Employers are subject to a new duty to take reasonable steps to prevent sexual harassment at work with effect from 26 October. This is a steep change, as employers must now proactively make efforts to address such behaviour. If a claim of sexual harassment is established, a Tribunal will have to consider as a matter of course whether the employer took suitable steps and, if not, any compensation may be increased by up to 25%.
Between the introduction of this new duty, the publication of related guidance from the Equality and Human Rights Commission (or ‘EHRC’), and the approaching wave of work-related social events as the festive period draws nearer, there has never been a more opportune time for employers to act.
In this article we share five practical ways to embrace this important change to the law.
1. Introduce meaningful policy
Many employers will have longstanding policies to address harassment. All too often, however, we see ‘one-size-fits-all’ policies which are unlikely to be sufficient to meet the new and more demanding duty.
Your policy should take into account the specific risks and challenges posed by your workforce and working environment. For example, do you have risk factors such as lone or night workers, or colleagues in significant power imbalances? The EHRC guidance lists a host of potential matters to consider, much in the same way that a health and safety assessment might be undertaken. It may be beneficial to discuss matters with colleagues, to gain a better understanding of the interactions faced by workers and employees.
Implementing thorough and accurate policies is likely to be more than a simple box-ticking exercise and having these documents available is important in ensuring that all members of the workforce understand what is expected of them when it comes to preventing sexual harassment. A well thought out and articulated policy will serve as valuable evidence that you have seriously considered your duty and taken steps to comply with it.
Generally, a well-drafted policy should not stand isolated from your other policies, and this an opportune time to review things generally to ensure that compliance with this duty permeates your culture.
2. Implement consistent training
Having a policy in place is a crucial first step, but making sure that staff and management alike have received – and continue to receive – training on its content is essential to stand the strongest chance of making meaningful change and demonstrating compliance with the duty.
An effective training programme should cover: what constitutes sexual harassment; how to spot it; and how to appropriately respond to instances of sexual harassment, including escalating where appropriate. We are very familiar with providing external training and welcome any queries about either introducing or delivering a suitable programme.
It is worth bearing in mind that different roles are likely to require different training. For example, senior management may need a stronger awareness of how they will conduct investigations and risk assessments, whereas training for more junior colleagues may be best focussed upon reporting procedures. Truly embedding this new approach to sexual harassment will require education throughout the workforce.
3. Set a framework for investigations
An investigative framework is another essential mechanism to make sure that complaints of sexual harassment are handled in a manner which is effective, sensitive and compliant with the law.
In the unfortunate circumstances where you need to investigate allegations, a robust plan and an informed group of potential investigators will be vital to ensure that matters are progressed swiftly and without confusion. Key management figures should know what their role is vis-à-vis any investigation and how to support it effectively.
Under the spotlight of this new preventative duty, where an allegation of sexual harassment requires investigation, employers should conduct investigations through a lens of both fact finding and with a view to reflecting and learning, so that future occurrences of sexual harassment can be mitigated.
4. Actively manage internal processes
Strong policies, effective training and a clear investigative framework will do much to meet the challenge of the new preventative duty. However, the duty is an ongoing one and treating compliance as a one-time exercise is unlikely to suffice. Workplaces are ever-changing and active management will be necessary.
You might consider an annual review of internal processes, to reflect upon whether any changes to your workforce or workplace, or lessons learnt more generally, should change your approach. To make that meaningful, accurate records should be kept of incidents that have arisen and how they have been handled, as well the training that has been provided and to whom.
5. Read the guidance
Making these enduring changes is no small task. However, while we await case law, the EHRC published detailed and helpful guidance in September which is likely to hold considerable sway. The full guidance is available to read here.
The guidance helpfully provides case studies showing how the duty will apply in given scenarios. In addition, it explains legal terminology to help employers navigate the new requirements. Most notably, the guidance goes a significant way towards clarifying the ambiguity of what may be deemed to be ‘reasonable’ steps in a given workplace, although much will still depend on the context.
If you have any queries about how to implement the new duty to prevent sexual harassment, or would like assistance with policies, training or investigations, please do get in touch with our team.
The Lifecycle of a Business – See you in court…? Employment claims against a company
10 September 2024
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina. On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
We’ve already discussed various topics, including funding, employment and commercial contracts, but it’s now time to discuss when things go wrong…
See you in court…? Employment claims against a company
Companies will have disgruntled employees from time to time. Having well drafted contracts, effective policies and procedures and good HR management can often resolve or limit issues, but sometimes employment litigation is inevitable. This article provides a brief introduction to the employment litigation process, but we strongly recommend that you get in touch with your employment legal advisor if litigation is on the cards.
Most employment litigation takes place in the Employment Tribunal and often relates to:
Unfair dismissal – where an employee alleges that their dismissal was not for a “fair” reason (being conduct, capability, redundancy, legal reason, some other substantial reason) or that a fair procedure was not followed. In addition, an employee can bring a claim for automatic unfair dismissal where they have been dismissed for one of ten statutory reasons (such as asserting the right to be paid at least the national minimum wage).
Constructive dismissal – where an employee alleges that they have been treated so badly they have no option but to resign and treat themselves as having been dismissed.
Discrimination – where an employee alleges that they have suffered some form of adverse treatment due to a “protected characteristic” (such as age, sex or race). Discrimination can take several forms, including direct discrimination (such as not being promoted directly because of your protected characteristic), indirect discrimination (where the employer operates a policy or practice which adversely affects a particular group with the same protected characteristic) and harassment (where an employee is bullied or harassed by colleagues because of a protected characteristic).
Whistleblowing – where an employee alleges that they have suffered a form of detriment or been dismissed due to raising concerns about their employer’s practices.
Monies owed – where an employee alleges that they have not been paid what is due to them (such as salary, notice pay or in respect of annual leave).
Compensation for employment claims varies and often depends on the type of claim and the employee’s salary. Compensation for certain claims (such as unfair dismissal) is capped (at the lower of year’s salary and, currently, £115,115). Other claims, for example, whistleblowing and discrimination are uncapped and compensation awards tend to reflect any injury to feelings and, where the employee has been dismissed, the time it will take for them to find comparable income.
Please note that there are many other types of employment claims which can be brought in the Employment Tribunal. It is also possible for employees to bring certain claims in the county court or high court. These tend to be for breach of contract and can often be valuable – in particular claims in relation to unpaid bonuses.
Who can bring a claim?
Generally speaking, all employees can bring most types of employment claims, however some claims have service length requirements. For example, at the time of writing, only employees with at least two years’ service have the right to bring an unfair dismissal claim. However, the Labour government has committed to changing this and we are awaiting the detail.
Given the current service length requirement, it is a common litigation tactic for employees to allege some form of whistleblowing or discrimination in order get a claim off the ground.
The process
The time limits for bringing a claim in the Employment Tribunal are short and employees typically need to take action within three months of the issue (for example, the alleged poor treatment or dismissal) having occurred.
Before an employee can file a claim in the Employment Tribunal, they need to first follow the ACAS early conciliation process. This provides the parties with an opportunity to see if settlement can be achieved before any claim is filed. If settlement cannot be reached, ACAS will issue the employee with a certificate which allows them to then proceed to file a claim at the Employment Tribunal.
