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OCTOBER 2008


Redundancy – Suitable Alternative Employment

Sometimes, it is possible to avoid redundancy dismissals by offering employees suitable alternative work within the organisation. Indeed, if a suitable alternative post is available and the employer does not offer it to an employee selected for redundancy, the redundancy dismissal may well be unfair dismissal, in which case the employee is entitled to claim compensation.

For an offer of suitable alternative work to be valid, it must be offered to the employee before the expiry of their current contract. The offer should show in what way the new job is different from the employee’s existing position and the job must start either as soon as the old contract of employment ends or within four weeks of it ending. Whether or not the job is suitable will depend on a number of factors including the job status, the remuneration level, where the employee is to work, the working environment and the hours of work.

If the employer and the employee reach agreement that the job is not suitable after all, the employee can still claim a Statutory Redundancy Payment (SRP). However, if the employer believes that the alternative job offered is clearly suitable and the employee unreasonably refuses to accept it, he or she will not be paid a SRP. Employers should take care in such circumstances however. The decision as to whether or not an employee’s refusal of suitable alternative employment is reasonable is a subjective one.

In Commission for Healthcare Audit and Inspection v Ward, Ms Ward was offered a new post during a restructuring exercise. She had already survived an earlier reorganisation. This and the way the offer was communicated to her left her disillusioned with the process. She didn’t think the new post was suitable and refused to take up the offer. The Commission considered that her refusal was unreasonable and that she was not therefore entitled to a SRP.

Ms Ward brought a claim to the Employment Tribunal (ET), which judged that although there was a material difference between the old and the new posts, on balance the new job was suitable, though clearly not ideal. However, in its view the fact that the suitability of the new job is marginal may affect whether or not it is reasonable for the employee to refuse it, as can the circumstances surrounding the offer and the relationship of the parties concerned. The circumstances in this case were such that the ET found that Ms Ward had not acted unreasonably in refusing the new role and she was therefore entitled to a SRP.

The Employment Appeal Tribunal upheld the ET’s decision. The ET was entitled to consider the degree of suitability of the alternative role when deciding whether Ms Ward’s refusal was reasonable. Following earlier case law, Ms Ward’s actions must be looked at in relation to the way the facts appeared, or ought reasonably to have appeared, to her at the time she made her decision. It is possible for an employee to reasonably refuse an objectively suitable offer based on their own perceptions. It is for the ET to reach a judgment based on the individual facts of the case.

This case illustrates that the manner in which the redundancy process is conducted is important. Whether or not an employee’s refusal to accept suitable alternative employment is reasonable is a subjective judgment and so the way they are treated is key. To avoid problems, take advice before you take any action if you face having to make staff redundant.



General

Impractical Insurance Terms Not Invalid
The conditions attached to your insurance policies are important, so it is vital that you read and understand them. Where significant conditions are not met, it is usual for the insurer to refuse to pay what might appear to be a reasonable claim.

Recently, the owner of a trawler valued at over £120,000 claimed on his insurance policy when the vessel was destroyed by fire whilst tied up in port. There were no crew members present on the trawler when it caught fire.

The policy contained a provision that there should be a ‘Warranted Owner and/or Owner’s experienced Skipper on board and in charge at all times and one experienced crew member’. As there were no crew members present at the time of the fire, the insurer refused to pay. The claimant argued that the clause only applied when the vessel was at sea and, if applied literally, would lead to absurd results, especially given the cramped nature of the accommodation on board.

The court supported the insurer, agreeing that the clause had to be interpreted literally. The fact that the clause was practically very difficult indeed for the insured to comply with did not relieve him from his legal obligation.

For the court to make a ruling that insurance cover should be based on what seems to be common sense, rather than what the policy actually says, would be a very risky approach and challenges could proliferate. The courts are not inclined to interpret policies in ways that differ from their strict meanings. If you have any doubts as to the legal effect of your insurance arrangements, contact us for advice.

Business Fraud Booms
A study by accountants BDO Stoy Hayward has found that business fraud is up by over 70 per cent compared with last year and they estimate the cost of business fraud is now more than £700 million a year.

Management fraud accounts for nearly half of the total, according to the report. The finance and insurance sectors seem to be the worst hit, with more than 90 per cent of the reported total affecting those sectors. This may, however, just be an indication that these sectors have comparatively well developed internal controls, so are more likely than businesses operating in other sectors to detect fraud.

Recently, ‘Big 4’ accountants KPMG reported that in the first six months of 2008, 128 cases of fraud came to court, involving more than £630 million, an increase of nearly 50 per cent on the previous six months and an amount which was more than the total for any year in the 20 years the firm has been keeping statistics. Over half of the fraud they reported was against the financial sector.

