Christmas 2004

In this issue

Who is an employee? Why does it matter?

Directors: dealing with company assets

Business property relief - IHT savings

Business Leases: the only way is up?

Horrible hygiene? Stiffer sentences

Payment of Charity Trustees

Meade King News

Chambers Recommendation

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Who is an employee? Why does it matter?

Issues of jurisdiction are common in tribunal cases.

Some employment protection legislation is designed to benefit only those who come within the definition of an 'employee' i.e. typically those who work under a contract of employment rather than under a contract for services. Contracts can be oral or written, express or implied.

Other legislation benefits 'workers'.

Working patterns are becoming ever more diverse and the courts appreciate that no single criterion can easily be applied to determine employment status. The idea of giving protection to 'workers' is gathering momentum.

Problems can also arise in identifying the relevant employer - most recently in the case of agency workers who are now thought to account for 1.4 million of the available workforce in the UK.

Issues frequently arise in determining the identity of the employer. Is the employer the recruitment company or the client of that business?

Franks v Reuters Limited [2003] IRLR 423
In this case the tribunal found that there was no contract of employment between F and R (after 5 years length of service) on the basis that there were no mutual obligations between the temporary worker and the client of the recruitment business.

The Court of Appeal made clear however, that the tribunal should consider length of service as one of the relevant facts in determining whether an implied employment contract may exist.

Dacas v Brook Street 2004 IRLR 358
D had signed a 'Temporary Worker Agreement' providing that it would not give rise to an employment contract with B or the client business i.e. the local authority

B was responsible for administering discipline, PAYE, holiday entitlement and sick pay. After 4 years the council told B to withdraw the contract from D. D claimed unfair dismissal against both.

The tribunal followed the agreement. D appealed. The EAT upheld the appeal and found that D had been employed by B. The Court of Appeal however considered that the council was the employer.

Mummery LJ was influenced by the high degree of control exercised by the council. He relied on the fact that the council was under an obligation to pay D albeit through B. "The fact that the obligations were contained in express contracts between D and B, and between B and the council does not prevent them from taking effect as mutual obligations between D and the council."

Managing the Risk of Implied Employment Contracts: Negotiating Tips

Following Dacas an agency worker may be an employee of the agency but he may now be an employee of the client.

If an agency worker is dismissed he is now likely to be advised to claim unfair dismissal against both the agency and the client business. Liability will be determined by questions of fact and law.

To try and avoid liability as an employer consider some of these suggestions when dealing with a recruitment business:

• reduce the day-to-day control of agency workers; do not discipline, do not appraise
• minimise integration into the permanent workforce: e.g. do not allocate supervisory or managerial roles, avoid involvement in training, team and company social events
• reduce and control the length of assign-ments; consider implementing a policy of directly recruiting long-term temps
• seek an indemnity and warranty from the recruitment business in respect of claims based on employment status
• do not automatically accept the terms and conditions of the recruitment business
• do not automatically accept transfer fee clauses replicating Regulation 10 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 SI 2003/3319
• discuss the possibility of a VAT saving scheme, if your business is zero-rated
• seek confirmation that the recruitment business will be responsible for PAYE and compliance with immigration legislation.

For further information please contact Nicola Hughes on 0117 926 4121 or email

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Directors: dealing with company assets

There are strict rules which are designed to protect shareholders from misfeasance by the directors. The rules apply to owner-managed companies however absurd it may appear for a director to give notice to him or herself or other members of his/her family.

Even if the director has dealt fairly with his/her company but fails to observe the shareholder protection provisions in the Companies Act he/she may still be called to account to the company for any profit or gain that may result.

A classic example is when a company sells an asset or part of its business to a director or someone connected to a director. Even if the transferee pays full value for the assets or business the company can choose to avoid the transfer at any time in the future as if the asset had belonged to the company all along. As a consequence the transfer itself will be void and the director concerned may have to account to the company for the full value of the land or business at that date not just the value of the business on the date that he/she acquired it. It should be noted that this is most likely to occur following a sale or liquidation of the company when the director no longer controls the company's decision to avoid the original transaction. The director would have a claim for the return of the money he/she paid for the asset in good faith but this is unlikely to be of great comfort if the company is in the course of being wound up.

