COVID-19 - A new normal for employment law

The defining difference between the COVID-19 crisis and previous global economic crises is the existential threat to people from a biological entity. Normal patterns of social and workplace interaction are disrupted - in some cases to the point of fracture. The economic consequences, such as agile working arrangements, restructurings and insolvencies, flow directly from the need, real and perceived, for social distancing and remote working. This is likely to remain the norm until the mass availability of a safe and effective vaccine. In this context, employment law must be 'front-and-centre' of an organisation's strategy to improve its pandemic resilience and to ensure that it is in the optimal position to thrive in a post-crisis world.

Key Points

• High unemployment: expected to spike higher still as job retention schemes are tapered and still to be around Global Financial Crisis (GFC) levels by the end of 2021 - higher if there is a second wave of COVID.
• Fear of return to workplace: remains the greatest immediate logistical challenge for employers with 51% of US workers citing 'fear of getting sick' as a reason to prevent them going back to work.
• Managing risk of workplace infection: mitigating litigation and reputational risk and compliance with board and corporate duties in the event of a cluster or outbreak of infections in the workplace.
• Redundancies following end of furlough assistance schemes: likely tensions as furlough schemes end in countries with different regulatory protections around business restructuring. European countries tend to have some of the highest numbers of people on job retention schemes and also some of the most protective regulatory regimes which can make it costly and time-consuming to implement redundancies or cost-savings.
• Legal and regulatory challenges of working from home: 67% of organisations expect 'expanded or universal' working from home (WFH) policies. This presents legal and regulatory challenges: directors' duties should be seen in this new context ensuring clear communication and proper supervision; assessing whether existing mechanisms for employee and stakeholder engagement are still fit for purpose, and ensuring boards document their decision-making.
• Longer-term agenda driven by efforts to improve pandemic resilience: that means tackling issues exposed by COVID-19 including the greater potential vulnerability of certain demographics around ethnicity, gender, income inequality - and the digital divide.
• Taken together our post-COVID scenario analysis suggests greater emphasis on programmes around ESG, Culture and Digitalisation including Diversity and Inclusion, Flexible Working, Governance Processes, Conduct Issues, Employee Wellbeing, Sustainable Finance, Data Protection, Trade Union membership and "sensitive decisions" on remuneration, retention and restructuring.

Executive summary - Key action points to improve workplace pandemic resilience

1. Understand and analyse macroeconomic data on the labour market and likely unemployment rates to inform decision-making at board level about the likely impact of Covid-19 on the relevant jurisdictions and sectors in which your business operates.

2. Engage with the workforce during remote working and on the return to workplace strategy; this is integral to its success and also part of risk management to avoid potential employment litigation, regulatory intervention, operational challenges and reputational risks. New digital tools can be deployed to enhance the speed and clarity with which this key stakeholder voice is incorporated into business strategy.

3. Manage the risks of workplace infection by ensuring compliance with continually evolving government and regulatory guidance on return to the workplace; set up systems to review and update risk assessments in light of changing rules and regulation.

4. Review governance arrangements and insurance coverage to ensure directors’ duties are understood in this new context.

5. Capitalise on the opportunities that are presented by the return to the workplace to accelerate a focus on sustainability, social and governance issues: the global pandemic and new EU legislation on ESG initiatives could be a springboard for your board to promote sustainable business, boost diversity and inclusion initiatives, and reconsider the organisation’s “purpose”.

6. Build a positive and inclusive culture to support employee health and well-being whether returning to the workplace or working remotely; consider ways to maintain a sense of trust and empowerment by reviewing workplace policies, employee engagement and consultation mechanisms, employee handbooks and staff networks, to ensure they are fit for purpose in the “new normal”.

7. Review employment costs and opportunities to preserve jobs and retain talent through re-training and innovation alongside any necessary business restructuring and redundancies.

8. Refresh the organisation’s digital offering to support continued remote working and modernise ways of communicating across jurisdictions; technology can improve opportunities for staff collaboration and creativity, and support sound governance and supervision of staff.

9. Covid-19 and related restrictions may have exacerbated existing inequalities in the workplace; be mindful of the particular circumstances of individuals including clinically vulnerable employees to promote inclusivity. Anticipate future challenges for your workforce presented by potential rolling lock-downs or school closures in the interim period before a vaccine is widely available.

10. Finally, in keeping with the maxim that crises create opportunities, proactively embrace those opportunities to emerge stronger and more agile from the crisis. For example: encourage radical ideas within the business from top down; review and develop a strategy to support a sense of belonging and shared purpose; ensure new joiners and remote workers experience and maintain the organisation’s culture when interacting with each other and with customers or clients of the business; embrace technology and home working to trial new and more efficient ways of working.

