Dealing With Breach of Patent

When you discover that a business has breached your patent, what should you do?

The answer to this question has two elements. The first is based on what you can do in law and the second is based on business strategy.

Firstly, before picking a fight with anyone over such a matter, it is important to make sure that you are on firm ground, so do your research carefully. Make sure there is a real infringement and that the infringement is in a market in which your patent applies.

In law, if a business infringes a patent, it is liable to pay damages to the patent owner, which will be based on the loss suffered by the owner. In theory, losses suffered will be compensated for but, in practice, allowing an infringement to continue while you negotiate with (or sue) the infringing business is a high-risk strategy. In most cases, especially where the effect of the patent infringement is severe (for example, where its use directly affects your sales), it is likely that you should send a legal notice to the offending business requiring it to cease the infringement immediately.

This will normally produce one of the following responses:

1. The infringer will agree, cease the infringement and (hopefully) enter into discussions with you about the appropriate payment to make to you by way of compensation. Regrettably, this is not the most common response.

2. The notice will be ignored. In this case, the infringer either hopes that your letter is a bluff and you will not take legal proceedings or believes that it has not infringed your patent and would win that argument were the matter to come to court. Under these circumstances, it is doubly important to do your homework and make sure of your position as legal proceedings are likely to be necessary.

3. Your notice will be met with a denial from the infringer (and occasionally a counter-claim that one of your products infringes its patent). In this case, there is a fight there if you want it (or sometimes even if you don’t).

No matter what the response, in the majority of cases the most satisfactory outcome will usually result from negotiation with the benefit of expert advice, rather than court proceedings. Commercial considerations must be kept at the forefront and it is normally advisable to leave the door open to a negotiated settlement. This is especially so as one of the common outcomes of such disputes is the creation of a licensing agreement, which will require specialist legal advice.

See guidance from the UKIPO.

A Guide to the Agency Workers Regulations

The Agency Workers Regulations 2010 (AWR) came into force on 1 October 2011.

All agency workers are entitled, from the first day of their assignment, to information on any job vacancies and to make use of collective facilities and amenities available to comparable workers and employees. These may include staff canteens, childcare facilities, transport services (such as local pick-ups and drop-offs and transport between sites – but not company car allowances or season ticket loans), staff common rooms, prayer rooms and car parking.

Employers should ensure that agency workers know how to access information relating to job vacancies and are aware of all relevant facilities. This can be done either by providing details directly to the worker, as part of an induction pack, or by providing details to the employment agency to pass on to the agency worker as part of the information on the assignment.

Agency Workers Who Have Completed a 12-Week Qualifying Period

Once an agency worker has worked in the same job for the same hirer for a period of 12 calendar weeks, they are entitled to the same basic employment and working conditions as if they had been recruited directly by the employer.

Because the working patterns of agency workers can be irregular, the AWR provide for a number of circumstances in which breaks do not prevent them from completing the qualifying period. Employers are therefore advised to study the rules for calculating this period in order to avoid errors.

Basic employment and working conditions include:

• basic pay;
• duration of working time;
• annual leave;
• night work; and
• rest breaks and rest periods.

The rights with regard to pay include:

• basic pay based on the annual salary the agency worker would have received if recruited directly – this will usually be converted into an hourly or daily rate, taking into account any pay increments the worker would have received;
• overtime payments – subject to the same requirements as if the worker had been recruited directly;
• payment for annual leave;
• bonus or commission payments linked to the amount and quality of work completed – e.g. achievement of sales targets;
• bonuses linked to personal performance or non-contractual payments that are made with such regularity that they are customary;
• vouchers or stamps which have a monetary value and can be exchanged for money, goods or services – e.g. luncheon vouchers, childcare vouchers but not salary sacrifice schemes; and
• paid time off for antenatal appointments.

Some payments may require those recruited directly to complete a period of service – e.g. enhanced entitlement to annual leave after 12 months. An agency worker will need to complete the same period of service to become eligible. This should be calculated from the start of the 12-week qualifying period.

The rights with regard to pay do not include:

• occupational schemes – sick pay, maternity, paternity and adoption pay;
• redundancy and notice pay;
• payment for time off to carry out trade union duties;
• guarantee payments, as they apply to directly recruited staff if laid off;
• advances in pay – e.g. for season tickets;
• payments or rewards linked to financial participation schemes such as share ownership;
• the majority of benefits in kind – e.g. reduced-rate mortgages or employer-funded training allowances;
• bonuses where there is no recognition of a worker’s personal contribution, such as a flat rate bonus paid to the workforce to encourage loyalty or reward long service; and
• additional, non-contractual bonuses – as long as these payments are not made so often that they have become customary.

Agency workers will be covered by the new automatic pension enrolment which is being phased in between October 2014 and October 2017, depending on the size of the company. For further information, see the website of the Pensions Regulator.

