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APRIL 2009

Changes to employment law and practice led by the Department for Business, Enterprise and Regulatory Reform are normally implemented in either April – the start of the tax year – or October. The reason for this is to make life easier for employers, who must ensure that their policies and procedures comply by the implementation dates or risk significant penalties.

The main changes to be introduced in April 2009 are:

Repeal of the Dispute Resolution Procedures – 6 April 2009
The Employment Act 2008 repeals the statutory dispute resolution procedures and related provisions dealing with procedural unfairness in dismissal cases. In their place is a revised voluntary Advisory Conciliation and Arbitration Service (ACAS) Code of Practice intended to be the standard of reasonable behaviour in most instances. The Code is supported by non-statutory guidance aimed at encouraging employers and employees to resolve issues both earlier and informally. Changes are also made to the law relating to conciliation by officers of ACAS, with the removal of fixed periods for conciliation. The Employment Tribunal (ET) has the discretion to increase or reduce an award by up to 25 per cent where either side unreasonably fails to comply with the new Code of Practice. The Code and the non-statutory guidance can be found at http://www.acas.org.uk/.

The Employment Tribunals (Constitution and Rules of Procedure) Amendment Regulations 2008 make consequential procedural changes, resulting from the Employment Act 2008, to ET practice and also make changes with regard to default judgments, electronic communications, the withdrawal and dismissal of proceedings and Stage 1 hearings in equal value claims.

The Right to Request Flexible Working – 6 April 2009
From 6 April, the right to request flexible working arrangements is extended to those with parental responsibility for children aged 16 and under. For further information, see http://www.berr.gov.uk/whatwedo/employment/workandfamilies/flexible-working/index.html.

Enforcement of the National Minimum Wage – 6 April 2009
The Employment Act 2008 makes changes to the way in which payment of the National Minimum Wage is enforced. HM Revenue and Customs (HMRC) officers are given wider powers of investigation and restrictions are removed on the exchange of information between HMRC and the Employment Standards Inspectorate. There is a new penalty for employers who underpay their workers and a new method of calculating arrears that takes into account the length of time over which underpayment has occurred.

For further information, see http://www.berr.gov.uk/whatwedo/employment/pay/national-minimum-wage/page44848.html.

Changes to Trade Union Membership Law – 6 April 2009
The Employment Act 2008 includes changes that bring trade union rules in line with European legislation and grant unions the right to expel or exclude members who are also members of political parties such as the British National Party.

Increase in Holiday Entitlement – 1 April 2009
In October 2007, the minimum statutory paid holiday entitlement was increased from 20 days a year to 24 days for those working a 5 day week (pro-rata for part-time workers). From 1 April, the minimum statutory annual leave entitlement is increased to 28 days a year. Paid time off does not have to be given for bank and public holidays but, if it is, employers can include this in the holiday entitlement. For further information, see http://www.berr.gov.uk/whatwedo/employment/holidays/index.html.

Statutory Maternity Pay – 5 April 2009
The standard weekly rate of Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay increases from £117.18 to £123.06 for payment weeks starting on or after 5 April 2009.

Statutory Sick Pay – 6 April 2009
The weekly rate for days of sickness absence commencing on or after 6 April 2009 increases from £75.40 to £79.15.



General

Businesses More Confident
According to Accountants BDO Stoy Hayward, business confidence has risen for the first time in more than a year as organisations modify their business models to cope with the effects of the downturn in trade.

This follows a report by HBOS claiming that house prices rose by 1.9 per cent in January.

However, it would be a brave person who claimed that the tide is on the turn for the economy.

For the full story, see
http://www.bdo.uk.com/bdo-stoy-hayward/live/news/2009/business-confidence-edges
-up-as-uk-firms-adapt-to-recession.html.

