Using ‘Length of service’ in Redundancy Selection

Since the age regulations came into force in October 2006 it has been unlawful to treat employees differently because of their age unless such treatment can be objectively justified.

One area where this has important implications is where an employer uses ‘length of service’ as the sole criterion or one of several criteria in a redundancy selection exercise. The problem for employers has been that the use of ‘length of service’ as a criterion is potentially indirect age discrimination and therefore possibly unlawful under the regulations.

Indirect age discrimination occurs where a ‘provision, criterion or practice’ used by an employer, in this case the use of ‘length of service’ as a redundancy selection criterion, places an employee or group of employees of a certain age group at a particular disadvantage compared to other employees not of that age group. Where an employer uses ‘length of service’ as a criterion then younger workers may argue that this disadvantages them as, due to their age, they have not had the opportunity to accrue length of service equivalent to their older colleagues.

In Rolls Royce v Unite the Union [2009] the Court of Appeal dealt specifically with the question of whether length of service could lawfully be used as a redundancy selection criterion. In this case a collective agreement existed which provided that redundancies would be dealt with by using a matrix selection process which included various criteria including ‘length of service’. The employer wanted to avoid using this criteria as it felt that its then business needs would not be well served by selecting staff using ‘length of service’ as one of the criteria.

Prior to the employer’s appeal to the Court of Appeal the High Court had held in this case that:

• using ‘length of service’ as a criterion was objectively justified and therefore not unlawful under the regulations;
• length of service is likely to be a fair indicator of both loyalty and experience which were qualities that might not be fully taken into account were length of service not included as a criterion;
• the criterion of length of service respects the loyalty and experience of the older workforce and protects the older employees from being put into the labour market at a time when they are particularly likely to find alternative employment hard to get.

The Court of Appeal largely agreed finding that use of ‘length of service’ as one of several criteria in a redundancy selection was allowable. Significantly, the High Court (with the Court of Appeal agreeing) found that if ‘length of service’ was used by the employer as the only criterion in a redundancy exercise (i.e. applying ‘last in, first out’ (LIFO)) then this might be objectionable under the regulations.

What should you do?

The Unite case shows that employers can confidently continue to use ‘length of service’ as a selection criterion in a redundancy exercise provided that it is used as one of a range of criteria applied to the employees in the redundancy selection pool.

Use of LIFO as the sole redundancy selection criteria may still be permissible in particular cases but employers should seek expert employment law advice before adopting this. Furthermore, as this is just one aspect of the law relating to redundancy, employers should be cautious and seek expert advice when planning and implementing any redundancy dismissals.

For further advice contact David Seals on 01737 854573 or at david.seals@morrlaw.com.

Where there’s (not) a Will

Jane Forbat explored in the last newsletter the reasons for disputed wills. This month I shall look at the consequences of not having a will.

Figures released by the National Consumer Council suggest that 27 million adults in England & Wales do not have a Will. That amounts to 64% of the population that are leaving it to the laws of intestacy to determine how their assets (also known as their ‘estate’) will be dealt with on death.

The intestacy rules set out who among your family will receive what from your estate. If you die leaving a surviving spouse/civil partner and children or other close relatives and the estate is of sufficient value, the surviving spouse or civil partner will receive your personal effects and a fixed net sum, referred to as the statutory legacy.

Since the rules came into force in 1925, until this year the amount of the statutory legacy had only increased seven times, the last in 1993. At that time the statutory legacy was set at £125,000 where the deceased left a spouse and children and £200,000 where the deceased left a spouse and no children.

The Ministry of Justice announced with effect from 1 February 2009, the statutory legacy, where there are surviving spouses or civil partners and children, has been increased to £250,000. Where there is a surviving spouse or civil partner and no children then the amount increased to £450,000. The recent changes to the intestacy rules are to be welcomed. The increase brings it in-line with the rise in property prices and the overall increase in the value of an average estate. According to the Government’s own research up to 3,600 surviving spouses/civil partners a year were at risk of being forced to sell the family home to meet the claims on the deceased’s estate of other family members entitled on intestacy.

Some common traps for the unwary

· It is often wrongly assumed that in the absence of a will, your estate passes to your surviving spouse/civil partner. This is not necessarily the case. If you do not have a will your estate will be distributed according to the table below.

· If you are not married or in a civil partnership, the person living with you (“cohabitee”) has no automatic right to inherit your estate. In fact, he or she will inherit nothing under the intestacy rules.

· If your marriage breaks down or you separate but do not divorce, your spouse (husband or wife) may inherit all or some of the estate.