This wholly inequitable result can be avoided simply by observing the formalities set out in the Companies Act whereby notice of the director's interest is formally declared at a board meeting and any transaction for the sale of assets by the company to one or more of its directors is formally sanctioned by the shareholders.

If you consider that you may have already entered into a transaction with your company that may be voidable for failing to comply with these statutory procedures, all is not lost as it may be possible for the shareholders to ratify the original deal and that should then bind any liquidator or future owner of the company.

For further information please contact James Hawkins on 0117 926 4121 or email

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Business property relief - IHT savings

If you own any business or interest in a business it is worth examining whether it qualifies as 'relevant business property' under the Inheritance Tax Act 1984. If it does, the property will on transfer enjoy a reduction of either 50% or 100% in its value for IHT purposes depending on the type of property. This can provide scope either for lifetime tax planning or drafting your will to take maximum advantage of the tax savings involved.

Relevant business property falls into the following categories

Businesses that attract 100% relief:

aproperty consisting of a business or an interest in a business (including the interest of a sole trader or a partner)

bunquoted securities of a qualifying company which (either alone or together with other unquoted securities or shares) gave the transferor control of the company immediately before the transfer

cshareholdings in unlisted companies, including those traded in the Unlisted Securities Market (USM) or Alternative Investment Market (AIM)

Qualifying for 50% relief are:

dshares or securities in a company, which are quoted and which (either alone or with other such shares or securities) gave the transferor control of the company immediately before the transfer;

eland, buildings, machinery or plant which, immediately before the transfer were used wholly or mainly for the purposes of a business carried on by a company of which the transferor then had control, or a partnership of which he or she was then a partner

fland, buildings, machinery or plant which, immediately before the transfer were used for the purposes of a business carried on by the transferor and which was settled property in which the transferor had an interest in possession

The business must be a business carried on for gain. A business or an interest in a business will not qualify if it consists wholly or mainly of dealing in securities, stocks or shares; dealing in land or buildings or making or holding investments (unless the business is a holding company of one or more companies whose business does qualify).

The property must have been owned by the transferor for two years immediately before the transfer in order to qualify (though if it has not it will still qualify if it replaced other relevant business property provided they were together owned for at least two of the five years immediately preceding the transfer)

If you think that you may own property which qualifies for business property relief (BPR):

• check the position with your business accountant;
• consider leaving business property which qualifies for relief in your will to someone other than your spouse, as transfers to the spouse are free of tax in any event

If you do not own relevant business property but are attracted by the reliefs on offer

• talk to your financial adviser or stockbroker about the advantages and disadvantages of holding shares in unlisted companies
• explore the possibility of investing in a business owned by a family member.

Reliefs are also available for agricultural property.

These will be the subject of a future article.

For further information please contact Vanessa Eyre on 0117 926 4121 or email

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The government is considering proposals to outlaw the use of upward only rent review clauses. It produced a consultation paper in June detailing its reasoning behind its proposals and how it intended to review the situation to see whether any action was warranted.

The rent review provisions in most standard leases are worded so that the rent cannot fall on any review below the level current at the date of the review. This does not always mean that the rent will go up; dependant on the market conditions at the time, the rent could stay the same.

How does this, then, affect the tenant?

The government is concerned that "upward only rent reviews are a source of grievance to many in the business community". Tenants argue that when there is a review and rents subsequently fall, the tenant is stuck with overrented premises until the market reaches that level again or until the end of the lease. Bearing in the mind the nature of the commercial property market, this could mean that the tenant is paying over the odds for a substantial period of time. The government argues that outlawing such reviews "will promote greater flexibility in the commercial property market" and provide greater fairness for the business tenant.

How will this affect the commercial property market?

The converse argument is that upward only rent reviews provide the market with a measure of stability and counter-inflation. It is probably only in times of a deep and lasting recession that this argument would fail.

To a certain extent, the market dictates the levels of rent which landlords can set and which tenants will accept; it is a question of supply and demand. Any investors buying a property let without an upward only review clause may be reluctant to accept the uncertainty of open rent reviews. Such investors are keen to purchase properties where the yields are sufficient to justify the amount of their initial investment. Without the guarantee of at least maintaining the rental levels at the time when the investors purchased the property, developers would have to set higher rents at the outset to ensure that the investor would at least get a more substantial return on its investment. The tenant would then end up paying a higher rent.