Once a claim is filed and accepted, the employer will be provided with a copy and is required to submit a response within 28 days. It is important that an employer spends time getting its response correct as this is the first opportunity it will have to set out its position. Once the response has been accepted, the Employment Tribunal will look to list a hearing and set out a timetable leading up to it. In essence, this will require the parties to disclose certain documents, agree a bundle of relevant documents to be referred to at the hearing and exchange witness evidence prior to the hearing.
The cost of defending employment litigation can be considerable and, unlike in a court, it is not normal for the losing party to pay the winning party’s costs (so it is unlikely that an employer will recover its legal costs even if it wins). Depending on the nature of the allegations, employers may also need to consider the reputational impact of fighting a claim and attending a hearing which will most likely be in the public domain. On the other hand, depending on the nature of the employer’s business and workforce, taking a stand and fighting against the employment claim could help to avoid setting a precedent that a company will always settle.
Where parties do agree a settlement prior to a hearing, this can be documented by way of an ACAS COT3 agreement or a settlement agreement, normally depending on whether the employee is legally represented or not.
Disclaimer
This note reflects the law as at 6 September 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina. On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
We’ve already discussed various topics, including funding, employment and commercial contracts, but it’s now time to discuss when things go wrong…
Employee Grievances
It is fair to say that not everything in business is smooth sailing, especially when it comes to staff. Dealing with staff grievances properly is important to help minimise workplace conflicts and improve employee relations.
Keep reading if you want to find out:
what could trigger a grievance
why having a grievance procedure is important
our top tips for getting the grievance procedure right.
What is a grievance?
An employee could have a grievance (i.e., a complaint) for many reasons. Common grievances that we come across include:
how an employee has been treated by another – this could be as a result of a series of events or an isolated incident
working conditions relating to hours and/or pay
how an employee has been managed by their line manager
the nature of an employee’s work – this could be because they are given work they were not hired to do, or they are being given too much or not enough.
By raising a grievance, an employee forces an employer to investigate the issue with a view to resolving the matter fairly and promptly.
Employees are generally expected to try and deal with concerns informally first of all, and many matters can often be ‘nipped in the bud’ by discussion with an employee’s line manager. Where concerns cannot be resolved informally, an employee has the right to submit a formal grievance in accordance with his or her employer’s grievance procedure.
The importance of a grievance procedure
Employers are required by law to have a written grievance procedure in place. Such a procedure will typically include the following stages:
submitting a grievance in writing
conducting a hearing (so that the employee can explain the detail of their complaint)
investigating the issue(s) at hand
delivering a written outcome and implementing any recommendations
Failure to follow a fair process can land an employer in hot water. Not dealing with a grievance properly could be a breach of the implied contractual duty of trust and fidelity and generally increase the chances of things ending up in the employment tribunal; in certain circumstances where the principles of the ACAS Code has not been applied, any compensatory award given to the employee could be subject to a 25% uplift.
Handling a grievance effectively
Below we set out our top tips to getting the grievance process right:
Consider the appropriate people to be involved and ensure decision makers are impartial. Sometimes engaging external support, such as external legal or HR advisors, will be appropriate.
Conduct a reasonable investigation to ensure that all the key facts are established.
Try to deal with issues promptly and have regard to any timescales set out in the grievance procedure.
Allow employees to be accompanied.
When making decisions, act consistently with previous decisions around similar grievances, as appropriate.
Keep the employee updated, especially if things are taking longer than planned and/or the employee is absent from work.
Take steps to keep matters confidential.
Take appeals seriously and consider them carefully.
Disclaimer
This note reflects the law as at 27 August 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
As an entrepreneur an exit may seem a long way away when first assembling your team, but if you get that really right, you may find yourself receiving offers from buyers that would like your team for themselves. In a nutshell, that’s an acqui-hire: an acquisition which is aimed at obtaining a team.
It is otherwise a relatively loose term, and it can take different forms such as:
An acquisition of the corporate entity. However, larger acquisitive corporates may well not want to buy an unknown corporate and bring it into their group, particularly if they only want certain assets and don’t want to pick up liabilities.
An asset acquisition, perhaps where some IP that has been created is to be acquired alongside the team.
A simple payment to release the team from terms such as non-competes, and to waive any possible claims the seller may have against the buyer, perhaps with an IP licence to prevent claims in the future that the buyer is misusing the seller’s IP.
Acqui-hires usually happen relatively early in the growth trajectory of a business (possibly during a distressed time too), but they aren’t necessarily straightforward. For example, some of the key points that start-up teams faced with the option should be considering are:
What will happen to the company afterwards (assuming the corporate is not acquired)? Is it to be wound down? And if so, how long will that take? Or will there be a retained and continuing business? Linked with this, careful thought needs to be given as to what the deal means to creditors.
How is the price to be structured? The buyer will want to retain the people it’s acquiring, so may seek to defer some value and link it to retention. You’ll need to think through what happens if the buyer, for example, terminates without cause.
What will the price mean for any investors? For those operating in the digital assets space, this may also include people who invested for tokens.
The employment proposition for those moving over. Again, it’s likely that the buyer will seek to include deferred incentives, such as options, as part of the package. In addition, visa/immigration considerations may need to be considered, depending on the circumstances.
The tax treatment of the proposed deal structure. This will depend on many factors so taking early advice is crucial in order to maximise deal value.
So, if you’re being talked to about an acqui-hire, there’s a fair bit to consider, but at the very least it demonstrates what a great team you have.
Disclaimer
This note reflects the law as at 24 July 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
The impact of the new Labour Government’s “Day One” rights – Jo Keddie’s views featured in The Lawyer
8 July 2024
Views
Head of Employment at Forsters, Jo Keddie, shared her views on the most significant changes that UK employers are going to have to grapple with. Interviewed for The Lawyer’s Election Special podcast, Jo discussed:
Individual Rights from Day 1
Probationary and Hiring Going forwards
The right to disconnect
“Giving all workers more rights from day one will be a significant shift for employers, as is Labour’s plan to do away with the two-year minimum period for bringing an unfair dismissal claim.
We expect this will result in far more litigation in the Employment Tribunal, which is already overworked with cases taking well over a year to be heard, as well as far more focus by employers on recruitment policies and dismissal strategies.
Indeed, the first impact of a Labour government may be a spike in dismissals as the employers look to remove any employees with less than two years’ service where there is any doubt over their long-term future.”
The new Labour Government: 5 key employment law changes
5 July 2024
News
The election is now finally over and the UK has woken up to a new Labour Government. In its campaign, the new Government made it clear that its “New Deal for Working People” would be an integral part of its future plans, suggesting new employment legislation would be introduced within 100 days.
Given the impact of these changes, we provide a summary of the 5 key employment law changes which we believe employers should be aware of. As always, the devil will be in the detail, and some of these proposals may change over time, but one thing is certain: we will all be kept very busy focussing on how best to address and implement these proposals between now and the Autumn!
1. Basic Individual Rights from Day 1
This is the new Government’s most significant change. Briefly:
The Government have committed to granting all workers with important rights from the first day of their employment in relation to unfair dismissal, parental leave and sick pay. Currently, these rights are typically subject to minimum service requirements.
By far the most significant of these proposals is in respect of unfair dismissal, where the Government has committed to removing the 2-year minimum service requirement for bringing a claim (where compensation is capped at the lower of £115,115 or 1 year’s pay).
A requirement of qualifying service has been part of the law of unfair dismissal since it was introduced with the Industrial Relations Act 1971. At the time, the requirement was also two years and, although the threshold has since varied, it has never been less than six months.
