Provided by BHP Information Solutions Ltd
A monthly checklist of new and pending laws, regulations, codes of practice and rulings that could have an impact on your business
Revised employment law timetable: Spring changes
Businesses and employers should note both the latest and imminent employment law changes, particularly in view of the Government's revision of its implementation timetable:
- From 8 March, parents' right to unpaid leave has now increased from 13 to 18 weeks.
- The minimum consultation period where 100 or more redundancies are proposed is reduced from 90 to 45 days.
- The collective redundancy obligations generally no longer apply to employees on fixed-term contracts which have reached their agreed termination point.
- A non-statutory Acas code of practice is to be published, covering key collective redundancy issues such as the definition of 'establishment'.
- Repeal of requirement for discrimination questionnaires.
- Repeal of employers' liability for harassment of employees by third parties.
Case law: uncertainty for businesses over implied duties of good faith
Businesses entering into long-term commercial contracts should seek legal advice on whether implied terms, particularly the duty to act in good faith, could be implied into the contracts. Two different legal rulings have recently been given on the issue.
In March 2013, the High Court ruled that parties to commercial contracts could owe each other an implied duty to act in good faith, even if the contract didn't expressly require them to do so. Previously, parties to a commercial contract only had to act in good faith if the contract specifically required them to do so.
The Court said the relevant background to a commercial contract included not just the facts but also the parties' 'shared values and norms of behaviour'. These could include a shared expectation that each would act in good faith, for example, that each would act honestly and avoid improper or unacceptable behaviour falling short of actual dishonesty; and behave consistently with the values and norms implicitly underpinning the contract.
If the relevant background did include such a shared expectation, the court was prepared to imply a duty of good faith into the contract.
However, in a separate later case the Court of Appeal ruled there was no general doctrine of good faith in commercial contracts: the parties had to expressly agree in the contract to act in good faith.
The case could go to the Supreme Court but, until then, uncertainty remains. Specialist advice should be taken to protect your business interests when negotiating new contract terms or interpreting existing contracts.
Spring Budget: business owners dealt inheritance tax blow
Under new rules announced in the Spring Budget, business owners who mortgage their homes or other personal assets to raise money to buy business assets may have to pay more inheritance tax (IHT) on death.
Business owners who have mortgaged their homes and invested the resulting funds in their businesses, or who are considering doing so, should take advice on whether the changes will affect their IHT liability and to what extent.
The new rules are part of the government crackdown on IHT avoidance schemes, but ordinary homeowners who borrow money against their homes to help fund their businesses will be hit.
Previously, a debt secured against an asset in a deceased person's estate would be deducted from the value of that asset when calculating the value of that estate for IHT purposes. If the asset was subject to IHT this deduction reduced the IHT payable. However, if the asset was exempt from IHT, for example if it qualified for Business Property Relief (BPR) or Agricultural Property Relief, there was no IHT liability to set the debt off against. In effect, the debt was wasted and the IHT payable was not reduced.
Under the recent proposals, the value of a loan can only be set against the value of assets purchased and as those are likely to qualify for BPR there won't be any overall reduction in IHT liability.
The new rules will apply to all deaths taking place after the Budget becomes law, irrespective of when the debt was incurred. They also apply to trustees, but will not affect the ten-yearly IHT charge paid by trustees.
Case law: when does sufficient goodwill attach to a trade description?
Businesses are advised to use geographical descriptions in trade names with caution following a recent court ruling, and to seek legal advice where they have concerns about trade descriptions.
The High Court has allowed claimant companies' extended passing-off claim, granting them a permanent injunction.
At issue was whether:
- a descriptive term for a 'Greek' yogurt made in a particular way (the term having no equivalent meaning in Greece) and which had a reputation among a substantial part of the public, meant only that yogurt;
- use of the same term for a yogurt not made in Greece would be a misrepresentation leading to substantial confusion.
The court ruled that if a product having these qualities, made outside Greece, was sold in the UK under the term 'Greek Yoghurt', this constituted a misrepresentation, and the claim was upheld.
Case law: employers must consider effect of obese employee's condition in disability claims, not cause
Employers considering whether an employee is disabled should look at the actual effect of his or her condition and not the cause when deciding whether he or she has a physical or mental impairment.
In a recent case, an obese employee suffered a number of conditions including asthma, knee problems, diabetes, high blood pressure, anxiety and depression, carpal tunnel syndrome, eye problems and sacro-iliac joint pains. The occupational therapist said these were compounded by his obesity and amounted to a chronic permanent condition which affected his daily living – but there was no apparent cause.
