

• The gender pay gap between the hourly rates of pay of male and female employees, calculated by reference to the specified pay period. This covers both mean and median hourly rates of pay.
• The gender bonus gap between the bonuses paid to male and female employees, calculated by reference to a specified 12-month period. This covers both mean and median bonus pay.
• The percentage of male and female employees who received a bonus in a specified 12-month period.
• The percentage of male and female employees who fell within four pay quartiles bands.

When it comes to calculating the gender pay gap, the employer must consider payments paid to the employee in the “relevant pay period”, which will usually be a weekly or monthly pay interval. Most types of pay are taken into account, including basic pay, allowances, holiday pay and bonus pay (although a bonus relating to a longer pay period such as a year must be pro-rated to the relevant pay period).

When it comes to calculating the gender bonus gap, the employer must consider all bonus payments paid to the employee in the 12-month period ending on the snapshot date of 5 April.  Any remuneration which relates to profit-sharing, productivity, performance, incentive, and commission is captured.

What do these year’s figures tell us?

The figures from the first two years of reporting were published in April 2018 and 2019 respectively.  The pandemic resulted in the cancellation of the third year’s reports due in 2020, although some employers chose to report on a voluntary basis.  Reporting resumed in 2021, although the deadline was deferred to October rather than the usual April.   However, this year saw the return to the original reporting schedule in April 2022.  Over 10,000 employers have reported their figures so far.  A full analysis of the figures will be published by the Government Equalities Office in due course, but early analysis suggests progress is slow and results are mixed.

Early analysis by the CIPD shows that pay gap figures remain high across many sectors.  The sector with the largest median gender pay gap was construction, where women were paid 76 pence for every pound earned by a man.  Analysis of the financial services sector by Reuters revealed an average mean gender pay gap of just over 32%, which represents a 1% narrowing of the gap compared with the previous year.  Although the figures are heading in the right direction, progress in this sector is painfully slow, and well behind the average figure for all UK employers which stood at 14.9% in April 2020.

The results at certain institutions were considerably worse than the average or heading in the wrong direction.  For example, Goldman Sachs reported a 51.3% mean gender pay gap (representing a very slight narrowing on the previous year).  Whereas Deutsche Bank and UBS both saw their pay gaps increase this year to 33.4% and 29% respectively.

What is next for gender pay gap reporting in light of the review that had to be completed by 1 April 2022?

In 2019 the Government published Gender Equality at every stage: a roadmap for change.  The roadmap set out the Government’s proposals to tackle eight key drivers of inequality, including the gender pay gap.  The roadmap promised to review the gender pay gap reporting regime to assess how effective it had been at unveiling the causes of the pay gap and the impact of employers’ policies to reduce it.  The intention is to use the results of this review to decide whether to update the gender pay gap reporting rules.

The original plan was that this review would be completed in time for a public consultation to take place on any proposed changes in 2021.  However, due to the pandemic this timeframe was delayed and was due to be completed by 1 April 2022.  To date, it seems no progress has been made and therefore, if changes are proposed, any public consultation is unlikely to happen before the latter half of 2022.

One possible area of change is the introduction of further measures to increase transparency about the steps that employers are taking to support gender equality.  The roadmap discussed whether, as part of the reporting exercise, employers should be required to provide details of their family-friendly policies and retention rates of employees returning from different forms of family leave.

How could the gender pay gap reporting regime be improved?

While we await the outcome of the review, we think there are three key changes that would improve the regime.

Clearer guidelines to help employers get it right

A survey of around 900 employers conducted between the first and second years of gender pay gap reporting revealed that the majority of employers (82%) felt that they had a good understanding of the theory of gender pay gap reporting.  However, other Parliamentary research highlighted those businesses found the mechanics of reporting very difficult, with many needing to take external advice on how to complete the process. Ambiguities in the gender pay gap rules and guidance are partly to blame for this.  Some common areas of uncertainty include:

• when to include overseas employees;
• understanding that bonus payments need to be counted for in both the gender pay gap and the gender bonus gap but may need to be treated in different ways; and
• identifying whether a particular payment is an “allowance” or a “bonus” or neither.

More detailed guidance, with worked examples of how to deal with tricky issues, would assist employers achieve more accurate reporting across the board and enable a fair comparison of pay gaps between employers.

Revise the treatment of bonuses to make it fairer to employers

At the moment, employers have to calculate the gender bonus gap by reference to the actual amount of bonus paid to the employee. Therefore, where a bonus is pro-rated for a part-time employee, that figure must be used in the calculations rather than the full-time equivalent of the amount paid. Given that women are more likely to work part-time this approach has the effect of inflating the gender bonus gap artificially.   Changing the rules to require employers to use a full-time equivalent figure would enable a like for like comparison between men and women.

The Government has previously declined to make this change, telling employers to explain their results by way of a narrative if they needed to.  However, not all employers choose to produce a narrative and so a change to the underlying rules would produce a fairer and more consistent outcome.

Require employers to publish a narrative, action plan and targets for closing the gap

There is currently no requirement for employers to explain their gender pay and bonus gap figures or to take any action to close them.  Around 40% of employers choose to publish a narrative report explaining their figures.  However, the quality of the reports is variable since there is no minimum standard to be met.  Worse, only around 20% of employers publish an action plan on steps they will take to close the gap, and fewer still set targets for reducing the gap.

The Government has declined to require employers to publish narratives, actions plans or targets, preferring the light touch “what gets measured, gets managed” approach.  However, as discussed above, progress on closing the gap has been slow and there is a case to say that a more proactive approach is needed.  Consideration could also be given to introducing penalties for employers who fail to implement their action plans or make progress towards targets.

Conclusion

Whilst some degree of progress has been made in closing the gender pay gap, the impact of the pandemic and the lack of detail required in reporting means progress is slow. If guidance were improved, along with meaningful reporting which included a requirement to specify clear action points to close the gap, we believe we would see better results.

BDBF is a law firm based at Bank in the City of London specialising in employment law. If you would like to discuss gender pay gap reporting or any other issues relating to the content of this article, please contact Principal Knowledge Lawyer, Amanda Steadman (amandasteadman@bdbf.co.uk), Senior Associate, Blair Wassman (blairwassman@bdbf.co.uk) or your usual BDBF contact.

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Today, 18 November 2021, has been declared by the Fawcett Society as “Equal Pay Day”, i.e. the point in the year at which women on average stop earning, relative to men, because of the gender pay gap.  Despite increasing awareness of the issue, the gender pay gap increased in 2021 from 14.9% to 15.4% and remains a key concern in gender inequality. To address the issue, this year the Fawcett Society is running a campaign to #EndSalaryHistory.