To ensure equal treatment after 12 weeks’ service, employers who use agency workers should have in place proper job descriptions and pay structures for the roles they perform. In addition, to facilitate calculation of the qualifying period, a record should be maintained showing the dates and hours worked, the location of their work and their job role. Employment agencies should be provided with information on the basic terms of comparable staff hired directly by the employer.

The AWR contain anti-avoidance provisions which prevent a series of assignments being structured so as to prevent an agency worker from completing the qualifying period. Breaks between assignments will not, therefore, necessarily prevent agency workers from gaining the same basic employment and working conditions as staff recruited directly.

Detailed guidance on the AWR can be found on the website of the Department for Business, Innovation & Skills.

Dealing with Employee Absence

Employee absences can be both costly and disruptive.

It is advisable to have systems in place to measure and analyse these costs so that you can identify problem areas. Are there patterns of absence? Does a particular department have a below average record?

Unhappy, demoralised employees are more likely to take time off work. Workplace stress is a common cause of long-term sickness among non-manual workers. Creating a friendly working environment, where staff feel valued as part of a team and where flexible, ‘family friendly’ policies are in force is likely to pay dividends, keeping absenteeism to a minimum.

To manage absence effectively, make sure staff are well informed as to your sickness policy and procedures. Make sure these are seen to be followed and keep accurate records. These must be kept for at least three years after the appropriate financial year-end.

When hiring new staff, make sure you check their attendance record with the previous employer. If new staff are absent it is good practice to make sure you know if there are problems preventing them from settling in. How staff are treated in the first weeks of a new job is vital. Inadequate training can leave them feeling disillusioned.

It is sensible for employers to ensure that contracts of employment allow them the right to get an independent medical assessment in the event of an employee taking more than a few days off work. You may consider requiring all potential employees to undergo a medical examination with an occupational health adviser.

As a matter of company policy always carry out a ‘return to work’ interview. This may range from ‘hope you’re better, we missed your contribution’, to an identification of underlying problems that will affect your management strategy. It may also deter malingerers.

Long-term sickness must be handled sensitively. You must have an employee’s permission to apply for a medical report. It is vital to keep in touch so that the employee doesn’t feel isolated. Consider referring them to an occupational health specialist. This can identify ways of helping them return to work and give you information as to how long the absence is likely to last.

Disciplinary action for unacceptable absence must be distinguished from dismissal on health grounds. Employers need to be aware of the full range of conditions that count as a disability for the purposes of the Equality Act 2010. Where an employee is suffering from a condition covered by the Act, reasonable adjustments must be made to help them return to work.

As regards the accrual of holiday pay when a worker is on long-term sick leave, workers have the right to carry forward four weeks of their statutory holiday entitlement to the next leave year if they are unable to take it in the current year owing to long-term illness.

Dealing with long-term absences, in particular, is a difficult area of the law. Each case must be decided on its own merits and proper procedures must be followed. Employers who have not done so for a while are advised to review stress management and long-term absence policies and procedures so that potential problems are identified early on and remedial action is taken as soon as possible.

Age Discrimination - Life After the Abolition of the Default Retirement Age

Since the abolition of the Default Retirement Age (DRA), it is no longer permissible for an employer to dismiss an older worker on the ground of retirement unless this can be objectively justified under the Equality Act 2010.

This does not mean that employees will never be able to retire, but that an employer cannot lawfully force an employee to retire at a set age unless the age can be objectively justified under the Equality Act. If this is not possible, the employer faces the double threat of a claim for age discrimination and for unfair dismissal.

Employers therefore have two options. These are:

• to stop retiring people and use other dismissal options where necessary; or
• to use an Employer Justified Retirement Age (EJRA).

For a set retirement age to be objectively justified, its use must be a proportionate means of achieving a legitimate aim. This is not an easy test to pass, and businesses who do wish to have in place an EJRA are advised to seek legal advice before choosing this option. An EJRA will normally be appropriate for occupations where retirement at a particular age can be justified on health and safety grounds – for example for airline pilots or fire fighters. Employers must provide evidence that the chosen EJRA is necessary – not based merely on assumptions – and be able to demonstrate that no alternative or less discriminatory action could achieve the same result. Employers who have chosen to use an EJRA must follow a fair procedure, giving the employee adequate notice of their impending retirement and, if circumstances permit, consider any request to work beyond the EJRA as an exception to the normal policy. However, it is important to have procedures in place to ensure consistency of treatment of employees who request to stay on.

Older employees can retire voluntarily at a time of their choosing and draw any occupational pension to which they are entitled under the rules of the scheme. If an employee has given formal notice that they wish to retire, the employer is under no obligation to permit them to withdraw their notice should they change their mind. If, however, an employee has only told their employer that they plan to retire, they can change their mind before formal notice is given.

