Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Labour & Employment volume featuring discussion and analysis of legal developments, the enforcement of restrictive covenants and political debates about employment within key jurisdictions worldwide.
1 What are the most important new developments in your jurisdiction over the past year in employment law?
The covid-19 pandemic has revolutionised the way many people now work. The working landscape will take time to emerge but homeworking and hybrid working models, as alternates to full-time workplace attendance, are here to stay.
The most important developments in employment and employment related law over the past year reflect the immediate impact of the global pandemic and the UK Government’s need to increase its tax take and are perhaps best illustrated by the following:
- the ending of the temporary Coronavirus Job Retention Scheme on 30 September 2021;
- the extension (with some modifications) as they apply where the end client is a public sector body of the off-payroll working rules to the private sector from 6 April 2021, the start date having been delayed by one year as a result of the covid-19 pandemic;
- the Health and Social Care levy that will increase the rates of national insurance contributions by 1.25 per cent from next April; and
- the Health and Social Care Act 2008 (Regulated Activities) (Amendment) (Coronavirus) Regulations, which come into force on 11 November 2021, as discussed in more detail below.
These developments come against a backdrop of shortages in the labour market and the Government’s desire to encourage a highly skilled workforce enjoying higher wages.
On a progressive note the Government has undertaken a consultation on measures to reform post-termination non-competes in employment contracts, which could have important consequences for the enforceability of employment covenants.
The consultation paper put forward two possible options for reform. Firstly, mandatory compensation so that a non-compete is enforceable only when an employer provides compensation for the period that the clause prohibits the employee from working for a competitor or starting their own business. Secondly, to ban non-competes outright in employment contracts.
The consultation closed on 26 February 2021 and the Government’s response is eagerly awaited. Watch this space.
2 What upcoming legislation or regulation do you anticipate will have a significant impact on employment law in your jurisdiction?
The immediate impact of the global pandemic on the world of work is illustrated in the upcoming regulations.
Vaccination rules
Employers are obliged to ensure that the places where their employees work are reasonably safe and to provide safe systems of work.
Does this mean that a policy of ‘no jab, no job’ is lawful? Almost certainly not. It is arguable that requiring vaccines by law is forbidden under section 45E of the Public Health (Control of Disease) Act 1984, which outlaws regulations requiring a person to undergo medical treatment, which includes vaccination. However, as noted above, with effect from 11 November 2021 the Health and Social Care Act 2008 (Regulated Activities) (Amendment) (Coronavirus) Regulations 2021 SI 2021/891, will make it mandatory for a person working or providing professional services in a care home to have the covid-19 vaccine unless they are exempt.
Two care home staff are seeking a judicial review into the government’s incoming regulations and an order to render such mandatory vaccination rules null and void. They also want a declaration that the Secretary of State for Health has violated articles 8 and 14 of the European Convention on Human Rights (ECHR) and the regulations are unlawful. The full ramifications of these regulations for workplaces remain to be seen and the government may need to enact fresh primary legislation to implement a general policy of mandatory vaccination in care homes, or indeed elsewhere.
Gender pay gap reporting
The ‘gender pay gap’ is the difference in average earnings between women and men. Women’s lower earnings arguably perpetuate gender inequality, decreasing their independence and bargaining power. One simple way employers can seek to remedy the gender pay gap is to conduct pay equity audits.
In the UK, employers with more than 250 staff must report their organisation’s gender pay gap. The compulsory production of gender pay gap reports was paused due to covid-19. However, organisations with at least 250 employees now have until 5 October 2021 to report their gender pay gap information for the reporting year 2020/21. No enforcement action will be taken against companies before this date, giving them an additional six months to report their data before any legal action begins. The results will likely shed light on whether the pandemic has had an impact on gender pay disparities.
3 How has the #MeToo movement impacted the investigation or settlement of harassment or discrimination claims in your jurisdiction?
