January 2020 - MLP Law

BBC loses equal pay claim

After months of controversy surrounding the BBC and whispers of gender pay disparity, Samira Ahmed has won the employment tribunal claim she brought against them in a dispute over equal pay. The unanimous decision was handed down in the London Central Employment last week and is a landmark decision that could open the floodgates for future claims against the BBC.

Ahmed made the £700,000 claim after discovering that she was paid £440 per episode for hosting audience feedback show Newswatch, while Jeremy Vine was paid £3,000 per episode for hosting Points of View. Ahmed argued that the presenter’s roles were comparable and that they therefore should have both been paid equally. The tribunal agreed and concluded that the BBC had failed to show that the difference in pay was because of a material factor which was not the difference of sex.    

The Equality Act 2010 implies into all contracts of employment an “equality clause”, which means that people of the opposite sex are entitled to be paid the same when they are employed either to do:

  1. like work – this is work which is the same or broadly similar;
  2. work which has been rated as being equivalent under a job eventuation scheme; or
  3. work which is of an equal value to that performed by a member of the opposite sex in the same employment.    

If any of these three situations exist, any term in a woman’s contract (for example) which is less favourable than a man’s contract shall be modified to ensure it becomes equal.

If changes fail to be made, then employees can make a claim to the Tribunal for compensation. If the claim is upheld and they are successful, the compensation awarded to them can be limitless. In this case, Ahmed could now be awarded up to a substantial £700,000 in compensation, primarily comprising of back pay. 

Whilst the decision does not change the application of equal pay law and may in fact be appealed by the BBC, it is a stark reminder to all employers of the importance and benefits of having transparent processes for determining pay.

If you have any questions as an employer in relation to equal pay or if you think that you might have been discriminated against in relation to your pay based on gender, then please contact our Employment Team on 0161 926 1508, or follow our employment law-specific Twitter account @HRHeroUK.

Statutory Legacy increase for partners under the Intestacy Rules

As per the agreed promise to update the intestacy rules every five years, the Government has kept its word and updated the statutory legacy to partners.  The new statutory legacy which comes into force on 6th February 2020, increases the sum due to spouses or civil partners of people who die intestate with children, from £250,000 to £270,000. 

The increase in the statutory legacy due to spouses and civil partners is raised by the Government in line with the consumer price index.  However, the president of the Law Society, Simon Davis, has still highlighted the importance of having a Will particularly to those that are unmarried.

When someone dies without making a Will their estate is distributed in accordance with the intestacy rules. The rules determine who should inherit from the estate of the deceased based on the surviving family members. The rules do not take into account personal relationships and who is at need but simply look at the family connections and bloodline.

In the scenario where the deceased leaves a surviving spouse or civil partner and has children, from the 6th February 2020, the surviving partner will receive the statutory legacy of £270,000 plus all personal possessions of the deceased. Anything above the statutory legacy is divided in two, half of the remainder passes to the spouse absolutely and the other half is split equally between any surviving children at age 18.

Although the increase in the legacy is welcomed by many, it is important that people are aware of what would happen to their estate under the rules of intestacy. As mentioned, unmarried partners have no automatic right to benefit from a deceased’s estate and this can cause numerous issues following death.

In scenarios such as this it is fundamentally important to ensure that your affairs and estate are in order. Failing to make a Will or update it can cause chaos and disruption to your family or dependents. An up to date Will provides you with the security that your wishes are complied with and provides your family and friends ease of dealing with your estate following death. At MLP Law our team of experts are able to take you through the process to guarantee you the service is tailored specifically to your needs and offer you clear service without any hidden extras.

For help and advice on the Statutory Legacy increase or Intestacy Rules, please speak to our Wills, Trusts and Probate team by emailing wills@mlplaw.co.uk or calling 0161 926 9969.

Former investment banker wins age discrimination case against Citigroup Inc.

Mr Niels Kirk, a former investment banker at Citibank, was unfairly dismissed and discriminated against on the grounds of age when his employment was terminated in November 2017.

Mr Kirk, who was employed as a Managing Director for the energy bank and had been an employee of the company for 26 years, was made redundant at a meeting with no prior warning in November 2017. During the meeting, Mr Kirk was told that he was “too old and set in your ways” before his employment was abruptly terminated.

Mr Kirk had not been consulted about potential redundancies and had not been given any warning about proposed restructuring in his department when he was asked to attend the meeting. Outraged by the decision, he subsequently made a claim to the Employment Tribunal for £9.7million.

