November 2021 - MLP Law

How to Attract and Retain Employees

With the disruptions caused by COVID and the current labour shortages in many industries, it is more important than ever to try attract and retain employees.  If your company has the cash to make pay rises, that is one short-term solution.  But for many businesses who are not currently cash rich or who are looking at attracting quality employees and employee retention in the long term, share schemes can be a cost effective solution for your company and an attractive prospect for employees.

When a company is considering share-based incentives for employees, it is key to take appropriate advice and determine an effective plan.  Such plan must consider both the commercial design and the tax treatment of the structure. 

Purpose of the incentive plan?
·         Recruit and retain staff
·         Incentivise staff
·         Enforce good/positive behaviours
·         Reward performance
·         Support the culture of the company
·         Enforce the structure of the company and employee based ownership
·         Performance based or only exercisable upon an exit event
Once a company has considered the above and determined the main purpose(s) of the plan, then advisors can look at tax structures which best suit what a company is looking to achieve.

Different types of plans
1.    EMI Schemes
These are one of the most popular share-based incentive plans and are often the best approach.  They are very flexible and very tax efficient.  However, they are not available to all companies, due to the qualifying criteria, which we look at briefly later in this blog.  These are a HMRC plan.
 
2.    CSOP, SAYE and SIP
These are alternative HMRC plans.  They are less flexible than EMI but still provide capital gains opportunities and income tax reliefs.
 
3.    “Geared Growth” Arrangements
These refer to growth shares and similar arrangements introduced more recently by HMRC.  They allow for income tax to be chargeable at the outset (if elections are made), then capital gains tax if performance is high (so valuation is key).  These are more complex, but gaining popularity in private limited companies.
 
4.    Unapproved Share Schemes
If HMRC schemes are not available or not suitable, a company can still look to put in place income-taxed arrangements including non-tax advantaged options, phantom options, etc.  These are much more flexible arrangements as a company does not have to meet any qualifying criteria or seek elections/approval from HMRC. They are, by their nature, less tax-advantaged than the HRMC schemes detailed above. Income tax will be charged when an individual makes a gain.

Effects of COVID when considering Share-based Incentives
For many companies, share values will now be lower and there may be changes in business strategies, for example, there may be more focus on short to medium-term plans rather than long-term strategies.  Many companies will have reduced workforces.  There may be cash constraints on the company.  All these things will require consideration before determining the best options for a company. 
Although there were no CGT changes in the recent budget, it is important to get the commercial structure right, so the incentive gives the best available tax outcome, even if tax benefits change.

Effects of COVID on EMI Schemes
In terms of EMI schemes, which are one of the most popular type of share-based incentives schemes, the qualifying criteria for companies is briefly as follows:
·         £30m gross asset limit; and
·         250 employee limit
It may be that due to COVID, a company’s gross asset value has reduced and/or the employee numbers may be lower due to a reduced workforce.  So a company which may not have qualified for EMI previously, may now qualify. MLP Law can help and advise you on selling your business. ‘

Please speak to our Commercial team if you would like more information regarding this article or for other advise on 0161 926 9969 or email us commercial@mlplaw.co.uk.  

Court Decision Weakens Union’s Collective Bargaining Rights

In businesses that have recognised an independent trade union and are therefore obligated to follow collective bargaining rules, attempts to negotiate contractual terms with employees can be slower and more complicated than some employers would like.  Such employers should therefore take notice of a recent Supreme Court decision, diluting the rights of a union is those circumstances.
 
Background
In simple terms, collective bargaining is the process by which staff, through their unions, negotiate contracts with their employers to determine their terms of employment.  This can include negotiating:
 
·         pay,
·         benefits,
·         hours,
·         leave,
·         health and safety policies, and
·         ways to balance work and family.
 
One of the key rules of collective bargaining is that it is unlawful for an employer to make an offer to a worker who is a member of a recognised independent trade union (or one that is seeking to be recognised), if the primary aim is to prevent the employee’s contractual term from being determined by collective agreement.
 
Change in Law
A recent case, however, established an exception to this rule, holding that employers may lawfully make direct offers to workers to change a contractual term, provided that the change to the worker’s contractual term could not have been determined by a new collective agreement
(Kostal UK v Dunkley [2019]) .  Thus, there is nothing to prevent an employer from making an offer directly to workers if the employer has first followed, and exhausted, the agreed collective bargaining procedure.  Essentially, attempts by employers to cut the union out of such negotiations completely are unlawful but employers can go round the union, where negotiations have stalled.
 