In this article, we explain the concept of equal pay and the gender pay gap, consider this campaign, and outline some practical steps employees and employers can take to address the issue.

The law

It has been over 50 years since the first legislation was introduced to address inequality in pay between men and women in the form of the Equal Pay Act 1970. The principle of equal pay for equal work for men and women is now regulated by the Equality Act 2010.

In summary, the legislation states that employees (i.e. those under a contract of service, apprenticeship or who are contracted personally to do work) are entitled to receive contractual terms which are no less favourable than a comparator of the opposite sex. The comparator must be an employee in the same employment, or a previous employee in the same employment, doing work which is comparable.  This will be the case where the comparator is employed to do “equal work” which is either like work, work rated as equivalent, or work of equal value.  This applies not only to pay, but to certain benefits as well. An employer may still be able to justify a distinction in pay between comparators because of a “material factor” – for example, seniority, length of service, or different levels on a pay scale. 

Separately, employers (who employ 250 or more employees) are obliged to report on their gender pay gap annually. However,  as a result of the pandemic this requirement was deferred in 2020 to October of this year.

Whilst the concepts of equal pay and the gender pay gap are often referred to synonymously, they are different concepts. Equal pay compares individuals who perform equal work, and the gender pay gap compares average earnings (salary and bonuses) of men and women across an organisation.

Despite an initial uptick in gender pay issues and coverage after the introduction of gender pay gap reporting, the reality is that it remains a novel concept, with compulsory reporting having only been introduced recently in April 2017 in the private sector and March 2017 in the public and voluntary sector with the first reports for the private sector published in April 2018.

Why is it so difficult to close the pay gap between men and women? 

The reality is that in the absence of proactive steps by employers, pay disparity continues to be perpetuated year on year.  Indeed, when employers are asked how they determine pay for new recruits, many would say that this is based on market standards and how much the individual earned in their previous role. One of the most common interview questions is “how much do you earn currently?”. What may seem like a reasonable and harmless enquiry unfortunately perpetuates the historical disparity in pay between men and women.

Statistics also reveal that women are far less likely to negotiate for higher salaries when moving jobs as men in the same position. Employers are also less inclined to offer women higher salaries than what they have earned previously.  

This is the motivation behind the Fawcett Society’s campaign #EndSalaryHistory, which asks that employers stop asking how much potential recruits earned historically when benchmarking their pay going forward, to put an end to historical discrepancies and put women on an even footing.

This is one, sensible, way of addressing the issue at high level and in our view this type of widescale cultural change is ever more required in light of the disproportionate implications of the pandemic on women. 

As many employers move towards a more flexible working regime, there are concerns that this will only increase the lack of transparency in women’s pay. The Fawcett Society’s data shows that the majority of working women do not know whether they are being paid less than a male comparator and only 3 out of 10 believed that their employer would tell them the answer if they asked.

Working from home also means that women will become more isolated, less likely to have a sense of what colleagues are being paid or to be able to discuss it and may not feel confident to challenge pay inequality on their own.  Just last week, The Guardian published an article entitled “[w]omen working from home risk being caught in a ‘she-cession’”, and noted that more men were returning to the office. This places women at a disadvantage as they are “out of sight, out of mind” and may be overlooked when it comes to promotions, bonuses and pay increases.

What can individual employees do to address issues of gender inequality in pay?

A woman who suspects that a male colleague who is performing equal work is receiving more favourable terms may have an equal pay claim (and vice versa), and/or a claim in sex discrimination against her employer.  Below are some practical tips in that scenario:

• If you think you have a claim, it is important to gather information that supports your position. You could ask your colleagues about their terms to identify a pay disparity. Confidentiality around pay and benefits does not apply if you’re asking for this purpose. 
• Alternatively, you could ask your employer directly.
• You could submit a questionnaire to your employer to help determine whether you have a claim, by asking questions about the comparators you have identified, how pay is determined and whether the job descriptions of the comparators provide any explanation for a difference in pay. Whilst this is no longer a statutory process, there is nothing to stop you asking your employer to respond voluntarily and equal pay questionnaires remain a useful tool in determining whether any equal pay claim has good prospects of success.
• Another useful way of gathering information is to look at your employer’s advertisements for the same or similar roles, and whether salaries and benefits are in accordance with what you receive.

What can employers do to address issues of gender inequality in pay?

• Be proactive – Addressing pay imbalances is not something employers should be considering once a year when they are preparing their gender pay gap report. When recruiting, refrain from asking for information about current salary and benefits.
• Be transparent – provide honest and frank information to new recruits about pay scales and/or pay range for the role and the factors which would be used in determining pay. Transparency around pay scales more generally also assists employers in closing the gap in pay and ensures women have the correct information about pay scales for their role.
• Be open to negotiation – where women ask for a higher salary in the recruitment process, consider this request openly and carefully before rejecting it out of hand..
• Join the campaign – The Fawcett Society’s campaign challenges employers to commit to tackling the issue head-on and they provide a helpful toolkit here.

If you would like to discuss any issues relating to the content of this article, please contact Polly Rodway or Blair Wassman (blairwassman@bdbf.co.uk), or your usual BDBF contact.

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Employment Law News

 

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Negotiating Senior Executive Contracts – Pitfalls and Tips

With bonus season behind us and restrictions beginning to lift, many people are beginning to rethink their career or plan their next job move. We are often approached by clients asking: “how do I negotiate my contract?” or “can I negotiate my contract?”. At BDBF, as well as regularly negotiating exits, we are expert in providing bespoke and tailored advice to senior executives at the point of entering new employment contracts. BDBF Partner Paula Chan and Associate Blair Wassman offer some guidance below on negotiating your contract.

The first rule of negotiation: negotiate

Many believe employers will not deviate from their standard form contract, and as a result they simply accept the terms on offer. This can be the case, but it does not reflect our experience across the board. Many employers will welcome proposals and we often successfully negotiate more favourable terms for executives and professionals joining small and large organisations, including listed companies.  We commonly do this by assisting in the background rather than dealing with your new employer directly. 

You are in the best position to negotiate beneficial terms before your employment commences. Securing talent at a senior level is rarely an easy task for employers and they are likely to be as eager as you to secure your start. Your negotiating leverage is therefore likely better than you think.

