Newsletter
What's new in the world of work - A Global People and Reward Update - Spring 2019
Welcome to our international quarterly newsletter. This Spring 2019 edition reports on a number of EU labour and employment law developments as a lot is happening at EU level in the run-up to the May elections. The newsletter further focuses on legal developments which took place in Asia, Austria, Belgium, China, France, Germany, the Netherlands, Russia, Spain and the UK over the past few months.
Please click on the links on the left to be taken straight to the country update.
Asia
Asia Employment Law Bulletin 2019
2018 has seen a number of common themes in employment laws across the region, including increased access to justice through the streamlining of procedures to bring employment claims to court, increased efficiency in handling employment issues or disputes and moving certain employment-related procedures or applications (which previously had to be made in person) online. Another important development relates to technological advancements, which result in an increased flexibility in working relationships and in the acknowledgment and implementation of remote working.
Read more in the 2019 edition of our Asia Employment Law Bulletin, which discusses legal developments in the past year, as well as anticipated developments for the year ahead in 13 key jurisdictions, including some major changes to Singapore’s traditionally employer-friendly landscape which came into effect this 1 April.
European Union
EU agrees on legal framework to better protect whistleblowers
Despite some last minute push back by a few member states, EU negotiators agreed the final content of the new directive on whistleblower protection on 11 March 2019, concluding the trilogue phase in just a few weeks’ time.
The deal was welcomed by the European Parliament and by the Commission and the directive, once formally adopted by the Council and the Parliament (the plenary vote being scheduled to take place on 17 April), will mark the first time a regional legal framework is established to protect whistleblowers. This is a major achievement for the Parliament – and the Commission - in the run-up to the European elections in May.
Please read about the key points resulting from the trilogue, now confirmed as part of the final compromise text, in our latest blog post.
EU agrees on a set of new rules to improve work-life balance
One of the main causes for gender employment gap, gender pay gap and gender pension gap is an inadequate work-life balance policy. On 24 January, a provisional agreement was reached on the proposal for a Directive on work-life balance for parents and carers, which will eventually repeal the 2010 Parental Leave Directive. Please read more about this new directive in our related blog post.
A new European agency: the European Labour Authority
On 14 February, the European Parliament and the Council reached an agreementon the European Commission’s proposal of March 2018 to establish a European Labour Authority (ELA) as a new EU agency. The ELA will mainly have operative tasks, to enhance administrative cooperation between Member States in the field of labour mobility as the number of mobile EU citizens – living and working in another EU member state - keeps increasing. Please read more about the ELA’s activities and focus in our blog post.
Adapting EU employment law to the new world of work
EU negotiators recently reached an agreement on a new directive on transparent and predictable working conditions, which will replace the so called “written statement directive” from 1991 (which required employers to communicate a number of information to employees, in writing). The new text - which now needs formal approval by the European Parliament and by the Council - aims at ‘modernising European labour law and adjusting it to the new world of work’. It updates existing information requirements to workers and further creates new minimum standards to ensure all workers benefit from more predictability and clarity as regards their working conditions. This directive, as the one on work life balance and the launch of a labour authority, is part of the wider European pillar of social rights initiative, which has been high on the Juncker’s Commission agenda. Please read our blog post for more information.
CRD V - Bankers' bonuses: Amended rules finally agreed at EU level
In November 2016, the Commission released a number of amendments to CRD IV aimed at clarifying the exact scope of some of the remuneration provisions as the European Banking Authority’s restrictive views raised some concerns among stakeholders.
It took over two years for the EU institutions to agree on these amendments, partly because they were then included in the so-called “banking package”: a much more ambitious and controversial set of measures aimed at strengthening banks’ resilience and reducing risk. An agreement was finally reached on 4 December 2018 and it took a few more discussions and weeks for the final texts to be released. Please read our briefing to learn about the agreed changes to bankers’ bonuses’ rules, as set out in the text published on 14 February 2019 (so-called CRD V, updating CRD IV).
Jean-François Gerard
Ludovica Mascaretti
Brexit
What could the position be following Brexit?
