Unmarried Couples and joint ownership: a cautionary tale

In May of this year the Court of Appeal handed down a decision in the case of Kernott and Jones. This is a cautionary tale, which all unmarried couples who are contemplating the purchase of residential property together as their home, and all solicitors who advise them, should study.

The two parties bought a property many in the early 1980s and joint owners in equal shares. The resided together for a few years but eventually the relationship broke down and Mr K left the property, whilst Ms J remained with the children of the relationship. Only recently the courts have been asked to decide whether it could infer, given the length of time that had passed and the lack of contribution by Mr K to the household, that the parties intention was that Ms K's share would increase to reflect this.

In deciding that it could not make this inference the court commented: -

"I described this case as a cautionary tale. So, in my judgment, it is. The purchase of residential accommodation is perhaps the single most important financial transaction which any individual transacts in a lifetime. It is therefore of the utmost importance, as it seems to me, that those who engage in these transactions, and those who advise them, should take the greatest care over such transactions, and must - particularly if they are unmarried or if their clients are unmarried - address their minds to the size and fate of the respective beneficial interests on acquisition, separation and thereafter. It is simply impossible for a court to analyse personal transactions over years between cohabitants, and the costs of so doing are likely to be disproportionate in any event. Cohabiting partners must, it seems to me, contemplate and address the unthinkable, namely that their relationship will break down and that they will fall out over what they do and do not own."


The Employer Traps and Other Tips

1. GARDEN LEAVE
Ensure that you have a garden leave provision in your contract which can be very useful if you do not want someone on the premises during their period of notice (whether termination is by you, the employer, or by the employee). If you seek to put someone on garden leave when you do not have the contractual right to do so, that can be a breach of contract.
2. NOTICE PERIOD AND HOLIDAYS
It is also a good idea to state in the contract that you, the employer, reserves the right to insist that an employee use up any accrued holiday during their notice period (whether notice has been given by you or by the employee).
3. MISCONDUCT AND RIGHT TO WORK
An employee who is in breach of contract can lose any "right to work". This can arise if the employer discovers that the employee has been in serious breach of duty and in breach of good faith, e.g. if he has been working for a competitor. The employer may insist on the employee serving out the notice period but not actually doing his or her usual work, e.g. not being able to work with clients before going to a competitor and perhaps not earning money if based on a commission. [Standard Life Healthcare Ltd v Gorman & Others]


Employment Law - What's in the pipeline!

EMERGENCY BUDGET 2010

Under the details of the emergency Budget, the following measures are intended:
· A consultation on whether to phase out the default retirement age (currently 65). However, now that there is talk of the age at which state pensions can be accessed being increased on a 5-yearly basis, this would suggest that the default age would have to be scrapped altogether;
· From 2011, the majority of benefits – presumably including maternity pay, sick pay etc – will be up-rated in line with the Consumer Price Index rather than the Retail Prices Index (apparently in order to save over £6 billion a year by the end of the Parliament);
· The threshold at which employers will start to pay National Insurance will increase by £21 per week above indexation from April 2011;
· The personal allowance below which no Income Tax is payable will rise by £1000 to £7475 in April 2011.
Comment As scrapping the default retirement age is going to be essential to the proposed pension reforms, employees must be sure of being able to work beyond 65 if the State will no longer provide, therefore employers will perhaps need to start prizing reliability, experience and literacy more, and more than youth, energy and versatility. It may transpire that the Government will need to introduce legislation so that older workers can insist on part-time work.


FIT NOTES

By now, employers will no doubt be familiar with the new concept of fit notes rather than sick notes, which are supposed to help the employee get back to work. However, employers should treat the fit notes with caution, particularly where the GP indicates that the employee "may be fit for work, subject to advice". The fit notes are not intended to replace the legal obligations of the employer to its employees. Whilst any advice that GPs provide is not binding on the employer, the fit note is intended to prompt discussions between doctors and their patients and between employers and employees on options that might facilitate a return to work. Any recommendations that the GP makes, therefore, will be a focal point of these conversations. Employers need to be careful because of the potential use by the employee of the fit note in any claim that they may bring against the employer, for example, if a fit note provides the employer with more information and advice than it would have had under the old system of sick notes, this may make foreseeability – a necessary factor in stress claims – an easier evidential obstacle for claimants to overcome. Clearly, much will depend on how much information and advice is actually on the fit note; it is suspected that in most cases, a fit note will not contain enough information to trigger the employer’s duty to take steps.


