UK Employment Law Coffee Break | Economic downturn, reasonable adjustments and our latest HR Pensions spotlight – Osborne Clarke

Economic downturn: considerations for employers

In our latest webinar, Anna Elliott and Leanne Coates looked at considerations for employers in an economic downturn, along with tricky questions which can arise on investigations. This session was part of our In-house Lawyer programme which also covered other topical issues including an update on privilege. If you missed the employment update or would like to listen to any of the other sessions, you can access the recordings here.  

Was ‘slotting’ a disabled employee into a new position a reasonable adjustment?  

The Equality Act 2010 places a statutory duty on employers to make reasonable adjustments where a provision, criterion or practice puts a disabled person at a substantial disadvantage in relation to a relevant matter in comparison with persons who are not disabled. Substantial means more than minor or trivial. The Employment Appeal Tribunal (EAT) has recently considered whether a requirement for employees to attend an interview for new positions as part of a restructuring exercise (or otherwise face redundancy) placed the claimant, who suffered with depression and arthritis, at a disadvantage. If so, were there reasonable adjustments that should have been made?

The EAT noted that the tribunal had approached the issue of disadvantage in a “binary way” in examining whether the employee could attend the interview or not; this was not the correct approach. Instead the tribunal should have looked at the “effects of the disability which makes it more difficult for the disabled employee to meet an expectation of the employer” compared to those who were not disabled. Here the medical evidence pointed to the claimant having problems with memory, concentration and with social interaction and, as such, the EAT noted “it seems obvious that such problems would, at least hinder effective participation in the interview“. However, the EAT noted that on the facts of this case it was not the “effect of the disability which prevented the claimant from [attending the interview], it was a choice he made because of his belief… that this process was just a means of managing and disguising the reason for his dismissal.” His claim therefore failed.   

Despite this finding, the EAT did go on to look at the question of reasonable adjustments. Turning first to a delay in the interview process for the claimant the EAT noted that “any adjustment which allowed sufficient time for the claimant to recover from the effects which would hinder his participation in an interview, could be considered an adjustment within the meaning of the statute“. However, here the evidence before the tribunal pointed to a significant impairment from which recovery would be protracted and therefore the “short delay” which had in fact been applied to the date of the interview could not be considered an adjustment in the circumstances.

The EAT also rejected the claimant’s argument that “slotting” him into the restructured organisation without any interview would have been a reasonable adjustment; while “slotting in, was objectively a step which would have alleviated the disadvantage… that was a step which would have impacted on others who had taken part in a process of selection. Making a reasonable adjustment is not a vehicle for giving an advantage over and above removing the particular disadvantage“. The EAT referred to case law that has established that “if there is a vacancy which can be filled… to fill that role as an adjustment can be, but will not necessarily be, a reasonable step“; here the circumstances were such that it was not a reasonable step for the employer to take.

The decision emphasises the need to consider each case on its own facts. Here, the employer was engaged in a collective redundancy process where selection for retention in the new structure applied to at least 13 employees, funding was being reduced and there was a time element to the decisions being made. A different decision on delaying the interview process or slotting in as a potential reasonable adjustment may well be reached where decisions are not time critical and/or a disabled employee is asked to interview for a new position but in the absence of other internal competition.  

Selection and consultation or competitive interview?

A question which often arises on a restructuring is whether or not “at risk” employees can be asked to interview for new roles in the restructured organisation as part of a competitive process where redundancies will potentially result.  

In another EAT decision (which was subsequently upheld by the Court of Appeal), it was determined that a competitive interview process was not appropriate where employees were essentially applying for their existing role; in such cases it was considered more appropriate to follow the guidance of the EAT in Williams v Compair Maxam of using a selection matrix, consulting with employees and identifying any suitable alternative employment, as “where an employer has to decide which employees from a pool of existing employees are to be made redundant, the criteria will reflect a known job, performed by known employees over a period“.

This could be contrasted with the situation where an employer wants to appoint to new roles on a reorganisation and where “the employer’s decision must of necessity be forward-looking. It is likely to centre upon an assessment of the ability of the individual to perform in the new role… appointment to a new role is likely to involve… something more like an interview process“. The EAT noted that “these considerations may well apply with particular force where the new role is at a high level and where it involves promotion“.

Ultimately, employers should remember that as well as establishing a fair reason for any dismissal it will be for the tribunal to determine whether or not a dismissal which may result from the process is fair in all the circumstances (taking into consideration the employer’s size and administrative resources).  

Our HR Pensions spotlight for November: the employer pension challenge

In our last issue, we highlighted how inadequate pensions may prove to be a challenge for some employers when managing the workforce and succession planning. The easy answer is to increase contributions and improve employees’ pensions knowledge. But how might employers improve pension outcomes for employees without incurring greater cost? Regulation has helped in certain respects by ensuring that employees are able to invest appropriately (by being enrolled into a default investment fund) and by capping the investment charges for such funds at 0.75%. These help, as do the recent improvements in annuity pricing, but a further option now available to employers is to establish a collective defined contribution scheme (also known as a CDC scheme).

What is special about CDC?

Employers and employees contribute to a CDC scheme in much the same way as a standard defined contribution scheme. The difference is that the CDC scheme pays pensions from the scheme and is able to both pool risk between the members and adjust pensions in payment to ensure no funding deficit arises for the employer. The thinking is that by pooling risk, avoiding insurer margins and having greater investment flexibility, CDC schemes should be capable of providing higher sustainable pensions to members than individual annuities. 

CDC schemes are a relatively new concept within the UK (Royal Mail is the only known company to have implemented the CDC scheme yet). The same approach has already been successfully adopted in other countries such as Canada, Denmark and the Netherlands, however, and the government has appeared keen to provide CDC as an option.

When announcing the launch of CDC in August this year, the former minister for pensions, Guy Opperman, stated: “CDC schemes have the potential to transform the UK pensions landscape. We have seen the positive effect of these schemes in other countries and it is abundantly clear that, when well designed and well run, they have the potential to provide a better retirement outcome for members, and can be resilient to market shocks. I have no doubt that millions of pension savers will benefit from CDCs in the years to come.”

How are CDC schemes set up?

The UK legislation is found in the Pension Schemes Act 2021 and the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022. CDC is not appropriate for every workplace; critical mass and professional governance are needed. Also, the legislation currently provides for single employer or connected employer CDC schemes only. The Pensions Regulator, after consultation, has published a code of practice which sets out how it will authorise and supervise CDC schemes. Employers wishing to establish a CDC pension scheme, therefore, would need to apply for authorisation. In summary, the Pensions Regulator would need to be satisfied that the scheme: (a) involves people who are fit and proper persons, (b) is of sound design, (c) is financially sustainable, (d) has appropriate member communications (which properly explain how CDC works), (e) has sufficient systems and processes, and (f) an adequate strategy. The code provides guidance on each of these criteria in detail.   

Establishing and managing a CDC scheme, alongside the complex criteria for authorisation that need to be met, will be expensive. The standard application fee for authorisation is £77,000 and this does not include the legal and actuarial costs needed to document and design the scheme.  For large UK-wide employers, however, particularly those with thousands of employees with small- to medium-sized pensions pots, it could be worth exploring as an option to potentially improve member outcomes in retirement.

For further information or assistance, please contact Claire Rankin, Partner in our Pensions team, or your usual Osborne Clarke contact.