Consultation on mitigating LGPS risk for admitted bodies

The Government has recently published a consultation on changes to the Local Government Pension Scheme (LGPS).

The consultation will be of particular interest to those who regularly enter into contracts with local authorities, outsourcing services or are concerned about how legacy LGPS arrangements could impact upon their ability to merge.

No more ‘broadly comparable’ schemes

Under the Best Value Pensions Direction, local authorities are required to ensure any employees being compulsorily transferred out are provided with access to either the LGPS or a broadly comparable pension scheme. The consultation proposes to remove the option of offering a broadly comparable scheme going forward. This effectively replicates the New Fair Deal of 2013 in relation to staff transfers from central government. Further, the consultation proposes that for any existing contracts that fall under the Best Value Pensions Direction, employees would gain a right to membership of the LGPS when they are next re-tendered even if in-between they have been placed in a broadly comparable pension scheme.

Our experience is that many of our clients have historically chosen to become admitted to the LGPS rather than provide a broadly comparable scheme because of the cost associated with this, so this part of the proposal may have little impact in practical terms.

Protected Transferees

It is proposed that a new definition of Protected Transferee is introduced under the regulations.  In practice this definition doesn’t really change the position under the existing Best Value Pension Direction however the draft regulations do extend this definition to employees that were not originally employed by the local authority on the agreement of both parties. Even if the parties agree to widen the category of Protected Transferees under the amended regulations, either party can decide they are no longer eligible at any time which appears to make this a pointless amendment.

Risk-sharing

The more interesting reading relates to risk sharing and proposals that those contracting with local authorities may not need to be become admitted to the LGPS themselves, but rather can participate via the local authority being a “deemed employer” for the purposes of pensions. The concept of the deemed employer is not a new one and is already provided for in the LGPS Regulations however is only available in specific limited circumstances.

The proposal is that employees would still be compulsorily transferred from the local authority to a service provider and become their employees, however the local authority would remain their deemed employer for the purposes of pensions.  The intention behind this is to deliver better value for money for local authorities, because with appropriate risk-sharing bidders shouldn’t need to price in so much for LGPS risk, and to encourage smaller providers to tender who might otherwise be put off by a fear of LGPS liabilities.

It shouldn’t be expected that service providers will suddenly not have to pay anything for LGPS benefits; each local authority will determine precisely how LGPS risks will be shared subject to taking account of new guidance that would be issued.  However a service provider could reasonably expect to at least benefit from a lower employer contribution rate (albeit likely still paying at least a part of that) and a more favourable funding basis.  It would also be possible to negotiate about what should happen to any deficit at the end of the contract term.  Not having to become admitted to the LGPS could also have accounting benefits and save the need to check for, and seek if required, lender consent to participate in a new pension scheme.

The drafting of the consultation makes clear that the concept of the deemed employer would be an option for local authorities and therefore if it were to be implemented, it would not necessarily be the case on every outsourcing.  But even if the service provider has to become admitted to the LGPS in its own right, the option of risk-sharing could still be provided for within the Admission Agreement. This could also be of benefit when re-tendering for existing contracts as local authorities may be more willing to share risk. The local authority’s approach should be made clear at the point of inviting bids.

Mergers

The Government is also consulting on automatically transferring the assets and liabilities of admitted employers within the LGPS on a merger or takeover situation. Under the current LGPS Regulations, dependent on how a merger is implemented it may result in the exit liability of an admitted employer being triggered and becoming immediately payable.  Whilst we have avoided this situation for a number of clients by putting in place legal agreements with various LGPS Funds, the proposal would mean such agreements are no longer required which we are sure would be welcomed by the social housing sector which is constantly changing and evolving by mergers and new group structures. In some cases clients have found the administrative red tape of LGPS Funds has held up proposed merger timelines and this proposed amendment would avoid such a situation.

