Summertime Blues

Summer holiday blues

Employers should note a recent decision regarding holiday pay. Employees who are paid wholly or partly by commission should receive holiday pay which reflects this.

In Lock v British Gas Trading Limited and others [2013]C – 539/12, the tribunal referred the case to the Court of Justice of the European Union (CJEU) to ask if the Working Time Directive requires commission to be included in holiday pay. The CJEU held that because commission was intrinsically linked to the performance of the tasks the employee was required to carry out under his contract of employment, it must be taken into account when calculating holiday pay. The CJEU left the method of calculation as a matter for the national courts to decide by taking into account the CJEU case law on paid leave, and the purpose of the Working Time Directive which is to encourage workers to take the paid leave they are entitled to.

Every worker is entitled to 4 weeks’ paid annual leave by virtue of Regulation 13 of the Working Time Regulations 1998 which implements the Working Time Directive 2003/88/EC. UK workers are entitled to a further 1.6 weeks under UK legislation.For each week of annual leave entitlement, an employee should receive the equivalent of a “week’s pay” in accordance with sections 221-224 of the Employment Rights Act 1996. A “week’s pay” is:

  • If an employee’s working hours do not vary, the pay due for the basic contracted hours.
  • For workers on normal working hours, getting fixed wages for working fixed hours,  the net fixed wage, including any fixed amounts normally paid on a regular basis (for example, bonuses or commission). Overtime is not counted except to the extent you are required to provide it in your contract with the employee, and they are required to work it.
  •  If a worker has no normal working hours, the average pay received over the preceding 12 weeks in which they were paid.
  • For shift workers, a week’s holiday pay equals the average number of hours worked in the previous 12 weeks at the average hourly rate.

However recent litigation has complicated matters.

In 2011, the European Court of Justice ruled that a worker on holiday is entitled not only to basic salary, but also to remuneration “intrinsically linked to the performance of the tasks which he is required to carry out under his contract of employment and in respect of which a monetary amount, included in the calculation of his total remuneration, is provided”. (Williams and others v British Airways plc [2011] IRLR 948)

In a recent case, Neal v Freightliner Ltd ET/1315342/12, Mr Neal’s contract provided for a 35-hour week made up of 7-hour shifts, and that he “may be required to work overtime when necessary”. He regularly worked longer shifts and received a premium overtime rate for the additional hours.  The employment tribunal found that the result of Williams is that a worker might be entitled, during the four weeks’ leave provided by the Directive, to receive holiday pay in excess of his basic salary.  Other components must be taken into account if they are intrinsically linked to performing tasks that the worker is required to carry out under the employment contract.

The employment judge in the Neal case went on to find that Mr Neal’s shift premiums and overtime were “intrinsically linked” to the performance of the tasks he was required to carry out under his contract and hence were part of the holiday pay calculation. The tasks Mr Neal was performing during overtime were the same tasks he was required to perform under his contract of employment. The fact that his overtime was voluntary was irrelevant.

This finding only applied to the 4 weeks minimum holiday required by the EU Directive.  It did not apply to the additional 1.6 weeks and so the holiday pay for the additional 1.6 weeks will still be governed by the existing rules.

Mr Neal’s case was only at employment tribunal level and is not therefore binding on other tribunals.  However, his employer has now submitted an appeal against the tribunal decision to the Employment Appeal Tribunal.

Relevance for Employers

Holiday pay is considered wages under the Working Time Regulations and the Employment Rights Act and failure to pay the correct amount of wages allows an employee to bring a claim of unlawful deduction of wages.

If the employment judge in the Neal case is right, which would appear to be the case given the recent finding of the CJEU in Lock, it could be that many employers have large historic liabilities for holiday pay, calculated without reference to overtime. Such claims can potentially go back some time on the basis of there having been a series of deductions.

Employers who pay overtime may want to think about making some contingency for holiday pay claims by your workers. One way to deal with this would be to negotiate with staff to agree the level of backdated holiday pay owed and then make that payment.