Credit Insurers Move Goalposts
Businesses which use credit insurance to spread the risk posed to them by their debtors should take note that credit insurers are now regularly ‘moving the goalposts’. Recently, a company was advised that some of its debts could not be insured because the accounts of the debtor company were not up to date. When this was queried (March 2009), the credit insurers replied as follows – ‘Depending on the strength of each buyer we can write some limits on older accounts, however (for) most buyers we are trying to obtain December 08 audited figures and with some weaker buyers even January 09 management accounts. In all trade sectors at present we need to see some information from the end of 2008 and although these won’t necessarily have been filed at Companies House our risk analysts are requesting recent information in as many cases as possible, which is then assessed by the various risk teams so that we can make an informed decision and hopefully steer our policyholders away from what we consider to be the worst risks. Unfortunately the other side of the coin with this is that limit applications now take longer to get answered but we would rather make the correct decision based on recent information than give you the wrong answer’.

Past practice was that if the buying company was trading normally in terms of average payment periods, the credit insurers would not seek more up-to-date information than that filed at Companies House. Company accounts are normally filed several months after the year end.

CV Theft and Fraud
Credit risk management firm Experian has warned businesses that organised criminals are increasingly using information in the public domain to falsify CVs and gain employment – the object being to commit insider fraud.

Experian has surveyed social networking sites and discovered that 63 per cent of respondents included career details in their personal profiles and ten per cent admitted to posting their entire CV online. The information in a CV, especially if coupled with other information which is easily gained from public sources, makes identity theft for the purpose of gaining employment straightforward.

Employers are warned to vet new job applicants carefully.

Late Payment Provisions Not Invalidated by Invoice Errors
Late payment charges may be applied despite errors in supplier invoices, following a recent decision by the Court of Appeal.

The case concerned a company named Ruttle Plant Hire, which in 2000 and 2001 undertook a contract with the Department for Environment, Food and Rural Affairs (DEFRA, formerly MAFF). Ruttle supplied heavy plant to help tackle an outbreak of swine fever in Bury St Edmunds in Suffolk.

In 2001, a nationwide outbreak of foot and mouth disease created so much work for Ruttle that the company put their invoicing for the swine fever work on hold, although some invoices had by then been sent. Furthermore, the terms of the contract were agreed in a hurry and were imprecise, which resulted in a dispute over the agreement. This dispute was resolved in a separate court case.

It was accepted by Ruttle that it had made mistakes in the original invoicing for the contracted work. DEFRA had argued that any error, however small, meant that the Late Payment of Commercial Debts (Interest) Act 1998 should not apply. The original trial judge accepted the argument in part.

Much of the argument at appeal concerned the issue of remission of interest in cases where amounts due were under dispute. The Court of Appeal accepted that remission was due on disputed amounts but held that interest would accrue on any amounts that were accepted as due if these were not paid on time.

It was held that an invoice need not be error-free in order for interest under the 1998 Act to apply. The Court of Appeal duly found in favour of Ruttle, ruling that interest would apply to agreed amounts due, regardless of any invoicing errors.

This case demonstrates that the protection under the Act applies even where there may be disputes over some of the details. However, it may be dangerous to try to enforce the payment of interest in a continuing relationship with another business. In this case, where the late payment was by a government department and for one-off work, the risk of future difficulties was small.

Specific Breach Invalidates Policy
When a policy of insurance contains a clause which specifies that a security or safety system should be in place, the system must be operative for the policy to have effect.

In a recent case, an insurance policy specified that the premises were to be protected by an automatic sprinkler system. The system leaked, so the tenant disabled it. When the premises caught fire, the insurer claimed successfully that the tenant had made a material change to the conditions under which the policy had been granted.

This was very bad news indeed for the tenant’s landlord, who was the insured and who had known that the sprinkler system was turned off before the fire took place. Since the landlord had neither acted to make the sprinkler system operative nor informed the insurer that the policy conditions had suffered a material change, the loss was his to bear.

The essential point was not that the level of risk of loss had been increased, but that the use of the sprinkler system was specifically referred to in the policy document.

Insurers will often dispute liability for losses and allowing any circumstance to persist which could be used as grounds to dispute a claim is risky. At the very least, insurers should be kept informed of any change in circumstances affecting the policy.