With the impact of the credit crunch and the record level of financial fraud being uncovered, it is unsurprising that the banks are being ultra-cautious in their lending decisions.



Property

Misled Surveyor Still Liable
In a period of rising repossessions, when aspects of the professional work relating to repossessed properties can be expected to come under close scrutiny, a recent judgment could have implications for property professionals.

The case involved a surveyor, who was asked to produce a valuation for mortgage purposes of a house that was in the course of being built. The surveyor’s client misled him into surveying a house that was not the one on which the mortgage was being sought.

Later, the client defaulted on the mortgage. When the lender repossessed the house, the error was discovered. The property the surveyor had valued was worth significantly more than the one he should have surveyed, with the result that the lender faced a loss of £30,000.

The lender sued the surveyor, alleging that he had not carried out the valuation with reasonable skill and care, because he had not taken sufficient steps to ensure he surveyed the right property. There was no issue over the quality of the survey itself. The case went as far as the Court of Appeal and the lender won. The Court rejected the argument that the surveyor had discharged his work with due skill and care and that the issue had arisen because he had been misled.

In similar circumstances, therefore, it appears that surveyors (and their professional indemnity insurers) will find it difficult to place a limit on their responsibility with regard to fundamental aspects of their work.

Human Rights Act Applies to Social Landlord
The Human Rights Act 1998 applies only to public bodies, so where a claim under the Act is made, it is first necessary to ascertain whether the organisation against which the claim is made is a public body.

Recently, the question came before the Divisional Court as to whether a registered social landlord was a public body for the purposes of the Act. The conclusion of the Court was that the management and allocation of housing stock was a public function, in the sense that it was subsidised by the public purse because of the role it played in the implementation of Government housing policy, and in that regard the social landlord effectively stood in the place of a local authority.

Accordingly, the decisions of the registered social landlord could be challenged under the Act.



Tax

IR35 Case Lost on Substitution Principle
IR35 dictates the circumstances in which services supplied by a ‘one man band’ company are to be treated as supplied by the person directly, rather than through the company. It allows HM Revenue and Customs to regard a person who trades through the medium of a company as the employee of the businesses which employ his company. It is therefore unpopular, particularly in the IT industry where the use of one man band companies is commonplace.

The practical effect of IR35 is to increase the tax burden of the company, mainly due to the imposition of National Insurance costs, which would otherwise not be chargeable.

In a recent case, an IT contractor lost his claim that IR35 did not apply to his company, which supplied services through a third party and an agency to the end user. The telling point appears to have been that the contractor who was to perform the work was named specifically and could not, without prior agreement, provide a substitute to do the work if he did not.

Mortgages for the Self-Employed
With the advent of 100 per cent tax relief for capital expenditure on some items up to £50,000, the difference between taxable income and profits on which tax is paid can be very considerable.

If you are a self-employed person considering a mortgage or loan application and the application asks for your taxable profits, where these are less than the taxable income, owing to a capital allowance claim having been made, it may well be worth contacting the lender and asking if it could confirm in writing that disclosure of taxable profit before capital allowances is an acceptable alternative.



Company Law

New Disclosure Rules – Are you Ready?
The Companies (Trading Disclosures) Regulations 2008 came into force on 1 October making many changes to 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, and can be read at http://www.opsi.gov.uk/si/si2008/uksi_20080495_en_1.

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.

Intellectual Property

Trade Marks – Waiting Time Reduced
From 1 October 2008, owners of valuable trade marks will need to be quicker off the mark to oppose applications which may infringe their trade marks. The reason for this is that the UK Intellectual Property Office (UKIPO) has reduced the time for registering opposition to an application from three months to two.

The change will permit quicker registrations for the vast majority of trade marks, 90 per cent of which are not opposed.

When a trade mark application is raised, the UKIPO will circulate any holders of similar marks, but this process cannot be regarded as infallible. In the absence of an opposition from an existing trade mark owner, the mark will be registered automatically at the expiry of the opposition period. If an opposition is raised, the applicant will have two months (previously six weeks) to raise a defence to the opposition and unless that is done, the application will be deemed to have been withdrawn.

If you have valuable trade marks to protect, it may well make sense to use a monitoring service to make sure you are aware of any application which may infringe them.

Similar Company Names
On 1 October 2008, new rules relating to the registration of company names came into force. These will allow companies to object more easily to the registration of a company name which could be confused with theirs. The new rules can be found on the website of the UK Intellectual Property Office at
http://www.ipo.gov.uk/cna/cna-factsheet.htm.

