AB2U Blog

Auto Enrolment Pension Reforms: Umbrella companies and personal services companies-who is the employer?

The auto enrolment pension reforms which are due to commence from October this year will impose new responsibilities on employers. Employment businesses will have to consider their obligations not only to their staff (consultants, admin staff etc) but also to the workers they supply to clients. We previously outlined ‘Automatic enrolment –
Pension reforms’ in the July/August 2011 Legal bulletin.

The new pension obligations will principally require employers to:
• Enrol eligible workers into a qualifying pension scheme
(workers choose to opt out)
• Contribute to the scheme
• Provide certain information to the workers

One issue that is being raised increasingly is about the impact that these employer obligations will have on employment businesses that supply limited company contractors; either those working through personal services companies or umbrella company workers.

Umbrella Companies
Under the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the Conduct Regulations), a work seeker can either be an individual or a body corporate (a limited company of even a limited liability partnership). When an employment businesses works with an umbrella company, typically the umbrella company will have a contract for services with the employment business and it will engage individuals under a contract of employment. In this arrangement the umbrella company is a work seeker. The individuals who undertake assignments do so as employees of the umbrella company.

Regulations 14 and 15 of the Conduct Regulations require the employment business to agree certain terms with the work seeker before providing work finding services. Where the work seeker is the umbrella company, these terms are agreed between the employment business and the umbrella company. It should be noted though that in a situation where an individual approaches an employment business for work who does not already have relationship with an umbrella company, regulations 14 and 15 of the Conduct Regulations require the employment business to agree terms with the individual before providing any work finding services (e.g. before commencing the search for an assignment).

The situation can often become confusing if the individual at a later date works through an umbrella company which in turn is engaged by the employment business as a work seeker. The employment business needs to take steps to ensure that it is clear under which arrangement the work seeker undertakes any subsequent assignments i.e. either as a directly engaged worker of the employment business or as an employee of the umbrella company.

For the purpose of the new pension employer obligations, the Pensions Act 2008 defines a worker as an individual (rather than a company) who works under either a contract of employment or any other contract by which he or she undertakes to work or perform services personally for another party under the contract. The employer is the party who has the contract with the individual. There are additional safeguards that apply to agency workers which ensure that in the event of there being any confusion over the contractual arrangements that are in place, the party who is responsible for paying the worker or who actually does pay the worker, is the one who will be responsible for the employer pension obligations.

This means that where an employment business has entered into a contract for services with an umbrella company and the umbrella company employs the individual workers, it will be the umbrella company who is responsible for the employer obligations. As previously reported in the July/ August 2011 Legal bulletin the new pension obligations will be applied to employers in stages, commencing with the largest employers (by size of pay roll) from October 2012, followed by medium and smaller employers. The staging process was set to be rolled out over a four year period (the dates for the smallest employers are currently being reviewed but employers with more than 3000 workers will be unaffected by the review). The date that the employers are required to apply the new pension obligations from is referred to as the staging date.

Employment businesses that work with umbrella companies should bear in mind that the worker will be entitled to the benefit of the new pension rights from the applicable staging date of his/her employer (i.e. the umbrella company) rather than from the employment businesses staging date. If the umbrella company has an earlier staging date than the employment business this will result in the employment business indirectly supplying workers who are entitled to be auto enrolled into a pension before the employment businesses own staging date for its directly engaged workers.

In this respect it is important to remember that it will be the umbrella company as the employer that is responsible for the new employer pension obligations. It remains to be seen how the umbrella companies will go about dealing with any additional cost or administration.

Personal Services Company Contractors

What then of limited company contractors who operate through their own personal services companies? The Pensions Act 2008 specifically provides that a person who is a director of a company is not a worker who is entitled to the new rights unless he or she is employed by the company (under a contract or employment) and there is at least one other employee who is also engaged under a contract of employment by the company. So contractors who are directors of their own personal services companies which have no other employees are not eligible to be auto enrolled. In any case if the company did meet the criteria, it, rather than the employment business would be the employer with the obligations to auto enrol.

Unfair dismissal rules to change

The Chancellor, George Osbourne announced on 3 October 2011 that changes will be made to the rules for bringing unfair dismissal claims. Currently employees generally need to have one year’s service in order to acquire protection from unfair dismissal. It is proposed that this will be increased to two years from 6 April 2012.

The Government hopes that increasing the time limit will stimulate growth in the economy by making it easier for businesses to take on new employees.

The proposals were initially announced as part of the Government’s ‘Resolving work place disputes’ consultation which ran from January to April this year. Other proposals contained in the consultation included the introduction of fees for issuing claims in Employment Tribunals as one way of reducing the number of vexatious claims issued. The Government is yet to confirm whether this change will be introduced.

The Agency Workers Regulations ‘Exemptions and opt outs’

The Agency Workers Regulations 2010 (AWR) came into force in England, Scotland and Wales (GB) on 1 October 2011. The Agency Workers (Northern Ireland) Regulations 2011 will come into force on 5 December 2011 (the Northern Ireland Regulations mirror the GB Regulations).