Please see our table of Employment Law issues in light of Covid 19.

Setting the scene - from Lockdown to Employment's New Normal

If managing the safe return to the workplace (see later) represents one of the most important logistical, legal and reputational challenges for employers and employees, undoubtedly one of the biggest macro-economic challenges facing the world is the impact of COVID-19 on unemployment.

Chart: Unemployment still at Global Financial Crisis (“GFC”) levels by end 2021

As Chart 1 illustrates, the impact of COVID-19 on unemployment is already profound. According to OECD forecasts, unemployment will remain at extremely high levels in the short term with rates peaking in Q2 (over 17% in the USA). Thereafter, despite some gradual decline in the unemployment rate, the picture remains bleak. If one takes the increasingly optimistic assumption of COVID-19 being contained largely to the first wave, with only local, rolling lockdowns thereafter, the OECD predicts unemployment will still be around the peak levels of the GFC by the end of 2021.

However, if - as seems increasingly likely (the OECD assigns a 50% probability to this outcome at the time of the report) - there is a second wave (the OECD speaks of this as its 'double-hit scenario), similar to the first wave with wider regional/ national lockdowns, then it expects unemployment to rise sharply again after a Q3 decline to a second peak in Q4 of 2020, such that by the end of 2021 unemployment could still be above the GFC levels.

The striking feature of the OECD forecasts is not simply the sustained period of high unemployment. Rather it is the fact that even in the best-case scenario, the bleak outlook for the labour market and the economic recovery more generally, business leaders need to develop strategies to be agile and resilient in the face of inherent and complex uncertainty.

Not only does that set the scene for much of what we discuss in the following sections it also emphasises, if such is needed, the vital role to be played by an effective test/ trace and isolate protocol ahead of the mass availability of a demonstrably safe and effective vaccine. Such a protocol is arguably the best (but not guaranteed) defence against the OECD's "double-hit" scenario.

Our COVID-19 scenario analysis considers implications over two eras:

• the immediate period from the ending of lockdown to the arrival of a safe, effective vaccine available in sufficient volume. We do not expect that arrival to take place before the second half of 2021 at the earliest;
• the longer-term period post-vaccine which may be considered the period otherwise called the New Normal.

Immediate Issues: the period from ending lockdown to vaccine

Return to the workplace

We have written before about the challenges facing employers and employees in ensuring a safe return to the workplace. Issues raised centre around health and safety both in the workplace and any public transport required to travel between work and home.

One of the defining characteristics of the experience so far of COVID-19, and its distinguishing feature from all previous economic crises, is of course the fear of the virus and its potential threat to life. In the USA, a PwC survey showed that as many as 70% of workers said that 'something' would prevent them from returning to their place of work and 51% citing 'fear of getting sick' and 24% 'unwilling' to use public transport.

That US snapshot sits well with our own more global analysis. Using real-time data as a proxy for the integrity of lockdown in different cities around the world, and the prevalence of local COVID testing, it suggested that cities/ countries such as New Zealand and Ireland may be among those where employees might have greater confidence in the relaxation of lockdown whereas the UK and USA were among those where confidence may not be as high. The lessons of the PwC survey in the USA may translate also to the UK.

End of furloughs: rise in unemployment meets regulation on collective dismissals

However big the logistical challenges in managing the safe return to the workplace, they may be dwarfed by the economic impact from the ending of furlough and other job-retention schemes put in place around the world.

Chart: % of employees on job retention schemes (Approved and Actual)

The chart above looks at data during Q2/2020 and shows the huge range in the proportion of employees on 'job retention' schemes: from over 60% in New Zealand to vanishingly small in Scandinavian/ Baltic countries and the USA¹. The UK (GBR in the chart above - 30%) and many of the EU27 countries fall within a band from 20% to 50%

It is clear that job retention schemes cannot last forever. But ending them presents another element in what we have described as a 'perfect storm' brewing for the corporate sector – including creating existential challenges for businesses that were just about managing pre-crisis. As we head into the autumn the other elements in the storm range from managing the safe return to the workplace compounding with a resurgence in rolling, localised lockdowns and, for companies doing business across the UK/ EU 'divide', the possible need for contingency planning against the material risk of entering 2021 with no FTA and onto WTO terms.

The degree of challenge in ending job retention schemes, for an economy and particular sectors within it, will likely be in proportion to the percentages of workers currently in furlough and other job retention schemes (see chart above) For the UK, the ONS estimates² that the Arts, Accommodation, Transport and Real Estate sectors are among those with above average proportions of workers on furlough.