Do not assume restrictive covenants are unenforceable 

Restrictive covenants can limit what an employee can do after employment ends. They can prevent an employee from working for a competitor, from soliciting or dealing with clients or potential clients or from poaching or moving with key employees. Many individuals do not pay attention to these restrictions until they wish to move on, mistakenly believing that covenants, particularly non-competes are unenforceable. The drafting and scope of the restrictions may mean they are unenforceable but, where drafted properly, they can prevent an employee working in their desired role on termination of employment. 

You should consider with care the duration and scope of any proposed restrictions. They may be too widely drafted and go beyond what is required to protect an employer’s legitimate business interests. Consider how they interact with any notice and garden leave clauses. Often garden leave clauses provide that the duration of restrictive covenants will be reduced by any period spent on garden leave.  

Check whether you are restriction free 

You may be subject to onerous restrictions in your last employment contract, as well obligations to notify your existing employer about offers of employment you have received or to provide a prospective employer with a copy of your restrictions.

Check whether your new employment contract states that your employment is conditional on you not being bound by any restrictions preventing you from taking up the role. This means that if you are subject to restrictions, your new employer may be able to withdraw their offer or terminate your employment immediately. This can be particularly disastrous for employees who lose deferred compensation on the giving or expiry of notice in order to take up a new role, especially if they are relying on a guaranteed or sign on bonus from their new employer to cover that loss.

If you are concerned about the impact of restrictions on your existing or new employment relationship , it is important to seek legal advice at an early stage before you resign or accept an offer of employment, especially if you are planning on working for a competitor.

If you breach an existing restriction, you (and your new employer) may be subject to costly and time-consuming legal proceedings. You could be ordered by a Court not to commence or to cease employment with your new employer or to make a payment on account of profits to your former employer. Even if legal proceedings do not materialise, it is our experience that a letter from a former employer threatening legal action can be incredibly disruptive to the stability and success of a new employment relationship. 

Read the small print 

It is important to read the whole contract, as some employer-friendly provisions may be hidden in places you may not expect.

For example, consider whether there is an option for the employer to make a payment in lieu of notice. Does it include benefits and bonus? Is it subject to certain conditions, i.e. does it allow the employer to make payments in instalments, or is there a requirement for you to mitigate your loss? Check whether your employer can make changes to your benefits or place of work without your consent. This has never been more important given the move towards greater flexibility and more home working with some senior executives moving out of the City whilst retaining City roles.  If you have been led to believe that your role will allow for homeworking does the contract reflect that? 

Pay attention to probationary periods

Check whether you will be subject to a probationary period, and whether the employer has the option to unilaterally extend this period. Many probationary clauses will also allow the employer to terminate your employment with very little notice, and some contractual benefits may not commence until you have completed your probation. As unfair dismissal rights only arise once you have two years’ service, the contractual terms surrounding probation and corresponding notice period are crucial. 

Do not proceed without a clear understanding of variable remuneration

You may happily be entitled to receive a bonus, incentive or other form of deferred compensation. However, such benefits often come with strings attached. They may be subject to stringent conditions and plan documents external to your employment contract.

It is essential that you understand exactly what you will be entitled to, how awards will be made, and any conditions attached to incentives. You should ask for copies of the plan documents so that you understand vesting periods, the nature of your employer’s discretion, additional restrictive covenants (which may go beyond those in your contract), and the leaver provisions. Will you lose any unvested awards or bonuses if your employment ends before the awards vest or bonuses are paid?

Further, if you will lose out on variable remuneration as a result of having to leave your previous job, you may want to consider whether your new employer will buy you out and if so, at a guaranteed level.

Avoid relying on promises not contained in the contract 

All elements of the deal should be expressly incorporated into the contract. We often advise against relying on verbal or email assurances as employment contracts may contain entire agreement clauses, which state that the contract records the entire agreement between the parties and replaces any previous agreements or representations.

Look out for “agreements to agree”. These may include a promise of equity or cash bonus ‘to be determined’ on joining. All terms should be clear and should avoid giving the employer the luxury of being able to default on promises at a later stage.

Pick your battles

This is a new relationship. We recommend that clients pick their battles and focus on the most important elements of the deal when negotiating to get things off to a good start and to maximise the prospects of securing what matters most to them. We can provide you with strategic advice on which employment provisions should receive focus and how best to approach discussions.

If you would like to know more, or you need advice regarding your contractual terms, please contact Paula Chan (paulachan@bdbf.co.uk), Blair Wassman (blairwassman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

 

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Job Support Scheme: expansion of the scheme and further details released

Last month we reported on the new wage subsidy scheme designed to replace the Coronavirus Job Retention Scheme (i.e. furlough).  With a second lockdown coming into force on 5 November 2020, the Job Support Scheme has been delayed until early December 2020.  Here, we outline how the Job Support Scheme will work.

1. What is the Job Support Scheme (JSS) and when is it coming into force?

The JSS is the successor to the Coronavirus Job Retention Scheme (CJRS) or “furlough” scheme and will come into operation after the CJRS closes.  Initially, the JSS was to run between 1 November 2020 and 30 April 2021.  However, the second national lockdown (between 5 November 2020 and 2 December 2020) means it has been delayed.  Instead, the CJRS will run for the duration of the lockdown and the JSS will come into force thereafter.

The newly published JSS Policy Paper provides that the JSS is intended to “…support individuals and businesses to deal with the challenges created by coronavirus this winter” and “help employers retain their employees”.

There will be two forms of support available under the revised JSS:

• JSS Open: this is available for businesses that are operating but facing decreased demand. The intention is that JSS Open will allow such employers to reduce their employees’ working hours and claim wage support, rather than make redundancies.
• JSS Closed: this is available for businesses that are legally required to close their premises as a direct result of coronavirus restrictions set by one or more of the four governments of the UK.

2. What wage support is available under JSS Open?

Under JSS Open employees must work at least one fifth of their normal working hours but may work more than this if needed.  Note that under the original proposals, support would only have been made available for employees working at least one third of their normal working hours, and so the revised scheme is more generous.

The employer is responsible for paying the employee for all the hours actually worked (and such pay must comply with national minimum wage legislation).  However, the burden of the unworked hours will be split three ways:

• The Government will pay 61.67% of the “reference salary” up to a maximum of £1,541.75 per month (note that under the original proposals the Government would have paid only 33% up to a maximum of £697.92 per month).
• The employer will pay 5% of the “reference salary” up to a maximum of £125 per month, but they may pay more if they wish to do so (note that under the original proposals the employer would have had to pay 33%).
• The employee will suffer a wage reduction for the remaining third of the unworked hours.