Is there a “professional exemption” from the AWR?

The REC Legal Helpline has received many calls in recent weeks about whether agency workers who are ‘professionals’ are exempt from the AWR under a so called “professional exemption.” Whilst these calls have come from members supplying temporary workers in all sectors, the most interest has been from members in the education and driving sectors.

So where does this come from?

Regulation 3(2) of the AWR states that: “…an individual is not an agency worker if —

(a) the contract the individual has with the temporary work agency has the effect that the status of the agency is that of a client or customer of a profession or business undertaking carried on by the individual; or

(b) there is a contract, by virtue of which the individual is available to work for the hirer, having the effect that the status of the hirer is that of a client or customer of a profession or business undertaking carried on by the individual.”

Many of the queries raised on this provision focus on the word “profession” in isolation. However, Regulation 3(2) must be read in its entirety. In order for the exclusion to apply, it is necessary that under the contract that the worker has with the agency, the agency is the client or customer of the individual’s business or profession, or alternatively that another contract has the effect that the hirer is a client or customer of the individual’s business or profession.

Can an agency worker opt out of the AWR?

A further query which is being raised frequently on the Legal Helpline is about an opt out for agency workers.

Agency workers cannot opt out, waive or relinquish their entitlements under AWR. If an individual is an agency worker s/he is entitled to receive their Day One rights from the hirer from the start of their assignment, and their equal treatment entitlements (in terms of pay, annual leave etc.) on completion of the 12 week qualifying period. Any contractual clauses which purport to provide an opt out from the AWR will be void and unenforceable. This would mean an agency could not later rely on any such clause if faced with a claim under AWR.

The AWR are enforced by agency workers pursuing claims in Employment Tribunals. An agency worker may choose to bring or not to bring such a claim (and it will be interesting to see how the proposals to bring in fees for Employment Tribunal claims might impact on this). However, choosing not to bring a claim is not the same as opting out of the AWR, even if ultimately the practical effect is the same.

It is common for potential employers and employment businesses to ask candidates to give details of any previous convictions.

You may also have procedures in place to undertake these checks for existing employees moving to new roles, especially where the position is deemed sensitive.

The Rehabilitation of Offenders Act 1974 (“the 1974 Act”) allows an individual who has been convicted of certain offences to treat the conviction as though it had never happened. These are known as ‘spent’ convictions . In general a conviction cannot be spent if it incurred

a sentence of more than two and a half years;

a life sentence;

preventative detention, or its equivalent for young offenders.

The Act does not apply to certain classes of occupations and offices. In other words spent convictions may be a ground for refusing someone employment or dismissing him or her if the job is within the excepted classes of employment and professions. These include employment involving supervision or contact with children, young persons and the vulnerable.

However in general, anyone who has been convicted of a criminal offence, and who has been sentenced to two and a half years imprisonment or less, may after a period of time known as the “rehabilitation period” treat that conviction as though it never took place, provided no further conviction for a serious offence has taken place in the meantime.

This means that an employer may only ask a candidate for employment if they have any ‘unspent’ convictions unless they are included in the Exceptions Order to the Rehabilitation of Offenders Act 1974. The employee is not obliged to disclose those that are treated as spent. The Act also makes it unlawful for an employer to discriminate against an employee, or dismiss him because of a spent conviction. If the employer does so an employee may claim unfair dismissal.

Employment businesses, which supply temporary workers to a client, are deemed to be employers and permitted by the CRB to apply for Disclosures where permitted under Act at the time they take the worker onto their books. By contrast, Employment Agencies, which introduce candidates for employment with the client direct are only permitted to obtain a Disclosure if the employer who will be employing the candidate is permitted to do so and only then once the offer of employment has been made.

A prospective employer may not ask an applicant or candidate to declare any spent criminal convictions in relation to employment other than the excepted classes of employment and excepted professions listed. The following is an example of the way in which such a request for information should be phrased:

“Do you have any unspent criminal convictions? If yes, please list your criminal convictions and their dates below. The information you give will be treated in confidence and only taken into account where, in the reasonable opinion of [insert name of business], the offence is relevant to the post for which you are applying. Failure to declare a conviction may require us to exclude you from our register or terminate an assignment if the offence is not declared but later comes to light.”

08 Aug 2011

The Department for Business Innovation and Skills released its long awaited Guidance to the Agency Workers Regulations 2010 on 6 May 2011. The Guidance is aimed at employment businesses and other businesses and organisations that are involved in the supply and use of agency workers.
While the AWR were presented to parliament in January 2010, just under two years before coming into force, for many the release of the Guidance is the trigger to taking specific action in preparation for AWR.

