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Commercial Question

Stubbing Out Bad Habits

updated on 16 January 2007

Question

Will the smoking ban have employers fuming?

Answer

Smoking. Love it or hate it, everybody has an opinion on it. Following the lead of the Republic of Ireland and Scotland, England, Wales and Northern Ireland will see smoking banned in all pubs, clubs and workplaces from July 1 2007, after a historic vote in the House of Commons in 2006. There has long been speculation about the economic and commercial impact of a smoking ban. Will the ban increase productivity for companies or send certain businesses such as pubs and clubs over the edge?

Currently there is a vast divide in opinion about whether the effect of the ban will be positive or negative. The simple answer is that, at the moment, it is only possible to speculate. Although we have sketchy details about the effect of the bans in Scotland and the Republic of Ireland, we cannot assume that the effects on other UK businesses will be the same.

According to research published in the British Medical Journal in March 2005, an estimated 11,000 people a year in the United Kingdom die from passive smoking in the home and the workplace. That is the equivalent of about 30 people every day. Over one-fifth of the adult population still smoke despite the health risks. There is little argument that from a health perspective the ban is a radical and positive move, but the economic effect is harder to predict.

Doom and gloom for the publicans?

Many people think beer and a cigarette go hand in hand. When the ban was originally proposed, there was widespread opposition from businesses in the hospitality market which felt that a smoking ban would severely harm them.

One company which doesn't fear a negative impact from the ban is JD Wetherspoon; many Wetherspoon pubs are already smoke free and the company has reported an increase in sales since the change.

However, a high number of companies are still concerned that the ban will see drastically decreased sales for pubs without beer gardens. Country pubs may be able to enlarge their outdoor drinking spaces to accommodate smokers, but high street establishments are unlikely to have such an option. The ban may therefore create a two tier market, with properties that do not have outside space falling in value. If this materialises then it would lead to inevitable job cuts in the hospitality industry. Even those pubs able to provide outdoor drinking areas must proceed with caution - the increased litter and noise outdoors in built-up areas may lead to complaints from local residents. Economically, the ban not only is bad for the business of pubs, but also may affect local housing markets in such areas.

Scotland and the Republic of Ireland

Scotland became the first part of the United Kingdom to ban smoking in March 2006. Failure to comply with the new smoking ban is a criminal offence, with fines for both the smokers (up to £50) and the persons allowing them to smoke (up to £200). Businesses also need to take all reasonable precautions to ensure that there is no smoking on the premises. Initial reports suggest that fears about the negative impact on trade in the hospitality sector have not materialised and that sales have remained constant or even increased. However, most people agree that it is too early to appreciate the full effect of the ban on businesses.

In March 2004 the Republic of Ireland became the first country in the world to prohibit smoking in the majority of workplaces, including bars and restaurants. Publicans initially reported fewer customers, which has resulted in some job losses for bartenders. However, there is little objective evidence of significant economic hardship as a result of the ban. It must also be appreciated that the Republic of Ireland has a different drinks market from the mainland United Kingdom and so the effect of the ban on UK businesses might be different.

Practical effect on employees

The smoking ban in workplaces will affect almost all employees, not just those working in the hospitality industry. The definition of 'workplace' reaches further than you might think, and includes work vehicles and reception areas. For the smokers out there, the ban is likely to have a considerable impact on your working life. For non-smoking employees, the ban will mean that you are no longer expected to have to endure passive smoking by your colleagues in the workplace.

All employees who have client-facing roles - particularly in the hospitality sector - will potentially have to ask members of the public to stop smoking. This obligation brings with it associated risks for the employees of verbal and even physical abuse. This may deter some people from wanting to work in particular industries, and could see a decrease in new staff entering such professions while old staff leave for a less stressful life. This means employers in certain types of business may struggle to recruit the necessary staff or find it difficult to retain long-term staff. A high staff turnover is damaging and will do nothing for a business's reputation.

Interestingly, employment lawyers predict that the smoking ban will bring with it a wave of whistleblowing claims. It is expected that some staff in the hospitality sector will feel under pressure to waive the ban for their regulars. It has been predicted that staff who expose their employer for flouting the ban may be victimised. This could result in more tribunal claims. However, employees should consider the cost implications of bringing such claims because, in general, each party bears their own costs in the tribunal.

Practical effect on employers

While not smoking may be good for your health, it may not be good for the financial health of your employer. The national Quitline service in the Republic of Ireland has revealed that around 10,000 smokers have reported a reduction in their consumption. It has also been estimated that around 7,000 people stopped smoking completely since the ban came into force. Good news, you might think - but what is the effect on the business world of such a change?

There could well be a significant impact on pension schemes provided by companies to their employees. Analysis by PricewaterhouseCoopers envisages that the ban will cost employers an additional £10 billion in pension liabilities because of the increased life expectancy that is expected to accompany it. HR consultants Hewin Associates claim that the deficit is more likely to be in the region of £20 billion. The financial strain on employers could result in redundancies. It is also feared that the deficit in pensions could lead to more government aid being needed to bolster under-funded pension schemes.

Banning smoking should in theory increase productivity for businesses. In a report produced by the Department of Health in 2003, the government's chief medical officer, Professor Sir Liam Donaldson, said that a comprehensive smoking ban could provide benefits to the British economy of up to £2.7 billion. This could include up to £680 million saved by having a healthier workforce who work harder for longer; £140 million saved by a reduction in the number of sick days employees take for smoke-related illnesses; £430 million saved by cutting break times; and £100 million saved in cleaning and maintenance costs. Whether productivity increases in practice is another matter - workplace morale may be severely reduced for those smokers affected by the ban, and so this could have a negative impact on productivity.

Practical steps for employers

So what steps do employers need to take to prepare themselves for the ban? Employers will need to review any current smoking practices in the workplace. They must also consider how they are going to communicate the changes to their workforce. Changing policies and implementing new ones in a haphazard manner with an eager use of disciplinary proceedings could affect morale and encourage litigation cases. Although the ban is expected to increase productivity by cutting break times and sick leave, those smokers unable to have a much needed cigarette break may actually be less effective when they are working than if they had been allowed a break.

Employers could consider offering counselling and support for their employees who are trying to give up smoking; the increased financial cost in such a provision may make commercial sense, if the long-term effect is to increase staff efficiency.

Employers will also need to take positive steps to ensure that 'no smoking' signs are displayed and no one smokes in a smoke free area, and must take reasonable steps to ensure staff and other visitors abide by the smoke free rules.

Employers may well need to review their disciplinary and dismissal procedures to ensure that they comply with the statutory requirements when dealing with employees who have broken the law. If employees are successful, employers will need to pay compensation, which is unlimited in a tribunal. With the increased risk of tribunal claims, employers may consider insurance an attractive option, which could in turn affect the insurance market.

Conclusion

The smoking ban is coming. Whether that has you jumping for joy or climbing up the walls in despair, this is expected to have a considerable effect on both employers and employees.

The evidence of the negative impact that the smoking ban will have on businesses may not be reliable. While looking at the effect of the bans in Scotland and the Republic of Ireland is helpful, it is premature to rely on this evidence, as the bans have been in place only for a short period of time. In any event, the ban might have different effects elsewhere.

Jessica Parkes is a trainee solicitor in the human resources practice group of international firm Eversheds.