Great care must be taken if an older employee is performing badly. Procedures for dealing with performance issues must be fair and applied consistently across all age groups. To avoid a claim of unfair dismissal, any dismissal must be for one of the potentially fair reasons for dismissal under the Employment Rights Act 1996. Care must also be taken that any decisions taken by the employer do not discriminate against an employee who has a condition that constitutes a disability under the Equality Act. In such cases, the employer has a duty to make reasonable adjustments to remove any barriers to the employee’s performance.

Group risk insured benefits are exempt from the principle of equal treatment on the grounds of age, so employers who provide such benefits can cease to provide or offer them to employees who reach the State Pension Age, even if they continue to work beyond that age. The age at which group risk insured benefits can be withdrawn will increase in line with increases in the State Pension Age.

In addition, under the pensions auto-enrolment rules, employers are not obliged to enrol workers who have reached the State Pension Age.

Whilst the abolition of the DRA has given employees greater choice and flexibility over when to retire, the move has been criticised as having a negative impact on an employer’s ability to plan workforce requirements to meet future business needs.

The Advisory, Conciliation and Arbitration Service has published guidance for employers, entitled ‘Working Without the Default Retirement Age’, which contains useful advice on a possible framework for workplace discussions that will help identify an employee’s future aims, and gives examples of ways of raising the issue of retirement without asking questions that could be seen as discriminatory.

Construction Act Changes

On 1 October 2011, changes to the Housing Grants, Construction and Regeneration Act 1996 (normally called the Construction Act) came into force. These apply to all relevant contracts entered into from that date.

The changes include:

• The removal of the requirement that construction contracts covered by the Act must be in writing;
• The abolition of clauses which require the party putting a matter to adjudication to meet the costs of the adjudication – any such agreement will be ineffective unless it is in writing and has been made after the giving of notice of intention to refer the dispute to adjudication;
• The abolition of ‘pay when certified’ clauses. These effectively pass the debt risk of the contractor ‘down the chain’ to subcontractors, who are not entitled to payment until the contractor is entitled to be paid;
• The requirement that a mechanism for raising payment notices be included in the contract. This must state whether the notices are to be issued by the payer or payee. Each notice must set out the sum due (even if nil) and how it has been calculated; and
• The permitting of partial suspension of work under a contract while disputes are negotiated. Previously, suspension was an ‘all or nothing’ remedy.

The changes are significant and raise the possibility that disputes may increase because verbal contracts or variations of contracts are alleged to have been made. For contractors, the abolition of ‘pay when certified’ clauses may lead to significant financial issues. In addition, standard documentation will need to be revised. The Joint Contracts Tribunal will be issuing new standard documentation to accommodate the changes.

Bring Your Own Device - Data Contollers' Obligations

The Data Protection Act 1998 (DPA) requires data controllers to take appropriate technical and organisational measures to prevent unauthorised or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data.

Where an employer allows workers to use their own personal devices, such as laptops, smartphones and tablet computers, this raises a number of data protection concerns. The trend, commonly known as ‘bring your own device’ or BYOD, can mean that workers’ own devices are used to access and store corporate information, including personal data. It is therefore important for data controllers to remember that they have a duty to remain in control of the personal data for which they are responsible, regardless of who owns the device used to carry out the processing.

The Information Commissioner’s Office has produced comprehensive guidance, entitled ‘Bring your own device (BYOD)’, to help data controllers comply with their duties in this respect. This recommends having a BYOD policy covering the types of personal data you are processing and the devices, including ownership, on which these will be held. The policy should be clearly understood by users connecting their own devices to your IT systems and regular checks should be carried out to ensure compliance. When drawing up the policy, the data controller will need to assess:

• what type of data is held;
• where data may be stored;
• how data is transferred;
• the potential for data leakage;
• blurring of personal and business use;
• the device’s security capacities;
• what to do if the person who owns the device leaves your employment; and
• how to deal with the loss, theft, failure and support of a device.

The guidance gives tips on each of these areas, including the use of passwords, data encryption and other security measures that may be introduced, such as ensuring that access to the device is locked or data automatically deleted if an incorrect password is repeatedly input and the facility to locate devices remotely and to delete data on demand.

There is also a section on making sure the BYOD policy facilitates compliance with other aspects of the DPA.

The guidance can be found here.

Compensation for Loss of Light

Following a recent case in which a dispute regarding a property owner’s right to light was unexpectedly dealt with by the granting of an injunction against a developer, a more recent case has offered guidance on how much compensation might be payable by a developer who takes the light of another property in the more normal circumstance in which the court rules that compensation is payable.

The principles which will normally apply in assessing the damages payable are that they should be:

• fair – in other words, an amount such as would be likely to be agreed following negotiations between the interested parties;
• appropriate bearing in mind the context of the breach and its nature;
• made with the awareness of the strength of the bargaining position that is created by the right to claim injunctive relief, thus preventing or limiting a development, and the profit that thereby might accrue to the person able to claim the injunctive relief;
• based on a fair percentage of the anticipated size of the profit, but if the profit is not known, the appropriate measure is a suitable multiple based on the loss of amenity;
• not so large that the development would not have gone ahead had it been payable; and
• fitting in the circumstances, after taking into consideration all the other relevant factors.