Agencies need to assess the impact that the AWR will have in their particular
sector and on their relationship with individual clients. End user clients use
agency workers in different ways to benefit their business depending on the type of flexibility that they require. Some clients regularly use agency
workers for very short assignments meaning that they will not necessarily
work the 12 week period required to qualify for the new equal treatment
rights. However care must be taken to monitor this because of the pauses in
assignments which may allow agency workers to qualify for equal treatment
over periods that are longer than 12 weeks.
In other cases agency workers are regularly supplied to work in assignments of over 12 weeks which will see them qualify for equal treatment. The extent to which rates of pay differs between agency workers and direct recruits of clients also varies from sector to sector and indeed from business to business.
Assignment lengths
In order to qualify for equal treatment in terms of pay and working conditions,
agency workers must work for 12 weeks in the same role with the same client.
Therefore the length of assignments will determine whether an agency worker will qualify for equal treatment.
Consequently agencies need to assess whether assignments that they typically supply workers into will result in their agency workers qualifying for equal treatment under the AWR.

The Bribery Act

 The Ministry of Justice (MOJ) finally published the Guidance on 31 March and
confirmed that the Act will now come into force on 1 July 2011.
The Guidance sets out six principles to illustrate application of the Act. The principles are not prescriptive but must be tailored to the risks faced by your particular business
- the key to implementation of the principles is that each organisation takes a risk based approach to managing bribery risks and anti-bribery procedures should be proportionate to those risks.
The six principles are largely the same as those published in draft form in September 2010 though some have been reordered, renamed and expanded upon. The core principle and emphasis being on proportionality – consider the risks faced by your organisation and implement policies and procedures
that are proportionate to those risks.

Principle 1 – Proportionate procedures
The anti-bribery procedures implemented by any organisation should be proportionate to the risks faced by that organisation when taking into account the nature, scale and complexity of the activities undertaken. The procedures
need to be clear, practical, accessible and implemented and enforced effectively.
Principle 2 – Top-level commitment
Senior management should adopt and embed a zero tolerance commitment to bribery and “foster a culture within the organisation in which bribery is never acceptable.” Whatever the size, structure or market of a commercial organisation, top-level management involvement is likely to include:
• communication of the organisation’s zero tolerance commitment to all associated persons periodically (the policy should be readily available e.g. via a statement/policy on an intranet site/internet site);
• an appropriate degree of involvement in developing bribery prevention procedures) e.g. larger companies may have compliance and risk managers who develop the policy dictated by top level management, whereas
smaller companies often do not have dedicated risk management resources.
Principle 3 – Risk assessment
The organisation should assess the nature and extent of risks of bribery on a periodic basis. The organisation should then adopt and promote anti-bribery procedures that are proportionate to the size and structure, and to the nature, scale and location of the activities undertaken. The organisation will also need to consider risks associated with the particular sectors they operate in. The Guidance identifies a number of external and internal risk factors including:
• External – country risk (operating abroad – on page 32 the Guidance states that bribery risks associated with foreign markets and generally higher than those associated with the domestic market), sectoral risk (e.g. large scale construction projects), transaction risk (e.g. charitable or political contributions or public procurement), business opportunity risk (e.g. on high
value projects), and business partnership risk (e.g.working via intermediaries or within consortia);
• Internal – lack of employee training, skills and knowledge, a bonus culture which rewards excessive risk, lack of clarity of anti-bribery policy and top-level
management commitment and lack of clear financial controls.
Principle 4 – Due diligence
Organisations should carry out effective due diligence regarding persons who will potentially be performing business for or on behalf of the organisation. This due diligence should be proportionate to the risks identified.                         Principle 5 – Communication (including training)
The anti-corruption policies and procedures should be effectively communicated internally and externally to third parties performing services for the organisation. Include policies on particular areas e.g. decision making, hospitality and promotional expenditure etc. Individuals also need to know where or to whom they can safely raise concerns about bribery, request advice or make suggestions for improvement of policies and procedures.
The organisation may wish to incorporate bribery training into the induction procedure for new employees/agents.
Principle 6 – Monitoring and review
An organisation may face new or different risks over time, e.g. when working in new foreign markets or in a new sector. Therefore it is important for organisations to monitor and review their procedures and policies
periodically and to update them if necessary to the changes in the business or if incidents occur.
It should be clear from these six principles that it will not be enough for any commercial organisation merely to have anti-corruption and bribery policies and procedures on paper. The organisation needs to ensure that such policies
and procedures are implemented and periodically reviewed to ensure they remain fit for purpose.
The key is to implement policies and procedures that are proportionate to the risks faced by your business. Consider what competitors and others in your industry are doing.
Gifts and hospitality
The MOJ guidance states that gifts and hospitality given to improve business relations and to network will not be considered to be a bribe under the Act if they are reasonable and proportionate, are given for a bonafide business reason and are not intended to influence improper performance of a function or activity. In para26 the Guidance states that “the Government does not intend for the Act to prohibit reasonable and proportionate hospitality and promotional or other similar business expenditure intended for these purposes.” However, gifts should not be unduly lavish and should certainly not be intended to influence the recipient in their decision making.

