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Auditing Employment Relations (ACCA Article)

ACCA Article

Our recent article on Auditing Employment Relations was published by the Association of Chartered Certified Accountants (ACCA) and is available to read below or at http://accaiabulletin.newsweaver.co.uk/accaiabulletin/fuwtik6yrxz7latets9jcj?email=true&a=1&p=54817478&t=28194286

 

 

In the light of ASDA and UBER’s recent situations, are you asking the right questions of compliance and culture?

 

The risk of multiple or class action employment claims can be a significant one for enterprises of all sizes. Employers often (wrongly) think that avoiding such claims is purely a question of strict compliance with employment regulations. As we will see, the reality is more complex and raises important questions of business culture.

 

Much of the day-to-day life of those responsible for HR in an organisation is taken up dealing with individual employment issues, from managing disciplinary and grievance issues to issuing employment contracts and applying employment policies. While the cost of employers getting things wrong on an individual basis can be significant, particularly in cases of discrimination or whistleblowing, it is important that this necessary work is not carried out at the expense of wider issues which could expose the employer to liabilities on an altogether different scale.

 

Two of the highest-profile issues in the employment relations sphere at present are equal pay and employment status. By having a high profile, these are issues where the workers in an organisation are more likely to understand that they may have valuable rights, enforceable in court or (most often) at the employment tribunal. We have recently seen very large employers face high value litigation for equal pay (as in ASDA’s case) or employment status claims (as in UBER’s case).

 

While it is beyond this writer’s knowledge as to whether issues of business culture played any part in ASDA and UBER’s cases ending up in litigation, it is important to understand generally why ‘class action’ employment claims can and do catch fire.

 

Equal pay

 

For many years, multiple equal pay litigation was considered to be a public sector issue. Nevertheless, the way in which these claims arose in the public sector is instructive to all employers. Generally, female workers in traditionally ‘female’ jobs such as care assistants or school kitchen workers would claim that their work was of equal value to traditionally ‘male’ roles such as park attendants or refuse collectors.

 

Often, the female workers’ male comparators would have similar headline rates of pay, but would also be entitled to bonuses or allowances which raised their take-home pay well above that of their female counterparts.

 

The ASDA litigation bears clear similarities to the public sector pay claims we are all familiar with – employees in predominantly ‘female’ roles (checkout operators for example) comparing themselves with employees in predominantly ‘male’ positions (warehouse operatives for example).

 

This is one area in which an important cultural issue arises. Many employers who think they are paying the same wages for the same work might not be taking into account bonuses or allowances which are often only payable to a particular section of the workforce. Bonus arrangements which are neither transparent nor structured against clear criteria are at risk of falling foul of equal pay laws.

 

Auditors might legitimately ask their clients if they have written remuneration policies, approved at board level, which acknowledge and address the risks outlined above. More critically, they may ask, are these pay policies equally transparent from the top to the bottom of the organisation? This is an area of the law where it is vitally important that leadership comes from board level, and HR professionals are not simply left to draft policies to which, at best, lip service is paid.

 

Getting pay equality wrong can be expensive. Employees in Scotland can claim up to five years’ back payments of the differential between them and their comparators of the opposite sex, while claims of employees in England can go back for six years.

 

While gender pay gap reporting obligations have highlighted this issue to some employers, at present the obligation to report only applies to employers who have 250 workers or more. The data from the first year of reporting (2017/18) does not disclose anything surprising to practitioners:

  • the average gender pay gap for full-time employees was 8.6% (this figure has gradually been reducing over the long term)
  • however, the gap for all employees was 17.9% as this included part-time employees who are still far more likely to be women in lower paid jobs
  • for full-time employees between the ages of 18 and 39, the gap was close to zero, but it increased from the age of 40
  • for all employees, the gap increased after the age of 30, concurring with an increase in working part-time from this age.

 

The fundamental challenge facing employers in dealing with the gender pay gap is a cultural one. As long as taking time out of your career, or requiring flexible working patterns, is seen as a barrier to progression, it seems inevitable that the gender pay gap will stubbornly resist closure. Larger private organisations are beginning to understand that addressing this issue now may be preferable to facing lengthy and expensive litigation, particularly as private sector equal pay claims might just be the next big thing for claimant employment lawyers.

 

Employment status

 

Likewise, employment status is an area where we are finding that high-profile litigation is proving effective in challenging business cultures which disadvantage particular sections of the workforce.

 

UBER has perhaps been the highest-profile example of an organisation which fell foul of the tendency of employment tribunals to look beyond the terms of their written contracts and look at the reality of the relationship between the ‘employer’ and the ‘worker’.

 

It is important to explain what we mean by ‘worker’ in this context. Auditors may be familiar with the concept of both employees and the self-employed, but it must be understood that the term ‘worker’ has a particular legal meaning. A worker is someone who is obliged to perform work personally for the other party to the contract, where that other party is not a client or customer of any profession or business undertaking carried on by the individual.

 

Workers are entitled to be paid the National Minimum Wage, to receive 5.6 weeks’ paid holiday each year and to take both daily and weekly rest breaks under the Working Time Regulations. It is therefore understandable that businesses may wish to avoid these costs by constructing contractual arrangements which negate worker status. However, if these contractual arrangements do not reflect the reality of the relationship, the courts and tribunals can and will strike a pen through the provisions which do not accord with that reality. This is precisely what happened in the UBER case, where prior to the ruling, drivers did not receive holiday pay.

 

One might think that, in a situation like this, the classic role of an auditor would be to ensure that suitable contracts were in place. However, we can see that this might not be sufficient in itself. Again, a cultural issue arises. Do the decision-makers in the organisation have a realistic view of what their people do for them? Also, how should their people be appropriately compensated for their efforts?

 

There exists an impressive body of research to support the proposition that highly engaged people in any organisation are more productive and more likely to remain with the organisation in the longer term. Ensuring that people who contribute to the organisation’s success receive basic entitlements like paid holidays and sufficient breaks is not only a question of compliance; it is also a question of improving the productivity of the organisation and reducing staff turnover.

 

Identifying risk in relation to employment claims will always involve a degree of assessing compliance with statutory rules, but it also involves looking at questions of fairness. Where sections of the workforce are treated fundamentally differently from others, resentments can and do build up. Acknowledging that potential for friction and devising strategies to ensure that people feel valued at work are therefore essential components of effective risk management.

 

David Reid – Director, Just Employment Law Ltd

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