Talent management: Legal issues

Future law

December 2003 saw the implementation of two new sets of regulations. The first is aimed at combating discrimination on the grounds of sexual orientation. The second is aimed at discrimination on the grounds of religion or belief, currently unlawful in Northern Ireland but not in England and Wales or Scotland.

To follow, in late 2004, will be further regulations amending the Disability Discrimination Act (DDA). Finally, measures combating age discrimination will need to be in force by December 2006.

All of these changes are to bring UK law into line with relevant EU directives.

Playing field or minefield?

In trying to create a level playing field for employees, these regulations create a minefield for employers. To negotiate your way through, you need to make sure your processes for dealing with staff at all stages of their careers are transparent and based on objective criteria.

Your first step should be to adopt a comprehensive equal opportunities policy and ensure it is implemented effectively and thoroughly.

Key to this area of the law is the employment tribunals' power to draw inferences that unfair treatment is due to discrimination unless you can provide an alternative (credible) explanation for it. A thorough review of your policies and procedures will help flush out any areas where your organisation is at risk.

Sex and sexual orientation

There are two types of sex and race discrimination: direct and indirect. The distinction between the two is important - you may be able to justify indirect discrimination but not direct discrimination.

Indirect discrimination can be difficult to spot. In the context of sex discrimination, it occurs when you apply an apparently neutral "provision, criterion or practice", which in fact operates to the detriment of considerably more women than men or indeed more men than women.

Example: You require all staff to work the fixed hours of 8:30am to 4:30am. As women bear the major share of childcare responsibilities in the UK, this condition adversely affects more women than men. You would need an objective business reason to justify the blanket requirement for fixed hours.

As for pay, it is essential to test whether your pay structures are transparent and justifiable on objective grounds. You must make sure you can justify rewarding high-fliers without leaving your organisation exposed to claims from other staff. In several cases in recent years, courts and tribunals have criticised the "culture of secrecy" that surrounds pay and bonuses in many organisations.

Undertaking an equal pay review is a good way to identify potential problems in this area. There is basic guidance on how to go about this on the Equal Opportunity Commission's website.¹ This sort of review, followed by action to remove any discriminatory practices it reveals, should also put you in a better position to defend an equal pay claim.

The Government has not yet issued any draft regulations about discrimination on the grounds of sexual orientation. But, as the relevant EU directive outlaws discrimination in employment, working conditions and pay, a key area affected by the new law is likely to be employee benefits that can benefit partners of employees. If the rules of the relevant benefit scheme restrict the beneficiaries to opposite sex partners, this is likely to be direct discrimination.

In any event, you may want to review the precise qualifying conditions for the benefits you offer. You need to make sure you are offering competitive packages to the range of potential recruits who will have a variety of domestic circumstances, not distinguished solely by their sexual orientation.

Race

UK legislation to combat race discrimination has been in place for nearly 30 years. Talent management though is about more than just avoiding discriminatory practices. You must ensure you are actively encouraging diversity in your workforce by attracting job applicants from different ethnic backgrounds.

Institutional racism is a term often used, but a practice which, so far, tribunals have been reluctant to tackle head on. But the culture of a workplace is very significant in determining whether or not your business is seen as an employer of choice at all and across what section of your potential workforce.

Positive discrimination is not permitted under UK legislation but you can take steps to encourage applications from, and offer training to, individuals from an ethnic background that is under-represented at a particular level within your organisation.

As for indirect race discrimination, at present, the issue is whether you have imposed a "condition or requirement" with which members of a particular racial group are less likely to be able to comply.²

Example: You require all employees to work through the religious holiday of Eid. This would have a disproportionate impact on Muslim staff. Unless you can objectively justify the requirement, your Muslim staff will have a good claim against you.

Religion or belief

Although laws combating discrimination on the grounds of religion or belief will be new to the UK (except for Northern Ireland), the concept is not entirely new as there is some overlap with current race discrimination laws. For example, certain racial groups with a common religion (eg Sikhs) have been entitled to protection against discrimination on racial grounds for some time.

You should not need to put specific provisions in place to comply with this new legislation. However, you will need to review your rules and policies to make sure they do not discriminate directly or indirectly against individuals on the grounds of religion or belief. If they do, and you cannot benefit from the two narrow exceptions permitting discrimination, you will need to introduce changes.

Disability

The likeliest pitfall here is making decisions based on assumptions about what an employee can or cannot do because of his/her particular disability.