The proposals extend to the automatic transfer of assets and liabilities from one LGPS Fund to another in a merger situation.  In our view this could cause problems if the funding position and contribution rates of the merging entities in two different LGPS Funds are not the same. As such we anticipate there are situations where clients may not want there to be an automatic transfer of assets and liabilities but the draft Regulations don’t give the employer any choice in the matter. The consultation proposes that Secretary of State guidance is issued on this area.

It is not clear what would happen on a merger effected by a statutory amalgamation under the Co-operative and Community Benefit Societies Act 2014 as the generally accepted (although untested) principle is that it does not result in an admitted employer becoming an exiting employer under the LGPS Regulations. If this remains to be the case then the amendment would not extend to the automatic transfer of assets and liabilities on an amalgamation and even if the position changed, it is not clear how it would be decided which LGPS Fund the transfer would be from and to.

Whilst we don’t think that the mandatory transfer of assets and liabilities is necessarily the best idea, we do think that it would be helpful for clients if the new rules could provide for transferring assets and liabilities between Admission Agreements in a particular LGPS Fund in a non merger situation.  We have a number of clients with members in various different LGPS Funds as a result of historic mergers and stock transfers. Whilst these clients still have a healthy number of active members participating in the LGPS overall, they are at risk under specific admission agreements where they have a diminishing number of members. This means that they are at risk of an exit liability being triggered in the short term when the last active member under a specific admission agreement leaves. We consider this risk could be mitigated if the LGPS Regulations provided for the transfer of assets and liabilities in a non merger situation also, meaning clients are able to move all their assets and liabilities, and members under one admission agreement.

The consultation runs until 4 April 2019.

We will be submitting a response to the consultation and would encourage anyone else with views on the proposals to do so too.

If you have any queries relating to this consultation or the LGPS generally please contact Jane Bowen or your usual Devonshires contact.

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6 Tips for Dealing with Employee Data Subject Access Requests

A huge amount of personal data is collected about employees during the course of their employment which can mean dealing with a Data Subject Access Request (DSAR) made by an employee can be a time-consuming task. However, following our tips below, the process can be made far less painful.

  1. Give yourself time…

Under the GDPR, the time limit for responding to DSARs has been reduced from 40 days to one month. However, it is possible to extend this deadline by a further two months, where the request is particularly complex, giving a total time of 3 months to comply.

Given that a large volume of data will held on employees which will need to be retrieved from a number of IT systems, an extension will very often be appropriate. It is important to note the time limit can only be extended during that first month so if you miss the deadline, not only will you be in breach of the GDPR, but you will be unable to extend for extra time. You should therefore consider if an extension is appropriate as soon as the request is received.

  1. …but don’t delay

Whilst 3 months may appear at first to be a significant window of time, it is easy to underestimate how long the process will take. Depending on the employee’s length of service and how wide the employee’s request is, many thousands of documents may need to be reviewed and redacted before being disclosed to the employee.

It is therefore essential that employers begin the process of dealing with a DSAR as soon as possible, ideally from the first day it is received. Having a clear procedure will help avoid unnecessary delays, which should ideally include an agreed protocol with your IT team so searches of electronic systems can be set up efficiently and with clear parameters.

  1. Ask the employee what they want…

Many employees will raise a DSAR because they are looking for information relating to a specific issue, for example because they believe comments have been made about them by members of staff during the course of dealing with a grievance they raised.

This information may be specified in the original request, but if it is not, it is a good idea to ask the employee if the information they are seeking relates to a particular individual, specific time frame or type of file such as emails. Having this information can significantly narrow the searches you need to carry out therefore reduce the amount of documents you will need to review.

  1. …but be prepared to search all systems

Although often employees will be willing to specify what they want from their request, there is no requirement for employees to specify what information they are looking for. Your processes should therefore be set up to enable you to gather and provide all personal data processed about the employee when needed.

In such cases, employers are expected to make genuine and extensive efforts to gather together the relevant personal data. This will include searching beyond the employee’s HR file to all electronic systems such as email and any databases where employee data is held, along with archived items where these are easily accessible given the resources and expertise of the employer. The general principle is that the search must be reasonable and proportionate, though the courts have generally placed a high bar as to what is considered proportionate.

