Employment Newsletter September 2011

Dear Employer

We hope you have enjoyed a successful summer and your staff have returned from their summer holiday full of renewed vigour to make you the millions that you perhaps did not earn during the worst of the recession.

Clearly something is improving: HM Courts & Tribunals Service has reported that the number of claims for unfair dismissal and redundancy has fallen slightly, possibly as a result of the improving economic climate. On the other hand, claims by part-timers have nearly tripled, while age discrimination claims have risen by 32%. The moral of the story is that if you have part-time workers or those who may be older (although age discrimination applies across the range), then tread carefully and take advice sooner rather than later: the median award for age discrimination claims is currently the highest of the discrimination strands, at £12,697 (with all others around £5000 and £6000).

As always, prevention is better than cure, and generally a lot cheaper too. If in doubt, shout – we are here to help, at our brand new modern offices in the centre of Hertford.

If you have any comments or suggestions on this newsletter, please email newsletter@breezeandwyles.co.uk

Kind regards

The Employment Law Team

Some Recent Changes and Cases in Employment Law


The Employment Appeal Tribunal (EAT) has held that lay-over time, which required a worker to stay overnight at a given location ready for work the next day, did not constitute “work” for the purposes of the National Minimum Wage Regulations 1999. The EAT highlighted the danger of confusing “work” for minimum wage purposes, with “working time” under the Working Time Regulations, as the Tribunal in this case had done. In this case, Mr Baxter was a casual driver for a company, driving clients going on holiday to their point of departure. Drivers would sometimes be asked to stay overnight in a hotel or B&B in order to pick up passengers in the morning. The employer then increased the rate paid for normal hours but a flat rate was introduced for those “lay-over” periods. Mr Baxter made several claims, including one that the pay he received for his lay-over hours was less than the minimum wage. Although the Employment Tribunal found for Mr Baxter, the EAT stressed that only the National Minimum Wage Regulations were relevant to his claim for lay-over pay. In summary, the EAT thought it was plain from the facts that he was not working during his lay-over period: he was not at his place of work, was performing no tasks and had no responsibilities. [Baxter v Titan Aviation Ltd]


The Court of Appeal in the case of Hughes v The Corps of Commissionaires Management Ltd has given guidance on compensatory rest periods. This concerns Regulation 24 of the Working Time Regulations 1998 in the context of a security guard working 12-hour shifts. As he was contactable during his rest break it could be interrupted. However, he would be entitled to start a break again if it were interrupted. He claimed that this breached the Working Time Regulations 1998. The Tribunal found that his breaks met the requirement of Regulation 24(b) of providing the necessary protection to safeguard his health and safety. Mr Hughes appealed. The EAT dismissed his appeal but held that his employer had not breached the Regulation on a different basis that the breaks were, in fact, compensatory rest under Regulation 24(a). Mr Hughes appealed again, and the Court of Appeal dismissed it. This is an important case for shift workers and is very much summarised here: if you need to know more, please let us know.


A recent case in the EAT has held that an employee was not “self-dismissed” when he failed to reply to a letter stating that he would be taken to have resigned unless he contacted the employer. The claimant was a lorry driver who had had an accident in 2005 at work which seriously injured his spine, leaving him unable to do his job. In June 2005, he brought a personal injury claim against the company. When he was evicted from his home in January 2006, he failed to tell the company of his new address as required by the employee handbook. In June 2006, no longer receiving sick notes from him, the company sent a letter to his old address saying that if they had not heard from him by 5th July, they would conclude that he no longer wished to work for them and that he had terminated his employment by his own volition. The letter was returned by the Post Office and no further attempt to contact him was made. He first found out about the June 2006 letter in May 2009. In July 2009 he lodged numerous claims at the Employment Tribunal, including unfair dismissal. The company contended his employment had ended by dismissal, effective on 5th July 2006, and therefore he had exceeded the three-month limit for bringing a claim.

The Employment Tribunal Judge struck out his claims following an earlier case but the EAT held that that was wrong. It followed an earlier decision, being that repudiation by the employee must be accepted by the employer, whereupon the contract is terminated by the employer in circumstances amounting to a dismissal by the employer. On that basis, the employee’s contract was not impliedly terminated by resignation on 31st January 2006. Furthermore, the letter of June 2006 did not amount to the company’s acceptance of repudiation or indeed resignation by the employee. The EAT took the view that no effective steps were taken by either party to terminate the contract of employment until the letter from the company in the personal injury claim reached him in May 2009, saying that his employment had been formally terminated in July 2006. That was the employee’s first opportunity to know that the company no longer wished to bound by the contract. He had accepted that state of affairs by starting Tribunal proceedings on 28th July 2009 and therefore his complaints were brought in time.


