In this Q and A Session, Herbert Smith Freehills Employment and Incentive specialists from the United States and the United Kingdom forecast the expected developments and pressing risks facing financial sector employers in 2021.
Tyler Hendry, David Palmer and Tess Lumsdaine will be hosting a webinar to explore these issues in more detail on February 11 and will offer perspectives from the United States, the United Kingdom and Asia.
Webinar registration is available at this link.
1. Covid-19 dominated employment inquiries for much of last year, what are the biggest employment issues facing financial sector employers related to Covid-19 in 2021?
- Return-to-work questions. Employers have started implementing processes for returning segments of employees back to the workplace. Legal planning questions include: (1) discussing whether to encourage v. mandate vaccinations in light of federal and state guidance – with the large majority of financial sector employers deciding against mandatory vaccination, (2) consistently responding to employee requests to continue working from home because of safety and/or childcare concerns, (3) deciding which safety protocols to implement, and (4) re-evaluating existing policies – such as leave, travel, expense reimbursement, and remote work policies – and deciding, which, if any, should be updated and whether these changes should be temporary or permanent.
- Transition to long-term work-from-home arrangements. As employers weigh real estate costs with the performance of their remote workers, many are considering long-term work-from-home arrangements. In fact, some have already announced plans to allow permanent work-from-home arrangements. This can create additional legal obligations, particularly if employees live in a state that is different from where the business is physically located. In many states, the presence of one employee physically working within a state can create tax, workers’ compensation, unemployment insurance, and/or other legal obligations within the state where the employee is physically located. Understanding the full impact of these arrangements before announcing long-term plans is critical.
- Compliance with multi-layered paid leave laws. In 2020, the federal government enacted its first paid leave law in its history. The law – the Families First Coronavirus Response Act (“FFCRA”) – applied to employers with less than 500 employees and expired at the end of 2020. President Biden has announced plans to extend and expand the law, including extending the leave to employers with over 500 employees. Negotiations over this announced plan are ongoing in Congress. In addition, many states and localities have added and/or expanded their own paid or sick leave laws to address Covid-19, and compliance with these laws must be coordinated with whatever legislation the federal government ultimately enacts.
- Layoffs. While many institutions were able to avoid significant layoffs last year – and in fact, some pledged not to engage in layoffs in 2020 – those pledges have now expired and economic conditions may inevitably result in redundancies. For example, State Street recently announced plans to cut approximately 1,200 jobs. Large-scale layoffs require careful planning (particularly if done remotely), and often require timely advance notification to employees and governmental authorities and steep penalties for failing to do so. Employers in a wide array of industries were hit with class-action claims in 2020 for layoffs that allegedly ran afoul of these rules.
- Return to work questions. Broadly similar to the United States, employers are considering legal planning for questions regarding: (1) mandating vaccinations or (more likely) how to encourage employees to be vaccinated, (2) responding to employee requests to continue working from home, (3) safety protocols and consulting with staff about return to work, and (4) re-evaluating existing policies and practices in light of changes to working arrangements. One of the most challenging questions from a purely practical perspective is how an employer should deal with an employee who first displays Covid-19 symptoms, or is told by the UK Government to self-isolate, while physically present in the workplace. This is particularly tricky if the employee has no means of getting home without using public transport.
- Monitoring, privacy and confidentiality. With most employees (who can) working from home, continuing issues for employers are likely to include (1) monitoring employee productivity, (2) preventing presenteeism, (3) protecting mental health and (4) protecting confidential and price-sensitive data whilst it is accessible in employees’ homes. Privacy laws may restrict what employers can do in this regard.
- Coronavirus Job Retention Scheme (“CJRS”). Throughout most of 2020, the UK Government provided financial support to employers in respect of staff who had been furloughed. The CJRS reimbursed 80% of each employee’s salary, for hours not worked, capped at £2,500 per month. The purpose of the CJRS was to avoid (or at least delay) mass redundancies when the lockdown measures originally commenced in March 2020. However, the CJRS is due to end on 30 April 2021 and employers will have to decide whether the roles of the staff who have been supported by the CJRS may be redundant. Employers also have to be mindful of the adverse optics of awarding bonuses and pay raises to staff where the employer has used the CJRS. Some employers have decided to repay funds to the CJRS.