What’s coming into force for April 2011?

Default retirement age is to be abolished

Clients will no longer be able to automatically decline candidates for employment who have reached the default (or their own) retirement age.

A general refusal by agencies to provide services to a prospective job seeker on the grounds of age will constitute age discrimination unless you can point to an exception or objective justification.

In relation to a specific instruction from a client for a particular role, if the client for example specifies that for example, it will not accept anyone over the age of 65 for a particular role you should seek a statement from the client as to why this does not amount to unlawful discrimination. There may be instances where applying this condition will be lawful. For example an employer might be able to justify imposing a maximum age for roles which are physically demanding such as construction work. Each instance needs to be looked at on a case by case basis.

Additional Paternity Leave

New rights to Additional Paternity Leave and pay will come into effect for parents of children with an expected week of childbirth (or matching date in the case of adoption) that falls on or after 3 April 2011.

The new provisions will give eligible employees the right to use a portion of the mother’s maternity leave (or the leave of the other adopting parent) in order to take up to six months Additional Paternity Leave. Although referred to as paternity leave the additional rights will apply to the father of the relevant child (whether married to the mother or not). It will also extend to civil partners or partners of the mother or adopting parent.

Flexible working

The right to request flexible working will be extended to parents with a child under the age of 18 from 6 April 2011. Currently the right applies to parents with a child under the age of 17 or 18 if the child has a disability.

Immigration

Last November, the Home Secretary announced plans to curb the number of migrant workers entering the UK under Tiers 1 and 2 of the points based system.

The Government has published a “statement of intent” which sets out the changes it will make to the points based system from 6 April 2011.

A cap of 20,700 applicants per year will be imposed for Tier 2 (excluding inter-company transfer applicants).

The full statement can be accessed on the UKBA website.

End of the Worker Registration Scheme

Currently workers from the following countries are required to register under the Worker Registration Scheme (WRS) when starting employment in the UK:

• Czech Republic; Estonia;

• Hungary;

• Latvia;

• Lithuania;

• Poland;

• Slovakia; or

• Slovenia.

Under European Union law the UK is only able to continuing operation of the WRS until the end of April.

What’s not coming into force for April 2011?

Extension of time off for training on hold

The right to request time off to train will not be extended to small and medium sized employers as proposed. Since April 2010 employees working for organisations with 250 or more employees have been entitled to request time off work for training. This was due to be rolled out to employees of smaller employers with effect from April 2011. However the Government has revised this decision in light of concerns about the financial impact that this would have on small businesses and this will not be implemented for the time being.

Further delay for the Bribery Act 2010

The Bribery Act which was due to be implemented from 6 April 2011 will be delayed for the second time. The Ministry of Justice has yet to conclude the guidance which it is required to produce to accompany the Act. There will need to be a lead time of three months from the date the guidance is released before the Act can take effect. At present no further implementation date has been announced.

Dealing with older candidates
Members often query how they should deal with candidates who want to register for work or a particular vacancy if they have passed the default retirement age of 65. We are all  being advised that we will need to work for longer and the Government has now introduced legislation to abolish the default retirement age meaning that employers will no longer be able to automatically dismiss employees on the grounds of retirement. The result is likely to be that agencies and employers will more often be dealing with older candidates moving forward.
The current position Under the Equality Act 2010 (the Act) age is a protected characteristic. The Act prohibits employers from unlawfully
discriminating against employees (including prospective employees) on the grounds of age. The Act also contains specific provisions for employment businesses and employment agencies, which prohibits them from discriminating when providing their services. You must not discriminate:
• In arrangements you make for choosing who to provide services to or who to offer to provide services to;
• in the terms on which you provide or offer to provide your services;
• by terminating the provision of your services to an individual or subjecting them to any detriment; and
• by not providing your services or not offering to provide your services.
Exceptions
Where a person is treated less favourably on the grounds of age, this will not amount to unlawful discrimination if the treatment can be objectively justified. In addition there are exceptions under the Act, which provide for employers to make employment or dismissal decisions on the grounds of a person’s age without unlawfully discriminating:
• At the time of writing, retirement is currently one of the grounds on which an employer can fairly terminate a contract of employment without discriminating on the grounds of age. This is subject to the employee having reached the default retirement age or the employer’s contractual retirement age (if higher). However this provision will be phased out from 6 April and revoked entirely from 1 October 2011.
• At the time of writing an employer can currently decline to employ someone who has reached the default retirement age or older (if the employer has a higher retirement age) or who is within six months of reaching that age. This will no longer apply from 6 April 2011.
• An employer can decline to employ a person if:
• there is an occupational requirement for a person to be of a particular age/age group to do a job;
• applying that requirement is a legitimate means of achieving a legitimate aim; and
• the applicant does not meet that requirement.
This provision also applies to employment agencies and businesses. An employment agency can apply this provision in terms of the way it provides its services where it reasonably relies on a statement made by its client in relation to a particular instruction, that an occupational requirement applies to a particular role (for a person to be a particular age) and that the agencies action (say in not putting a candidate forward for interview) is not unlawful. Default retirement age is to be abolished. Your clients will no longer be able to automatically decline candidates for employment who have reached the default (or their own) retirement age.
A general refusal by agencies to provide services to a prospective job seeker on the grounds of age will constitute age discrimination unless you can point to an exception or objective justification.
In relation to a specific instruction from a client for a particular role, if the client for example specifies that for example, it will not accept anyone over the age of 65 for a particular role you should seek a statement from the client as to why this does not amount to unlawful discrimination. There may be instances where applying this condition will be lawful. For example an employer might be able to justify imposing a maximum age for roles which are physically demanding such as construction work.
Each instance needs to be looked at on a case by case basis.