In the case in point, the court awarded the applicant a sum estimated to be 30 per cent of the developer’s expected profits. If unchallenged, the practical implication of this case is that developers whose developments are likely to take the light of adjacent property owners should be aware that failing to negotiate a favourable position at the outset might lead to a considerable reduction in the development profit should the matter end up being decided in court.

In a more recent case, the court ordered that the builder of an office block must demolish the top two stories (part of which were already tenanted) because they took the light of a nearby listed building. This decision is currently under appeal. Unless specifically granted, the right to light can be very difficult to establish and in a 2012 case it was ruled that where such a right is established by way of an 'easement' (normally where there has been 20 years' uninterrupted access to light), the easement does not transfer to a new owner of the affected property.

If loss of light is an issue for you, the Royal Institute of Chartered Surveyors has issued guidance for its members which will make informative reading.

 Recently, the Law Commission instituted a consultation exercise to see if changes in the law relating to rights to light were necessary. This closed in February 2013. A new draft bill is expected to be issued during 2014.

Dealing With Subject Access Requests

Many businesses regard the Data Protection Act 1998 as something that merely requires a lot of form filling and the payment of fees, but there is a lot more to it than that.

The purpose of the Act is to protect a person's right to privacy with regard to the processing of their personal information. Individuals (‘data subjects’ in the terminology) have the right of access to information held about them. For example, a customer of your business has the right to contact you to request a copy of any data you hold on them so that they can check it. This is called a 'subject access request' (SAR). You are required by law to supply the information requested (once you have checked that they are who they say they are, of course). The individual making the request has the right to see data held in any form, not just that held on computer, so storing information in paper form does not avoid the responsibility.

If you receive a SAR, you are required to supply not only all the information you hold on the data subject but also a description of why the information is processed, details of anyone it may be passed to or seen by, and the logic involved in any automated decisions. If you unjustifiably fail to comply with a SAR, the courts may impose a fine of up to £5,000. Any person who believes they have suffered damage and/or distress as a result of a contravention of the Act may seek compensation by applying to the High Court.

In the case of a failure to comply with a subject access request the Court may award compensation for distress alone.

The interpretation of the Court of Appeal is that ‘personal data’ has been defined in such a way that employees are only entitled to see information which is biographical ‘in a significant sense’ and which has the data subject as its focus. The mere mention of a person’s name does not entitle them to see the documents concerned.

In 2015, legislation  was brought in which makes requiring a prospective employee make their own request for a Criminal Record Check unlawful. 

Data Protection Guidance for Landlords

The Information Commissioner's best practice guide for landlords - written to to assist them in complying with the Data Protection Act can be downloaded from the Information Commissioner’s website. The guide includes a checklist which is intended to assist landlords in ensuring that the data they hold on their tenants is only given out to third parties in accordance with the Act. It also has a section on frequently asked questions on data protection matters.

Cookie Law

The Privacy and Electronic Communications (EC Directive) (Amendment) Regulations 2011 require consent to be obtained for the use of cookies and similar technologies for storing information, and accessing information stored, on a user’s equipment, such as their computer or mobile phone. The Regulations came into force on 25 May 2011. However, the Information Commissioner’s Office (ICO) announced that organisations would be allowed a year-long period to work towards compliance with the changes. That grace period has now expired.

Previously, privacy rules only required websites to tell users about cookies they used and provide information on how to ‘opt out’. Most organisations did this by putting information in their privacy policy. The new rules require that in most cases websites wanting to use cookies must gain consent, which must involve some form of communication whereby the individual knowingly indicates their acceptance. The ICO made last-minute changes to its guidance on how to comply with the new cookie law in order to clarify the following points with regard to implied consent:

• Implied consent is a valid form of consent and can be used in the context of compliance with the revised rules on cookies;
• If you are relying on implied consent you need to be satisfied that your users understand that their actions will result in cookies being set. Without this understanding you do not have their informed consent;
• You should not rely on the fact that users might have read a privacy policy that is perhaps hard to find or difficult to understand; and
• In some circumstances, for example where you are collecting sensitive personal data such as information about an identifiable individual’s health, data protection law might require you to obtain explicit consent.

The Information Commissioners Office has comprehensive guidance to the various regulations.

Consumer Protection Regulations

Suppliers of goods to the public should be aware that the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 apply to contracts concluded on or after 13 June 2014. The Regulations implement into UK law the EU Consumer Rights Directive, which covers all consumer contracts for goods and services and is intended to harmonise and simplify consumer protection rules across EU member states.

The Regulations replace the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 and the Cancellation of Contracts made in a Consumer's Home or Place of Work etc. Regulations 2008 (often referred to as the 'Doorstep Selling Regulations').