As in 2020, the legacy of the #MeToo movement continues to propel much greater scrutiny of internal investigation processes and decision making in relation to harassment allegations from the perspectives of both regulators and internal and external stakeholders. Transparency, fairness and neutrality are key to ensuring the outcome of an investigation into allegations stands up to scrutiny. The issue of workplace harassment and dealing with allegations appropriately remains high on the agenda for employers and likely even more so in 2021, with a significant number of employees navigating a return to the office after 18 months of remote working. Employers will want to ensure that as colleagues come back together policies and codes of conduct have been reviewed to ensure they are clear, remain fit for purpose and are applicable across the board as employers adapt to a changing and, in some cases, hybrid workforce.
The #MeToo movement undoubtedly shone a spotlight on workplace harassment as evidenced by the UK government’s 2019 consultation on preventing sexual harassment in the workplace. The government has recently (August 2021) released its response to that consultation and amongst the government’s proposals to reform the legal framework is its intention to introduce a duty requiring employers to take proactive and preventative steps to prevent sexual harassment. Currently employers can utilise the ‘all reasonable steps’ defence in harassment claims to limit their liability by demonstrating what was done to seek to prevent harassment. The new duty would hold employers to account for failing to take such steps, even where an incident of harassment has not occurred. The government has confirmed it will continue to liaise with stakeholders regarding how this positive duty will be implemented in practice, likely along with a new Equalities and Human Rights Commission (EHRC) code of practice, and will introduce the change to the law ‘as soon as’ parliamentary time allows. The consultation response is a reminder that preventing sexual harassment in the workplace should always be an area of focus for employers and that employers should consistently be looking for ways to create an environment in which complaints can be reported and investigated properly, where complaints do occur.
Further, regulators are increasingly interested in a company’s culture in relation to diversity and inclusion and have made clear that misconduct in this regard can impact an individual’s ability to carry out regulated activities. In July 2021, in line with similar previous measures by the Solicitors Regulation Authority (SRA), the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and Bank of England set out their proposals on diversity in financial services, with perhaps the most powerful being the proposal to make adverse conduct by an individual in relation to diversity and inclusion part of an assessment as to fitness and propriety in relation to carrying out their role in financial services. So any sexual harassment complaints against an individual could end up having potentially career-ending consequences.
In September 2021 a Member of Parliament presented a private members bill that calls for the use of non-disclosure agreements in sexual harassment cases to be banned mirroring legislation passed in other jurisdictions. The response from Parliament and developments in this area will be watched with interest.
4 What are the key factors for companies to consider regarding the enforcement of restrictive covenants against departing employees?
Covenants in restraint of trade are unenforceable unless they are reasonable as between the parties and with reference to the public interest. An employer will bear the onus of demonstrating that a departing employee’s covenants are reasonable.
There is a three-stage test for determining the enforceability of restrictive covenants:
First, what does the covenant mean? If there are two possible constructions, that which renders the covenant enforceable is to be preferred.
Second, is there a legitimate business interest requiring protection? Generally, the protection of trade secrets and confidential information, client connections, and workforce stability are well-established legitimate business interests.
Third, is the restriction no more than reasonably necessary to protect that interest? The reasonableness of a restrictive covenant is determined at the time of the contract.
Finally, even if the covenant is held to be reasonable, the court will then decide whether, as a matter of discretion, any injunctive relief sought by the former employer should in all the circumstances be granted, having regard amongst other matters to its reasonableness judged at the time of the hearing or trial.
For area and non-competition covenants employers must ensure that the period of restriction should last no more than is necessary to forge new connections with clients, or for confidential information to become stale. It is common for such covenants to last for six to 12 months. Any temptation to impose a longer period should be firmly resisted. An employer should bear in mind that any damage to its interests is likely to occur within the first few months of an employee’s departure.