Further delay for the Bribery Act 2010
The Bribery Act which was due to be implemented from 6 April 2011 will be delayed for the second time. The Ministry of Justice has yet to conclude the guidance which it is required to produce to accompany the Act. There will need to be a lead time of three months from the date the guidance is released before the Act can take effect. At present no further implementation date has been announced.

Additional Paternity Leave
New rights to Additional Paternity Leave and pay will come into effect for parents of children with an expected week of childbirth (or matching date in the case of adoption) that falls on or after 3 April 2011.
The review of the scheme only sets out the broad principles that will apply to the revised barring and disclosure regimes. The full details of what roles will be covered have not yet been finalised. The new provisions will give eligible employees the right to use a portion of the mother’s maternity leave (or the leave of the other adopting parent) in order to take up to six months
Additional Paternity Leave. Although referred to as paternity leave the
additional rights will apply to the father of the relevant child (whether married to the mother or not). It will also extend to civil partners or partners of the mother or adopting parent.

Flexible working
The right to request flexible working will be extended to parents with a child
under the age of 18 from 6 April 2011. Currently the right applies to parents with a child under the age of 17 or 18 if the child has a disability.

Immigration
Last November, the Home Secretary announced plans to curb the number of migrant workers entering the UK under Tiers 1 and 2 of the points based system.
The Government has published a “statement of intent” which sets out the changes it will make to the points based system from 6 April 2011.
A cap of 20,700 applicants per year will be imposed for Tier 2 (excluding
inter-company transfer applicants).

The Bribery Act 2010
Although the Bribery Act 2010 (the Act) is due to come into effect in three months’ time (April 2011), there are calls for the Justice Secretary to reconsider the Act (as reported in the Evening Standard 07.01.11). There are concerns that the Act is draconian and the Government has itself admitted that its provisions could harm British business (for example, there is no exception for facilitation payments, unlike the position under the US Foreign Corrupt Practices Act 1977 (FCPA)).

So what is the Act all about?
The Act is criminal legislation and replaces three pieces of anti-corruption legislation dating from 1889, 1906 and 1916 which will be repealed in their entirety. The Ministry of Justice states that “the Act will ensure the UK is at the forefront of the battle against bribery and paves the way for fairer practice by encouraging businesses to adopt anti-bribery safeguards.” The Act extends to both Scotland and Northern Ireland as well as England and Wales.

What are the main features of the Act?
The Act was a response to the various investigations by the Serious Fraud Office into BAE Systems which have taken place in the last 10 years and which culminated in a hearing at Southwark Crown Court on 20 December 2010. There has also been significant international activity against bribery and corruption led by organisations such as Transparency International and the Office for Economic Co-operation and Development (OECD).

The main features of the Act are:
• it will be an offence to give or receive a bribe (sections 1 and 2);
• it will be an offence to promise, offer, request or agree to receive a bribe (sections 1 and 2);
• it will be an offence to bribe a foreign public official (section 6);
• both the public and private sectors are covered. The new law is not just about bribing public officials; bribery in the private sector is also criminalised (section 3);
• if a senior officer of a commercial organisation, or a person purporting to act in such a capacity, consents to (is aware and agrees) or connives in (turns a blind eye to) the commission of any of the above bribery offences, that senior officer or person is also guilty of the offence. The senior officer or person must have a connection with the UK, e.g. be a British citizen or ordinarily resident in the UK (sections 7, 8, 14 and 15);
• a new corporate offence is introduced, which will apply to a commercial organisation that fails to implement adequate procedures, where an act of bribery is committed in connection with its business (section 7). This is a strict liability offence which does not require intent.

The Act has a global reach (section 12), which means that:
• any individual ordinarily resident in the UK (whether or not a British national) can be prosecuted for bribery offences committed anywhere in the world; and
• any partnership or corporate (whether or not incorporated in the UK) can be prosecuted if it does business in the UK (e.g. through a permanent establishment, subsidiary or other operation), even if the offence was committed outside the UK.

The penalties are set out in section 11:
• the maximum penalty for individuals will increase from seven years’ to ten years’ imprisonment and/or a fine (this compares to five years’ imprisonment under the FCPA);
• the maximum penalty for a commercial organisation will be an unlimited fine.