The case of Autoclenz v Belcher has probably thrown into panic a lot of firms that operate car valet services in car parks. This case went all the way to the Supreme Court, which confirmed that the right approach when determining the legal status of a worker is not to look just at the terms of the written contract but to look at all the circumstances relating to the relationship. In this case, it was held that despite indications to the contrary, the “self-employed” car valets were actually employees. The fact that HMRC had previously confirmed that they were self-employed for tax purposes did not mean they were self-employed for employment law purposes. In this case, the contracts had been worded to give the impression of self-employment; there was no obligation on the part of the valet to do any work; the valet had the right to use a substitute instead. Despite that, they were held to be employees.

What’s in the pipeline

1. The Agency Worker Regulations
The Agency worker Regulations are likely to come into force on 1st October 2011. In the Regulations, “Agency Worker” means an individual who (a) is supplied by a temporary work agency to work temporarily for and under the supervision and direction of a Hirer; AND (b) has a contract with the temporary work agency which is (i) a contract of employment with the agency, or (ii) any other contract with the agency to perform work or services personally. The Regulations are, therefore, based upon the relationship of the temporary work agency and employee or a contract to provide personal services. It gives agency workers the same rights, after various periods of time, as the employees of the Hirer. Where it is a contract with the agency to perform work or services personally, it will not be necessary for that work or those services to be performed for the agency.

As advised in our May newsletter, these increase as usual on 1st October.
The Employer Traps and Other Tips

Ensure if you have any temporary agency workers that you are familiar with, or obtain advice on, the new Regulations so as not to fall foul of denying the worker the employment rights to which they become entitled after the various qualifying periods.

These allow you to unilaterally terminate the contract immediately by giving the employee pay in lieu of notice (assuming you are terminating their employment for one of the statutory five fair reasons). It means that the contract is ended immediately, rather than at the end of what would otherwise have been the notice period. This can be important in the context of annual bonuses, which are often dependent on the employee still being a member of staff at a particular time of the year. It means that a judiciously timed PILON can permit you to exclude the employee from that bonus pool.

As the Autoclenz case shows, be very careful if you are treating any of your staff as self-employed: perhaps you should take advice on whether in fact they may really be employees.

Breeze and Wyles: Our Debt Recovery Launch Event

Preparations for our event started with torrential rain and the attendance of some unusual guests…

The “good old” English weather did not however put a dampener on the event, which we are pleased to announce was a real success; attended by over 50 businesses.

Breeze and Wyles, appreciating the challenging times that businesses are facing, have launched a low cost, fixed fee, debt recovery service, aimed at helping businesses to chase “slow paying” debtors. For example, the cost for a business to send a letter to a debtor regarding an unpaid invoice is £2.00 plus VAT.

Breeze and Wyles Head of the Defended Debt Recovery Department, Maria Koureas-Jones, spoke at the event;

“I strongly believe that Breeze and Wyles are enabling businesses access to legal services that were previously non-cost effective, when debt recovery fees were charged based on a Solicitor’s hourly rate. In turn, I believe that as a firm we are helping businesses to improve their cash flow position in a time when businesses are finding managing cashflow a challenge”

Businesses are finding that they have an ever-increasing aged debtor list, with the average payment period far exceeding most businesses standard payment terms. With the threat of a debtor’s insolvency remaining a real issue, expediency in chasing unpaid invoices, has to be a priority for businesses.

Our service should be seen as an extension to a businesses internal credit control function, to ensure expediency and continued pressure on a debtor – this is vital to increase the chances of recovery.

Brendan O’Brien, Director and Head of Business Services, speaking from the Firm’s new commercial premises in Hertford, was thrilled with the support and interest shown by both local and national businesses; “I am pleased with the feedback from all of the businesses that attended. As well as raising the awareness of our debt recovery service, the event served as an opportunity for businesses to meet new contacts. It is an example of the steps that we are taking to facilitate new business relationships in our local area”.

If you would like to find our more about our debt recovery service, please email rita.wright@breezeandwyles.co.uk.

As a firm, we are more than happy to discuss the provision of a bespoke debt recovery service for businesses that have unusual or very specific debt recovery requirements. For further details, please email; brendan.obrien@breezeandwyles.co.uk.

The WARRANTIES SCHEDULE in the context of a Share Purchase Agreement

Here it is intended to consider just some of the warranties which are commonly found in share sale agree-ments; in particular, those which are most likely to give rise to difficulties in negotiations for the sale of the target.

