Employment Notepad - June 2012
1. Government announcement on executive pay reform
On 20 June 2012, Business Secretary Vince Cable announced to the House of Commons the government's plans in relation to directors' remuneration, including its proposals to increase shareholder voting rights. The reforms intend to address failures in corporate governance by empowering shareholders to engage effectively with companies on pay by enabling shareholders to challenge excessive pay without having to impose unnecessary regulatory burdens. There has been extensive consultation with companies and investors during a period which has seen a large amount of shareholder activism, prior to these announcements. The proposals will apply to the remuneration of directors in UK incorporated listed companies.
The two major changes are to:
(i) Increase shareholder power through the introduction of a binding vote; and
(ii) Improve transparency around remuneration.
The proposal is for a new binding vote on future remuneration policy requiring the support of a simple majority of shareholders votes (i.e. more than 50%). The government hopes this will encourage companies to both disclose and stick to long-term pay strategies. The policy must include a comparison between directors' pay and the wider workforce, an explanation as to how the pay supports the achievement of the company's strategy, information on employment contracts and their approach to directors' exit payments.
The vote must take place at least every three years, unless the directors choose to change the company's remuneration policy, in which case, shareholder re-approval will be required. If the vote is not passed, the company will have to continue to use its existing remuneration policy until the shareholders agree a new one.
Shareholders will continue to have an annual advisory vote on the implementation of the remuneration policy over the previous year, including actual sums paid to directors. If the advisory vote is not passed, which will also require the vote of a simple majority, the company will be required to put its remuneration policy back to shareholder vote the following year.
In an attempt to improve transparency for investors, new revised and simplified regulations concerning how companies report on directors' pay have also been proposed. A single total pay figure for each director will be required to be disclosed, which will include all bonuses, benefits and rewards. For variable elements of pay, it is intended to reflect actual pay earned, rather than projected future earning potential. A comparison between the company's performance and the total pay of the chief executive will also be required.
The guide to the reforms makes it clear it is not the government's intention to micromanage companies, but it is seeking a balanced framework within which shareholder engagement is ensured and sustained - a reflection on recent shareholder activism in relation to directors' remuneration. They are far-reaching reforms, with the intention of addressing the discrepancies between levels of pay for directors and the performance of their companies.
These proposals will be discussed at the Business Innovation and Skills Select Committee on 28 June 2012 and are proposed for introduction via the Enterprise and Regulatory Reform Bill 2012 shortly afterwards. The government aims to have these reforms enacted by October 2013.
2. Sickness and Annual Leave
If a worker is sick during their annual leave, can they take their annual leave at a later date instead?
This point was addressed in a number of high-profile decisions in 2009 and 2011, and has again been recently addressed by the Court of Justice of the European Union in the case of Anged v Fasga.
Article 7 of the Directive allows workers to take at least four weeks' paid annual leave a year. This period is not allowed to be replaced by an allowance in lieu, except after termination of the employment contract.
The court considered the following points:
- The right to paid annual leave is an important principle of EU law and is enshrined in the Charter of Fundamental Rights of the EU.
- The right to annual leave cannot be interpreted restrictively.
- Annual leave and sick leave have different purposes. It is common ground that the purpose of entitlement to paid annual leave is to enable the worker to rest and to enjoy a period of relaxation and leisure, while the purpose of entitlement to sick leave is so that the worker can recover from an illness that has caused him to be unfit for work.
- It follows from the previous case law that a worker who is on sick leave before a period of scheduled annual leave begins, has the right to take annual leave at a different time. It would therefore be contrary to the purpose of annual leave to only allow a worker that right if they were already sick when the annual leave was due to commence.
Article (7)1 must therefore be interpreted as preventing national provisions which don't allow a worker who falls sick during a period of paid annual leave to be subsequently entitled to that leave at a later date.
Practical steps for the Employer
When a worker claims that their holiday was affected by sickness, an employer has three basic choices:
(i) Reinstate the worker's annual leave for the number of days affected;
(ii) Refuse to reinstate the worker's annual leave on the grounds that the Working Time Regulations 1998 ("WTR") do not require them to do so (workers cannot bypass domestic legislations and bring a claim solely on a Directive), however recent case law suggests that Employment Tribunals are interpreting the WTR creatively to give effect to the Directive, and this may therefore be found in breach of the regulations; or
(iii) Allow the reinstatement of the worker's annual leave in some circumstances, while taking steps to protect itself against this policy being abused (for example, by recording and monitoring sickness absence properly and making workers aware that any such abuse could lead to disciplinary action).
In any event the contract should confirm the requirements made of an employee who falls sick on holiday and who wishes to have that period of leave treated as sickness absence.