· If you do not have a will it may be left to the court to appoint guardians of children under 18. If you have a will you can stipulate who the guardians are to be and if necessary, make financial provision for them.

· If a transfer of your assets exceeds £325,000 (the nil rate band for 2009/10) the amount over and above that may attract inheritance tax at 40%.

· Upon marriage – your will is automatically revoked unless it contains provisions to the contrary.

· Not all intestacies arise because someone did not write a will. Commonly, the will may fail to deal with all of the estate or the will was not validly made because the person making it did not have sufficient mental capacity to know what they were signing or the legal requirements for signing and witnessing the will were not complied with.

The Matrimonial Home

If you own your family home with your spouse/civil partner and hold it as joint tenants at the time of your death, your spouse/civil partner will automatically become the sole owner of the property. Therefore, property held as joint tenants will pass outside the rules of intestacy. Details of how you own your property can be obtained from the Land Registry.

If your family home is held by you and your spouse/civil partner as tenants in common at the time of death, your spouse/civil partner will only be entitled to their share of the property (usually 50%). Your share will form part of the estate. Therefore, depending on the value of the property, there is a risk that your spouse/civil partner may not be able to continue to live in the property after your death.

If the family home is held by you alone at the time of death, the entire property will form part of the estate and will be distributed according to the rules. Again, there is no guarantee that your spouse/civil partner will be able to continue to live in the property.

Beneficiaries

If surviving relatives are not easily identifiable, it may be necessary to employ the services of a professional tracing company. The expense for this will be borne by the estate and can cost many thousands of pounds. The amount of money available for distribution to the beneficiaries will be reduced and the money that is left may be distributed to distant relatives not known to you.

Dealing with an estate in the absence of a will can prove extremely distressing for the family. It is a time consuming, expensive and stressful process. In some cases it has a lasting effect on the family because of damage to relationships.

You will see that under the laws of intestacy your estate can only pass to your relatives. The only way you can define to whom it passes and in what proportions, is through a will.

It is therefore important that you review your will regularly (at least every 5 years) and if you have any concerns about your will, you consult a solicitor.

Surviving relatives	Where surviving spouse or civil partner	Where no surviving spouse or civil partner
Children or remoter descendants	Spouse/civil partner will take: 1. your personal possessions 2. £250,000 cash or equivalent 3. a right to use and enjoy half of the remaining estate for their lifetime. On their death, this half share in the estate will pass to your children equally The children will take: 1. the remaining half of the estate equally If a child dies before you, the share that he/she would have taken will pass to any children that he/she may have	All your estate will pass to your children equally, with any share of a child who has died before you passing to his/her children equally
Parent(s), and you have no children or remoter descendants	Spouse/civil partner will take: 1. your personal possessions 2. £450,000 cash or equivalent 3. half of the remainder of the estate entirely Parent(s) will take: 1. the remaining half of the estate entirely (equally if both of them survive you)	All your estate will pass to your parents, equally if both of them survive you
Full brothers and sisters (including their children)	Spouse/civil partner will take: 1. your personal possessions 2. £450,000 cash or equivalent 3. half of the remainder of the estate entirely Brothers and sisters will take: 1. the other half of the remainder of the estate entirely and equally If a brother or sister dies before you, the share that would have passed to that individual will go to their children instead (i.e. to your niece or nephew)	All to your brothers and sisters in equal shares (or to the children of the brother or sister if they have died before you)
Half brothers and sisters (including their children)	All to your surviving spouse/civil partner	All to your half brothers and sisters in equal shares (or to their children as above)
Grandparents	All to your surviving spouse/civil partner	All to your grandparents (equally if both survive you)
Full uncles or aunts (i.e. the brothers and sisters of a parent, including their children)	All to your surviving spouse/civil partner	All to your uncles and aunts equally (or to their children as above)
Half uncles and aunts (i.e. the half-brothers and half-sisters of a parent, including their children)	All to your surviving spouse/civil partner	All to your half uncles and aunts equally (or to their children as above)
No surviving relatives	All to your surviving spouse/civil partner	All to the Crown (i.e. to the Government)

For more information please contact Rebecca Fisher on 020 8971 1037 or email rebecca.fisher@morrlaw.com

Family Proceedings on trial

Following a decision made in December 2008 by Lord Chancellor Jack Straw, since April of this year all Family Courts have now been open for the media to report such matters as divorce, children matters and care proceedings.

The decision to open up the Courts to the scrutiny of the press was based on an idea that greater knowledge of the system would bring about greater trust and transparency, in an area of law renowned for being shrouded in secrecy. This need is balanced against the need to maintain the confidentiality of parties involved in litigation matters, and the juggling act of seeking greater transparency while maintaining privacy has certainly polarised opinion.