  1. Disclose data not documents…

Once you have identified the data, you will need to consider in what form this should be disclosed to the employee. In doing so, it is useful to remember that data subjects are only entitled to the personal data itself and not the documents it is contained within. This means that if the personal data appears within only one paragraph of a much larger report, you could provide this paragraph alone as an extract of this report.

Equally, where the same type of personal data appears in the same way in a large number of documents, such as a monthly HR report listing names and NI numbers, it is also acceptable to provide a schedule confirming the personal data included in these documents and the titles of the documents in which this appears.

  1. … and only what the employee is entitled to

Data subjects are not entitled to personal data about third parties or non-personal data so this data should be redacted from the documents which are disclosed.

There are also some circumstances where the employee will not be entitled to the data even if it is personal data relating to them. This will include:

  • personal data which is covered by legal professional privilege;
  • references given or received about the employee;
  • personal data which is being processed for the purposes of management forecasting or planning and revealing that data could prejudice the business (e.g details of a staff redundancy programme which has not yet been announced); and,
  • records of intentions in relation to negotiations with the employee where revealing these records would prejudice the negotiations (e.g internal discussions about a termination payment offer).

Determining what data is and isn’t disclosable can sometimes be complex and we suggest you obtain legal advice if you are unsure whether an employee is entitled to a specific piece of information.

If you have any queries or would like assistance in dealing with a data subject access from an employee, please speak to your usual contact in the Employment & Pensions Team.

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A Look Back at the Week that Was: The Plight of Persimmon Pay

So back in 2012, Jeff Fairburn (CEO of Persimmon at the time) negotiated a remuneration package which was approved by the Persimmon Board and 85% of its shareholders. A key component of the package was a Long Term Incentive Plan share award. Persimmon then delivered really strong financial performance during Jeff’s tenure. Its share price increased by 500%. Jeff benefited in accordance with the terms agreed but this was controversial because of the amounts involved and the fact that a lot of Persimmon’s performance returns were because of Help to Buy. In the face of growing criticism, earlier this year he agreed to a reduction in the number of shares that he was entitled to. But that, and an offer to donate some of his earnings to charity, was not sufficient to quell the outcry and last week Jeff left his job at Persimmon’s request because his pay had become a “distraction” (however he retains the shares already awarded).

One corporate shareholder described the situation as a “classic corporate governance failure”. Persimmon now accept that they should have placed a cap on the bonus scheme. Both the Chair of the Board and Chair of the Remuneration Committee had already resigned due to that omission. However another corporate shareholder looked to Jeff’s position in all of this: “…regardless of any moral or societal duties, company directors have a legal responsibility to act in the best long-term interests of the company that employs them. … [Being] a company director, and in particular a chief executive requires……an understanding of where the company sits within the society within which it operates”.

The lesson for Boards and Remuneration Committees to take from this story is not that they can agree any sort of remuneration package they want, since they can always remove the employee if it attracts adverse publicity. Rather it is that they should take great care to ensure that they have understood what a remuneration package might end up costing depending upon different potential outcomes and that they put appropriate controls in place to ensure that the package does not reach a level which brings the organisation into disrepute.

It ultimately wouldn’t have made a difference in this case, but one of the political avenues of attack was the fact that Persimmon could pay so much to its CEO (and other Executives) and yet not pay the Living Wage to its employees (something which it has now committed to do from next year). The ratio of CEO pay to that of the average worker is something that listed companies with more than 250 employees will have to start reporting annually from 2020 and that transparency is likely to increase the pressure for greater pay parity across an organisation – since the Executive can only deliver a successful business if they have good staff on the ground.

The reminder for Executives is that their own personal interest is subservient to the interests of their organisation in the event of a conflict. Financial matters may well generate such conflict. It is therefore in the interests of both the organisation and the Executive that the remuneration package is properly considered at the outset and agreed on an informed basis.

