Changes in Immigration Rules – Important Tier 1 and Tier 2 Changes

avatar Posted on October 22nd, 2014 by Lynn McCloghry

Last week the Minister of State for Immigration and Security, James Brokenshire, laid before Parliament the Statement of Changes in Immigration Rules. Most of the changes will come into force on 6 November 2014. The reforms contain important measures to make it easier to deport foreign criminals; to make it quicker and easier for the Home Office to correct case work errors on student applications; to clarify the Immigration Rules relating to family and private life; and to extend the time required to give notice of marriage or civil partnerships to combat sham marriages and civil partnerships.

However, the most interesting change is the much talked about change to the investment threshold for Tier 1 (Investor) applications. We also detail below some of the other changes that may impact your immigration circumstances:

Tier 1 (Investor)

The Tier 1 (Investor) category caters for high net worth individuals making a substantial financial investment to the UK. The Tier 1 (Investor) route is being reformed in a variety of ways following recommendations from a report delivered by the Migration Advisory Committee:

  • The minimum investment threshold will be raised from £1 million to £2 million – this will only affect applicants who submit their application on or after 6 November 2014. The government will also consult further on what sort of investment the route should encourage in order to deliver real economic benefits, and other improvements to the route. A consultation document will be published in due course.
  • Under current Rules, a Tier 1 (Investor) is required to invest 75% of the funds in prescribed forms of investments (share or loan capital in active and trading UK companies, or UK Government bonds) and the remainder can be held in a wider range of holdings. This requirement will be removed so that from 6 November 2014 the full investment sum of £2 million must be invested in the prescribed investments.
  • The current requirement that the migrant’s investment must be “topped up” if its market value falls will be removed from 6 November 2014 in the hope that this will provide investors with greater flexibility. Tier 1 (Investor) migrants will only need to purchase new qualifying investments if they sell part of their portfolios and need to replace them in order to maintain the investment threshold.
  • The existing provision under which the required investment sum can be sourced as a loan is being removed.

Furthermore, Entry Clearance Officers and UK Visas & Immigration caseworkers are being empowered to refuse a Tier 1 (Investor) application where all the criteria has been met if they have reasonable grounds to believe that: (i) the applicant is not in control of the investment funds; (ii) the funds were obtained unlawfully (or by means which would be unlawful if they happened in the UK); or (iii) the character, conduct or associations of a party providing the funds mean that approving the application is not conducive to the public good.

Due to transitional arrangements, Tier 1 (Investor) migrants who have already entered the route before these changes are introduced will not be subject to these changes and can rely on the £1 million investment level when they apply for extensions or for Indefinite Leave to Remain.

Tier 1 (Exceptional Talent)

Good news was delivered for the exceptionally talented. The Tier 1 (Exceptional Talent) category was introduced for those who lead the world or show exceptional promise in the fields of science, humanities, engineering  and the arts, who have been endorsed by a Designated Competent Body and wish to work in the UK.

Under current Rules, a successful applicant is granted leave for three years. This has now been changed so that applicants will now be granted five years’ leave – this reflects a similar change that was made to the Tier 2 category in April 2014. In addition, the English language requirement is being removed for extension applications. The Statement also contains minor clarifications to the criteria applied by The Royal Society, The Royal Academy of Engineering and The British Academy.

Tier 1 (Entrepreneur)

The Tier 1 (Entrepreneur) category caters for applicants coming to the UK to set up, take over, or otherwise be involved in the running of a business in the UK. As a result of abuse in this category in recent years, the following changes will take place:

  • For applications made in the UK from 6 November 2014, the funds to be invested in the business must also be in the UK. This change is designed to assist in verifying that the funds are genuine.
  • Those applying under the accelerated provisions for Indefinite Leave to Remain must show that they have invested their funds from 6 November 2014 onwards.
  • A number of technical clarifications are being made to evidential requirements relating to funding held in joint accounts, multiple bank accounts, or another business; where an applicant has already established a business; to the job creation requirements for Indefinite Leave to Remain, and to the definitions of “Venture Capital firms”, “new businesses” and “property development or property management”.