A Accuracy of information
The purchaser is concerned to know that the information fed to him and his advisers before he enters into the purchase agreement and on which he bases his view of the target and its worth is correct. Often a great deal of information will have been handed over before the agreement is in draft form. The problem for the sellers in accepting a warranty confirming the accuracy of the information provided to the purchaser is to identify just what information has been handed to the purchaser, possibly months earlier and possibly very informally during a preliminary visit by the purchaser or his accountants. The sellers should seek to restrict the warranty to those items listed in and attached to the disclosure letter; it can be a laborious task prepar-ing the list but it has the advantage to both sides of setting down clearly and precisely what information is being warranted.

It is sometimes a difficult question whether the purchaser's accountants' report should be added to that list, especially so in cases where the report is not actually shown to the sellers. This may be because it is critical of the management of the target provided by the sellers, or recommends future action which may be unpal-atable to the sellers or, more rarely, because it suggests the target is worth more than the consideration of-fered. In each case it would be hard on the sellers if the purchaser had a claim for a breach of warranty in respect of some matter clearly identified in the report but omitted from the disclosure letter. There seems no objection in principle to adding the report to the list of documents treated as disclosed even if it has not been seen by the sellers. The report can then be produced at the discovery stage of any proceedings which arise from a breach of warranty claim.

B Materiality
The purchaser will invariably seek to impose a 'materiality' warranty ie one by which the sellers confirm that everything material which might affect a purchaser's willingness to buy the shares being sold or which might affect their value has been disclosed1. His concern is that there might be something known to the sellers of which the purchaser is unaware. The sellers should seek to reject this; it is not uncommon for at least 100 warranties to be given and, on top of these, the purchaser's accountants will often have carried out a thor-ough review of the target's business. If there is some matter which has passed the notice of the purchaser or his accountants, its importance might well not have been apparent to the sellers either and it seems a little hard on them that they should bear the risk here. Whether the purchaser should insist on this will probably depend on how extensive his investigations have been and how co-operative the sellers have shown them-selves in the disclosure exercise.

1 It is perhaps equally important for the purchaser to know of any factor which might enhance the value of the shares as might adversely affect such value. This is particularly important if deferred consideration is payable by reference to either the unascertained present performance or the future performance of the target. It can come as a shock to the purchaser to be obliged to pay out more than he - if not the sellers - was expecting.

C Accounts and management accounts
Most purchasers base their willingness to purchase on the hard figures contained in the most recent audited accounts of the target and (depending how stale those are) management accounts. There are accordingly a significant number of warranties dealing with these accounts. In practice, merely disclosing them will be sufficient to discharge a number of the warranties; audited accounts will for example disclose changes in accounting principles from those required by statute (CA 2006, Part 15) and from those applied in the preceding period and any extraordinary items.

The accounts referred to in the warranties are usually the most recent audited set of accounts. As such, they are required to give a 'true and fair' view of the company and its profit in respect of the period for which they are prepared (CA 2006, ss 396(2) and 404(2))1. What they do not, and cannot, do is give a 'true and accurate' view of the company and the sellers should seek to strike these or similar words from any such warranty.

1 Mr Justice Andrew Smith in Macquarie Internationale Investments Ltd v Glencore UK Limited [2009] EWHC 2267 (Comm), [2009] EWHC 2267 at paragraph 162 held that the requirement to prepare accounts in accordance with relevant accounting standards cannot, in the absence of exceptional circumstances, be separated from the requirement for the accounts to give a true and fair view of the finances of the target; they are not separate warranties, independent of each other. This is because accounting principles require that accounts are prepared so as to give a true and fair financial picture.

Still less can the management accounts (which will be unaudited) either be true and accurate or give a true and fair view. The standard of management accounts varies from infrequent and sometimes incomprehensi-ble jottings on not much more than the back of an envelope to regular, orderly and sophisticated accounts which even a lawyer has the hope of understanding. The sellers should seek to temper any management accounts warranty accordingly but may well find that the purchaser will want it made quite clear the basis on which the management accounts have been prepared and the extent to which they can be relied upon.

D Business of the company
The warranted accounts can give only a historic view of the target: the purchaser is obviously anxious to know the state of the target at the time he buys it. Further warranties are designed to do this by seeking information about the performance of the target since the date to which the warranted accounts are prepared.

A warranty may seek to do this in the broadest terms by seeking to establish any material changes - good and bad - in the state of the target since the accounts' date. A problem for the sellers is that it is extremely wide in its application, extending as it does to the target's prospects. It clearly invites the sellers to disclose matters which are generally known as well as those which affect the target in particular. Under the warranty, the sellers might have to disclose that the business climate might change with a change of government at an impending general election, or that erratic movements on the pound/dollar exchange rate could affect the target's performance. The sellers would be well-advised to seek to limit the scope of this warranty.

