Ashfords Solicitors - Employment Law Update

Employment Update - November 2006 Edition

HMRC are introducing changes to the way subcontractors are taxed under the CIS. The current system relies on paper vouchers, exchanged between contractor and subcontractor, to evidence payment for work. The reformed scheme will dispense with cards certificates and vouchers moving towards an electronic service.

The date of implementation has been deferred several times, however, a firm date for implementation of the reformed scheme is now set for April 2007.

HMRC summarise the reformed scheme as follows:

Registration Process: Subcontractors will continue to register with the Inland Revenue but, in addition to calling into a local office, they will be able to do this electronically or by phone. They will be informed whether they should receive payments gross or net. They will not be issued with a card or certificate.

Verification Process: On engaging a subcontractor who has not worked for them for a set period of time, the contractor will no longer have a card or certificate to look at. Instead they must contact HMRC to (a) confirm that the contract is one of self-employment, and (b) to ascertain whether the subcontractor should be paid net or gross.

Payment by Contractor to Subcontractor: The contractor will make payment to the subcontractor – in accordance with the net or gross instructions given by HMRC.

Recording and Reporting Payments: The contractor will submit a monthly return to HMRC showing, for all subcontractors to whom payments have been made, the amount paid and, in net cases, the amount of materials and deductions.

Justification of pay using length of service

In Cadman v Health and Safety Executive, the European Court of Justice (ECJ) has held that it is not necessary for an employer to objectively justify unequal pay based on length of service.

Mrs Cadman worked for the HSE. She was paid less than four male colleagues who had longer service than she did. She brought a claim for equal pay under the Equal Pay Act 1970 on the grounds that the use of length of service resulted in indirect discrimination. Mrs Cadman won her appeal at the Employment Tribunal, however, she lost when the HSE appealed to the EAT. She continued with an appeal to the Court of Appeal who referred a question to the ECJ. The question was whether it is necessary for an employer to demonstrate that pay based on length of service is justified in individual circumstances?

The ECJ held that it is not necessary for an employer to objectively justify unequal pay based on length of service. However, an employer will have to objectively justify the use of length of service criteria if an employee can raise "serious doubts" about whether the use of length of service criteria are appropriate to reach an objective of rewarding experience.

This raises questions as to what "serious doubts" are. There is no guidance in the EC legislation to clarify this. The case has shifted the burden of proof to the employee, how onerous this burden of proof will be is, again, uncertain. It may be that, in raising serious doubts about the whether the use of length of service is appropriate to reward experience, the employee will have to raise doubts about a longer serving colleague's capability. It will be for the tribunals to interpret and give guidance on this.

The case did not comment on the appropriateness of using length of service to reward loyalty or motivation.

Age Discrimination Claims – ACAS Conciliation Period

The Employment Tribunal Service may be forced to appoint a fixed period (13 weeks) of conciliation to age discrimination claims. This is a result of an oversight in the Government's drafting of the Age Regulations, which the Government aims to remedy soon. Until a remedy is in place, ACAS intends to exercise its power to conciliate in all age discrimination claims which are not resolved within the 13 week fixed period.

Local Government Pension Scheme – the 85 year rule

Unison have failed in their application to the High Court to seek judicial review of the Government's decision to remove the 85 year rule. The 85 year rule allowed members of the LGPS to draw an unreduced pension at retirement if their age plus their years of pensionable service exceeded 85 years. Unison through that the Government was wrong in deciding that the 85 year rule could not be objectively justified in the light of the new Age Regulations.

This is the first case resulting from the new Age Regulations. The Government's decision to remove the 85 year rule was for two reasons; firstly, the 85 year rule offended the age discrimination provisions of the Directive; and secondly, the cost of continuing to provide this benefit for the future was prohibitive.

Age Regulations – Pensions Amending Regulations Published

The Department for Work and Pensions (DWP) has published the final version of the Regulations covering rules and practices in occupational pension schemes that are exempt from the impact of the Age Regulations. The Employment Equality (Age) (Amendment No.2) Regulations 2006, come into force on 01 December 2006.

These Regulations amend and clarify the sections of the Employment Equality (Age) Regulations that relate to trustees and managers of pension schemes

Secret recording of a disciplinary hearing is found to be admissible

In Chairman and Governors of Amwell View School v Dogherty, the Employment Appeal Tribunal (EAT) found that a secret recording of a disciplinary hearing made by the claimant employee was admissible as evidence in Tribunal proceedings. However, the EAT found that recordings of the employer's disciplinary panel's private discussions could not be used on the grounds of public policy.