3. ACAS has issued guidance for employers on some of the issues that might arise in connection with the London 2012 Olympic Games
ACAS has issued guidance to employers on the Olympic and Paralympic Games with a view to encouraging employers to consider more flexible working arrangements and how they may reduce the potential impact the Olympics has on the workplace, both in terms of disruption and employees' expectations.
The key areas identified include:
(i) Managing attendance;
(ii) Flexible working;
(iii) Performance issues; and
(iv) Staff volunteering.
Employers are encouraged to start communicating about plans now. In order to effectively manage attendance, they should be asking their employees about their intended plans for the Games - do they wish to take time off, or do they hope to watch some TV or internet coverage while at work, or perhaps they wish to discuss some sort of temporary flexible working arrangement. Employers should also be making it clear what their business priorities are, so there are no misunderstandings.
It would be useful to put in place a clear, fair and consistent policy applicable to the Olympic period, for example a simple "first come, first served" policy with regards to booking leave.
It is also worth considering how employers can deal with the workload in the event of staff being absent. Do they need to let their employees or customers know if any deadlines are at risk?
If the type of business allows it, it may be worth thinking about flexible working for employees, for the duration of the Olympics. TFL are issuing guidance on the "hotspot" stations to avoid and the peak journey times, so it could be worth considering altering start and finish times of employees' working days to minimise travel disruption. If however employers are considering altering their employees' employment contracts, they must consult their staff. Do get in touch with us regarding any queries you may have with temporarily altering contracts. It is worth asking their employees (perhaps by a quick survey), how they can plan to get into work and what their "back-up" plan is. Trains, buses and trams might be operating different timetables and car and cycle routes may be delayed by road closures or increased traffic. Alternative routes or travel should be looked into in advance. Employers should also ensure that staff know how to get in touch if they are unable to get into work and can communicate if difficulties arise.
Allowing employees to work from home if they have the necessary infrastructure or simply making better use of laptops and smart phones to keep in touch are practical solutions. Employers could also think creatively by allowing special arrangements to accommodate sporting fans, for example, by giving staff access to a TV during designated agreed times. By forward planning and engaging in dialogue with their employees, employers can prepare for travel disruptions and discuss alternative routes and arrangements. There are a number of good websites which should be circulated amongst staff to encourage the consideration of other routes and modes of transport; don't assume that everyone knows what to do if trains are full or roads are blocked:
There could be issues regarding the amount of time staff are watching coverage via their computers or taking liberties with the expected travel delays or being allowed to work from home. This could be mitigated by planning for popular sporting events to be aired on TV for an agreed time, in advance.
It is important employers understand the legal rights of their employees that have volunteered, and the responsibilities you as an employer have towards them. If this is something you require further guidance on, please do contact us. Volunteering employees can be a positive for an employer; it can help develop your employees' skills and projects an image of corporate social responsibility. Understandably however, an employer will be keen to protect their business interests first and foremost. Many volunteers will be agreeing to ten days' work, with three days' training prior to the Games.
In summary, the advice is talk to your employees now!
4. In the news!
Below are employment related news articles which caught our attention:
City Banker claims discrimination over "gay Irish gypsy" jibes
A City Banker was forced to leave his £70,000 a year job after colleagues at the Dutch firm ABN AMRO called him "the only homo in the office" and told him to "p*** off pikey". He is also claiming that they refused to speak to him because he was not Dutch and talked about Irish bombers, called Irish people stupid and said Irish people keep pigs under their beds.
He resigned after his bosses refused to sanction his moving desks so he did not, he claims, have to sit next to the main tormentor, and is claiming discrimination on the grounds of his perceived sexual orientation, race and unfair dismissal. The barrister for ABN AMRO has said that there was a culture of "homophobic banter", but that the Claimant was part of it as he participated in chain emails, and "at no stage did [he] raise a claim of direct discrimination while he worked there".
The Central London Employment Tribunal panel has reserved judgment for a later date.
5. Equal pay ruling against South Lanarkshire Council
An Employment Tribunal has ruled that South Lanarkshire Council's job evaluations did not comply with the Equal Pay Act 1970, which is now incorporated into the Equality Act 2010.
The claim was brought as a result of the Council awarding additional bonuses over six years ago to its male employees, while the women on the same pay grade received nothing.
The women worked as "cleaners, catering assistants and carers, and have watched in dismay as all other councils reached settlements", said the women's solicitor Carol Fox. "South Lanarkshire Council ploughed on defending the indefensible at taxpayers' expense."
South Lanarkshire replied with a statement saying that "this is a complex judgment reflecting the fact that two and half years' worth of evidence was heard". The Council have also said that they will take time to consider the judgment before considering their next course of action, but it is felt by the women that it would be shameful for the Council to proceed to an appeal.
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