A warranty confirming that the target's debts are good and collectable should also not be accepted lightly by the sellers. It is in effect a guarantee by the sellers that the target's debtors will pay up in full. For most businesses, this is unlikely to happen and the sellers should seek to limit the warranty to a disclosure of the target's bad and doubtful debt history, the present provisions made and the target's policy on bad and doubtful debts generally.

E Agreements and arrangements
The warranties will also specify a number of types of contracts about which the purchaser requires informa-tion. There may be a number of, for example, lease or hire purchase agreements relating to the target's vehi-cles which are within the scope of the warranty and require disclosure; depending on how many there are, the sellers may suggest a de minimis cut off so that only those which relate to vehicles worth £15,000 or more when new need be disclosed, with the rest being summarised in broad terms. This may or may not be acceptable, probably depending on the size of the share sale transaction as a whole. What the sellers should concern themselves with are the payments needed to be made at the end of such lease or hire purchase agreements; there are sometimes 'balloon' provisions whereby substantial extra payments need to be made if the vehicles have exceeded a certain mileage during the lease or hire purchase period.

Trade union recognition agreements also should be disclosed under a suitably drafted warranty. The terms of these are often only partly reduced to writing and, even in the present industrial relations climate, the pur-chaser should press for as much information as possible on agreements or understandings between the target and the unions.

F Insolvency
A warranty will usually deal with the target's solvency. Obviously if anything material were disclosed here it is most unlikely that the purchase would proceed. In any event the purchaser's solicitors should carry out a company search against the target immediately before exchange of the agreement as it would be far prefer-able not to proceed to exchange than to proceed and then have the bother of trying to enforce breach of warranty claims.

G Intellectual property rights
Intellectual property is covered by the warranties. The importance of this will depend on the target's busi-ness. The purchaser will however in all cases be concerned to know the basis on which the target uses its computer systems; software programmes may be licensed to it rather than owned outright, and the hardware will often not be owned outright. The purchaser will also wish to know who operates these systems; accounts for example may be handled by the target's parent company and the purchaser will need to make his own arrangements for this in the future, or negotiate interim arrangements with the sellers. The purchaser may also require confirmation of matters in relation to trading names, trademarks, patents and websites.

H Properties
The warranties schedule will also deal with the target's properties. There are a number of ways of dealing with the target's properties. The sellers' solicitors may agree to produce certificates of title, the terms of which are agreed with the purchaser's solicitors, or a substantial number of warranties may be given in respect of the properties against which full disclosure is made. In the former case, only an extremely limited number of warranties are required; depending on the terms of the certificates, this could be as little as confirmation that details of all properties are set out in the agreement and that sufficient information has been provided to enable the certificates of title to be prepared. If certificates are not to be prepared, then a much fuller set of property warranties might be expected.

In practice, the purchaser's solicitors investigate title in much the same way as if the matter were a property purchase and generally do not rely on extensive property warranties. Preliminary enquiries and requisitions on title, at least in standard form, are usually raised. If the property lawyers are instructed in good time, local authority searches are made. The title deeds to the properties are of course inspected.

The difficulties arising from the property warranties relate mainly to those matters which do not concern title but the condition or value of the properties. For example, a warranty may seek to deal with the materials used in the construction of the building on the properties and this may well not be known to the sellers, or easily ascertainable even in a survey assuming, of course, that it is practicable to carry one out. Similarly, property warranties may deal with likely expenditure and the state of repair of the properties. Sellers may reasonably wish to resist these - their solicitors will also bear in mind any property warranty which confirms that the target has complied with its obligations as lessee, which obligations are likely to include keeping the properties in good repair and condition.

I Tax warranties
The tax profile of the target is of fundamental importance to the purchaser who will be concerned to ascertain a combination of the following:

(1) all tax returns are up to date and all tax records required to be kept by law are complete and accurate, including records relating to transfer pricing;
(2) that the provision for tax in the balance sheet forming part of the warranted accounts or the last completed accounts is sufficient to cover all the liabilities that may become due in respect of the accounting period covered by those accounts;
(3) all tax, VAT, stamp duties and customs duties that was due to be paid in the last three years was paid on time and there are no outstanding liabilities for interest or penalties;
(4) the target has no ongoing dispute with the tax authorities and is not likely to be the subject of an investigation or non-routine audit by the tax authorities;
(5) the target company has not entered into or been party to any schemes or arrangements designed partly or wholly for the purpose of avoiding or deferring any liability to tax;
(6) the target company has not, in the last three years, relied on any formal or informal un-published concession dispensation or practice which affects the amount of tax chargeable on the target company or which purports to modify or provide exemption from any obligation to make or submit any computation notice or return to any tax authority;
(7) the target company has properly applied PAYE, making all such deductions and pay-ments of tax as required by law from all payments to or treated as made to employees, ex-employees, officers and ex-officers of the company, and punctually accounted for those deductions and tax payments to HMRC;
(8) the target company has not agreed to make a repayment of share capital, or otherwise reduced its share capital, or issued any new share capital which has been paid otherwise than by new consideration. The target company has not issued any security which is of a character that the interest payable thereon is treated as a distribution under CTA 2010, s 1000;
(9) the target company has not entered into any transaction which has or may give rise to a direct or indirect charge to inheritance tax;
(10) the extent to which the realisation of assets at book value would give rise to a tax li-ability;
(11) all the necessary conditions for the availability of all capital allowances claimed by the target company have at all material times been satisfied and remain satisfied, and that no bal-ancing charge will arise if assets are disposed of at the book value shown in the last accounts;
(12) all the claims or elections that the target company could have made that may affect capital gains; in particular, whether the target company has rolled-over gains made in the past into real or intangible assets.
(13) whether the target company is a close company within CTA 2010, s 439, and that it has never been a close-investment holding company, which would mean the higher rate of corporation tax would apply.