For these purposes, “reference salary” includes: regular wages; non-discretionary payments for hours worked, including overtime; non-discretionary fees; non-discretionary commission payments; and piece rate payments.  It does not include: discretionary payments, bonuses or commission; non-cash payments; and non-monetary benefits (e.g. benefits in kind or salary sacrifice).

The employer is also responsible for paying employer’s National Insurance Contributions (NICs) and employer’s pension contributions on the full amount paid to the employee (including the amount paid by the Government).

In practice, employees earning up to £37,500 per annum will only suffer the wage reduction caused by the lost third of pay for the unworked hours (see Worked Example 1).  However, higher earners will suffer a wage reduction by virtue of the application of the cap on the employer’s and Government’s contributions and the lost third of pay for the unworked hours (see Worked Example 2).  The higher the salary, the greater the wage reduction.

Worked example 1: a full-time employee who normally works 35 hours per week and is paid an annual salary of £37,500 / monthly salary of £3,125: During the life of JSS Open an employee works one fifth of his/her normal working hours.  The employee’s monthly salary will be paid as follows: • employer pays £625 for the worked hours and, by virtue of the employer’s cap, £125 in respect of the unworked hours; • Government pays £1,541.75 in respect of the unworked hours; and • employee suffers a wage reduction of £833.25. The employee receives a total of £2,291.75 per month (or c.73% of their normal pay) The employer pays a total of £750 per month (or c.24% of normal pay), plus employer’s NICs and employer’s pension contributions on £2,291.75 per month, in exchange for the employee working 20% of his/her hours.

 

Worked example 2: a full-time employee who normally works 35 hours per week and is paid an annual salary of £120,000 / monthly salary of £10,000: During the life of JSS Open an employee works one fifth of his/her normal working hours.  The employee’s monthly salary will be paid as follows: • employer pays £2,000 for the worked hours and, by virtue of the employer’s cap, £125 in respect of the unworked hours; • Government pays £1,541.75 in respect of the unworked hours; and • employee suffers a wage reduction of £6,333.25. The employee receives a total of £3,666.75 per month (or c.37% of his normal pay). The employer pays a total of £2,125 per month (or c.21.25% of normal pay), plus employer’s NICs and employer’s pension contributions on £3,666.75 per month, in exchange for the employee working 20% of his/her normal hours.

 

3. What wage support is available under JSS Closed?

Where an employer is legally required to close their premises as a direct result of the coronavirus restrictions, they will be able to apply under JSS Closed for wage support for employees who are unable to work.  Under JSS Closed, each eligible employee will be paid as follows:

• The Government will pay 66.67% of the “reference salary” up to a maximum of £2,083.33 per month.
• The employer is not required to pay anything to the employee but may pay something if it wishes to do so.
• Assuming the employer pays nothing, the employee will suffer a wage reduction of 33.33% or more if the employee is higher paid.

Guidance on the meaning of “reference salary” for these purposes will be published shortly.

The employer will be responsible for paying employer’s NICs and employer’s pension contributions on the full amount paid to the employee (including the amount paid for by the Government).

In practice, employees earning up to £37,500 per annum will only suffer the wage reduction caused by the lost third of pay (see Worked Example 3).  However, higher earners will suffer a wage reduction by virtue of the application of the cap on the Government’s contribution and the lost third of pay (See Worked Example 4).  The higher the salary, the greater the wage reduction.

Worked example 3: a full-time employee who normally works 35 hours per week and is paid an annual salary of £37,500 / monthly salary of £3,125: During the life of JSS Closed the employee’s monthly salary will be paid as follows: • employer pays nothing; • Government pays £2,083.33; and • employee suffers a wage reduction of £1,041.67. The employee receives a total of £2,083.33 per month (or c.66.67% of her/his normal pay). The employer pays employer NICs and employer pension contributions on £2,083.33 per month.

 

Worked example 4: a full-time employee who normally works 35 hours per week and is paid an annual salary of £120,000 / monthly salary of £10,000: During the life of JSS Closed the employee’s monthly salary will be paid as follows: • employer pays nothing; • Government pays £2,083.33; and • employee suffers a wage reduction of £7,916.67. The employee receives a total of £2,083.33 per month (or c.20.83% of her/his normal pay). The employer pays employer NICs and employer pension contributions on £2,083.33 per month.

 

4. Which employers are eligible to apply for support under the JSS?

General eligibility criteria – all employers

All employers with a UK bank account and a UK PAYE scheme are potentially able to claim a JSS grant, regardless of whether or not they have claimed under the CJRS before.  However, organisations that have staff costs that are fully publicly funded should not use the JSS.

Employers will be able to claim grants under both JSS Open and JSS Closed at the same time for different employees (e.g. a pub chain may have employees working reduced hours in pubs in areas subject to tier one and tier two restrictions and have employees not working at all where pubs have had to close in areas subject to tier three restrictions).

Employers claiming a JSS grant will still be eligible to claim the Job Retention Bonus if they are eligible.  You can read more about the Job Retention Bonus in our briefing here.

Additional eligibility criteria – employers claiming under JSS Open

Employers wishing to make a claim under JSS Open must meet the following additional eligibility criteria:

• Financial Impact: employers with 250 or more employees on 23 September 2020 must undertake a “Financial Impact Test” demonstrating that their turnover has remained equal or fallen, to show that they have been adversely affected due to coronavirus. (Employers with fewer than 250 employees on 23 September don’t have to do this). Further details of the Financial Impact Test are set out in the JSS Policy Paper. The Government says that it expects (but will not require) employers with 250 or more employees not to make capital distributions while claiming JSS Open (or JSS Closed).
• Affected employees: the employer may only claim in respect of employees who are working reduced hours (and at least 20% of their normal working hours). Training will be treated as working time provided it is paid for by the employer at the normal rate of pay.
• Consultation and agreement with employees: the employer must have consulted with affected employees and reached a written agreement with them (or, where relevant, a written collective agreement with a trade union) on the terms of the temporary working arrangement before making a claim. This agreement must be kept for five years and be available for inspection by HMRC upon request.   Further guidance on what to include in the written agreement is expected shortly.

Importantly, the JSS Policy Paper highlights that when employers are making decisions, such as to whom they should offer reduced hours, employment and discrimination laws will apply in the usual way and must be complied with.