Comment
The effect of this judgment allows employers to circumvent collective bargaining processes and make direct offers to workers in respect of specific contractual terms, in certain limited circumstances.  In doing so, it significantly weakens the previously understood scope of the protection of union members set out in legislation.  Employers must, however, have thoroughly explored the collective bargaining process before taking such a step.  Specific advice should therefore be sought in relation to individual circumstances.
 
If you would like to advice from the Employment team at MLP Law in respect of any of the issues raised here or more generally, please do not hesitate to get in touch on 0161 926 9969 or employment@mlplaw.co.uk, or follow us on Twitter @HRHeroUK

Make the most of your MLP Flex Retainer

How would you like 2 free MLP Flex hours?

We want the whole world to know about MLP Flex.

Or, to put it more accurately, we want more businesses to feel the benefits of MLP Flex.

After all, which business wouldn’t benefit from proactive, Partner-led commercial and legal support for a simple monthly fixed fee?

We know there’s no one better at telling others about the proactive, commercial legal support it brings than our MLP Flex clients.

That’s why we wanted to let you know about the MLP Flex “Refer a Friend” scheme.

We’d love it if you could share your experiences of MLP Flex with your friends, business contacts or anyone else you think might also benefit from MLP Flex.

In return, if anyone you refer to us becomes an MLP Flex client, as a thank you from us you will automatically receive an allocation boost of 2 free MLP Flex hours.

Further details can be found below:

• If you refer someone to us who becomes an MLP Flex client, we will automatically apply an allocation boost of 2 free hours to your MLP Flex service.

• Only current MLP Flex clients are eligible for the MLP Flex Refer a Friend allocation boost.

• Your allocation boost will apply from the month after your referral signs up to MLP Flex and applies only to the current MLP Flex period.

• The person/business you refer must sign up to a minimum MLP Flex service of 12 months and a minimum MLP Flex allocation of 10 hours.

• The allocation boost does not apply to referrals between group companies or associated companies.

If you are not yet an MLP Flex client, please click the link below to find out how MLP Law can help your business get ahead of the game.

Employee Ownership

Employee ownership is not a new concept and Employee Ownership Trusts (“EOTs”) were first introduced through the Finance Act 2014, to encourage more businesses to become employee owned.  In recent years there has been a surge in the number of business converting to employee ownership using the benefits of the EOT mechanisms. According to the June 2021 report from the employee ownership association (based on the White Rose Centre for Employee Ownership survey) over the past year there has been a 30% increase in the amount of employed owned businesses with there now being 730 employee owned businesses across the UK, which is 360 more business then reported in 2019.
 
So why might there be a high increase in the amount of employee owned business? One of the main factors that has caused such a steep increase in the number of businesses moving to employee ownership is the pandemic. Whilst almost all businesses were in some way affected by the pandemic, causing a decrease in sales rates, working hours and the rate of employment, to give a few examples. It opened the door for businesses to look at their possible future and how it could be improved. For many businesses they found the best way to improve during the pandemic was to convert to an employee ownership business with the main goal being to improve productivity and performance.
 
“The pandemic pressure put employee ownership back on the map”- The Times headline.
 
Rutgers School of Management and Labour relations conducted a study into employee ownership and how this business model benefited businesses during the pandemic. The study was published in October 2020 and reports that employee owned companies maintained standard working hours and salaries at significantly higher rates than non-employee owned companies. Not only that but employee owned companies were 3 to 4 times more likely to retain staff at all levels.

We will continue to see Employee owned businesses grow as it becomes increasingly popular, even the construction industry are starting to familiarize themselves with the idea of employee owned business. However, it is important to consider there are both advantages and disadvantages to Employee Ownership as stated in our guide to Employee Owned Trust.

To download our Business Start Up Guide please click here. .

 If you wish to speak to our experts at MLP Law for more information and professional guidance please contact our employment and business teams on: corporate@mlplaw.co.uk

Post-termination restrictions: what are they and are they enforceable?

Senior contracts of employment typically contain clauses to protect an employer in the event their employees leave the business. These often include clauses which seek to prevent the now former employee from competing with the business or poaching its customers or staff.
 
It is vital for employers to ensure any post-termination restrictions are correctly drafted as a failure to do so will likely mean that the restrictions are not worth the paper they are written on and will not be upheld by a court.
 
Are these types of restrictions enforceable?
 
The stating point is that these clauses, often referred to as “post-termination restrictions” or “restrictive covenants”, are restraints of trade which are unlawful unless they fall within a lawful exception. In an employment situation, this means that:
 
·                the employer must have a legitimate business interest to protect; and
·                the restriction must be reasonable between the employer and the employee.
 