Certain of the tax warranties are designed to elicit the disclosure of unusual, or potentially troublesome, transactions. Where the target is potentially liable for taxes primarily payable by another person, it is desir-able for the target to be able to recover that liability from the sellers. This is the function of the tax deed. The sellers would almost certainly be best advised, in such an event, to pay the amount of any claim made under the deed to the purchaser because there is otherwise some possibility of relief from capital gains tax being impaired and in the case of the target claiming under the tax deed, of a grossing-up of the amount paid taking place (as to the reasons for this, see CT[5.210] ff). The same dangers apply also in the event of a claim being made by an assignee of the warranties.

Although provision is made in cl 13 of the share sale agreement for the purchaser to assign the benefit of the warranties (at least in limited circumstances), this should only be permitted in exceptional circumstances as the payment in the hands of the assignee might be assessable to tax and the assignee will accordingly wish the payment made to be grossed-up.

The purchaser should bear in mind the overall limitation of liability in cl 8 of the share sale agreement when considering whether to cause the target to sue under the tax deed, when a grossing-up might take place.

In practice, involving as they do specific and detailed knowledge of both the target's affairs and of the tax laws, the tax warranties are often dealt with by the target's auditors who have little option but to work care-fully through each and every one of the warranties with a tax handbook in hand. It is an area where the purchaser's own advisers should be especially careful to cut out any and all irrelevant warranties.

Chewy lesson for business as Bertie Bassett fires the last shot

In a battle over contract terms, a Court ruling has left a company with a £110 million liability, saying that it comes down to who fires the last shot.

The High Court ruling was given in a case brought by sweet manufacturer Trebor Bassett Holdings against ADT, the fire and security company, and it’s prompted a reminder to business to check their supply procedures.

When a supplier provides a quote to provide goods or services on standard terms, and the purchaser accepts the price but counters to say it will be on their standard terms, the contract will normally be on the terms of the party that fires the last shot, although the courts will take into account relevant surrounding circumstances.

In this latest ruling, Trebor, the sweet manufacturers, were moving production lines to a new factory. They invited ADT to quote for the installation of a fire-prevention system, which was provided, subject to ADT’s terms and conditions. The quote was accepted using a purchase order which said that the contract was to be on Trebor’s standard terms, and that these had already been supplied.

When a fire broke out and destroyed Trebor’s new factory, they sued ADT and this is when the issue of whose terms would apply became crucial, as ADT’s terms would have limited liability to £14,000 whereas Trebor’s claim for damages was £110 million.

ADT claimed that they had supplied Trebor with a revised specification and quote that was drawn after work started, but the judge found that there was no evidence that the revised specification and quote had been delivered to Trebor. As a result, the work had been carried out on the basis of the Trebor purchase order. Although ADT had argued that Trebor’s standard terms had not been supplied to them, the Judge held that the fact that the purchase order stated that the terms had been supplied was enough to put ADT on enquiry as to what the terms were.

Explained commercial law expert Brendan O’Brien of Breeze & Wyles Solicitors LLP: “A contract is formed when one party makes an offer and the other party accepts that offer. If A offers to do a job for £500 on his standard terms and B accepts the figure of £500 but says the job is to be done on different terms, the law regards this as a counter-offer. If A goes ahead and does the work without further negotiation he will be treated as having accepted B’s counter-offer. This is why the basic rule is that, where there is a battle of forms, the terms of the party who fired the last shot will normally apply.

“Large companies often use purchase order forms when buying goods or services. These forms will usually state that the purchase is made on the buyer’s terms, as in this case, even though the supplier will usually have delivered a quotation saying that the goods or services are supplied on their terms. Small to medium-sized businesses need to be aware of this when quoting for large companies and must realise that specifying terms in their quotation is not conclusive.”