Many of the information provisions are already required by existing legislation and will be familiar to traders. However, some are new, for example the requirement when supplying digital content to provide information on what systems or hardware it will work with.

Schedule 1 to the Regulations lists the information that must be provided for on-premises contracts and Schedule 2 lists the information to be provided for distance and off-premises contracts. Where a contract is made at the consumer's premises, the Regulations make any of the required information supplied to the consumer a term of the contract.

Cancellation rights will continue to apply to off-premises and distance contracts only. All distance and off-premises sellers covered by the Regulations must provide the cancellation form set out in Schedule 3 to the Regulations. The cancellation period is extended from 7 calendar days (for off-premises) and 7 working days (for distance sales) to 14 calendar days for both in order to give consumers more time to change their minds.

There are specific provisions regarding delivery times, the passing of risk and the conduct of telesales calls and electronic contracts.

There are also a number of other requirements imposed on traders, in particular as regards various 'sharp practices' such as 'inertia selling' (sending unrequested goods, followed by an invoice for the price of the goods if householders do not return them) and charging over the odds for calls to helplines.

View guidance on the Regulations.

Traders should familiarise themselves with the new rules as failure to comply can lead to a significant fine.

Company Formation Checklist

You may have come across advertisements which make forming a company sound very easy, but before you go ahead there are some serious issues to think through. If you have decided that a company is the best vehicle for your new venture then here is a checklist:

Decide what to include in the Articles of Association and Memorandum of Incorporation. These documents lay down how the company is to be structured and what its operating procedures will be. Include the names of the director(s) and company secretary (if necessary). Include any positions that have special names or rights (e.g. managing director) and any specific limitations on directors;

Determine who will own the shares and in what proportions. Changing this later on is fraught with potential tax traps;

Check that any proposed name for the company is allowable;

If you own trademarks you need to decide whether to keep them or sell or lease them to the company;

If the company will use a property owned by a director you need to decide whether or not you should have a lease. There are many tax considerations attaching to this, so take advice before you act;

Cars can be a major source of friction is small businesses. Take advice on whether cars should be owned by the company or kept out, how they are financed, insured and how you are going to meet travelling expenses;

Give thought to what the ‘corporate look’ is going to be. If you plan to use a trade name, do a search to make sure the company name AND trade name can be used without legal ramifications. Companies House produce a free guidance on many company issues including basic guidance on the Companies Act 2006;

Your stationery, website and emails must show your registered number and other details. Adding your VAT number is usually a good idea (particularly if stationery will be used for invoices) so you will need to sort out these details before you can get your stationery printed. There is helpful information in the guidance issued by Companies House on company formation;

If your turnover is omore than the VAT limit you must register for VAT. You must also tell HM Revenue and Customs (HMRC) that the company is trading. Failure to do so within the time limit may lead to a fine. Even if you do not need an audit, you will probably have to appoint accountants to make sure your accounts comply with the Companies Act ;

By law employers must have employers’ liability insurance. However, very small companies which employ only their majority shareholder are exempt from the requirement to carry employers’ liability compulsory insurance. This has brought them into line with sole traders who do not employ anyone else;

Also, contact your local HMRC office for the employer's PAYE pack. The HMRC website has helpful leaflets;

Normally, you will not be able to open a corporate bank account until your bank has seen the company’s certificate of incorporation. If you need borrowing, consider what security can be offered and who will give guarantees if necessary;

Employees have numerous rights and it is important to know which laws apply to you and to be ready for forthcoming legislation. For example, all employees are entitled to a written statement of their terms of employment.

Company Name Rules

You cannot incorporate a company using any name you like. Some names are prohibited (for example, those which suggest a connection with the Government or the Crown) and names will not be allowed if they are too similar to the names of existing companies.

In 2013, facing more than 4,000 applications for names per month which required review, the Government acted to reduce the number of restricted names. A new list of  restricted names was released, with names such as National, United Kingdom, Register and Authority being removed form the list of 'sensitive' names. The revised list can be seen here.

Companies House provides guidance on the rules for choosing names for new companies. Don't forget to check that the associated Internet domain name is available as well. Different rules entirely apply to the registration of domains on the Internet and the regulations also vary from country to country. For example, some countries will not allow the country's domain suffix to be registered to a domain unless there is an active trade mark and/or trading presence in the country.

Companies Act 2006 Overview

The Companies Act 2006 became fully effective from October 1st 2009. It is the principal source of law relating to the conduct of companies incorporated in England and Wales.

Companies House provides useful information on the Act on its website.

The Institute of Directors has published useful guidance on the rights and responsibilities of directors.

Damages for Wrongful Dismissal

In Edwards v Chesterfield Royal Hospital NHS Foundation Trust, the Supreme Court ruled that a consultant surgeon who had suffered a loss as a result of findings of personal and professional misconduct made against him in disciplinary proceedings that were conducted in breach of his employment contract could not seek to recover damages in the ordinary courts for loss suffered as a result of the breach.

