May Legal Alert

legal alert

This month: 

Case law: Employers still face uncertainty over commission and holiday pay

Employers still face uncertainty despite the Employment Tribunal’s recent confirmation that holiday pay should include commission, and any other elements comprising an employee’s pay if ‘intrinsically linked’ to the contract of employment.

A salesman was paid basic pay and commission on sales. The commission varied month by month, and payments in some months were the outcome of work carried out in previous months.

While on annual leave, his employer paid his commission earned from sales made in previous months, but calculated his statutory holiday pay by reference to his basic pay only, on grounds an employee is unable to earn commission while on holiday. The employee claimed his holiday pay should take account of commission. The Employment Tribunal (ET) referred the question to the European Court of Justice (ECJ).

The ECJ ruled that employers who pay a worker commission on sales which is ‘intrinsically linked’ to the performance of the tasks the worker is required to carry out, must take commission into account when calculating statutory holiday pay.

The case was referred back to the ET which has confirmed the ECJ decision. However, the decision only applies to the four weeks’ holiday pay a worker is entitled to under EU law (not the further 1.6 weeks’ pay they are also entitled to under UK law), and there are limits to how far back a worker can go when claiming holiday pay in relation to previous holidays.

The ET decision leaves open a number of important questions, including:

  • The ET decision related solely to commission. This raises the issue as to whether other forms of variable pay (for instance, voluntary overtime or bonuses) could also be ‘intrinsically linked’ to an employee’s contract of employment, and should therefore be taken into account when calculating holiday pay. However, the ET saw no distinction in principle between commission and voluntary overtime.
  • The ET deferred the issue of which reference period should be used to calculate the holiday pay of workers earning commission – although the most likely outcome is that it will be based on average commission over the last 12 weeks.
  • It is still unclear whether employers must include commission when calculating holiday pay if the rates of commission it pays already take into account the fact that employees will not earn commission during holidays.
  • It is unclear whether an employer could argue that commission (or voluntary overtime) should not be taken into account in holiday pay in certain circumstances because the commission earned during the reference period is untypical – for example, if a salesman has pulled off a huge, freak sale in the 12 weeks before his holiday, should his holiday pay be inflated accordingly? If it should, they could then be paid far more holiday pay than they would have earned during that period had they stayed at work: employees may be tempted to time their holidays to take maximum advantage.

Employers who have not been including commission in holiday pay may also need to consider whether they or scheme members should increase contributions into staff pension schemes, and top up previous contributions.

Operative date

  • Now

Recommendations

  • Employers with staff who are paid commission should consider whether they should take that commission into account when calculating future holiday pay.
  • In relation to past holiday pay, they should prepare for retrospective claims from employees who have not been paid an element of commission in past holiday pay.
  • Employers should take specialist legal advice on the amounts of commission to be included, as it is unclear how these should be calculated.
  • Employers should also consider the implications of the decision on employees' share schemes.

Case ref: Lock and ors v British Gas Trading Ltd and anor 1900503/2012

New guidance: Government guidance on minimum wage now published

The Department for Business, Innovation and Skills has issued statutory guidance, Calculating the minimum wage, to help employers comply with national minimum wage laws.

Its aim is to give businesses and other organisations practical advice and examples to help explain issues such as:

  • What counts and does not count as pay.
  • What counts and does not count as working hours.
  • The eligibility rules for the minimum wage.
  • How to calculate the minimum wage.
  • How the Department for Business, Innovation and Skills will enforce the minimum wage

Operative date

  • Now

Recommendation

Case law: Employer does not necessarily have to make adjustments sought by disabled employee

Employers considering adjustments for a disabled employee must act reasonably, but that does not mean they automatically have to accept that what the employee wants is reasonable.

An employee was on sick leave for almost a year with a spine condition. Her employer offered adjustments so she could return to her existing job, however she wanted to change jobs. She applied for a number of finance and sales jobs with her employer but refused receptionist/switchboard jobs on grounds she was over-qualified. There were a number of meetings and reviews.

Eventually, the employer set her a time limit during which she could either obtain one of the available jobs with the employer, or return to her old one with the adjustments offered. She was subsequently dismissed on grounds of capability, and unsuccessfully claimed (among other things) disability discrimination.

