Category Archives: Employment and HR

A STRATEGIC APPROACH TO EFFECTIVE WORKPLACE INVESTIGATIONS.

 

Employers often question how they can avoid the impact and expenses associated with defending against claims raised by employees for misconduct in the workplace.  The employer wants to take employment action against an employee but hesitates to do so because of the risk of costly litigation for a claim of wrongful termination.  When a complaint about employee misconduct is received, or the employer becomes aware of employee misconduct through an anonymous source or a demand letter, the employer may inquire whether it can go on with “business as usual” or be required to take steps to address the alleged conduct.  In such cases, as well as those in which any claim of harassment, discrimination, breach of confidentiality, security, or any other form of employee misconduct comes to the attention of the employer, the employer’s investigative response can potentially increase or decrease the employer’s risk of liability.

Employers are tasked with the duty of ensuring its workplace complies with federal and state laws which prohibit a hostile, discriminatory or retaliatory work environment, and which are intended to protect employee safety.  This duty requires the employer to promptly determine whether there is any merit to a claim of employee misconduct, and effectively act to address such misconduct to prevent any further recurrence.  In addressing allegations of improper workplace conduct, the manner in which the employer responds is of critical importance to its ability to assert defenses. A faulty investigation can result in the employer’s failure to prevent repeated misconduct, failure to remedy conduct which violates state and federal law, failure to comply with its own employment policies against harassment, discrimination, retaliation, and safety regulations in the workplace, and can also result in claims of defamation and intentional infliction of emotional distress by employees who participated in the investigation process.  By implementing an effective and responsive workplace investigation plan, employers can establish a defense to such claims and increase the likelihood of being successful if faced with litigation.

  1. EMPLOYER’S AFFIRMATIVE DEFENSE

 The United States Supreme Court has determined that investigations of workplace harassment[1] are a key component of an employer’s response to allegations of employee misconduct, providing employers with an affirmative defense to vicarious liability for a supervisor’s hostile work environment where the employer’s action does not result in a tangible employment action, provided that: (1) The employer exercised reasonable care to prevent and correct promptly harassment; and (2) the employee unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer to avoid harm otherwise.  Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 765 (1998); Faragher v. City of Boca Raton, 524 U.S. 775, 807 (1998).

Employer liability may be premised on negligence based on failure to have effective policies and procedures for addressing employee complaints.  See Lehmann v. Toys ‘R’ Us, 132 N.J. 587, 621 (1993) (finding that “a plaintiff may show that an employer was negligent by its failure to have in place well-publicized and enforced anti-harassment policies, effective formal and informal complaint structures, training and monitoring mechanisms).   An employer may avoid liability if its procedures for investigating and remediating alleged discrimination are sufficiently effective.  See e.g., Bouton v. BMW of North America, Inc., 29 F.3d 103, 106 (3rd Cir. 1994).  Through an effective investigation, an employer reaffirms commitment to, and enforcement of, policies against employee misconduct.  See Ilda Aguas v. State of New Jersey, 220 N.J. 494 (2015).  The goal of deterring employee misconduct is promoted by an employer’s “responsible efforts to detect, address and punish it” to prevent violations.  Aguas, supra, at 519, citing Burlington, supra, 524 U.S. at 764; Faragher, supra, 524 U.S. at 805-06) (Employer may have an affirmative defense if it exercised reasonable care to prevent and correct misconduct).  An affirmative defense cannot be asserted by employers who fail to implement effective anti-harassment policies, and “employers whose policies exist in name only.”  Aguas, supra, at 523; see also Gaines v. Bellino, 173 N.J. 301, 314 (2002) (finding that employer’s due care is demonstrated through effective complaint, sensing and monitoring mechanisms, and through showing of commitment to workplace policies through consistent practice).

An employer’s remedial action is adequate if it is “reasonably calculated to prevent further harassment.  Knabe v. Boury Corp., 114 F.3d 407, 412, n.8 (3rd Cir. 1997).  “The prospect of an affirmative defense in litigation is a powerful incentive for an employer to unequivocally warn its workforce that [harassment] will not be tolerated, to provide consistent training, and to strictly enforce its policy… [A]n employer that implements an ineffective anti-harassment policy, or fails to enforce its policy, may not assert the affirmative defense.”  Aguas, supra, at 523.  Effective remedial measures include the process by which the employer arrives at the sanction that it imposes on the alleged harasser.  If the effective measures are those reasonably calculated to end the harassment, then neither a court nor a jury can evaluate the effectiveness without considering the entire remedial process…. [t]he effectiveness is gauged by the process of investigation – including timeliness, thoroughness, attitude toward the allegedly harassed employee, and the like.”  Lehmann, supra, at 623; Payton v. New Jersey Turnpike Authority, 148 N.J. 524, 537 (1997).

  1. ENFORCEMENT THROUGH AN EFFECTIVE WORKPLACE INVESTIGATION

             An investigation is not only worth doing, it is worth doing well.  An employer’s policy against harassment, discrimination and retaliation, and policies for the protection of its employees, are only as effective as the measures utilized to implement and enforce such policies.  A poorly conducted investigation can compound an employee’s complaints about wrongful conduct in the workplace, and provide evidence that the employer knew of unlawful conduct and failed to take appropriate action to remedy it.  A properly conducted workplace investigation sends a message to employees that the employer is committed to enforcing its policies on workplace conduct and employee protection.

  1. Employer’s Pit-falls in Investigating Employee Complaints.

 An employer may be defeated in asserting an investigation as an affirmative defense if it engages in action or inaction that is reflective of a “sham” investigation rather than an effective investigation.  Examples of such conduct include:  delaying the commencement of an investigation or taking too long to complete an investigation; conducting the investigation with pre-determined intention to shield the employer from liability or protect the accused, rather than address the employee’s legitimate concerns; failure to select an unbiased investigator; making an employment decision before the investigation even commences, or reaching conclusions based on one-sided information; showing disrespect for the individual interviewed, or not affording a full opportunity to respond (e.g., rolling eyes, raising voice, aggressive questioning); making pre-judgment statements during the interview (e.g., “I don’t believe this, that does not sound like something he/she would do”); failing to take down names of additional witnesses; refusing to interview key witnesses; interviewing key witnesses in the presence of company management showing lack of independence; taking a dismissive approach to the investigation, particularly if the complaining employee has a history of making complaints; failing to conduct an investigation when the employee says that he or she wants to make the employer aware of a concern, but does not want anything done or said about it at this time; promising the complaining employee that the employer will keep the complaint completely confidential, [2] (complaint and investigation should be kept on a need-to-know basis); failing to conduct a sufficiently thorough investigation, including interviews of all parties, or not talking to all relevant witnesses; failing to properly and appropriately document the investigation; failing to monitor the workforce, address and remedy potential situations or interactions which violate employer policies.

  1. Employer’s Investigation Plan.

The primary goal of an investigation is to provide the employer with the appropriate findings and facts to make a decision regarding the matter.  For an employer to legitimately rely on the results of an investigation, the investigation must commence promptly upon receipt of complaint or notice of misconduct; be conducted thoroughly through review of all allegations, interviews with all relevant witnesses, review of all relevant documentation and applicable employment policies; be conducted by the investigator in an objective, fair and neutral manner; and the investigation’s findings must create a proper foundation for carrying out effective remedial measures, and provide the company with the grounds upon which to initiate appropriate steps for resolution of the matter.

The company should be prepared to promptly identify employees who may have information pertinent to the investigation, and gather all relevant documents to be reviewed as part of the investigation.  These include:  written allegations of complaints by complainant (or by anonymous note or other employee writing); written policies and procedures; personnel files; electronic files; e-mails; texts; voice mail messages; prior complaints and investigation files; organizational charts; and information from social media websites to the extent permitted by state law.