How will this affect the Landlords?

Upward only rent reviews "underpin the capital value of the property" by guaranteeing the levels of return to the landlord. Individual landlords and pension funds are all concerned to maximise the capital value of their property. Any proposals to change the current system could potentially affect this stability by weakening property investment values and consequently discouraging investment. This would certainly not benefit the landlords, and may have a detrimental effect on tenants by driving up rental levels to compensate for the landlords' lack of a secure return for the entirety of the lease term.

How the government will deal with this issue remains to be seen; whatever the outcome, the debate will doubtless rumble on...

For further information contact Julie Scott on 0117 926 4121 or email

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Horrible hygiene? Stiffer sentences

Several recent cases indicate that food hygiene prosecutions are now being taken more seriously by the courts - at least judged by the penalties which have been imposed.

In a prosecution brought by Bath & North East Somerset District Council against Sprint Group Retail Ltd, magistrates decided that their own powers to sentence were too low, and sent the case to Bristol Crown Court. After hearing details of insanitary conditions at the Rat & Parrot Pub in Westgate Street the Crown Court imposed fines of £10,000 in respect of each of the two offences.

Meanwhile, magistrates in Peterborough used their own sentencing powers to the full in a prosecution by Huntingdonshire District Council against Mill House Inns (Trading) Ltd., which was fined £5,000 for failing to maintain the Mill House restaurant in a clean and hygienic condition.

Most dramatically, the owner of a slaughterhouse in Bradford, Mr Yakub Yusuf, has been given a six month prison sentence at Bradford Crown Court following a prosecution by Calderdale MDC involving 23 breaches of food hygiene regulations.

For further information please contact Judith Kelly 0117 926 4121 or email

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Payment of Charity Trustees

Generally, a trustee of a charity may be paid for services provided to the charity only if there is provision for it in the constitution of the charity or it is authorised by the Charity Commission. There is an exception for 'small charities' i.e. those with an annual income of less than £10,000.

A small charity may make such payments whether or not its constitution allows it and without any authorisation, provided:

• the total is not more than £1,000 in any financial year;
• the service provided is necessary in the interests of the charity;
• the amount paid is reasonable in relation to the service provided;
• the trustee is fully able to carry out the task;
• a majority of the trustees do not receive any payment from the charity;
• the trustee concerned withdraws from any meeting at which the payment is discussed;
• the payment is declared in the charity's accounts.

For example, this would allow a trustee who is a builder to be paid for work done to the charity's premises. It applies only to payment for services over and above the carrying out of the duties of a trustee. Payment for those duties is subject to strict control whatever the size of the charity.

For further information contact Peter Watkin on 0117 926 4121 or email

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Meade King News

We are delighted to announce the recruitment of Nicola Hughes, a new solicitor to the practice.

Nicola joins the employment team alongside Richard Holmes. She is an employment lawyer of some 5 years experience and has previously dealt with both Applicant and Respondent work.

She brings expertise in contentious work, including representation at Tribunal in cases of unfair dismissal, T.U.P.E transfers and discrimination.

She also has considerable experience of a wide range of non-contentious work.

Nicola's practical approach to claims focuses on 'prevention, rather than cure' and she is able to advise and offer health checks for your contracts of employment, policy and procedures in keeping with the current and revised legislation.

Nicola has contributed this edition's lead article and can be contacted on 0117 926 4121 or

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Chambers Recommendation

Once again the firm's insolvency and commercial litigation has been recommended in the prestigious Chambers Guide to the Legal Profession.

Adam Chivers is described as a 'bright and tenacious operator who is commended for bringing a commercially realistic approach to litigation'.

The firm's insolvency department is recommended as 'a safe pair of hands providing a personal, prompt and reliable service'. Lead Partner Keith Mahoney 'comes up with good practical solutions' and is especially rated by peers for being 'technically great' in personal insolvency. Researchers were told that he is also 'very useful in a scrap when a firm finds itself in trouble or with a problem'.

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Whilst every effort has been made to ensure accuracy, information contained in the Orchard may not be comprehensive and should not be acted upon without professional advice.