New employer liabilities - fraud and sexual harassment

On 26 October 2023, two pieces of proposed legislation received Royal Assent and became law: (i) the Economic Crime and Corporate Transparency Act 2023 and (ii) the Worker Protection (Amendment of Equality Act 2010) Act 2023.

In this Legal Insight, we look at how these new Acts will affect employers and how and when organisations should take steps to prepare for the new obligations coming into force.

The Economic Crime and Corporate Transparency Act 2023

This Act introduces a corporate ‘failure to prevent fraud’ offence for large organisations (including partnerships, not-for-profit organisations and incorporated public bodies) which meet at least two of the following three criteria:

(i) more than 250 employees;

(ii) turnover of more than £36 million;

(iii) total assets of more than £18 million.

If resources held across a parent company and its subsidiaries cumulatively meet the above thresholds, that group of companies will be in scope for the offence.

At the current time, there is no date scheduled for the offence to come into force. When it does come into force, the new criminal offence of ‘failure to prevent fraud’ will apply where:

• a specified fraud offence is committed by an employee, agent or person performing services on behalf of the organisation (an ‘associate’); and
• the fraud is intended to benefit (directly or indirectly) the organisation or any person to whom the associate provides services on behalf of the organisation.

An organisation can be guilty of the crime of failing to prevent fraud even if its executives and managers had not ordered it or knew nothing about the fraud. However, it may be able to rely on a ‘reasonable procedures’ defence if it can show that at the relevant time it had ‘reasonable’ or ‘adequate’ controls to prevent the fraud, or that it was not reasonable for the organisation to have such procedures in place. This defence can be relied upon even if the fraud still took place. The government will be publishing further guidance on this, and the offence will not come into force until that has happened. We understand that the procedures required will be similar to those in the Bribery Act ‘adequate procedures’ guidance for prevention of bribery.

The ‘failure to prevent’ offence is limited to economic crimes, such as dishonest sales practices and concealing information from investors, and organisations convicted under the new offence can receive an unlimited fine. Money laundering offences are not included and will continue to be dealt with under the existing rules. The offence will not apply to individuals such as directors, HR managers and in-house legal advisors; it will be the organisation itself that is prosecuted. However, if relevant, individuals may still be prosecuted for committing, encouraging or assisting fraud.

Further details about the offence can be found in our previous Legal Insight, Employers' new criminal liability for fraud.

The Worker Protection (Amendment of Equality Act 2010) Act 2023

Please note that this piece of legislation does not apply in Northern Ireland.

In GB, the Equality Act 2010 already prohibits: (i) harassment related to a protected characteristic, (ii) sexual harassment and (iii) less favourable treatment because an employee submits to / rejects unwanted conduct of a sexual nature or that is related to sex or gender reassignment.

The new Worker Protection (Amendment of Equality Act 2010) Act 2023 introduces an additional new mandatory obligation on employers to take ‘reasonable steps’ to prevent the sexual harassment of their employees at work. The Act will come into force in October 2024 - one year after the day on which it was passed.

The new Act also provides that, if an Employment Tribunal finds that an employer has failed to take reasonable steps to prevent sexual harassment at work, it can increase the compensation awarded to an employee for such a claim by up to 25%.

We understand that The Equality & Human Rights Commission technical guidance on sexual harassment and harassment at work (published in January 2020) is likely to be updated in light of the Act and will become a Statutory Code of Practice in due course. In the meantime, it would be prudent to refer to this guidance when reviewing or formulating internal policies regarding the prevention of sexual harassment.

What do organisations need to do now?

Employers should start to prepare for these changes now and make good use of the lead time before the legislation comes into force.

In relation to the Economic Crime and Corporate Transparency Act 2023, organisations should familiarise themselves with the new legislation and the government’s previously published fact sheet and impact assessment. Employers should also keep an active look out for the publication of the new government guidance on reasonable fraud prevention procedures, as it is likely that internal policies and procedures will need to be reviewed / implemented as a result. Pending the release of that guidance, an organisation may get ahead of the curve by reviewing existing anti-bribery guidance (on which the guidance on preventing fraud is likely to be based).

In relation to the Worker Protection (Amendment of Equality Act 2010) Act 2023, employers should ensure that internal policies and procedures are reviewed and up to date by reference to the existing Equality and Human Rights Commission technical guidance (albeit that this guidance has not yet been updated). Adequate and meaningful training on the prevention of sexual harassment at work should also be provided to managers in advance of the legislation coming into force in October 2024, with such training being updated / provided on a regular basis going forward.

If you would like legal assistance with reviewing your internal policies and procedures in light of the new legislation, please contact a member of our Employment Team.

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This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.