It is perhaps unsurprising then to see some of the countries towards the higher end of percentages on job retention schemes (on the left in the chart above) are those which have announced extensions to their schemes into next year e.g. Germany and France. So far the U.K. has argued against any extension but the forthcoming 'Autumn Budget' (unspecified date so far) may contain some more specific measures for those sectors more greatly affected by furlough schemes - the ones most vulnerable to continuing and volatile consumer caution, social distancing and rolling lockdowns this side of a vaccine.

So, although difficult to predict what government assistance will remain available where, to whom and for how long, it seems almost inevitable that in the short and medium terms, companies will have to make hard decisions around appropriate employment levels for the business conditions they will face in a post-COVID New Normal, including finding an equilibrium between the need to reduce costs and the imperative of retaining talent.

As well as factoring the amount of time for any overall economic recovery (which may be longer than some hope - the OECD average took 5 years to recover per capita GDP after the GFC) - the very nature of economic activity, and with it employment levels, faces potentially radical structural change: from greater use of remote working to shortening supply lines, increased reliance on technology, increasing use of the gig economy and the re-shoring of currently distant but critical parts of the supply chain (see 'Longer term' issues below).

On top of these commercial challenges, any decisions around restructuring will be set against the background of prevailing regulation around 'collective dismissals'. The OECD produces the following index to measure the strength of such regulation in different countries. Conflating that with data from the chart above (% on Retention Schemes) produces the following picture of the environment around the world in which corporates are going to confront likely hard decisions on employment levels/ restructuring as retentions schemes are unwound.

Chart: % Job Retention vs Strictness of regulation over collective dismissal

By way of example, based on this index companies in France and Italy may find the challenges of restructuring in any post-furlough environment greater than those in New Zealand or Switzerland; similarly, those in Latvia and most of the Scandis may find greater challenge than those in Denmark or Canada.

Linked to this, those companies that do find such challenges will likely also find an increase in disciplinary grievances and even in employment litigation. This is starkly illustrated in the UK where the Employment Tribunals anticipate an increase in the number of whistleblowing, discrimination and unfair dismissal claims linked to redundancies and have indicated that they will prioritise these cases; there is currently a backlog of over 40,000 cases waiting to be heard. It is therefore critical to build these risks and the time, costs and reputational concerns associated with them into any restructuring plans.

Remote working: extended workforce, extended directors' duties

Whatever the (post-COVID) future of work may look like in detail, 'remote' or 'tele' -working is widely expected to become a more permanent feature than it was pre-COVID based both on more people working remotely on a full time basis and an increasing trend to spend time working from home amongst those who never considered it pre-COVID.

Consistent with this, an S&P Global study³ in June found 67% of organisations expected 'expanded or universal' WFH policies, up from 38% in March, in support of which 43% expected to spend more on employee communication and collaboration, mobile devices (37%), bandwidth and network capacity (32%) and information security (28%).

In part that's driven by 79% of organisations globally who 'agree' that social distancing measures will be the 'biggest challenge' to resuming normal operations. Given the current consensus that a mass vaccine is unlikely to be available before the middle/ end of 2021 - and even when it is available it will take time to build herd immunity across the globe - social distancing and rolling lockdowns are a feature of our Horizon Scanning of the post-COVID world.

While the corporate motivation for remote working includes considerations of potential cost savings (e.g. smaller conventional office spaces) the motivation for employees, including senior managers and directors, is more around work/ life balance. The World Economic Forum reported⁴ that 73% of employees 'enjoy' working from home, 35% plan to WFH 'at least once a week' and 20% plan to WFH more than 3 times a week.

But the moves to remote working raise significant issues for the relationship between employer and employee notably around maintaining wellbeing, including mental health. And that in turn goes towards discussions around the scope and nature of the duties of care to be discharged by directors towards their employees and, here in the UK, to discussions around the 'fitness for purpose' still (or not) of S172 of the Companies Act (2006).

There is also an employee relations issue here because employee expectations about what can be accommodated in terms of home working and flexible working has evolved during lockdown. Companies may find it difficult to re-impose prescriptive policies for permitting flexible work; a radically new approach may be required to reflect the experience of, in many cases, successful home working during the pandemic. For some employers this will challenge years of received wisdom – requiring them to look afresh at the ways people work, the importance of being in the office and the impact of the changes - both positive and negative – on the culture of their organization. For many employees, the positive experience of home working has boosted their feeling of trust with management and created a welcome feeling of empowerment to structure their day and workload.

Longer-term - addressing causes and vulnerabilities

Our Horizon Scanning of the post-COVID 'New Normal' starts from the simple premise that the world cannot afford (quite literally) another Covid - certainly not an outbreak on this scale

That will mean improving the pandemic resilience of global systems with a wide range of implications for the way societies organise and regulate themselves.