The UK and EU have negotiated a Brexit package consisting of a Withdrawal Agreement and a Political Declaration on the framework for the future relationship. The Withdrawal Agreement contains provisions for the UK’s withdrawal from the EU and a transition period from the date of Brexit until the end of December 2020 (with the option for an extension), during which the legal framework for UK/EU trade would continue as if the UK were still a member state. The transition period would allow further time for the UK and EU to negotiate the detailed terms of their future relationship (based on the Political Declaration agreed between the EU and the UK in November 2018).
To find out what could happen if the Withdrawal Agreement comes into force (or not), what mobility arrangements might apply if the UK and the EU agree a new partnership agreement based on the political declaration agreed between the EU and the UK, and what would happen if the UK leaves the EU without any form of FTA at the end of (i) the Article 50 period on 12 April 2019 (the WTO option); or (ii) the transition period (the WTO + backstop option), please read our memo.
Austria
12 hour day – the new Working Time Act
Heavily debated changes to the Austrian Working Time Act were adopted end of last year, the most important of which are highlighted below:
The extension of the maximum daily and weekly working hours to 12 and 60 hours, respectively, allows the performance of more overtime. Nevertheless, the 48-hour limit (per week) on average must not be exceeded during any rolling calculation period of 17 weeks. In general, the new Working Time Act is thus expected to lead to less administrative penalties for exceeding the maximum working hours and more flexibility for employers.
- The 11th and 12th working hours are considered "special overtime hours" and are therefore handled differently from normal overtime hours. Employees will have the right to object without indication of any reason for refusing to take on more hours. They will be able to choose between financial compensation or compensatory time.
- In cases of extra workload, it is possible to derogate from weekend and public holiday rest for four weekends or public holidays per year, provided that a works council agreement (for companies with a works council) or an individual agreement (for companies without a works council) is concluded in advance.
- At the same time, the permissible normal daily working time may be increased from 10 to 12 hours for employees working under flexitime regimes, subject to specific terms and conditions. Nevertheless, the calculation period of 17 weeks (see above) must be complied with.
- The new law does not apply to executive employees nor (this is new) any other employees to whom decisive independent decision-making authority has been delegated and who (i) do not measure or do not agree upon a certain amount of working time in advance, or (ii) may decide on when and how long they work themselves due to the special requirements of their job. In other words, it now is easier for employers to argue that certain employees are excluded from provisions of the Working Time Act as well as Austrian Act on Rest Periods, which will provide more flexibility.
Certain employment contracts and works council agreements will have to be revised in light of the new possibilities made available by the new Working Time Act.
Belgium
Mobility Budget
Further to the entry into force of the “Cash for Car” system, the Belgian legislator continues its efforts to lower the number of company cars on Belgian roads by encouraging employees to use alternative mobility solutions. In addition to the “Cash for Car” system, a law regarding the so-called “Mobility Budget” which now co-exists with the “Cash for Car” system entered into force on 1 March 2019.
The Mobility Budget allows employees to exchange their company car for a mobility budget that is equal to the annual gross employer’s cost of their company car, if a number of conditions are met. This Mobility Budget can be spent on three possible alternative mobility solutions. Read more about this on our Digital blog.
Enhanced legal certainty for teleworkers in case of work accidents
1971 law on work related accident has recently been amended so as to address new challenges arising from flexible and agile work arrangements.
Its scope has been expanded to include both structural telework, whereby the employee performs telework on a regular basis (e.g. every Monday of the week) and occasional telework, whereby the employee performs telework on an occasional basis for personal reasons or in cases of force majeure (e.g. public transport strikes or doctor’s appointments).
Accidents that took place in the context of a structural teleworking arrangement were already deemed to have happened in the performance of the employment agreement. Accidents happening during occasional telework will now be treated the same way.
Furthermore, accidents occurring during, a return journey to bring children to school or a return journey to the place where the teleworker has lunch or buys lunch will be deemed to be work accidents as well.