We foresee that, in the next few weeks and months, employers might consider quick dismissals before the new rules comes into effect – e.g., removing employees where there is any doubt over their long-term future. Currently, it is easier and less expensive to remove employees who have less than 2 years’ service.
2. Probationary Periods and Hiring Going Forwards
The Government has also referred to the need for “probationary periods with fair and transparent rules and processes”. We envisage a maximum length for these being set (to avoid employers extending probationary periods beyond unreasonable limits) and rules requiring employers to follow dismissal procedures when letting staff go and prohibiting them from dismissing employees without justifiable reasons or cause.
In practice, employers will likely need to upgrade and fine-tune their recruitment policies and processes to ensure that:
they are compliant and reduce the risk of unfair dismissal claims by their new recruits; and
any risks are mitigated by hiring the right people in the first place. We expect to see more careful screening by employers, more investment in psychometric or other testing to ensure a potential candidate is a good fit for the role, and far more rigour and time spent in continuous assessment of new hires during the first few months of their employment.
Going forwards, there will need to be more formal monitoring and feedback sessions during an employee’s probationary period, and these should be properly documented. Management will need to be focussed on areas of underperformance and conduct issues and not shy away from these matters, to ensure that any later decision to dismiss can be properly justified.
3. The Right to Disconnect
The New Deal states that a new “right to switch off” would provide workers with the right to disconnect from work outside of working hours and not be contacted by their employer.
Whilst similar concepts already exist in some other European countries (like Belgium and Ireland), it will be new to the UK so it will be interesting to see how it is adopted, given the UK’s more 24/7 culture.
The Government has said that employers and workers will have the opportunity to agree bespoke workplace policies or contractual terms, suggesting that the right would not be absolute. We suspect that future guidance or a Code of Practice may emerge in the coming months; in any event, employers will likely need be creative in this regard and consider practical measures such as training to respect out of hours emails, calls and cover arrangements.
It is likely that any ‘disconnect’ proposals which employers consider will need to be considered against other well-being initiative and existing policies, such as those relating to flexible working and leave.
4. Zero hours contracts
The Government has suggested it will introduce new rules designed to prevent the abuse of zero hours contracts. Initially this was thought to be an outright ban on zero hours contracts, but the Labour Party’s position has subsequently softened.
Instead, we understand that employers will be allowed to continue to use zero hours contracts provided they are not “abused” or exploitative (for example, where an employer does not guarantee any work, but the worker is obliged to be available for any work that is offered).
A new law is planned to set out the minimum standards expected, and there would be a new right to a contract that reflects hours that are regularly worked (as judged against a 12-week reference period).
Employers will need to review their use of zero-hour contracts to ensure that they comply with the new rules.
5. Fire and Re-hire
The current Government has introduced a new statutory ACAS Code of Practice on Dismissal and Re-Engagement, which is due to go into effect imminently, on 18 July 2024. Unreasonable failure to comply with this risks a Tribunal award against an employer being increased by 25%. Where this relates to a failure to meet collective consultation obligations, the potential liability could be considerable.
The new Labour Government appears poised to go a step further and has suggested that it will end the practice of “fire and rehire” as a lawful way to change an employee’s contractual terms and introduce a new “strengthened” code of practice.
Potential areas for change on fire and rehire include:
improving information and consultation procedures; and
adapting unfair dismissal and redundancy legislation to prevent workers being dismissed for failing to agree to a worse contract.
Whilst “fire and rehire” practices have been under scrutiny in recent times, they can, where used reasonably and with proper consultation, be a helpful tool for employers to implement necessary changes. It will be vital to ensure any future exercises comply with the new rules and anticipated code of practice.
Please do get in touch with our Employment Team if you’d like to discuss how any of these Labour proposals will impact your organisation and how best to plan for these changes.
The Lifecycle of a Business – Talking Non-Disclosure Agreements
31 May 2024
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina. On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
We’ve already discussed various topics, such as, set up, directors, funding, employment and shareholder-related matters, but now let’s concentrate on Commercial Contracts.
Talking Non-Disclosure Agreements
The use of confidentiality or non-disclosure agreements (an NDA) has come under press scrutiny over recent months, largely because of their abuse in relation to sexual harassment cases. Their use in the commercial and corporate world is, thankfully, far less sinister, but it is nonetheless important to understand how NDAs operate, when you might be asked to sign one and what you should look out for before signing one.
Why have an NDA?
In the corporate/commercial context, parties to a prospective transaction or commercial arrangement may need to disclose commercially sensitive business information to one another for the purposes of evaluating whether to enter into the transaction/arrangement. For example, a prospective investor who is considering providing funds to a tech company may insist on seeing ‘proof of concept’ or reviewing other competitive information prior to agreeing to invest. The tech company would of course be looking to protect itself against the prospective investor running off with its billion-pound idea. In a commercial scenario, a service contract will in all likelihood contain confidentiality provisions, but during the contract negotiations, a SaaS provider, for example, may need details about the prospective customer’s technical infrastructure or business processes in order to be able to tailor its service or evaluate whether it can in fact provide the service. In such a situation, it would be highly advisable for the prospective customer to seek the protection of an NDA.
An NDA aims to provide a level of protection for the party disclosing the confidential information (the Discloser) who is at risk of the information being:
used on an unauthorised basis;
misused to obtain a commercial advantage; or
accessed by unauthorised parties due to a failure to protect it.
At what stage is an NDA required?
A Discloser should ideally ensure that the party receiving the confidential information (the Recipient) is bound by adequate confidentiality obligations prior to its disclosing the sensitive information. Although making a disclosure prior to such obligations being in place is not necessarily fatal from a protection point of view, an NDA executed after a disclosure has already been made will need to expressly apply to any such disclosures; this could require jumping through some additional contract law hoops relating to ‘consideration’ and so should be avoided if at all possible.
What should an NDA include?
The structure and level of detail included in an NDA are generally driven by the type and sensitivity of information being disclosed (e.g. trade secrets or sensitive personal data), the reason for the disclosure, the identity of the Recipient (e.g. is it a large company with multiple employees and advisors or a single individual?), the Recipient’s standing in the market (e.g. is it a potential competitor of the Discloser?) and the timing of the exchange of information.
Some NDAs may be structured as full form agreements whereas others might take the form of a shorter form letter agreement but either way, the NDA should deal with the following elements:
What is classified as “confidential information”?
A Discloser is likely to prefer a broad, catch-all definition which identifies illustrative categories of confidential information, rather than an exhaustive or more precise definition which could result in loopholes.
However, information will not necessarily be deemed to be “confidential information” simply because it is defined as such in the NDA and attempting to capture non-sensitive information may result in the courts ruling that the NDA is unenforceable. The information in question must be worthy of some protection, for example because the Discloser may suffer damage if the information were to become commercially available to its competitors.
The parties will also need to clarify what is excluded from the definition. This will usually include information already in the public domain or developed independently by the Recipient.
What is the term or duration of the NDA?
This will depend on the particular transaction, but an NDA may endure indefinitely, for a specific term or it could terminate upon the occurrence of a particular event (such as completion of the Recipient’s acquisition of the Discloser’s company).