Michael Edwards was dismissed for gross professional and personal misconduct following a disciplinary hearing regarding allegations made against him by a patient. His contract of employment contained a clause to the effect that matters of professional misconduct or incompetence would be dealt with under a procedure negotiated and agreed by the Local Negotiation Committee. He contended that the General Medical Council had investigated and dismissed the allegations made against him and had his employer followed the correct disciplinary procedure as laid down in his contract of employment, it too would have exonerated him.

Mr Edwards brought a claim of unfair dismissal to the Employment Tribunal (ET). He then changed his mind and withdrew the claim, deciding instead to pursue a claim through the courts for losses arising from a breach of contract. He was seeking more than £4 million in damages for loss of past and future earnings because he claimed his employer’s actions had ruined his career.

The Court of Appeal had found that the law does not preclude an action for unlimited damages for breach of an express contractual obligation such as the agreed disciplinary procedure in this case. However, in a majority decision the Supreme Court held that dismissal damages could only be recovered where the loss could be said to precede and be independent of any subsequent dismissal. No separate contractual claim is available where the breach of contract relates to the manner of the employee’s dismissal, as was the case here. Unless the employment contract expressly contains agreement to the contrary, the remedy for wrongful dismissal as a result of a breach of disciplinary procedures lies in a claim to the Employment Tribunal under the provisions of the Employment Rights Act 1996. In the Court’s opinion, Parliament could not have intended that where disciplinary procedures have contractual status, any breach could give rise to a common law claim for damages.

This decision means that claims that the manner in which a dismissal was carried out was unfair will be dealt with by the ET where the maximum compensation award for unfair dismissal is limited to the statutory cap, which is currently £76,574.

Contractors Are Your Responsibility

A handbook produced by the Health and Safety Executive (HSE) outlines the responsibilities of both the contractor and the client in situations in which work is carried out by contractors rather then employees. It does not apply to circumstances in which the Construction (Design and Management) Regulations apply or to work done by agency workers.

The leaflet begins from the premise that 'all parties must co-operate to ensure that health and safety is properly managed'.

Under health and safety law, both the contractor and the client have responsibilities. The client must identify all aspects of the job that they want the contractor to do and then carry out a risk assessment. They must satisfy themselves that the contractor they have chosen is competent to carry out the job without unacceptable health and safety risks and must explain their procedures and systems to the contractor sufficiently well for them to understand them and act in accordance with them.

The risk assessment should be carried out with the contractor, who will normally be responsible in the same way as the client for any sub-contractors, who should also be part of any relevant risk assessment.

Clients, contractors and sub-contractors must keep their employees properly briefed on any matters that may affect their health and safety.

The guide is another illustration of the Government's intention to improve compliance with health and safety regulations. What is most problematic here is the need for the client to assess the competence of the contractor, which is a potential source of problems for many firms. We can advise you on any legal issues arising out of health and safety matters.

Recent case law has made firms responsible for a number of actions taken by subcontractors, especially where they are under the direct control of the ultimate employer. Just because a person is employed directly by another business they will not necessarily be their responsibility alone.

In April 2008, the Corporate Manslaughter and Corporate Homicide Act 2007 came into effect, which has profound implications for businesses. The Ministry of Justice has issued a comprehensive guide.

As of November 2014, nine prosecutions had been commenced under the Act - all against smaller companies - and successful prosecutions obtained in all cases so far decided. Fines of up to £500,000 have also been imposed.

 

 

Companies Act Model Articles - Think First

However, before you rush off and buy an ‘off the shelf’ company, pause to consider this – it is usually much more sensible to start with the right articles than to amend ‘standard’ articles to say what you mean later.

Articles tend to be of little importance to directors and shareholders until the company has ‘grown up’ a bit – by which time vested interests can be strong and changes to the internal regulations, such as alteration of share capital rights and so on, can be difficult and full of hidden pitfalls. These sorts of issues can prove a disaster when there are discussions ongoing relating to the retirement of director-shareholders or a proposed purchase of the business or of a shareholding in it.

Buying from an Administrator - Take Care

With businesses becoming insolvent in large numbers, opportunities abound to acquire assets from their administrators. However, the low prices sought for the assets are due, at least in part, to the additional risk to the purchaser.

Here are some of the main issues to be aware of when buying property from an administrator:

• Vacant possession of a property will not normally be guaranteed and the cost of clearance of items left in the building should be borne in mind;

• No guarantees or warranties regarding the property will be given – undertaking proper due diligence to reduce risks is advisable;

• There may be items that appear to be a part of the property being sold which do not in fact belong to the insolvent business; and

• The administrator acts only as agent for the insolvent company and will accept no liability for errors or omissions.

Buying a property from an administrator is a risky business. We can help you to control the legal risks.