Legitimate business interest:
 
An employer will not be able to enforce a post-termination restriction merely to prevent former employees competing against it. Instead, the employer must show that it has some more defined business interest, that amounts to property of its business, which it is entitled to protect.
 
In an employment situation, legitimate business interests typically include:
 
·                trade secrets and/or confidential information;
·                trade connections, customers and suppliers; and
·                the skills of the employer’s workforce.
 
Reasonable as between the parties:
 
Even if an employer is able to establish that it has a legitimate business interest to protect it will only be able to enforce a post-termination restriction if the restraint is reasonable as between the parties.
 
This does not mean the restriction must give equal benefit to employer and employee. It means that the employer must show the restriction is no wider than is necessary to protect their legitimate interest.
 
The reasonableness of the restriction will be assessed as at the date the restriction was agreed by the parties and not with the benefit of hindsight at the time of enforcement.
 
Assessing reasonableness between the parties will usually include consideration of:
 
·                the general scope of the restriction, in terms of the interest it seeks to protect;
·                the geographical scope of the protection; and
·                the duration of the effect of the restriction.
 
If a restriction is vague, for example if there is lack of clarity as to which customers are covered by a non-dealing clause, or there is a failure to define the geographical area properly, it may well be found to be unenforceable.
 
Duration:
 
The key question here is how long the employer reasonably requires to protect its business from competition from a former employee who may have knowledge of, or influence over, its clients/customers. This will vary from case to case, but it will commonly be no more than twelve months in the context of a typical employment relationship.
 
Area restrictions:
 
Area restrictions typically restrain an employee from any competitive activity (usually fairly widely defined) in a specific geographic area. The focus of the restraint is on the geographical area as a protection against competitive activity, rather than closely defining the type of competitive activity.
 
What types of post-termination restrictions are used by employers?
 
Business-specific non-compete clauses:
 
This type of clause (also known as a ‘blanket’ non-compete clause) restrains the employee from engaging in any business which is competitive with that of the employer. The employee’s activities may be restrained where they are directly competitive, or more widely (and controversially), indirectly competitive.
 
Business-specific non-compete clauses are usually aimed at protecting trade secrets and confidential information or, where the industry is highly competitive, customer connection or a combination of legitimate interests. They may also be limited geographically, although sometimes a geographical limit may not be strictly necessary.
 
The usual justification for this type of express restriction is that any lesser type of restraint will be impossible to police. Nonetheless, if the court perceives that a lesser form of restriction will provide sufficient protection, then the restraint will be held to be unenforceable.
 
Non-solicitation and non-dealing clauses:
 
Non-solicitation and non-dealing clauses are aimed at preventing an employee from exploiting their knowledge of their former employer’s customer/client or supplier base and/or their own relationship with those customers/clients or suppliers built up during the course of the employee’s employment. They are therefore the preferred type of restriction when an employer seeks to protect its trade connections. The protection they provide tends to be more defined, and therefore more likely to be enforceable, than a blanket non-compete clause.
 
The distinction between a non-solicitation and non-dealing restriction is that:
 
·                a non-dealing restriction seeks to prevent the employee from carrying out any business with the relevant customer/client or supplier, irrespective of who contacted whom and how that business came about; and
·                a non-solicitation clause seeks to prevent the employee contacting that customer/client or supplier with a view to persuading the customer to deal with the employee.
 
Non-poaching of employees clauses:
 
A trained and stable workforce is something that an employer may often be entitled to protect with a suitable express post-termination restriction. The employer may seek to prevent its former employee from poaching staff, particularly if the employee in question is senior and is likely to have some influence over more junior staff and/or has confidential information in relation to the employees. If, for example, the manager of a particular specialist team leaves to set up in competition, the employer would not wish that manager to be free to entice the rest of the team to join the manager.
 
Non-poaching restrictions take two forms, namely:
 
·                a restriction on soliciting the employees; and
·                a restriction on employing the employees.
 
To be enforceable, the no-poaching clause should be limited to poaching on behalf of a competitive business, although an employer may see any attack on its workforce as something to be prevented even where the recruiting entity is not a competitor.
 
MLP Law’s Employment Law solicitors are experts at ensuring employers have the correct clauses in place, in order to ward off and defeat any unfair competition their business may face. They are also vastly experienced in pursuing and defending claims relating to post-termination restrictions, leading the fight to protect your business from unfair competitors.  
 
Examples of how we can assist include: 
 
·                preparing bespoke “business protection” clauses, including post-termination restrictions (non-compete, non-solicitation etc) and confidentiality restrictions; and 
·                enforcing restrictions through injunction applications and claims for damages.  
 