An indefinite term shouldn’t be included as a matter of course; the sensitivity of most confidential information will decrease over a period of time and in such a case, the courts may deem an ever-lasting NDA to be unreasonable. The parties should instead consider what would be a reasonable term in the context of their transaction/arrangement, taking into account the type of information, how long it is likely to retain its commercial significance and any security measures that the Discloser requires to be put in place.
How may the confidential information be used?
An NDA will likely detail the purpose for which the confidential information may be used, for example in the Recipient’s evaluation of a transaction.
It is also likely to include certain other circumstances when disclosure of the confidential information will not be deemed a breach of the NDA. For example, a Recipient should be permitted to disclose the confidential information if ordered to do so by a court or regulatory authority.
The Recipient’s treatment of the confidential information?
A Discloser may require the Recipient to implement certain security measures to safeguard the confidential information, which could include record-keeping obligations, protective software, restrictions on the number of physical copies that may be made and so on. The parties should try to strike a balance between the sensitivity of the information, the term of the NDA and the security measures the Recipient is required to implement, as it may be too onerous for the Recipient to be obliged to maintain costly security measures in respect of information that isn’t particularly sensitive.
The NDA may also provide that the Recipient must return or destroy the confidential information upon request by the Discloser or upon termination of the NDA. Again, the parties will need to strike a balance as the Discloser may want this requirement to be unconditional, whereas the Recipient may have a legitimate need to retain the information in case it is required to disclose it to a regulatory or other authority, or it may be impractical to destroy the information or guarantee to erase every last piece of data from all of its systems which may be stored on historic encrypted back-ups.
Consideration should be given to the treatment of information which the Recipient creates itself, but which derives from the disclosed confidential information, such as internal reports, notes, analyses and so on. This is likely to be a particular issue where the Discloser and Recipient operate within similar industries or even compete with one another. In the context of acquisition discussions which break down, the Discloser will want to ensure that these derivative materials are destroyed, lest they be used by the Recipient to develop a similar product or otherwise compete against the Discloser.
What are the remedies for breach?
When an NDA is breached, the Discloser faces the challenging task of proving the loss incurred, often complicated by questions of remoteness, foreseeability and mitigation. To address these challenges and ensure adequate protection, NDAs may include various remedies. For example, liquidated damages provisions set predetermined amounts which are payable upon breach. While, on the plus side, this enables complex evidentiary issues to be bypassed, the Discloser should take care that the agreed amount is not disproportionate to its legitimate interest, otherwise a court may rule that it is an unenforceable penalty.
Additionally, NDAs often expressly reserve the right for the Discloser to pursue equitable remedies, such as an injunction to stop the breach. In reality, it is these types of remedies which a Discloser is likely to want to pursue to prevent the confidential information from being circulated more widely, although once a breach has occurred, the damage has often already been done.
Restrictive covenants
Sometimes the Discloser requires an added layer of protection in the form of restrictive covenants to prevent, for example, the Recipient from soliciting the Discloser’s customers, employees and suppliers, particularly if they are an existing or potential competitor.
Health warning
In the main, Recipients have no intention of acting dishonourably, understand the need to enter into an NDA and are happy to comply with their confidentiality obligations. However, it is important to bear in mind that while NDAs serve as important legal tools in focusing the parties’ minds and deterring breaches through the threat of legal consequences, they are not absolute barriers against the unauthorised use or disclosure of confidential information and cannot physically prevent a determined Recipient from misappropriating your sensitive data.
Enforcement relies on the ability to detect the breach and pursue prompt legal action using the remedies provided for in the NDA. As such, it is recommended to seek legal advice to ensure that your NDA is tailored for your transaction/arrangement and includes remedies relevant to your particular circumstances, while also using those tried and tested terms that the courts have ruminated over time and time again. Using such terms helps to create certainty between the parties and their legal advisors as to what is meant by the provisions and also assists the courts, in the event of a dispute, to correctly interpret the terms of the NDA and make an appropriate order.
If you have any queries about the above or wish to discuss your NDA requirements in more detail, please get in touch with your usual Forsters’ contact or any member of the Forsters’ Corporate team.
Disclaimer
This note reflects the law as at 24 May 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
The Lifecycle of a Business – Commercial Contracts: Key Features
20 May 2024
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina. On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
We’ve already discussed various topics, such as, set up, directors, funding, employment and shareholder-related matters, but now let’s concentrate on Commercial Contracts.
Commercial Contracts: Key Features
The principal purpose of a commercial contract is to set out the terms which have been agreed between the parties. Some of the terms may vary depending on the legal framework of the contract (for example, whether it’s a B2B (business-to-business) or B2C (business-to-consumer) contract), while others may depend on the type of contract in question (for example, whether it is a supply contract, a distribution agreement or some other type). Certain terms may be subject to negotiation between the parties, whereas some terms may be agreed extremely easily. What is important is that the parties completely understand exactly what they are agreeing and that the contract clearly sets out the terms agreed. This can reduce the risk of disagreement, and (potentially) costly litigation, at a later date.
In this article, we take a brief look at some of the key commercial terms. (Note that the legal requirements to create an enforceable contract are not discussed).
1. Consideration
This is the price payable for the goods or services. It can be calculated in a number of different ways, for example, a cost per item, payment per month, a percentage of turnover or by reference to other parameters.
If a price needs to be calculated, the calculation mechanism should be clearly expressed in a way that can be easily worked out. Including a worked example, which has been agreed between the parties, may be advisable where a particularly complex pricing mechanism applies. In such a situation, we strongly advise speaking to your legal advisors who will be able to assist you in the drafting of such provisions.
There may be different components which are either included or excluded from the price (for example, delivery costs, certain maintenance services, upgrades and so on) and it is important to ensure that the contract accurately reflects these. Separately, there is the issue of VAT; generally, if a contract is silent on VAT, a stated price is deemed to be inclusive of VAT.
The timing of any payment should also be considered and set out.
2. Services
The obligations of each of the parties to the contract and the services to be delivered will need to be agreed and included. These can be extremely detailed and lengthy and, in such a case, they may be included as a schedule to the contract.
The obligations on a party can vary by degree, from absolute obligations that must be carried out, through to a party agreeing to try to carry out certain obligations by agreeing to use “reasonable endeavours” to do so (for more information about “endeavours” clauses, please see here). In some cases, a party may have a discretion as to how and when it must meet an obligation.
The parties should think about the level of obligation agreed and the consequences of any breach. For example, where the breach is particularly serious or the obligation is so important that a breach would render the contract pointless, the non-defaulting party may want the ability to be able to terminate the contract immediately. In other cases, a refund of part of the fee, the provision of an alternative option or the remedying of the breach at no cost to the non-defaulting party may be sufficient.
3. Term
The term is the time period for which the contract applies. Contracts can be for a fixed term (for example, 12 months following which the contract will automatically terminate) or a rolling term (for example, an initial 12-month term which automatically renews for successive 12-month terms until one of the parties actually terminates the contract) or both(!) depending on the nature of the contract.
Where parties are entering into a new contractual relationship, for example, a new supply contract, it may be advisable to initially agree a short fixed term, thereby limiting the risks inherent in a new relationship. Conversely, there may be certain contracts that require consistency and continuity and so a longer term may be preferable.
4. Termination
Contracts can provide expressly for circumstances in which the parties can terminate a contract. These may apply in addition to, or to the exclusion of, any other rights of termination that arise in law.
