· 5 min read · Features

Coalition Agreement: what it means for employers

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The document issued by the Conservative Liberal Democrat coalition sets out agreements reached as part of the coalition Government on a number of issues. Although a final Coalition Agreement is yet to be drawn up, a number of employment points arise from the summary agreement:

Financial services sector bonuses

"We agree to bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk."

The financial sector - and the bonuses paid to those within it - have inevitably been the subject of much discussion in the past two years. Although attempts were made by the Financial Services Authority to rein in bonuses last year, those attempts were watered down for fear that key talent in London would leave for more lucrative employment markets elsewhere.  The result has been that financial institutions have still been permitted to pay bonuses even where a loss is suffered and plans to require portions of bonuses to be deferred were reduced to becoming ‘objectives'.

In the run-up to the election, all three main parties pledged to address financial bonuses and to reduce risk in the financial sector. The Liberal Democrats' proposal of limiting bonuses to £2,500 and prohibiting bonuses at board level is unlikely to find favour, not least as it will lead to the same concerns of key talent leaving the UK for other markets.  Rather than setting a limit, the Conservatives emphasised the need to focus on long-term sustainability rather than short-term profit and it is likely that any new proposals brought in will restrict the amount of bonuses that can be paid in cash, requiring a certain proportion to paid in shares vesting over a set period. 

The Conservatives also made clear that they intended to give power to the Bank of England to take action in respect of unacceptable and risky bonuses. While recent court decisions have been going in employees' favour in rulings on unpaid compensation, financial institutions are going to have to be increasingly inventive if they want to retain the bonus culture of recent years.

Retirement

"The parties agree to phase out the default retirement age..."

The Heyday challenge has led to much employment comment over recent years and it culminated in the High Court's decision that the default retirement age of 65 in the Employment Equality (Age) Regulations 2006 was lawful.  In giving judgment, however, Mr Justice Blake made it clear that, although he considered the default retirement age to have been lawful when the Regulations came into force in 2006, the position may have been different had it first been introduced in 2009 and if the Government had not indicated there would be an imminent review.

It therefore comes as little surprise that this is a priority of the coalition and it is something that all the parties would have given attention to had they secured an overall majority.

It is also difficult to see how the default retirement age could have been retained at 65 in circumstances where the state pension age must inevitably rise to address the current problems and shortfalls in the UK pension system.

Working Time Directive

"We will...work to limit the application of the Working Time Directive in the United Kingdom."

One of the key battles between the Conservatives and the Liberal Democrats during the Election debates was their approach to Europe, with the Conservatives on the one hand desiring referenda on any devolution of power to Europe and the Liberal Democrats on the other being fully committed to the UK's continued membership of the EU.  The extent of the EU's power in the UK was also going to be a fraught battleground in a Conservative-Liberal Democrat coalition.

In campaigning for the General Election, the Conservatives' stated aim was to negotiate a full opt-out from the Working Time Directive. The Conservatives' stated position on the directive now appears to have been watered down but its future impact on our workforce remains very much up for discussion.

Up until now, only the 48-hour working week has been opted out of.  No other provision can be opted out of. 

The process of limiting the application of the directive in the UK may, however, be a long-drawn out process. The European Commission issued proposals for the amendment of the directive in September 2004.  For an amendment to be made to the directive, it requires agreement between the member states and the European Parliament. The European Parliament tried at that time to phase out the working week opt-out but, despite lengthy negotiations, agreement could not be reached and the directive remained unamended.  Having taken over the presidency of the EU, Spain has now said that it intends again to try to amend the directive to remove the opt-out.

The directive has long been a source of contention for British employers and it is estimated that if the opt-out were lost, more than 3.2 million individuals would be prevented from working in excess of 48 hours a week. The fear is that attempts within Europe to remove the opt-out will be relentless, hence the Conservatives' desire to go further.  That ‘further' would, however, require a much more widespread derogation from European employment law, something the Liberal Democrat side of the Coalition is likely to find difficult to stomach and in going further, the Conservatives risk eroding employees' rights and disrupting the current balance between the competing interests of employers and employees.

What's missing?

There are some notable absences from the summary agreement and it will be interesting to see to what extent these have been discussed and are reflected in the final Coalition Agreement:

  • The Equality Act 2010 was given Royal Assent in the last Parliament and its provisions are, for the most part, due to come into force in October 2010. The Conservatives made clear, prior to the General Election and as the Bill was going through Parliament, that it may not introduce the following provisions:
    • The Act provides for greater positive action, allowing employers to choose someone for a job from an under-represented group where the two applicants are ‘as qualified as' each other.
    • The Act also requires employers with 250 employees or more to publish pay information on a voluntary basis. The intention had been to make that compulsory from 2013 but the Conservatives have previously said they would not require this. The Liberal Democrats, on the other hand, are strongly in favour of equal pay audits and many feel that without a compulsory reporting requirement, the pay differential between men and women will continue.

It remains to be seen whether there are other provisions of the long-awaited Equality Act that may suffer as consequence of the change in Government.

  • Both the Conservatives and the Liberal Democrats included in their Election campaigns a desire to extend the right to flexible working. The Conservatives made it a priority to extend the right to all parents of children under the age of 18. The Liberal Democrats went further and wanted to extend it to all employees, not just parents and carers. A balance clearly needs to be struck between employees' wishes and rights to work flexibly and employers' needs to manage their businesses and, given the ongoing difficult economic climate, the extension of the flexible working right will need to be given careful consideration.
  • Both parties also made it clear that they wanted family leave to operate more fairly so that mothers and fathers could have greater freedom as to who can take leave, and when. The Labour Government has already put in place new additional paternity leave provisions from April 2011, which will allow fathers to take leave from 20 weeks after the birth of the child. The Conservatives' intention was to allow parents to decide how to determine paid leave from 14 weeks after the birth. Again, the Liberal Democrats went a little further, proposing that, excepting the compulsory first two weeks, parents should be allowed to divide up the entire 12-month period as they wish. The wheels have already been set in motion by the Labour Government to increase the flexibility of family-friendly rights and both parties' hope is that by doing so further, employees will be able to strike a better balance between work and life and UK businesses will become more attractive as employers.

Ellie Hibberd is a solicitor in the employment group at law firm Winckworth Sherwood