Data Protection Policies and Personal Devices

A recent YouGov survey showed that 47 per cent of all UK employees now use their smartphone, tablet PC or other portable device for work purposes and the Information Commissioner’s Office (ICO) has now issued a warning that organisations are failing to update their data protection policies to account for this growing trend.

The warning comes after the Royal Veterinary College was found to have breached the Data Protection Act 1998 when a member of staff lost a camera that held a memory card containing the passport images of six job applicants. It emerged that the College had no guidance in place explaining how to safeguard personal information stored on personal devices for work purposes.

ICO Head of Enforcement Stephen Eckersley said, “Organisations must be aware of how people are now storing and using personal information for work and the Royal Veterinary College failed to do this. It is clear that more and more people are now using a personal device, particularly their mobile phones and tablets, for work purposes so it is crucial employers are providing guidance and training to staff which covers this use.”

The ICO has made available guidance on this subject, entitled ‘Bring Your Own Device (BYOD)’. This highlights some of the key issues organisations need to be aware of when allowing staff to use personal devices for work. Recommendations include the following:

• Be clear with staff about which types of personal data may be processed on personal devices and which may not;
• Use a strong password to secure all devices;
• Enable encryption to store data on the device securely;
• Ensure that access to the device is locked or data automatically deleted if an incorrect password is input too many times;
• Use public cloud-based sharing and public backup services, which you have not fully assessed, with extreme caution, if at all; and 
• Register devices with a remote ‘locate and wipe’ facility to maintain confidentiality of the data in the event of a loss or theft.

Bribery Act Guidance

The Government provides guidance for businesses on complying with the Bribery Act 2010, which came into force on 1 July 2011. The Act was originally scheduled to take effect in April 2011, but its implementation was delayed to allow the final version of the guidance to be completed.

Section 7 of the Act makes it an offence for a commercial organisation to fail to prevent bribery. A business can provide a defence by showing that it had in place adequate procedures to prevent bribery from taking place, however, and the guidance details the approach that should be taken when implementing such procedures. The overriding point is that these should be proportionate in view of the likelihood of bribery occurring, which will depend on the size of the business and the countries and markets in which it operates. Although the principles remain similar to those in the draft guidance, published in September 2010, the advice in the final version is more detailed.

Section 14 of the Act provides that where an offence is committed with the consent or connivance of a senior officer of an organisation, that person (as well as the body corporate or partnership) is guilty of the offence and liable to be proceeded against and punished accordingly.

Under Section 11 of the Act, the maximum penalty for individuals is 10 years’ imprisonment or an unlimited fine, or both. The maximum penalty for commercial organisations is an unlimited fine.

The guidance includes case studies to illustrate what approach businesses might take in certain situations and can be found here. There is also a ‘quick start guide’ to the Act.

The first prosecutions under the Act were brought in 2012. In both cases, the prosecutions involved corruption of public officials. in 2014, the first successful prosecution was brought relating to offences committed outside the UK.

Brief Guide to the Administration of Troncs

The long-running series of disputes between employers in the hospitality industry and HM Revenue and Customs (HMRC) concerning the taxation of employees’ tips and their National Insurance (NI) status seems to have been concluded by the issue of guidance on the operation of ‘troncs’.

HMRC have, in effect, accepted the industry’s contentions regarding these. The following points have been clarified:

• no approval from HMRC is required for the appointment of a troncmaster;
• the troncmaster can be anyone other than ‘the employer, business partner, or official of the company’ (so a manager is acceptable);
• the business can retain discretionary service and non-cash tips without compromising the NI status of the tronc – only the sums passed to the troncmaster constitute the tronc; and
• any amount of tronc paid in excess of tips specified in the employee’s contract of employment does not incur a NI liability.

From 1 October 2009, tips have longer been counted as part of the National Minimum Wage, regardless of how they are paid.

Business Relief - Traps for the Unwary

Most business people know that for family businesses there are generous Inheritance Tax (IHT) reliefs, which generally operate to make assets used in the business exempt or partially exempt from IHT. The reliefs take various forms but have been collectively known as Business Property Relief (BPR), although HM Revenue and Customs (HMRC) have changed the name to 'Business Relief'.

Consider, however, the common situation whereby a business is owned by a small number of people and, in order to preserve the business in the event of the death of a shareholder before retirement, an agreement is made whereby on death the deceased’s personal representatives are required to sell their shareholding to the remaining shareholders, who are required to buy it. Such arrangements are normally funded by writing life assurance policies to cover the purchase.

Regrettably, such an arrangement will prevent the operation of BPR. This is because HMRC regard such an arrangement as a binding contract for sale on death and where such a binding contract exists, BPR is not given. This problem can be avoided by granting each side the appropriate option, rather than making the requirement to buy the shares contractual.