FIT NOTES

By now, employers will no doubt be familiar with the new concept of fit notes rather than sick notes, which are supposed to help the employee get back to work. However, employers should treat the fit notes with caution, particularly where the GP indicates that the employee "may be fit for work, subject to advice". The fit notes are not intended to replace the legal obligations of the employer to its employees. Whilst any advice that GPs provide is not binding on the employer, the fit note is intended to prompt discussions between doctors and their patients and between employers and employees on options that might facilitate a return to work. Any recommendations that the GP makes, therefore, will be a focal point of these conversations. Employers need to be careful because of the potential use by the employee of the fit note in any claim that they may bring against the employer, for example, if a fit note provides the employer with more information and advice than it would have had under the old system of sick notes, this may make foreseeability – a necessary factor in stress claims – an easier evidential obstacle for claimants to overcome. Clearly, much will depend on how much information and advice is actually on the fit note; it is suspected that in most cases, a fit note will not contain enough information to trigger the employer’s duty to take steps.


PROSECUTION UNDER MINIMUM WAGE REGULATIONS

An optician who paid his staff at rates up to 40% less than they were entitled to has been prosecuted for National Minimum Wage offences. The optician, who owns two optician stores in Liverpool, pleaded guilty to failing to pay four of his employees the National Minimum Wage. He received a fine of £3696 from HM Revenue & Customs. Apparently, he attempted to hide the fact that he was not paying what he should by falsifying employee information and then neglected to produce appropriate accounts. Following initial checks by HMRC investigators, he altered contracts and other documentation which he provided to support his claim that he was paying the minimum wage. He also altered pay rates by falsifying documents and back-dating contracts to show different hours of working and removing staff entitlement to paid meal breaks. HMRC’s Assistant Director of Criminal Investigations said that the sentence sends a clear message to all employers, whatever size, that HMRC will actively pursue those whom HMRC suspects of flouting National Minimum Wage law.
The case serves as a reminder to employers to check that they are indeed compliant with the current minimum hourly rates. (These will be going up again in October: watch this space.)


FAKE EMPLOYMENT TRIBUNAL CLAIMS – COMMONSENSE JUDGMENT

There are sometimes stories in the press of disappointed job applicants who start Employment Tribunal proceedings on the ground of some form of discrimination, the applicants being unwilling to accept that they were simply not suitable for the job. Indeed, this Firm has previously successfully challenged a claim brought against its employer client where an applicant for a maths teaching post brought proceedings against the client (and many other institutions) because he did not get the post. In our client’s case, the applicant was invited for an interview but did not even attend, yet despite that, still brought a claim. (We always thought that perhaps he got muddled between all the different institutions he was suing, some of which he had attended for interview but had been rejected for the post). We were also successful in obtaining costs against him (unusual in employment claims) and the story hit a number of newspapers, including some nationals.
It is with some satisfaction, therefore, that a recent judgment may put paid to those who, in a slightly different scenario, use job applications as some kind of "testing ground". Recently, a litigant brought age discrimination claims against twenty recruitment agencies. She lost an appeal to the Employment Appeal Tribunal (EAT) on the grounds that she had no genuine interest in the vacancies for which she had applied. The EAT said the judgment could serve as an authority that a job application "must be genuine before a statutory disadvantage can be suffered".
In this case, the applicant was 51, an experienced accountant who applied for over twenty positions for recently-qualified accountants for which she was over-qualified. After not receiving any job interviews, she began age discrimination proceedings against the recruitment agencies. Some agencies settled immediately but eleven chose to appear before the Employment Tribunal, of which six settled during the proceedings. The Tribunal dismissed her claims against the remaining five agencies on the basis that she had no interest in the vacancies but simply wanted to claim compensation. It awarded costs against her (still a rare occurrence in a Tribunal). The costs are expected to be up to £10,000 for each agency. As stated, the EAT upheld the Tribunal’s ruling. [The case of Keane]


Companies House Issues Liquidation and Insolvency document

In May 2010 Companies House issued a document entitled 'Liquidation and Insolvency'. It contains guidance of a basic nature on liquidations and insolvency. It is a good starting point for the lay person or as the website states: -

"This guide will be relevant to you if:

are a director or secretary of a company

act as an adviser to a company "

It can be found at http://www.companieshouse.gov.uk/about/gbhtml/gpo8.shtml.