Tier 2

Tier 2 of the Points-Based System caters for migrant workers with an offer of a skilled job from an employer that holds a Sponsor Licence.

The Statement of Change brings a new power to the Home Office to assess whether a genuine vacancy exists in relation to a Tier 2 (Intra-Company Transfer) and Tier 2 (General) application. This change will empower Entry Clearance Officers and caseworkers to refuse applications where there are reasonable grounds to believe that the job described by the sponsor does not genuinely exist; has been exaggerated to meet the Tier 2 skills threshold; or in respect of Tier 2 (General) has been tailored to exclude resident workers from being recruited; or where there are reasonable grounds to believe that the applicant is not qualified to do the job.

Further, it is now being confirmed in the Immigration Rules that migrants cannot be sponsored to fill a position for a third party who is not the sponsor. And some leeway is being given to Tier 2 (General) migrants: applicants whose leave expired no more than 28 days before they make their extension application will be exempt from the Resident Labour Market Test if they are continuing to work in the same role with the same employer. Currently the exemption only applies if the applicant still has current leave as a Tier 2 (General) Migrant when they make their extension application.

Business Visitors

The Business Visitor route enables individuals to carry out a wide range of permitted activities in the UK provided they remain paid and employed overseas.

Changes will be made to provide flexibility within the Business Visitor route to: (i) allow scientists and researchers to collaborate on an international project that is being led from the UK; (ii) to allow overseas lawyers, who are employees of international law firms which have offices in the UK, to advise UK clients on litigation or international transactions; and (iii) to allow graduates of an overseas nursing school to take an Objective Structured Clinical Examination in the UK which is required before any overseas nurse can work in the UK under the Tier 2 route.

Overseas Domestic Worker in a Private Household route

The Overseas Domestic Worker route exists to allow employers resident overseas to be accompanied by their household staff on visits to the UK. A maximum stay of six months is permitted. Changes to the Rules on Overseas Domestic Workers in a Private Household will prevent abuse by those who are living in the UK through frequent, successive visits, and provide added protection to workers against exploitation.

For more information on any of the above topics, please contact Lynn McCloghry.


A question of status

avatar Posted on October 17th, 2014 by Olivia Baxendale

Status is important, particularly when it comes to employment rights. However, the various rules and qualifications that apply to employee, worker and self-employed status can give rise to uncertainty and confusion. In the last year alone, we have seen a number of cases in the appellate courts concerning individuals who have been seeking to assert rights either as employees or as workers.

Partly (one suspects) in response to such cases, the Government has now announced a wide ranging review of the status of workers. The aim of the review is to ascertain whether the current framework is clear, whether there are any options to extend employment rights to more people and to streamline the various rules and qualifications that apply, so that all parties are clear at the time of recruitment what rights are available. The range of status will be analysed including employee, worker and self-employed status and interim findings and recommendations following the review are expected by March 2015.

The Government’s press release can be viewed here.

The status of individuals who are engaged to perform individual assignments under an umbrella contract has been a particular area of focus for the Employment Appeal Tribunal (EAT). In recent weeks, there have been several cases in which the EAT has considered worker status, in particular examining mutuality of obligation within the context of umbrella contracts.

Mutuality of obligation is the obligation to offer and to accept work and is an essential element for an individual to fall within the category of a worker. Whilst such cases are often fact specific, the EAT has provided some useful guidance. In particular, in one case concerning a self-employed labourer who had changed status from employee to sub-contractor in return for a payment, the EAT found that although there was no requirement for the company to offer work or for the sub-contractor to accept it, there was mutuality of obligation during each assignment or period of work that the individual undertook to establish worker status and entitlement to holiday pay. Therefore, where an engagement of a self-employed contractor consists of a series of short individual assignments, there is no requirement for the individual to establish mutuality of obligation between assignments to be held to be a worker.

A second case provides useful guidance when considering whether an individual is protected under the Equality Act 2010. That particular case concerned two interpreters who successfully argued that they were workers rather than self-employed contractors and could therefore bring claims of discrimination under the Equality Act. The EAT found that the lack of mutuality of obligation between their assignments was irrelevant to determine whether the interpreters were “employed” for the purposes of the Equality Act.