There will be consequences associated with any conviction under the 2010 Act, including:
• the disqualification of directors;
• the organisation will be barred from future public procurement; and
• the confiscation of assets.

Failure of a commercial organisation to prevent bribery

The section 7 offence of failure to prevent bribery applies to “relevant commercial organisations”. Section 7(1) states that: “A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending to (a) obtain or retain business for C, or (b) to obtain or retain an advantage in the conduct of business for C.”

Relevant commercial organisations (C) are defined in section 7(5) and include:
• a body incorporated under UK law and carrying on business either in the UK or elsewhere;
• any other body corporate, wherever incorporated and carrying on business, or part of a business in the UK;
• a partnership formed in the UK and carrying on business either in the UK or elsewhere; or
• any other partnership wherever formed and carrying on business, or part of a business in the UK.

A partnership means a partnership formed under the Partnership Acts or a firm or similar entity formed outside of the UK. Finally, a business includes a trade or profession. Thus the definition of “relevant commercial organisation” is extremely wide-ranging and potentially includes anyone carrying on any business anywhere in the world.

An associated person (A) is defined in section 8 as a person who performs services for or on behalf of C. The capacity in which A performs those services is irrelevant and A can include C’s employee, agent or subsidiary.

The “adequate procedures” defence

The only defence available to commercial organisations charged with the section 7 offence will be for the organisation to show that it had “adequate procedures” in place to prevent an act of bribery being committed in connection with its business (section 7(2)). Adequate procedures are not defined in the Act but are subject to guidance to be published by the Secretary of State. At the time of writing the guidance is expected in Spring 2011. In the meantime, the draft guidance published in September 2010 is based on six general principles. These are intended to be of general applicability across all sectors and for all types and size of business. Within the recruitment industry some sectors may be more susceptible to corruption and bribery including construction, otherwise high value contracts may be susceptible.

The six principles are not intended to be prescriptive or to impose any direct obligation on business.

The six draft principles

1. Risk assessment: the commercial organisation regularly and comprehensively assesses the nature and extent of the risks relating to bribery to which it is exposed. Small and medium sized enterprises will face different challenges and risks than large multi-national organisations.

This means that it is vital that organisations understand where the corruption risks lie and the potential impact on the business by conducting thorough risk assessments and understanding the law in every country where they have operations. When supplying to clients overseas get advice on corruption and anti-corruption policies in the relevant country. Members can conduct preliminary enquiries via websites such as the Global Advice Network or Transparency International but should take specialist legal advice before contracting with a prospective overseas client.

2. Top level commitment: the top level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery. They establish a culture within the organisation in which bribery is never acceptable. They take steps to ensure that the organisation’s policy to operate without bribery is clearly communicated to all levels of management, the workforce and any relevant external actors.

This means that if allegations emerge against individuals or the organisation, the top level management needs to be prepared to act. It is no longer acceptable to turn a blind eye.

3. Due diligence: the commercial organisation has due diligence policies and procedures which cover all parties to a business relationship, including the organisation’s supply chain, agents and intermediaries, all forms of joint venture and similar relationships and all markets in which the commercial organisation does business.

The Global Advice Network has produced a number of due diligence tools which are available here. These include tools to screen agents, consultants, contractors and joint venture consortia, as well as a public procurement tool.

4. Clear practical and accessible policies and procedures: the commercial organisation’s policies and procedures to prevent bribery being committed on its behalf are clear, practical, accessible and enforceable. Policies and procedures take account of the roles of the whole work force from the owners or board of directors to all employees, and all people and entities over which the commercial organisation has control.
This means that companies need well-designed, comprehensive and targeted programmes to ensure compliance with relevant anti-corruption laws. This will include an appropriate whistle blowing policy written to protect individuals as well as the organisation itself. A senior individual should be appointed to lead the process with the backing of a compliance team depending on the company’s size and resources. The programme then needs to be implemented and embedded into the company processes, including the disciplinary procedures. Disciplinary sanctions should be enforced in a swift, consistent, open and transparent process.

5. Effective implementation: the commercial organisation effectively implements its anti-bribery policies and procedures and ensures they are embedded throughout the organisation. This process ensures that the development of policies and procedures reflects the practical business issues that an organisation’s management and workforce face when seeking to conduct business without bribery.
This means that organisations should communicate their anti-corruption and bribery policy to employees, stakeholders and business partners. Companies need to ensure that the programme is properly implemented and that there is continuous communication at every stage – it will not be enough merely to have policies which are never adhered to. There should be a comprehensive local training programme for all employees, not just head office, compliance or legal staff.