The Ministry of Justice came to the conclusion that ‘’….we must increase the volume of information available about the Family Courts…but a right of access to proceedings cannot mean an untrammelled right to report anything and in any manner regardless of its impact on the children involved’’. As the practicalities of the new rules becomes reality, individual Courts have the power to restrict both attendance of the press and what can be reported, but in the initial stages court staff complained about the lack of clarity, and there still appears to be widespread confusion in respect of the rules in practice. Specific Judges have been allocated the task of dealing with these issues.

Fears have been voiced by the Children and Family Court Advisory Support Service (CAFCASS) who state that these changes present a risk of professionals being unfairly named and shamed by the press. CAFCASS state there is considerable unease about the fact that the changes could lead to harassment from those involved in proceedings and threats to the safety of Family Court Professionals.

These fears are strengthened by the fact that because of the need to maintain privacy, the press will not get to see relevant court paperwork, and may therefore be misinformed having to rely on non-specific oral submissions made in court which may see the real story skewed out of all context.

There are also fears that this new transparency will lead to divorcing couples using the threat of publicity to blackmail each other. Where a case involves sensitive information one party may use it to extort the maximum financial settlement on a threat of making this information available to the media.

While some see the new rules as beneficial, leading to more cases being settled out of Court, others fear that without the weight of threat of litigation, because of the fear of publicity, some parties’ cases will be unfairly compromised.

While initially there was a rush of press interest in being able to peek behind the Family Court veil, most believe that as time passes reports will largely be restricted to celebrity divorces, leaving the vast majority of family proceedings unscrutinised for lack of a catchy story.

Others see wide scrutiny of the Family Courts as only beneficial. It has been claimed that social workers, psychologists, judges and medical experts are all guilty of failing to adequately self regulate themselves, and that in practice their decisions are only available to be properly examined by the higher courts. The testimony of these and other professionals will now potentially receive appraisal from the press and be open to further comment once the “anonymised” details are in the public domain.

Only time will tell whether the fine balance between promoting trust and transparency and maintaining privacy can be struck effectively to keep all sides content.

For more information please contact Andrew Perryman on 01483 215359 or email andrew.perryman@morrlaw.com.

Greener Leases

It is probably not surprising that in a world where everyone is increasingly concerned about the environment, that the property industry is thinking about issues of sustainability of existing and new buildings, the need to accelerate the reduction in carbon dioxide emissions for those existing buildings and the carbon footprint of new buildings. As a consequence, thought is being applied to how leases can be made “greener”.

The property industry is now confronted by the Government’s climate change agenda and the property industry is leading the call for Green Leases and this is probably due to a number of factors:

• Increasingly stringent building regulations;
• Property owners under pressure to improve the energy performance of their buildings as a result of the introduction of EPC’s;
• Occupiers having their own social responsibility policies which need to be demonstrated and applied in the management of their property;
• Fund managers being increasingly obliged to make investment decisions which have regard to sustainability;
• Company directors being obliged under the Companies Act 2006 to have regard “to the impact of the company’s operations on the community and the environment”; and
• Perhaps most tellingly, the property industry getting ahead of anticipated legislative change.

So what will this entail and what changes need to be made to achieve a green lease? In its simplest form such changes could consist of a number of additional clauses in your new lease.

This could comprise any one of the following:

• Obligations between the landlord and tenant governing the tenant’s use of, and the landlord’s improvements to, a building;
• Rent review incorporating energy efficiency measures;
• Requirements on assignment or underletting for the assignee or sub-tenant to covenant with the landlord to comply with any landlord’s environmental policy for a building;
• Requirements for tenant’s works to meet certain standards of energy efficiency including, for example, insulation and ventilation;
• Inclusion of an adjustment system for service charge contributions which may incentivise tenants to meet specific energy efficiency targets;
• Requirements for the landlord to keep in good and efficient working order all plants such as air-conditioning systems and boilers to ensure optimal energy use;
• Requirements for the landlord to apply principles of good environmental practice in providing building management;
• Requirements for the landlord to ensure that its contractors are using environmentally friendly products, when practical, in delivering building related services.

The green lease may well extend, amongst other things, to include the implementation of periodic audits of energy consumption, water consumption and the amount of waste generated and re-cycled, the consideration of the installation of renewable energy and low carbon technology where operationally possible, the improvement of the environmental efficiency of buildings and the inclusion of other sustainability initiatives.