If you require any advice on an individual’s employment, worker or self-employed status, please contact any member of our team who will be happy to assist.


Landmark UK-Ireland Visa Deal Signed

avatar Posted on October 9th, 2014 by Lynn McCloghry

This week the British Government unveiled a new visa scheme titled the British-Irish Visa Scheme to enable Chinese and Indian nationals to visit the UK and the Republic of Ireland using a single visa when travelling on certain short stay and visitor visas. The scheme will start in China by the end of October 2014 and will follow in India soon afterwards. China and India are both key markets for UK and Irish tourism and it is hoped that more than 10,000 visitors will use the scheme.

Under the British-Irish Visa Scheme, some Irish short stay visas will allow onward travel to the UK and some UK visitor visas will allow onward travel to the Republic of Ireland. All Indian and Chinese nationals who hold an eligible UK visitor visa (except ‘visitor in transit’ and ‘visitor for marriage or civil partnership’) are covered by the scheme. For example, under the scheme an Indian or Chinese visitor in Dublin will be able to make a short trip to London without needing a separate visa. Alternatively, an Indian or Chinese visitor in London could then travel to Dublin.

The scheme will make travel between the two countries much easier and will also allow the two governments to share data and exchange information on passengers.

For more information, please contact Lynn McCloghry.


More changes – new law

avatar Posted on October 2nd, 2014 by Margaret Davis

While it may be only 90 shopping days to Christmas a number of employment law changes took effect on 1 October 2014 which may give little or no time to employers or HR professionals for shopping!

Family friendly legislation

While the new shared parental leave regulations will only apply to children whose expected week of childbirth is 5 April 2015, qualifying employees (and qualifying agency workers) now have a right to take unpaid time off work to attend up to two ante-natal appointments with a pregnant woman with whom they have a ‘qualifying relationship’.

The right is not confined to married parents, but is available to a pregnant woman’s husband, civil partner or partner (including same-sex partners), the father or parent of the pregnant woman’s child, and intended parents in a surrogacy situation who meet specified conditions. In the case of qualifying adoptive parents their right to attend adoption appointments in respect of a child placed with them for adoption does not come into force until 5 April 2015.

The BIS has published an Employers’ Technical Guide to Shared Parental Leave and Pay to assist employers implementing policies on shared parental leave and pay. If they have not already done so employers should be updating their family leave policies to reflect the new legislation.

National Minimum Wage (NMW)

The rate for workers aged 21 and over has increased from £6.31 to £6.50. The new NMW rate for 18 to 20 year olds is £5.13, the new NMW rate for those under 18 is £3.79 and the NMW new rate for apprentices is £2.73.

While this may well be the biggest cash increase since 2008 for low paid workers and will no doubt affect the profitability of employers who pay no more than the NMW, it is unlikely to give rise to employees on the NMW going on a spending spree in the shopping days left to Christmas!

Equal Pay Audits

Inequality of pay continues to be an issue despite attempts by various governments to reduce the gender pay gap. The introduction of mandatory equal pay audits under The Equality Act 2010 (Equal Pay Audits) Regulations 2014 SI 2014/2559 means that in respect of equal pay claims presented on or after 1 October 2014 employment tribunals are required to order employers found in breach of equal pay legislation to conduct and publish equal pay audits equal pay audits in certain circumstances.

This is clearly naming and shaming legislation in that the employer will be required to identify any differences in pay between men and women and the reasons for those differences; include the reasons for any potential equal pay breach identified by the audit; and set out the employer’s plan to avoid breaches occurring or continuing.

Micro-businesses which are defined as a business that has fewer than 10 employees and “new businesses” will be exempt from the new rules, although in the case of new businesses the situation is more complex in that such businesses will not be exempt if the employer has within 6 months of starting the new business carried on another business that consists of activities which are the same as those being carried on by the new business, or where there has been a transfer of a business and the transferring party ceased to carry on the relevant business activity.

Where an employer fails to conduct a satisfactory equal pay audit when ordered to do so without reasonable excuse, the tribunal can order it to pay a penalty not exceeding £5,000, and may make an order specifying a new date by which it must receive a satisfactory audit which again carries a further penalty of £5,000 for non-compliance.