The employee claimed disability discrimination and the Employment Appeal Tribunal overturned the finding of the employment judge that he was not disabled on the basis his occupational health specialist could not find an underlying 'physical or organic cause' for his condition other than obesity.
The EAT ruled an obese employee is disabled if the effect of his or her condition is a physical or mental impairment, even though obesity is not a disability and no other underlying cause can be found. However, its cause may provide evidence that impairment is not substantial or long-term. For example, if an obese employee's impairment would disappear if he lost weight, this may mean his impairment is not long-term and he would not then be disabled.
Businesses will find government guidance on matters to be taken into account when considering disability very useful.
Download the free guidance on disability from the Gov.uk website.
Case law: principal liable to pay agent compensation on termination despite agent's breaches of contract
A business that terminated a contract with its agent still had to pay it compensation, even though the agent's misconduct amounted to a breach of the contract.
Under European law, commercial agents are usually entitled to compensation if their agency is terminated, even if the principal gives the proper notice period required by the agency agreement. However, compensation does not have to be paid if the agent has committed a 'repudiatory' breach of contract.
A repudiatory breach is one that goes to the root of the contract, and the party committing the breach demonstrates an intention no longer to be bound by the contract or to perform its obligations.
An employee of the UK agent for Crocs shoes posted a video on a website which joked about Crocs' poor response to orders, and emailed the link to colleagues, customers and distributors.
Crocs terminated the agency agreement and refused to pay compensation on grounds this amounted to a repudiatory breach.
Crocs argued unsuccessfully that:
- an agent's duty to act in good faith was an implied term of every agency agreement and went to the root of the agency/principal relationship, so that failure to act in good faith is automatically a serious breach;
- agents owe their principals a fiduciary duty of loyalty under the general law, and failure to discharge that duty is automatically a serious breach.
The Court of Appeal ruled that an agent's duty to act in good faith was not an implied term of the agreement. While agents owed their principals a duty of loyalty, failure to discharge that duty was not always a repudiatory breach.
The breach in this case was not serious: the statements on the website had been true, the video was clearly lighthearted, and Crocs had not produced any evidence of damage. Crocs therefore had to pay compensation for terminating the agreement.
Case law: copying same design can infringe unregistered design rules, but not EU design rules
Businesses protecting their designs should consider registering them and not just rely on their automatic unregistered design rights.
A recent ruling highlights the different protections that apply, and means businesses should seek specialist advice about how the different criteria apply and if they need formal registration to fully protect their designs.
Businesses registering designs at the Intellectual Property Office for protection in the UK, or at the European Union's OHIM registry for protection throughout the EU, can prevent people manufacturing, stocking, marketing, offering, importing, exporting or using products with your design. Registration protects designs that are 'new' and have 'individual character' (ie they produce a different overall impression on the informed user).
However, some designs are protected automatically and you can stop anyone from copying it, even if the design is not registered. This 'Unregistered Design Right' (UDR) protects 'any aspect of the shape or configuration (whether internal or external) of the whole or part of an article' provided the design is 'original'.
The Patent Court considered the various factors that were required to uphold a claim for infringement under both the UDR and formal Community registration. In this case, the claim was successful in relation to UDR but not in relation to the registered Community designs.
Case law: repairing or replacing a part on a patented product can infringe the patent
Businesses making and selling spare parts for patented products should ensure the use of their products to replace damaged or expired parts of those patented products does not amount to making a new product. Otherwise they could risk a claim for patent infringement.
In a recent case, the Supreme Court issued guidelines on when it amounts to 'making' the product, rather than simply replacing or repairing it, and therefore infringes the patent.
A product's patent is infringed if a person 'makes, disposes of, offers to dispose of, uses or imports the product, or keeps it'. In this case, the court particularly considered the interpretation of the word 'makes' and said it did not have a precise meaning, but had to be interpreted in context. But it had to be given a meaning that it could reasonably bear in ordinary language.
The Court gave useful guidance on what some of the relevant considerations were when defining the word:
- It will be a matter of fact and degree whether replacing part of a patented item is 'making' it.
- 'Repairing' an item and 'making' it are not mutually exclusive, but consideration should be given to whether the part being repaired is so subsidiary a part of the whole item that replacing it does not amount to making a new item.
- The fact that one part of an item is likely to need replacing before other parts makes it less likely that replacing that part amounts to 'making' a new item. The same applies if it can be replaced easily.
- If, however, the replacement part is integrally connected to the rest of the item so that replacement included a 'significant element of demolition', replacement is more likely to amount to 'making' the item.
- The main principle is that if the part in question is removed and 'what is left embodies the whole of the inventive concept' of the patent, then replacing the part doesn't amount to 'making' the patented item.
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