Satya Staes Polet
Bruno Aguirre
China
New developments impacting employee data protection
In recent years, China has been making great efforts to reconstruct its data privacy legal system. After the enactment of the Cyber Security Law in 2017, a national standard known as the Personal Information Security Specification (the Specification) entered into effect on 1 May 2018. This is a non-binding guideline containing very detailed requirements on data handling and data protection. It is acknowledged that the Specification was drafted with reference to the European General Data Protection Regulation (GDPR), and it adopts GDPR concepts such as privacy impact assessments and individual rights such as variations on the right to be forgotten, right of data portability and the right not to be subject to automated decision making. Although no penalties apply for breach of this Specification, it is widely understood that companies are expected to adhere to the Specifications as an important measure of compliance.
In February 2019, the National Information Security and Standardization Technology Committee proposed an amended version of the Specification (the Draft) to replace the original version. The Draft is now soliciting public comments. Among other amendments, the Draft clearly provides that the data controller should keep a log of its use and processing of the collected personal data, and such requirement could apply to employers when handling the employees’ information.
The Draft further specifies the contents of the log, which could include (a) the category, amount and source of the personal data; (b) the purpose and scenario of processing the data; whether and how the data is processed, shared, transferred (and whether cross border) or publicly disclosed; and (c) the information system, organization or persons who participate in the data processing. Although the Draft is under contemplation at the moment, it is recommended for the employers to stay alert to any new developments in this respect and be prepared to take actions to ensure compliance.
New rules banning sex discrimination during recruitment
China is enhancing protections for female employees in the workplaces. In February, a notice (the Notice) was jointly issued by Ministry of Human Resources and Social Security, Ministry of Justice, Supreme People’s Court and other six government departments, with a view to eliminating sex discriminations at the recruitment stage and promoting the employment of women.
According to this Notice, sex discrimination is explicitly prohibited in the recruitment. Employers should not disadvantage female candidates, or have a preference for a specific gender when posting the recruitment information as well as during the hiring process. Any recruitment information containing sex discrimination elements will lead to an administrative correction order, and may escalate to penalties in a range of RMB10,000 to RMB50,000 if the recruiting party fails to correct.
Further, the Notice requires that employers should not limit the female candidate’s right to procreation, nor make such limit a precondition of hiring. Also, employers should never ask about the candidate’s marital status or children. Despite the Notice not mentioning any administrative penalties for violations of the aforementioned requirements, women can turn to court for remedy through civil procedures. The Supreme People’s Court announced in December 2018 that disputes around equal employment rights now become standalone causes of action in their current tort dispute filing system, aimed at better protecting women’s legal rights to equal employment in particular against sex discriminations in the workplace.
With these new developments in regulations and judicial practice, employers must devote more importance to equal employment and anti-sex discrimination policies. Immediate actions are required to closely look into their recruitment policy and practice in China to discard anything that may evidently or potentially be considered as violations of the Notice.
France
Posting of workers
An order dated 20 February 2019 has transposed Directive (EU) 2018/957 of 28 June 2018 amending Directive 96/71/EC concerning the posting of workers in the frame of the provisions of services. The order will enter into force on 30 July 2020 except for drivers of the road transport sector whose posting will continue to fall under the scope of the current legal provisions. The order sets out a list of “core” provisions (legal and conventional) that an employer in France needs to apply with respect to his posted employees. These provisions concern namely ensuring gender equality, protection against discrimination, remuneration (i.e. base salary and any related advantages and accessories), right to strike, etc..
An employer posting an employee in France for a period exceeding 12 months will have to comply, as of the 13th month, with all the other provisions of French Employment Law except those related notably to the termination of contracts or fixed-term employment contracts. However, under specific terms and conditions (to be determined by decree), the aforementioned 12 months period could be extended by another 6-month period maximum. Thus, during this extended period, the concerned employer will still have to apply the “core” provisions.
In the appeal proceedings before the State Labour Court of Stuttgart, the employee insisted on a right of access according to Article 15 GDPR, which strengthens the right of employees to find out what data their employer collects about them. This was the first time an employee enforced this right before a state labour court and we are likely to see a wave of similar lawsuits in the near future.
Reducing gender pay gap
In our previous edition of Fall 2018, we reported about the obligation for companies with at least 50 employees to publish a yearly gender pay gap review with an indication as to its evolution. This provision is now applicable as a decree dated 8 January 2019 set out namely the indicators and the evaluation method to be implemented.