Contract

Make the Point Clearly
A recent case illustrates the sort of problem that can arise when a construction agreement contains ambiguous clauses and a dispute ensues under the contract. It concerned the procedure for dealing with disputes under the contract. Such contractual disputes are often referred to adjudicators to resolve and, in such cases, the adjudicator’s opinion is normally final. The mechanism by which the adjudicator is appointed will be contained within a clause in the contract, which will also set out the circumstances in which an adjudicator is to be appointed.
In the case in point, the wording of such a clause was in question. The clause itself stated that either party may refer a dispute to adjudication.

One of the parties to the dispute wished to have it dealt with by adjudication and argued that if they chose to do so, this made it compulsory. The other party considered that the clause merely created the opportunity to settle the dispute by adjudication if both parties agreed to use it.

The court ruled that the latter approach was correct, on the ground that the wording of the agreement did not make it clear that adjudication was intended to be compulsory, for example by the inclusion of a clause stating specifically that any dispute would be referred to adjudication.

Lost Goods – Selling Price Claim Succeeds
A seller of goods that have been lost in transit may be entitled to recover the selling price as damages, following a recent decision by the Court of Appeal.

When Sony Computer Entertainment wanted to send to its customer an order of memory cards for computer games, the company used a carrier called Cinram Logistics to collect and deliver the goods. Unfortunately, the consignment was stolen before it had arrived at its destination.

Cinram admitted liability for the losses, but the two sides did not agree on the amount of compensation that should be paid. Sony argued that the correct amount due was the full wholesale cost – i.e. the price that would have been paid by Sony’s customer. Cinram claimed the damages should be restricted to Sony’s cost of production.

The trial judge found in favour of Sony, stating that on a balance of probabilities it had proved its claimed loss by showing that the sales that would have been made had not been replaced by other sales. The company’s loss had been the anticipated revenue from the sale of the goods to its customer and not the manufacturing cost of replacing the lost goods. Cinram appealed.

The Court of Appeal agreed with Sony, upholding the decision of the lower court and dismissing Cinram’s appeal. If Cinram wanted to argue that Sony’s loss had been less than the claimed amount, then it was for Cinram to prove that Sony had substituted other sales for the lost sales. The Court held that, in this case, the burden of proof that a lesser sum had been lost, rather than the full sale price claimed by Sony, rested on Cinram, not Sony.

The ruling means that if a logistics company or other carrier fails to deliver, they may be required to make good the whole of the loss incurred by their customer. This is clearly significant for logistics companies, their customers and their insurers. If the customer can demonstrate that they have failed to replace the sales value of goods lost or damaged in transit, the way is now clear for a claim for the whole of the sales value to be made.

Insolvency

Insolvency Practitioners’ Concern Over Debt Relaxation Plans
A new Ministry of Justice consultation, which proposes a reduction in the time period during which a creditor can bring an action for debt from six years to three, is causing consternation in the insolvency profession. The proposal is aimed at reducing the period of uncertainty for debtors over whether an action will be brought or not.

Currently, the law allows a creditor six years to bring a case against a debtor – which is the standard limitation period for starting proceedings in most types of legal action. The longer period can be especially beneficial when the issues involved are complex and additional evidence or expert opinion needs to be obtained to substantiate the claim.

The profession’s worry is that a shortening of the period to three years may well lead to many actions being brought before they are properly prepared. It is thought that the negative impact this may have on the courts could well outweigh the benefits of the shorter period.

The proposals are expected to be outlined in the December 2008 Queen’s Speech.

Late Payments on the Up
UK credit analysis company Experian advises that late payment is an increasing problem in the UK, with the average company now taking nearly a month of credit beyond agreed terms. The extended credit period taken has increased in the year to July 2008 from 16 days to 25.

The law provides commercial restitution by way of interest on late payments, but this is seldom used for fear of spoiling the relationship with the customer. However, the slowing of the payment cycle imposes additional burdens on companies, especially those which need to finance a larger debt book, such as growing businesses.

Environment

What is Landfill?
The disposal of waste ‘by way of landfill’ has been subject to tax since 1996 and is now taxed at the rate of £2 per tonne for inert materials and £24 per tonne for active materials.

Recently, the courts had to consider the issue of whether waste disposed of by the operators of landfill sites had to be treated as landfill when it was used for other purposes. In the case in point, some of the waste was used for the ancillary purposes of making roads and some as overnight cover for the daily waste.

In the view of the court, there was no principle that said that waste remained waste no matter to what purpose it was put – where the waste is used for other purposes, landfill tax is not payable.

This decision has potential implications for anyone who operates a landfill site.



Data Protection

ICO Guidance on Transfer of Employee Information
When the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) came into force, they established a new duty on the transferor – when there is a relevant transfer of a business, a part of a business or a service provision change – to supply specific information about the transferring employees to the new employer by providing what is termed ‘employee liability information’.

