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Employment, pensions and share schemes in 2009

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The legal landscape of 2009 is already shaping up for a year of reforms, so Kathleen Healy and Ben Dudley discuss what they expect to be key developments across employment, pensions and benefits this year.


The current economic climate signals a busy and challenging time for HR professionals. The HR function is likely to come under even closer scrutiny from workers, unions and management, as businesses examine how they can deal with a fall off in activity.

This article outlines a number of the critical changes in employment, pensions and benefits regulations, which are likely to affect the business environment in the coming year, and which HR professionals should therefore know about.

“The HR function is likely to come under even closer scrutiny as businesses examine how they can deal with a fall off in activity.”

Employment

The employment issue affecting most employers given the current market place is how to manage employment costs. Redundancies, although often necessary, may be expensive and time consuming; more importantly, however, the pool of talent in the organisation shrinks. As a result, many employers are now looking to alternatives such as job-sharing, shift working, compressing hours, pay and bonus freezes, paid sabbaticals or unpaid leave.

In upcoming legislative change, the Employment Act 2008, which commences in April 2009, will:

  • Repeal the statutory dispute resolution procedures introduced in 2002;

  • Give employment tribunals the ability to increase or reduce various awards by up to 25% where the employer or employee ‘unreasonably’ fails to comply with the new ACAS Code of Practice on discipline and grievance. The Code of Practice will not, however, apply to redundancy dismissals or renewals of fixed-term contracts – a welcome relaxing of procedural red-tape.

The government has also proposed a single Equality Bill, expected to be passed in 2009, which would introduce significant changes to discrimination law in the UK:

  • Positive action will be encouraged by permitting employers to take into account under-representation of disadvantaged groups when selecting between equally qualified candidates

  • The Employment Tribunal will be permitted to make recommendations which extend beyond the case at hand – that is, the Tribunal may endeavour to set ‘best practice’ standards to prevent future discrimination

  • Employees will be able to bring discrimination claims on ‘combined’ grounds, eg a black woman might bring a claim not only on grounds of being black or a woman, but because she has a combination of characteristics

  • Clauses which prevent employees discussing their salary will be ineffective.

In addition to these measures:

  • All employees with parental responsibility for a child under 16 will have the right (from April 2009) to apply for flexible working arrangements

  • Changes to the UK immigration system were introduced in 2008, which separates individuals into 5 tiers. The most significant for employers will be the rules for tier 1 (highly skilled migrants) and tier 2 (work permit scheme), and HR professionals in organisations which regularly recruit from outside the UK should familiarise themselves with the requirements.

Pensions

For those involved in company pension schemes, 2009 is likely to bring further regulation concerning the interaction between age discrimination legislation and pensions legislation:

  • The government is proposing to exempt certain flexible retirement practices from the prohibition against age discrimination. The two options currently being consulted on in early 2009 are:
  • * A broad provision that would make it unlawful to have a scheme rule that stops the accrual of, or entitlement to, future benefits for members in flexible retirement; or
    * A narrower provision that would allow occupation pensions scheme not to provide death-in-service benefits to members in flexible retirement.

  • The European Court of Justice is expected to give its decision in the Heyday case in 2009, concerning the legality of the UK regulations that allow employers to dismiss employees aged 65 and older on the basis of retirement. The Advocate General’s opinion has suggested that the UK rules should remain in force as long as they can be ‘justified objectively’.

There are a few further developments in pensions worth noting, even if you are not actively involved in the area:

  • HM Treasury is consulting in relation to a proposal that third parties contracted by employers can communicate with employees about a group personal pension or stakeholder scheme without the need to be authorised under the financial services regime

  • The normal minimum pension age will change from 50 to 55 on 6 April 2010

  • 5 April 2009 is the deadline for registration for protection from the ‘lifetime allowance charge’ for pensions rights accrued before 6 April 2009.

Share schemes

“The recent falls in share prices have undermined the value of many existing employee share incentive plans for public companies.”

The recent falls in share prices have undermined the value of many existing employee share incentive plans for public companies. In addition, executive salaries and bonuses have come under close public scrutiny, bringing into focus the scope for alternative long-term reward systems.

With these issues in mind, and given that the current market price of shares may be lower than employees’ option exercise price (ie they are ‘underwater’), companies might consider ‘rebasing’ employee share schemes to ensure employees continue to have the right incentives. Bearing in mind that this may not be supported by institutional shareholders, companies will have to carefully balance the interests of employees and shareholders with ‘best practice’ in the market.

To deal with many of these issues, the Financial Services Authority has taken the step of writing to many companies to explain what it believes are good remuneration policy objectives, including that bonuses should be linked to risk management, and that long-term pay structures should be explored.


Kathleen Healy is a partner and Ben Dudley is an associate, in the employment, pensions and benefits practice at Freshfields Bruckhaus Deringer LLP.

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