Employment Update - May 2022

Fire and rehire

The practice of "fire and rehire", which refers to an employer changing employees' terms by dismissing them and offering to re-engage them on new contracts, has come under the spotlight in recent months. Employers who have sought to change terms in this way have been criticised by trade unions, and there have been calls for the practice to be banned altogether, most recently in the wake of P&O's mass dismissal of ferry workers. There have been several recent developments in this area. Last year, Acas published guidance on changing employment contracts which states that "fire and rehire" should only be considered as a last resort. The Government so far has indicated that it does not plan to legislate against the practice but has committed to producing a new statutory Code of Practice to detail how businesses should consult on proposed changes to employment terms. Courts and tribunals will be able to take the new Code of Practice into account in relevant cases (e.g. unfair dismissal) and apply an uplift in compensation of up to 25% where an employer has unreasonably failed to follow it.

In the recent case of USDAW v Tesco, the union obtained an injunction preventing Tesco from dismissing staff in order to reduce pay, but it should be noted that this arose due to a particular, and unusual, factual background (involving a previous contractual commitment to a permanent uplift in pay). In most cases an injunction is unlikely to be available and the dismissals would be effective, with the employees having potential claims of unfair dismissal and breach of collective consultation rules.

Although the legal position relating to "fire and rehire" has not changed so far, the process that employers should follow when seeking to change employees' terms may become more prescriptive once the Code of Practice is produced. But regardless of what the law requires, the reputational risks are likely to be an equally important consideration given the increased focus on this area, and employers may be reluctant to use this route unless they have no other choice.

Right to work checks 

All employers are required to check that employees have the right to work lawfully in the UK. The rules on conducting right to work checks changed on 6 April 2022 – please see our briefing note for details of the changes. The temporary adjustments made during the pandemic, which allow some right to work checks to be done virtually, will also come to an end on 30 September 2022. In addition, the Home Office has published revised guidance on right to work checks, with updated lists of documents that employers can accept when conducting checks. Employers who have not done so already should update any policies, offer letters and other recruitment materials that set out what documents will be accepted as proof of right to work. 

Employing Ukrainian nationals

In response to the conflict in Ukraine, the Home Office launched the Ukrainian Family Scheme (for Ukrainians with family members in the UK) and the Homes for Ukraine Scheme (which allows UK residents to sponsor Ukrainian nationals for at least six months in the UK). Both schemes allow individuals to work for up to three years in the UK. On 3 May 2022, the Home Office also launched the Ukrainian Extension Scheme, which allows Ukrainians already in the UK with a visa to extend their stay. Many employers are looking to employ Ukrainian nationals under these arrangements and the revised guidance on right to work checks sets out what checks employers should undertake in these circumstances.

New High Potential Individual visa

On 30 May 2022, a new High Potential Individual visa route will open. This route is for graduates of top overseas universities who want to work or look for work in the UK following completion of their degree. Applicants must have completed a bachelor's degree or above from a recognised university in the last five years. Employers will not need to sponsor candidates under this route; the individual will need to make their own visa application. Successful applicants will be able to come to the UK for two years (with a bachelor's degree) or three years (with a PhD) and work in any role, but this route will not lead to settlement.

Sponsor licence compliance 

The Home Office is in the process of contacting employers who are immigration sponsors to ensure their sponsorship licences are being kept up to date. The Home Office is particularly interested in ensuring the organisation has the right personnel named on the sponsor licence and that anyone who is no longer performing key roles (i.e. Authorising Officer, Key Contact and Level 1 User) has been removed from the licence. The Home Office also wants to ensure someone from the organisation is regularly logging on to the sponsor management system to review and update licence details and receive any news and alerts. Typically a compliance officer from the Home Office will phone the Authorising Officer directly and follow up by email if they do not get through on the phone. Employers who are licensed sponsors may wish to review their sponsor licence compliance, both specifically on these points and more generally, in the light of increased activity from the Home Office in this area.

Restrictive covenants - importance of drafting

A recent High Court ruling reinforces the need for careful drafting with post-termination restrictive covenants. The case involved a solicitor in a boutique law firm who resigned to go to a competitor. However, under the terms of her service agreement she was prevented from working for a competitor for 12 months after the end of her employment. She was also a shareholder in the firm and the shareholders agreement similarly prevented her from working for a competitor for 12 months after she stopped being a shareholder. The firm sought a court order to enforce the restrictions after the employee refused to sign an undertaking that she would abide by them. The employee argued the restrictions were too wide to be enforceable.

The High Court ruled that the non-compete clause in the shareholders agreement was unenforceable. The clause sought to prevent the employee from working for any business which competed with any part of the firm's business, whether or not the employee had been involved with that part of the business and whether or not she held any confidential information about it. The clause was therefore too wide to be enforceable. In contrast, the non-compete in the employment contract was enforceable, as it was limited to parts of the business that the employee had been materially involved in. The period of 12 months was also reasonable given the employee's seniority (she was the equivalent of a salaried partner). In the court's view, it would take 12 months to find, successfully recruit and then train a lawyer in a small boutique firm like this.

