Get the lowdown on legal amendments coming into force today
Today various employment law changes come into force, so here is People Management’s brief guide to what to be aware of.
Shareholder votes on executive pay
From today, shareholders will have a binding vote on the reward levels of senior executives every three years. Under the new rules directors who sign off high remuneration payments, which have not been approved by shareholders, will be personally liable for the payout unless they can demonstrate they acted in an honest and reasonable way.
Changes to the law are designed to make top pay more transparent and will include a single figure representing total reward, which will be subject to an advisory shareholder vote. Currently, shareholders have a non-binding vote on remuneration reports.
But this fresh legislation means that if shareholders do not vote in favour of these packages the board will not get paid, and new plans will have to go out for shareholder approval.
The changes are a result of growing shareholder dissatisfaction with what was seen as overly generous pay or reward for failure, culminating in shareholder revolts at BP, Shell and Aviva over recent years.
Tom Kerr Williams, employment partner at law firm DLA Piper, said: “In essence, the new changes give shareholders a further sanction to impose on quoted companies which is likely to provide a powerful incentive to boards and remuneration committees to increase shareholder consultation on pay and implement proportionate remuneration policies. In addition, shareholders will have a more effective method of communicating their disapproval of a remuneration structure and, to some degree, the implementation of it. As such, it will be important for companies to retain a sufficient degree of flexibility, discretion and judgement in their remuneration policy in order to remain competitive and to be able to successfully implement the policy over each three-year period. This will require a balance between providing sufficient information to the shareholders to enable them to broadly know what to expect and ensure there are sufficient boundaries in place.
“There will also be greater transparency regarding the level of directors’ pay. In particular, the annual directors’ remuneration report will include a single figure that represents an individual director’s total remuneration for that financial year. Companies will also be required to publish details of any loss of office payments and the way they are calculated on their website as soon as reasonably practicable after an agreement has been reached.”
Third party harassment
Third party harassment provisions are being repealed from today meaning that the rules that previously made an employer liable if an employee is harassed by a third party (such as a client or supplier) no longer apply.
Jonathan Exten-Wright, partner at DLA Piper, said: “Protection against harassment by a third party has long been a chequered area of employment law and before the Equality Act 2010 came into force, there were inconsistencies in the protection available,” he said.
In May 2012, the government launched a consultation process stating that it intended to repeal the third party harassment provisions because there was “no evidence to suggest that the third party harassment provisions are serving a practical purpose or are an appropriate or proportionate manner of dealing with the type of conduct that they are intended to cover”.
Exten-Wright said: “On the face of it this was welcome news to employers. The risk to employers now is understanding what the legal position is and what obligations still apply. The repeal of the third party harassment provisions does not mean that employers will never have liability for the harassment of their staff by a third party. There is also a risk that where a discrimination or harassment claim is brought as a result of the conduct of employees, any evidence of failure to deal with third party harassment may undermine the employer’s ‘reasonable steps’ defence.”
He said that employers should now take steps to prevent third party harassment, both as a means of avoiding potential liability and in the interest of employee relations. The action taken will depend on the type of employer and the nature of the risk of harassment, but might include making people who come into contact with staff aware of the employer’s harassment policy, and encouraging workers to report concerns if they become victim of or witness harassment in the workplace.
For more on this see the latest employment law article from HR-inform ‘Third party harassment provisions repealed’
Auto-enrolment staging date
It is one year since employers started auto-enrolling staff into pension schemes and today companies with between 800 and 1,249 employees will enroll anyone who do not already have a pension into a workplace scheme.
In the same week, a survey by the National Employment Savings Trust (Nest) found that fewer people than expected are opting out of these new workplace pensions. According to the Nest research, only 9 per cent of employees chose to leave pension schemes after being automatically enrolled. This is much lower than the government’s prediction that as many as a third would opt out.
Official figures from the Department for Work and Pensions showed that 1.6 million employees have stayed in workplace pensions after being auto-enrolled in the first year of the initiative.
To mark the anniversary of the scheme Nest has launched its five dos and don’t for employers preparing to auto-enroll staff:
1. Plan early – don’t underestimate how long it will take, talk to your payroll and other providers as soon as possible.
2. Assess your workforce to understand which of your workers are affected.
3. Communicate with staff clearly and early; engage and involve. Have a communication plan and involve all relevant departments in your business.
4. Examine systems (particularly payroll) to ensure they are ready and capable.
5. You may want help – you may want guidance from experts/external advisors.
Employer don’ts (employers who have been through the process warn ‘don’t make these assumptions’)
1. ‘Once we’ve chosen the pension provider everything will be done for us’
2. ‘There’ll be a lot of work leading up to the deadline but then our work is done’
3. ‘We have to offer a pension to all staff’
4. ‘It’s like the stakeholder pensions. Most people will opt out’
5. ‘Our payroll provider will tell us what we need to do with regards payroll’
Tim Jones, chief executive of Nest, said: “Auto-enrolment has brought a radical change to workplace pensions, but it will rapidly become the new normal. While the early stages have primarily affected large employers, the numbers of employers coming under the duties increase dramatically in the next few months. We all have to up the pace to be prepared for much higher volumes and to meet the challenges implementing automatic enrolment brings.
“Nest is already working with more than 1,000 employers for automatic enrolment. Our insights into their experiences have enabled us to develop some really useful dos and don’ts for employers still to go through the automatic-enrolment experience.”