6. Monitoring and review: the commercial organisation institutes monitoring and review mechanisms to ensure compliance with relevant policies and procedures and identifies any issues as they arise. The organisation implements improvements where appropriate.
It should be clear from these six principles that it will not be enough for any commercial organisation merely to have anti-corruption and bribery policies and procedures on paper. An organisation that finds itself caught up in an investigation or prosecution will find it difficult to show that it has adequate procedures if they have neglected the basic step of educating and training their staff. The guidance suggests that businesses should consider using and modifying existing audits and disciplinary procedures to deal with anti-corruption.
Recruitment companies might look again at their commission structures – whilst it is recognised that commission and bonus structures are designed to incentivise staff, they must not encourage illegal behaviour or activity.

Hospitality
Recruitment businesses, just as any other commercial organisation, use corporate hospitality and promotional expenditure to promote their business.
The draft guidance looks at length at hospitality and promotional expenses in the context of bribery and anti-corruption. On page 21 it states that “reasonable and proportionate hospitality or promotional expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business.”

Furthermore, the question as to whether a particular item of expenditure constitutes a bribe will depend on the circumstances “but it is unlikely, that a routine and incidental business courtesy where the advantage involved is of small value, or where hospitality is standard, will have any impact on decision making in the context of a business opportunity of high value and therefore engage section 6 (bribery of foreign officials).

Generally, the higher the expenditure and the more lavish the hospitality or expenditure provided to a public official the greater the inference that it is intended to influence the official to grant business or a business advantage in return. But reasonable and proportionate hospitality in itself is unlikely to trigger the section 1 offence (offence of bribing another person).

Penalties and Contractual Provisions
As mentioned at the beginning of this article the penalties for breach of the Act are severe for both individuals and organisations. BAE Systems paid £290 million in fines to both the US and UK authorities (£30 million was subject to a plea bargain in the UK which was criticised by the court in its judgment of 21 December 2010). In recent years other companies have been heavily fined for corrupt activities including Balfour Beatty in 2008 and Amec in 2009 (£2.25 million and £5 million respectively).

The vast majority of public procurement contracts now impose contractual obligations on suppliers (including recruitment businesses) regarding the provision of gifts and hospitality to public officials, and regarding anti-corruption and bribery in general. It is possible that public contracts will impose more onerous obligations on suppliers to reflect the provisions of the Act.

The REC has to date seen few private sector contracts where there are specific anti-corruption and bribery provisions but this is likely to change with the Act. Clients will contractually expect suppliers not to engage in such activity. In addition, suppliers frequently give clients indemnities for breach of statutory obligations as well as for any civil or criminal actions taken against the client (though such indemnities are not always reasonable). Given that there are penalties for breach of the Act, for both individuals and organisations, including unlimited fines for the latter, it is recommended that members reject any indemnities to clients which indemnify those clients for their breach of their own statutory obligations under the Act or for their own acts or omissions in relation to the Act.

Lewina Farrell, Head of Professional Services, REC

Job adverts and the Equality Act 2010

Recruiters need to be aware of the obligations that apply to not only them but also their clients when they are considering the recruitment procedures that they use. A key part of the recruitment procedure is the way in which positions are advertised. Here we look at the issues raised by the Equality Act for recruiters and their clients.

The Equality Act prohibits employers from discriminating against employees because of a protected characteristic (see below). This protection applies not only to those who are already working for the business or organisation, but also to applicants who are seeking employment.

The protected characteristics under the Equality Act 2010:
Age
Disability Gender reassignment
Marriage and civil partnership Pregnancy and maternity Race
Religion or belief Sex
Sexual orientation

Employers
Amongst other obligations, employers have a duty to not discriminate in the arrangements that they make for deciding who to employ. This
means that the entire recruitment process must be free from unlawful discrimination and this includes anything from: the decision that the client makes to use an agency to find candidates; the choice of agency; the job/person specification given to the agency; any advertisement that is issued for the vacancy; the way in which the client conducts its interview of candidates; and ultimately the decision the client makes as to who to appoint.

Recruiters
Employment businesses will in most cases fall under the definition of
an ‘employer’ in respect of their relationship with the temporary workers they engage and supply to clients, so they will also have to adhere to the above ‘employer’ obligations.
In addition to this, employment agencies and businesses are subject to specific provisions under the Equality Act which prohibit them from unlawfully discriminating in the arrangements they make to select who to provide their services to, the terms on which they offer their services and they must also refrain from subjecting anyone who uses or would seek to use their services, to any detriment which relates to unlawful discrimination.

This means that recruiters must ensure that the methods they use to offer their services and to recruit work seekers for clients must be free from discrimination. In this article we will look at the issuesthat need to be considered in relation to advertising job vacancies.

What does the law say about advertising?
Before the Equality Act came into force on 1 October 2010, unlawful discrimination was governed by various Acts and Regulations such as the Race Relations Act and the Sex Discrimination Act. Although the approach was not entirely consistent, some of the Acts/ Regulations made it a specific offence to place a discriminatory advertisement or to cause someone else to place a discriminatory advertisement. This meant recruiters, their clients and even publishers could face legal action for discriminatory advertising with a fine of up to £5000.
The Equality Act contains no such provisions, so there is no longer a specific offence that applies to discriminatory advertising. However this does not mean that there will be no repercussions if an advertisement for a job vacancy indicates that there is an intention to discriminate.