Further to the decree, the number of indicators to be taken into account to establish the equal pay gap review depends on the size of the companies.
The indicators to be retained include (i) the wage gap between women and men calculated on the basis of the average remuneration of women as compared to men by age group and equivalent jobs category; (ii) the percentage of female employees who benefitted from a salary increase in the year they returned from maternity leave, if salary increases occurred in the period during which the maternity leave was taken; (iii) the number of employees of the under-represented gender among the 10 employees who received the highest remunerations; (iv) the gap in the individual salary increases between women and men which do not relate to promotions; and (v) the gap in the promotions between women and men.
A number of points is assigned to each indicator in order to reach a total of up to 100 points.
The number of points earned by each companies will help to assess where they stand in terms of gender equal pay. Companies need to achieve at least 75 points out of 100 in order to comply with this new Law. Failing to reach this threshold, the sanctions set out in our previous edition will apply.
Companies need to publish on their websites their scores yearly, not later than on 1st March of the following year. Should no websites exist, the concerned companies need to inform their employees of their scores by any other means.
Companies with at least 1,000 employees had until 1st March 2019 to publish their results. Based on the information provided by the Labor Ministry on last 5th March, only half of the concerned companies published their results and the average score was 80 out of 100 points. 16 % of the companies did not achieve the legal threshold of 75 points out of 100 (and will thus have to apply the correcting measures).
Companies having between 251 and 999 employees have until 1 September 2019 to publish their results and those with 50 to 250 employees have until 1 March 2020 to publish their scores.
Germany
Data protection vs. whistleblower protection
A landmark decision by the State Labour Court of Stuttgart ordered an employer to grant a formerly dismissed employee full access to the data collected about him - including information on internal investigations. For the first time, the right of access by the data subject, strengthened by GDPR, wins against whistleblower protection.
The plaintiff, a manager, had initially filed a lawsuit against his dismissal, asking to continue his employment. As a result, he was granted the right of access to his personnel file and the data collected by the Business Practices Office (BOP) department, an in-house body responsible for internal investigations to which a breach was reported by other employees. The employer refused to consider the BOP file as part of the personnel file as it would expose the identity of whistleblowers.
In the appeal proceedings before the State Labour Court of Stuttgart, the employee insisted on a right of access according to Article 15 GDPR, which strengthens the right of employees to find out what data their employer collects about them. This was the first time an employee enforced this right before a state labour court and we are likely to see a wave of similar lawsuits in the near future.
The employer appealed the decision and the Federal Labour Court will decide on the case in the next instance.
The Netherlands
More employee representative rights around remuneration and pensions
Annual remuneration meeting with works council
Since 1 January 2019, companies with 100 or more employees must have an annual consultation meeting with their works council to discuss the various forms of remuneration in place within the company, including pay differences between employees. During such meeting, the works council may make proposals and express its views on remuneration, but it does not have consultation or approval rights in this respect.
Previously, the company was only obliged to inform the works council in writing about pay ratios on an annual basis.
The purpose of this change is to create more awareness and transparency with regard to remuneration and pay ratios.
Right of the employee representatives regarding pensions
Since 1 January 2019, companies that do not have a works council due to the size of the company (50 or less employees) are required:
- to inform their staff on proposals to adopt, amend or revoke a pension administration agreement;
- to have a consultation meeting at a reasoned request of staff (one employee can trigger the obligation) in relation to pensions as condition of employment and to provide related information to the employees to prepare such meeting.
Deliveroo riders are employees
On 15 January 2019, in a case initiated by Dutch trade union FNV, in relation to the status of Deliveroo contractors, the sub district court of Amsterdam ruled that these qualify as employees. The court considered relevant that the roles performed by the contractors formed part of the core activities of the company and that they worked under the same conditions as employees of the company. The fact that the work instructions were laid down in general terms and that the contractors had the freedom to choose their working times did not make a difference as it was questionable whether the contractors in fact were effectively free to do so
In a previous Deliveroo case dated 23 July 2018, a Deliveroo contractor did not qualify as employee because parties clearly mutually agreed on the contractor relationship in writing and acted accordingly in practice.