For non-solicitation covenants employers should ensure that the restriction covers only clients or potential clients over whom the employee has influence, for example, because the employee dealt with them or holds confidential information about such clients. Employers should bear in mind that solicitation requires an element of persuasion. In the leading case of Towry EJ Ltd v Bennett & Ors [2012] EWHC 224 (QB) Mrs Justice Cox commented, “The key feature of solicitation, which can occur face to face or by letter, telephone or email, is that…an element of persuasion is required. It is that need to establish the existence of persuasion that distinguishes non-solicitation from non-dealing clauses.”
Since non-solicitation is difficult to police due to the problems of proving that it was the ex-employee who made the first approach to the client or the prospective client rather than the other way around it is commonplace to include a non-dealing provision among the restrictions imposed on an employee. However, a non-dealing covenant that amounts in substance to a non-competition covenant may be rendered unenforceable and alienate clients who dislike being told who they can or cannot instruct.
Employers should be mindful of these key legal factors and must be alert to the importance of context. The courts will look at the nature of the company’s business and the employee’s role within it. Generally, the greater the seniority of the employee, and the more access to or influence over work colleagues, customers and suppliers and the more access to confidential information, the greater the degree of protection that is justifiable.
Aside from the legal elements, employers must also consider factors such as the allocation of precious management resources. Even if a restrictive covenant is considered to be reasonable, and the behaviour of the departing employee viewed as disloyal, it should be borne in mind that the main remedy for breach is an injunction, which is an equitable remedy. Litigation is expensive, time consuming and stressful. It is best avoided with carefully drafted restrictive covenants that are regularly reviewed.
5 In which industry sectors has employment law been a hot topic recently? Why?
There can be no industry that has escaped completely the effects of the pandemic and the challenges of the return to office working after 18 months of operating remotely. This transition has prompted in most sectors a careful balancing exercise between the obligations of employers to exercise reasonable skill and care in creating a safe place to work and devising policies that do not put those people with protected characteristics, including ethical beliefs, at a disadvantage that cannot be justified in the specific circumstances. Thorough risk assessments and open lines of communication with workers are key across all industries on avoiding disputes as we move into yet another era of work.
As noted above, in relation to some industries, where the protection of vulnerable people is vital, this has led to intervention by the legislature on an emergency basis. The Health and Social Care Act 2008 (Regulated Activities) (Amendment) (Coronavirus) Regulations 2021, which come into force on 11 November 2021, were introduced to mandate vaccination against covid-19 for those who work in care homes with particularly vulnerable people. The Regulations are not without controversy and time will tell whether they add to the concerning issues of staff shortages in the health and care sector experienced in the UK currently.
We have seen the legacy of #MeToo and the Black Lives Matter movement continue to dictate worker rights trends in discrimination claims across a variety of sectors. Whistleblowing claims continue to rise year on year as employers in many sectors move towards a culture of speaking up.
Environmental, social and governance (ESG) factors are high on the agenda for financial services firms in particular as investors are increasingly conscious of the values of who they do business with. As noted, in the financial services sector in particular where there has historically been a lack of diversity at senior levels (only 7.8 per cent of financial services CEO roles are held by women and the gender pay gap between male and female directors in financial services firms is 66 per cent), the FCA, PRA and Bank of England have sought to drive forward change. Proposals have been put forward by these industry regulators in relation to diversity and inclusion (D&I) including increased transparency of diversity on company boards and the importance of D&I when assessing a firm’s culture and individual and firm fitness and propriety to carry out regulated activities.
6 What are the key political debates about employment currently playing out in your jurisdiction? What effects are they having?
Reforms in employment law are seen by many as having been hindered by the effects of the pandemic. Anticipated measures aimed to protect those in low-paid work and the gig economy do not appear on the current legislative programme. The Queen’s Speech delivered in May 2021 made no mention of a long-awaited Employment Bill, which include new rights and protections for workers.
