Government spotlight on employment practices and corporate governance – what does this mean for employers?

25th October 2016

Following hot on the heels of the inquiry into working practices at ‘Sports Direct’, recent weeks have seen a number of Government announcements which shine the spotlight both on employment protection for lower paid workers and on corporate governance generally. The Coalition/Conservative Party mantra of ‘cutting red tape’ has seemingly been replaced almost overnight with a new and apparently vigorous drive to hold big business to account and make Britain a fairer place to work for ordinary people. The prime minister’s appointment of Tony Blair’s former policy chief as chair of an ‘Employment Practices Review’ tasked with scrutinising employment security, pay and practices would have seemed inconceivable only 6 months ago. Add to this the recently announced, ‘Corporate Governance Inquiry’ which proposes, amongst other things, to put workers on executive boards and we seem to be seeing a completely new ‘direction of travel’ in the way that the scales are balanced between business interests/flexibility and workers’ rights and protections.

‘The growing army of people working in new ways’

The Employment Practices Review will consider the implications of the increase in atypical working arrangements (e.g. zero-hours, casual and agency staff, purported ‘self-employment’) on employee rights and responsibilities as well as on employer freedoms and obligations. It will ask whether the current regulatory framework is keeping pace with changes in the labour market and the economy (especially with the so-called gig economy).

There is no doubt that this is framed as an ‘employee-friendly’ initiative. Indeed, the Chair of the Review, Matthew Taylor, commented: “That the Prime Minister has chosen to prioritise the interests of the growing army of people working in new ways sends an important message. As well as getting to grips with the key trends and issues, I intend for the review team to get out and about across Britain hearing at first-hand how people’s experience of work affects their daily lives.”

The terms of the Review include looking at:

• The extent to which emerging business practices put pressure on the trade-off between flexible labour and benefits such as higher pay or greater work availability, so that workers lose out on all dimensions?
• The extent to which the growth in non-standard forms of employment undermine the reach of policies like the National Living Wage, maternity and paternity rights, pensions auto-enrolment, sick pay, and holiday pay?
• Whether current definitions of employment status need to be updated to reflect new forms of working created by emerging business models, such as on-demand platforms?
• Whether lessons can be learned from alternative forms of worker representation around the world, for example, the California App-Based Drivers’ Association which lobbies companies like Uber on behalf of drivers? (A large number of Uber’s purportedly ‘self-employed’ taxi drivers are currently taking Uber to Court claiming that they are, in reality, ‘workers’ and therefore entitled to holiday pay and other protections.)

What does this mean for businesses?

Organisations with business models utilising large numbers of non-standard forms of employment are most likely to be impacted by the outcome of the review. It is possible that there may, in the future, be further employment regulation introduced to plug the gaps in employment protection that are found to exist for individuals who currently ‘fall through the net’.  That is those classified neither as ‘employee’ or ‘worker’.

Of course, new employment rights are all very well if one can afford to enforce them and it is the lower paid who are least likely to be able to do so. It will therefore be interesting to see whether the Review addresses the fact that Employment Tribunal claims have dropped by around 80% since fees were introduced in 2013. How will the review look to give any new regulations any teeth?

The way in which some employers engage staff will also be impacted by future Brexit negotiations on freedom of movement. Such employers may need to  ‘re-imagine’ their overall workforce models dependent on this and there could well be some overlap between this exercise and the outcome of the Employment Practices Review.

If you require any advice in this area our specialist business immigration team are able to assist. We are also holding a free business immigration seminar covering issues arising from Brexit on 1 December 2016 – please click here to register your interest in this seminar.

Corporate Governance Inquiry

Whilst the Employment Practices Review will primarily consider the rights of the lowest paid, this BEIS Corporate Governance inquiry will focus at the other end of the spectrum – on executive pay, directors’ duties and the composition of boardrooms, including worker representation and gender balance in executive positions.

The inquiry follows the well-documented corporate governance failings identified by the inquiries into BHS and Sports Direct. Corporate governance is both a political and media ‘hot potato’ and the prime minister has made no secret of the fact that this is a priority for her government.  Some key questions that will be looked at by the inquiry include:

• How should executive pay take account of companies’ long-term performance?
• Should executive pay reflect the value added by executives to companies relative to more junior employees? If so, how?
• What evidence is there that executive pay is too high? How, if at all, should Government seek to influence or control executive pay?
• Should there be worker representation on boards and/or remuneration committees? If so, what form should this take?
• What more should be done to increase the number of women in Executive positions on boards?

Conclusion

There is certainly a lot to grapple with (and this is largely outside of the general Brexit considerations!). Given this wide-ranging agenda, it seems highly likely that there will be changes afoot.  We will keep you posted as soon as more details become available.

If you have any queries about this article please contact David Smedley or Andrew Rayment.