Property

Building VAT Cut on the Cards?
According to a press release by the Royal Institute of British Architects, the rate of VAT is to be cut to 5 per cent for home maintenance and repair services, a move that should help the construction and related industries.

No government announcement has yet been made, so anyone thinking of incurring such expenditure should consider waiting until the Budget on 22 April, when the formal announcement is likely to be made (or not).

Landlord and Tenant – Landlord's Right of Entry
Most leases contain a clause which allows the landlord a right of entry to the let premises for a variety of purposes and also contain clauses which require the landlord to exercise this right in a reasonable way, to limit inconvenience to the tenant and to make good any damage caused. The courts tend to interpret such clauses in terms of what is reasonable given all the facts.

In a recent case, a landlord wished to enter warehouse premises in order to carry out a survey (a permitted purpose under the lease), which would involve digging 13 bore holes, all to a depth of five metres or more. Needless to say, the tenant did not wish this to take place and contested it in court. Oddly, the lease did not contain any specific provision to compensate the tenant for disturbing its right to ‘quiet enjoyment’ of the premises.

The court concluded that the proposed survey was a more substantial exercise than one would anticipate from the ordinary dictionary definition of the word and would interfere with the tenant’s quiet enjoyment of the premises. To adopt the landlord’s interpretation of the lease would allow it to undertake prospecting if it so wished – clearly not what was intended when the lease was signed.

Right to Light – Right Preserved
The right to light has been a continual source of disputes over the years and the Court of Appeal has recently heard another case dealing with this contentious subject.

It concerned a company that owned a piece of land and which made an agreement with a developer that allowed the developer to compromise its right to light. In the agreement, made in 1999, the company undertook to take no action to enforce its right to light.

Years later, a redevelopment project was planned for the land, which was the result of a compulsory purchase order. It was a much more substantial development than that envisaged in 1999 and the question arose as to whether the original agreement prevented the claimant from asserting its right to light, which would be materially affected by the new development.

Key to the decision was the wording of the original agreement in 1999. In it, the right to light was acknowledged, but the claimant had undertaken not to take action to enforce the right. However, under the proposed development at that time, there would have been no material effect on the light. The Court ruled that the claimant had not abandoned its right to light.



Tax

Mini Case May Have Maxi Effect
HM Revenue and Customs (HMRC) have scored a win in a little-reported case which has implications for some companies that are associated with other companies for VAT purposes. The case involved companies which were associated with car giant BMW.

One company was engaged in the exporting of cars made in the UK (Minis, presumably). It had ordered its affairs with the production company to maximise the cash-flow advantage from its VAT accounting. It made monthly VAT returns. Being an exporter, this meant that it could recover its input VAT monthly (the exports being zero-rated). Since the manufacturer invoiced quarterly, it only had to account for the output tax on the sales 30 days after the end of the VAT quarter. This created a considerable cash-flow advantage.
HMRC initially ordered the exporting company to make quarterly returns, then to align its VAT return quarters with that of the producing company, removing the cash-flow advantage altogether.

The Court of Appeal ruled that HMRC are entitled to order a trader to change its VAT accounting periods if the current arrangement produces a significant cash-flow disadvantage for the Exchequer. HMRC are also entitled to distinguish between associated traders and non-associated ones, since associated traders have advantages not available to non-associated traders.

It remains to be seen whether HMRC will use this case as a justification for attacking similar VAT arrangements between associated traders.

HMRC Cut Interest on Tax Paid Late
As anyone who has recently tried to negotiate commercial borrowing will know, as yet the banks show no sign of letting up on their hard line as regards lending of all kinds. In the circumstances, it is pleasing to see that HM Revenue and Customs (HMRC) have reduced their rate of charge on overdue tax to 2.5 per cent for most overdue payments.

The other side of this decision is that HMRC now pay no interest on tax overpaid in almost all cases.

Paperless VAT
HM Revenue and Customs have announced that paper VAT returns are to be abolished for new businesses from April 2010. Also, from then on, VAT returns will have to be submitted electronically by all businesses with a turnover in excess of £100,000.

Payments of VAT will also have to be made electronically.