The outcomes of both cases show that the qualification of employees/contractors is very casuistic. Deliveroo announced that it will lodge an appeal against the judgment of 15 January 2019.
Extra Parental Leave
As per 1 January 2019 the Extra Parental Leave Introduction Act came into force giving parenting partners additional paid or extended unpaid leave rights (adoption and foster care)
Changes to pension age
As per 1 January 2019 the pension age under the General Old Age Pensions Act has been increased from 66 years to 66 years and 4 months.
Russia
Roskomnadzor comments on personal data
Please read our latest blog post which presents a letter of comments from Roskomnadzor (the Russian state body supervising compliance with Russian personal data laws). The opinions of Roskomnadzor do not form a law or even a statutory guidance. However, taking into account that it is Roskomnadzor that conducts audits of operators in Russia supervising compliance with local data protections laws, getting acquainted with Roskomnadzor’s views on certain issues may be useful and interesting.
Russian News Alert - April 2018
To know more about the newly introduced vaccine requirement for employers, as well as the contemplated simplification of employee medical checks, please read our latest alert.
Most recent employment law developments
The Spanish government has recently issued several pieces of legislation in the employment arena, which involve important and new duties for companies established in Spain.
Please read more about gender equality plans and working time registration in our latest blog post.
New trade secrets legislation
On 13 March 2019, a new Spanish law on trade secrets came into force, implementing the EU Trade Secrets Directive. Please read our blog post to learn about the details of the new legislation and recommendations in light of it.
Right to disconnect
Law 3/2018 on the protection of personal data and guarantee of digital rights (LOPD-GDD) implements GDPR in and recognizes the right of employees to disconnect from work outside working hours. The right to disconnect is not entirely new in Spain as it was already deemed included in a broader right to conciliation of work, family and personal life.
Nevertheless, the newly recognised right to disconnect is neither absolute, nor definite. The right is limited by the nature and object of the employment relationship which means that it may be restricted under certain circumstances (e.g. employees of multinational firms operating across different time zones). Likewise, it should be further developed by collective bargaining agreements or other agreements between companies and employee representatives. Indeed, the LOPD-GDD also envisages that the company, after consulting the workers’ representatives, develops an internal policy on the exercise of the right to disconnect, including training and raising awareness about a reasonable use of the technological tools made available to employees. This internal policy must take into special consideration the interests of employees who telework on a regular basis and shall apply to all employees (including management).
LOPD-GDD does not expressly set out any penalties in case of breach of its provisions and the degree of implication of the labour courts and employment authorities in the protection of this right remains to be seen. However, it would be no surprise if a breach triggered penalties for violating mandatory rest provisions (with fines up to EUR6,250). Also, employees who refuse to work remotely outside their working hours may now expect to benefit from additional protection against retaliation.
Employees’ Privacy and New Technologies
LOPD-GDD also sets out expressly the employer’s right to monitor employee activity through video surveillance, audio recording and geolocation (and the multiple limitations to this right). This does not radically change the existing legislation (which recognizes a generic right of the employer to monitor and control the employee’s their employment obligations, with due respect to their dignity) but further develops it and updates it to the digital era and recent case law.
Employers using video surveillance, audio recording and geolocation systems to monitor employees activity, must inform the employees themselves and their representatives expressly, clearly and unequivocally about the existence and characteristics of such systems and their rights with respect to any personal data collected (e.g. access, rectification and deletion).
It is expressly forbidden for employers to use video surveillance and audio recording devices outside working areas, such as changing rooms, toilets or dining rooms. The use of these systems shall be permitted in the workplace only where risks arising from the activity performed in the workplace are detected regarding the safety of facilities, goods and persons and respecting the principles of proportionality and minimum intervention.
Last but not least, the legislator encourages collective bargaining as a means to further establish guarantees of the rights of the employees in connection with the processing of their personal data and the protection of their digital rights in the employment sphere.