The parties should carefully consider and agree the circumstances in which a party can terminate the agreement. Common provisions include termination for breach, if a party suffers insolvency or where there is no cause but reasonable notice is given (the length of the notice period is often set out in the contract).
There may be circumstances in which certain actions are needed to be carried out on termination of the contract or shortly thereafter. These could include, for example, having to provide final accounts, a handover process, being obliged to return certain information, etc., and any such requirements should be clearly set out in the contract.
Termination of a contract may not necessarily terminate every provision in the agreement; there may be certain clauses that the parties intend to continue even though the contract has otherwise terminated (for example, limitation of liability clauses, confidentiality provisions and restrictive covenants).
5. Indemnities
This is an agreement by one party to “make whole” another party in respect of any loss that other party suffers, either in specific circumstances under the contract or generally.
A party should consider carefully whether it wishes to give an indemnity and the consequences of the same. If an indemnity is to be included, the parties need to ensure that the wording accurately reflects what is agreed between them and the party providing the indemnity may want to include certain safeguards, such as financial caps, and ensure that the provision is tightly drafted.
6. Limitations on liability
Most contracts will contain provisions that seek to exclude or limit a party’s liability under the agreement, such as stating that a party’s liability shall not exceed a total sum of £x, specifying the type of claims a party can (and cannot) make, setting time limits within which claims can be made and so on.
These clauses are often heavily negotiated as the parties are on opposing sides of the discussion and the result will go to the level of financial protection that each party will have during the contract term.
Wider considerations are also likely to come into play as such provisions are often subject to other legal controls. For example, the exclusion of liability for certain losses may be prohibited by law or a limitation clause could be void if a court considers it to be unreasonable.
Ultimately, the terms of a contract will vary from contract to contract and the emphasis will be different depending on the substance of the commercial agreement. Taking legal advice when drafting such contracts or putting in place a template contract or set of terms and conditions is recommended and will ensure that the key terms are covered, are drafted clearly and correctly and that any “legal” issues are dealt with.
If you have any queries about the above or wish to discuss your commercial contracts or any part of them in more detail, please get in touch with your usual Forsters’ contact or any member of the Forsters’ Corporate team.
Disclaimer
This note reflects the law as at 16 May 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
Key partner hire for Forsters with the appointment of Jo Keddie
18 March 2024
News
Highly ranked and market recognised Partner Jo Keddie joins the firm from Winckworth Sherwood to strengthen Forsters’ full service Employment and Partnerships practice, which will continue to deliver leading edge employment advice to a diverse client base.
Forsters, the leading London firm, announces today that Jo Keddie is to join the firm on 2 April 2024. Jo joins from Winckworth Sherwood LLP, where she headed its Employment and Partnerships team. She also led the firm as Senior Partner from 2021 to 2023, having originally joined the partnership in 2010. In addition to Jo, colleagues Danielle Crawford and Daniel Parker will be joining the team at Forsters as Counsel and Senior Associate respectively.
Jo’s practice is a close strategic fit to that of Forsters. She represents a broad suite of clients in contentious and non-contentious matters, including corporates, senior executives and charities and has a wealth of experience in investigatory work involving regulatory bodies, corporate clients, and individuals.
Jo has top tier rankings in both the Legal 500 and Chambers directories for her expertise in acting in partnership and senior executive cases and has recently featured in The Lawyer’s prestigious Hot 100 listing for the second time.
Over the past year, Jo has acted in a number of high-profile litigation matters and investigations delivering her hallmark of pragmatic, commercial and strategic advice. Jo’s recent experience includes acting for several FTSE 100 C-Suite clients and Fund Managers in respect of their high value (regularly seven figures) and often complex departure terms. She has also advised a number of financial institutions, corporates and charities in successfully investigating and defending claims for unfair dismissal, whistleblowing, race and religious discrimination, sex discrimination/harassment and age discrimination.
The appointment of Jo is a significant boost to Forsters’ Employment and Partnerships team. Jo, who will head the practice, will join employment partner Joe Beeston and his team, adding further strength, depth and experience to the firm’s offering. The addition of three senior lawyers to Forsters’ full-service employment practice will bolster and scale up Forsters’ market presence, including in the financial and professional services, partnerships, private equity, sciences, technology, real estate and healthcare sectors among others.
Jo Keddie said: ‘This is such an exciting time to be joining Forsters following its move into amazing new premises at Baker Street. The opportunity to play a lead role in the firm’s strategic investment in employment and partnerships was compelling for me personally and we now have a fantastic platform to grow our team dynamically, as well as enhance the range of services we offer to our clients.
‘Culturally we are completely aligned in as much as we are focused on delivering successful strategies and outcomes for a diverse range of clients. Danielle, Dan and I greatly look forward to working closely with Joe and all our new colleagues to deliver a client-led strategy at Forsters. It is a perfect fit for us and our clients at every level.’
Natasha Rees, Senior Partner of Forsters, commented: ‘We are thrilled to have Jo Keddie and her team join us at Forsters. They will be a fantastic addition to the Employment and Partnerships team and the wider firm. Our clients have just seen us move to superb new premises at Baker Street, which are designed to help us deliver best-in-class advice. Our decision to appoint Jo was completely driven by what our clients need from us. We are really excited to have Jo joining the Forsters partnership and we are delighted that three such talented lawyers will be enhancing our team.’
The Lifecycle of a Business – Getting the most out of recruitment and motivating and retaining valued staff
14 March 2024
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina. On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
We’ve already discussed various topics, such as, set up, directors, funding and shareholder-related matters, but now let’s concentrate on “Employment: 9 to 5”.
Getting the most out of recruitment and motivating and retaining valued staff
Our recent article talked about the steps that a first-time employer needs to take before they actually employ any staff . We’re now going to think about the next stage.
A plethora of factors is causing employers to step back and evaluate their approach to staffing; factors which have been around for a while but which, cumulatively, are having a significant impact.
First, there was Brexit, which resulted in the net migration out of the UK of a notable portion of the workforce. This was followed by COVID-19, which triggered a seismic shift in working practices, including a move towards home and hybrid working. There has also been the introduction of Gen-Z into the workforce, who have brought with them a fresh mindset and different approach to established working norms. On top of these, economic factors, including higher interest rates and the “cost-of-living-crisis”, have resulted in job applicants requesting more from their remuneration packages. All of these factors have shifted the priorities of the workforce and have changed the demands being placed on employers.
So, how can an employer ensure that they appeal to the right recruits for their business? How can an employer motivate somebody to reach their potential in the business? And how might an employer look to retain valued individuals?
We’ll consider some potential responses to these questions below.
Recruiting for your business: not just a job role
The nature of recruitment has changed steadily over recent years, with the involvement of recruiters becoming increasingly prevalent, as opposed to individuals approaching potential employers directly.
With this “middle-man” approach seemingly becoming the norm, it is important that you (as an employer) know what you are looking for. Are you looking for an individual to fulfil a perfectly sculpted job description? Or, are you looking for an individual who can grow with the business as a long term prospect? The likelihood of finding the best talent will be increased by focusing on the latter.
A high-level job specification and having an awareness of the key competencies is very important, but actually contemplating how the successful recruit will integrate with your existing workforce is paramount. Recruiters not only have on-going relationships with employers, but with candidates as well, and will be very familiar with the candidate’s personality and their fit with your business. Therefore, being able to articulate the personal specifications that you envisage the successful candidate having has become just as important as knowing what their role will entail.