Additional eligibility criteria – employers claiming under JSS Closed

Employers wishing to make a claim under JSS Closed must meet the following additional eligibility criteria:

• Closure of business premises: the employer’s business premises must have been legally required to close as a direct result of coronavirus restrictions. This includes premises restricted to delivery or collection only services and those restricted to provision of food and/or drink outdoors.  However, business premises required to close by local public health authorities as a result of specific workplace outbreaks are not eligible for JSS Closed.
• Claims may only be made while closure restrictions are in place: claims under JSS Closed may only be made while the relevant restrictions are in place and will not cover any period when the premises are legally allowed to reopen (although the employer may then be able to claim under JSS Open if eligible).
• Affected employees: the employer may only claim in respect of employees whose primary place of work has been legally required to close and such employees must cease work for at least seven consecutive calendar days.
• Consultation and agreement with employees: the employer must have consulted with affected employees and reached a written agreement with them (or, where relevant, a written collective agreement with a trade union) on the terms of the temporary working arrangement before making a claim. This agreement must be kept for five years and be available for inspection by HMRC upon request.   Further guidance on what to include in the written agreement is expected shortly.

Further eligibility criteria for JSS Closed will be published shortly.

5. Which employees are covered?

In order to make a claim for wage support under either JSS Open or JSS Closed the employee in question must meet these eligibility criteria:

• Employees only: to be an employee for the purposes of the JSS, the individual must be treated as an employee for income tax purposes (regardless of what type of contract they have).
• On payroll: the employee must have been on the employer’s payroll between 6 April 2019 and 11.59pm on 23 September 2020 (i.e. a Real Time Information submission notifying payment to that employee to HMRC must have been made at some point in that period). Employees who were in employment on 23 September 2020, but were terminated after that date, may be rehired and claimed for under the JSS.
• Not redundant or under notice: the employee must not have been made redundant or be serving a period of statutory or contractual notice during a claim period.

6. How are JSS claims made?

The JSS will open after the end of the lockdown and the closure of the CJRS.  Currently, this means the JSS should start on 3 December 2020.  However, this is not certain as the lockdown period may be extended beyond 2 December 2020 if the “R rate” is not reduced below 1.   It is not clear how long the JSS will run for.  The original plan was that it would close on 30 April 2020.  However, as the situation is fast-moving, we should expect this date to be reviewed in due course.

Grants will be paid in arrears, meaning that a claim may only be submitted once payment of the full amount claimed has actually been made to the employee and has been reported to HMRC.  This is in contrast to the procedure under the CJRS, where grants could be claimed in advance of paying staff.  Employers are not permitted to charge the employee an administration charge or fee which would have the effect of reducing wages below the amount claimed under the JSS.

7. How will HMRC manage fraudulent claims?

HMRC will check claims and payments may be withheld where it suspects a claim is ineligible.  Where a claim is found to be fraudulent, the full amount of the grant must be repaid and penalties of up to 100% of the grant may be applied.

In an effort to encourage the reporting of fraud by the public, HMRC intends to publish the names of all employers who use the JSS.  It is also considering publicly “naming and shaming” employers who are charged penalties for making a fraudulent JSS claim.

8. Where can employers find out more?

Employers can find out more about the JSS, including how to run calculations for JSS Open, in the Job Support Scheme – Policy Paper.

Detailed guidance on JSS Open and JSS Closed has been published, however, this is likely to be revised given the delay to the introduction of the scheme.  We will update you on the position as soon as this is clear.

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

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Employment Law News

 

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New Bill gives employees the right to know colleagues’ salaries and expands pay reporting obligations

A new Bill seeking to increase transparency in the field of equal pay and expand pay reporting obligations to smaller organisations has begun its passage through Parliament.  In this briefing we bring you up to date with what is proposed.

What is the Equal Pay Information and Claims Bill 2019 – 2021 about?

The Equal Pay Information and Claims Bill 2019 – 2021 (EPIC Bill) is a Private Members’ Bill launched by the Labour MP Stella Creasy on 20 October 2020.  The EPIC Bill seeks to increase transparency in the field of equal pay and expand pay reporting obligations.  The main aspects of the EPIC Bill are as follows:

• Right to know what colleagues are paid: employees would be given the legal right to know what their colleagues are paid as a means to promoting pay equality. Introducing the EPIC Bill, Stella Creasy MP said “pay discrimination is prevalent because it is hard to get transparency”.  The gender equality charity, the Fawcett Society, who helped the draft the EPIC Bill, highlighted research showing that 6 out of 10 working women do not know whether they are being paid less than a male comparator and only 3 out of 10 believed that their employer would tell them the answer if they asked the question.
• Expansion of gender pay gap reporting: gender pay gap reporting came into force on 6 April 2017 for organisations with 250 or more employees. Under the current rules, organisations are required to report certain gender pay information annually, including their mean and median gender pay gaps.  The EPIC Bill seeks to expand the obligations by reducing the threshold to organisations with 100 or more employees and introducing a new requirement to publish an action plan for closing the gap.  The Office of National Statistics has published data showing that the gender pay gap amongst organisations with between 10 and 249 employees is higher than those with 250 or more employees.  Accordingly, the expansion of gender pay gap reporting to smaller organisations may well provoke unrest amongst female workers and, in turn, lead to more questions being asked about how their pay compares to specific male colleagues (potentially leading to equal pay claims).
• Introduction of ethnicity pay reporting: organisations with 100 or more employees would also be required to publicly report their ethnicity pay gap. Although ethnicity pay reporting has been on the Government’s “to do” list for some time, it has not yet found its way into law.  One of the recommendations coming out of the 2017 McGregor-Smith “Race in the Workplace” report was that larger employers (i.e. those with 250 or more employees) should be required to publish ethnicity pay information.  In October 2018, Theresa May’s Government opened a consultation on the introduction of mandatory ethnicity pay reporting.  However, that consultation closed in January 2019 and no action has yet been taken to introduce relevant legislation.

The EPIC Bill also contains measures aimed at reforming remedies and time limits relating to equal pay, providing a right to equal pay where a single source can rectify the inequality and requiring the statement of employment particulars to include equal pay.

Is the EPIC Bill likely to become law?

Although Private Members’ Bills generally don’t make their way onto the statute books, the EPIC Bill has cross party support and so has some chance of doing so.  The Fawcett Society is confident that it will become law given the cross-party and wider public support.

The second reading of the EPIC Bill is due to take place in the House of Commons on 13 November 2020.  However, it will need to complete three further stages in the Commons and then repeat the whole process in the House of Lords before coming into law – it remains to be seen whether sufficient Parliamentary time will be made available.  We will keep you updated on the progress of the EPIC Bill over the coming months.

