Issue 88 - March 2007

DIRECTORS AND…

1) The Companies Act 2006

Although the entire Act will not come into force until October 2008, there are some provisions that have recently come into play. One of the most significant changes to the law, as far as company directors are concerned, is that their duties will be codified. By empowering shareholders to sue directors for negligence, default, breach of duties or breach of trust, the aim is to make company directors more accountable. The common law allows for these claims in many cases already, however this is the first time that these obligations have been put onto the statute book.

There are 7seven duties that must be observed by directors; to act within the company's powers, to promote the success of the company, to exercise reasonable skill care and diligence, to avoid conflicts of interest, to exercise independent judgement, not to accept benefits from third parties and to declare interests in proposed transactions and arrangements.

When considering the duty to act in the company's best interests, the director must have regard to the long-term consequences of his decision, the interest of the company's employees, the need to foster the company's business relationships with suppliers, customers etc, the impact of operations on the wider community, the desirability of the company, maintaining a reputation for high standards of business conduct and the need to act fairly between members of the company.

We are hosting a seminar in Norwich on 26th April 2007 and in Ipswich on 1st May 2007 to talk about the impact of the Companies Act. If you require further information or would like to book a place on these seminars please contact Sandie Bennitt on sandie-bennitt@birketts.co.uk

2) Company Cars & Car Allowances

If company vehicles and their drivers are not both in good condition new laws mean that directors could face criminal sanctions including fines and even imprisonment.

The Road Safety Act 2006 has introduced offences of causing death by careless driving, causing death while driving unlicensed, disqualified or uninsured which create potential liabilities for employers.

Companies providing cars or cash in the form of a car allowance for privately owned cars could be at risk (and an even greater risk under the proposed corporate killing legislation) if the cars in question are not roadworthy.

Occupational road risk is something that needs to be identified and assessed as part of the usual Health and Safety regime; the only defence to a health and safety action is proof that every precaution was taken to prevent an accident. Questions that employers should be asking are, for example; has the driver got a licence? Is the driver insured? Does the car have an MOT? Thought should also be taken over what journeys are authorised by the employer.

We are advising clients who offer car allowances to require a warranty from employees confirming that they have a full driving licence and to impose an obligation to keep and maintain tax, insurance and a valid MOT. Breach of those obligations could result in disciplinary action and invalidate the right to receive a car allowance.

More Flexibility?

The European Commission has delivered a Green Paper on the evolution of labour law. It has been accepted that there is a need for greater flexibility at work and legislation such as the Working Time Directive (which sets out the rules relating to paid leave, holidays, rest breaks and the "48 hour week" among other things) has been considered as being ripe for change to facilitate this desire.

Another topic that appears on the table for discussion is a redefinition of "self-employment" (to what we would recognise as "employment" in today's money).

The Institute of Directors asks why the Commission should interfere with the UK's relationship between employers and employees. It concludes that the review is justified on the basis that there is a wide variation among member states between the way in which local laws treat workers in similar situations and suggests that uniformity, especially among small businesses is necessary for growth and prosperity.

Hopefully, the Commission's idea of flexibility includes flexibility for the employer as well as for the employee.

USE OF RESTRICTIVE COVENANTS

There has been an unusual flurry of activity in the Courts recently, considering the use of post termination restrictions. In Thomas v Farr the 12 month "non- competition" clause was enforceable and upheld with respect to the former Managing Director of an insurance broker that specialised in the provision of services for providers of social housing. Important points to note were that the reasonableness of the clause was judged in light of the MD's seniority within the company. The court was also persuaded that the company's information could remain "confidential" for up to 12 months and it was therefore an adequate length of time for the restriction to last.

Four key factors established by earlier cases were applied; relevant to the question were the nature of the employment, the nature of the information, the extent to which the employer impressed the information's confidentiality on the employee and the ease with which the information could be isolated from other information that the ex-employee was free to use.

By way of contrast, in Beckett Investment Management & Ors v Hall & Ors a restraint of trade clause was not upheld. Here, a similar 12 month "no dealing" clause did not work because the restriction, when analysed, had no practical effect. However, of greater interest was that the 12 month restriction was found to be for an arbitrary length of time. There was no justification for that being the appropriate duration for this proposed restriction; three months would have been more acceptable in the circumstances.

QUICKFIRE

• The Employment Appeal Tribunal has confirmed that expired disciplinary warnings must be ignored when deciding on which disciplinary sanction to give to an employee. Airbus UK Limited v Webb
• Employers providing staff with accommodation can offset some of the value of that benefit against the staffs' wages without falling foul of the National Minimum Wage rules (subject to certain limits). However an additional deduction of £3 per week for gas and electricity from salary in Leisure Employment v HMRC was not allowed. The result will be that these particular members of staff will have to pay their own energy bills, which work out at more than £3 per week.

LAST, BUT NOT LEAST; Douglas Cotton & Jeanette Wheeler

On 12 March we will be very proud to announce the arrival of Jeanette who will head up the Norwich element of the Birketts LLP employment team. Before then however we will be saying good-bye to Douglas Cotton who is taking a sabbatical before his retirement later in the year. I would like to thank Douglas for his support, keen sense of judgement and unflappable style from which I have gained a great deal. Jolyon

Contact Details:

JOLYON BERRY t: 01473 406356
LOTTIE HAMMOND t: 01603 756419
MATTHEW NEWNHAM t: 01603 756412
SONYA O’REILLY t: 01603 756413

The content of this document is for general information only. As always, specific professional advice should be taken on each individual matter © Birketts Solicitors 2007. Birketts LLP is constituted as a limited liability partnership in accordance with the Limited Liability Partnerships Act 2000. Where we refer to a 'partner' of Birketts LLP, whether in this brochure or in any other correspondence or communication with you, the term 'partner' means a member of Birketts LLP, and shall not be construed as indicating that the members of Birketts LLP are carrying on business in partnership within the meaning of the Partnership Act 1890.

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