If those assumptions act as barriers to an employee's progression in the organisation, he/she might leave, depriving you of their experience, know-how and talent.

There is a wealth of help and advice available on disability issues,³ but your starting point should be to talk to the individual concerned. He/she will know best what they are capable of.

You may be able to justify discrimination on the grounds of a person's disability. The central issue in this sort of case will often be whether there were any reasonable adjustments that you could make to prevent the discrimination happening.

Example: Driving duties are a substantial part of a job. A particular individual's disability prevents then from driving. You may be justified in turning them down for the job.

Example: Driving duties are a very minor part of a job. It may be a reasonable adjustment for those duties to be transferred to another employee, leaving the disabled individual free to perform the vast majority of the role.

Age

The new age discrimination legislation will aim to remove the effects of inaccurate assumptions about what people of certain ages are capable of.

It will force employers to review the actual impact of employing older people as some organisations have already done voluntarily, such as DIY chain B&Q.

It is too early to say what the exact effects of the new measures will be as the Government has not yet issued specific proposals. What we can say now is that their impact will be wide-ranging, covering:

You need to monitor the draft legislation as it is released by the Government to be ready for the changes when they come in. A wide-ranging review of all your employment practices is likely to be necessary. Meanwhile, the Employers Forum on Age provides useful guidance on this issue.⁴

You will be able to justify discrimination on grounds of age in certain circumstances.

Example: The number of years of training required to undertake a job makes it too expensive to employ people over a certain age.

Flexible working

UK legislation gives employees basic rights to maternity, paternity and adoption leave. But, more generous schemes giving, for example, more leave or more paid leave, are an attractive benefit to employees.

Government research shows that about 75 per cent of parents with children under six count work-life balance as a deciding factor in job applications. Flexible working arrangements therefore play a key role in recruiting and retaining staff.

On 6 April 2003, regulations came into force giving parents of children under six (18 if disabled) the right, based on 26 weeks' continuous employment, to request flexible working arrangements. The basic right is to request either:

The arrangements must be requested to enable the employee to care for a child. The employee also has to explain in the request the likely effect of the arrangements on your business and suggest how to alleviate those effects.

Details about the sort of arrangements which are likely to be requested can be found on the DTI website.⁵ In summary, the most common forms of flexible working arrangements that you might be asked for are:

Any change that you agree with an employee will be permanent unless you agree at the outset that it will only operate for a specified period.

An employee has no right to revert to his/her old working pattern if their domestic circumstances change. However, provided a year has gone by since the original request for flexible working (and he/she still qualifies under the regulations), the employee can simply request a return to their original working pattern. You would have to consider this as a fresh request under the regulations.

Seeing the benefits

Some employers have seen the benefits of extending the above rights to all their employees. This prevents resentment among staff who do not fall into the defined category of parents benefiting from the statutory right.

You are also free to offer flexible working rights that are more generous than the statutory regime.

Evidence from consultants and surveys suggests that employers who offer and even actively promote the ability to work flexibly have an advantage in both recruiting and retaining staff.

The key to how flexible working operates in practice is to consider each request individually in the light of its effects on your business.

The idea behind the regulations is to force employers to take these sort of requests seriously, while leaving a degree of autonomy in managing their businesses.

Even if an employer considers a request properly but ultimately refuses it, the employee will still have a claim for discrimination that would otherwise arise. The penalty for failing to follow the proper procedure on considering flexible working requests is relatively light,⁶ so a discrimination claim, with uncapped compensation, remains a much more valuable right.

One of the most problematic issues surrounding flexible working is how it will fit in with the changing circumstances of your workforce.

Job sharing, for example, depends on (usually) two employees working complementary hours. If the circumstances of one changes, employers may no longer be able to accommodate the same arrangement for the other employee.

Similarly, in a case of staggered hours, colleagues A and B may initially be willing and able to cover for C, who needs to work around school hours. But what happens though when A and/or B request flexible working arrangements that conflict with C's working pattern? On the face of it, C's change is permanent and on a first come first served basis, so is entitled to retain his/her hours. If you could not arrange any other cover, you might be entitled to refuse A's and/or B's request on business grounds.

These types of situation are not covered explicitly in the regulations and employers will need expert advice to help balance conflicting obligations.

Contractual issues

Salaries and benefits

Pay and other benefits are key to attracting and retaining employees. The range of benefits offered by employers is constantly changing and expanding. But, whatever the benefits offered, the extent to which they are contractually binding on the employer is important.