  1. Selection of Investigator

An employer should give careful consideration to the selection of an investigator to conduct the workplace investigation.  The investigator selected must be impartial, objective, fair, and unbiased; be knowledgeable about relevant laws and applicable workplace policies; have effective communication and interviewing skills; be sensitive to the situation and persons involved; and be able to conduct a thorough investigation and prepare an accurate report.

Investigations may be conducted internally by in-house counsel or a member of the employer’s human resources department or senior management team, or by outside counsel for the employer, or by an independent third party investigator.  There are certain pros and cons depending upon whether the employer elects to have the investigation conducted internally or through an outside third party, particularly outside counsel.  Some benefits to having an investigation conducted by in-house counsel or a member of the Human Resources department or management, is that the investigator will have a pre-existing knowledge of the corporation, its structure, its policies and procedures, its record-keeping practices, its culture, and possibly even the personalities and politics involved in the underlying claims, and be in a position to start the investigation almost immediately.

In contrast, an “internal” investigator may not be viewed as independent enough to conduct a thorough and impartial inquiry; may become a witness in litigation resulting from the matter being investigated; and if the in-house investigator is also legal advisor to the company, may face issues relating to the confidentiality and privilege of information obtained during the course of the internal investigation.

In circumstances where the attorney conducts the investigation and becomes a witness to the content of information and documentation obtained during an investigation, it must be understood that the attorney may later be disqualified from representing the company as its legal counsel in litigation ensuing from the allegations of workplace misconduct and/or accompanying investigation.  Similarly, an attorney who appears at an investigation interview with his/her client, the complainant, and thus becomes an investigation witness, may be disqualified from representing the complainant in subsequent litigation.

Regardless of how time and cost efficient an internal investigation could be, if it fails to thoroughly and fairly address the allegations or workplace misconduct, or is seen as partial or otherwise lacking in credibility, it could ultimately cause the employer more expense and risk of liability in the event the matter proceeds to litigation.

  1. Application of Privileges in an Investigation

The role of in-house or outside counsel in an investigation presents the risk that communications with the lawyer during the investigation may not be protected by the attorney-client privilege or the work-product privilege.  When an employer intends to rely on the investigation as a defense that it took reasonable and justified responsive and remedial action, documents related to the employer’s internal investigation are subject to discovery since it demonstrates the employer’s response to an employee’s complaint, inclusive of facts obtained, the timing of the investigation, the employer’s evaluation of the facts, and any action taken by the employer in response to the findings of the investigation.  See Payton, supra.

What may remain privileged from disclosure, however, is the attorney’s legal advice and recommendations.  Privilege only applies to confidential communications made to a client “by an attorney acting as such.”  Upjohn v. United States, 449 U.S. 383, 394-95 (1981) (holding that… “where communications at issue were made by corporate employees to counsel for corporation acting as such, at direction of corporate superiors in order to secure legal advice from counsel, and employees were aware that they were being questioned so that corporation could obtain advice, such communications were protected.”  See also, Waugh v. Pathmark Stores, Inc., 141 F.R.D. 427 (D.N.J. 2000) (finding that attorney-client privilege was not waived where employer’s in-house counsel attended meeting with employer’s decision-makers after internal investigation into employee’s discrimination complaints, and reviewed related documents in his capacity as attorney for employer, to provide legal advice on remediation efforts; counsel did not conduct investigation himself or act as decision-maker in employer’s remediation efforts); Harding v. Dana Transport, Inc., 914 F.Supp. 1084 (D.N.J. 1996) (finding that any communications between company and counsel involving legal opinions and legal advice was subject to attorney-client privilege).

It should be noted, however, that the attorney-client privilege may be waived if an attorney will be presenting evidence at a trial which was developed during the course of the investigation.  The attorney cannot assert the attorney-client privilege for the purpose of restricting disclosure of matters related to the investigation, and subsequently seek to introduce the information, or even selected portions of the information, as evidence on behalf of the employer at trial.  See Harding, supra, 914 F.Supp. at 1096) (attorney-client privilege waived as to investigatory files of counsel who conducted investigation of harassment allegations, when employer raised reasonableness of investigation as an affirmative defense; “by asking [the attorney] to serve multiple duties, the defendants have fused the roles of internal investigator and legal advisor.  Consequently, [the employer] cannot now argue that its own processes are shielded from discovery.”)  The waiver of the attorney-client privilege and work product privilege in this context also extends to documents which relate to the investigation, although the documents may be redacted to exclude attorney communications which reflect legal advice or legal opinion.  Id.; see also Payton, 148 N.J. at 551-52.

Where the attorney is acting in a business role, i.e., fact-finder, rather than in a legal role for purposes of offering legal advice or preparing for pending or threatened litigation, privileges may not apply.  In addition, the privileges will not protect the underlying facts from disclosure, even if those facts were contained in a communication to the attorney.  Upjohn, 449 U.S. at 395-96; see also XYZ Corp. v. United States, 509 U.S. 905 (1993) (communications between attorney and client regarding an internal investigation were privileged, but factual information contained in written communications, including the results of investigation, were not shielded from discovery).

For these reasons, both the attorney and employer should recognize that even where the employer has retained the attorney for purposes of investigating an internal complaint, only the attorney’s legal analysis and advice is privileged from disclosure, and the facts uncovered during the investigation are discoverable.

  • CONCLUSION

While no two investigations are exactly the same and there are no mandatory procedural rules or court imposed deadlines for conducting an investigation, an employer is well guided to ensure that any workplace investigation is conducted in a prompt and thorough manner by an unbiased and experienced investigator, resulting in effective remedial action in response to complaints of employee misconduct.

[1] These guidelines are not limited to charges of sexual harassment but also apply to all forms of workplace harassment that violate Title VII of the Civil Rights Act of 1964.  EEOC Enforcement Guidelines (1999). 

[2] Employers may not tell employees who make a complaint not to discuss the matter with co-workers while an investigation is ongoing, since such a request violates employees’ rights to discuss the terms and conditions of their employment as protected under Section 7 of the National Labor Relations Act.  See Banner Health Systems d/b/a Banner Estrella Medical Center, 358 NLRB No. 93 (July 30, 2012) (holding that employers could not apply a general rule prohibiting employees from discussing ongoing investigations of employee misconduct and that instead, it must first determine whether in any investigation there are grounds to justify a requirement of confidentiality, e.g., for protection of investigation witnesses, to protect evidence that is in danger of being destroyed, where testimony is in danger of being fabricated, or where there is a need to prevent a cover up).

 

Current Hot Topics in UK Employment Law

Current hot topics in UK employment law

What a difference the Brexit vote has already made. This time last year we were anticipating, with some certainty, various employment-related proposals from an established government. Now, what lies ahead is much less predictable, given a different prime minister, the prospect of Brexit and renewed calls for increased delegation of powers amongst the devolved governments, if not independence. In addition, the drain on government resources caused by Brexit preparations is already resulting in delays to legislation and consultations.

Brexit

The outcome of last year’s EU referendum did not result in any immediate changes to UK employment law and is unlikely to do so for some two years. The prime minister has committed that “as we translate the body of European law into our domestic regulations, we will ensure that workers’ rights are fully protected and maintained”. However, whilst no employment law changes are envisaged in the short-term, of immediate concern to many employers is the impact Brexit may have on the movement of workers. It is currently unclear how immigration will be managed post-Brexit, although the indications are that new controls on European immigration will seek to accommodate an ongoing need for skilled and seasonal workers.

Gender pay reporting

Addressing a reducing but persistent gender pay gap has been on the government agenda for some time. Regulations taking effect in April 2017 require larger employers in the private sector to report on their gender pay gap. There are similar regulations covering public sector employers operating in England.