The Employment Appeal Tribunal ruled that the employer’s duty when considering adjustments was to behave reasonably, not simply to accept what the employee proposed as reasonable adjustments.

Operative date

  • Now

Recommendation

  • Employers considering adjustments for a disabled employee must act reasonably, but do not automatically have to accept what the employee requests by way of adjustments.

Case ref: Makuchova v Guoman Hotel Management (UK) Ltd UKEAT/0279/14/DA

Case law: Draft contract prescribing how one party must accept its terms can be legally binding if accepted by some other means

A party offering contract terms prescribing how the contract should be accepted, but which unequivocally accepts the terms in some other way, cannot then argue it has not accepted it, the High Court has ruled.

A seller gave a draft contract to a potential buyer (A Ltd) which had the words ‘accepted A Ltd’ at the end, and a space for the buyer’s signature. The buyer did not sign the contract in this ‘signature block’, but made twelve purchases by sending the seller a ‘price fixation confirmation’ (a requirement of the contract).

The buyer later asked for the contract to be varied. The seller did not agree to the proposed variation, but made alternative suggestions based on the buyer making more purchases.

The buyer subsequently argued that it was not bound by the contract because it had not signed it as per the signature block. It argued that the fact the seller had included a signature block meant that the terms could not be agreed to in any other way.

The seller contended that the buyer’s compliance with the terms of the contract, such as the requirement to start purchases with a price fixation confirmation, and its requests to vary the contract, meant that the buyer had unequivocally accepted the terms of the contract, even though it had not signed it.  It was therefore binding.

The Court ruled in the seller’s favour. The fact that the seller had included a specific space for the buyer’s signature in the draft contract did not, of itself, mean a signature was the only way the contract could be accepted by the buyer. If the buyer accepted it by some other means, the seller could waive the requirement for a signature and treat the contract as accepted.

In this case the buyer had unequivocally accepted the offer by submitting price fixation confirmations as required under the contract. The seller had made clear it was treating the submission of confirmations as acceptance of the contract terms by the buyer by performing its obligations as if the contract had been signed.

The court went further and ruled that, even if the seller had not treated the price fixation confirmations submitted by the buyer as unequivocal acceptance of its contract terms, the court would have treated the confirmations as a counter-offer which the seller had then accepted by performing its obligations under the contract.

Operative date

  • Now

Recommendation

  • A party offered contract terms should not assume the only way it can accept them is by complying with the acceptance terms in the contract. If they unequivocally accept the terms in some other way, the offeror may choose to treat that other means of acceptance as legally binding, and waive the terms of acceptance in the contract.

Case ref: A Ltd v B Ltd [2015] EWHC 137

Case law: Employees must show ‘public interest’ or they are not protected under whistleblowing law

Employers faced with a worker alleging they have made a ‘protected disclosure’ under whistleblowing law should consider whether the disclosure is in the public interest. 

Workers are protected against detriment or dismissal under UK whistleblowing laws if they make a ‘protected disclosure’.  This protection only applies if the worker reasonably believes the disclosure was in the public interest.

Historically, a disclosure relating to the worker’s own terms of employment have not been treated as in the public interest. However, in a recent case a director of a major estate agents told his HR Director that he believed the company had deliberately misstated between £2m and £3m of costs and liabilities in its accounts. The consequence was that the director, and around 100 other senior employees, received lower bonuses and the company’s profits were not as depleted as they would otherwise have been.

The Employment Appeal Tribunal (EAT) said the ‘public interest’ requirement was to stop a worker from using whistleblowing law where the detriment is of a personal nature, with no wider public interest implications. It found that the director reasonably believed his disclosure was not only in his interests, but also the interests of his senior colleagues, and this was a sufficiently large group for his disclosure to be treated as in the public interest. It was irrelevant that his primary motive for the disclosure was his own bonus, because he also had his colleagues in mind when he made his disclosure. He had therefore made a protected disclosure.

The EAT also made the following points:

  • The public interest test can be satisfied, depending on the facts, even if a relatively small number of individuals are affected by the subject matter.
  • The test is whether, objectively, the worker reasonably believed the disclosure is in the public interest, even if the worker’s belief is wrong.
  • It was irrelevant that the company was private, and not public.

