The Pensions Regulator issued a suite of COVID-19 guidance for trustees and employers at the end of March. As part of that guidance, the Regulator announced that it would be taking a more flexible approach to regulation and enforcement in certain areas for a limited period. Over the intervening months, this flexibility has largely been removed now that schemes have come through the initial disruption and adjusted to new ways of working. Many employers, however, are still experiencing difficult times.
If you or your colleagues cover US benefits and/or executive compensation, please join Mayer Brown’s Benefits & Compensation University.
By popular demand, we are expanding our annual US Executive Compensation University to include health, welfare and qualified plan issues. During this series of webinars, we will explore benefit and compensation issues in depth and hear from leading Mayer Brown lawyers about the changing regulatory landscape as they provide practical, business-focused guidance on dealing with these challenges.
The series will take place on the following Wednesdays in October:
- Executive compensation: October 7, 2020
- Qualified plans: October 14, 2020
- Health and welfare plans: October 21, 2020
As a result of the COVID-19 pandemic, the UK Government made the decision to delay the implementation of IR35 reforms to the private sector from April 2020 until April 2021 (see our previous blog post on this here). As a reminder, the IR35 reforms (commonly referred to as the “off-payroll working rules”) are intended to apply to any individual who, but for the supply of their services through an intermediary, would otherwise be an employee of the end-user client receiving the service. These rules will impact medium and large businesses in their role as the end-user client. From 6 April 2021, private sector businesses will become responsible for determining the employment status of contractors, regardless of whether they supply their services through a personal service company directly to the end-user or via an agency. The new rules will effectively see a shift in current responsibility on status determination, from the contractor to the end-user client. The changes will not apply to small businesses that engage contractors through an intermediary.
The Job Security Scheme – announced 24 September 2020
The Chancellor has announced his “Furlough 2.0” – a wage subsidy programme called the Job Support Scheme (“JSS”). The aim, of course, is to help UK employers weather the continuing COVID-19 storm, with the hope of saving jobs or at least staving off mass redundancies when the current furlough scheme comes to an end on 31 October. Helpfully, employers who have not previously used furlough can benefit from JSS and employers who retain staff under JSS can also claim the £1,000 job retention bonus. However, unlike the blanket approach of the Coronavirus Job Retention Scheme, JSS has a more nuanced and focused approach. First, it appears to target small and medium sized businesses (“SMEs”), with larger companies only able to benefit in certain circumstances. Secondly, the JSS will only be available for employees who are working a proportion of their time, and will not benefit those laid off entirely. Importantly, employees on JSS can’t be made redundant/put on notice by the employer during a period when the employer intends to claim. In addition, Government support is now set at a maximum of up to 22% of an employee’s capped wages, as opposed to 80% at the start of furlough.
The scheme will run for six months from 1 November 2020 and is available to employees whose hours have been reduced due to decreased demand, provided they are working at least a third of their normal working time. The employer will pay the portion that is worked and for the hours not worked, the employer and the government will pay a third each, with the Government portion based on salary capped at £697.92 per month. All SMEs will be eligible to participate in the Scheme, however large companies will only be eligible if their turnover has fallen due to COVID-19. We await further detail on the level at which the turnover threshold is going to be set. Further information can be found on the Job Support Scheme factsheet, which can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/921389/Job_Support_Scheme_Factsheet.pdf
The Scheme has parallels with similar concepts already up and running successfully in other countries, including Germany’s “short time work” scheme (which provides workers whose hours have been reduced with a top-up from the German government) and France’s “unemployment scheme” (in which the French Government has agreed to pay 93 percent of an employee’s net salary regardless of whether they are working full time). Given there are currently over two million UK employees still on furlough and with the R number on the rise, this announcement is a timely one for UK SMEs.
Much remains unclear as regards the JSS and, as we saw with the furlough scheme, the devil is often in the detail and the resulting legislation can often differ in important respects to what appears to be the case from the Government announcements. Whether the JSS will be enough to stave off the wave of redundancies that has been predicted remains to be seen. It is clearly less generous for employers than the furlough scheme as they will need to meet the lion’s share of their employees’ pay for reduced work and offers no assistance to employees for whom there is no significant work available. As such, a reduction in the scale of redundancies seems more likely than avoiding them entirely.
Support for self-employed individuals
The Chancellor has also unveiled new support measures for self-employed individuals.
Firstly, self-employed individuals and other tax payers who require extra time to pay taxes that are due, can now extend the date for payment of their outstanding tax bill for 12 months from January 2021. This builds on the existing Self-Assessment deferral provided by the UK Government in July 2020 and will allow taxpayers who have up to £30,000 of Self-Assessment liabilities due to use HMRC’s self-service “Time to Pay” facility.
