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Employers liability: work or play?

Employers liability: work or play?

The recent case of Reynolds v Strutt & Parker [2011] EWHC 2263 (QB) sheds new light on the issue of employers’ liability, particularly in relation to personal injury claims. Jonathan Clement was instructed by the claimant, Mr Reynolds.

Mr Reynolds sustained significant brain injuries after a collision during a cycle race at a team building day caused him to fall off his bike at considerable speed. He was not wearing a helmet. Judge Oliver-Jones QC found that the day out, described as a “reward day” by Strutt & Parker, was not “in the course of employment” and therefore not subject to statutory duties, the organisers were still subject to common law duties. They had failed to adequately plan the event so as to assess and consider the risk such a race would pose to their employees. This resulted in their failure to ensure the use of helmets.

It is a stark reminder for employers that their duty of care to employees extends beyond the immediate workplace and of the importance of ensuring employees’ safety in everything they do for or with the company.

Two partners in the company organised an afternoon of events for employees at a country park. The last of these was a cycle race. Prior to event, the organising partners and the company’s head of safety met to discuss any safety issues. The decision was made to make the event a road race as opposed to mountain biking.

The participants were unaware of the nature of the events until they happened. They were only told that there would be a cycling race shortly before it began. Participants were informed that helmets were available but none were physically offered and in the end only one cyclist wore one out of the 12 competing.

Mr Reynolds, ahead for most of the race, was nearing the finish line when a colleague attempted to pass him. Their bikes collided, throwing both of them off. His colleague was the only participant wearing a helmet and sustained relatively minor injuries.

Expert evidence in the use of safety helmets stated that given the speed that Mr Reynolds and his colleague were going and the velocity with which Mr Reynolds head struck the ground, a helmet would have been effective and prevented any serious injury.

Judge Oliver-Jones QC decided that the event was not “in the course of employment” and consequently not subject to Health and Safety Regulations.

The argument advanced by Mr Reynolds’ legal team was that a duty of care nonetheless arose from the relationship of employer / employee and organiser / attendee. The judge in this case agreed. He said that there was a duty on the employer to take such reasonable care as any reasonable employer would take, (a) to ensure that there employees were reasonably safe in engaging in the activities arranged and (b) in the arranging, management and organisation of the event.

The legal argument centred on the issue of planning and risk assessment. It appears that the only measure taken after any risk assessment was to exclude mountain biking from the day’s events. The judge accepted that the risk of collision in an amateur cycling race was an obvious one and it that had not been considered.

Judge Oliver-Jones QC said that the partners’ lack of engagement of the management of the country park was perhaps their greatest failure in any risk assessment process. Had they engaged the management team of the park, they would have seen that not only were helmets recommended by the Health and Safety Executive, but the management insisted that all members of the public who used the cycle track wear helmets at all times. This only became evident to the partners after the accident when enquiries were made. The partners had neither the training nor experience in cycling or organising a potentially dangerous activity. They should therefore have sought advice from people who had the necessary expertise; namely the management of the facility they intended to use.

Judge Oliver-Jones QC found that, had they known that the country park made the wearing of helmets compulsory, they would have required their employees to do the same. Therefore, Mr Reynolds would have been wearing a helmet and as a result his injuries would have been far less severe. He also noted that the communication to the employees of the information about helmets was negligent in its absence.
Judge Oliver-Jones QC did find that Mr Reynolds was also negligent in failing to wear a helmet and in the race itself. Mr Reynolds was consequently found to be two thirds to blame. He would recover one third of any damages claimed.

Strutt and Parker were vicariously liable for the inadequate organisation and risk assessment carried out prior to the event that contributed to one of their employees unfortunately sustaining a severe head injury and brain damage. It is an important reminder to employers that their duty of care extends beyond the office walls and that protection of their employees should be a paramount concern. When organising an event, where the organiser has limited experience in the activity concerned, it is an employers’ duty to ensure that adequate planning and risk assessments are carried out. This may well require professional or expert input.

Times are tough – terminating a contract early and dealing with late payments

Times are tough – terminating a contract early and dealing with late payments

As economic conditions alter, it sometimes becomes necessary for businesses to reassess their existing trading arrangements. Two areas on which we are regularly asked to advise are whether it is possible to exit a contract early and how to deal with late payers. This article considers the options.

The early exit route

Half way through the contract term, a business considers whether to renegotiate early to reflect the pricing pressure it is under.

* The legal position

It is not possible to break or renegotiate a contract before the end of the contract period, unless it allows you to. Early renegotiation clauses are unlikely. More likely are clauses that allow for price variation as supplier costs fluctuate.

Contracts do often include a right to terminate early. This could provide leverage to open negotiations. Common termination clauses operate after a breach of contract or the insolvency of one party. Termination may also be possible by giving notice. Consider whether any of these rights can be triggered.

