Legal alert

legal alertSeptember 2014

A monthly checklist of new and pending laws, regulations, codes of practice and rulings that could have an impact on your business

This month: 


New rules: employers can expect requests for new shared parental leave from December 

Applications for shared parental leave will start during December 2014 and employers are advised to start planning now for the new rules. 

New mothers can currently take up to 52 weeks' maternity leave in total, including 26 weeks' Additional Maternity Leave, but fathers are only entitled to 1 or 2 weeks' ordinary leave and to take up to 26 weeks of additional leave only if the mother has returned to work and other criteria satisfied. 

The Government's proposed new rules will allow a mother and father to divide up to 50 weeks' shared parental leave between them, and 37 weeks' pay. 

The timings mean parents could qualify for shared parental leave from December 2014 if their child is due on 5 April 2015 but born prematurely. The provisions include allowing employers to require employees to take leave in a single continuous block. 

Employers can prepare by creating shared parental leave policies, including: 

  • provisions for enhanced pay and return to work bonuses;
  • systems to stop abuse, such as asking for evidence of eligibility and checking leave taken, and the disciplinary consequences if there is abuse;
  • handling requests for discontinuous leave fairly, to avoid discrimination claims.

 Operative date

  • 1 December 2014

 

New rules: retailers prepare for new consumer rights for misleading or aggressive sales practices 

Retailers should consider reviewing their sales and advertising practices and procedures and retraining staff in advance of new rules in October. 

The Consumer Protection (Amendment) Regulations 2014 will give consumers who are victims of misleading or aggressive sales practices the right to unwind sales contracts and claim refunds, discounts and compensation far more easily than before. 

From 1 October 2014, consumers will have a statutory right to unwind the contract within 90 days and claim a refund (unless the product has already been wholly or partly consumed or the service has been performed), or claim a discount. For a refund, consumers must clearly reject the product bought and any refund is calculated to that point. 

If the consumer claims a discount this is calculated by reference to the seriousness of the retailer's practices, starting with a 25 per cent discount for minor practices and rising to a 100 per cent discount for serious practices. 

Consumers can also claim compensation for additional financial loss, alarm, distress, physical inconvenience or discomfort arising from the retailer's practice. If consumers are not satisfied with their statutory rights – for example, with the level of discount proposed - they still have the right to bring a separate civil action for misrepresentation. 

Operative date

  • 1 October 2014

Case law: judicial guidance on 'de facto' directors' liabilities 

Limited companies will welcome detailed guidance from the Court of Appeal on how to spot whether they have 'de facto' directors. 

De facto directors are those not formally appointed as directors, but who will be treated by a court as having fiduciary and other duties to the company as if they had, because they have acted like a full director. 

In this case, a subsidiary company unsuccessfully claimed that a director of its former holding company had been either a shadow or de facto director of it, and his conduct as such meant he was in breach of his duties as a director of the subsidiary. 

The Court said there was no one definitive test to determine whether someone is a de facto director; it was a matter of fact and degree. The question is whether they were part of the corporate governance system of the company and whether they assumed the status and function of a director so as to make themselves responsible as though they were a director. 

The Court referred to a number of principles that arose from early authorities, including: 

  • The concepts of shadow director and de facto are different but there is some overlap.
  • The court is required to look at what the director actually did, and not any job title actually given to him.
  • A defendant cannot avoid liability simply by showing that he, in good faith, did not think he was acting as a director. The question whether or not he acted as a director is to be determined objectively and irrespective of the defendant's motivation or belief.
  • The court must look at the cumulative effect of the activities relied on, and the acts in their context. The court should look at all the circumstances 'in the round'.

Each company in a group of companies should consider its corporate governance system and whether individuals – particularly directors of their holding company or companies - are part of that system. If so, they should check whether those individuals may be de facto directors of the company. 

Operative date

  • Now

Case law: court would not rewrite clear contract clauses in employer's favour 

Non-compete clauses and other restrictions in contracts of employment should be reviewed by employers to make sure they work as intended and are unambiguous, following a recent ruling. 

An employer failed to persuade the Court of Appeal to rewrite a non-compete clause that inadvertently allowed a sales manager to work for a competitor, because the apparent, ordinary meaning of the words was unambiguous and clear. 

A sales manager in a computer company left to work for a competitor. The company applied for an injunction to prevent him from doing so on the basis that he was in breach of a one-year non-compete clause in his employment contract. 

The manager pointed out that the wording at the end of the clause clearly stated that he was only prevented from working for competitors if his new job involved selling the same product he had been selling for his old employer. However, the software he had been selling for his old employer was unique and no competitor sold it, so if he was right the non-compete clause was meaningless. 

The Court of Appeal held that a literal interpretation of the non-compete clause imposed "no material restraint" on the manager. However, the courts could only rewrite a clause to give it commercial sense if it was ambiguous in the first place – otherwise there was "no basis upon which [a court] was entitled to re-cast the parties' bargain". 