The availability of paper VAT returns for other businesses will be ‘reviewed in the run up to 2012’.



Company and Partnership Law

Former Partners Bound by Accounts
Many businesses are run as partnerships and, when times get tough, it is not uncommon for a partnership to split up. One common problem when this happens is agreeing the financial position after the split. This is especially problematic when the applicable procedures are not clearly laid out in the partnership agreement.

A recent High Court case dealt with the question of the status of partnership accounts prepared for a year during which several partners had left a large partnership. The partners who left had made drawings on account of profits, for the period during which they were partners, which exceeded their profit shares as shown in the accounts. The accounts were prepared some time after they had left. The partnership sought to obtain repayment of the amounts overdrawn.

The partnership deed stated that the firm’s accounts would be binding on all partners, subject to any objections raised in a stipulated time period. The firm’s erstwhile partners claimed that the accounts could not bind them as they were no longer partners.

The Court agreed with the partnership’s argument that the partnership accounts were binding on anyone who had been a partner during the period for which the accounts had been prepared. The former partners also had the right to raise objections to the accounts.

One lesson to be learned from this case is that it is important for partners to have knowledge of and understand their partnership accounts and to take advice where necessary to ensure they understand the financial risks they are taking. It is also sensible to have a written partnership agreement.

Intellectual Property

First Ever Case Giving Employees Share of Patent Value
The normal position in intellectual property (IP) law is that IP resulting from the work of an employee in the course of their employment belongs to the employer. Under the Patents Act 1977, employees were entitled to compensation for the value of a patent if it created an ‘outstanding benefit’ – a very difficult test.

This was altered by the Patents Act 2004, which contains sections that entitle employees to compensation if they are responsible for inventions of ‘outstanding benefit’ to their employers. Principally because of the difficulty of defining ‘outstanding benefit’, until recently the legislation had not been used successfully by employees to gain a share in the value of IP they had created.

In the case in point, two research scientists engaged in biomedical research were responsible for the development of products that were patented, leading to sales for their employer of more than £1 billion. They went to court to obtain compensation under the Act and were successful. Valuing the benefit to the employer at £50 million, taking other factors into account, the court awarded one of the scientists £1 million and the other £500,000.

Although the value of the settlements in this case was not great compared with the value to the business, companies engaged in the development of processes and products based on IP would be well advised to consider dealing with such matters in the contracts of employment of their staff.

Obtaining Trade Marks to be Easier and Cheaper
The UK Intellectual Property Office has announced a review of its trade mark fees and services together with a public consultation aimed at reducing the cost and time taken to obtain trade marks.

Contract

Inconsistency Defeats Right to Rescind
In a recent case involving an attempt to rescind a contract to purchase a leasehold property, the High Court ruled that where a special condition of sale is written into a contract and this is inconsistent with the usual standard conditions of sale, the standard conditions of sale will prevail unless the relevant clauses are specifically excluded.

In the case in point, the buyer of a leasehold issued a notice rescinding the purchase some weeks after the completion date in the contract. The contract itself had been put ‘on hold’ while the vendor sought to obtain the consent of the landlord to the assignment of the lease. The buyer pulled out of the contract without prior notice.

The vendor argued that the presence of a condition in the contract invalidated the purchaser’s right to rescind, but because the term was inconsistent with the standard conditions of sale, this argument was rejected.

However, the behaviour of the purchaser, which was pushing for completion only days before issuing its rescission notice and which delayed taking action for a long period after the completion date, meant that it had lost its right to rescind the contract. To be valid, the right to rescission should be exercised promptly once the contractual completion date is past.

Competition Law

OFT Can Rule on Bank Charges
The recent ruling of the Court of Appeal that the Office of Fair Trading (OFT) can examine charges relating to unauthorised overdrafts has been widely welcomed by consumer groups: talk abounds that an estimated £1 billion of bank charges may ultimately have to be refunded to the customers of cash-strapped British banks. The banks are said to have already spent a similar sum to settle out of court actions brought by disgruntled customers.