Kirsty Thompson, Partner, works within Devonshires’ Employment & Pensions Team.

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A Look Back at the Week that Was: Last Week – The ethnicity pay gap

Last week the Government launched a consultation on the possible introduction of pay gap reporting based on ethnicity (the Consultation).  A Government-backed review into the barriers faced by people from ethnic minorities in the workplace had recommended ethnic pay gap reporting last year. The Government expected employers to lead on taking ethnic pay gap reporting forward voluntarily. This was, at best, naïve given the previous encouragement for voluntary reporting on the gender pay gap (the ‘Think, act, report’ initiative) had such a poor response. A year later, the Government has realised that only limited progress had been made on the recommendations made in the review.  So now we have the Consultation.

The Consultation asserts that we have already seen the “power of transparency” in gender pay gap reporting. Personally, that feels like a premature statement. The first results on the gender pay gap were only published in April this year so it is far too soon to draw any conclusions about whether it has made a difference. Particularly when there are no penalties for having a gender pay gap, or positive obligation to do anything about it. It will take several years to analyse whether gender pay gap reporting has actually made a difference.

The Consultation poses a range of questions. Some of the questions in the Consultation are genuinely things which employers would want to influence. But others lead me to feel that the Government has made a commitment that it is now trying to square the circle on. So employers are asked to set out what the main benefits of reporting their ethnicity pay information would be – but if the Government’s position is that it is time to move to mandatory ethnic pay monitoring then what will this question actually achieve? Employers are also asked to outline the steps that should be taken to preserve confidentiality – a kind of ‘we’re going to do this which is going to create this problem for you, please tell us how it should be fixed’.

The questions which employers will want to engage with in the Consultation are about the sorts of information that ought to be gathered. So should there just be a comparison between white vs ethnic minority employees, or should the exercise be more nuanced by looking at different groups of ethnic minority employees? The Government does not want to over-burden employers but the simplistic white vs ethnic minority ratio could create a false sense of security since it will mask the differentiation between different ethnic groups.  Labour Force Survey data indicates that some ethnic groups actually outperform white employees on hourly pay, which will skew the results.  But how granular does the breakdown of ethnic groups have to be in order to get useful information? And how do you get the data in the first place about what ethnic group employees self-identify with?

The Consultation also asks whether employers should be required to publish an action plan if they identify disparities through their data. This would take ethnic pay gap reporting a step further than gender pay gap reporting. The absence of an obligation to address an identified pay gap is one of the criticisms of the gender pay gap regime in terms of its ability to actually drive change rather than just monitor it.  If a positive obligation is introduced for the ethnicity pay gap then it is likely to be introduced for the gender pay gap too.

The Consultation gives a clear steer that ethnic pay reporting will be introduced. After a Race Disparity Audit by the Government last year found that Asian, black and other ethnic groups were disproportionately likely to be on low incomes, being seen to do something to address this was always likely. But it involves a much more complicated field of data than for the gender pay gap and the balance between useful data and over-burdening employers will be a difficult one for the Government to find.

The consultation closes on 11 January for anyone interested in responding.

Kirsty Thompson, Partner, works within Devonshires’ Employment & Pensions Team.

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A Look Back at the Week that Was: This Week – Employees on Boards

At their annual conference last week, the Labour Party announced that if they are elected then they will require companies with more than 250 staff to reserve 1/3rd of the seats (minimum 2) on their Boards for employees. 

Having mandatory employee representation on Boards is something that was touted previously by Theresa May but was subsequently watered down.  No legislation was introduced in the end, but it did make its way into the 2018 revision of the UK Corporate Governance Code (the CG Code) as one of the options for demonstrating that there has been effective stakeholder engagement. Organisations who have to apply the CG Code (or who have voluntarily chosen to adopt it) will be required to make a statement in their annual report about how the interests of employees have been considered in board discussions and decision-making.  The CG Code says that one or more of the following methods should be used: a director appointed from the workforce, a formal workforce advisory panel, or a designated NED.  If none of those options are adopted, signatories to the CG Code are expected to explain how their alternative arrangements are effective.