Secondly, the grant available through the Self-Employed Income Support Scheme (“SEISS”) has been extended and will run from 1 November 2020 to 30 April 2021. The grant will be available to self-employed individuals who are currently eligible for SEISS and are continuing their trade but face a decreased demand due to Covid-19. From 1 November 2020 to 31 January 2021, the UK Government will cover 20% of average monthly trading profits in the form of a grant. From 1 February 2021 to 30 April 2021, the UK Government will provide a grant, although the level of this is yet to be determined.
On 8 July 2020, the UK Government announced that registered businesses were permitted to apply a temporary 5% reduced rate of VAT to certain supplies relating to i) hospitality, ii) hotel and holiday accommodation and iii) admissions to certain attractions. The Chancellor has announced that the temporary reduction of VAT rates would be extended until 31 March 2021 for the tourism and hospitality sectors. This further measure has been implemented by the Government with a view to protect around 2.4 million jobs and ease the significant financial burden on UK businesses in these sectors.
If you would like to discuss the changes announced by the Government and how they might affect your business, please get in touch with your usual Employment Department contact.
The topic of employers looking to change employment contract terms is becoming increasingly important as we move towards the end of the Coronavirus Job Retention Scheme (CJRS) and beyond. This article provides a brief summary of the key steps involved in implementing contractual changes, in particular, in a dismissal and re-engagement scenario.
The UK unemployment rate is at its highest level for two years, and rates are expected to continue to rise with the end of the CJRS in October. Employers are faced with the twin challenges of an economic downturn and unprecedented changes to the ways in which employees want to work, all within the context of pre-pandemic employment contracts which do not account for the “new normal”.
In response, many businesses are looking to implement cost-cutting and other protective measures to adapt to the economic impact of the pandemic which stop short of mass redundancies, including making changes to employment contracts.
Step 1: Identify potential contractual cost-cutting measures
Pay cuts are an obvious measure, although other contractual changes under consideration might include closing workplaces and relocating existing staff or moving to permanent or semi-permanent working from home, and removing or reducing the value of other contractual benefits (e.g. pensions, life insurance and allowances). Introducing flexible working arrangements and reducing working hours (beyond the closure of the CJRS) are also examples.
Step 2: Review existing terms
A good next step would be to review existing terms to see whether the change is contractual. Non-contractual changes to employment policies and systems will be easier to implement as they can generally be imposed without employee consent. However, such changes will still require strong channels of communication between employer and employee to avoid leaving the staff feeling anxious and demoralised, and, from a legal perspective, to ensure the duty of mutual trust and confidence is maintained. It will be important to give careful consideration as to whether an apparent non-contractual provision has become contractual by way of custom and practice and/or what the impact on staff will be of making a change. If an apparent non-contractual change materially impacts staff in an adverse way (particularly financially), it may be risky to make changes on a unilateral basis.
For contractual changes, check whether the contract grants the employer the discretion to unilaterally make a change (e.g. some mobility clauses allow the employer to change the place of work without the employee’s express consent, provided there is sufficient engagement with staff prior to exercising the mobility clause). Where the change requires consent from the employee, it is best to engage in a constructive dialogue with the employees. Better communication generally leads to greater understanding, and the employee may be more likely to agree the variations in the first place. If sufficient numbers are impacted, consider whether a dismissal and re-engagement exercise and collective consultation is required (See Step 4).
Step 3: Obtain written consent
This can be a daunting prospect for employers with large numbers of employees, although we have seen, in the last few months, an increased willingness on employees to accept significant changes to their terms in order to preserve their jobs. Employers could rely on an employee not objecting instead of obtaining their consent. However, this would run the risk that later down the line those non-objecting employees will claim breach of contract or deduction from wages, where the change relates to remuneration. To avoid that risk, the safer route is to obtain express written agreement (by email, for instance).
Step 4: If employees refuse to consent, consider a dismissal and re-engagement process
If changes need to be implemented and employee consent is not forthcoming, there is the option to terminate and re-engage: i.e. propose the new terms to the employee and consult with them about terminating their current terms. If this is done with 20 or more employees, a collective consultation exercise would be needed (for a useful checklist on collective consultation procedure during the pandemic, see https://www.employerperspectives.com/2020/05/checklist-for-employers-on-handling-collective-consultation-in-the-uk/). Bear in mind, where certain pensions-related changes are being proposed, there may be a separate collective consultation obligation under UK pensions legislation to be factored in.
Even though a collective dismissal and re-engagement process triggers a statutory obligation to consult with the workforce, engaging employees through consultation is important throughout the process, even if a duty to collectively consult is not triggered. In an unfair dismissal claim, the Tribunal will look at the degree of consultation with staff when determining the question of fairness, at both collective and individual level.
The dismissal and re-engagement, or “fire and rehire”, strategy should generally be an employer’s last resort. However, one benefit is that it reduces any uncertainty about whether the new terms have been agreed or not. If employees willingly accept the new terms instead of being dismissed, the old terms can no longer be relied upon, and so there is no risk of a breach of contract claim for failing to honour the old terms (as exists with unilateral imposition of change). If employers do ultimately have to dismiss staff through a fire and re-hire strategy, the prospects of a successful unfair dismissal claim will be mitigated through a carefully planned and executed collective and individual consultation process as well as a strong communication strategy with staff.
