Employment Review - September 2007
Welcome to this month’s Review. In this issue we look at the upcoming changes to directors’ responsibilities, a ground-breaking tribunal case relating to the reversal of the burden of proof in victimisation claims, interesting methods used to creatively manage sickness absences and we introduce a new addition to Freeth Cartwright LLP.
New Legislation: The Companies Act 2006
The new codified directors’ duties
EAT holds that reversed burden of proof does not apply to victimisation under Race Relations Act
Looking Ahead: Legislation Tracker for 2007
Rewarding Good Attendance: Creative Sickness Management
Freeth Cartwright ranked #1 for employment
Introducing Pat Jones
New Legislation: The Companies Act 2006
This briefing note provides a summary of the new codified directors’ duties under the Companies Act 2006 (2006 Act). This note covers the duties owed by the director to the company.
In order to provide greater clarity on what is expected of directors, the Act puts into statute the duties which directors owe to their companies (see the next article for a full list of the duties).
These duties are ones that have developed through case law, but with some changes. For example, the duty to act in the best interests of the company has become the duty, at section 172, to promote the success of the company for the benefit of its members as a whole, having regard to at least six factors (see insert box).”
Lord Goldsmith, Attorney General, stated in the House of Lords: “The statement of general duties…is not intended to be an exhaustive list of all the duties owed by a director to his company. The directors may owe a wide range of duties to their companies in addition to the general duties listed. Those are general, basic duties which it is seen as right and mportant to set out in this way”.
In addition to the duties owed to the company, directors will also have many other duties, both under the 2006 Act, such as the duty to deliver accounts (section 441), and under a wide variety of other laws and regulations, such as insolvency and health and safety legislation.
The full implications of the Companies Act 2006 are varied and challenging. Should you wish further guidance on this matter please contact David Potter on 0115 936 9389 or at david.potter@freethcartwright.co.uk.
The new codified directors’ duties
• Duty to act within powers (section 171).
• Duty to promote the success of the company (section 172). Under section 172 (1), in fulfilling this duty, directors must have regard (among other matters) to:
- the likely consequences of any decision in the long term
- the interests of the company’s employees
- the need to foster the company’s business relationships with suppliers, customers and others
- the impact of the company’s operations on the community and the environment
- the desirability of the company maintaining a reputation for high standards of business conduct
- the need to act fairly as between the members of the company.
• Duty to exercise independent judgement (section 173).
• Duty to exercise reasonable care, skill and diligence (section 174).
• Duty to avoid conflicts of interest (section 175).
• Duty not to accept benefits from third parties (section 176).
• Duty to declare interest in proposed transaction or arrangement with the company (section 177).
EAT holds that reversed burden of proof does not apply to victimisation under Race Relations Act
In a ground breaking judgment delivered recently the Employment Appeal Tribunal has held that the reversal of the burden of proof, applied by Tribunals up and down the land as a matter of course in discrimination cases since 2003, does not apply to claims of victimisation under s.2 of the Race Relations Act 1976.
The Claimant was a social worker of Chilean origin. Her line manager, who had an alleged track record of passing her over for promotion, appointed one of her colleagues to an acting Group Leader position, notwithstanding that the colleague in question was ostensibly less qualified than the Claimant. The Claimant, who had brought and abandoned earlier employment Tribunal proceedings claiming discrimination against the same employers, maintained that by appointing her colleague to the relevant post in preference to the Claimant, the Claimant’s line manager had victimised her within the meaning of s.2 of the 1976 Act.
In closing submissions Counsel disagreed as to how the Tribunal should approach the burden of proof in relation to the victimisation complaint with Counsel for the Claimant arguing that the reversal applied, and Counsel for the Respondent contending to the contrary. In upholding that complaint the Tribunal gave no indication as to how it had approached the question of the burden of proof.
The Respondent challenged this finding by way of cross-appeal to the EAT. In response to questions from the EAT the Tribunal clarified that it had applied the reversed burden under s.54A of the 1976 Act. On appeal the employers argued that this approach was wrong. The EAT agreed, holding that whilst its intuitive approach was to conclude that the ‘new’ provisions in relation to the burden of proof applied, as a matter of pure construction of the domestic legislation and EC Directive 43 of 2000 the reversed burden could not be said to apply, however illogical such a conclusion might appear to be when considering the general tenor and ambit of anti-discrimination law from both a domestic and European perspective.
The ramifications of this decision are potentially enormous.
Commentators may say that this case exposes a serious lacuna in the legislation prohibiting race discrimination, and that it effectively introduces a two tier approach to the enforcement of claims made under that legislation. Others may say that the decision does no more than reflect the true meaning of the legislation. Permission has been granted for an appeal to the Court of Appeal.
Oyarce v. Cheshire County Council, EAT Wednesday 13 June 2007
(Wilkie J, Mr P Gammon MBE and Dr S R Corby).
Looking Ahead: Legislation Tracker for 2007
October will be a busy month for new legislation. The most significant developments are the introduction of the Equality Act 2006 and the Companies Act 2006.