When the qualifying period for bringing unfair dismissal claims was increased to two years there was a growing trend for employees who did not meet the qualifying condition to claim they had made a qualifying disclosure in respect of their employment contract. Indeed, it was not uncommon for employees who saw the writing on the wall to raise concerns about a breach of their employment contract. Many employers, therefore, gave a huge sigh of relief when the whistleblowing legislation was amended removing the ability of employees to rely upon a breach of their own employment contract for saying they had made a protected disclosure. Despite this the legislation is still relevant and, aside from the fact it protects employees who make such disclosures by removing the qualifying condition for an unfair dismissal claims, there are reputational risk issues that can arise.

As the legislation is quite prescriptive employers may need to revise their whistleblowing policies to reflect the fact the list of the persons prescribed to receive qualifying disclosures occurring after 1 October 2014 has been updated. The new list is broadly the same but there are several new prescribed persons such as the National Society for the Prevention of Cruelty to Children and the National Crime Agency. Changes have also been made to reflect the fact that some bodies are no longer responsible for regulating particular sectors, such as the House Corporation which has been replaced by the Homes and Communities Agency. Furthermore, certain bodies such as the Financial Conduct Authority have been described in slightly different ways to that given in the previous list. The new list may be found here.

Reservist forces

Many employers may be getting nervous that increased military activity in the Middle East could see key employees who are reservists being called up. Equally some reservists settling in to new jobs, for example, armed servicemen who have recently retired from the services, or who were made redundant may be concerned they will lose their jobs if this were to happen. S.48 of the Defence Reform Act 2014 which amends S.108 Employment Rights Act 1996 and removes the statutory qualifying period for unfair dismissal for armed forces reservists will therefore be a worry to employers and a relief to some of their employees. However, this only applies where the employees employment terminates on or after 1 October 2014 and the reason (or, if more than one, the principal reason) for the dismissal is, or is connected with, the employee’s membership of a reserve force. There will be some relief to employers in that there is also increased financial assistance for employers of members of the reserve forces who are called up for service, and persons carrying on business in partnership with such members of the reserve forces.

Under the Reserve Forces (Call-out and Recall) (Financial Assistance) Regulations 2005 an employer is entitled to claim a payment of certain costs incurred by having to replace an employee reservist who is called out for service. The Reserve Forces (Payments to Employers and Partners) Regulations 2014 give effect to a new scheme for small and medium-sized employers (excluding public authorities) to claim an additional monthly payment of £500 when a reservist employee, who is contracted to work full-time for more than 35 hours per week, is absent on military service for a whole calendar month. The amount will be pro-rated for periods of less than a month and where the employee works less than 35 hours per week.


FRC updates UK Corporate Governance Code

avatar Posted on September 26th, 2014 by Joanne White

In April 2014, The Financial Reporting Council (FRC) issued a consultation document setting out a series of proposals to update the UK Corporate Governance Code. Following the consultation period, the FRC has now published a revised Code.

FRC Chief Executive, Stephen Haddrill, explains that the rationale behind the revised Code is to “strengthen focus of companies and investors on the longer term and the sustainability of value creation” meaning that investors and shareholders should now receive better quality, more transparent information on the long-term health and strategy of companies.

In the revised Code, much greater emphasis is placed on ensuring that executive remuneration packages are designed with the long-term success of the company in mind, rather than simply short-term reward for high-performing executives.

The 2012 Code stated that “levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully ….“. The 2014 Code states that “Executive directors’ remuneration should be designed to promote the long-term success of the company …..“.

This shift in emphasis is perhaps unsurprising given that investors are now demanding greater transparency around areas of risk management, following the banking crisis. It is also part of a greater push to get companies to take a long-term rather than short-term approach to instill confidence in investors and shareholders. This increased link between executive performance and pay is designed to implement the FRC’s rationale on this point.

Specifically on the issue of executive pay, the FRC has said that companies should put in place plans to re-coup or hold back variable pay, and place greater emphasis on designing pay plans with the long-term health of the company in mind. One way of doing this is for companies to devise specific claw back provisions, which the FRC intend companies to self-regulate. As things stand, although it is common for companies to have provisions in place to withhold monies in certain circumstances, few companies have specific provisions in place to claw back monies already paid out.

