Employment Law Coffee Break: Suitable alternative employment, the EU Pay Transparency Directive and our HR pensions spotlight for June

EAT provides helpful reminder about the importance of considering alternative employment on redundancy

The claimant, who had worked as a full-time trainer at a car dealership, was informed that he was "at risk" of redundancy. During a consultation meeting he was informed that he could apply for roles listed on the employer's intranet. However, following confirmation of his redundancy, he was required to return his laptop – meaning that only the vacancies on the employer's external website were visible to him. He also no longer had access to his internal email account. He did subsequently, on his own accord, apply for a number of sales roles in the organisation but was unsuccessful, eventually receiving an email from HR confirming that any further applications for a sales role would receive a "consistent" response. While the claimant accepted that his training role was redundant, he brought a claim for unfair dismissal on the basis that his employer's actions were unfair in the circumstances.

The Employment Appeal Tribunal (EAT) agreed with the tribunal that the claimant's dismissal was unfair; the EAT noted that in a redundancy situation for a dismissal to be fair "an employer is obliged to look for alternative work and satisfy itself that it is not available before dismissing for redundancy". Here, the employer had failed in its obligation to seek to avoid dismissal, doing nothing in terms of alternative employment.

Key failings identified by the tribunal included:

• the claimant had merely been told to apply for jobs available on the external website "on the same basis as every other applicant" with no proactive assistance;
• despite the claimant's line manager indicating that he was unable to assist (other than speak to someone on the phone), no specific efforts were made by HR or senior management to support the claimant in identifying or applying for alternative roles;
• HR had communicated with him via an email address he could no longer access;
• hiring managers in the organisation which the claimant had applied to of his own accord were not informed that the claimant was at risk of redundancy; and
• no evidence was found of other reasonable steps taken by the employer, such as discussing the claimant's interests, identifying roles, or encouraging conversations about different positions.

What does this mean for employers?

While individual employment circumstances will necessarily be fact specific, this decision highlights the importance of not overlooking the requirement to seek to avoid an employee's redundancy by looking for alternative employment within the organisation.

While employers are not under an obligation to create a role or necessarily offer a vacancy to the employee concerned as of right (although there are some exceptions), the EAT emphasised that employers should actively assist employees in identifying and applying for alternative roles – this may include discussing employees' interests, suggesting specific positions and providing support in any applications for vacancies.

It is also important to identify the communication methods accessible to the employee to avoid issues arising, as here, where an employee loses access to internal email. Where a potential vacancy may not seem to be appropriate for the employee in question, it is important not to automatically close the opportunity off: an employee may, in light of the fact that the alternative is redundancy, be prepared to pursue the opportunity.

It may be that a vacancy will in fact be considered to be "suitable alternative employment" for the employee in question. Given the employer's duty to minimise the risk of dismissal, whether to offer that alternative role to an employee as of right or invite them to apply for the vacancy along with other candidates is an issue for an employer. However, the more similar the alternative post is to the one currently being done by the employee, the more difficult it may be for an employer to show that it was fair to open up the vacancy to other internal or external candidates. Where an employee is pregnant or where they have returned from a period of maternity, adoption, neo-natal care or shared parental leave for a specific period of time, such an employee will legally be entitled to be offered a vacancy which is "suitable alternative employment" in preference to other employees.

Employers should remember that the search for alternative employment should continue during the consultation process and right up until an employee leaves the organisation. Where an employer is part of a group of companies, employees should also be informed of potential vacancies across the wider group.

It is also important to ensure that records are kept of all efforts made to identify and offer alternative employment and the outcome, should the fairness of the redundancy subsequently be challenged. An employee's rejection of a suitable alternative role offered to them may also affect their entitlement to a statutory redundancy payment.

EU Pay Transparency Directive: With one year to go, what does it mean for UK employers?

The EU Pay Transparency Directive provides a significant shift in how pay equity is approached in EU Member States. It aims to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through greater pay transparency, reporting obligations and enforcement mechanisms. EU Member States must transpose the directive into their national law by 7 June 2026.  

In summary, the directive provides that:

• Employers must provide information about the initial pay level or pay range in job vacancy notices or before a job interview.
• Job candidates should not be asked about their pay history.
• Employees have a right to request information on their individual pay level and the average pay levels for categories of workers doing the same work or work of equal value.
• Employers are required to publish certain gender pay gap data. For employers with 250 plus employees, the first report will be due in 2027 and annually thereafter. For employers with 150 plus employees, the first report will be due in 2027 and then every three years. For employers with 100 plus employees, the first report will be due in 2031 and then every three years.
• A joint pay assessment will be required where pay reporting reveals a gender pay gap of at least 5% that cannot be justified by objective, gender-neutral criteria, and corrective action is not taken.
• Employees must have access to compensation for pay discrimination and employers must carry the burden of proof in equal pay disputes.