Unfair dismissal and regulatory references

A recent employment tribunal ruling highlights the impact of the regulatory references regime on unfair dismissal claims in the financial services sector. The employee in this case was a trader at an investment bank. He was dismissed for gross misconduct in relation to alleged unlawful trades which had occurred four years earlier. At the time of the alleged conduct, the bank decided it did not warrant disciplinary action. However, the bank changed its mind four years later, after introducing a new policy designed to show regulators that it took its obligations seriously. An employment tribunal found that the dismissal was unfair. The true reason for dismissal was not any misconduct by the employee but the bank's desire to show it was "cleaning up its act".

The tribunal also found that the employee would not be able to find another role in the financial services industry. This was because the bank indicated it would provide a regulatory reference saying he was not "fit and proper" to perform a regulated role, and because any subsequent employer would also know he had sued his former employer. Accordingly, the tribunal ordered the bank to re-engage the employee in an equivalent role in Hong Kong.  

Compensation for discrimination

Compensation for successful discrimination and harassment claims is made up of two elements – the employee's financial loss and injury to the employee's feelings. The so-called "Vento bands" have been created to guide Tribunals what to award for the injury to feelings element. On 6 April 2022, the Vento bands were increased, and the current bands are now as follows:

• Lower band: £990 to £9,900 (for a low-level, one-off act of discrimination or harassment)
  
  
• Middle band: £9,900 to £29,600 (for something more serious)
  
  
• Upper band: £29,600 to £49,300 (for the most serious acts, such as an ongoing campaign of discrimination or harassment)

There is technically no limit on what can be awarded for injury to feelings, and in exceptional cases, tribunals can award compensation which is higher than the upper band. There is also no limit on the compensation which can be awarded for financial loss in discrimination and harassment claims.

Listed companies - new diversity reporting rules

The FCA has published new rules requiring listed companies to report information about the gender and ethnic makeup of their boards and executive management. In scope companies will need to report whether they have met the following targets and, if not, why not:

• at least 40% of the board should be women
  
  
• at least one of the senior board positions (Chair, Chief Executive Officer, Chief Financial Officer or Senior Independent Director) should be a woman
  
  
• at least one member of the board should be from an ethnic minority background excluding white ethnic groups (as set out in the categories used by the Office for National Statistics).

Listed companies will also be required to report numerical data (in standardised reporting tables) on the sex or gender identity and ethnic diversity of the board, senior board positions and executive management, as well as setting out their approach to collecting the data.

The rules will apply to both premium and standard listed UK and overseas companies (including closed-ended investment funds) and will apply for financial accounting periods starting from 1 April 2022. The FCA plans to review the rules in three years' time to ensure they are working and that the targets are still appropriate.

Ban on exclusivity clauses

The Government has announced that it will ban exclusivity clauses in contracts for lower paid workers. An exclusivity clause is any clause in a contract that prevents the worker from working for another employer. Currently, exclusivity clauses in contracts for zero hours workers are unenforceable. The Government plans to extend this rule to exclusivity clauses in any contract of a worker whose weekly income is at or below the Lower Earnings Limit (currently £123 a week). The Government plans to lay the necessary legislation before Parliament this year.

Ethnicity pay gap reporting 

In 2018/2019, the Government consulted on introducing a mandatory requirement for large organisations to report publicly on the ethnicity pay gap within their organisation. The Government has not yet formally responded to the consultation.  However, in its recent response to a report by the Commission on Race and Ethnic Disparities, the Government said that it would not be legislating for mandatory reporting at this stage, as it wants to avoid burdens on businesses as they recover from the pandemic. Instead, the Government will encourage more voluntary reporting and will publish guidance on voluntary reporting in summer 2022, to help employers address some of the challenges around ethnicity pay gap reporting. Employment Update will report developments.

Employment Bill

In 2019, the Government said it was planning to introduce an Employment Bill which would make a number of changes to UK employment law. The bill was side-lined during the pandemic but it was widely anticipated that it would come back on the agenda in 2022. However, there was no reference to the Employment Bill in the Queen's Speech on 10 May 2022. It is therefore not clear when or how the Government intends to take forward the various reforms which were expected to be covered by the bill, including:

• making the right to request flexible working a "day one" right;
  
  
• extending redundancy protection for mothers until six months after the end of maternity leave;
  
  
• introducing paid neonatal leave and unpaid carers' leave; and
  
  
• introducing a right for zero hours workers with 26 weeks' service to request a contract with more predictable hours.

Employment Update will report developments.

Since the last Employment Update, our work has included:

• advising on a divisional restructure, including proposals around changing terms and conditions of employment and s.188 collective consultation
  
  
• supporting a listed client with an investigation into allegations of misconduct against senior executives
  
  
• advising on the carve out of part of a client's business
  
  
• advising on obtaining injunctions to restrain senior employees leaving to go to a competitor
  
  
• advising a US headquartered client on restructuring plans for its UK based workforce
  
  
• advising a client on the enforceability of post-termination restrictions for a potential new hire.