He added: “The case is also a reminder to make sure that the terms of business are actually communicated to the other party, it’s not enough to just say they exist. Even though Trebor were lucky to get away with it here, the best advice must always be to provide a copy of one’s terms or, at the very least, to say exactly where they can be viewed, for example, on one’s website.”


This information is not intended as legal advice

Buyers must consider worst case scenario when “buddying up” on property ladder

Home-buyers who "buddy up" with a friend or relative in order to afford their first home must factor in all worst case scenarios before buying, says Breeze & Wyles Solicitors Ltd in Enfield, Hertford and Bishops Stortford.Breeze & Wyles Solicitors Ltd, which earlier this year secured membership to the Law Society’s prestigious Conveyancing Quality Scheme, which recognises high standards in home-buying, is warning those looking to buy their first home with a friend or relative that there is more to consider. Breeze & Wyles Solicitors Ltd says failing to plan for all eventualities, even death, could leave you in difficulty in future.John Appleton Head of Residential Conveyancing says: “With home loans less accessible than a few years ago joining up with a friend or relative to buy a home is a good alternative. However, there is much more to consider when buying this way. There is a high possibility that one party to the joint ownership’s circumstances could change, so it is vital to consult your solicitor early on to cater for every possible change in circumstance.“Sometimes a co-ownership contract might be necessary, but at the very least Breeze & Wyles Solicitors Ltd can highlight all the options and possible scenarios to both owners. We can also advise on the type of mortgage which might be suitable and how joint ownership fits into your estate and will. There may also be tax implications that we can advise on.

“Circumstances when buying jointly are more likely to change. If you buy with a friend and they subsequently marry or change jobs they might want to move on and not be tied down anymore by the property they jointly own with you. Or if you buy with a family member who doesn’t reside there, but who dies and leaves their share to someone else you may need to factor that into any initial agreement.

“It does sound daunting, but far from put anyone off it is important that you seek legal advice on joint ownership. When it is difficult, as now, to raise a deposit and secure a mortgage on your own buddying up is an excellent way to get a foot on the property ladder, but it needs to be done with legal advice from a CQS accredited firm.”

Breeze & Wyles Solicitors Ltd underwent a rigorous application and assessment by the national Law Society to become part of CQS initiative, which recognises high quality in residential conveyancing. CQS has the support of the Council of Mortgage Lenders, the Building Societies Association, Legal Ombudsman and the Association of British Insurers.


Breeze & Wyles Solicitors Ltd

Reality is what counts in a contract

Employer is made to face up to regulations and responsibilities

Employers have been given a warning about using employment contracts to try and get round working time and minimum wage regulations.

The judgement from the Supreme Court in the recent case of Autoclenz Ltd v Belcher and others, has shown that an apparently cast-iron contract will not help an employer to avoid their responsibilities.

Instead, the Court has said, what matters is the reality of the relationship rather than the wording of the employment contract and companies must not try to outwit the system.

Autoclenz provided car cleaning services to motor retailers and auctioneers and described their valeters as sub-contractors in their contracts, rather than employees. The contract also said that the valeters could get other people to carry out the valeting for them; that they were not obliged to provide their services and that Autoclenz did not guarantee that it would provide work on any specific occasion.

The aim of the contract was to make the valeters self-employed, so that they would not qualify for paid leave and the minimum wage.

But 20 of the valeters, supported by their union, brought a case against Autoclenz claiming that they were really ‘workers’ for the purposes of the Working Time Regulations and the National Minimum Wage Regulations. When the case reached the Supreme Court, the judges ruled in their favour, saying that they were employees in spite of the wording of their contract.

In the ruling, the Supreme Court said that a contract for work or services is different from an ordinary commercial contract between parties of equal bargaining power. Very often a company that is offering work is able to present the individual worker with a written contract on a take it or leave it basis. Because of this, the Court ruled that relative bargaining power of the parties must be taken into account in deciding whether the written contract represented the truth of what was agreed, saying that they had to consider all the circumstances, not just the written word.

Said Jane Dismore law expert Breeze & Wyles Solicitors LLP: “This case demonstrates that even if an employer comes up with an apparently cast-iron contract, it will not help them to get round the Working Time and Minimum Wage Regulations. Employers must accept their responsibilities and not try to outwit the system.”

She added: “When it comes to employment contracts, the Courts are going to be ‘realistic and worldly wise’, as the judges put it in this case, and will be looking beyond the wording of the contract to assess the true situation.”


Web site content note:

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Statutory Demands: What Constitutes a Genuine Dispute requiring Resolution?