The UK government has confirmed that the Employment Bill will be introduced when parliamentary time allows, so there may be little substantive legislative change in the sphere of employment rights in the coming months. However, as noted, a private members bill has been presented calling for the use of non-disclosure agreements in sexual harassment cases to be outlawed. The Labour Party has also proposed a bill to create a single status for workers, so that a number of rights and protections, including protection from unfair dismissal, would be enjoyed by all but the genuinely self-employed, so there may yet be some legislative developments.
With pressures on the Employment Tribunals continuing unabated and ongoing concerns regarding covid-19 backlogs, the UK government has confirmed an intention to increase the efficiency of the process for Employment Tribunal procedures by aligning it with that of other tribunals. There are likely to be ongoing discussions on reforms of the justice system more generally, particularly in relation to innovative technologies and dispute resolution processes.
In the context of issues that have risen to the top of the agenda for wider society and global initiatives relating to gender and race, diversity and inclusion issues continue to activate debate. As noted above, these issues have also engaged the attention of regulators, particularly in the financial services sector. There have also been calls for increased transparency on the diversity of company boards and executive management in the context of investors increasing focus on ESG factors.
In a report published by the Women and Equalities Committee regarding the gender economic impact of covid-19 and the extent to which gender equality has been embedded into policy responses to the pandemic, the Committee made wide-ranging recommendations. The government’s response, in partially accepting only a number of the recommendations, confirms an intention to extend the redundancy protection period afforded to mothers on maternity leave and that it is considering ethnicity pay reporting. There is much uncertainty as to when any reforms will occur.
Enforcement action against employers in relation to the legal requirement for relevant organisations to publish gender pay gap data was suspended in the circumstances of the pandemic, but as noted above the EHRC have confirmed that employers have until 5 October 2021 to report their gender pay gap information for 2020/21. There is likely to be further debate on pay gap issues going forward, particularly in the context of concerns regarding the lasting adverse effects of the pandemic.
Concerns have been raised that some employers have used the pandemic as a pretext to diminish workers’ terms and conditions by the practice of dismissing and re-engaging (known as ‘fire and rehire’) as a tactic and to sidestep workplace dialogue. A poll conducted for the GMB Union indicated that a substantial percentage of the UK public thinks such tactics should be banned. Following a report published by ACAS on the practice, the government is still considering the issue and has not yet committed to taking any action.
It may therefore be left to the courts to instigate any significant changes in the employment sphere over the coming months, as demonstrated by Supreme Court’s recent landmark decision identifying Uber drivers as workers and therefore entitled to certain employment protections and rights.
The Inside Track
What are the particular skills that clients are looking for in an effective labour and employment lawyer?
An ability to see the legal issue through commercial as well as legal eyes along with an understanding of the client’s objectives and focus at the time. Employer clients increasingly want a trusted adviser who can deploy an appropriate team quickly that can also act as an extension of the employer’s own team. An ability to step back and see the big picture, deliver advice accordingly and adapt quickly to changing circumstances is welcomed by clients. Increasingly clients expect the use of technology to streamline the advice process. From an individual client’s perspective, developing rapport and trust from the outset as well as regular communication will help to ensure effective collaboration and teamwork.
What are the key considerations for clients and their lawyers when handling employment disputes?
Preparation and planning, being very clear on the legal framework, keeping channels of communication open with all parties and ensuring respect remain to the greatest extent possible. It is important to ensure that advisers and clients are clear on their roles and responsibilities and the timeline from the outset and that those involved are kept up to date with developments throughout so that nothing slips through the net. Being clear and consistent on the legal and internal position with an effective recording of decisions, particularly for the employer, makes arguing a case more efficient in the long run.
What are the most interesting and challenging cases you have dealt with in the past year?
An increase in multi-party team move litigation in the High Court, acting in a case for the recruiting employer in the insurance sector and in others for individual team members who are moving to competitors within professional services. Businesses appear to be more willing to enforce post-termination restrictive covenants to protect what they have built. Lockdown and remote working has given individuals time to think about their next move and we expect to see more movement of people as they return to the office.
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