Operative date

  • Now

Recommendation

  • Employers faced with a worker alleging they have made a ‘protected disclosure’ should consider whether the disclosure is in the public interest.  If it isn’t, the worker is not protected from detriment or dismissal under whistleblowing law.

Case ref: Chesterton Global Limited and anor v Nurmohamed UKEAT/0335/14/DM

New law: Landlords must comply with new tenants’ deposit protection laws by 23 June or risk losing vital rights

Landlords should immediately review the deposits they are holding to determine whether they are protected under new tenant protection laws, or risk losing vital rights against some tenants.

From April 2007, landlords of assured shorthold tenancies (ASTs) have been required to protect the tenant’s deposit using an approved tenancy deposit scheme, and give the tenant ‘prescribed information’ about the scheme within 30 days after receiving the deposit. Failure to do so means (1) landlords may have to pay a financial penalty of up to three times the deposit to the tenant at the end of the tenancy, and (2) the landlord is not allowed to give the notice he would otherwise be able to give in order to recover the property from the tenant.

Several anomalies that arose under the 2007 rules have now been resolved by new laws now in force, as follows:

  • If a landlord is still holding a deposit made under an AST granted before 6 April 2007, and which also expired before 6 April 2007 (and therefore converted automatically to a statutory periodic tenancy from that date), and the landlord has never protected the deposit or given the prescribed particulars, the landlord does not have to protect the deposit or give the prescribed information to the tenant immediately, but will not be allowed to give notice to recover the property unless and until it does both. However, no financial penalties will be imposed.
  • If a landlord:
    • is holding a deposit under an AST granted before 6 April 2007; and
    • the AST has expired, but did not expire until after 6 April 2007; and
    • it was either renewed or became an automatic periodic tenancy from after that date, without the deposit being protected or the prescribed information given

it must protect the deposit and give the prescribed information by 23 June 2015 (or earlier if a court is already considering possession proceedings or proceedings for failure to protect a deposit), or it will be unable to give notice to a tenant to recover the property, and will face financial penalties.

  • If a landlord took a deposit under an AST on or after 6 April 2007, protected it and gave the tenant the necessary prescribed information, the courts have said that the landlord must repeat the process when the AST ends and is either renewed or automatically becomes a periodic tenancy. However, the landlord no longer has to repeat the process, provided the landlord, tenant, property and scheme being used to protect the deposit remain the same at the time of the renewal or automatic conversion to a periodic tenancy.

Operative date

  • Now

Recommendation

  • Landlords should immediately review the deposits they are holding against ASTs and periodic tenancies in order to determine when the deposits were taken, whether the relevant tenancies are ASTs or have converted to periodic tenancies, and whether the 23 June deadline applies.

New law: Companies preparing for significant company law changes

Companies are preparing for significant changes to company law from April 2015 through to 2017, by checking which parts of the new law apply to them, when each rule is due to come into force and what they need to do now.

Companies need to start preparing for significant changes under new company law coming into force over the next few years, many of which are designed to improve disclosure and transparency by UK companies

Register of Persons with Significant Control (PSCs)

From January 2016 every UK company limited by shares or guarantee (except public companies already subject to the listed company Disclosure and Transparency Rules) must maintain a PSC register giving details of people with significant control over the company.

This means any registerable individual (or in some cases, any ‘registerable relevant legal entity’) with an interest in more than 25 per cent of the company’s shares or voting rights, or who otherwise exercise significant influence or control over the company or its board.

Companies have a duty to take reasonable steps to identify those persons it knows or suspects have significant control over it. Companies should ensure they develop procedures for doing this – including identifying provisions in agreements with third parties which may mean those third parties are PSCs. Individuals and entities with significant control must also identify themselves to the company.

From April 2016 information about PSCs must be filed at Companies House on the new annual confirmation statement, which will replace the annual return.

Corporate directors abolished

Corporate directors (when one company is a director of another) will be prohibited from October 2015, with a 12-month transitional period for existing companies which already have corporate directors. The new rules will apply even if the company’s articles allow corporate directors, and whatever the articles say about the quorum at directors’ meetings.  Companies should review their articles. There will be exceptions when corporate directors will be allowed - the government is still consulting on what these will be.

