Legal updates

Employment:  The Equality Act 2010: its new obligations on business - Be prepared when its provisions take effect in October 2010

On 8 April 2010, the Equality Act 2010 was enacted after the Equality Bill received its Royal Assent.  The bulk of the provisions of the new Act will take effect in October 2010.

This is a significant piece of legislation in employment law.  It consolidates and recapitulates the existing Discrimination Acts on sex, race, disability, sexual orientation, religion or belief and age, and in doing so endeavours to take a single approach wherever possible.

The Act also notably introduces several important changes in employment legislation:

• The definition of discrimination 
  - it alters the concept of disability-related discrimination to essentially reverse the House of Lord’s decision in London Borough of Lewisham v Malcolm [2008] IRLR 700.  The decision had severely restricted the effectiveness of the Disability Discrimination Act’s disability-related discrimination provisions and
  - it prohibits employers making pre-employment health enquiries, unless they are for certain reasons (as defined in the Act).
• Equal pay and contract terms
  - it introduces specific provisions concerning indirect discrimination in equal pay cases;
  - it allows for direct sex discrimination claims in respect of pay being made on the basis of hypothetical comparators and
  - it introduces a requirement for large employers to report on their gender pay gap.
• Public sector
  - it substitutes the public sector race, gender and disability equality duties with a combined duty that incorporates all strands and is based on the current ‘due regard’ principle.

The enforcement of the new Act’s provisions has been further empowered by the new ability for employment tribunals to make recommendations that benefit the greater workforce and not just the claimant.

In enacting the new legislation, the Government failed to include various proposals that had been recommended in the Discrimination Law Review, including:
- the removal of the necessity for a comparator in direct discrimination claims;
- the specific prohibition on discrimination against parents and carers;
- banning discrimination on grounds of genetic predisposition and
- the introduction of equality as a constitutional right.

Contact James Simpson, employment team, for advice concerning the impact of the Equality Act 2010 on your business and for other employment advice on 01865 781193.  

Commercial Property: Some issues arising on short term business lets

It is quite common in practice for Landlords to generate income by letting property on a short term basis.  Two issues to be considered are:-

• Dilapidations.
  
  If the Landlord is pursuing a dilapidations claim against a former tenant, the granting of the new tenancy could give rise to an argument that a dilapidations claim should fail as the Landlord himself suffered no loss through not being able to re-let at a market rent.  Whilst that argument may be rebuttable, it is an issue that the Landlord might have to deal with.
• Exclusion of the Landlord & Tenant Act 1954 (“the Act”)
  
  A short term let may be outside the protection offered by the Act although it needs to be recognised by the Landlord that this is not always the case e.g. if the Tenant is permitted to remain after the end of his tenancy or if the Tenant has previously been in occupation.  It is important to make sure that there is not an unintended granting of the tenancy that has the protection of the Act – the safest solution is always to contract the tenancy out - which is a straightforward procedure.  

The following points should be taken into account on short term lets:

• It is probably better not to permit alterations, but if they are allowed, the Tenant should be obliged to reinstate and this obligation should be secured by deposit.
• Rent payable at no longer intervals than a month and again secured by a deposit.

Interestingly there has been a recent Court of Appeal case (Arben Katana and another v Catalyst Communities Housing Limited [2010] EWCA 370) on short term lets.  A three month fixed term tenancy had expired.    The tenancy agreement acknowledged that the tenancy would terminate at the end of the term but then provided that, if the tenant were to hold over at the end of the term, the tenancy would be terminable by either party giving not less than one week’s notice.  The tenant had granted subleases of part of the property to two separate subtenants in breach of an absolute prohibition against underletting.  When the landlord sought to regain possession of the sublet premises, the subtenants argued that they had a periodic tenancy but it was held that the tenant who had remained in occupation was a tenant at will.  Despite this decision landlords should approach tenancies at will with caution.

For general advice on property matters contact Lesley Pollock in the commercial property team 01865 781159.  

Dispute Resolution: Beware of force majeure  

Following the recent volcanic disruption, parties to commercial contracts may wish to rely on the relevant “force majeure” or “Act of God” clauses in their contracts.  