Look out for discriminatory changes
Finally, employers should also be careful about imposing contractual changes which could result in claims for indirect discrimination. If, for example, the gender or age makeup of the workforce is off-balance, a change in the terms could disproportionately disadvantage a group with a certain protected characteristic recognised by the Equality Act 2020. It would therefore be prudent for employers to check the potential impact of imposing such changes and consider carefully whether the changes can be objectively justified as a “proportionate means of achieving a legitimate aim”.
With the increased focus on governance of trustee boards and the Pensions Regulator (the “Regulator“)’s expectation of skilled, engaged and diverse trustee boards being led by an effective chair, the selection of the “right” trustees is becoming even more important. As employers will often be responsible for appointing trustees to trustee boards, you will find below four factors employers may want to take into account before appointing any new trustees.
As everyone is aware, there has been and continues to be a line of “Gig economy” cases where the question is whether an individual is engaged as a worker or on a self-employed basis. One such line of cases has related to courier firms, including CitySprint. In 2017, CitySprint lost a claim brought by one of its cycle couriers who was found to be engaged as a worker and so entitled to holiday pay. As a result of that finding, CitySprint put in place a new set of written terms designed to make clear that their couriers were engaged on a self-employed basis and not as workers. E.g., there was a clear acknowledgement that there was no obligation to provide or accept any work, and a clause under which the couriers could provide a substitute.
A new group of CitySprint couriers nonetheless challenged the new terms, once again claiming worker status and holiday pay. They argued that the new terms should simply be ignored because nothing had changed on the ground in terms of how the work was performed. The tribunal disagreed. The new terms were not a sham and could not simply be ignored. They were a core factor to be analysed in the worker/self-employment test. Nonetheless, having analysed the terms, the tribunal judge came to the same conclusion as in 2017, namely that the couriers were engaged as workers. There was significant focus on the right to provide a substitute but, ultimately, the judge concluded that this was a theoretical right that would never realistically be exercised. Interestingly, this was despite the fact that CitySprint allowed the couriers to use unregistered riders (rather than pre-registered riders) to perform their jobs.
CitySprint’s alternative argument was that the couriers had already received any holiday pay to which they were entitled because the new terms included a “rolled up holiday pay” clause – i.e. a clause stating that payments received by the couriers would be deemed to include any holiday pay to which they were entitled. The judge said that, while a rolled up holiday pay clause might be effective, it needed to be drafted sufficiently clearly in order for it to work. Here, that was not the case: there was no amount specified as referable to the holiday pay or the holiday pay period, and no formula set out under which the amount would be calculated.
With some similarities to the Uber litigation, we can see the courts here willing to look past a carefully drafted set of terms providing for self-employed status and focusing instead on how the relationship works in practice. In the end, the judge concluded that the dominant feature of the CitySprint contract remained personal performance by the couriers and there was no sense in which they were in business on their own account. Although they earned other income elsewhere, that was not as a cycle courier for other firms.
New legislation came into force on 31 July 2020 to ensure that employees who are on furlough will be entitled to receive their statutory redundancy payments based on their normal wages, rather than on any reduced salary while on furlough. However, there has been no change to the cap on a week’s pay for the purpose of calculating statutory redundancy pay and, therefore, there is no impact on the overall maximum statutory redundancy payment that an employee can receive. Prior to introducing the new legislation, the Government had urged businesses to base any redundancy payments on full pay, but it appears that a change in the law was required to ensure this happens in practice.
In addition, the new legislation ensures that various statutory entitlements based on a week’s pay are not based on any reduced pay during furlough, e.g. statutory notice pay and compensation for unfair dismissal. The new rules also apply to contractual notice, if this is not at least one week more than statutory minimum notice.
This legislation, therefore, brings greater certainty to the calculation of a week’s pay for those employees on furlough and ensures such individuals do not lose out financially by having been placed on furlough.
The Pensions Regulator recently published guidance for supervising the consolidation of defined benefit pension schemes into superfunds. The guidance provides an interim framework for the regulation of superfunds, prior to a statutory framework being put in place.
It’s a step towards establishing a superfund industry which could be a viable endgame option for certain schemes in the future.
On 25 June 2020, the Corporate Insolvency and Governance Bill (the “Bill”) received Royal Assent and on 26 June 2020 CIGA came into force. The restructuring team in Mayer Brown’s London office have previously commented on the different elements of the Bill in a series of blog posts and podcasts. CIGA was swiftly followed by the introduction of The Pension Protection Fund (Moratorium and Arrangements and Reconstruction for Companies in Financial Difficulty) Regulations 2020 (the “Regulations“), which came into force on 7 July and were subsequently amended yesterday on 23 July. Now that CIGA is in force, we take a closer look at the legislation from a pensions perspective.