What does this mean for employers?

While the UK is no longer a part of the EU, the directive will be relevant to UK-based businesses that operate in or hire employees based in EU Member States, or who are part of organisations with EU operations where a global approach towards compliance is being adopted. UK employers will also need to be alert to and pre-empt any employee relations issues where different obligations apply across different jurisdictions.

Issues for consideration include:

• Ensuring that pay practices and reporting mechanisms in each jurisdiction comply with the legal obligations applicable to that jurisdiction as a minimum. It may be necessary to adapt existing systems or implement new processes. Consider what other measures may be appropriate where a "global" system is adopted.
• Developing robust systems for collecting and analysing pay data to meet legal transparency and reporting obligations. Pay practices will need to be audited in line with job evaluations using objective criteria. Conideration will need to be given to the involvement of works councils and staff representative bodies, as well as any existing employment terms and conditions, including collective agreements.
• Putting in place processes for clearly communicating pay practices and transparency measures to employees and their representatives and ensuring that any pay secrecy provisions are removed from employment terms.
• Reviewing recruitment processes, including the pay information that is communicated to candidates and training recruitment teams on the related risks.
• Training relevant staff on the gender pay gap reporting process, including capturing data, calculating the required gender pay gaps, making a report to the relevant state body and responding to questions from employees and their representatives. 

The directive reflects a broader international trend towards mandatory pay transparency. UK employers are already subject to statutory gender pay reporting rules. While the Employment Rights Bill (currently proceeding through Parliament) does not itself expand on the existing UK gender pay reporting regime, new statutory measures are proposed to provide for statutory ethnicity and disability pay gap reporting. UK employers may take the opportunity in preparing for these new duties to enhance their pay equity practices more broadly to align with the directive, where this would provide them with a competitive advantage.

Our employment teams across the EU are tracking the implementation of the directive in their jurisdiction closely. Please speak to your usual Osborne Clarke contact for more information or partners David Cubitt or David Plitt, who lead our international employment team.

Our HR pensions spotlight for June: A new Pension Schemes Bill and welcome confirmation from the DWP

The government published the first draft of the Pension Schemes Bill 2024-2025 on 5 June. The bill has the potential to affect all employers, whichever type of scheme they offer.

Employers who sponsor a defined benefit (DB) scheme might be particularly interested to read how the bill could make it easier for trustees to release surplus from an ongoing scheme. The bill also contains provisions which will give the Pension Protection Fund (PPF) more flexibility in setting the PPF levy, and introduce the long-awaited legislative framework for commercial DB superfunds.

For employers who are considering closing their DB scheme to the future accrual of benefits and moving employees to a defined contribution (DC) scheme or DC master trust for future benefits, the DC-related provisions in the bill will also be relevant.

Not related to the bill, but very important for any scheme that used to be contracted-out on the reference scheme basis and has been considering questions around actuarial confirmation and amendments, is the Department for Work and Pensions' (DWP) recent announcement that it will introduce legislation to give schemes "the ability to retrospectively obtain written actuarial confirmation that historic benefit changes met the necessary standards". Employers might like to discuss the change in surplus rules and the DWP announcement with their legal and other advisers.

Employers who operate their own trust-based defined contribution (DC) scheme might like to review the trustee duties the bill will introduce. A new Value for Money regime, guided retirement duty and small pot consolidation framework will all introduce additional requirements. Employers who are already considering the possibility of terminating a DC scheme or section and moving members to, for example, a DC master trust might like to revisit the timetable for that proposal to ensure any project is complete before the new duties are introduced. They might also like to discuss with their advisers the potential impact on their choice of replacement arrangement of the "main scale default arrangement" and contractual override changes.

And any employer who has members in a DC master trust or offers a contract-based DC scheme such as a group personal pension plan might like to discuss with their consultant the potential impact of the "main scale default arrangement" and contractual override reforms.

Our Insight on the bill also considers how it fits with phase one of the government's pensions review (which is now complete) and phase two, which is due to begin soon.

If you would like to discuss any of the points above, please contact Claire Rankin, pensions partner, or your usual Osborne Clarke contact.