Bullying in the workplace

Amicus and the Department for Trade and Industry have published their research into bullying in the workplace. The research, gives a view of good practice when dealing with bullying and harassment in the workplace. It made the following recommendations:

The adoption of a zero-tolerance approach to bullying – only 2% of employers surveyed took a zero-tolerance approach.
Encouraging consultations with employees on early intervention strategies in partnership with unions.
Recognition that bullying is an organisational issue rather than simply a problem between individuals
Training for all managers in mediation and conflict resolution skills
Appointing an anti-bullying champion at a senior management level of the organisation.

New Duties for Directors

The Company Law Reform Bill received Royal Assent on 08 November 2006. While the Bill will introduce wide ranging reform, one welcome clarification is that of a director's duties. A statutory statement of seven general director's duties will replace the duties we find in common law rules and equitable principles that have been built up over the years by case law. This statement, is designed to make it easier for directors to understand their responsibility rather than having to interpret rules set out in statute and, often, overlapped in the common law.

The seven duties are:

The duty to act within the company's powers
The duty to promote the success of the company
The duty to exercise independent judgment
The duty to exercise reasonable care, skill and diligence
The duty to avoid conflicts of interest
The duty not to accept benefits from third parties
The duty to declare interest in proposed transaction of arrangement with the company.

Sections 155 to 161 of the Company Reform Bill list the new duties. A more detailed explanation is:

1. Duty to act within the company's powers

This codifies the current common law position that directors should exercise their powers in accordance with the terms on which they were granted and for a proper purpose. Proper purpose is to be judged in the specific context under consideration.

2. Duty to promote the success of the company

This places a new duty on the director, and in fulfilling this duty he must have regard to a non-exhaustive list of factors.

A director must act in the way he considers in good faith, would be more likely to promote the success of the Company for the benefits of its members as a whole. A director must have regards to:

The likely consequences of any decision in the long term;
The interests of the company's employees; and
The need to foster the company's business relationships with suppliers customers and others; and
The impact of the company's operations on the community and the environment; and
The desirability of the company maintaining a reputation for high standards of business conduct; and
The need to act fairly as between members of the Company

It is not clear how directors are expected to balance the different factors they are required to consider. It is unknown what is meant by "promoting the success of the company".

3. Duty to exercise independent judgment

This duty mirrors the current law, which prohibits directors from fettering their future discretion.

4. Duty to exercise reasonable care, skill and diligence

This duty is subject to a dual test which will vary according to the functions of the particular director, including his specific responsibilities and the circumstances of the company, such as its size and business. In effect, the test will ensure that those directors with more experience, including non-executive directors, will be subject to a higher test by virtue of their particular knowledge, skill and experience.

5. Duty to avoid conflicts of interest

This duty covers all conflicts, actual or potential, between the interests of the director and the interests of the company. The new clause permits a company's rights to be waived by the prior consent of the board, provided in the case of a public company that such board approval is permitted by its constitution.

6. Duty not to accept benefits from third parties

This duty will catch non-financial benefits (for example, the appointment of a director to an honorary or non-remunerative position) as well as items with a monetary value. However, it will not prohibit directors from accepting a benefit from a third party as a result of their directorship if its acceptance cannot reasonably be regarded as likely to give rise to a conflict of interest. It may be advisable to explain in board minutes why benefits proposed to be accepted by a director are not reasonably regarded as likely to give rise to a conflict.

7. Duty to declare interest in proposed transaction or arrangement with the company

The new duty goes much further than the current statutory duty in requiring directors to disclose matters of which they should reasonably be aware and to update a declaration which proves to be or becomes inaccurate or incomplete.

To whom will the general duties apply?

The general duties will apply to directors, shadow directors and, in certain cases, to former directors. The duties are the same whether the directors are executive or non-executive directors, although the test of reasonable skill, care and diligence will in practice impose a higher standard on executive directors.

To whom will the duties be owed?

The Bill states that the statutory duties will be owed to the company and it follows that, as now, only the company will be able to enforce them.

Conclusion

On balance, the new statutory statement serves a useful function in setting out in one place the general duties to which directors are subject. It will be especially useful for new directors and those from overseas. The usefulness of codification has to be weighed against the loss of certainty that comes from replacing established case law, at least in the short term. It will take some time before it becomes clear what all of the new duties will mean for directors in practice .

Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.

1st November 2007

Employment Law Update - November 2006

Introduction

Key Contacts

Employment Law Update - November 2006

Introduction