The claim was heard by Employment Judge Goodrich in the Central London Employment Tribunal who found that Mr Kirk had been unfairly dismissed and discriminated against on the grounds of age. Employment Judge Goodrich said that “it was humiliating and insulting for the Claimant to be told that he was old and set in his ways” and that the remark was “unwanted conduct”. Mr Falco of Citibank denied telling Mr Kirk that he was too old and went as far as to say that “grey hair is very important in this industry”. Judge Goodrich ruled against him.

A further hearing has been listed to determine the level of compensation that will be awarded to Mr Kirk. The amount of compensation that can be awarded for a successful discrimination claims is limitless.

Citibank has said that it will appeal against the decision, pointing out that the age gap between Mr Kirk and his replacement was only 4 years and that 15 of 51 of the Managing Directors in their European corporate banking unit are over 50.

If you are considering making redundancies, it is fundamentally important that you follow the correct procedure and ensure that a proper period of consultation takes place with the affected employees. At MLP Law, our team of experts are able to take you through the process and guarantee a service that is specifically tailored towards meeting your needs.

If you have any questions as an employer in relation to unfair dismissal, age discrimination or the redundancy process or if you are an employee who thinks that you might have been unfairly dismissed on the basis of age discrimination, then please contact our Employment Team on 0161 926 1508, or follow our employment law-specific Twitter account @HRHeroUK.

Shareholders Agreements and Articles of Association: Does my company need them?

Articles of Association

Articles of Association (Articles) are effectively the rules of the company and govern the internal affairs of the company.  Articles must take the form of:

  • the statutory ‘Model Articles’;
  • ‘Model Articles’ with amendments; or
  • ‘Bespoke’ Articles which are drafted specifically for your company’s needs.

Articles cover matters such as:

  • classes of shares and rights attaching to them;
  • the procedure for transferring shares and issuing new shares; 
  • procedures / voting at shareholder and board meetings;
  • transferring shares on death and on leaving the company; and
  • ‘drag along’ and ‘tag along’ rights

Every limited company must submit Articles to Companies House and so anyone can access and view the Articles at any time.  They are a public document.

When someone buys shares in a company and becomes a shareholder, they are automatically bound by the Articles of the Company.

The requirements under the Companies Act 2006 for a limited company to have Articles means they are governed by and must comply with statutory law.

Shareholders Agreements

These agreements generally contain additional obligations between the shareholders themselves and are supplemental to the Articles.  They are for the benefit of the shareholders, rather than the company itself.  They set out the rights, responsibilities, obligations and liabilities of each shareholder and also the directors. 

Shareholder Agreements cover matters such as:

  • the decision making process;
  • specific rights and obligations of directors;
  • restrictive covenants;
  • what happens if a shareholder wants to leave;
  • resolving a deadlock (where shareholders cannot agree); and
  • provisions for protecting minority shareholders

A Shareholders Agreement is a private document between those involved and so no third party has access to it or a right to view it. 

New shareholders are not automatically bound by a Shareholders Agreement.  Therefore, the existing shareholders will need to amend the Shareholders Agreement to include any new parties.

Shareholders Agreements are governed by contract law like other contracts made between private parties.  An action breaking a company’s Articles is likely to be ruled invalid, whereas a breach of the Shareholders Agreement will trigger contractual remedies.

Finally

Although you are not legally required to have a Shareholders Agreement, if you have two or more shareholders you should consider one.  It can regulate how decisions will be made, how future changes will be dealt with and what happens if the shareholders disagree.  Putting a Shareholders Agreement in place at the outset can save time and money at a later stage.

You must be careful to ensure to ensure that the provisions of the Shareholders Agreement complement the Articles and we recommend you seek legal assistance with drafting these documents. 

For help and advice on Shareholders Agreements and Articles, please speak to our Corporate and Commercial team by emailing commercial@mlplaw.co.uk or calling 0161 926 9969.

Company Buyback of Shares

Under a share buyback, a company acquires shares in itself from an existing shareholder(s). A company may wish to undertake a share buyback to return cash to shareholders or to buy out a shareholder seeking an exit.

This article will deal with the process for a limited company to buy back shares from its distributable reserves.

A buyback must (unless a relevant exception applies) follow the procedure in Part 18 of the Companies Act 2006.  Failure to do so, could lead to the transaction being void and, potentially, fines on directors.