As well as the practical considerations associated with implementing a claw back scheme, companies are understandably nervous about the impact this will have on the motivation of their executives. Critics argue that what will happen in practice is that companies will simply devise new non-cash bonus schemes in order to bypass these new provisions. Whether this happens or not, remains to be seen but certainly these new challenges will force companies to think more creatively when devising remuneration packages for their executives in the future.

The revised Code will apply to accounting periods beginning on or after 1 October 2014.


Territorial jurisdiction – comparison between different systems of law is not required

avatar Posted on September 23rd, 2014 by Neil Johnston

Those of you with international offices or operations will be familiar with the complexities of determining the appropriate jurisdiction to hear complaints brought by employees working abroad.  As a general rule, employees working or based abroad at the time of their dismissal will not be within the territorial jurisdiction of the UK.  However, there are exceptions.

The Supreme Court held in Ravat v Halliburton that an exception would apply if the employee had a sufficiently strong connection with Great Britain and British employment law.  In Creditsights Limited v Dhunna the Court of Appeal has now confirmed that when determining whether an employee based abroad has a sufficiently strong connection with Great Britain and British employment law, for the purposes of pursuing an unfair dismissal claim, it is not necessary to compare the merits of the different systems of law that might apply.

Mr Dhunna joined Creditsights Limited (CSL) in 2006 working in London as an institutional sales person.  His role covered accounts across Europe, Asia, the Middle East and Africa.  Mr Dhunna’s role developed and, in 2009, he moved to Dubai, transferred his European clients to the London sales team and focussed solely on sales to clients in Asia, the Middle East and Africa.  Mr Dhunna was line managed from Delhi, but remained on his English contract and UK payroll (albeit, at his request, he was paid in US dollars).

CSL is part of a worldwide business which is ultimately run and managed by Creditsights Inc. (CSI) in New York.  All decisions relating to the Dubai office were taken by CSI which, following legal advice, treated the Dubai office as a branch or representative office of CSL in London. London provided administrative support to the Dubai office but the Dubai office was shown as a separate profit and loss account.  It was intended to transfer London’s administrative support for the Dubai office to a new office to be opened in Singapore which would be the hub for all Asian business. It was agreed that Mr Dhunna would move to Singapore, would be paid in Singapore dollars and a new contract was prepared.

In mid-2010 administration for the Dubai office transferred to Singapore.  However, shortly before he was due to move to Singapore, Mr Dhunna was dismissed for gross misconduct.  The decision was taken by employees of CSI and CSL played no part in the dismissal decision.

Mr Dhunna brought claims in England for unfair dismissal, breach of the right to be accompanied and for accrued holiday pay.  Mr Dhunna’s first two claims were struck out on grounds that the Tribunal did not have jurisdiction to hear them.  The ET Judge looked at the facts and concluded that Mr Dhunna was in every sense part of the Asia operation.  The Employment Appeal Tribunal overturned that decision finding that ET Judge had failed to compare the strength of Mr Dhunna’s connections with Dubai and England.  The Court of Appeal reversed that decision holding that the ET Judge had carried out such an exercise and rejected the argument that establishing whether there was a sufficiently strong connection with Great Britain included conducting a comparative exercise of which jurisdiction was more favourable to the employee.  The question is whether an employee is able to except himself from the general rule by demonstrating that s/he has sufficiently strong connections with Great Britain and British employment law.

Jurisdictional questions turn on their facts.  While this case is further helpful guidance, an assessment will need to be carried out to determine whether in an individual’s circumstances the exception applies.  If you would like to discuss this further please do not hesitate to contact me or another member of our team.


TUPE: Do managers transfer?

avatar Posted on September 16th, 2014 by James Warren

The recent Employment Appeal Tribunal decision of WGC Services Ltd v Oladele examines an issue which often troubles those dealing with TUPE transfers arising from the outsourcing or re-tendering of services: in what circumstances should managers responsible for a number of services or teams of employees be regarded as in scope to transfer?