- Headcount reduction. In addition to the end of the CJRS, the continuing impact of the pandemic means it is likely that employers will have to consider restructuring and redundancies in 2021.
- Regulatory compliance. During 2020, the UK regulators relaxed some of the rules under the Senior Manager & Certification Regime to allow firms some leeway as they adapted to the pandemic. The regulators have ended the relaxation of the rules and told firms that the rules have returned to normal. However, the regulators may make further changes to the rules in response to ongoing developments in 2021. Senior Managers can be held individually responsible for their firm’s COVID-19 response and so they will continue to be mindful of the impact of the pandemic and any applicable regulatory changes. Employers may also have difficult judgement calls to make as to whether certified staff have shown themselves not to be ‘fit and proper’ if they are criminally fined for breaching social distancing or quarantine rules.
- IR35. The changes to the off-payroll working rules were delayed due to the pandemic and the earlier election and should come into force on 6 April 2021. The new rules could result in considerable tax and administrative burdens for employers who engage certain contractors via personal service companies. Many financial sector employers will be impacted by the changes, although hopefully most are well-advanced with their preparation.
2. Of these issues, where do you see the biggest risk for litigation/disputes?
An unbreakable tie between (1) terminations for employees who refuse to return to the physical workplace because of Covid-19 concerns, and (2) lawsuits relating to large-scale redundancies.
It is essentially the same in the UK – (1) claims from employees who say they are subjected to a detriment or have had their employment terminated (or threatened to be terminated) by their employer because they have raised health and safety concerns about Covid-19, and (2) claims arising from large-scale redundancies.
3. President Biden has repeatedly expressed a desire to repeal and replace much of President Trump’s agenda; how will the new administration impact financial sector employers?
We do not foresee a particularly dramatic change aimed at employment in the financial sector. The Biden administration has appointed former union leaders to many key employment positions, and it is expected that expanding unionization efforts, as well as regulating the so-called “gig economy” (i.e., the use of non-employees to provide services) will be key goals of the Biden administration. These initiatives do not have a strong direct impact on most financial sector employers. More general goals of the administration aimed at the financial services industry include strengthening regulation and oversight, as well as supporting smaller financial institutions rather than larger ones, and these goals are likely to have a tangential impact on employment.
However, two expected direct developments that apply to all industries will impact financial sector employers. They are (1) the extension of the FFCRA paid leave discussed above – which is now expected to apply to large employers with over 500 employers, and (2) expanded federal safety workplace requirements for Covid-19. Workplace safety is not typically top-of-mind for financial sector employers. Most employers have limited, if any written policies, and the Biden administration is expected to issue revised guidance on workplace safety and increased federal enforcement for violations.
4. Same question for Brexit, how do you anticipate Brexit will impact financial sector employers?
Employers in the UK financial sector have been preparing for the potential implications of Brexit since the referendum result in mid-2016 including (1) restructuring and relocating staff (often from the UK to other EU countries) so that operations can continue in compliance with the post-Brexit regulatory regime and (2) preparing for the impact of changes to immigration law (e.g. ensuring key staff would continue to have a right to work in the UK).
UK employers are keeping an eye on whether the UK Government will attempt to amend various employment laws which are derived from EU law (such as working time rights). The trade agreement between the UK and the EU only prevents the UK from weakening or reducing its employment laws, as were in place on 31 December 2020, if it does so “in a manner affecting trade or investment” between the UK and the EU. This appears to give the UK Government some latitude to make changes to employment laws. In January 2021 the media reported that the Government had commenced a review into possible amendments. This was confirmed but ministers denied that there was any proposal to row back on workers’ rights and subsequently confirmed that the review has been dropped. Changes are therefore very unlikely in the short term. For further information, see our blog post here.
In any event, it seems unlikely that the UK Government would reduce employment protections in such a way as to have a material impact on the financial sector. If we were to guess, the main beneficiaries of any changes to employment laws would likely be employers in the manufacturing and social care sectors, where existing working time laws can have a significant impact on operations and costs.
In light of Covid, our 2021 forecast bears no resemblance to any of our forecasts from previous years, and we invite you to join us for our upcoming webinar to assist in getting through what is likely to be a challenging year for employers.