BPR is also not given on family company shares if the company is wholly or mainly engaged in dealing in shares or securities, dealing in land or buildings or making or holding investments. The normal practice of HMRC is to define ‘mainly’ as being ‘more than fifty per cent’. The fifty per cent test is applied to all of:

• the capital employed;
• employee time spent on each activity;
• turnover;
• profits; and
• the overall context of the business.

In other words, a ‘whole business’ view has to be taken. Needless to say, this has led to much dispute over the years.

Lastly, a business which is too ‘cash rich’ can also face a denial of BPR insofar as it applies to the cash on the balance sheet at the date of death if this is in excess of the amount required for the purposes of the company’s business. Cash in excess of that required for the company’s future business is ‘excepted’ from eligibility for BPR. In one case, the shareholders of a company which had £450,000 in its balance sheet, but which was reckoned by the tax inspector to need only £150,000, faced an IHT charge on the ‘excess’ of £300,000. One way which this type of charge may be avoided is to hold board meetings and minute the need for cash balances to be held on the balance sheet in order to finance future (stated) investment and/or trading needs.

HMRC provides guidance on BPR on its website. In 2013, an important case was decided in which BPR was denied for a furnished holiday letting business on the basis that the range of services provided was not sufficient to justify the claim that the enterprise was a 'business'. It remains to be seen to what extent this case will be used to justify denials of relief in similar curcumstances.

Bank Deposit Protection Rules for Businesses : Guide

In December 2010, new limits were announced for the levels of protection available for different investments underwritten by the Financial Services Compensation Scheme (FSCS).

The FSCS protects the deposits of small companies, which are those which meet two of three criteria:

• they have fewer than 50 employees;
• their turnover is not more than £6.5 million per year; and
• the balance sheet total is less than £3.26 million.

The £85,000 limit is also available for unincorporated organisations, partnerships and sole traders, but in the latter case the limit would apply in total to all (i.e. business and personal) accounts held by the customer with the same lender.

One possible area for concern is whether deposits held in different members of the same banking group are covered separately. In this case, if each of the banks is separately authorised by the Financial Conduct Authority, the FSCS would pay compensation up to the limit of £85,000 per person (from 31 December 2010, the limit is being raised to the sterling equivalent of €100,000), per authorised institution. If each of the banks is not separately authorised but is covered by the parent company's authorisation, the FSCS would pay compensation up to the limit of £85,000 once, irrespective of how many different group members a person held accounts with.

In July 2009, it was announced that the scheme was being improved for those with deposits at and loans from the same bank. These are now  'netted off' for the purposes of compensation, which will improve the position for some customers.

In 2013, measures were announced to add protection for larger unincorporated organisations.

Deposit takers in the Channel Islands and Isle of Man are not covered by the scheme.

Company Disclosure Rules - The Basics

The Companies (Trading Disclosures) Regulations 2008 set out the the requirements as to where and when company trading names, names of directors etc. need to be shown. The Statutory Instrument implementing the changes is both short and straightforward.

In particular, Section 6 is important. It specifies that every company shall disclose its registered name on:

• business letters, notices and other official publications;
• bills of exchange, promissory notes, endorsements and order forms;
• cheques purporting to be signed by or on behalf of the company;
• orders for money, goods or services purporting to be signed by or on behalf of the company;
• invoices and other demands for payment, receipts and letters of credit;
• applications for licences to carry on a trade or activity; and
• all other forms of its business correspondence and documentation.

In addition, it requires that every company shall disclose its registered name on its website.

Advice on Acquisitions Deductible

One common area of dispute between companies and the HM Revenue and Customs (HMRC) is that of deductibility of expenses. One of the hottest areas of dispute is often whether an expense is a trading expense (deductible as part of the day-to-day running costs of the company) or a capital expense, which is normally allowable only through the capital allowances regime, if at all.

In a recent case, the Court of Appeal considered the position of an investment company which had incurred significant professional fees securing advice on the possible acquisition of another company.

The position arose because the company claiming the tax relief on the expenditure had identified another company as a possible merger or acquisition target. After obtaining a great deal of accounting, legal and financial advice in order to evaluate the merits of the proposed acquisition, they made an offer to the board of the other company. The offer was rejected and was not pursued.

HMRC denied the company's claim for tax relief on the bills for the professional advice. The decision turned on the question of the treatment of the expenditure. Were the expenses management expenses deductible under the Taxes Act (S 75(1) ICTA 1988) or were they, as the Revenue claimed, capital expenses and thus not allowable as deductions in the corporation tax computation?

The judges accepted the company's argument, accepting that even if the acquisition had gone ahead, the expenditure would have been treated as a trading expense and not as part of the cost of the purchase of the target company. It was therefore a revenue item, not a capital item, and was deductible for corporation tax purposes.

The tax authorities not infrequently will fight taxpayers on issues in spite of their own arguments not being strong. A robust approach from the taxpayer can often be effective. To achieve the best result, sound advice is essential.