The regulations require employers to publish the difference between the median and mean average hourly rate of pay paid to male and female employees; the difference between the median and mean average bonus paid to male and female employees; the proportions of male and of female employees who receive bonuses; and the relative proportions of male and female employees in each quartile pay band of the workforce.

In the private sector, employers’ first gender pay reports will have to be published no later than 4 April 2018, based on hourly pay rates as at 5 April 2017 and bonuses paid between 6 April 2016 and 5 April 2017. The public sector regulations will require the first pay reports to be published no later than 30 March 2018, based on hourly pay rates as at 31 March 2017 and bonuses paid between 1 April 2016 and 31 March 2017.

For private sector employers, there is no specific penalty for non-compliance. A key incentive is the risk of adverse publicity and reputational damage. However, compliance is also not risk-free, depending upon the data collated and how it is presented. Employers concerned that publication could prompt negative perception may therefore choose to volunteer additional information, explaining the context of any pay gap and how they are responding.

Labour law developments

Changes affecting the way trade unions organise industrial action came into force on 1 March 2017. These Trade Union Act provisions are aimed at stopping unrepresentative strike action, such as where disruption occurs despite a low turnout for the strike ballot. A new 50% threshold for voter-turnout during strike ballots now applies. An additional 40% support threshold applies for industrial action in important public services (including some health, education, fire, transport and border security services) where the majority of those entitled to vote are normally engaged in the provision of such services. Accompanying these changes are steps to tighten the supervision of picketing, longer advance notice of strikes, changes to the ballot paper and the re-balloting of ongoing disputes.

The balloting changes are anticipated to result in more focused, and possibly fewer, ballots, as trade unions seek to ensure the new thresholds are met. It is conceivable, however, that alternative forms of protest may also manifest where a minority of workers harbour strong grievances which are not supported more widely by colleagues. In addition, unions may challenge some of the changes on human rights grounds and the Welsh government is also disputing the application of some to Welsh devolved services.

The way in which trade unions operate has also come under recent government scrutiny. The result is a series of measures which will introduce new public sector check-off arrangements (where the employer deducts union subscriptions from pay), reporting on public sector facility time and an extension of the role of the Certification Officer (a form of regulator for trade unions). A phased implementation of these changes will take place over this year and next.

Hot topic litigation

The calculation of holiday pay has been a significant and high-profile employment law issue before the courts over recent years. The critical question under review was whether UK legislation could be read to conform with EU requirements in terms of what elements of pay fall due during periods of statutory holiday.

In February 2017 the UK Supreme Court refused permission to appeal and we now know that representative results-based commission and non-guaranteed overtime (overtime which workers are contractually required to perform) must be included in the calculation of holiday pay for the first four weeks of holiday under the Working Time Regulations. However, the position with respect to truly voluntary overtime (overtime which workers are not contractually required to perform) remains unclear. Although there are a number of first instance tribunal decisions which do suggest that truly voluntary overtime should be included, there is no binding UK authority on the point.

The other emerging hot topic relates to the employment status of workers, typically in the gig economy. A tribunal has ruled that two Uber drivers who brought test cases against the company were ‘workers’, not independent contractors, and were therefore entitled to holiday pay and to be paid at least the national minimum wage while working.

In UK law, having ‘worker’ status is a passport to a range of employment rights such as the national minimum wage, holiday pay and access to a pension scheme, although the full array of employment rights, including statutory sick pay and protection against unfair dismissal, is reserved for the narrower category of workers commonly referred to as ‘employees’.  Uber is appealing this decision.

Two further cases, one at first instance involving a cycle courier and the other in the Court of Appeal involving a self-employed plumber, were also successful in claiming ‘worker’ status.

At the same time, the government and MPs are conducting separate reviews into new forms of work, including the gig economy and worker status issues. There are also concerns that the growth in self-employment is reducing national tax revenue, which may result in a defensive response from the Treasury. Organisations reliant on contractors, freelancers, agency workers and the self-employed need to ensure that their staffing models keep pace with change in this area.

A national living wage

In 2016, the national minimum wage rate in UK increased significantly for workers aged 25 and over, with the introduction of a supplement the government termed, “the National Living Wage”.  This increment was accompanied by a promise of further rises in the following four years, the first of which takes effect from 1 April 2017, raising the statutory minimum pay level to £7.50 per hour for those aged 25 and to £7.05 for 21 to 24 year olds.

Applying these revised minimum pay rates has been a challenge for many UK employers. Employers need to be careful if they plan to vary employees’ existing terms and conditions to absorb the higher rate national living wage. Depending on the approach taken, such actions could be challenged by staff as unlawful.

Employment tribunal changes

There is one aspect of employment tribunal practice that has dominated the headlines in recent years and that is the introduction of tribunal fees. There is no doubt that the government is coming under increasing pressure to justify current fee-levels. In January 2017 it revealed the outcome of its fee review and launched a consultation on new proposals to change the fees remission scheme. The planned changes are relatively minor and fall a long way short of satisfying those who have called for an overhaul of the fees regime. That fight continues on 27 March, when the Supreme Court hears Unison’s appeal against the rejection of its legal challenge by the Court of Appeal. Although the government acknowledges that “there does appear to be evidence that fees have discouraged some people from bringing proceedings” it states that there is “no conclusive evidence that anyone has been prevented from doing so.”

Of more immediate impact is the introduction of a new online database of employment tribunal decisions allowing new decisions of the tribunal to be viewed online. Previously, the fact a claim has been pursued and the names of the parties required a trawl through paper documents held centrally at Bury St Edmunds, meaning many cases passed unnoticed by the wider public. Employers and claimants should be prepared for increased press interest and the potential use of such information by both sides to support their own contentions.

 Boosting apprenticeship funding

A high-profile manifesto pledge of the UK government on re-election in 2015 was the improvement and expansion of apprenticeships over a five year period. Pivotal to the government plans for apprenticeship growth is the question of funding and to generate greater financial support, from April 2017, an apprenticeship levy is to be introduced for employers with a payroll bill exceeding £3 million. The levy, of 0.5% of the salary bill, will be collected through the employer’s normal PAYE systems, alongside usual income tax and national insurance contributions. Employers paying the levy will have full access to their contributions to fund their apprenticeship needs but it also envisaged that many will not utilise their contributions in full, leaving a surplus the government can apply for the benefit of others, especially smaller, non-levy paying organisations.

In summary, while it is true that Brexit is diverting the government’s attention, it is also apparent from the above that there is still much to occupy employers and their lawyers in the interim.

Are personal injury lawyers ‘more sinned against than sinning’?

Jonathan Wheeler looks at the barrage of reforms facing the personal injury sector in England & Wales

Personal injury lawyers in the UK have a bad press. If you believe all you read, you would be forgiven for thinking that the courts are awash with fraudulent claims, and so-called fat cat solicitors are preying on the misery of injured people.  Whilst this is fake news, the sector has awakened the ire of those in charge, and as a result it is facing an unprecedented onslaught of reform.

It is true that some made a good living in the world before the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) 2012, an unlikely title for a statute which did away with recoverable success fees in conditional fee agreements a year later. Success fees since April 2013 are now paid by those bringing successful claims, ensuring that claimants have “skin in the game” as former justice minister Jonathan Djanogly indelicately phrased it when he introduced the measure.

Since then a number of personal injury firms have gone out of business,[1] and the future looks uncertain for many others, including key players in the claimant personal injury market. This is not enough for the Government which appears to have been swayed by partial information from the Association of British Insurers to target personal injury lawyers and their clients with further, and multiple layers of reform. In the Government’s stated wish to reduce insurance premiums, hoping that those savings will reach the public, they risk destabilising the sector further, whilst diminishing the legal rights of its electorate.