In what way might an advertisement be discriminatory?
In some instances it may be quite apparent that the wording in a job advertisement is discriminatory. For example, an advertisement for ‘female cleaners’ would imply that male applicants will not be considered for the job. This indicates that there is an intention to directly discriminate because of sex (i.e. gender).
In order for a man to bring a discrimination claim in an Employment Tribunal in respect of this scenario, he would have to show that he has been subjected to less favourable treatment than female applicants. It would be necessary for him to show he had actually been deterred by the advertisement, from applying for the job. This means that a person who has no intention of applying for a position will not be able to bring a claim for discrimination in an Employment Tribunal purely because of a discriminatory advertisement.

An advertisement can in some cases simply provide a claimant with evidence of the discrimination, even in less obvious situations. For example if an advertisement for a position stated that only applicants who can speak Cantonese should apply, the advertisement would provide evidence of a provision, criterion or practice (PCP) that is being applied by the employer/ client which gives rise to indirect discrimination. The language requirement here would place many racial groups that are unlikely to speak Cantonese at a disadvantage compared to say, Chinese nationals or people of Chinese origin who are more likely to speak Cantonese. In this case it might be possible for the employer to show that there is objective justification for the language requirement. For example it might be the case that the job advertised is for a company that engages in significant trading with Chinese businesses and duties that the successful applicant will have to undertake will include liaising on a regular basis with Cantonese speaking clients or customers. In this case the employer could argue that the need to have a Cantonese speaking employee for this role is not discriminatory.
However if there is no objective justification for the language requirement, for instance the company concerned only deals sporadically with Cantonese speaking clients or customers or the job would not involve liaising with those clients, then the language requirement could give rise to indirect discrimination. However indirect discrimination can only arise when a person actually suffers a detriment as a result of the application of a PCP, so only a person who is actually disadvantaged by the advertisement would be able to bring a claim for unlawful discrimination in an Employment Tribunal, using the advertisement as evidence of the indirect discrimination.

Advertising and occupational requirements.
The Equality Act allows employers to specify, in limited circumstances, that a person must have a particular protected characteristic for a job, by way of an exception to unlawful direct or indirect discrimination. For example in some instances it will be possible to lawfully advertise a role as being open to only males or only open to persons of a particular nationality.
These exceptions are called occupational requirements and could permit an employer to turn down someone for employment if the strict statutory conditions are met. These are that:

• The requirement is an occupational requirement;
• Applying the requirement is a proportionate means of achieving a legitimate aim;
• The person does not meet the requirement (or does not appear to meet the requirement in cases where the occupational requirement relates to gender).

The Equality and Human Rights Commissions draft Code of Practice on Employment (the Code) gives by way of example of an occupational requirement the following:
“Examples of how the occupational requirement exception may be used include some jobs which require someone of a particular sex for reasons of privacy and decency or where personal services are being provided. For example a unisex gym could rely on an occupational requirement to employ a changing room attendant of the same sex as the users of that room. Similarly, a women’s refuge which lawfully provides services to women only can apply a requirement for all members of staff to be women”

Recruiters are able to rely on these occupational requirements as exceptions to discrimination. The exception can also be relied on when the recruiter’s client instructs it to only seek candidates who have a particular protected characteristic for a role and the client makes a statement that the requirement does not amount to unlawful discrimination because an occupational requirement applies. It must be reasonable for the recruiter to rely on the client’s statement, or the protection against unlawful discrimination will not apply.

How should an occupational requirement be managed when advertising a vacancy?
The Code advises that ‘where the job has an occupational requirement, the advertisement should state this so that it is clear that there is no unlawful discrimination.’

Recruiters and employers can refer directly to the relevant provisions of the Equality Act in an advertisement for a job role to explain that an occupational requirement applies.
So in cases where an occupational requirement genuinely applies to a job, the advertisement should carry words to the effect that requirement is an occupational requirement as permitted in accordance with Schedule 9, part 1 of the Equality Act 2010.

The Code gives by way of an example the following:
‘Example: An employer advertises for a female care worker. It is an occupational requirement for the worker to be female, because the job involves intimate care tasks, such as bathing and toileting women. The advert states: ‘Permitted under Schedule 9, part 1 of the Equality Act 2010.’

Of course, the fact that this statement is included in an advertisement will not mean that the advertisement cannot be challenged as being discriminatory. It is still imperative that the strict statutory criteria that apply to occupational requirement are met in respect of each job that is being advertised.

From the recruiters point of view it is essential that where a client gives an instruction to introduce or supply work seekers who have a particular protected characteristic (e.g. of a particular race, nationality, religion, sexuality) the client should be asked to explain the reason for this and to provide a statement setting out the basis on which the instruction does not give rise to unlawful discrimination.