It is accepted that the use of Statutory Demands in debt recovery is fraught with traps for the unwary. The Courts have in the past held that there must be no genuine dispute between the parties that would make litigation rather than the nuclear option of insolvency the appropriate course of action. This has been supported in the judgment given in the case of CROSSLEY-COOKE V EUROPANEL (UK) LTD [2010] EWHC 124 (Ch).

The Facts

The appellant in this case, appealed against a decision of a lower court rejecting his application to set aside a statutory demand served on him by the respondent in respect of an alleged debt.

The debt related to a number of unpaid invoices in respect of materials allegedly delivered by the respondent to the appellant in 2008. There was a dispute as to whether the appellant had actually placed the orders and as a result he refused to pay for the goods because, although he had an account with the respondent, another business on the same industrial estate had placed the order and to whom the deliveries had been made. That business had since ceased trading. Copies of the invoices had been sent to the appellant (who raised no objections at the time) and a representative of respondent later attended at the appellants address to seek payment. As a result of that visit the appellant wrote a cheque and handed it to the representative, but with the written qualification on it that it required confirmation before it was paid it into the bank. The cheque was later stopped.

The court was presented with various potential sets of facts as to how that situation might have come about. One possibility was that he may have ordered the materials through his account for use by this other business, or alternatively the materials may have been ordered by the other business using the appellant's account details without 's knowledge. If the former hypothesis was correct he would be liable and would have to look to the other business for reimbursement. If the other hypothesis was correct he would not be liable.

It was held that:

the appeal would be allowed with the statutory demand being set aside.

(1) This was a true appeal and the appellate court should be reluctant to intervene with the lower courts's ruling unless the lower court had applied the law incorrectly or erred in principle. Union Bank (UK) plc v Pathak [2006] EWHC 2614 (Ch) applied.

(2) There was a genuine triable issue here for the purposes of r 6.5(4) of the Insolvency Rules 1986 - the lower court had applied too strict a test in dealing with the appellant's contentions. It was not a question of looking at the balance of probability and it was not appropriate to conduct a mini trial at that stage. There was sufficient uncertainty in the circumstances to raise doubt as to the appellants indebtedness. Without expressing a view as to which of the alternative hypotheses might be more credible, the onus was on the respondent to commence proceedings to have them tested at full trial.

When looking at the facts any number of situations could have given rise to the debt. Even though and objective observer is more likely to favour the creditor, there is still a chance that the debtor's statement if the facts were accurate. Even the fact that a cheque was presented and then stopped was not sufficient to provide the respondent with a strong enough counter argument that there was no genuine dispute.

So in effect, it is only safe to use a Statutory Demand where there is a liquidated sum outstanding and it cannot realistically be denied that the debt is owed.

Guidance on when to use Statutory Demands in Debt Recovery

Statutory Demands are the nuclear option in debt recovery systems and should always be used with caution. Given that the potential outcome of the service of a statutory demand is the recipient’s bankruptcy the indiscriminate use can have a damaging impact. With this in mind there are a number of rules in place to ensure that the creditor is reminded of the consequences of incorrect or wrongful use.

In the case of White and Davenham Trust rule 6.5(4) of the Insolvency Rules 1986 was considered. The rule sets out the circumstances in which the court may set aside the demand on application by the 'debtor':

"the court may grant the application if: -

(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 6.1(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt;

(d) the court is satisfied, on other grounds, that the demand ought to be set aside."

The case is relevant to the fourth ground: where 'the court is satisfied, on other grounds, that the demand ought to be set aside'. On the face of the clause this seems extremely wide to the general reader and creates the potential for arbitrary use of the discretion.

It has been the test since 2009 that:

"The discretion to set aside a statutory demand under r 6.5(4)(d) is a residual discretion which will normally be exercised in "circumstances which would make it unjust for the statutory demand to give rise to bankruptcy consequences in the particular case."

Injustice can take many forms and the Bankruptcy Court should not be restricted as to how it should use its discretion when determining whether a Statutory Demand should or should not be set aside. Accordingly it is fair to say that each case will turn on its facts.

Cashflow: A recipe for Survival

It is unclear from the number of sources commenting on the economy what 2012 holds for business. The Government’s official position is that growth will increase this year but many Economic Indicators point in the other direction. Indeed if one of the southern European States defaults on its soverign debt obligations there are commentators predicting double digit negative growth.

In these uncertain times how do businesses with a profitable core operation ensure survival? Cost cutting exercises have been carried out by many to ensure survival. Staff costs have already been reduced. Cheaper supply options have already been considered and where appropriate have been implemented. From where will the cashflow come? During the boom, the majority of businesses needed to concentrate on customer and contract acquisition and then delivery to those customers. We have spent the last three years waiting for the floodgates of boom to open but the doorkeeper seems to absent without leave.