Motivation: getting the best from your workforce
With the labour market becoming fairly volatile, it is particularly important that employers know how to both motivate and retain their workforce to ensure that they stay incentivised to give their time and energy to your business.
When looking to motivate an individual, the key lies in effective two-way communication. Line managers should seek to understand what an individual is seeking to gain from their role: this could include taking on specific types of work or specialist projects, for example. There might be a long term goal that the individual wants to work towards (such as a promotion or qualification), and working towards this together is likely to incentivise the individual to equally invest their time in the company when they appreciate that the company is also investing in their development.
Financial motivation is also a reality. Following the introduction of gender pay reporting and ethnicity pay reporting, there is a growing conversation surrounding pay and remuneration transparency. Although reporting is not a requirement for all businesses, much of the workforce are beginning to look towards, and expect, transparent remuneration structures.
How to keep those motivated individuals working for YOU
Motivation and retention employ similar techniques, but whilst motivation is best seen through a professional lens and can be identified as having a cohesive workforce where everybody is positively achieving their individual professional goals and the goals of the company, retention tends to take a more personal perspective and results in individuals staying at a company long-term.
Retention can result from the “perks” of a job, including a competitive benefits and remuneration package, an inclusive culture and a sustainable work-life balance. Strong remuneration and a benefits package have long been the key ingredients for retention within the job market, but the cultural aspects of a workplace are becoming increasingly significant. For example, in determining what makes a “good employer”, employees now often cite the importance of an employer nurturing diversity and allowing individuals flexibility in their working day, including flexibility of working hours and location.
The younger generation of the workforce are increasingly looking for an environment that nurtures their authentic selves which means that, if an employer is looking to retain their workforce, they would do well to allow the differences amongst their workforce to thrive and be recognised.
Disclaimer
This note reflects the law as at 13 March 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
The Lifecycle of a Business – What to think about as a first-time employer
6 March 2024
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina. On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
We’ve already discussed various topics, such as, set up, directors, funding and shareholder-related matters, but now let’s concentrate on “Employment: 9 to 5”.
What to think about as a first-time employer
A key part of any operating business is its workforce. To the untrained eye, becoming an employer appears to happen overnight; one minute there is just a company name, the next it has employees (…and much more!). But “appearances can be deceptive” and there are some non-negotiable foundations to be laid before the first employee walks through the door (or logs on remotely).
In no particular order, the housekeeping matters that you will need to have addressed as a first-time employer are: employer’s liability insurance, immigration considerations, relevant documentation and payroll and pension services.
Employer’s liability insurance
All employers have an obligation to ensure the health and safety of their employees. One way that the law ensures that this obligation is fulfilled is by requiring all employers to take out a valid employer’s liability insurance policy, covering disease and bodily injury of employees in the UK, with minimum cover of £5 million for each potential claim. Failure to have this in place on or before an employee’s first day is a criminal offence, carrying with it fines of up to £2,500 for every day that a valid policy is not in place.
Immigration
Unless an employee has the automatic right to work in the UK (i.e. they are a British or Irish national) or otherwise has a visa allowing them to work, the employee will need to be “sponsored” by their employer in order to have the right to work in the UK. Where this is the case, the employing entity will need a “sponsor licence”. To get this arranged, a comprehensive application needs to be submitted to the Home Office; this can take a few months to process, meaning that some pre-planning will be required in the event a future hire needs to be sponsored.
Documentation
There is a minimum suite of documentation that an employer must provide to new employees. This includes certain mandatory policies (such as disciplinary and grievance procedures), best practice policies (such as those relating to equal opportunities and whistle-blowing), the minimum particulars of employment and data privacy documentation.
The particulars of employment, which must be provided to an employee on or before their first day of employment, set out the bare bones of the employment arrangement, such as the names of the parties, rate of pay, commencement date, place of work, job title and so on. Typically, however, employers will provide more comprehensive contracts of employment which, if well drafted, will include bespoke clauses for the specific employment relationship, including in relation to confidentiality, intellectual property and post-employment restrictive covenants.
Employers process lots of employee and candidate data and they must provide privacy notices to the individuals whose data they will be processing, explaining how and why they will process their personal data.
Payroll and pensions
Last, but absolutely not least, employers must organise all applicable financial processes (and if necessary, appoint a payroll provider to manage the processes on their behalf). This will include setting up an auto-enrolment pension scheme for all eligible employees and making sure that all pay arrangements meet the National Minimum Wage requirements. Employers must also ensure that they are registered with HMRC (which they can do up to four weeks in advance) and that appropriate deductions for income tax and National Insurance contributions are made.
All of this might feel a little daunting, particularly alongside everything else which goes with establishing a business in the UK but, thankfully, the Forsters’ employment team are always at hand to assist and guide new businesses during these early stages…and beyond…
Disclaimer
This note reflects the law as at 6 March 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
Employment Law: Looking Back on 2023 and the Forecast for 2024
5 January 2024
News
It can be tough being an employer: many are still grappling with the new employment landscape left after Covid (such as remote and hybrid working arrangements) and are still trying to understand the expectations of the new generation of worker, all whilst trying to keep up-to-date with a never-ending raft of legislative changes.
The beginning of a new year presents an opportunity to reflect on the year gone by and look forward to the year ahead. With 2024 underway, we reflect on the key employment law developments of 2023 and highlight some anticipated changes for you to look out for in 2024.
Employment Law Review – 2023
2023 was a significant year for employment law. The Retained EU Law (Revocation and Reform) Act 2023 created a suite of new legislation in relation to holiday, working time, TUPE and the Equality Act 2010. There were changes to flexible working and family-related rights that are due to come into effect later this year (2024). In case law, we had landmark judgments in respect of holiday pay and employment status, which offer some long-awaited clarity.
2023 – Important case law developments
Chief Constable of the Police Service of NI v Agnew – holiday pay
In the significant case of Agnew, the Supreme Court held that although an unlawful deductions claim must be brought within three months of the date the last payment was made (or where there is a series of deductions, the date of the last in the series), a gap of three months in deductions does not automatically break the “chain” and neither does a correct payment. A series is not necessarily determined by a period in time but a “common fault or unifying or central vice”. As such, a series of deductions may no longer be broken by a gap of more than three months, meaning an employee could, depending on the circumstances, make a claim in respect of underpayments which were made prior to any such gap.
This decision will have significant implications for employers across the UK. For one, it is likely to cost the Police Service of Northern Ireland £30-40 million in back pay for holiday pay claims. That being said, in Great Britain there is a two-year backstop on how far back holiday claims can go. Nonetheless, this case serves as a notable reminder of the importance of calculating holiday pay correctly.
Independent Workers Union of Great Britain v Central Arbitration Committee (Deliveroo) – employment status
In November 2023, the Supreme Court unanimously held that Deliveroo riders are not employees and therefore cannot be represented by trade unions for collective bargaining purposes. The key factor for determining self-employed status was that the riders have an unfettered right to appoint a substitute to perform their obligations under their contract and in practice.
Whilst the judgment provides clarification to employers (and a helpful reminder that a genuine right of substitution will nearly always mean that an individual is not an employee), it has received criticism regarding the potential risks it poses to vulnerable workers across the UK. The Labour Party has previously indicated a desire to reform the law on employment status and to strengthen the rights and protections for workers. With an election looming this year, this is definitely an area to watch.