Reforming compensation for ‘minor’ whiplash claims and the small claims limit

One major plank of the Government’s reform programme comes from the Ministry of Justice. It proposes to do away with general damages for ‘minor’ whiplash claims (‘minor’ being defined as pain, suffering and loss of amenity of up to 9 months’ duration). This presents an attack on the rights of this country’s citizens and is likely to be unlawful for as long as we stay within the European Union. The alternative limited tariff scheme would equate the pain and suffering for a soft tissue neck injury with the sort of compensation one can claim for a flight delayed by over 3 hours.

Additionally raising the small claims limit for all injury claims from £1,000 to up to £10,000 puts the moderately injured on the same level as someone suing for a lost rental deposit or a dodgy vacuum cleaner. Legal costs are not awarded to the successful party in the small claims court. Whilst it may be the appropriate forum for minor consumer disputes, it will present an unlevel playing field for unrepresented victims of accidents (unrepresented because it would be uneconomic to instruct a lawyer and pay them out of their damages). Litigants in person will be Davids pitched against Goliaths as the defendant will most likely be insured and have professional representation whichever court is handling the dispute. The Government is currently considering its response to its consultation which closed on the 6th January. Now is the time to involve your members of parliament to lobby the Ministry on your behalf, before it’s too late.

The Ministry of Defence and a scheme for service personnel injured in combat

In parallel, the Ministry of Defence is consulting on doing away with lawyers in a no-fault scheme for service men and women injured in combat. This is an attempt to side-step the consequences of the judgment in Smith v Ministry of Defence[2] which involved the supply of inadequate equipment (Land Rover vehicles)  to soldiers in a combat situation in Iraq. There is a serious constitutional issue here: a defendant Government department, which pays out on claims because of the negligence (or worse) of its employees, is planning to legislate to do away with the rights of those wronged to sue them in court in certain situations. Instead, the defendant sets up a scheme where it is judge and jury over its own wrong doing. The courts perform an important function in evaluating the merits of a claim independently and holding power to account; the Government is strangling legitimate opposition. Its consultation closes on the 23rd February so there is still time to have your voice heard.

A ‘fixation’ with fixing fees

In a related move, the Department of Health is consulting on a fixed fee process for clinical negligence claims. Having been trialled as applying to cases up to £250,000, the Government appears to have been persuaded to limit the scheme to cases worth £25,000 and under. Claimant lawyers have breathed a sigh of relief. But again this is an example of the defendant (the Government) legislating to control the process, and the costs that will be paid, to those patients who have been negligently treated at that defendant’s hands. The long-awaited consultation was only published on the 30th January this year and closes on the 1st May

What is it with the “powers that be” and their apparent fixation with fixing costs? We already have a fixed cost regime for the vast majority of personal injury claims worth up to £25,000 and costs budgeting for those above that. We also have a perfectly good system called detailed assessment for losing parties to challenge winning parties’ bills with judicial scrutiny of the process. But the move to fix ‘anything that moves’ is relentless:  the Civil Justice Council’s work on fixing fees in noise induced hearing loss claims must be nearing its conclusion.

In a similar vein, Lord Justice Jackson has been tasked with looking at fixing fees in the multi track for cases worth up to £1/4 million. One cannot fix fees fairly without fixing the process, and personal injury claims (or for that matter any unliquidated claim) of that value do not conform to stereotype. Lord Justice Jackson’s previous reforms recognised this and introduced costs budgeting for such cases – a bespoke solution, to control costs for each case, depending on the work required in that case. If fixed costs are to apply to personal injury claims, and are not fixed fairly, then more costs will fall to be paid by the claimant, flying in the face of one of the fundamental tenets of tort law, to put the claimant back to the position they were in, had the wrong not been done to them, as much as money can achieve that aim.[3]. This was very recently approved in the Supreme Court judgment of Knauer v Ministry of Justice[4] where the two most senior judges in the land, Lord Neuberger and Lady Hale, President and Deputy President of that court said:

“It is the aim of an award of damages in the law of tort, so far as possible, to place the person who has been harmed by the wrongful acts of another in the position in which he or she would have been had the harm not been done:  full compensation, no more but certainly no less”.

Lord Justice Jackson’s report on the issue is set to be published in July 2017. He needs to understand that injury claims valued from £25,000 to £250,000 are not ‘minor’. They will include fatal accidents and those which have resulted in life changing injury. The concern is that fixing costs on a ‘one size fits all’ basis will inevitably mean that the costs will not pay for all the work which needs to be done to prove the case. The only solution (save for not bringing the case at all) is for a claimant to pay an increasing amount of his lawyers’ fees from his compensation, money perhaps earmarked for care or adaptations, or to reimburse lost earnings. The onus is on the claimant to prove their case to the satisfaction of the court, and our current adversarial system cannot be compared with international models where such claims are dealt with in an inquisitorial way, and where the judge has a much greater role in preparing the case and looking for the truth.

Let us end this hiatus, let the reforms we have already endured bed-in, and review using empirical evidence. Those in charge – the Government, the judiciary, the Civil Justice Council – should not pander to the wishes of an insurance industry which first and foremost looks after its shareholders and not injured people.

The silver lining?

On the 7th December, the Lord Chancellor somewhat surprisingly let it be known that she was going to pronounce on her department’s long running (almost 7 years’ long) review of the discount rate. If reform is recommended, then this is likely to have the most spectacular impact on damages for those who have been seriously injured. The discount rate is the expected rate of return for the future investment of damages, and as such it is ‘discounted’ from an award paid by the tortfeasor. Since 2001 it has stood at 2.5% per annum, originally based on safe gilt yields. But no one can achieve a rate of return of 2.5% these days, unless (possibly) a claimant invests in much riskier stocks. But why should claimants take such risks with their compensation, which may be needed to pay for future care, treatment, adaptations and equipment to help them live their lives as comfortably as possible as an injured person? The Association of Personal Injury Lawyers has been calling for a review for years – they suggest that in line with current gilt yields the rate should be –0.5% or -1%. It can be seen that that would have a massive effect on damages awards for the most seriously injured. The reality is that our own court system has been systemically under-compensating claimants for years and this is an opportunity to redress the balance. The Association of British Insurers – whose members clearly stand to lose if the rate is reduced – attempted to stop the Lord Chancellor by way of judicial review last month; that was defeated.  But the Lord Chancellor has since delayed her announcement, whilst promising more news in February. I hope she does the right thing for seriously injured people.

[1] Firms that disappeared last year, citing changes in the personal injury claims sector for their closure, included big players Parabis Law and Prolegal, as well as Carter Law, GT Law, and Mendell Solicitors.

[2] Smith & others v MoD [2013] UKSC 41

[3] Livingstone v Rawyards Coal Company (1880) 5 App Cas 25

[4] Knauer v Ministry of Justice (2016) UK SC 9

UK National minimum wage changes

Minimum wage changes have traditionally always taken place in October.  However, the introduction of the national living wage in April 2016 gave us a new date in the diary to keep an eye on.

Introduced at £7.20 per hour as essentially another band of minimum wage, the national living wage has now been in force for almost a year and stuck at its introductory rate, despite the other minimum wage bands increasing in October 2016.  April 2017 will see the next set of changes, to all bands of minimum wage.

From 1 April 2017, the rates will be:

25+ (National Living Wage) £7.50 per hour
21 to 24 (Standard adult rate) £7.05 per hour
18-20 (Development rate) £5.60 per hour
16-17 (Young workers) £4.05 per hour
Apprentice £3.50 per hour
Accommodation Offset £6.40 per day

 

2016 also saw the financial penalty for non-payment being doubled, meaning 200% of arrears will be due (although this will be halved if the employer pays within 14 days).  HMRC also continues to name and shame employers who have underpaid, as well as impose penalties of up to £20,000 per worker and refer cases to the CPS for a criminal prosecution.