Bearer shares abolished

Bearer shares will be prohibited from 26 May 2015 (with a nine month transitional period for companies to replace existing bearer shares). Bearer shares are rare in UK companies – companies affected by this change will know who they are.

Annual returns replaced

Annual returns will be replaced by annual ‘confirmation statements’ from April 2016. Companies will need to review their procedures and, if they use secretarial software, that it can cope with the new statements.

The ‘central register’

From April 2016, private companies will be able to elect to keep their statutory registers (including the new PSC register) at Companies House on a ‘central register’, instead of keeping their own registers. However, this will make more information available to the public than if they keep their own registers.

New liabilities for directors

The new law also significantly extends the grounds for disqualifying directors, including taking their conduct in relation to non-UK companies into account.  It also increases their liability on insolvency generally.

Directors’ consents to act

From October 2015, directors no longer need to provide consent to act on appointment. Instead, Companies House will write to new directors notified to it by companies, and alert them to the notification. If the director does not consent they can object to Companies House.

Statements of capital

The statements of capital on certain Companies House forms will be simplified from April 2016.

Unauthorised registered office

From April 2016 Companies House will be able to change the public record if it can be shown that an address is being used as a registered office address without authority from the owner of occupier.

Operative date

  • From now

Recommendation

  • Companies should take advice on which parts of the new law apply to them, when they are due to come into force and what they need to do.

New law: ISA savers reviewing wills so surviving spouses and civil partners can benefit from new ISA inheritance laws

Savers with ISAs should consider making wills, or revising existing wills, to see if surviving spouses or civil partners could benefit from new ISA inheritance laws when they die.

An individual saver can save up to £15,240 (2015-16) per year in an ISA and does not pay tax on the income or capital gains it generates. Previously, the tax-free status of income or gains from an ISA ceased when the saver dies. Under new rules, a saver’s surviving spouse or civil partner will, in certain circumstances, be able to benefit from the saver’s ISA allowance when the saver dies.

Now, a surviving spouse or civil partner of an ISA saver who dies on or after 3 December 2014 can increase their own ISA allowance for the tax year in which the saver died, by an amount equal to the aggregate value of the deceased’s ISAs.

There are a number of conditions, some of which are strict – for example, the surviving spouse or civil partner must already have an ISA, managed by the same manager as the deceased - and time limits apply. There are also differences between the way cash ISAs and stocks and shares ISAs are treated.

Operative date

  • From now

Recommendation

  • Savers with ISAs should consider taking advice on whether their surviving spouses or civil partners could benefit under the new ISA inheritance laws, and making or revising their Wills accordingly.

Case law: Foreign companies should sign contracts in accordance with their own law

UK companies entering a contract with a non-UK company should ensure the contract is executed by the foreign company in accordance with the law of its own country, even if the contract is governed by the laws of England & Wales, the Court of Appeal has ruled.

A contract between two Swiss companies argued that disputes would be decided under English law. One company had signed through a ‘prokurist’ - one of two authorised signatories – which meant it would have been valid had the company been a UK company. However, Swiss law required the signature of both prokurists before the contract was binding. The company tried to argue the contract was not binding.

The Court of Appeal decided that the issue of who has authority to sign a contract on behalf of a company depended on the local law where the company was incorporated, irrespective of the law that applied to the contract itself. The contract had not, therefore, been properly signed and was not binding.

Operative date

  • Now

Recommendation

  • UK companies entering into a contract with a non-UK company should ensure the contract is executed by the foreign company in accordance with the law of its own country, even if the contract says the law of England & Wales applies.  Where necessary, consider obtaining a legal opinion from a local lawyer.

Case ref: Integral Petroleum SA v Scu-Finanz AG [2015] EWCA Civ 144

Case law: Failure to terminate in the way specified in the contract made termination invalid

Parties giving notice under a contract should ensure they stick precisely to the notice provisions in the contract, or obtain a formal waiver and consent to some other way of giving notices, the High Court has confirmed.

A football club failed to provide another company with an allocation of tickets to sell, as it was contractually obliged to, after the club made it to the FA Cup Final.