Boydell v NZP Limited and other – the enforceability of non-competes
In Boydell v NZP Ltd the Court of Appeal upheld an injunction and the decision of the High Court that it was permissible to sever part of a 12-month non-compete clause. Boydell was employed as Head of Commercial – Speciality Products for NZP Limited (“NZP”). NZP’s business, the sale of bile acid derivatives, is a niche area of the pharmaceutical industry. When Boydell resigned to work as head of the bile acid division of one of their main competitors, NZP sought an injunction relying on the 12-month non-compete in Boydell’s employment contract. Boydell argued that the non-compete was too wide to be enforceable, principally in that it benefitted not only NZP but other companies it its group. The Court of Appeal found that the non-compete clause was clearly directed towards the specialist activities of NZP and therefore the clause was capable of severance. Severing part of the restriction, to remove the benefit to group companies, did not change the overall effect of the non-compete because it was primarily aimed at the specialist activities of NZP. Although this case demonstrates the courts’ flexibility in their approach to construction of covenants, it is a reminder that, to be enforceable, restrictions should be tailored to the specific needs of the business.
The impact of this case may be limited given the government’s proposal to reform the law on non-compete restrictions to a maximum duration of three months (see below).
Charalambous v National Bank of Greece – the disciplinary process
In the Charalambous case, the Employment Appeal Tribunal (the “EAT”) confirmed that it is possible for a dismissal to be fair in circumstances where the dismissing manager does not hold a disciplinary hearing with the employee. Although the dismissing manager was not present at the claimant’s disciplinary hearing, the EAT found that this was corrected at the appeal stage. In upholding the tribunal’s decision, the EAT noted, perhaps surprisingly, that although it is desirable for a meeting between the employee and decision-maker to take place, direct personal communication is not a requirement.
Lynskey v Direct Line Insurance Services Ltd – menopause and discrimination
The case of Lynskey v Direct Line provides a reminder for employers to be aware of the complex issues surrounding menopause and the way in which symptoms can impact performance. It has been established in a number of tribunal cases that menopause symptoms can amount to a disability under the Equality Act 2010. Ms Lynskey was successful in arguing that Direct Line had failed to make reasonable adjustments where the requirement to meet the performance standards of her role put her at a substantial disadvantage in comparison to employees who were not experiencing symptoms of menopause.
However, whilst this case demonstrates that the tribunal may take a more holistic approach to a disciplinary process, it should not be taken as an invitation to dispense with important aspects of procedure.
Higgs v Farmor’s School – belief discrimination
In Higgs v Farmor’s School the EAT found that the tribunal had erred in its finding that Farmor School had not dismissed Ms Higgs for reasons connected to her protected beliefs. Ms Higgs was dismissed following a number of Facebook posts which the school considered to be prejudicial to the LGBTQ+ community. The EAT found that Ms Higgs’s views were protected under the Equality Act 2010 and remitted the case to the tribunal for redetermination. The EAT gave helpful guidance on the legal framework around the right to protection in respect of one’s belief or religion and the factors that should be taken into consideration when determining whether manifestation of belief was so objectionable as to justify the actions taken by an employer.
Haycocks v ADP RPO – the redundancy process
The EAT’s decision in Haycocks v ADP RPO confirmed that a redundancy appeal cannot correct a lack of consultation. How reasonable a redundancy process is will depend on the employer and the circumstances giving rise to redundancy, however this case serves as a reminder to employers of the importance of consultation at a formative stage in the redundancy process.
2023 – Key legislation
Minimum service levels
Following a year (or two) consistently peppered with strikes in the rail, health, emergency services and teaching sectors, the government has now enacted its controversial Strike (Minimum Service Levels) Act 2023, which requires minimum service levels to be maintained, even during periods of strike.
Allocation of tips
We previously provided commentary back in October 2021 on the anticipated Employment (Allocation of Tips) Act 2023. This Act gained Royal Assent in 2023, with the measures coming into effect during 2024. The motivation behind the legislation is to provide workers with fair pay and to ensure that tips are allocated fairly amongst the workforce.
Workers (Predictable Terms and Conditions) Act 2023
Continuing the pursuit of instilling fairness amongst the workforce, this Act was granted Royal Assent in September 2023 and places obligations on employers to give a minimum period of notice of shift patterns or of ad hoc work to their workforce. Moreover, eligible employees will gain the right to request a “predictable work pattern”.
Worker Protection (Amendment of Equality Act 2010) Act 2023
This Act will require employers to take proactive steps to prevent their employees from being sexually harassed at work. The Equality and Human Rights Commission (the “EHRC”) will be publishing new guidance on what proactive steps employers are expected to take. Not only should employers carefully consider the EHRC guidance (when it is published) but they should also review and amend their existing policies to ensure compliance with the new requirements.
Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023
We commented in November 2023 on the changes to holiday pay, TUPE and working time reporting which came into effect on 1 January 2024. The government has now published guidance on calculating holiday pay in line with the changes.
The Employment Relations (Flexible Working) Act 2023
The Employment Relations (Flexible Working) Act gained Royal Assent in July 2023 and was partially enacted on 11 December via the Flexible Working (Amendment) Regulations 2023. With effect from 6 April 2024, all employees will have a right to submit a statutory flexible working request from day one of their employment. We discussed the impact of this legislation here, including the changes required in the way that employers are expected to respond to flexible working requests.
The Carer’s Leave Act 2023
The Carer’s Leave Act received Royal Assent in May 2023 and allows employees who have a dependant with a long-term care need to take leave to care for that dependent. One week of carer’s leave can be taken each year (regardless of the number of dependants an employee may have). Whilst there are notification requirements on the employee, an employer cannot require an employee to supply evidence in relation to a request before granting leave. An employer can postpone a request in limited circumstances.
Extension of the protections from redundancy – pregnancy and family leave
In December 2023, draft regulations were laid before Parliament to bring the Redundancy (Pregnancy and Family Leave) Act 2023 into operation. Under the new Act, from 6 April 2024, protection from redundancy afforded to employees on maternity, adoption or shared parental leave will be extended to employees who are pregnant and returning from such leave. More details on the impact of these protections can be found here.
What Can We Expect In 2024
The bills which gained Royal Assent in 2023 are very likely to be enacted in 2024. This will mean that employees and workers will benefit from the applicable enhanced rights and employers will need to ensure their compliance with any additional policies and procedures prescribed by the new legislation and be alive to the potential claims that an individual could bring.
In addition to legislative changes, there will also be the usual changes to national statutory rates, including those for minimum wage, statutory maternity pay and statutory sick pay, which are summarised below.
in May 2023, the government published its response to the consultation on the reform of non-compete clauses which proposed capping such clauses at three months. This may also be something to look out for in 2024; and
the government’s Statutory Code of Practice on âfire and rehireâ practices should be published in spring 2024.
Undoubtedly the speaking point of 2024 will be the next general election. If, as currently predicted by the polls, the Labour Party is successful, we are likely to see a number of employment law reforms designed to improve workers’ rights and protections.
April 2024 rate changes
National Minimum Wage
Category of worker
2023/2024
2024/2025
Aged 23+
£10.42
£11.44
Aged 21 – 22 inclusive
£10.18
£11.44
Aged 18 – 20 inclusive
£7.49
£8.60
Aged under 18
£5.28
£6.40
Apprentice rate
£5.28
£6.40
Statutory weekly cap
2023/2024
2024/2025
Statutory sick pay
£109.50
£184.03
Statutory maternity, paternity, adoption and shared parental pay together with maternity allowance
£172.48
£116.75
If you wish to discuss the above in any more detail or have any other employment or HR law related issues, please contact Joe Beeston, Partner, Remy Ormesher-Hussein, Associate or Nina Gilroy, Legal Executive, in our corporate group.