Equal Pay Information and Claims Bill 2019 – 2021

If your business needs advice on equal pay or pay reporting obligations please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

 

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The Job Support Scheme – what do we know so far?

With the Coronavirus Job Retention Scheme closing on 31 October 2020, many were concerned that a cliff-edge ending to Government wage support would lead to a wave of redundancies.  To moderate that cliff-edge, the Chancellor of the Exchequer has announced that a new, less generous, wage support scheme will run between 1 November 2020 and 30 April 2021.  In this briefing, we explain what we know so far about the new “Job Support Scheme”.

What is the Job Support Scheme (JSS)?

The JSS is the successor to the Coronavirus Job Retention Scheme (CJRS) and is intended to “protect viable jobs in businesses who are facing lower demand over the winter months due to COVID-19”.  The emphasis is on providing support for “viable” jobs, meaning those which the employer still needs, albeit on a reduced basis for the immediate future.

Under the JSS the employee must work at least one third of their normal working hours but may work more than this if needed.  The employer is responsible for paying the employee for all the hours actually worked.  The burden of the unworked hours will be split three ways:

• the Government will pay a third of the wage cost (capped at £697.92 per month);

• the employer will pay a third of the wage cost; and

• the employee will suffer a wage reduction for the remaining third.

The Government’s contribution extends to usual wage costs only, which is expected to be calculated in broadly the same way as under the CJRS (see here for our guidance note on the CJRS).  It will not cover the cost of employer National Insurance Contributions (NICs) or employer pension contributions on the Government-backed portion of wages.  Instead, the employer will be responsible for making these payments.

What does this mean for employees in practice?

The application of the Government’s cap means that employees earning up to c.£37,688 per annum, will only suffer the wage reduction caused by the lost third of pay for the unworked hours.  For example, this means they would receive c.78% of normal pay for working one third of their normal working hours (see Worked Example 1).

However, the cap means that higher earners will suffer the wage reduction caused by both the application of the cap on the Government’s portion and the lost third of pay for the unworked hours (see Worked Example 2).  The higher the salary, the greater the wage reduction.

Worked example 1: a full-time employee who normally works 35 hours per week and is paid an annual salary of £37,687.68 / monthly salary of £3,140.64: During the life of the JSS the employee works for one third of their normal hours (11.66 hours) and will be paid as follows: • Employer pays £1046.88 for 11.66 worked hours and £697.92 for 7.78 unworked hours; • Government pays £697.92 for 7.78 unworked hours; and • Employee suffers a wage reduction of £697.92 for 7.78 unworked hours. The result is that the employer pays a total of £1,744.80 per month (or c.55% of normal pay) in exchange for the employee working one third of their normal hours.  The employee receives a total of £2,442.72 per month (or c.78% of their normal pay).

 

Worked example 2: a full-time employee who normally works 35 hours per week and is paid an annual salary of £120,000 / monthly salary of £10,000: During the life of the JSS the employee works for one third of their normal hours (11.66 hours) and will be paid as follows: • Employer pays £3,333.33 for 11.66 worked hours and £2,222.22 for 7.78 unworked hours; • By virtue of the cap, the Government only pays £697.92 for 7.78 unworked hours; and • Employee suffers a wage reduction of £2,222.22 for 7.78 unworked hours. The result is that the employer pays a total of £5,555.55 per month (or c.55% of normal pay) in exchange for the employee working one third of their normal hours.  The employee receives a total of £6,253.47 per month (or c.62% of their normal pay).

 

What does this mean for employers in practice?

As the worked examples above show, the employer is paying the employee for more hours than they have actually worked.   The fewer the hours worked by the employee, the greater the excess wage cost to the employer – for example:

Hours worked by employee	33%	40%	50%	60%	70%
Wage cost to employer	55% (an excess cost of 22%)	60% (an excess cost of 20%)	67% (an excess cost of 17%)	73% (an excess cost of 13%)	80% (an excess cost of 10%)

In addition, the employer is responsible for paying employer NICs and employer pension contributions on all wages paid to the employee, including the Government-backed portion of wages.

Which employers are eligible?

All employers with a UK bank account and a UK PAYE scheme are potentially able to claim a JSS grant, regardless of whether or not they have claimed under the CJRS before.

However, large employers will have to pass a “financial assessment” test in order to make a claim.  This means that the JSS will only be available to large businesses whose turnover is lower as a result of COVID-19.  The Government has said that it is their expectation that large employers will not be making capital distributions (e.g. share buybacks or dividend payments) while accessing the JSS.

Further guidance on what is meant by “large employer” and what the financial assessment test will involve is expected shortly.

Which employees are covered?

In order to make a claim for wage support under the JSS the employee in question must:

• be on the employer’s payroll on or before 23 September 2020 (i.e. a Real Time Information submission notifying payment to that employee to HMRC must have been made on or before that date); and

• work at least one third of their usual working hours between 1 November 2020 and 31 January 2021 (after this date, the minimum hours threshold may be increased).

Claims may be made for previously furloughed employees, who will have their wages calculated by reference to their underlying usual rate of pay rather than the reduced furlough rate of pay.

What are the mechanics for putting a JSS arrangement in place?

The JSS arrangement involves a reduction in the employee’s usual working hours and pay.  Employers will need to agree these changes with the employee and provide written notification of the same.  A copy of that notification must be available for inspection by HMRC on request.

There is flexibility in that employees can cycle on and off the scheme and also do not have to work the same pattern each month (although each short time working arrangement must run for a minimum of seven days).  However, where changes to the working pattern are required, this will need to be agreed with the employee each time and it is likely that further written notifications will be required.

Importantly, whilst the employer is claiming a JSS grant, the employee in question cannot be made redundant or given notice of redundancy.  This contrasts with the position under the CJRS, where employers could give notice of redundancy and even claim for the cost of notice pay under the scheme.

How are JSS claims made?

Employers will be able to make JSS claims online from December 2020.  Where a claim is successful, grants will be paid to the employer on a monthly basis.

Grants will be paid in arrears, meaning that a claim may only be submitted once payment has actually been made to the employee and has been reported to HMRC.  This is in contrast the procedure under the CJRS, where grants could be claimed in advance of paying staff.

Why would an employer choose to participate in the JSS?

The JSS is significantly less generous than the grants available under the CJRS, but this reflects the change in emphasis to supporting only “viable” jobs.  The Government’s intention is to offer limited wage support (in the hope of staving off some redundancies) but place the primary burden squarely on the employer.