This information consists of:

• the identity and age of the employees who will transfer;
• information contained in the employees’ statements of employment particulars, such as written statement of pay, hours of work, holiday entitlement etc.;
• information about any relevant collective agreements;
• details of any disciplinary action taken against an employee in the last two years;
• details of any grievance action raised by an employee in the last two years;
• details of any legal action brought against the employer by an employee in the last two years; and
• information about any potential legal action.

The information must be given at least two weeks before the completion of the transfer, unless this is not reasonably practicable. If the transferor fails to provide the required information, the transferee can bring a claim for compensation in the Employment Tribunal and is entitled to a minimum of £500 from the transferor for each employee for whom information was not provided.

The Data Protection Act 1998 allows the disclosure of this information because it is required by law. The Information Commissioner’s Office (ICO) has now published guidance to help organisations comply with their data protection obligations when passing on this information. This includes recommended good practice for carrying out this duty under the TUPE Regulations, advice on requests for information over and above what is required by law and how employment records should be dealt with on the transfer of a business.

A copy of the guidance can be downloaded from the ICO website. See http://www.ico.gov.uk/what_we_cover/data_protection/guidance/good_practice_notes.aspx.



Employment Law

Advocate General Supports Default Retirement Age – If Justified
We have previously reported that Heyday, an organisation for people in or nearing retirement, has challenged the Government over the inclusion in the Employment Equality (Age) Regulations 2006 of a mandatory retirement age of 65 or over, on the grounds that this means that the Regulations do not fully implement the EC Equal Treatment Framework Directive 2000/78. The Directive outlaws age discrimination in employment and vocational training. Heyday wants the UK legislation amended to give workers over 65 the same protection from discrimination as younger workers. In order to settle the issue, the matter was referred to the European Court of Justice (ECJ).

The Advocate General has now delivered his opinion, which is that:

• a rule in national law, which permits employers to dismiss employees aged 65 or over if the reason for dismissal is retirement, can in principle be justified under the Directive if that rule is objectively and reasonably justified in the context of national law by a legitimate aim relating to employment policy and the labour market and it is not apparent that the means put in place to achieve that aim of public interest are inappropriate and unnecessary for the purpose; and

• the Directive permits Member States to introduce legislation providing that a difference of treatment on grounds of age does not constitute discrimination if it is determined to be a proportionate means of meeting a legitimate aim. It does not, however, require Member States to define the kinds of differences of treatment which may be justified.

The Advocate General’s opinion is not binding on the ECJ, but is followed in a majority of cases. The ECJ’s ruling is expected shortly before Christmas.

Single Shareholder Companies – Cases on Hold
In an effort to establish a definitive set of rules for deciding if and when a director who is a majority shareholder in a company can be treated as an employee for the purposes of Section 182 of the Employment Rights 1996, the Court of Appeal is scheduled to consider a case in December this year that will, it is hoped, provide guidance for a series of other cases due to be brought before the Tribunal. Until the case is heard, all similar cases have been stayed.

Section 182 applies when the Government has to step in as statutory guarantor for
certain categories of debts owed to employees, where these are unpaid owing to the insolvency of the employer. In the cases in point, the directors of the companies made personal claims, against the Secretary of State, for statutory redundancy pay after the companies they owned and ran became insolvent.

Health and Safety

New Road Safety Laws Come into Force
Motorists who cause a fatal accident as a result of being avoidably distracted at the wheel will face prison under new road safety laws which came into force on 18 August 2008.

Section 20 of the Road Safety Act 2006 (RSA) creates a new offence of causing death by careless or inconsiderate driving, which covers distractions that can lead to accidents and carries a maximum penalty of five years’ imprisonment. A distraction can be anything which takes a driver’s attention away from the road and which a court rules to have been an avoidable distraction. The definition includes smoking whilst driving, using a mobile phone (whether hands-free or not), listening to music, talking to fellow passengers, drinking, eating, using technological aids and personal grooming.

Section 21 of the RSA creates a new offence of causing death by driving whilst unlicensed, disqualified or uninsured and this carries a maximum penalty of two years’ imprisonment.

Prior to the changes in the law, the maximum sentence for those convicted of causing death by careless, uninsured or unlicensed driving was a maximum £5,000 fine and penalty points on the driver’s licence.

Employers with employees who drive on company business are strongly advised to make them aware of the changes in the law and to update their road safety policies to include a warning not to contravene the latest Highway Code.

The Highway Code can be viewed online at http://www.direct.gov.uk/en/TravelAndTransport/Highwaycode/index.htm.



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