Disclaimer
This note reflects our opinion and views as of 5 January 2024 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
The Property Tribunal determines the issue of VAT on Staff Costs
13 June 2023
News
The First Tier Tribunal (FTT) yesterday handed down its judgment in the matter of Various Lessees of Battersea Reach and St George Wharf -v- St George South London Ltd (and others).
The decision is likely to have important consequences for landlords and managing agents, and it should resolve the longstanding uncertainty following the decision in Ingram v Church Commissioners [2015] and HMRC’s subsequent clarification of the VAT treatment for the supply of services made by managing agents.
Lessees in two large multistorey mixed-use developments next to the river Thames had argued that staff should be directly employed in a way which would not attract VAT. They suggested that a change in employment would achieve the stated objective and not cause any significant cost or disruption to the service provided and that it was unreasonable for landlords to refuse to do so.
The tribunal found in the landlords’ favour, determining that, in deciding not to employ site staff directly, the landlord acted reasonably. They concluded that “…both the management and tax risks involved in changing the arrangements for the employment of staff were such that it was not unreasonable for a landlord to refuse to do so.”
The lessees had suggested that there were different models which could be implemented that would enable the landlords to benefit from a VAT saving on staff costs. However, the lessees had failed to show these “were realistically capable of being implemented” or “make a coherent initial case as to an alternative course for the landlord to adopt and for the Tribunal to consider either at the outset of the application or at any time thereafter.”
In the circumstances, the VAT on staff costs included in the service charges was deemed to be reasonable, and the lessees’ application was dismissed.
Forsters was led by Senior Associates Ryan Didcock and Emma Gosling, and Partner Natasha Rees, acting for the freeholder and associated landlords, with counsel Philip Rainey KC and Carl Fain of Tanfield Chambers (property), Nicola Shaw KC and Sam Brodsky of Gray’s Inn Tax Chambers (tax), and Michael Lee of 11 Kings Walk Chambers (employment).
Restrictions preventing an employee from joining a competitor or setting up in competition for a period (typically between 6 – 12 months) after their employment has ended (a “non-compete”) is a common, albeit at times controversial, feature of UK employment contracts.
But changes appear to be afoot and it seems likely that non-competes as we know them may look a little different in the future.
Used appropriately – such as limiting their application only to senior employees or to those with access to highly confidential information and trade secrets, and then only for a reasonable period – a non-compete makes complete sense. It allows an employer to safeguard its position, preventing parts of its business from being diverted elsewhere, which other post-employment restrictions (such as confidentiality obligations and non-solicitation restrictions) cannot always fully protect.
Conversely, used inappropriately or abusively (as can often be the case), a non-compete arguably prevents free trade, restricts the labour market and innovation and, on a personal level, has a detrimental impact on an individual’s ability to earn a living. The ‘standard issued’ non-compete can, fairly regularly, result in hard working and innovative individuals taking time out to avoid any alleged breach and/or dispute with their former employer, despite the fact that such non-compete might actually be unenforceable. Perhaps the State of California, where non-competes have been banned for some time, is a good place to find evidence for these stifling of free trade and innovation arguments: Silicon Valley has, after all, essentially been built by employees leaving large tech firms and launching their own startups, as they are generally free to do albeit ostensibly in “competition” with their previous employer.
It is because of this tension that the UK government previously consulted on the use of non-competes and associated reforms. The consultation (called: “Measures to reform post-termination non-compete clauses in contracts of employment”) looked, in particular, at:
whether employers should be required to pay employees during a non-compete period (with such periods being limited in duration); and
the idea of banning them altogether.
Unfortunately, despite that consultation closing just over two years ago, we are still awaiting its outcome. That said, since the closing of the consultation, there have been some interesting developments in the non-compete area in other jurisdictions.
The most significant development has perhaps been in the US. Following an executive order to all agencies by Joe Biden to increase productivity, the US regulator, the Federal Trade Commission (“FTC”), has recently outlined plans to ban US employers from using non-competes or relying on existing non-compete provisions. The proposed new rule would categorise a non-compete as an “unfair method of competition’. However, the draft rule does provide for a carve-out in the context of a corporate transaction where a shareholder stays on with the business as an employee.
The fact that just weeks after the FTC outlined its plans, the UK Competition and Markets Authority reminded employers to avoid anti-competitive behaviour (such as wage fixing and agreements not to employ others’ employees) might suggest that we are keeping an eye on what is going on across the pond.
Anecdotally, some employment lawyers in the US believe that the proposed FTC rule is too vague, generating more questions than it answers. They anticipate that, following comment from various stakeholders, the rule (in the event it is passed) will be narrowed – for example, to create further exemptions for senior level executives (i.e. still permitting the use of non-competes in respect of their employment).
That said, other commentators believe a carve out for senior employees could be counter to the overriding executive order designed at increasing productivity, noting that such employees typically generate growth and innovation so restricting them would not achieve the order’s aims. There is also concern that having such a carve out would lead to ‘satellite’ litigation about an employee’s seniority and/or whether an associated non-compete is enforceable.
But perhaps recent developments north of the border, in Canada, will help reassure US lawyers. In 2021, the province of Ontario introduced a similar law (through the “Working for Workers Act”) banning the use of new non-competes (but not those already in existence), unless it is agreed in the context of a corporate transaction (similar to the FTC’s carve out) or for senior employees holding specific positions (for example, Chief Executive Officer, Chief Finance Officer or Chief Legal Officer).
Perhaps it is too early to tell whether the Ontario position strikes the right balance, but it does highlight that this topic seems to be firmly on the agenda in many countries and that changes here in the UK seem likely, especially given the current status in the US. It will certainly be interesting to see whether and how international developments such as those in the US and Canada inform or contribute to the debate here in the UK.
More generally, perhaps one could look closer to home to see how other European countries create a fairer non-compete environment. One of the points the UK government consulted on was the need to pay employees during any non-compete period and both France and Germany (for example) have adopted this model for some time. The financial consequences really focus an employer’s mind as to which employees they need to restrict, and this seems to strike a good balance between giving employers the ability to subject an employee to a non-compete (and pay them) where circumstances require whilst addressing the personal financial impact on the employee. Arguably, such model would be even fairer if the paid non-compete could only be used for senior employees, adopting the concept from Ontario.
So, is there a future for non-competes? I believe so, but perhaps in a different form to what we are familiar with in the UK. Such changes are still up for debate and might, in practice, be informed by any conclusions of the FTC. But in any event, any changes will likely result in a degree of uncertainty and further questions, keeping both employers and lawyers busy. For example:
how would garden leave provisions be considered in light of any ban or restriction on the use of non-competes: are they a non-compete through the backdoor or a standalone contractual provision?
will employers try to be more creative in their use of breach of non-solicitation and non-dealing covenants to try and reach the same outcome as a non-compete?
if non-competes are faded out or restricted in different jurisdictions, how will global companies who grant stock/equity under global plans that tend to be linked to non-competes work? For example, will we see a move away from global harmonised plans to a country specific approach?