As this clause was not ambiguous it could not be rewritten by the court to give it a wider effect than its apparent ordinary meaning - the employee was free to work for the competitor. 

Operative date

  • Now

Case law: employees on call but required to be near work are entitled to rest periods 

Employees required to stay within a particular area while on call were entitled to rest periods under the Working Time Regulations, the Employment Appeal Tribunal has ruled. Employers must provide workers with rest periods unless they can actually show they are getting the quality of rest intended under the Regulations. 

Ambulance crew on call during night shifts had to find accommodation within three miles of their base station so they could meet call-out targets of three minutes. This meant they could not be at home. They claimed their time on call was therefore working time under the Regulations and they were entitled to rest periods. 

The EAT ruled that it was working time because the crew's time was clearly not their own while they were on duty. They were required to be within an area chosen by their employer – for example, they could not choose to be at home – and could not therefore enjoy the rest the Regulations were designed to provide. 

Operative date

  • Now

 

Case law: employer can stop pay if employee walks out, and still enforce contractual restrictions 

Where an employee walks out without giving notice, the employer may lawfully stop the employee's pay without being treated as accepting the employee's breach of contract. This means they may still be able enforce non-compete and other restrictions in the employee's contract of employment. 

In a recent case, an employee on a fixed-term contract to September 2014 walked out in March 2014 to work for a competitor without giving the six months' notice required under his contract. The employer applied for a declaration that he was still an employee and should not work for anyone else during his notice period without its consent; and an order that he comply with non-compete clauses in his contract of employment. In the meantime, it refused to pay him on grounds he was no longer ready and willing to work. 

The employee claimed that stopping his pay meant the employer had accepted his breach of his employment contract. He said that if it paid him it meant his employment contract was still alive and the employer could enforce its rights under it. But if it did not, he was no longer an employee and he could work for whomever he liked, whenever he liked. 

The High Court ruled that the employer was entitled to keep the employment contract alive even though it had stopped his pay. The employee's entitlement to pay was conditional on his being ready to work. If he stopped working his employer could stop his pay but that did not mean it was consenting to his breach of his employment contract. The obligation to pay was merely suspended until he started work again. 

An order preventing the employee doing any work at all during his notice period without consent was not appropriate, but the Court made an order stopping him working for competitors for ten months from when he left. This meant he would be without pay from March 2014 until January 2015. 

Operative date

  • Now

Case law: court finds reasons for refusing to mediate were all unreasonable 

Parties to disputes should think carefully before refusing to take part in mediation. In a recent case, a party to legal proceedings put forward multiple reasons for refusing mediation, but the court rejected all of them as unreasonable.

An agreement required a company to allot shares, and a dispute arose as to whether the agreement was binding. The claimant wanted to try alternative dispute resolution such as mediation, but the other side did not, arguing they were 'too far apart' from each other. Their solicitors said they and their clients knew of the possible costs consequences of unreasonably refusing to try mediation, but were 'extremely confident' of their case; and their rejection of mediation was therefore reasonable. 

Throughout various proceedings, offers and counter-offers the claimant continued to press for mediation and the other side continued to refuse it. 

Eventually, the claim was settled on the basis of an early offer made by the claimant, which the other side had initially refused. The claimant argued that the other side should pay its legal costs on an indemnity basis because they had refused to engage in mediation. Awarding indemnity costs means that if there is any doubt whether a claimant's costs are reasonable or reasonably incurred, the court gives the benefit of the doubt to the claimant.

The court said mediation was suitable for this sort of dispute and extreme confidence is not a good reason to refuse mediation: a party claiming its case is so strong that there was no conceivable point in trying mediation will usually be acting unreasonably. If a party is so confident of its position it should apply for summary judgment. 

The court also found that the other side was wrong in claiming there was too much dislike and mistrust between the parties for mediation to be worthwhile - a mediator's skills were most useful in situations of distrust and emotion.

Finally, it also found the argument that the parties were too far apart was not a good reason to refuse mediation – it's only through mediation that they know whether they are too far apart or not. The court ordered the other side to pay the claimant's costs on an indemnity basis up to the date it accepted the offer to settle. 

Operative date

  • Now

New guidance: Acas publishes new TUPE guidance for employers 

Acas has published new guidance for employers on handling transfers under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations 2006. 

The new guidance covers: 

  • when TUPE applies;
  • how to get the process right;
  • transfer of employee terms and conditions under TUPE;
  • TUPE and terminating employment;
  • the necessary requirements for information and consultation.

 The new guidance is free from the Acas website. 

Operative date

  • Now

 Recommendation


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Members seeking prompt advice on employment, company or commercial law can contact our legal helpline, Directors' Law Express, on 0870 241 3478, up to 25 times a year.


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