Since the introduction of HMRC’s ‘name and shame’ list in October 2013, 687 employers have been named and between them, owed over £3.5 million in underpaid wages.  August 2016 also saw the biggest list since its introduction, with 197 companies named, owing just over £465,000.  A company’s name going onto the list itself doesn’t happen lightly.  Before being named, employers will have already received a notice of underpayment, which includes the opportunity to appeal.

HMRC also recently released a ‘top 10 worst excuses’ for not paying the minimum wage which, somewhat comically, included a worker not deserving the minimum wage because she “only makes the teas and sweeps the floors”, an employer and his accountant speaking different language meaning the accountant doesn’t understand the correct wages, an employer thinking it was “okay” to pay foreign workers below the minimum wage rate because they aren’t British and shop workers only being paid when they are “actually serving someone”!

Sue Evans, Partner in Lester Aldridge LLP’s Employment and HR Team, commented “It is still worrying to see just how many businesses fall foul of their minimum wage obligations and with the government increasing the enforcement budget available to HMRC, as well as the penalties for non-payment, it’s something employers need to keep on top of”. Ends

Providing outstanding legal advice, Lester Aldridge has core practice areas in real estate, litigation, private client and commercial services, which it delivers nationally and internationally through its global alliance with MSI, a network of professional service firms.

For advice and assistance with minimum wage obligations, please contact Sue or a member of her team on 01202 786 161.

UK Apprenticeship levy

In force from 6 April 2017, the apprenticeship levy will apply to all employers (including private and public sector employers, as well as charities and educational groups) with an annual pay bill of more than £3 million. The levy, charged at 0.5% of the annual pay bill, aims to increase the quality and quantity of apprenticeships, and fund three million apprenticeship schemes by 2020.

A levy allowance of £15,000 will be offset against an employer’s levy payment, meaning payments will only need to be made in respect of 0.5%, which exceeds £15,000. Only one allowance will apply and so employers with multiple payrolls cannot claim multiple allowances. The levy payment will be collected monthly by HMRC, alongside the usual PAYE payments.

Once paid, the levy will be accessed via the new Digital Apprentice Service account, which employers, after registering their details online, will be able to access and draw down vouchers for each of their apprentices. Vouchers can be used from May 2017 but only with registered training organisations. Vouchers can be used on new or existing staff, provided they and their training needs meet set criteria (CPD training does not fall within the apprenticeship standards). Vouchers can also only be used towards training, as opposed to apprentice salaries, travel costs or costs associated with setting up an apprenticeship.

The government will also apply a 10% top up to the apprenticeship funds available in an employer’s account and funds will remain in that account for 24 months, unless spent on apprenticeship training. If unspent, the funds will simply expire after 24 months, although a ‘first come, first served’ approach will be taken and the oldest funds will automatically be used first, in an attempt to minimise the amount of expired funds.

The government has introduced anti-avoidance measures, however if these measures cannot counteract the advantage gained by the business, it will be denied the £15,000 levy allowance for the tax year.

Catharine Geddes, Employment Partner and Head of HR at Bournemouth-based Lester Aldridge, commented: “Employers who pay into the levy scheme should be given access to the Digital Apprentice Service in February 2017 and they can then better plan how the new apprenticeship scheme will work for them. Employers who don’t need to pay the levy should also consider where apprenticeships can best fit within their businesses as the government has confirmed it will contribute at least 90% towards the cost of apprenticeship training, with other grants and funding arrangements being available for small employers ”.

For advice and assistance with apprenticeships and the levy, or any aspect of employment law and HR, please contact Catharine or a member of her team on 01202 786 161.

Approaching five years PQE? – It’s time for a career spot-check

Lawyers approaching the five year post qualification mark tend to use this milestone as a time to take stock of their career. It is seen as a good time to assess whether you are truly happy in your current role and direction, and whether it is likely to deliver on your ambitions over the next five years.

We are not necessarily talking about lawyers who are unhappy in their current role, it’s about assessing where you want to be professionally in the coming years. In fact, a good proportion of the lawyers say that their current role/firm can satisfy their mid-term goals.

So what about you? Have you given your career a mini spot-check as you edge towards that five year PQE mark?

The starting point is to work out what is important to you now and what you anticipate being important to you in the long term (of course that latter can change with time). It tends to be that remuneration aside, the biggest considerations for lawyers at this stage centre on one of the following:

(1) Progression

(2) Work/life balance and flexibility

(3) Private practice Vs In-house

Let’s examine each of these areas so that you can give your own career a mini spot-check.

(1) Progression prospects – Climbing the ladder

The first question to ask yourself is “Do I want to be a Partner in a law firm” Yes or No?

“No”

If you’re starting to feel that the answer to this question might be “no” then don’t worry – you are not alone. There is an increasing number of lawyers who are less attracted by the idea of partnership and the responsibility that comes with it.

That is not to say that you are not ambitious, but maybe that your motivators and ambitions have changed. If you’re more motivated by quality of work than responsibility and management, is your current firm allowing you to focus on the fee-earning and client side of your role? The motivators in sections (2) and (3) below might strike a chord with you.

“Yes”

Others do remain completely focused on reaching the partnerships milestone. If you fall into this category there are two further questions you need to ask at this stage in your career:

  • Am I realistically going to reach partner at my firm in the next five years?
  • And the even bolder question – Do I want to be a partner at this firm?

If you are unclear on either of these questions, then it is time to take stock. Remember, if you leave a lateral move until a later point in your career, firms will expect more from you. You’ll be a more senior, more expensive hire so will have to expect elevated scrutiny around the strength of your network and client following.

A lateral move later on in your career will also require you to re-establish yourself internally and this can take time. That is why the four/five year PQE mark can been seen as the perfect time to take the plunge, as it gives you ample time to establish yourself on both fronts.

Recruitment decisions at the four/five year PQE mark are more centered on expertise and ability and less on external network – of course showing an appetite for business development is a plus. Equally, at this time in your career, firms will still see you as fairly malleable – if you are looking to make the step up into a larger firm it is not too late. It may become trickier to do so the longer your career progresses.

As for the second bullet point, if you are already having doubts about your current firm then it is definitely time to take stock! Perhaps you’ve seen some of the frustrations and red tape the partners at your firm face. In this case a move to a smaller firm may work. Some may see this as a risk but being part of a smaller team can expedite your path to partnership. You’re also likely to get a lot more autonomy, allowing you to develop your own brand and client base.

(2) Work/life balance and flexibility

Your priorities may have changed. What might have seemed like a great lifestyle and career path as a junior solicitor might not seem so attractive any more. Working at the very best firm and acting for the very best clients often comes with a compromise – your own free time.

The search for a better work/life balance is without a doubt one of the biggest reasons lawyers register with recruitment specialists. This has been even more evident in recent years. As the market picked up post-recession, a lot of teams suddenly needed to recruit en masse to meet client demand, but soon realised there was a lack of quality talent. As a result, talented junior lawyers have been under immense pressure, often working very long hours and weekends. Sure, some might say that this is part and parcel of being a lawyer but many have realised that it doesn’t have to be the norm.

The legal recruitment sector has helped a large number of lawyers make a move before the five year PQE mark – moving to firms with a genuine focus on flexibility and policies such as part-time hours, remote working and job sharing. It’s not an urban myth – these firms really do exist! What has been refreshing for a lot of these lawyers is that they have not had to compromise on the quality of work and have actually enjoyed a lot more client exposure.

A lot of teams still remain bereft of quality mid-level lawyers due to the recession and natural attrition. Recruitment experts are seeing a lot of the more regional/national players snap up talent from the larger firms by allowing more flexible working.

(3) Private practice Vs In-house

Lawyers often see ‘in-house’ as the perfect escape from the headaches and hazards of private practice. After all, doesn’t life as an in-house solicitor allow you a more manageable work/life balance and the chance to move to move away from a KPI/chargeable-hours culture?