Some employers may question the wisdom of participating in a scheme where they have to pay for more hours than are worked.  At the extreme end, the employer is paying c.55% of normal pay in exchange for 33% of normal working hours, plus employer NICs and pension contributions on top.  Further, they will need to have cashflow available to pay the wages upfront and they will lose the ability to make staff redundant (or serve notice of redundancy) during a claim period.

It seems that only those employers who are confident that their business will fully bounce back in due course are likely to make use of the scheme.  Where an employer believes it will need employees to work their normal working hours again, it makes sense to save the cost of making redundancies now and recruiting in the future.  Further, if they can use the JSS to hang on to previously furloughed employees until 31 January 2021, they may also qualify for the Job Retention Bonus of £1,000 per employee.

Employers who do not have that confidence may prefer to negotiate permanent reductions to working hours and not make a JSS claim.  In that way, they will only have to pay employees for the hours they actually work, and they avoid the administrative burden of making claims.  Where such changes are not achievable or viable, the employer may prefer to make reductions to the workforce now to save costs and then recruit again when needed.

Detailed guidance on the JSS is expected shortly.

Job Support Scheme Factsheet – 24 September 2020

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

 

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Employment Law News

 

[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section fb_built=”1″ admin_label=”section” _builder_version=”3.22.3″][et_pb_row admin_label=”row” _builder_version=”3.25″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”4_4″ _builder_version=”3.25″ custom_padding=”|||” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.2.2″ text_orientation=”justified” use_border_color=”off”]Polly Rodway, BDBF Partner makes a clarion call to government for stronger legislation and guidance to close the gender pay gap

In April 2020, companies with 250 or more employees must publish their gender pay gap information for the third time under the Equality Act (Gender Pay Information) Regulations 2017.  Whilst gender pay reporting turned the spotlight on the issue of pay inequality, we remain a long way off achieving the ambition of those regulations of closing the gender pay gap within a decade. Indeed, the Fawcett Society predicts that it will take 60 years to close the gap at the current rate of decline.  What’s more, there is serious doubt about the reliability of the gender pay information published by companies to date, which calls into question even this depressing prediction.  To combat this, it is essential that the Government provides strict guidelines to companies about gender pay reporting and swiftly, before the April 2020 deadline.

There are three key issues which better guidance would address.

The first, is that employers struggle with how to navigate the pay reporting process and regularly make mistakes.  After the first year of publication, the BEIS Select Committee on Gender Pay Gap Reporting published a report stating that employers had published “highly improbable, inaccurate or questionable” data with mathematically impossible figures.  We can only hope that this has improved over time.

Second, existing guidance (which is non-statutory and non-exhaustive) is ambiguous meaning business must make judgement calls on their own data.  As a result, it is common for companies to ‘cut’ their data to avoid a large gap, for their own PR purposes.  This might include, for example, excluding overseas employees, or bonuses/allowances, or by hiding behind corporate structures (because, for example, LLP members are excluded from the data).  The regulations, and the guidance, allow for all of this.  Lack of consistency applied from company to company clearly undermines the transparency of information. Lack of clear guidance from the Government enables companies to behave in this unscrupulous way for their own purposes.

Third, publication of isolated figures, without any explanatory narrative and plan of action to close the gap is not helpful.  The Government chose not to mandate a requirement to do so, hoping instead that transparency would be enough of a driver. It is clearly not.  If companies are required to commit to paper an explanation of their own pay gap, and most importantly an action plan as to how they will address it, this will drive the necessary change.

The gender pay gap is a global issue, and one which is not going away as the profile of gender pay disputes continues to rise.  The UK Government took a positive step in 2017 requiring gender pay reporting, but its duty does not stop there.  Further action is needed to ensure that companies provide accurate and transparent data to enable those fighting the cause to get to the root of the problem, and resolve it.

Polly Rodway is a partner specialising in sex discrimination, harassment, pregnancy and maternity  discrimination, and senior executive equal pay.[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”3.26.6″][et_pb_row _builder_version=”3.26.6″][et_pb_column type=”4_4″ _builder_version=”3.26.6″][/et_pb_column][/et_pb_row][/et_pb_section]

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Employment Law News

 

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Pay inequality issues continue to remain high on the agenda

The interest in pay inequality between men and women shows no signs of waning in 2020.  In January, an Employment Tribunal upheld a female TV presenter’s equal pay claim against the BBC, who are now on the hook to pay an estimated £700,000 in compensation.  In a little over two months, pay inequality will come under the spotlight again, when large employers publish the third round of gender pay gap reports. 

Samira Ahmed wins equal pay claim against the BBC

Samira Ahmed is a journalist and presenter of BBC’s Newswatch programme. She brought an equal pay claim against the BBC seeking to compare her pay (£440 per episode) to that of the male presenter of Points of View, Jeremy Vine (who was paid £3000 per episode).  Ms Ahmed argued that she did the same or similar work to Mr Vine.  The BBC said that the work was different because Newswatch was a news programme and Points of View an entertainment programme. They also argued that a popular programme like Points of View required the presenter to have a “glint” in the eye.

The Tribunal agreed that there were enough similarities between Ms Ahmed’s and Mr Vine’s roles meaning that their pay could be compared.  They both presented magazine-style programmes which involved a discussion of viewers’ opinion.  Both programmes lasted 15 minutes and both were pre-recorded and scripted by producers.  The requirement for a “glint” in the eye did not denote any special skills or experience needed for the role.

This meant that the BBC had to explain the difference in pay, by reference to a material and non-discriminatory factor.  It put forward a number of factors including the profile of the programmes and the presenters, the experience of the presenters and different market rates for the roles.  However, their defence was significantly weakened by the fact that: (i) they did not operate a transparent and consistent pay process for presenters; and (ii) there was an absence of documentary or witness evidence to explain the pay decisions that had been taken.

Notably, the Tribunal gave short shrift to the “market rates” argument because the BBC had taken an inconsistent approach.  For Mr Vine, the market rate was the amount the BBC considered it had to pay to persuade him to present Points of View.  For Ms Ahmed, it was the amount the BBC considered it had to pay for the role.  The Tribunal said that market rate had to mean the same for both the man and the woman.

The Tribunal upheld Ms Ahmed’s claim, finding that she and Mr Vine performed like work and that the BBC had failed to show that the difference in pay was because of a non-discriminatory material factor.  However, from the point that Ms Ahmed moved to a permanent BBC contract there was a non-discriminatory reason for the difference.  Ms Ahmed is set to recover an estimated £700,000 compensation covering a 6-year period.

