Taking action on diversity

The #metoo and Black Lives Matter movements were turning points in the battle for equity and inclusion.  In turn there has been increased scrutiny by consumers, investors and employees in businesses' diversity and inclusion records, with the gender and ethnic balance of companies' boards recognised as a central plank in the 'S' and 'G' of the ESG agenda.  This shift in public focus has seen the UK Government and various regulators proposing measures that are designed to promote greater transparency surrounding diversity and inclusion.

In 2021, the FCA consulted on proposals to amend the Listing Rules, Disclosure Guidance and Transparency Rules to improve transparency for investors on the diversity of listed company boards and their executive management teams.  The final rules are still awaited.

Meanwhile, on 1 November 2021 BEIS announced support for a new five-year independent review to monitor the representation of women among leaders of FTSE 350 companies, with a greater focus on senior leadership roles and board membership. The first annual report on gender diversity is expected to be published this month.

As employers seek to prepare proactively for these forthcoming changes, they should be mindful that any measures that they implement to address gender or ethnic imbalance must  be legally compliant – otherwise the business will be exposed to legal claims.  There is a difference between positive action (which may be lawful) and positive discrimination (which is unlawful).  We have set out an overview of positive action and some top tips below.

What is positive action?

There are two kinds of positive action that are potentially permitted under the Equality Act 2010:

General positive action

An employer can seek to apply a general positive action where it reasonably believes that people with a particular protected characteristic are disadvantaged, have different needs or are disproportionately underrepresented in an activity.

In this context, the employer can take proportionate actions to enable or encourage those with the relevant characteristic to overcome or minimise the disadvantage, meet their needs or promote their increased participation in the relevant activity. General positive actions could include an employer reserving places on training courses in management for people with the protected characteristic, providing mentoring to or creating a work-based support group for members of staff who share a protected characteristic.

Positive action in recruitment and promotion

Where an employer reasonably thinks that people with a particular protected characteristic are disadvantaged or are disproportionately underrepresented, they can treat a candidate with the particular protected characteristic more favourably than others in the recruitment or promotion process provided:

• the person with the particular protected characteristic is as qualified as the other applicants;
• the employer does not have an express policy of treating candidates with the particular characteristic more favourably in recruitment and promotion than candidates who do not; and
• taking the action is a proportionate means of achieving a legitimate aim.

These are often called the 'tie break' provisions, as they allow the employer to hire or promote someone with a protected characteristic over equally-qualified other candidates because they have that characteristic, providing the conditions are met.   Outside these limited provisions, employers should avoid basing decisions about employment on a desire to promote employees from underrepresented groups.

Top tips for employers:

Positive action must be proportionate

An employer must balance factors including the seriousness of the disadvantage, the obstacles experienced by the relevant group and whether there are other ways of addressing the disadvantage or underrepresentation which are less likely to prejudice other protected groups.

Evidence of underrepresentation, disadvantage or different needs is required 

Employers are not required to supply sophisticated data to prove disadvantage, but should have some evidence.  A diversity survey for existing staff is a sensible first step.  

Where positive action is used in recruitment and promotion, an employer should ensure that it:

• establishes a set of criteria against which candidates will be assessed which takes into account a candidate's overall ability, competence and professional experience, any relevant formal or academic qualifications and other relevant skills; and
• does not favour candidates from underrepresented groups over better qualified candidates as this would constitute unlawful positive discrimination.

While the law on positive action can be complicated for an employer to navigate, a programme of carefully targeted and well researched positive action measures can be a useful tool to increase diversity at senior/Board level and create a pipeline of diverse talent for the future. This will in turn ensure that companies are able to meet the expectations of the UK Government and regulators.