UK
New reporting legislation in force
New UK legislation on corporate governance reporting has come into force and applies to financial years beginning on or after 1 January 2019. The Companies (Miscellaneous Reporting) Regulations 2018 require:
- large privately held UK incorporated companies to report annually on their ‘corporate governance arrangements’;
- quoted UK incorporated companies with more than 250 UK employees to report annually on pay ratio information comparing the CEO’s annual remuneration with the 25th, 50th and 75th percentile of the annual remuneration of the company’s UK employees;
- quoted UK incorporated companies to provide enhanced reporting on the exercise of discretion by the remuneration committee and certain matters relating to the impact of share movement on pay;
- certain large UK incorporated companies – public and private – to report annually on how the directors have:
- complied with their section 172(1) Companies Act 2006 duty to promote the success of the company for the benefit of its members;
- engaged with the company’s employees and had regard to employees’ interests; and
- had regard to the company’s business relationships with suppliers, customers and others.
You can read more about the new requirements in our briefing here.
FRC publishes Final Wates Corporate Governance Principles for large private companies
On 10 December 2018, the Financial Reporting Council (FRC) published the final Wates Corporate Governance Principles for Large Private Companies. The Wates Principles apply to any UK incorporated company with more than 2,000 employees and/or a turnover of more than £200m and a balance sheet total of more than £2bn, unless it is already required to provide a corporate governance statement under the Companies Act 2006 and FCA rules (ie broadly, listed companies), is a community interest company or a charitable company. A company that is, for example, a subsidiary of a listed company which meets these criteria will therefore be required to report.
The government hopes that many large, private companies will adopt these principles as an appropriate framework when complying with the new reporting requirement for corporate governance arrangements. The final Wates Principles are very similar to the draft principles set out in the FRC’s consultation in June 2018. Please see our briefing for more information on the draft Wates Principles. Only a few key changes have been made to the final principles, which can be found here.
Investment Association publishes revised Principles of Remuneration
On 22 November 2018, the Investment Association published revised Principles of Association which take account of the revised Corporate Governance Code published in July 2018 and the new governance reporting requirements detailed above.
Key changes relate to clawback, shareholder requirements post-employment shareholdings, pensions, leavers and mitigation provisions. Please see our briefing here for more information on the revised principles.
GC100 and Investor Group publishes revised Directors’ Remuneration Reporting Guidance
The GC100 and Investor Group released a revised version of its directors’ remuneration reporting guidance in December 2018 to reflect the changes made to reporting requirements by the Companies (Miscellaneous Reporting) Requirements 2018. Key changes include:
- a requirement that the remuneration committee chair’s annual statement include a summary of any discretion exercised to determine directors’ remuneration;
- a requirement that companies disclose the amount of short-term or long-term incentive awards that are attributable to share price appreciation;
- the inclusion of a new section relating to the new pay ratio disclosure requirements.
Employer remains liable for rogue employee’s data breach
The Court of Appeal confirmed in Various Claimants v WM Morrisons Supermarket PLC [2018] EWCA Civ 2239 that employers can be liable for data breaches perpetrated by rogue employees, even when the employer is not directly at fault. The decision is a significant blow to employers who had hoped for a reversal of the High Court decision last year, which we included in our Spring 2018 edition of the newsletter. The risk of a data breach by a rogue employee is difficult for employers to guard against. Businesses should ensure that they have appropriate insurance in place and review how they manage ‘authorised access’ to data and assess individuals to be suitable for positions with access to data. You can read more about the Court of Appeal’s decision in our blog post here. Leave to appeal the decision has been sought from the Supreme Court.
Co-workers can be liable for dismissal damages
In Timis and another v Osipov [2018] EWCA Civ 2321 Court of Appeal confirmed that an individual who subjects a whistleblowing co-worker to detriment can be held personally liable for the loss that flows from that detriment. This includes the loss flowing from the detriment which amounts to dismissal. Before this decision, it was thought that loss resulting from dismissal was excluded from the scope of personal liability for whistleblowing detriment.