Labour’s proposal goes much further. The theory behind it is that the employee presence would shift the balance of power which has allowed a “reckless corporate culture to fester” and businesses to get away with “exploitative practices”. Setting aside the fact that this rationale tars all organisations by the behaviours of just a few, what other issues does it present?

  1. Identity of the employees

The proposal is that employees should be elected to the Board. The fact that some organisations have appointed Executive Team members to the Board will not satisfy the obligation.

It is reasonable to assume that under Labour’s proposals there would be no ability for the employer to ‘vet’ the candidates or to assess the skills and experience that they could bring to the Board.  As organisations have been increasingly moving to skills-based boards, this could be seen as a backwards step – unless an organisation is exceptionally lucky to find all the skills it needs within willing members of the workforce.

But perhaps even more controversially, the pool of employees who could stand for election would be limited to just trade union members.  So it is something of a misrepresentation to sell this proposal as being about employees being on the Board – it is actually about having trade union members who just happen to be employees on the Board.  The assumption that a trade union member is better able to understand strategic issues and/or represent the views of colleagues surely needs to be challenged.  Many employees may in fact feel that their views are not best reflected via the trade union movement.

  1. Managing confidentiality and conflicts

One of the central tenets of governance is the fiduciary duty to act in the best interests of the organisation (codified in the Companies Act as a duty to promote the success of the company).  A director’s duties are therefore to the organisation, not to any particular constituency interest. A workforce director will have a difficult line to tread.  Particularly tricky could be areas where a conflict of interest arises because of proposals to make changes within the organisation (for example organisational restructuring). A Board will often be privy to such information long before there is any announcement to staff. Will it be possible to exclude the workforce directors from those discussions on account of a conflict of interest? If it is actually the workforce who has been ‘exploited’ in the past then being able to exclude them from such discussions and decisions would seem counter-intuitive under Labour’s proposals.

  1. Collective responsibility for decision-making

Another central principle of governance is collective responsibility for decision-making. A director can make their opposition known before a decision is made but once that decision has been made, every director is expected to stand behind it – or ultimately resign if they can’t.  Applying this principle, there could be a lot of churn amongst the workforce directors where decisions are made which may genuinely be in the best interests of the organisation but which adversely affect the workforce.  This churn could come about either through the workforce director not agreeing with the decision made, or agreeing with it but then finding themselves in an untenable position with their colleagues.

Of course a Board should want to be aware of the views of the organisation’s employees, and perhaps it would be a good discipline that proposals for organisational change are subject to the sort of rigorous scrutiny that being able to justify them to the satisfaction of a workforce director would deliver. But if there is to be an employee voice around the Board table then I don’t see why it should be a union voice, and there are lot of unanswered questions about how this proposal would sit with core principles of governance and how an organisation could get all the necessary skills that it needs amongst its Board if it had to take 1/3rd of its members from a defined pool of people.

Kirsty Thompson, Partner, works within Devonshires Employment & Pensions Team.

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Context is King: Employee’s Letter Giving Notice was not a Resignation

In an unusual case, the Employment Appeal Tribunal has upheld a finding that an employee who gave her employer a letter giving “one month’s notice” was not actually a letter of resignation.

Background

Mrs Levy worked as an administrator within East Kent Hospitals University NHS Foundation Trust (the Trust). She was unhappy in her role and applied to transfer to the Radiology department, who made an offer of a job conditional upon completion of pre-appointment checks.

Following receipt of this conditional offer and an altercation at work, Mrs Levy gave her manager a letter which stated “please accept one month’s notice from the above date”. Her manager responded “I accept your notice of resignation. I can confirm that your last day of work within Health Records will be Friday 8 [July] 2016”.

Subsequently, the offer at the Radiology department was withdrawn due Mrs Levy’s level of sickness absence. Mrs Levy then attempted to retract her resignation from the Records Department which was refused and her employment terminated on the expiry of her notice period.