* The commercial position

Ultimately it will be necessary to approach the other party in order to renegotiate. The aim should be to maintain a good relationship with them. Where contracting parties are anxious to preserve their relationship, a sensible commercial discussion may be possible.

If early renegotiation is not possible, action can be taken at renewal time. Termination rights, flexible pricing clauses or pricing linked to minimum orders could be negotiated at this time.

Strategies for renegotiating and, possibly, exiting unprofitable contracts should only be carried out with legal help. The repercussions of getting it wrong are serious and could have a negative effect on the profitability of your business.

Dealing with late payers

A business’s terms and conditions require payment within 60 days. Despite this many customers pay late, with the resulting negative impact on cash flow.

* The legal position

There is an EU Directive in place intended to help with this very scenario. The Directive creates a mandatory 30 day period for most payments. In addition, it sets a statutory rate of interest at 8% above base rate. Defaulting customers are liable to pay compensation and reimburse reasonable recovery costs, if they have to be pursued for payment.

* The commercial position

In practice, it is hard to enforce these rights against important customers. Even so, it is important to put down a clear marker in relation to payment periods and interest at the outset.

Be consistent in pursuing late payers and debtors. Terms should be amended to require payment within the shorter 30 day period. Remember to ensure that your existing customers receive a copy of any revised terms, with the changes highlighted.

Capital Gains Tax relief on business disposals - how entrepreneurial do you have to be?

Capital Gains Tax relief on business disposals - how entrepreneurial do you have to be?

Entrepreneurs’ Relief (ER)

The 2011 Budget further raised the stakes for ER. When it applies, ER results in a reduced 10% Capital Gains Tax (CGT) rate on the sale or gift of a business. Since 23 June 2010 the rate of CGT for higher rate taxpayers has been 28%. Only those with combined taxable income and capital gains of up to £35,000 remain eligible to pay CGT at 18%.

The 2011 changes doubled the lifelong ER limit to £10 million in relation to disposals made since 6 April. Currently, therefore, ER can reduce the CGT bill on the disposal of one or more businesses by up to £1.8 million. The limit has increased tenfold from a lifetime limit of only £1 million in early 2010, before the last election. However, the higher level of ER which is now available cannot be carried back to transactions which occurred before 6 April. ER which has been claimed before that date will reduce the amount now available.

The much higher limit is to encourage highly successful and serial entrepreneurs.

Broadly, ER is available in the following circumstances:

* the disposal of some or all of a sole trader's or a partner's business;
* the disposal, within three years of a business ceasing, of assets used by the business;
* the transfer of shares in the shareholder's personal trading company; or
* the associated disposal of assets owned by an individual eligible for ER but used by either their company or partnership.

Requirements for ER

Unlike partners, who face no minimum requirement for their involvement to be eligible for ER, shareholders must work for the company and have a significant equity stake. The shareholder must be an employee or officer of the company, although no particular level of involvement is required. Therefore, non-executive directors and part-time workers can qualify. As well as being involved, the shareholder must own at least 5% of the ordinary shares of the company and carry at least 5% of the voting rights. If they do, then gains on other shares or securities are eligible for ER.

While there is no minimum age requirement for ER, the business interests must be owned for at least 12 months before the disposal, and the involvement in the company must have been for at least the same period.

Only companies and businesses carrying on a trade are eligible for ER. The holding of investments and letting of property are not a trade in this context.

The trustees of life interest trusts where the life tenant meets the qualifying conditions are eligible for ER. However, discretionary trustees cannot obtain the relief.

Although the 2010 changes doubled the amount of ER available to an individual, despite previous speculation it did not water down the qualifying conditions, which are seen by many as a disincentive to invest in family businesses. Under the previous regime of business assets taper relief applying until April 2008, which reduced the then 40% CGT rate to 10% after two years, any shareholder in an unlisted trading company was eligible. The conditions relating to involvement and ownership applied only to quoted companies.

While representations have been made to the Government to relax the rules, as the name suggests ER is not available to many who are disposing of business interests. For example, passive investors in private trading companies and many members of employee share ownership schemes will not qualify. They are given no CGT incentive to invest.

Conversely, the very valuable relief can be obtained by the correct structuring of a business, particularly as regards the qualifying conditions relating to unlisted trading companies.

Consideration should be given well in advance of a sale or gift to any non-trading activities and the minimum period of ownership, where relatively small differences may result in much higher tax liabilities than necessary. Furthermore, in the case of companies the involvement and ownership conditions must be satisfied for at least a year before the sale. Therefore, care must be taken with businesses which have recently been incorporated or if it is proposed that the assets of a company, rather than the shares, should be sold. The timing of transactions needs very careful thought given the amount of ER which can now be claimed, if all the conditions apply.
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