Employment & Incentives: Legal Outlook 2023
Whilst we saw some changes to employment law in 2022, most notably to industrial action, there were also a number of stalled initiatives. Amongst those were reform of non-compete clauses, a duty to report on the ethnicity pay gap, simplification of the worker status rules and most recently the concept of flexible working as the default.
So what can we expect in employment law in 2023?
Although promises to repeal the off-payroll working rules were short-lived (having been amongst the measures aborted following the mini-budget), we can expect continued scrutiny of the rules and the use of umbrella companies this year.
We could also see the introduction of new family friendly rights. Although the eagerly anticipated Employment Bill was delayed again in 2022, the Government has advanced its employment agenda by supporting various Private Members’ Bills instead which we could see become law. Draft laws requiring tips to be passed to workers and new duties on employers to take all reasonable steps to prevent sexual harassment are also amongst these.
Other significant draft laws are set to progress through Parliament this year - the Bill of Rights Bill, intended to reform the enforcement of human rights, and the Transport Strikes (Minimum Service Levels) Bill, introducing minimum service levels in certain transport sectors during strike action. Legislation permitting the supply of agency workers during strike action, which was intended to reduce the impact of industrial action, is being challenged by unions with judicial review proceedings expected to be heard in the High Court from late March 2023.
Other Court action to watch out for includes the case of Chief Constable of Northern Ireland v Agnew and others where the Supreme Court will rule on whether a gap of three months or more between holiday pay payments breaks a series of unlawful deductions, and the Court of Appeal’s decision in Fentem v Outform EMEA on dismissal. Certain dismissal practices will also be subject to a new Statutory Code of Practice following various high-profile instances of companies firing and rehiring.
In the financial sector, a wide package of reforms were announced at the end of 2022 to promote investment into the UK. As part of this, a review of the Senior Managers and Certification Regime is due to be launched in Q1 of 2023.
Fast forward to the end of 2023, and we could see the biggest shake-up ever to employment law. Absent further action, the Retained EU Law (Revocation and Reform) Bill will ‘sunset’ the significant body of employment-related retained EU law, including TUPE and the Working Time Regulations, leaving organisations with very little time to prepare.
What developments are expected on remuneration and employee incentives?
The ever-present pressure on executive pay is coalescing around linking outcomes to performance and taking into account the wider experience of the company’s stakeholders. Remuneration committees will need to navigate carefully decisions on 2022 pay outcomes and remuneration setting for 2023. 2023 marks the triennial point for many FTSE companies when they will be presenting new policies for shareholders’ binding vote. The 2023 AGM season is likely to be challenging.
There will also be increased regulator pressure and scrutiny: 2023 will see a revised Corporate Governance Code with a broader range of malus and clawback trigger events, and aiming for greater transparency. The FRC will also initiate a remuneration reporting pilot as a pre-cursor of its Corporate Reporting Review statutory powers extending over the whole annual report. It will be able to request information on and require changes to remuneration reports.
Any company with securities (including debt) listed on a US exchange, will have to comply with a new SEC clawback rule with potentially onerous consequences, very little room for manoeuvre and no discretionary powers. Separate clawback policies and additional disclosures will be needed. Banks and investment firms have been dealing with the challenges of the new CRD V and IFPR pay rules and will continue to monitor for increased ESG-related disclosure requirements.
Banks will need to plan for the removal of the bonus cap and its impact on remuneration structures.
We take a deeper look at what’s on the horizon for 2023 in our Employment & Incentives: Legal Outlook 2023 here.