A force majeure clause aims to provide protection where a party is unable to carry out their side of a contract (e.g. for the supply or purchase of goods or services) due to natural or civil disasters (such as rioting, terrorism or extreme weather!). However the effect of any force majeure clause, and the rights and responsibilities of the parties will depend on the drafting of the clause.  

Some force majeure clauses merely suspend a party’s obligations whilst the force majeure event continues. This can create uncertainty and may be unsatisfactory where it is not commercially feasible for performance of the contract to resume, whether on the previous terms or on different ones.  

If a party wishes to terminate the contract during the force majeure event, the contract may require notice to be served on the other parties. Alternatively the contract may automatically provide for the contract to terminate by the mere existence of a force majeure event. Clearly the consequences of this can be significant.  

Where there is a possibility of a party relying on a force majeure clause in a contract, legal advice should be obtained so that the parties are aware of their on-going responsibilities (if any), or whether a party can still enforce the contract (even if at a later date).  

Legal advice should also be sought when negotiating or drafting commercial agreements to ensure that the effect and scope of any proposed force majeure clauses are understood, and all parties understand the consequences and appreciate in advance the extent to which they can rely on such clauses in the event that the unexpected happens. Parties may need to consider (amongst other things): whether the contract remains; how to deal with any payments made or now due; goods or services already provided; and questions of compensation.  

For advice on property disputes, contact Katherine Gregory in the dispute resolution team 01865 781 056.  

IP:  First UK prosecution for online-auction fixing illustrates the obligations on traders - don’t get your fingers burned!

All you ardent Ebay traders and purchasers may be interested that this month saw, reportedly, the first prosecution in the UK for online-auction fixing.  The trader, a Mr Paul Barratt, admitted to having placed goods for sale on Ebay, before bidding for the goods under another name to push up the price; he also conceded to having provided positive feedback on his own Ebay site under another’s guise to enhance his apparent ‘reputation’ on the site. 

Mr Barratt was prosecuted under the Consumer Protection from Unfair Trading Regulations 2008 and the Business Protection from Misleading Marketing Regulations 2008 (the Regulations), having admitted to ten offences in breach of these statutory Regulations.  The Regulations are intended to protect consumers and traders from unscrupulous business practices.  They place a general prohibition on businesses (including on-line traders) treating consumers or other businesses unfairly by misleading them through their acts or omissions.  Breach of the Regulations can be punished by a fine of up to £5,000.

A trader is expected to exercise professional diligence towards consumers and to behave consistently with honest market practice or the general principle of good faith in the particular field of activity. Commercial practice is judged in relation to the standards of ‘the average consumer’.

This case serves as a reminder to all internet traders to maintain high standards of business practice.  Not only is such a flagrant abuse as disguising one’s identity a clear breach of the Regulations but anything that is not done ‘in good faith’ in the eyes of the average consumer may also fall foul of the law.

For advice concerning your business’s obligations under the Regulations, and other IP-related matters, contact Stephen Brett, corporate/IP team on 01865 781208.  

Commercial: A cautionary tale: be warned, exaggerated claims in a tender process could cost your business dearly!

The High Court ruling in the case of (1) BSkyB Ltd (2) Sky Subscribers Services Ltd v (1) HP Enterprise Services Uk Ltd (formerly Electronic Data Systems Ltd) (2) Electronic Data Systems LLC (formerly Electronic Data Systems Corporation) (2010) [2010] EWHC 86 TCC illustrates that if employees make claims during a tender process that they know they cannot meet, they expose their business to significant risk.

The IT contractor EDS entered and won a competitive bidding process to provide the satellite broadcaster, BSkyB, with a new customer-relationship-management system.  It hit problems and ran over budget – costing BSkyB £265m against a tender quote of £47.6m.  BSkyB sued for damages of £709m claiming that EDS had made “deceitful” misrepresentations in the pre-contract tender process and that the EDS representatives knew or were reckless as to their truth.