It really depends on the in-house organisation and role. Global recruiters such as Michael Page, have certainly seen a lot of private practice lawyers move in-house and never look back. They feel like a valued part of the wider commercial team and a lot closer to the commercial rationale of the legal advice given.

Equally, recruiters have spoken to in-house lawyers who have longer (and at times more stressful) working days now than they did in private practice. You really need to think carefully about what is motivating your desire to move in-house and whether you have found the right role for you.

It is certainly an option to be thinking about as you approach five years PQE. The more senior in-house roles tend to prefer someone with previous in-house experience, whereas lower level roles can often be more flexible thus allowing a lawyer to make that first jump from practice to in-house.

Whatever you decide to do at this stage you have a wide array of options in front of you and are in a position to make choices about the mid and long-term trajectory of your career.

The Brexit Effect; how employment legislation will be affected by the UK’s new independence

More than six months have passed since the historic Brexit vote and the subject has remained ever present on the news agenda. Recent events have now revealed a date to look towards as PM Theresa May has announced she will trigger article 50 by the end of March 2017, which means the UK will be non EU members by the middle of 2019.

Here, Richard Thomas, Employment Law specialist and Partner at Cardiff and London based law firm, Capital Law, looks at the potential legal implications the UK could face during the withdrawal process of Brexit, focusing on the potential repercussions on employment law.

Ever since the result of the much anticipated vote was announced, lawyers and civilians were cautious of the legalities that would be involved in the process of leaving the EU. This is predominantly because the Brexit camp never put forward any clear blueprint or model as to how the UK would govern its legal and trading relations once out of Europe.

This was in stark contrast to 2014’s Scottish Independence Referendum when the then Scottish Government published a prospective detailing how an independent Scotland would exist and function.

Theresa May’s decision to invoke Article 5O will serve irrecoverable notice of Britain’s decision to leave the EU. This will then trigger the two year negotiation period in which to conclude a withdrawal agreement.  We’re repeatedly told that ‘Brexit means Brexit’, but ambiguity abounds about what the term actually means in real terms.

The legal implications of such a withdrawal for the UK’s current laws are considerable. For example, the treaties, directives and regulations (and rulings of the European Court of Justice) will cease to apply in the UK unless their affect is specifically preserved by UK national law. Furthermore, the EU Court will no longer have jurisdiction over the UK and UK citizens will no longer have the rights of EU citizens.

What is clear is that there will be significant practical difficulties associated with the need to disentangle EU derived requirements from non-EU derived requirements, especially where case law has, for over 20 years, drawn on the UK Courts interpretation of EU directives and ECJ rulings.

In the employment law field, a significant amount of UK legislation and case law developments have stemmed from the EU and this has strengthened workers individual rights in areas such as working time and annual holidays. Other benefits that have arisen from our EU membership include family friendly policies, anti-discrimination legislation, and employment protection in the event of a change of employer.

Worker collective rights have also been strengthened by EU directives in the areas of collective redundancies, TUPE, European works councils and information and consultation obligations.

Redundancy consultation is a valuable piece of employment protection which could very well be watered down when we leave the EU. The current laws stem from an EU directive and state that collective consultation is required when over 20 people are affected. I suspect that this number will change after our withdrawal and will more likely increase to a minimum of 100 employees that need to be under consultation, although I doubt this will be a legislative priority in the immediate aftermath.

Most of the Working Time Regulations will remain. Paid holiday will certainly stay, and of course the UK gold-plated the European four weeks paid annual leave in the UK.

We also suspect that a ‘week’s pay’, which currently includes commission and overtime following ECJ rulings, will be pared back to what it was a few years ago, with just basic salary being paid as holiday pay.

Possibly the most talked about issue relating to employment is the future of British nationals living and working in other EU countries and vice versa. Previously, Liam Fox, the Secretary of State for International Trade, said that the future of British nationals in Europe is ‘one of our main cards’ in the ongoing Brexit negotiations. He said that no guarantee would be given to the two million EU nationals living in the UK until more information about the fate of British citizens living in Europe has been revealed.

Following Brexit, EU nationals would no longer have the automatic right to continue to work in the UK. It seems likely that the UK Government will agree with the EU a position whereby existing EU migrants can stay (at least for an agreed period) in return for permission for UK citizens working in the EU to remain where they are. It is also likely that the UK will introduce an immigration system similar to the current system for non-EU citizens, whereby skilled workers and students can gain permission to stay for a limited period. Undoubtedly, this could have an impact on some UK businesses if significant restrictions are imposed on their ability to recruit labour from the EU.

While the Brexit effect has already been felt across a number of industries, this is a fraction of what the implications will be when we formally leave the EU. Employment law will certainly be affected not only in the areas touched upon here but also within discrimination cases and data protection, which will both be reviewed upon our withdrawal.

Companies and employers should keep an eye on the news agenda to assess any further impact Brexit could have on recruitment, employment and immigration in order to stay ahead and safeguard their current employees before the legislation changes.

Counseling Early Stage Companies: Advance Preparation for the Exit

Representing early stage, high-growth companies often involves supporting a team of entrepreneurs to take a business from an idea, through commercial launch and market penetration, to a successful exit, often through an acquisition by a strategic or financial purchaser.  The speed and intensity of the client’s activity can be tremendous.  Under the pressure of achieving critical product development or revenue milestones – often driven by the client company’s investors – management will sometimes forego certain basic contracting, human resources and capitalisation  management measures.   Unfortunately, these short cuts will surface during the exit transaction, where the acquirer’s due diligence on the target company will spot these shortcomings in order to identify potential risks as well as opportunities to revalue the target company’s assets and business and reduce the purchase price.  The attorney representing the early stage company can streamline the exit transaction and minimise adverse due diligence discoveries by helping the client institute the following four relatively simple disciplines at the company’s outset (or at least at the outset of the counsel’s engagement), well in advance of any merger and acquisition considerations.