Mrs Levy brought a claim in the employment tribunal alleging unfair dismissal.

Resigned or Dismissed?

In order to allege unfair dismissal, Mrs Levy needed to show she had been dismissed. The Trust argued there had been no dismissal because Mrs Levy had resigned from her post. The tribunal therefore had to consider whether she had resigned by way of her letter or whether the Trust had dismissed her.

There are no statutory requirements about how resignations are to be given but communication between those involved must be clear and unambiguous so that both parties understand what has taken place. In this case, the tribunal found Mrs Levy’s letter was not clear and unambiguous as it could be taken as referring to either notice of her transfer or notice to terminate her employment.

The tribunal considered a reasonable observer would have understood the letter to be referring to Mrs Levy’s intended transfer. Even if the words were not ambiguous, taking into account the context, it is clear this is what she meant and how it was taken. This conclusion was supported by the actions of the Trust, who upon receipt of the letter had not taken the usual steps  where employee was leaving such as completing an employee termination form or making arrangements regarding accrued but untaken leave.

As Mrs Levy had not resigned, she had therefore been dismissed and could pursue her claim of unfair dismissal. The Trust appealed this point to the Employment Appeal Tribunal (EAT).

On appeal, the EAT upheld the decision of the employment tribunal. The EAT acknowledged that in many circumstances the language used in Mrs Levy’s letter could have only been understood to have one meaning however this was not the case in this instance. The tribunal had been correct in considering how an objective observer would have understood the letter, and for such an observer to conclude that it referred to Ms Levy intending to transfer.

Comment

In most cases, resignations will be clear and unambiguous. However, there are occasions in which the intentions of the employee are not entirely apparent either due to the words used or the context of the situation. Employers should be alert to these, and ensure that it is always clear what the employee is actually intending and when they intend the employment to terminate to avoid potential dispute on this point further down the line.

If you would like to discuss the above case further, please feel welcome to contact your usual contact in the Employment and Pensions Team.

 

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A Look Back at the Week that Was: This week: Succession planning

The England cricket squad to tour Sri Lanka from next month was announced last week. In line to fill the place of Alastair Cook, England’s leading run-scorer, at the top of the order, is a batsman untried at Test level. 

We’ll have to wait and see what can be made of that opportunity, but the experience raises the interesting issue of succession planning. It wouldn’t have been the England and Wales Cricket Board (ECB)’s intention, but it’s taken so long to find a partner for Cook that they now also need to find a replacement for him. Besides my interest in cricket, I’m also intrigued to see the relative merits of succession planning.  It will be possible to compare the difference in outcome between bringing in someone who has shown promise at a lower level and giving them the opportunity to learn and develop alongside someone who is established and successful at that higher level themselves, versus throwing an equally promising person in at the proverbial deep end and expecting them to work it out for themselves in a potentially alien environment.

What all employers can learn from this is the fundamental importance of succession planning. Arguably the ECB’s problems date back more than 6 years, from before the retirement of Cook’s previous long-term opening partner. Seemingly, they weren’t ready for his retirement, and since then have put so much effort into trying to find the right solution to that immediate problem that they haven’t given sufficient attention to the systems needed to prevent the same lacuna arising again.

There will always be sensitivities around succession planning because you never know when the plan will need to come to fruition. There simply isn’t the resource or capacity for each business-critical post to have a number 2 waiting in line to step up and learning everything which is done in the meantime, because that person also has to do their own job and in turn manage the career aspirations of those who report to them.  It can feel like putting a lot of effort into something (or someone) which could potentially deliver no benefit to the business, or which when push comes to shove (or to maintain the theme, when they finally have bat in hand) turns out not to be as good as you were hoping.  But unlike the ECB, employers needs to learn from that and focus not just on the short-term ‘who next’ but also how their succession planning process could be improved for next time.

Kirsty Thompson, Partner, works within Devonshires Employment & Pensions Team.

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