Broadly, the procedure to follow includes:

  • Checking the company’s Articles to ensure there is no prohibition or restriction in respect of share buybacks
  • Ensure the shares to be purchased are fully paid up
  • Confirm the company has adequate distributable reserves to fund the buyback
  • Prepare a contract to document the share buyback and the main terms
  • Hold a board meeting of the company to consider the buyback, confirm there are adequate distributable reserves, approve the buyback contract and submit it to the shareholders for approval
  • Approval of the buyback contract by the shareholders of the company by special resolution.  Note that the shareholder whose shares are being purchased is not entitled to vote on this resolution
  • Complete the buyback contract and ensure the consideration is paid
  • Deal with filings, ie paying stamp duty on the Form SH03 (Return of Purchase of Own Shares) and filing this, together with Form SH06 (Notice of Cancellation of shares), if the purchased shares are to be cancelled, at Companies House

The company must pay for the shares in full and the buyback agreement cannot provide for deferred consideration.  If the company does not have sufficient distributable reserves, the company may need to consider buying back shares in instalments over a period of time.

You will need to ensure that the share buyback is compliant with the tax advice from the company’s tax adviser to ensure the consideration for the share buyback obtains tax treatment as capital gains tax rather than income tax.

For help and advice on a company buyback of shares, please contact the Corporate and Commercial team by emailing commercial@mlplaw.co.uk or calling 0161 926 9969.

A GUIDE TO BUSINESS STRUCTURES

There are a number of different business structures that can be chosen by an individual setting up a business in the UK.  It is not always easy to decide which structure will best meet your business/individual requirements as there is not one business structure that will suit every business.  Each structure has its own pros and cons.  This guide provides an overview of the main business structures. 

Sole Trader

The simplest way to start a business is as a sole trader.  A sole trader has complete control over the business and all the profits go to the sole trader.  The disadvantage of this structure is that all the liability lies with the sole trader including all debts and legal claims of the business.  If a sole trader fails in his enterprise he can walk away relatively easily as long as he has no creditors, but there is a risk of being made bankrupt as a sole trader if unable to pay the debts of the business as they fall due.

Partnership

A partnership allows two or more people to join forces and set up business together.  Each partner will share the net profits of the partnership, but will also be liable for its liabilities.  A partnership agreement should be entered into to regulate the management of the partnership and deal with issues such as profits and losses, partnership property, admitting new partners, leaving the partnership, etc.  If no agreement is entered into, the partnership will be regulated by the Partnership Act 1890, which does not cover all requirements and some of its provisions are not appropriate for modern business life.

Limited Liability Partnership (“LLP”)

An LLP is a cross between a partnership and a limited company.  It is a corporate body and a legal entity separate from its members but has the organisational flexibility of a partnership. LLP members have limited liability in that, generally, they do not need to meet the LLP’s liabilities.  An LLP has similar filing and disclosure requirements as companies.   A LLP retains more flexibility than a limited company and it is therefore advisable to enter into an LLP Agreement to regulate the management of the partnership. 

Private Limited Company (“Limited Company”)

This is probably the most common form of company structure.  A Limited Company allows individuals to keep their business distinct from their personal affairs.  The company is its own legal entity and only the company itself is liable for its debts. The company is limited by shares and as a shareholder in the company you can only lose the money that you have invested.

Running a company does have administrative burdens.  On formation, all companies must file a statement of capital at Companies House.  Any alterations to the share capital, constitution, directors, etc will also need to be filed, together with accounts and annual confirmation statements. Shareholders will have to file both individual and company tax returns.  The running costs of a company may therefore be higher than those of a partnership or a sole trader, but the initial cost of setting up a company is similar.

All registered companies must have articles of association.  These can be model articles or bespoke articles, drafted specifically for the needs of the company and its shareholders.  It is also recommended to have a shareholders’ agreement.

Please see the blog on Shareholders Agreements and Articles – https://www.mlplaw.co.uk/shareholders-agreements-and-articles-of-association-does-my-company-need-them/

Company Limited by Guarantee

A company limited by guarantee is formed in the same way as a company limited by shares. A statement of guarantee, which must be included in its constitution, is a statement by each member that if the company is wound up, he will contribute up to a specified (and usually nominal) amount towards payment of the debts and liabilities of the company and the costs of winding up the company.

This business vehicle is favoured by ‘not for profit’ organisations such as charities, clubs and societies, property management companies and community interest companies (see below).

Community Interest Companies

These are limited liability companies with a primary purpose of benefitting the community it is formed to serve and not for the benefit of shareholders, directors and employees.  They are designed for social enterprises that want to use their profits and assets for public good and are generally prevented from distributing profits and assets to the members.

Conclusion

There are advantages and disadvantages to every business structure and before setting up a business it is advisable to speak to a solicitor specialising in business law to receive the advice you need as to which structure will be most suitable for you.

For help and advice on Shareholders Agreements and Articles, please speak to our Corporate and Commercial team by emailing commercial@mlplaw.co.uk or calling 0161 926 9969.