Business Leaders have already restructured their operations to maintain a strong cash-flow position. One certainty is that turnover will remain static for all but a few market sectors. It is certain that in the short to medium-term trading your way out of the situation, on the same basis is not an option. In the forefront of the decision makers mind is the hope that some competitors will fail. Even though the market will contract further, if a significant number of competitors fail then the share of the market available to the business will be sufficient to guarantee its existence through to the end of the downturn. But turnover and cash are not the same thing.

A considerable amount of the ‘survival’ money is tied up in debt of which a significant amount may be long-term. As Debt Recovery lawyers we have noticed that the age of debt upon which we are asked to advise is continuing to increase. A small number of businesses have realised that the impact on cash-flow of a robust and rigorous debt recovery process is now a business imperative. By stealing a march on your ‘cash competitors’ you will be taking steps to ensure the business survives. More importantly in your banking relationships greater emphasis is now being placed on your ability to review and analyse the profile of your debtor book. Banks are taking a much greater interest in this information for the purposes of assessing the viability of your business. Make sure that this is simply not just a box ticking exercise, very real results will give reality to your attempts to deliver survival if not growth if you get it right.

Strategies and Techniques for Recovery

1. Credit Control

There is now an industry delivering various techniques for debt recovery or collection without the need in the vast majority of cases for the use of courts. The court procedure adds a cost element to the process of recovery which need not be incurred. Using techniques such as telephone contact, letters and personal attendance recent debts are likely to the recovered in full. At the very least an assessment of the debt profile can be undertaken. Credit control is not a simple recovery procedure in the sense that this is all it seeks to achieve. If only it was that simple. In the current economic climate cash-flow of all of our customers is limited. If Debtors are prudent then they will make payment of their debts strictly in priority to their business needs. An assessment of their liability forecasts will mean that the amount they owe you is down the list of priority. The credit control process enables you to move your debt up that list.Furthermore, it enables you to assess whether the debtor is of sufficient financial standing to maintain an ongoing relationship.

2. Statutory Demand

Where there is no likelihood of a dispute about the amount outstanding and that sum is more £750. It may be worthwhile serving on the debtor a Statutory Demand. This process is the preliminary step to bankruptcy or liquidation of the debtor. It focuses the mind of the debtor on the payment of your debt above all others due to the potentially catastrophic impact of not dealing with the Demand.Once the time period for the debtors to apply to have the Demand set aside or make payment has expired you have a number of choices as to how to proceed. Formal insolvency proceedings are an option but this means that all creditors will then have equal rights in accordance with the class of debt that they have as against any funds available to pay the creditors. This may mean that you will only recover a small portion of the amount owed to you by the debtor.

Caution should be exercised when using this process. It is critical that a proper and detailed assessment of the circumstances surrounding the debt is carried out before a Demand is served. The Court frown upon creditors using this process where there is or is likely to be a genuine and serious dispute about the claim. Criticism and costs penalties will arise where there is a genuine dispute as to the claim.

3. Proper Debt Recovery

A significant debt recovery industry exists to support you with your cash collection. Take time to consider the options and if you are already working with this industry push those with whom you work to look for innovative ways in which they can work with you, since your competitors will. Old habits die hard but when they do it is often at the expense of the business!

Make sure that the cost of the service does not increase your overhead too dramatically as, remember, this is your money!

If this article and the points it raises are of interest to you please feel free to contact Brendan O'Brien on 01279 715333 (by e mail at brendan.obrien@breezeandwyles.co.uk).

Your Terms and Conditions in the Debt Recovery process

Credit Control

• Ensure that your internal credit control function has a “letter cycle” which starts as soon as the payment terms have expired.
• Make sure that your credit controller is fully aware of the terms and conditions and that he / she makes reference to them where appropriate (e.g. where there is a retention of title clause in the terms and conditions, this is often a useful tool to encourage prompt payment).

Other Considerations for your Terms and Conditions

• Where you supply goods, do you retain title in those goods (under your terms and conditions) pending full payment of your invoice?
• Do your terms and conditions allow you to claim interest and compensation for late payment?
• Do you seek a personal guarantee from directors where you are trading with a new client, limited company or an unknown quantity? Is this appropriate in the circumstances? If it is, this can dramatically decrease your annual “write offs”.
• Have your terms and conditions been reviewed in the last 12 months? Or following the delivery of new goods or services? If not, we would recommend that these be reviewed and where necessary updated, in order to ensure that they are as watertight as possible thereby increasing your chances of recovery, should litigation prove necessary. If you would like Breeze and Wyles to review your terms and conditions, please contact our Brendan O’Brien on 01279 715322.

© Breeze & Wyles LLP 2011