Although this decision does not change the law, it serves as a useful reminder of the dangers of operating an opaque reward system.  The lack of a transparent and consistent pay process and the absence of evidence explaining the pay decisions hampered the BBC’s ability to defend the claim.  The lesson for employers is to operate a fair and transparent reward system, backed up by records setting out the reasons for pay decisions.  To minimise risk, employers should also interrogate whether their existing pay awards are free from discrimination by undertaking an equal pay audit.

Polly Rodway, a partner at BDBF specialising in discrimination and equal pay issues, spoke to BBC London and The Guardian about the Tribunal’s decision.  You can listen to the BBC London broadcast here and the read The Guardian article here.

Third round of gender pay gap reports to be published by 4 April 2020

Employers with 250 or more employees will be required to publish their annual gender pay gap reports for the third time on, or before, 4 April 2020.  Reporting employers can expect intense media scrutiny of both the accuracy of their figures and the progress made in closing their gender pay gap.

First, on the accuracy of the figures, we know that employers are struggling with the process and getting it wrong.  The BEIS Select Committee Report on Gender Pay Gap Reporting from 2018 highlighted that businesses found the reporting process “very difficult” and many had required external legal advice to help them understand how to comply with the rules.  The Committee also found that some employers had published “highly improbable, inaccurate or questionable” data and some had reported mathematically impossible figures.  Around 725 employers had submit their figures more than once.

The Committee also identified the need for better guidance to help employers complete the reporting process accurately.  The current guidance, Managing Gender Pay Gap Reporting, is not exhaustive, meaning that there are many areas where firms are having to make their own judgement on how to report.  This inevitably leads to mistakes and inconsistencies which undermine transparency.  Polly Rodway recently spoke to The Times about the urgent need for the gender pay gap reporting guidance to be revised to ensure better reporting.  You can read Polly’s comments here.

Second, now that the regime has had time to bed in, employers will increasingly come under pressure to reduce their pay and bonus gaps and redress gender imbalances in the most senior and highly paid roles.   However, it’s generally accepted that there are no “quick fixes” to closing the gender pay gap.  It is helpful for employers to tackle this issue head on in their reports by providing an explanatory narrative putting the results in context.  What kinds of things should employers consider including in their narrative?

• Statement from senior person in the business: an opening statement from a senior person within the business, such as the HR director, demonstrates senior buy-in and provides a good opportunity to restate the organisation’s commitment to diversity measures.
• The difference between the gender pay gap and unequal pay: although research shows that the vast majority of employers understand this distinction, it is inevitable that some readers won’t. It’s worth briefly explaining the difference.
• What the report covers: clarify which entity or entities are being reported on and explain the reporting methodology (e.g. who has been counted as a “relevant employee” and how absent employees have been treated).
• Year on year comparisons: there is no requirement to provide this information, but it would be in keeping with the transparency aim of the gender pay reporting. Also, if figures have remained static (or worsened) then this provides an opportunity to explain why this is the case.   For example, the employer may have recruited a higher proportion of women at the start of their career to improve the future pipeline of female talent.  This may negatively affect the pay gap in the short term.
• Action plan for closing the gap: this is not compulsory, but the Equality and Human Rights Commission encourage employers to provide an action plan setting out the positive, measurable and time-bound steps they will take to close their gap. Care should be taken to outline specific measures, rather than a recital of standing diversity initiatives.

If you need help with any equal pay issues or producing your next gender pay gap report, please contact Polly Rodway, Amanda Steadman or your usual BDBF contact.

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Employment Law News

 

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Samira Ahmed wins BBC equal pay case – 10th January 2020

News TV host Samira Ahmed win her equal pay case against the BBC. Samira claimed that she had been underpaid for presenting Newswatch when compared to the pay received by Jeremy Vine for a similar BBC show, Points of View. Ahmed received £465 per episode for hosting Newswatch, while Vine received £3,000 per episode. Samira claimed she was owed almost £700,000 in back pay.

It was ruled unanimously that the BBC failed to prove the difference in their pay “because of a material factor which did not involve subjecting the claimant to sex discrimination”.

Comments from Polly Rodway, Partner:

“In a strong judgment, the Tribunal has concluded that the BBC has fallen foul of the principle of equal pay for men and women.  Specifically, that Ahmed was paid less for doing the same or broadly similar work to Jeremy Vine (comparing their work on Newswatch and Points of View) in circumstances where the BBC could not show that there was a neutral reason explaining the difference.”

“The Tribunal was clearly satisfied that Ahmed’s work was ‘like’ (i.e. the same or broadly similar to) Jeremy Vine’s work.”

“The burden therefore shifted to the BBC to show that the difference in their pay was for a reason other than gender (this is known as the material factor defence).  The Tribunal was unconvinced (and seemingly unimpressed) by the BBC’s arguments in this regard.  Ahmed’s claim was therefore successful.”

“In seeking to justify the pay difference, the BBC relied on a number of points including the higher profile of Points of View (as compared to Newswatch), and the higher public profile of Jeremy Vine.  The Tribunal dismissed both noting that the BBC had not put forward any evidence to show that the people who decided about Ahmed and Vine’s pay had taken this into account.  It could not therefore explain the reason for the difference. In fact in the case of audience recognition of Vine, the Tribunal scathingly notes that the BBC appeared to contradict itself by relying on Vine’s public profile figures which post-dated Vine’s pay determination.”

“This is strong and positive judgment.  Ahmed’s success in establishing her work was ‘like’ that of Jeremy Vine’s cut out a large swathe of analysis that would have been required had she failed on this point, and had to instead convince the tribunal that their work was of equal value.  The BBC’s failure to adduce evidence to explain the gender neutral reason for the difference in pay was clearly relevant, and the Tribunal appears to disapprove of their approach noting that speculation by other witnesses who were not involved in setting rates of pay does not discharge this burden.”

“This is a positive outcome for women fighting for equality with male counterparts.”

The Guardian featured the story, please see the story here: https://www.theguardian.com/media/2020/jan/10/samira-ahmed-wins-equal-pay-claim-against-bbc

Polly Rodway, a partner at the law firm BDBF, said: “There is a big floodgates argument here, so the ramifications of the judgment for the BBC will be significant as lots of other claimants will now pursue the BBC and, economically, they could end up paying a lot more in light of this judgment.

“We are talking about potentially many more claimants … I am not sure I can put a number on it but the costs could be millions.”

BDBF employment Lawyer, Tom McLaughlin appears on Sky News commenting on Samira Ahmed tribunal.

If you would like to discuss how we can help you, please contact Polly Rodway, Tom McLaughlin or our BDBF team.

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