  1. Protect and Preserve Company Intellectual Property. For many early stage companies, intellectual property assets can represent the core of the company’s value at exit.  Those assets, of course, are generated by employees and contractors working on behalf of the company.  In the course of the company’s history, employees and independent contractors come and go.  However, sophisticated acquirers will often probe the target company’s files for potential intellectual property “leaks” or gaps – situations where employee or contractor inventions or developments may not clearly belong to the target company.The simple but often neglected solution to this due diligence red flag is drafting and religiously using a standard employment agreement or independent contractor/consultancy agreement with all new employees and service providers. These standard agreements should contain the following basic covenants:I. Confidentiality: Provisions prohibiting an employee or independent contractor from disclosing or otherwise using the company’s confidential information both during the relationship and for multiple years beyond the term of the agreement.ii. Invention Assignment: Provisions indicating that all “inventions, original works of authorship, trade secrets, concepts, ideas, discoveries, developments, improvements, combinations, methods, designs, trademarks, trade names, software, data, mask works, and know-how, whether or not patentable or registrable under copyright, trademark or similar laws” developed during the term of employment or contractor service belong to the company.  This covenant should similarly include an acknowledgement that all copyrightable material is a “work made for hire.”  Note that company counsel should confirm the impact of the applicable state laws on these covenants. For example, the “work made for hire” clause should be excluded from independent contractor/consultancy agreements governed by California law, as California law dictates that individuals subject to this type of covenant in a services agreement may be deemed employees under the California Labour Code .  Avoid the temptation to limit company ownership of employee or contractor developments to only those generated “on company time” or “using company resources.”  This limitation will only act to invite ownership ambiguity – an unnecessary impediment in the acquisition due diligence process.iii. Pre-existing Intellectual Property Disclosure and Licenses: Provisions obligating employees or contractors utilising pre-existing intellectual property in their work for the company to (i) clearly identify the pre-existing IP and (ii) grant the company a perpetual, transferrable license to use, in the course of its business, any relevant pre-existing IP included in works created by the employee or contractor for the company.
  2. Facilitate Shareholder Decisions. The decision to exit the business will naturally require the approval of both the Board of Directors and the shareholders of the company.  Minority shareholders who are no longer associated with the business, or who have a different perspective on the company’s direction and objectives, can seek appraisal rights, demand certain concessions, or take other steps to block or disrupt the transaction.  While reverse merger structures can be used to minimise the disruption caused by dissenting minority shareholders, these structures increase both transaction costs and the potential liability to the target company.The pre-emptive solution here is a basic shareholder agreement, prepared and negotiated when the early stage company’s shareholder base is relative small and cohesive. The shareholder agreement should include the following elements:i. Dragalong Rights. Terms requiring minority shareholders to support and vote with the majority on fundamental company decisions, including a vote to sell the company and/or waive of appraisal rights.ii. Buy/Sell Arrangements. Structures that ensure that the equity interests of disaffiliating shareholders are (or can be) repurchased by the company or the remaining shareholders;iii. Joinder Provisions. Requirements that all new shareholders (including those acquiring their equity interests through the conversion of debt) become signatories to the shareholder agreement.
  3. Simplify Contract Assignment. A major factor in the acquired business’ valuation is the status of its contractual relationships with customers, vendors, strategic partners and other third parties, and how easily an acquirer can continue to take advantage of those contracts following the acquisition. Contracts that include non-assignability clauses – provisions requiring counterparty’s consent prior to assignment – can greatly obstruct this transition, particularly if the transaction is structured as an asset sale (vs. a stock sale or merger). At best, these clauses can delay a closing while the target company pursues the counterparty’s consent, who may see an opportunity to extract a contractual concession from a vulnerable target.  At worst, the target company’s inability to obtain a counterparty’s consent may result in the termination or rejection of the contract by the acquirer, which can reduce the target company’s valuation.Since non-assignability clauses are often a standard part of the “boilerplate” sections of many agreements, and since solving the anti-assignment clause problem once the contract has been signed is difficult, if not impossible, company counsel should help the client implement the following prophylactic measures at the outset of the negotiations:i. Removal: Generally, the absence of a non-assignability clause in a contract allows both parties to assign the contract freely.ii. Change of Control Carve-Out: An exception that eliminates the need for the counterparty’s consent when the contract is assigned to a successor organization in the event of a merger, spin-off, or other reorganization, or any sale to any entity which buys all or substantially all of the assigning party’s assets, equity interests or business can eliminate the issue in an exit transaction.iii. Reasonableness Standard. As a fallback, incorporate a requirement that the counterparty’s consent to a contract assignment may not be “unreasonably withheld.” While this does not eliminate the need to secure the counterparty’s consent, it will impose a baseline legal standard which may facilitate the assignment negotiation.
  4. Maintain Good Corporate Capitalisation Hygiene. While cases of mystery shareholders appearing at the closing of an acquisition transaction are rare, confusion over the accuracy of the capital structure of the target company, as well as the identification of non-compliance with securities laws, can materially disrupt an exit transaction.  Common causes of capitalisation problems most often relate to (i) failing to either register or file a registration exemption with the Securities and Exchange Commission and/or state authorities in connection with the sale of private securities issued by the target company to early investors, which are usually friends and family, (ii) issues involving the company’s equity incentive plan, including unsigned documents, unclear vesting schedules, and uncertain stock repurchase provisions and exercise; and (iii) overlapping and conflicting convertible securities, including securities with conflicting conversion terms or circular conversion formulas. Many buyers will avoid assuming any risks associated with an ambiguous capital structure or improperly issued shares, preferring instead to let the target company identify and resolve discrepancies before closing.As with the other sets of issues described in this article, the preventive solutions are straightforward and, in most cases, inexpensive:i. Comply With Applicable Federal and State Securities Laws in Securities Offerings: Most states and the SEC have numerous exemptions allowing early stage companies to issue securities without the need for a formal registration.  The exemption process, however, often requires the issuing company to file a registration exemption with the appropriate securities regulator. Failing to file a registration exemption may not require the company to register its shares, but it may prevent the company from utilising a “safehabour ” in future transactions, including an exit transaction with another private company.  Filing the necessary registration exemption forms will not only help ensure securities law compliance; it will also provide assurance to a potential acquirer that these registration exemptions will remain in effect in future transactions.ii. Invest in a Commercial Cap Table Management Software. There are a number of quality, low cost software solutions on the market that can help track and automate company cap tables and “date-stamp” capital structure changes, in order to allow for a simple analysis of capitalisation changes and confirmation of issuances.iii. Automate the Effect of Certain Equity Incentive Plan Triggers. For example, if a company’s restricted stock plan provides for the buyback of unvested shares if the employee terminates, the company’s repurchase of those unvested shares should occur automatically.  Relying on the affirmative action of the company (and potentially the memory, or filing system, of the company’s executives) can result in inconsistent equity incentive plan operation and unintended equity ownership.

    iv. Create Pro Forma Models to Reflect the Terms of Convertible Securities. Going through the exercise of translating the terms of convertible securities – particularly where different securities are issued at different times to multiple parties – will help pressure test the conversion terms and validate that they function as intended.

The foregoing measures, designed to minimise exit disruption, are neither difficult nor time-consuming.  In fact, the most difficult task is often convincing the client company to expend the time, effort and resources to implement these disciplines, even years in advance of a potential exit.  As noted above, it is ultimately time and energy well spent.

It’s No Secret. Laws Combating Wage Secrecy Are Here to Stay

“Bob, don’t talk about your wages at work, please.”

“Fred, don’t ask about the wages of other employees, please.”

“John and Susan, don’t compare your salaries, please.”

Any of these statements by an employer could get the employer into deep legal trouble.  Telling employees not to discuss their wages can subject employers to lawsuits in several states.  The growing trend in wage secrecy laws, which typically include provisions forbidding employers from taking adverse employment actions against employees for discussing their wages, does not look like it will slow down anytime soon.

The Rising Tide

The rise in these laws began in the 1980s, when California and Michigan became the first states to enact wage secrecy laws.  Ten states—Colorado, Connecticut, Illinois, Louisiana, Maine, Minnesota, Oregon, New Jersey, Vermont, and New Hampshire—passed wage secrecy laws prohibiting employers from making adverse personnel decisions against employees, between 2000 and 2015.

Wage secrecy laws promote national and state legislation that require employers to equally compensate all employees for equal work, regardless of the employee’s gender.  According to the United States Department of Labor, in 2014, women who worked full time earned 79 cents to every dollar that a male earned.  One of the policy rationales behind wage secrecy laws is that if employees can freely discuss their wages and know what other employees are paid, employees can identify disparities in wages. 

In April 2016, Louisiana passed the Equal Pay for Women Act, a measure to eliminate pay inequality between men and women.  The Louisiana law does not allow employers to make an adverse employment decision against an employee for “inquiring about, disclosing, comparing, or otherwise discussing the employee’s wages or the wages of any other employee.”  Following suit, in August 2016, Massachusetts passed one of the country’s most robust equal pay laws, as the Massachusetts law bans employers from inquiring about job applicants’ salary history, as well as prohibits employers from taking adverse actions against employees for discussing their wages.

Like the Louisiana equal pay law, the Maryland Equal Pay for Equal Work Act, which went into effect on October 1, 2016, includes wage secrecy provisions that forbid an employer from taking adverse actions against employees for “inquiring about, discussing, or disclosing the wages of the employee or another employee; or requesting that the employer provide a reason for why the employee’s wages are a condition of employment.”  The law also bans Maryland employers from making adverse personnel decisions against employees for inquiring about another employee’s wages, among other provisions.  Several other states including, Ohio, Washington State, Virginia, South Carolina, Indiana, and Pennsylvania are currently considering similar wage secrecy legislation.