Brendan O'Brien


OFT - Market Study on Corporate Insolvency

In accordance with section 5 of the Enterprise Act 2002, the Office of Fair Trading has carried out a market study in respect of Corporate Insolvency and the role played by Insolvency Practitioners.
It has found that the market generates about £5bn per annum is asset recovery and £1bn in fees for the Insolvency Practitioners. It is also refreshing to see that the OFT states that the market works well in most cases, but in about a third of all administrations and creditors voluntary liquidations fails to protect the interests of the small creditor.
On 24 June 2010, the OFT recommended far reaching reforms in the Corporate Insolvency market and its report and recommendations can be found at http://www.oft.gov.uk/shared_oft/reports/Insolvency/oft1245.
In part it seems that the OFT has focussed on the secured lender/IP relationship. Most banks operate a panel of Insolvency Practitioners who will more often than not be instructed where the debt owed to the bank by the company exceeds £200,000.00. Having reviewed this relationship it seems that the OFT has concluded that there is sufficient competition in the market place among IPs who might be viewed as too small to be on the panel to grow their business sufficiently to achieve panel status. There is a sufficient logic issue in this proposition. It disregards the costs to the bank of operating a larger panel than it currently has. Mosts practitioners are faced with the actor/equity card conundrum. We are big enough but because we don't currently do the work we can't get it. Law firms face this problem on a regular basis for instance in acquiring Housing Association or Local Government work. If you don't do the work already you won't get it.
Among the fundamental reforms proposed by the OFT are: -
- an industry-funded independent complaints handling body with broad powers to review IP fees and actions, impose fines, and return overcharged fees to creditors;
- reform of the regulatory system by repositioning the Insolvency Service (IS) as the dedicated oversight regulator of the Recognised Professional Bodies (RPBs) and withdrawing its role as a direct regulator of IPs;
- providing objectives for the regulatory regime against which its performance can be measured; and
- streamlining the currently inefficient way in which the regulatory regime makes decisions.
It is noted that little seems to have been said about the current process of administration and CVL. This bears out the impression of those in the profession that the processes are right but there needs to be some oversight in respect of the unscrupulous IP. We doubt that the Insolvency process can really bear a further change particularly at the present time when it would appear that the floodgates of corporate insolvency are being held closed by the Business Tax Deferment Scheme. But this cannot continue for ever and changes now would impair the ability of the IP to handle the process of administration or CVL effectively to maximise the returns to the creditors.
Brendan O'Brien

Former Company Directors and their continuing duties

Over many years the courts have through innovation created certain duties on the parts of Directors both during their tenure and perhaps more importantly after they have left the company. Over time legislation has played catch up both in the 1985 Companies Act and now specifically in the 2006 Act.
The relevant section in the new act are section 175: -
"(1) The general duties specified in sections 171 to 177 are owed by a director of a company to the company.
(2) A person who ceases to be a director continues to be subject--
(a) to the duty in section 175 (duty to avoid conflicts of interest) as regards the exploitation of any property, information or opportunity of which he became aware at a time when he was a director, and
(b) to the duty in section 176 (duty not to accept benefits from third parties) as regards things done or omitted by him before he ceased to be a director.

To that extent those duties apply to a former director as to a director, subject to any necessary adaptations.
(3) The general duties are based on certain common law rules and equitable principles as they apply in relation to directors and have effect in place of those rules and principles as regards the duties owed to a company by a director.
(4) The general duties shall be interpreted and applied in the same way as common law rules or equitable principles, and regard shall be had to the corresponding common law rules and equitable principles in interpreting and applying the general duties.
(5) The general duties apply to shadow directors where, and to the extent that, the corresponding common law rules or equitable principles so apply."
and section 175: -
"(1) A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
(2) This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity)."
In the case of Thermascan Limited v Norman the courts have for the first time had to consider those provisions and whether the provisions in the 2006 Act changed the law existing previously.
It was held that the statutory provisions did not change the law and for those Company Directors out there reiterated that their duties are: -
1. to avoid a conflict of interest with the company's interest; and
2. not to receive benefits from third parties relating to matters created before the Director left the Company.
However, these sections by themselves creating a contradiction between their impact and public policy. Public policy states that former directors should be able to continue to earn a living using their existing fund of skill and knowledge. Generally, however, it is a well worn path that a business may have protectable business information which if released into the general market or used by other would have a significant detrimental impact on it. More often than not this information is avaliable to the Director of the Company. The line of argument normally followed is that the information is within "their existing fund of skill and knowledge". The determining factor will always be a question of fact.
In conclusion, a director exiting a company should be extremely wary of using business information from the Company from which it exited. What the Director views as own skill and knowledge is likely to be viewed by the Company and its management as its commercially sensitive information protectable as a 'legitimate business interest'.