1 October 2007 - Equality Act 2006
The Act makes it unlawful (apart from certain exemptions) to discriminate on the grounds of religion or belief or sexual orientation in the provision of goods, facilities and services, the management of premises, education and the exercise of public functions.
It also creates a public sector duty to promote equality of opportunity between men and women and to prohibit sex discrimination in the workplace.
Finally, the Act introduces the Commission for Equality and Human Rights (CEHR). This organisation will replace the existing equality commissions. The CEHR is due to take over from the Equal Opportunities Commission and Disability Rights Commission in October 2007. However, the Commission for Racial Equality will retain its existing functions until April 2009.
1 October 2007 - Companies Act 2006
The 2006 Act will introduce a statutory statement of directors’ duties that will replace many of those existing at common law. Most of the provisions will come into force on 1 October 2007. Those dealing with conflicts of interest will come into force on 1 October 2008.
The most significant change in relation to directors’ duties is a statutory requirement for directors to have regard to a list of factors in exercising their duty of good faith. See the attached article ‘New Legislation: The Companies Act 2006′ for further information regarding the key aspects of this new legislation.
1 October 2007 - Working Time (Amendment) Regulations 2007
Statutory annual leave entitlement increased from 20 to 24 days (see Freeth Cartwright Employment Review: August 2007).
1 October 2007 - Amendments to Sex Discrimination Act 1975
The Government will bring in regulations amending the Sex Discrimination Act 1975, following the EOC’s successful judicial review. The High Court found that the regulations did not adequately implement the Equal Treatment Directive, and the government was obliged to make further amendments. One of the expected changes is a wider definition of harassment so as to include third party conduct.
1 October 2007 - National Minimum Wage Regulations 1999 (Amendment) Regulations 2007
The principal rate of the national minimum wage will increase from £5.35 to £5.52 per hour. For workers aged between 18 and 21 it will rise from £4.45 to £4.60; and for workers below 18 who have ceased to be of compulsory school age, it will rise from £3.30 to £3.40.
24 October 2007 - Data Protection Act 1998
Exemptions set out in Part III of Schedule 8 no longer apply. Manual filing systems in existence before 24 October 1998 will be required to comply with the Act.
Rewarding Good Attendance: Creative Sickness Management
Police in Greater Manchester have come up with an innovative scheme for reducing sick leave within the force. Officers who have not been off sick over a nine-month period are entered into a draw where a £500 prize is offered as an incentive.
The scheme in the south Manchester division, which has 600 officers, has seen attendance improve.
Chief Superintendent Alan Cooper said, ‘if you are ill, the thought of a couple of hundred pounds isn’t going to make people come into work. They might if it’s just a sniffle’. Last year, £3,000 was given out, with 186 names going into the draw and about a dozen winning prizes. The pot of money has now been increased to £4,000.
Chief Superintendent Cooper said: ‘I picked the idea up from industry, where they incentivise staff. We are not a business, but we have to be business-like.’ The idea may have come from the Royal Mail’s ‘Be in to Win’ approach to managing sickness absence. This scheme was introduced in 2005. Staff who have gone 12 months without taking sick leave were entered into a prize draw to win one of 39 cars.
All those who qualified to enter received a £150 travel voucher. Creative sickness management, linking bonuses, performance appraisals or salary increases to good or consistent attendance, is already standard practice in America. For example, employees are often allocated a certain number of annual ‘personal days’ to be used for both holiday and sickness absence purposes.
Such schemes have a proven record of reducing sickness absence. As a result of the Royal Mail’s ‘Be in to Win’ scheme attendance increased by 11 per cent, resulting in a saving of approximately £40 million.
Employers should of course still consider any sex or disability discrimination issues when operating such incentive schemes.
Freeth Cartwright ranked #1 for employment
The Legal 500, the law profession’s guide to legal services, has ranked Freeth Cartwright first again for employment law in the East Midlands.
The firm was ranked top in 10 categories and is one of just two firms regarded as ‘regional heavyweights’.
The Legal 500 comes against the background of The Lawyer’s Top 100 law firms earlier this month, where we were rated as the rising star in the Midlands region and tipped as a ‘buy’.
Pat Jones, an employment law specialist joined Freeth Cartwright from Weightmans earlier this year. Pat is based in our Manchester office and is assisted by Michael Wright, Senior Solicitor.
Name: Patricia Jones
Position: Partner
Email: pat.jones@freethcartwright.co.uk
Direct line: +44 (0)845 634 2561
Fax: +44 (0)845 634 2541
Office: Manchester
Sectors: NHS, Public Sector, Commercial Cases
Services: Employment; Advice in relation to NHS Issues and Disputes
Recent deals & projects: Handling consultant disciplinary case - issues relating to the Consultant appeared in the National Press. Handling much publicised industrial action and other issues for local Mental Health Trust. Advising on Round 2 recruitment round for junior doctors following problems encountered in Round 1.
Client Feedback: ‘A safe pair of hands, total focus on client’s requirements, an ability to manage cases to minimise risk’.
‘Highly effective’.