Employers could also start calculating holiday pay now to take account of overtime, commission etc.

Cheryl Hogg
Trainee Solicitor – Employment Law

LLP members CAN whistle whilst they work…

The Employment Rights Act 1996 (“the 1996 Act”) provides protection for those who blow the whistle in the workplace.  The protection makes it unlawful for those who make protected disclosures to be subjected to any detriment or dismissed on the ground that they made the disclosure.

Businessman blowing whistle

To qualify under the whistleblowing provisions the individual seeking protection must be a ‘worker’.  A worker is defined by the 1996 Act as an individual who has entered into or works under a contract of employment, or any other contract (whether express or implied) whereby the individual undertakes to do or perform personally any work or services for another party to the contract who is not a client or customer of any profession or business carried on by the individual.

The Supreme Court has recently ruled that a partner in a Limited Liability Partnership was a worker and accordingly enjoyed the protection of the whistleblowing legislation above.  In Clyde & Co LLP and another v Bates van Winkelhof, Ms Bates van Winkelhof was expelled from the London based partnership having blown the whistle on the managing partner of a Tanzanian law firm with whom her firm were doing business.  Ms Bates van Winkelhof alleged that the Tanzanian partner had admitted giving bribes both to obtain work and even to secure the outcome of cases.

After a three year legal battle over the issue of whether she was a worker, Ms Bates van Winkelhof’s case will now go to the employment tribunal for determination.

This decision is significant and will likely impact on how those working in heavily regulated professions respond to allegations of working malpractices.  In her leading judgment, Lady Hale stated:

That conclusion is to my mind entirely consistent with the underlying policy of those provisions, which some might think is particularly applicable to businesses and professions operating within the tightly regulated fields of financial and legal services.

Jack Boyle 
Senior Solicitor – Employment Law

Q: Who can blame you for resigning?

A: An Employment Tribunal

Contributory Fault in Claims of Constructive Dismissal

The concept of contributory fault is frequently used by employers to reduce compensation awarded to an employee at a tribunal.  Essentially, if an employer can demonstrate that an employee contributed towards his or her own dismissal as a result of their conduct, an employment tribunal is entitled to reduce the award of compensation which is due to that employee.  In some circumstances, if the employee can be held to have wholly contributed towards his or her own dismissal, a tribunal can reduce any award of compensation by 100%.

However what about claims of constructive dismissal?  In cases of constructive dismissal, the employee elects to resign from employment as a result of the employer’s material breach.  Can contributory fault be found in such cases?

In the recent case of Firth Accountants v Law, the EAT held that the answer is potentially yes.  In this case, Mrs Law worked in an accountants’ office.  Her employers had concerns about her performance.  Mrs Law appeared to agree that, whilst one mistake was an error, the rest of the issues which were raised with her were unjustified.  She apparently continued to make these mistakes.  However rather than then formally addressing these concerns with her directly, Mr Firth, the principal of the firm’s practice, addressed these concerns with Mrs Law’s son.  This led to Mrs Law’s resignation and subsequent successful claim of constructive dismissal at tribunal.

Firth Accountants appealed to the EAT on the basis that, since Mrs Law had refused to accept blame where it was justified, the tribunal erred in finding there should be no reduction on the basis of Mrs Law’s contributory fault.  Firth Accountants argued that there should have been a reduction in compensation given the fault which could be attributed to Mrs Law.

The EAT held that, since constructive dismissals claims are determined by applying the law of contract, it will be unusual for a constructive dismissal to have been caused by an employee.  Claims of constructive dismissal focus on the employer’s conduct rather than the employee’s contributory fault.  Having said that, the EAT accepted that, in some unusual cases, a reduction may be appropriate in these types of claim.

So, although it will be the exception rather than the rule, employers who are faced with a claim for constructive dismissal from an ex-employee may wish to examine the extent to which the employee can be held to have contributed towards their own dismissal.  This course of action may result in the employer being able to substantially restrict the value of the employee’s claim.

