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With the FTSE 100 having regained its composure at the end of 2022, climbing to 7,804 at the time of writing, there seems to be a renewed sense of optimism that the financial aftershocks of COVID-19 are slowly being resigned to the past. Market Tracker analysed FTSE 100 Annual Reports in three data intervals in 2020, 2021 and 2022 (with each interval analysing data from 01 January to 31 December in the respective years). The first year of the pandemic outbreak (2020) noted 95 mentions of ‘COVID-19’ within Annual Reports, rising to 99 mentions in 2021, and declining significantly to 39 mentions in 2022. Looking ahead, it seems other risk factors have garnered heightened importance. Across the same data sets, the cost of living crisis, for example, has been more frequently noted. In 2020, there were 12 references to ‘cost of living’, increasing modestly to 15 references from 2021, and almost doubling to 27 references in 2022. Placing these references in context, all mentions of cost of living in 2020 were in reference to benefits or remuneration structures/policies rather than a comment on the wider economic environment. In 2022, however, 24 of the 27 mentions referred to either the ‘cost of living crisis’ specifically or other pressures, challenges, uncertainties and risks related to the increase in cost of living.

Given the scale of industrial action across sectors such as transport, healthcare, and mail service at the end of 2022 and throughout the rest of January 2023, it remains to be seen whether this too will be noted as an increasing risk factor. There were eight, ten and two mentions of ‘industrial action’ across the 2020, 2021, and 2022 data sets respectively. In 2020, four Annual Reports identified ‘industrial action’ as a risk factor that could affect the company, with the figure increasing slightly to six Reports in 2021. It is anticipated that the 2022 Annual Reports, due to be published in the first half of 2023, will show a further increase on these figures.

Among the 2022 Reports currently available, Royal Mail, a FTSE 100 company that was particularly affected by strikes over the last month, noted industrial action within the context of a ‘Risk heatmap’ as both an increasing and high-impact risk to the company. In its , it was noted that:

‘[I]ndustrial action, or the threat of it, is damaging for our business and undermines the trust of our customers. It also makes delivery of our change programme more difficult and puts at risk our targets for 2022-23.’

It was further explained that ‘the potential impact of industrial action or incurring costs to avoid it’ was one of the risks ‘most likely to adversely affect the Group's and Company's available financial resources and EBITDA/net debt metrics relevant to debt covenants.’ One of the controls highlighted to mitigate this risk was regular engagement with the Communication Workers Union (CWU) and the Government to introduce the necessary legislative and regulatory changes for the Royal Mail Collective Pension Plan (RMCPP):

‘The Pensions Schemes Bill, of which RMCPP is a part, received Royal Assent in February 2021 and is now allowed by law. However, further regulatory changes and approvals will be required by the Government/Pensions Regulator before our scheme can be established.’

This plan was published in the Annual Report on 17 June 2022 when the prospect of industrial action, albeit deemed high impact, was categorised at ‘low to moderate’ likelihood. Since then, however, the . 

Amidst the mass industrial unrest across other sectors, with , Business Secretary Grant Schnapps introduced the ‘’ on 10 January 2023 which purports ‘to restrict the protection that [the Trade Union and Labour Relations Act 1992] provides to trade unions and employees in respect of strikes where provision has been made in regulations for minimum levels of service.’ The legislative proposal essentially allows employers to issue work notices to ensure minimum levels of service during industrial action. This, along with the increasingly tumultuous nature of industrial relations since the issue of the Annual Report, raises questions about the viability of Royal Mail acting as a liaison between the CWU and the Government. It may present a new factor for consideration as companies attempt to triangulate their interests against union demands and potentially emerging government policy. More broadly, questions are now raised about how employers should approach the increased resistance from Union workers that is likely to result from the Bill. David Hopper (a Partner at Lewis Silkin and an expert in developing industrial relations strategies for businesses) writes: 

'If [the Strikes Bill] does become law, it will still not be effective without numerous additional sets of regulations to determine which sectors will be regulated and to set the particular minimum standards. Unions can then be expected to resist the new requirements by way of judicial review and to challenge any enforcement action on human rights grounds. Employers will also be extremely hesitant to dismiss workers who strike in breach of the requirements given the difficulties that they are already facing to recruit sufficient staff, as illustrated by the NHS’s dependence on agency workers.’

In a more recently published , FTSE 250 company easyJet, noted that the risk of industrial action had increased since 2021. It identified the potential impacts as including operational disruption, share price movement, and loss of revenue of up to 10%. In order to mitigate these risks, ‘easyJet seeks to maintain positive working relationships with all trade unions and other representative bodies and has a framework in place for consulting and engaging with trade unions and consultative bodies’ along with ‘specific procedures to deal with such events.’ The lack of specificity with regard to how these ‘positive working relationships’ are to be maintained, set against the announcement of the new Strikes Bill, once again may pose questions about how companies should proceed with contingency plans to address industrial unrest.

Against the background of the unanswered questions presented by the Bill, Jonathan Tuck (a Partner in Baker McKenzie’s Employment Team and co-lead in their collective rights practice) writes:

â€Òµ³Ù&²Ô²ú²õ±è;is clear that the new rules will be legally challenged by Unions. Given the unanswered questions that remain on the legislation, it is probably too early to tell whether any legal challenge would be successful. However, the question of what minimum service levels look like and where they are set is likely to be key to the question of whether the requirements are incompatible with Article 11 of the ECHR. It’s worth noting that, while some other jurisdictions in Europe have minimum service levels in place, they do differ from that proposed in the UK. Most notably, employees and workers can’t be sacked for not adhering to minimum service levels.

The new rules are likely to have significant practical implications for both Unions and employers caught by the legislation and impact on their approach to industrial action. In particular, it is likely that Unions will look at other forms of industrial action, such as work to rule and overtime bans, as an alternative means of progressing their IR strategy, and impacted employers will therefore have to turn their minds to how they deal with different IR strategies.’

With strikes set to continue across a range of sectors for the remainder of January, it remains to be seen whether companies will need to reconfigure their risk management strategies and whether industrial action amidst a cost of living crisis warrants closer attention. The reactionary legislative proposals will also need to be monitored as affected companies navigate the best course of action throughout this period. In light of the above, Market Tracker will continue to monitor the relevance of industrial action in 2022 Annual Reports that are due to be published in 2023.