The banks sought to prevent a review by the OFT on the ground that the charges arose out of customer contracts that were transparent (which was accepted by the Court) and therefore not subject to review. However, in the view of the Court, just because the terms are clear does not mean that they are fair and the OFT is therefore permitted to review them.

If the decision leads to the conclusion by the OFT that terms in customers’ contracts with banks breach consumer law, the end result will not just be refunds of the amounts deemed to have been overpaid by customers who breached their borrowing arrangements: it will almost certainly be the end of free current account banking in the UK. The UK is one of the few countries which has free ‘in credit’ current accounts.

Clients are advised to consider their banking arrangements, particularly if they have numerous current accounts, and to keep an eye open for the OFT’s decision.

Clients who have breached their banking covenants and who have suffered high charges as a result will also take a particular interest in the result of the OFT’s enquiry.

Prison for Breach of Fair Trading Order
A recent decision by the Court of Appeal should send a clear warning to traders who fall short of the business standards required under consumer protection rules.

In 2001, the Office of Fair Trading (OFT) began proceedings against Mr Vance Miller and others, following nine complaints from customers of his kitchen supply and fitting business, Discount Kitchens Direct (DKD). The following year, the court made an order against Mr Miller regarding the mis-selling of goods and later that year imposed penalties including a prison sentence for breach of the order.

The prison sentence was suspended providing Mr Miller complied with the court order, which included a requirement for him to appoint a reputable management consultant to ensure regulatory compliance.

During the initial court hearings, the question arose as to whether Mr Miller was the proprietor of DKD. Statements made by Mr Miller suggested that he was a sole trader and reports from the management consultant referred to him as such. However, in verbal evidence before the court, Mr Miller insisted that the business was a joint enterprise with others. The court did not accept this argument and held that Mr Miller was the sole proprietor.

Mr Miller subsequently appealed against the court’s decision, claiming that, even if the conduct complained of fell within the scope of the relevant consumer protection legislation, the judge was not entitled to act as he did and the penalties levied were excessive.

After considerable legal argument, the Court of Appeal found against Mr Miller on all three issues. It endorsed the suspended prison sentence and the £90,000 fine and ordered payment of £30,000 costs incurred by the OFT.

Rogue traders should beware. This case demonstrates that the OFT has teeth and is prepared to bite.

Insolvency

What is Administration?
With the economy as it is now, the words ‘going into administration’ are becoming everyday vocabulary, but what exactly is ‘administration’?

Administration is a process under the Insolvency Act 1986 by which a company is placed under the management of a licensed insolvency practitioner – the administrator. In law, the insolvency practitioner is an officer of the court.

There are three statutory objectives of administration, contained in the Act. These are:

• Rescuing the company as a going concern; or
• Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration); or
• Realising property in order to make a distribution to one or more preferential creditors.

Administration imposes a moratorium on legal processes, giving the administrator a breathing space in which to try to restructure or find a buyer for the business.

Where the company is restructured so that the economically viable parts of the business are sold on to a waiting buyer (often including the management of the company before it entered administration), this is termed a ‘pre-pack’ administration.

Administration can be a good way of saving a failing company. If your company is struggling to survive, we can advise you on your possible courses of action. If you have a customer that goes into administration, take advice – it may be possible in some circumstances to limit losses by negotiating with the administrators.

Health and Safety

COSHH Case Sounds Warning Bell for Employers
The Control of Substances Hazardous to Health Regulations 2002 (COSHH) have featured quite rarely in personal injury actions, but a recent case sounds a warning bell for employers who fail to take seriously their responsibilities under COSHH.

It involved a man who was diagnosed with kidney disease after years of exposure to toluene, a solvent used in several industrial processes and in the printing industry. He claimed that the solvent had contributed to his loss of kidney function and obtained substantial damages from his employer in an out of court settlement.

A brief guide to the Regulations can be found at http://www.hse.gov.uk/pubns/indg136.pdf. The Health and Safety Executive also offers a range of free leaflets providing advice and guidance on using chemicals or other hazardous substances at work. These can be found at
http://www.hse.gov.uk/coshh/.



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