Simon Allison 
Partner – Employment Law

Digital Times They Are A Changin’ – Impending Changes to the Permitted Use of Copyright Works

Come 1 June 2014, you will finally be able to copy your CDs onto digital platforms such as iTunes without falling foul of copyright infringement.

The UK Government has finished considering whether to extend copyright exceptions. The aim of which is for the law to keep pace with the changes in technology to the public’s ever growing use of digital media. However, progress is being made at a fairly slow pace; progressive recommendations to keep up with the digital age were made three years ago in the Hargreaves Review. The report encouraged governments to adopt legislation which would allow private individuals to exploit every exception under EU law.

CD-ROM

There are a number of changes to the exceptions of copyright but those of most significance involve the following:-

Personal copies for private use

Private individuals will be able to make copies of media (such as CDs, eBooks or videos) in order to change its format (ie physical CD to mp3) or to act as a backup. Such copies cannot be used by anyone else. Businesses will be able to legally manufacture technology or create programs that allow individuals to make private copies. It is worth noting that copies cannot be made for direct or indirect commercial use; a business would not be able to make copies of protected works for their employees.

Parody

Unlike in previous legislation, individuals will be permitted to make use of copyright material for the purpose of parody. Such use will only fall under the exception if it is limited. For example, a few lines of a song in a comedy sketch would be deemed reasonable but the use of a whole song would not be.

Quotation

Individuals will be given greater freedom in using quotations that are taken from copyright works without permission. Again, as with parody, the use to be reasonable and proportionate so quoting a substantial part of, or whole book will not be justifiable. The use of quotation, in order to be a permitted act, must be accompanied by sufficient acknowledgement of the author – unless it is practically impossible to do so.

Research and private study

The copying of protected works for the purpose of private study is to be extended to include sound recordings, films and broadcasts – previous legislation only included the likes of literary works. Libraries and universities will also be able to provide on-site access to users for private study of recordings, broadcasts, literary works etc.

Further to the extended and additional copyright exceptions, legislation will provide rules to prevent copyright holders from being able to contract out of copyright exceptions. Such provisions will ensure the end-user’s rights, as licensee, are protected. However, these provisions will not prevent copyright holders from adopting DRM (Digital Rights Management) or TPMs (Technical Protection Measures) in order to protect their content from unauthorised copying, which will inadvertently create barriers to permitted copying. An individual will be able to raise their concerns over obstructive DRM/TPMs, preventing permitted acts, to the Secretary of State who will have the power to limit or override these restrictive measures in order to facilitate permitted copying.

The likelihood is that aspects of permitted use and the exceptions of copyright will develop over time and be shaped by case law. For the time-being, it would be wise to remain cautious and seek legal advice if in doubt regarding the new exceptions.

Ellis Walls
Trainee Solicitor – Corporate & Commercial

For Whose Benefit?

My colleague, Ellis Walls, recently reported on the expected changes to director disqualification law. In the same response paper, the government proposes to introduce so-called “registers of beneficial interests”. Mr Cable’s introduction to the paper notes that these registers are the proposed remedy to many commercial ills, including; a lack of trust in the system, incomplete transactions, averting money laundering, tax evasion and terrorist financing.

Under the new rules to be introduced, each company will be obliged to maintain a register noting the beneficial ownership of shareholdings which are registered in the name of a nominee. This information must also be provided to a central registry.