EDS relied on the “entire agreement” clause in the contract.  It stated that the contract was to “represent the entire understanding and constitute the whole agreement between the parties … and supersede any previous discussions, correspondence, representations or agreement between the parties …”.  So, BSkyB should not be able to sue on the basis of claims made in the pre-contractual tender process as they were not recorded in the terms of the contract.  The Court rejected this argument and found against EDS, largely because the claims that the EDS staff made were in some cases fraudulent.  This is a startling example of the risks of making exaggerated claims when tendering for work. And the lesson:

Make sure your staff do not make exaggerated claims about your business’s capabilities at any time during negotiations, including during the pre-contractual tender period.  You will be held to account if your staff make claims that they know or believe to be untrue or make promises that they know or believe that your business cannot meet.

To minimise the chances of dispute, keep a careful record of the promises and claims that you and your employees make. 

Make sure that your staff clearly understand the implications of making exaggerated claims, even (or perhaps especially) in these competitive times.

For commercial queries, contact Rachel McCullough, corporate team – 01865 781202  

Corporate: "Flowering shares" 

This refers to shares in any company - not just in plant-breeding technology!  Whichever party(ies) form a Government after the election, it is likely that a consultation on employee securities and geared growth ("growth shares" or "flowering shares"), announced in the recent Budget, will proceed.       

HMRC would like to find a way of taxing arrangements which use special share rights for employee motivation and retention schemes.  A share issued to an employee at less than market value normally results in an income tax charge for the employee on the difference between price paid and market value.  Traditionally, if the rights attached to the share resulted in the market value at date of issue being low - no more than the price paid by the employee - and then grew over time once the shares were in the hands of the employee, the growth could be said to be subject to capital gains tax on the eventual sale of the share rather than income tax on its issue.   

In an earlier Bulletin, we emphasised the need to make sure that special share rights are in the Articles of Association - not in an employment contract or shareholder agreement (the Grays Timber case).  Given the announcement in the Budget it seems that even this cannot be relied upon to save growth share schemes from income tax.   

HMRC has a number of different weapons in its armoury - legislation covering convertible shares, restricted securities, rules on share options, etc.  There are ways through these, but they will depend upon solutions tailored to specific circumstances rather than off-the-shelf schemes.  Recently, for example, we were involved with a reverse ratchet scheme.  The key employee in that case was also a founder who had built up a substantial loan account in the company's early days.  In a later funding round the usual argument arose between external equity investors and the key employee.  The investors wanted to dilute him to 40%, but were willing to see his holding rise to over 50% if performance over then next five years were to hit targets.  If we had issued shares of zero value now, which would grow to over 10% of the company value over a period of years, that would have put him directly in the zone being targeted by the HMRC consultation.  So the answer was to capitalise some of the loan account to put him at his required percentage of >50%, but to provide for these shares to have a value on exit which would reduce (back down to 40%) by a formula depending on the total exit price - the lower the price the greater the reduction in the value of the special shares.   

For advice on how to find a solution tailored to the specific needs of your business, or for general corporate advice, contact Malcolm Sadler, partner in the corporate team, on 01865  7811201.

Forthcoming Henmans events

• Thursday 6 May: An employment seminar is being held on an Update of family friendly provisions. This will be held at 1pm at our offices, with a light lunch beforehand at 12.30. To register your attendance, please contact seminars@henmansllp.co.uk.
• Wednesday 12 May: A further employment seminar will take place on Agency Workers Regulations.  This will, again, be held at 1pm at our offices, with a light lunch beforehand at 12.30. To register your attendance, please contact seminars@henmansllp.co.uk.
• Thursday 20 May: A property seminar will take place at our offices, to be held at 1pm with a light lunch at 12.30. The seminar will focus on recent case law that is of particular interest to landlords and tenants. To register your attendance, please contact seminars@henmansllp.co.uk.

Other forthcoming events

Thursday 13 May: Henmans is hosting a talk by Deborah Strazza, Managing Director of John Lewis in High Wycombe, for Women in Property. The event commences at 4pm for a 4.30pm start and the cost is £10 for Women in Property members, non-members £20, to include refreshments. Please download the application form from www.wipnet.org or contact micheline.peter@aksward.com (01865 240071)

The past month at Henmans

• We held an employment seminar on 1 April, giving an update on recent legislation and case law.
• On 15 April we held a corporate seminar on ‘Ten things you need to know about exploiting your intellectual assets’