For a look at the full range of what we see please visit our COVID feature page.

Increased emphasis on Social and Governance in ESG to tackle vulnerabilities

The key elements of what we see in the post-COVID 'New Normal' of relevance to employment law, flow from the need to address not only the causes of this pandemic but also the vulnerabilities it has revealed particularly among certain demographics. That suggests a greater emphasis on the Social and Governance pillars of the ESG agenda. View our ESG feature page here.

Below, we highlight those vulnerabilities; this should be read alongside the accompanying table "Improving Your Pandemic Resilience".

Ethnicity

Certain Black Asian and Minority Ethnic (BAME) communities have been found to have significantly greater vulnerability to COVID⁵ - even after allowing for other factors such as job role: in the UK up to one-third of COVID-19 patients requiring intensive care have been from BAME backgrounds; in Chicago, USA the infection rate per 100,000 among the 'African American' community was 2.5x higher than in the 'White, non-Latin' community and in Nordic countries the infection risk among local Somali communities has been up to 10x greater than for the general population.

Gender

The pandemic has exposed global gender issues also. While men appear to be at greater risk of death as a result of COVID-19, a recent IMF Blog⁶ highlighted four areas in which "COVID-19 . threatens to roll back gains in women's opportunities, widening gender gaps that persist despite 30 years of progress" because:

• women are more likely than men to work in "social sectors" (e.g. retail, health, social work) that require face-to-face interactions and make teleworking difficult/ impossible. In the USA they estimate about 54% of women in social sectors cannot telework; in Brazil that's 67%.
• women are more likely than men, in low-income countries, to be employed in the informal sector with low pay, no labour laws and no benefits such as pensions or health insurance.
• women tend to do more unpaid household work including childcare and care for the elderly. In Canada employment data for May, early in the relaxation of lockdown, showed a smaller increase in women's employment compared to men's as childcare issues in particular persisted. The IMF has estimated⁷ that the value of unpaid work as a proportion of GDP averages 35% across a range of countries with the UK and major European economies (including France and Germany) all above that average.
• women are at greater risk from pandemics of losing "human capital" - one definition of which is the economic value of a person's experience and skills. After the Ebola crisis the share of girls not attending school in Liberia "nearly tripled".

Income inequality

The World Bank believes⁸ that COVID-19 and the consequent drop in the oil price will "probably" reverse the progress made in the last 5 years to reduce extreme poverty globally. It estimates starkly that 40-60 million more people globally will fall into 'extreme poverty' (living on under $1.90 a day) as a result of COVID-19.

Research published by the Centre for Economic Policy Research (CEPR)⁹ suggests that the difference in the share of national income between the top and bottom 20% of earners will rise from 40% pre-COVID to 42.5% in 5-years time driven in particular by the more limited ability of lower income groups to work from home (see earlier) during lockdowns.

Other Inequalities: access to green spaces, healthcare and internet

COVID-19 has hit lower income groups hardest in several other key areas. They tend to have more limited access to green spaces (important for mental as well as physical well-being); healthcare and the internet without which for example children unable to go to school during lockdown have no way of accessing remote learning resources.

Chart: a digital divide

There is already a groundswell of public opinion in favour of redressing these inequalities and it is very possible to see that translating to political pressure, especially in the context improving pandemic resilience, for some combination of the carrot of encouraging altruism and the stick of increased regulation.

By way of analogy, the Global Financial Crisis (GFC) brought a considerable increase in the body of regulation to increase transparency and protection for consumers. By that example, we should therefore be prepared for COVID-19 to trigger a similar increase in regulation, particularly around the inequalities it revealed, to help achieve the ambition to improve our pandemic
resilience.

That suggests amongst many other things that we will see greater emphasis on programmes around diversity and inclusion, health and safety, protection against termination and controls on executive pay as well as ways of requiring the businesses to have greater involvement in the communities in which they are located to reverse the inequalities caused by the crisis.

¹ The OECD data appear to focus only on support that provides support based on employee compensation. According to the Peterson Institute for International Economics, the US scheme is effectively a guaranteed bank loan for SMEs to 100% of their wage bill
² ONS sector breakdown of furlough schemes
³ Coronavirus Flash Survey: June 2020
⁴ WEF Future of Work Aug17
⁵ Journal of Public Health, September 2020
⁶ The COVID-19 Gender Gap
⁷ The value of unpaid work: Figure 1; page 7
⁸ World Bank: COVID and Income Inequality
⁹ CEPR: Pandemics and Income Inequality