Commercial solicitors Leeds

Autumn 2013

New Employee Share Rights

On 1 September 2013, the employee shareholder employment status was introduced. Existing employees and new recruits may acquire at least £2,000 worth of shares fully paid in their employer, or a parent company of their employer. In return, the employee gives up certain employment rights, including the right to claim unfair dismissal and the right to a statutory redundancy payment.

BIS has since published guidance for employers and employees on the new employee shareholder employment status. The guidance states that the requirement to issue the shares fully paid will generally mean that companies will need to issue shares by way of capitalisation of distributable profits. This may affect the level of interest in the new employee shareholder arrangements. From a legal perspective:

  • A company will only be able to allot and issue fully paid shares from distributable reserves to the extent that there are adequate sums standing to those profits or reserves at the relevant time.
  • It will be necessary to check that the company's articles of association permit the appropriation of capitalised sums to non-members. Article 36 of the private company model articles only permits such an issue to existing members.
  • To the extent any given company is permitted to issue fully paid up shares to non-members, the value of shares held by existing members is likely to be diluted by a bonus issue to incoming employees.
  • Employee shareholders will have some different rights, must be given written particulars containing certain prescribed terms and must receive independent advice.

Provided conditions are met, the grant of up to £2,000 worth of shares will not generally give rise to liability for income tax or national insurance contributions and there is a capital gains tax exemption on the disposal of the shares provided they were worth no more than £50,000 on acquisition. However there will be a valuation exercise to carry out on both acquisition and disposal which could give rise to further tax charges.

New OFT Unfair Terms Hub

The OFT has launched an Unfair Terms Hub to provide information to businesses in relation to the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). The hub has three levels of information: quick (ready to use materials for a quick understanding of the UTCCRs); detailed (materials explaining specific areas of the UTCCRs and practical tips); and guidance (OFT's existing unfair terms guidance and examples). The URL is http://www.oft.gov.uk/business-advice/unfairterms

Use of "Subject to Contract"

The High Court has held that a letter from an employer's solicitors to an employee's solicitor's setting out the terms of a proposed settlement sum, and a subsequent letter of acceptance from the employee's solicitors, constituted a binding agreement settling the claim and counterclaim. Although the letter on behalf of the employer stipulated that the settlement was be "recorded in a suitably worded agreement", the High Court considered that this was not a reference to terms that were yet to be negotiated and agreed, but simply an indication that any settlement reached would subsequently be "committed to writing as an authentic record". Once the employee had accepted the terms in the letter, the employer was therefore not in a position to negotiate further terms as to confidentiality or the tax position. The letter should have included the words "subject to contract" if the employer intended further negotiations to follow before a binding settlement was reached. (Newbury v Sun Microsystems [2013] EWHC 2180 (QB).)

Break Clauses in Leases

The High Court has found that a notice was effective to trigger a break clause in a lease, even though the notice failed to include certain wording specified in the lease. This decision may provide some assistance to anyone who has served a notice that failed to comply with a contractual or statutory requirement where the error had no real effect on the other party. (Siemens Hearing Instruments Ltd v Friends Life Ltd [2013] EWHC (ChD) It may be reassuring to anyone serving a notice that a court may be willing to uphold the notice's validity, even if it does not comply with every requirement set out in the governing document. It is, however, unwise to rely upon a favourable court decision and much better to consider the terms of any break clause (or other provision in a formal document that sets out notice requirements) and ensure that these provisions make sense. It is important to note that this decision does not allow someone who serves a notice to be casual about its content. There is no guarantee that a court will find in favour of the person serving the notice. If the statute or document states that a notice will only be valid if it complies with certain requirements, there may be no room to argue that the notice was still effective in spite of the failure to comply with those requirements.

Draft Consumer Rights Bill

On 12 June 2013, the long-awaited Draft Consumer Rights Bill was finally published for scrutiny by the public and Parliamentary committees. The Bill covers:

  • Rights and remedies for supplies of goods, services and digital content.
  • Unfair terms in consumer contracts and consumer notices.
  • Consolidation and reform of consumer law enforcement powers.
  • The introduction of additional civil remedies imposed by public enforcers.
  • Consumer collective actions for anti-competitive behaviour.

"If you want good laws, burn those you have and make new ones. "

Voltaire