Violations Can Be Costly

Violating a wage secrecy law can be costly for an employer.  States impose various civil penalties for violations of its wage secrecy laws.  California employers may be required to reinstate an employee who has been terminated or suspended for discussing their wages as well as pay the employee for lost wages, including interest.  Colorado allows an employee who has prevailed in a lawsuit under its wage secrecy law to recover punitive and compensatory damages, if the employee can prove that the employer’s unlawful conduct was intentional. Violating Vermont’s wage secrecy law can require an employer to pay a prevailing employee compensatory damages, punitive damages, court costs, and attorney’s fees.

Although most states’ wage secrecy laws subject an employer to only civil liability, a Michigan employer can face criminal liability for violating the state’s law.  It remains to be seen whether more states will expand their wage secrecy laws to include criminal liability provisions.

Wage Secrecy Laws May Have Limited Exceptions

Several states do allow employers to limit discussion about wages in limited circumstances.  For example, some states such as New York and the District of Columbia do not allow persons with access to employees’ wage information as part of their job function, such as Human Resources personnel, to disclose those wages.  The exceptions to wage secrecy laws are limited, however.  As such, employer should tread with caution when limiting discussion about wages.

 Federal Trends in Wage Secrecy Laws

On the federal level, the National Labor Relations Act prohibits employers from taking adverse employment actions against employees for discussing the employee’s wages.  Several states’ wage secrecy laws track the language of the NLRA.  Further setting a national trend promoting wage transparency, in 2015, the Office of Federal Contractor Compliance Programs issued a Final Rule implementing President Obama’s Executive Order that forbade federal contractors from prohibiting their employees from discussing wages.  The Obama Administration introduced the Paycheck Fairness Act, which would ban an employer from taking an adverse action against an employee for discussing the employee’s wages.  However, Congress did not pass the legislation.

Congress’ failure to approve the Paycheck Fairness Act does not mean that the federal government will not be holding employers accountable for equally paying all employees.  In 2018, the EEOC will require covered employers to submit an updated EEO-1 form, disclosing the pay data of all employees.  The EEO-1 form currently requires covered employers to submit demographic information about employees, such as employees’ sex, race, and ethnicity.  The EEOC now requires disclosure of pay data in order to assist the EEOC in detecting discriminatory pay practices.

Wage Transparency is Here to Stay

There is no indication that the tide of wage secrecy laws is slowing down or even shrinking.  The District of Columbia currently has a wage secrecy law banning employers from penalizing employees for discussing wages.  Similar to the new Massachusetts law, the District of Columbia is considering legislation that would prohibit employers from asking applicants about their wage histories.

The increase in wage secrecy laws means that employers who do not want to be hit with a lawsuit should carefully review their employment policies to ensure that they do not unlawfully limit their employees from sharing wage information. Confidentiality and social media policies that have not been reviewed in a while should be dusted off and examined as soon as possible, as these are typical places that could get employers into hot water if they include provisions unlawfully limiting employee speech.  Finally, employers should stay abreast of applicable local, state, and federal laws regarding wage transparency.  These laws are likely here to stay.

How to Check Foreign Workers Rights

At the start of October 2016, it was announced by the UK Home Secretary, Amber Rudd, that businesses would be required to list how many foreign nationals they employ, in the hope that it forces more businesses to employ British workers. Ms Rudd said that foreign workers should not be able to “take the jobs that British people should do”.

In a world where we are taught to be accepting of all no matter their nationality, race, gender, or sexual preference, the move to effectively name and shame businesses who support foreign workers seems incredibly backward. And a new way of bringing to light the national origins of who businesses employ.

It’s important to note that the Home Secretary has said that the idea is currently being reviewed, and not policy, much less being a legal requirement which is enforceable.  Personally, I feel that these proposals will not be progressed any further, but they do evidence a renewed push on the part of the Government to discourage employers from failing to recruit UK nationals to fill gaps in the workforce.

Much is often made of the fact that overseas nationals are coming to the UK and working for less than British citizens, which then supposedly leaves UK nationals out of work. But many refute this claim and insist that without foreign workers many crucial roles would be left unfilled.

Whatever your personal or professional opinion on the subject, we’ve put together a guide to help you understand which rights you should be granting to citizens from abroad who are working in the UK.

What is a right-to-work check?

A right-to-work check involve you checking a document which grants an individual the permission to work in the UK. As an employer, it is your duty to check this before you employ anyone to ensure they are legally allowed to work for you. If you employ someone who has a time frame on the period they can work in the UK, then it is your responsibility to ensure follow-up checks are conducted.

You can take the following three-step approach to carrying out right-to-work checks:

  1. Obtain potential workers original documents
  2. Check these in the presence of the holder
  3. Retain a clear copy of the documents and record the date the check was conducted

As an employer, you have a duty to conduct checks to prevent illegal workers from working in the UK, if they are not permitted to do so. If you carry out the checks correctly, then you will have a statutory excuse against any liability which may be bought about in regards to civil penalties. Providing you have checked and documented the required checks then you will not receive a civil penalty if you were found to have employed an illegal worker.

Who should I conduct checks on?

You should carry out right-to-work checks on all potential employees no matter their nationality. As an employer, you should show no bias or discrimination against anyone who applies for the job role you are recruiting for.

No assumptions should be made about a person’s right to work in the UK based on their colour, nationality, ethnicity or national origins, accent or length of time they have been a resident in the UK.

Any breach you do make against the code of practice for employers may be used in evidence in legal proceedings – so act with precaution.

If no restriction to work in the UK is found, then you are not required to conduct any follow-up checks. However, if some restrictions on working are found such as a time-limited visa, then you are required to carry out follow-up checks.

What documents do I need?

Acceptable documents include:

  • Biometric Residence Permits
  • Residence Cards
  • Passports
  • Certificate of Registration or Naturalisation as British Citizen
  • Rights of Abode Certificates
  • European Economic Area documentation – passport or national identity cards
  • Permanent Residence Certificate
  • Certificate of Application that permits work
  • Asylum claimants need to supply a Positive Verification Notice
  • Entry Clearance Vignette

You should check documents are genuine and that the holder matches the documents they are presenting to you. You also need to ensure that the potential employee is able to legally carry out the work you are offering.

Things to look out for on documents include:

  • Check photographs and date of birth is consistent across all documents
  • Ensure expiry dates have not passed
  • Look at whether any work restrictions apply
  • Check documents have not been tampered with
  • Question the owner if difference across the documents occur. If these are easily explained ensure follow-up documents are obtained

You’ll need to make unalterable hardcopies of the documents you require and keep these for the duration of an employee’s time with you, and for an additional two years after employment has been terminated.

What happens if I employ an illegal worker?

If you don’t want to run into trouble with the law, then ensure that you conduct the necessary checks and always record the dates and documents which you were presented with. Employers who are found to have employed illegal workers may face up to five years in jail and be required to pay an unlimited fine, regardless of whether workers were knowingly employed illegally or if you had reasonable cause to believe they did not have the right to work in the UK.

If you had reasons to believe the following, then you may be found guilty of employing an illegal worker:

  • The worker had no permission to enter or remain in the UK
  • Their leave had expired
  • They weren’t allowed to undertake certain types of work
  • Their documents were incorrect or false

It’s your responsibility as an employer to ensure that you’ve carried out the checks correctly. Failure to do so can result in catastrophic penalties for your business both financially and in the eyes of the public.

While these new measures by Amber Rudd remain to be officially confirmed or come into effect, ensuring you are adhering to the rights of foreign workers now can allow you to stay ahead of the game should changes to the law be made.