The government has reached the following conclusions on various aspects of the registers:

  • Information must be gathered in relation to those individuals who ultimately own or control more than 25% of a company’s shares or voting rights, or otherwise exercise control over a company or its management;
  • If a beneficial interest is held through a trust, the trustees or individuals controlling the trust should be recorded as the beneficial owner. It is not yet clear in what circumstances the beneficiary would be recorded as the controller of the trust.
  • Both companies and limit liability partnerships will be required to gather the required information and provide it to the central registry.
  • There will be limited exemptions from the requirement to prepare and disclose a register for those companies that are subject to equivalent disclosure requirements as a result of having securities listed on a regulated market.
  • Obligations are placed on the company to make relevant enquiries concerning significant shareholdings. Beneficial owners will also be subject to duties to disclose their interests to the company.
  • The company’s register of beneficial interests will include the full name, date of birth, nationality, state of residence, residential address of the beneficial owner and the date(s) on which the beneficial interest was acquired.
  • This register must be provided to Companies House and updated at least once a year. Some of this information will not be available on the public register in order to reduce the instances of fraud. The government has yet to make a decision on which of these items of protected information may be made available to UK and overseas authorities.

Given the primary aim of the proposed register being to improve transparency and accountability, the government may be disappointed in the outcome. Some respondents to the consultation paper noted that there were simple means to evade the reporting requirement, which stems from the government’s introduction of the 25% shareholding threshold.

In light of these obligations, (and the criminal law consequences suggested for breach) company directors will require to be extra vigilant concerning the reasons given for shares being held in a particular way. Directors should consider whether the reasons provided make the best commercial sense, and if not, why is the most logical structure not being used?

We await the final legislation and decisions on the outstanding points of the consultation process. It is also to be hoped that the government takes appropriate action to limit the administrative burden on companies which may result from this proposed change.

Kelly Craig
Solicitor – Business Services

Director Disqualification – A Government Proposal

A recent Government response to a consultation paper, involving the transparency of company ownership in the UK,touched upon extending the scope of directors’ disqualification legislation, currently contained in the Company Director Disqualification Act 1986 (CDDA). The response described the role of a director as crucial and acknowledged that it “warrants a robust system” for removing those deemed unfit to occupy such a position.

Under the CDDA, a director can be disqualified from holding that position within any company for up to 15 years and any breach will constitute a criminal offence. Schedule 1 of the CDDA currently sets out the issues which a court must consider before granting an order for disqualification. The Government has proposed to replace the schedule with a “broader and more generic” provision to have regard to. It was suggested that any amendment should include the following additional factors:-

  • material breaches of sectoral regulations (for example in the energy, media or public sectors);
  • the wider social impact of the failed company;
  • the nature of the creditors and the level of loss suffered by them; and
  • directors’ previous failures.

If the proposal is passed by parliament, either the courts or an insolvency service (on behalf of the Secretary of State) will have to take these factors into account when deciding whether to disqualify a director, and for determining for how long.

"You're off" - Costly punishments for misfiring Directors.
“You’re off” – Costly punishments for misfiring directors.

The Government’s proposals go further than widening the scope of points within the schedule. The government Insolvency Service (on behalf of the Secretary of State) will also be empowered to apply for a disqualification order in respect of a director on the basis that they have been convicted of a criminal offence in relation to the operation of a company or otherwise been guilty of director misconduct in respect of companies located outside the UK. There is to be further consultation as to whether there can be a restriction on people who are disqualified in a different jurisdiction from becoming directors in the UK.

As mentioned above, the planned amendments are to broaden the provisions in order to increase the reach of the director disqualification regime. The scope of the information that the Insolvency Service can gather during investigation of a director’s conduct will be widened and such information will become easier to share with other regulatory and enforcement bodies. Specifically, the aim is to enhance collaboration between the Insolvency Service, the Financial Conduct Authority and the Prudential Regulation Authority, allowing cohesive investigation, and ensuring compliance with company law is fully integrated across the UK economy.

In order to increase the chances of action being taken against a director, third parties will be sold or assigned the power to pursue the case against a director. The Secretary of State will also be given the power to apply for compensation orders against disqualified directors in order to compensate creditors for identifiable losses attributed to directors’ misconduct.

Finally, the time period for proceeding with a disqualification case following an insolvency event, under section 6 of the CDDA, is to be increased from 2 to 3 years.

Ellis Walls
Trainee Solicitor