This is a concerning decision for managers. If a manager dismisses an employee for making a protected disclosure, they will now be personally liable for uncapped whistleblowing compensation, including dismissal compensation. Whistleblowing legislation provides that the employer will be vicariously liable for this loss but, where the employer is insolvent (as was the case in Timis), the obligation to compensate the whistleblower will sit solely with the manager. Whistleblowing dismissal damages can be very significant (in Timis, the claim was for over £2 million).
It is also a key judgment for employers. By confirming that the whistleblowing personal liability regime operates in this way, the court has given employees an additional means of claiming against their employer for dismissal damages, and one which is, in some ways, more claimant friendly than an unfair dismissal claim.
There is a defence to this vicarious liability claim. An employer will be not be vicariously liable if it has taken ‘reasonable steps’ to prevent the manager from acting in the way they did towards the particular whistleblower and from subjecting whistleblowers to detriment more generally. It is essential to promote a culture of openness and accountability, alongside putting in place a whistleblowing policy and regular whistleblowing training. You can read more about the Court of Appeal’s decision in our summary here.
Senior Managers and Certification Regime extended to insurers
With effect from 10 December 2018, the Senior Managers and Certification Regime (SM&CR) extends to all insurers regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The SM&CR will now replace the Senior Insurance Managers Regime (SIMR) and the Revised Approved Persons Regime for insurance firms. You can read more about this on the Financial Conduct Authority website here.
UK Government’s Good Work Plan
On 17 December 2018, the UK Government published its Good Work Plan which sets out the actions the Government intends to take in response to the employment-related consultations launched in February 2018 that sought views on the recommendations made by the independent Taylor Review back in July 2017. Although the changes set out in the Good Work Plan are significant, it does not contain clear proposals on the most controversial recommendations made by the Taylor Review, most notably the legislative test for employment status. You can read more about the Government’s key proposals made in the Good Work Plan in our blog post here.
Changes to the UK Pensions Regulator’s powers in corporate transactions
In June 2018, the UK government published a consultation paper on “Protecting defined benefit pension schemes – a stronger Pensions Regulator”, which set out proposals to give the Pensions Regulator stronger powers. Those proposals were aimed at deterring behaviours by pension scheme sponsors and their corporate groups that could detrimentally impact on defined benefit pension schemes (see our October 2018 newsletter for further detail on this consultation and the preceding White Paper).
In February, the government published its response to the consultation, confirming which of the consultation proposals it will take forward. Key points to note:
- Company directors could face up to 7 years’ imprisonment if they are found guilty of a new criminal offence of reckless or wilful behaviour in relation to a pension scheme.
- Despite proposals to significantly expand the list of events that employers need to notify to the Pensions Regulator, only two new events will require mandatory notification:
- the sale of a “material proportion of the business or assets of a scheme employer which has funding responsibility for 20% of the scheme’s liabilities; and
- granting security on a debt to give it priority over debt to the scheme.
- A failure to comply with mandatory Pensions Regulator notification requirements could result in a civil penalty of up to £1m.
- There will be no mandatory clearance, but “corporate planners” will be required to provide a statement to the Pensions Regulator, prepared in consultation with the pension scheme trustees, setting out the pensions impact of a transaction and any mitigation proposed. The government suggests that the legislation will not specify the timing for the statement, even though failure to comply will carry a potential civil penalty of up to £1m.
- There will be various changes to streamline the Pensions Regulator’s moral hazard powers and make it easier for the Pensions Regulator to impose liability for pensions deficits on connected third parties.
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The “financial support direction” regime will be extended so that individuals who are controlling shareholders, and not just companies, can be targets.
These proposals will be implemented through legislation and/or guidance from the Pensions Regulator. Although the government has not specified a timescale, and any new legislation will be subject to space in the Parliamentary timetable, we understand that primary legislation to implement these reforms will be included in a Pensions Bill which is expected to be published in early summer 2019.
Although the proposed changes will not be implemented for some time, the clear commitment of the government to strengthening the Pensions Regulators powers means that it will continue to be critical for corporate groups, their controlling shareholders and directors to manage pension scheme risks carefully when planning corporate activity. For further details about the proposals that will impact on corporate activity, see our alert “Beware the Pensions Regulator: stronger powers and criminal penalties”.