Get in touch with the MLP Law Employment team today to discuss any of the issues raised here or more generally. You can contact us on0161 926 9969 or employment@mlplaw.co.uk, or follow us on Twitter @HRHeroUK

Football Managers and Employment Law

The managerial merry-go-round has been in full swing during the 2021-2022 season, with 6 of the 20 Premier League clubs deciding to dismiss their manager in recent weeks following poor runs of form.

The most recent of these dismissals, and arguably the highest profile, is Manchester United’s decision to dismiss manager Ole Gunnar Solskjaer after almost 3 years in the job.

Here in the Employment team at MLP Law we naturally can’t help but think about the employment law implications whenever managers are dismissed. In this blog, we cover the relevance of employment law to such high profile dismissals and consider why it can feel like the usual principles don’t seem to apply.

What employment rights do football managers have?

The first thing to say is that football managers, however high profile and however well paid, have the same employment rights as any other employee. This means they have a right not to be unfairly dismissed (provided they have the requisite two years of continuous service) and a right not to be discriminated against, amongst other things.

Unfair dismissal and football managers

In most cases, employees must have at least two years of continuous service to bring a claim for unfair dismissal. This fact alone may explain why we rarely hear about football managers bringing unfair dismissal claims, given that many managers are lucky to be given even two years in a job.

When managers are dismissed, it is overwhelmingly likely that the reason for their dismissal is poor performance. Whilst this can be a potentially fair reason for dismissal, in order to be fair such a dismissal should be the culmination of a proper performance management process, under which the employee is given a reasonably opportunity, over a reasonable timescale, to improve their performance to the required standard. It is not uncommon for this process to take around four to six months, but it can take even longer.

By contrast, most football manager dismissals follow a poor run of results, usually over a matter of only a few weeks. Indeed, it is common for the media to report that a particular manager has been given say 3 games to save their job or face the sack. It is unfeasible for an employer to conduct a reasonable performance management process over such a short period of time, meaning most manager dismissals will inevitably be unfair dismissals.

So why don’t we see more unfair dismissal claims from dismissed managers?

Although not completely unheard of (Antonio Conte being a successful recent example), it is still very rare to hear of a high profile football manager bringing a claim for unfair dismissal, even where it seems inevitable that such a claim would succeed. But why is this?

Perhaps the answer lies in the limit on the compensation which the Employment Tribunal can award in most unfair dismissal claims, which is a compensatory award of £89,493 plus a relatively modest basic award based on length of service.

Such sums are clearly a lot of money for most employees, but perhaps not so for football managers who are often paid annual salaries in excess of £10 million. In that context, it seems unlikely that the prospect of bringing an Employment Tribunal claim would ever be more than a tiny blip on the radar of a dismissed football manager.

Why do we always hear about managers receiving large compensation payments?

A detail which irks many football fans is when an underperforming manager receives a huge pay off when they are dismissed. So why are such large payments made?

The simple answer is that all employees are entitled to notice of termination of employment. There is a statutory minimum amount of notice required, but this is often superseded by longer periods of notice (especially for key employees). Longer notice periods offer stability and security for both employer and employee.

It is likely that in many cases the “compensation” paid to employees on dismissal is in fact their contractual notice entitlement, paid as a lump sum. The fact that these payments involve such eye watering sums is simply a reflection of highly paid top level managers are.

Another factor is that managers typically sign fixed term contracts for one or more seasons. In some cases, the fixed term contract may not include a right for the club to terminate the contract before expiry of the fixed term and may instead be legally obliged to pay up the remaining period of the contract in full if they wish to remove the manager.

Why do managers often leave their club “by mutual agreement”

A termination “by mutual agreement” can mean a number of things in this context. Occasionally it is simply a phrase used to avoid the perceived embarrassment of a dismissal. However, it may also be a reference to the club and the manager having entered into a Settlement Agreement as a means of ending their employment. Such an agreement may be appropriate where there is compensation to be agreed and certain confidentiality restrictions are being imposed.

How could clubs do things differently and save themselves millions?

There are examples in world football of clubs doing things differently, which English clubs could potentially consider rather than shelling out millions after millions to replace their managers every few years.

Clubs in Italy, for example, are famous for keeping managers on their books, effectively on garden leave, for their notice periods rather than paying them a lump sum for an immediate exit. The benefit of this approach is that the club can agree with the manager to waive their notice period if they are offered a new role elsewhere. They could also prevent their former manager from joining a rival, although if they dismissed them for poor performance, this may not be such a concern!

Get in touch with the MLP Law Employment team today to discuss any of the issues raised here or more generally. You can contact us on0161 926 9969 or employment@mlplaw.co.uk, or follow us on Twitter @HRHeroUK.