The club said it had grounds to terminate the contract, and purported to do so by email. However, the contract provided that notices such as termination notices had to be in writing, delivered by hand or first class post to the registered office, or sent by fax. The company therefore argued the notice was not valid.

The court ruled that in the absence of any waiver by the company, the football club could only terminate by giving notice in the manner required by the contract. The email notice was therefore invalid.

Operative date

  • Now

Recommendation

  • Parties giving notice under a contract should ensure they either stick to the letter of the contract, or obtain a formal waiver and consent to some other way of giving notices.

Case ref: Ticket2Final OU v Wigan Athletic AFC Ltd [2015] EWHC 61b

Case law: Court gives guidance on when company can refuse access to register of shareholders

Companies will welcome further guidance from a second ruling on when the court will refuse someone permission to inspect the company register of shareholders on grounds the inspection is not for a ‘proper purpose’.

Under the Companies Act, a company can apply to court to prevent someone inspecting or copying its register of shareholders if it does not believe it is for a ‘proper purpose’. However, the Act does not define what amounts to a proper purpose.

A company received a request from an individual for a copy of its register of shareholders. He gave his purpose as to ‘assist and allow shareholders who may otherwise be unaware of their entitlements to reassert ownership or recover benefit of their property’. He stated that he would be sharing the information with Interum Limited, a Gibraltar company, which would use it for the same purpose.

However, he and Interum used it to identify untraced shareholders, and provided that information to sub-contractor ‘researchers’ to trace those shareholders and sell the information to them for profit. The company itself had already engaged an agency to identify and track down untraced shareholders.

The company applied to the court for permission to deny access to the register on grounds it was not clear who would have access to the shareholders’ personal information and how it would be kept confidential. There was also no apparent protection for shareholders from fraudsters or other wrongdoers.

The individual making the request argued that the purpose he had put forward could not be improper as it was something the company itself had commissioned an agency to do.

The Institute of Chartered Secretaries and Administrators’ guidance on the Companies Act rules on inspecting the register of shareholders (ICSA Guidance on Access to the Register of Members: Proper Purpose Test), says a request for access to the register of shareholders is not a proper purpose if made by an agency ‘specialising in identifying and recovering unclaimed assets for their own commercial gain by then contracting and extracting commission or fees from the beneficiaries’ - unless the company is satisfied ‘that such activity is in the interests of shareholders’.

The court ruled that the purpose given in the request was not proper because it was not in the interests of the shareholders. It gave the following reasons:

  • It could be confusing if an untraced shareholder was contacted by two different agencies.
  • Each of the agencies operated on different terms and conditions, with one being less beneficial to the shareholder.
  • The individual making the request was not based in the UK and his practice as a tracing agent was in doubt or unknown.
  • No information was provided about his and Interum’s sub-contractor researchers.

Operative date

  • Now

Recommendations

  • Companies should take advice if they receive a request to inspect, or for copies of, their registers and the purpose is to identify and track down untraced shareholders.
  • If a company has engaged its own tracing agency it may be able to refuse the request for information for these purposes from a second agency.
  • Download the ICSA guidance from the ICSA website

Case ref: Burberry Group PLC v. Richard Charles Fox-Davies [2015] EWHC 222

Case law: Local businesses fined £775k for agreement to restrict advertising

Businesses colluding to restrict competition in any way such as by agreeing not to advertise their prices or discounts, could be breaching competition law and risk heavy fines.

Members of a local association of estate agents and the local newspaper colluded so that the paper would not advertise fees and discounts offered by members of the association. The collusion was later extended to stop any local estate agents from advertising their fees and discounts, even if not a member of the association.

The Competition and Markets Authority (CMA) investigated and found the collusion broke competition law because it reduced competitive pressure on estate and letting agents' fees in the local area and made it harder for new entrants to the market to break into it by advertising lower fees. This was despite the fact the collusion did not involve any agreement on the prices and discounts themselves.

The association, three of its members and the local paper were fined a collective £775k, which included a 10 per cent discount for co-operating with the CMA.

Operative date

  • Now

Recommendation

  • Businesses and associations colluding to restrict competition in any way, even on a small or local scale, should ensure they are not breaching competition law, otherwise they risk heavy fines.

Case ref: See the case page on gov.uk.

 

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