In many cases, the main entitlement to a particular benefit is set out in the contract, with the detailed rules being given in an employee handbook. Employers should make clear to employees what has contractual force and the extent to which they wish to reserve the right to withdraw a particular benefit, or change the basis on which it is available.

Increasing basic salaries by bonuses, whether in the form of a regular annual or monthly bonus or under a medium or long-term incentive plan, is particularly important for many employees.

Bonus entitlement is generally set out in a contract, and it is crucial that the method of calculating the bonus is clear and objective, so any challenge to a lesser (or no) payment can be defended. A challenge may be based on an alleged breach of contract or that payment of a smaller bonus in a particular case amounts to discrimination.

Example: A stark example of the importance of an objective and transparent bonus structure was given by the Employment Appeal Tribunal (EAT) in upholding the well-publicised sex discrimination claim of Louise Barton against her employer, which had awarded her a smaller bonus than her male colleagues.

The bonus system operated by the employer was, according to the tribunal, "rough and ready", and involved an "underlying philosophy of avoiding precision and written material to prevent giving individuals the written materials on which they could challenge their bonuses".

The EAT was clear in its rejection of such practices and stated that no tribunal should be seen to condone a bonus culture involving secrecy or a lack of transparency.

Share option schemes remain a common benefit, despite recent falls in share prices, and one that the Government is keen to encourage. Many of the legal issues that dictate the structure and use of share schemes concern their tax treatment.

Guidance is available for employers on the Inland Revenue website (www.inland revenue.gov.uk/shareschemes/index.htm).

Career breaks and variety

Career breaks and other unpaid leave schemes are another way in which employers seek to retain and motivate their employees.

Typically, a scheme will entitle the employee to take a period of unpaid leave, in some cases for a number of years, and resume employment at the end of the break.

A career break scheme should specify whether the employment relationship continues during the break, or whether the employee should resign and then be offered new employment at the end of the break.

The scheme should also make it clear that no guarantees are given that state the employee will be able to resume his/her old job at the end of the break, although an assurance can be given that any alternative job will be of comparable status.

On a separate but related theme, it is clear that with younger workers in particular, getting a variety of job and career experience is important. Clearly, this may make retention difficult in the long term.

Some employers, particularly in professional services firms, regularly offer staff secondments to clients and other contacts (including government and regulatory bodies). This can be a way of providing new career experiences without breaking the original employment relationship.

There is no reason in principle why companies in other sectors cannot agree to short-term, controlled personnel swaps in this way.

This would have to be on the basis of clear agreement between the two companies and the employees affected. It would also need to contain a clear mechanism for resolving discrepancies in benefits and working conditions and to prevent poaching.

Restrictive covenants

Turning to the stick rather than the carrot, restrictive covenants and garden leave are still widely used in contracts to make employees think twice about joining competitors or setting up on their own account. However, they are usually difficult to enforce.

The courts will only grant an injunction to uphold restrictive covenants in so far as they can be shown to protect the employer's legitimate business interests. They must be carefully drafted and tailored to the individual circumstances of the business and the employee's position within it.

Consultation

To date, the legal framework requiring employers to inform and consult with their employees has been confined to specific circumstances, such as collective redundancies and business transfers. But this will change with the introduction of the European Information and Consultation Directive, and employers should be looking towards ensuring that employees are properly informed about the development of the business, and broadening the context in which consultation is used.

The UK must implement the directive into domestic legislation by March 2005, but is permitted to restrict application of the directive in the first instance to businesses with 150 or more employees. But by March 2007, it must apply to businesses with 100 or more employees, and, by March 2008, to businesses with 50 or more employees.

When implemented, the directive will give employees the right to be informed about the economic position of the business, and to be informed and consulted about:

Consultation procedures may be modified from those required by the directive, and employers may meet their obligations by means of existing agreements on information and consultation.

In anticipation of this, employers should be looking at the facilities for keeping employees informed about key developments in the business, and its economic situation. Also, a framework for consulting with the workforce through representatives, which best suits the needs of your business, should be established.

References

¹www.eoc-law.org.uk

²Later this year, regulations should bring this definition into line with the wider definition of "provision, criteria or practice" in sex discrimination legislation

³For example, from the Disability Rights Commission (www.drc-gb.org ) and private organisations such as Disability Matters (www.disabilitymatters.com)

⁴www.efa.org.uk

⁵www.dti.gov.uk

⁶Compensation is limited to eight weeks' compensation (currently capped at £260)