The adoption of these new greener obligations in leases are not going to happen overnight but it may be the case on the grant of a new lease or on lease renewal that landlords and tenants start to consider the real need to make at least some of these changes going forward. Clearly Rome was not built in a day and both landlords’ and tenants’ attitudes to such changes are likely to evolve over time in meeting the challenges of the green agenda. This is, however, a topical issue, one that will increasingly be important to the sustainable environment debate and no doubt such changes will be driven by public policy considerations and legislative pressure in the future, so watch this space.

Hugh Campbell has recently joined Morrisons from Osborne Clarke in London and is developing the commercial property practice in the Woking and Redhill offices. Hugh has particular expertise in property investment, development and corporate real estate. If you have any queries or property issues that you wish to discuss, please do not hesitate to contact him on 01737 854 550 or email hugh.campbell@morrlaw.com

Pre-Packs: A Quick Guide for Business Owners

In the current economic climate, is your business experiencing financial difficulties? If so, a pre-pack may be the best option available to you in rescuing your business.

Pre-packs are the current buzz word in insolvency, particularly following their use in high profile retail administrations such as Whittards, The Officers Club and the restaurants of Anthony Worral Thompson.

The number of company administrations has more than doubled over the past year – and more than half of those administrations were pre-pack arrangements.

What is a pre-pack?

A pre-pack, otherwise known as a pre-packaged sale, is an arrangement for the sale of a struggling company’s business and assets which is lined up before the company goes into a formal insolvency process (usually administration).

In many cases, you as owners or directors of the existing business would form a new company which in turn buys the assets of the old company from the Insolvency Practitioner, but leaves behind the debts.

You would therefore work out the terms of the deal, including the valuation of the business, with the Insolvency Practitioner before he takes office with the sale completing on or immediately after his formal appointment.

Why use a pre-pack?

The benefits of a pre-pack include the following:-

• Keep the company trading: A pre-pack may be the only way to keep a company in financial difficulties trading, particularly in service industries where the business’ principal assets are the employees, forward contracts or intellectual property. Employees and customers can disappear quickly on the announcement of an insolvency, therefore quick pre-pack sales are useful in retaining the value of and confidence in a business.
• Quick process: Pre-packs can result in a quick and relatively smooth transfer of a business whether to your newly formed company or to a different buyer. As the process is relatively quick compared to a normal administration, the costs of the process can be reduced, which results in a better return for creditors.
• Preserve more jobs: Pre-packs preserve more jobs than business sales which are negotiated and arranged after the commencement of the formal insolvency procedure. In 92% of pre-pack cases, all of the employees were transferred to the new company which compares with 65% for a business sale.
• Better return for secured creditors: Pre-packs can provide a more satisfactory return for secured creditors (e.g. banks) in the event of a business going through insolvency. The average return for secured creditors in a pre-pack is 42% compared with 28% in a business sale and therefore are more likely to be supportive.
  

What are the disadvantages of a pre-pack?

• Creditor suspicion: Many trade and other unsecured creditors are not informed of the pre-pack until after it has been completed arousing suspicion over the procedure and anger that they did not have the opportunity to protect their own interests. You may face resistance from your traditional suppliers to continue trading with the new business going forward.
• Directors’ Liability: If you are a director of a company involved in a pre-pack you need to make sure that you do everything you can to minimise loss to creditors otherwise you may be personally liable for wrongful trading. However, this would be the case in the event of any other type of insolvency.

What are the pre-pack guidelines for Insolvency Practitioners?

In response to widespread criticism from creditors as to the lack of transparency and general suspicion surrounding pre-packs, Insolvency Practitioners are now subject to professional guidelines that relate specifically to pre-packs. Unsecured creditors must be given a detailed explanation and justification as to why a pre-pack sale was undertaken and it must be shown that the Insolvency Practitioner acted with due regard for their interests.

Although the guidelines are not legally binding, failure to comply with them could result in an Insolvency Practitioner facing regulatory or disciplinary action.

To date, the courts have broadly supported the use of pre-packs. This is in line with the government’s aim to promote a more entrepreneurial culture in the UK, where companies in financial difficulties can be nursed back to health.

How can we help?

A key message is to seek expert advice earlier, rather than later, at a point when the business may still be rescued.

This is a specialised area of law and we have a small but experienced team, headed by Richard Rose, who has expertise in guiding companies and directors through a pre-pack and negotiating all necessary sale documentation. We also have strong contacts with Insolvency Practitioners who will need to be formally appointed in the administration process.

If you are running a business which has cash flow problems and are concerned about the future, please call or email Richard Rose on 01737 854535 or rr@morrlaw.com.