Mr Oladele and a colleague were area managers for a cleaning company servicing a number of hotels for Whitbread plc. A number of contracts governed the cleaning services, which were provided across 19 sites. Between June and October 2010 Whitbread terminated those contracts, awarding the services to new contractors. As the services for each hotel were transferred, one by one, Mr Oladele and his colleague, initially responsible for a large number of hotels, found themselves responsible for fewer and fewer. Of the final six hotels, three were transferred on different dates between November and December 2010 to a single new contractor – WGC Services Ltd. Mr Oladele and his colleague asserted they were assigned to a group of employees which provided the cleaning services that transferred to WGC Services Ltd.

The Employment Tribunal initially agreed that the two managers were assigned and upheld their claim. It was accepted that there was an organised grouping of workers dedicated to carrying out activities at the relevant three hotels, and that there was a transfer of the cleaning services from the original contractor to WGC. On the basis that the area managers worked mainly at those hotels where activities were transferred to WGC, the ET Judge concluded that they were assigned to the relevant organised grouping of employees, meaning that they were in scope to transfer.

WGC then appealed, and the Employment Appeal Tribunal has now overturned the original judgment. Its primary reason for upholding the appeal was the ET’s failure to provide sufficient explanation of its reasons for its conclusions. However, the EAT also provided fresh guidance on how the relevant issues should be addressed.

When determining whether or not there is an organised grouping of employees, the EAT held that it is necessary to examine each of the relevant contracts under which services are provided, and to determine by reference to both those and the actual working practices if there is an organised group working across a number of contracts, or separate groups for each contract (or indeed any organised group of employees at all). It expressed the view that a finding that there is a single organised group working across a number of different contracts would need to be carefully explained. The determination of this question is crucial to whether or not managers responsible for more than one contract can be said to be assigned to a particular service or services.

The EAT also confirmed that it is correct to look principally at the activities undertaken by employees immediately before the transfer when deciding whether they are assigned to a relevant group of employees (even in circumstances where those activities may have recently changed because of a series of contract terminations and/or transfers). However, to be assigned means more than merely working for a time on the relevant contract or contracts. The EAT indicates that findings of fact need to be made in relation to the nature of each individual’s work, examining the period of time immediately before the transfer, and having careful regard to the identity of the relevant organised group(s) of employees, taking into account that there might be more than one group.

In reaching its conclusions the EAT applied existing law, but its decision strongly emphasises that no simple assumptions should be made about the assignment of managers (or others) to particular groups of employees. Simply happening to be responsible for a specific group of employees at a particular point in time does not necessarily amount to assignment – clear evidence linking the manner in which the services are provided and the employee’s role will be required.


What happens if Scotland votes to end the Union?

avatar Posted on September 9th, 2014 by Nicholas Thorpe

A lot of the recent debate on the Scottish independence vote has focused on the economic consequences of a ‘yes’ vote, with a particular focus on whether or not there would be a currency union.  But whichever way the vote goes next week, it is likely to bring about changes to employment laws in Scotland, with Gordon Brown indicating yesterday more timely devolved powers to the Scottish Government in relation to the work and benefit programme in the event of a ‘no’ vote.

Such changes would have an impact on all businesses with UK wide operations (whether they are registered in Scotland, England & Wales or overseas).  At this stage the detail is rather thin, and the nature of changes would depend upon which party is elected, both in Scotland and in Westminster over the next two years; but the current Scottish government has indicated, in its white paper on an independent Scotland, certain areas where it would look to make changes to Scotland’s employment laws.  These include changes to the national minimum wage regime, as well as the reversal of certain recent employment law reforms in relation to tribunal fees, the qualifying period and compensatory cap for unfair dismissal claims, and restoring the 90 day consultation period for redundancies affecting 100 or more employees.  This last proposal could have particularly complicated implications for UK wide employers who propose large scale redundancies across its entire UK organisation following the Woolies decision, which removed the “at one establishment” requirement from the collective redundancy consultation test.

While it may be too tight to call which way the Scottish independence vote will go next week, it is clear from the statements made by the ‘no’ campaign this week that whatever the outcome, the Scottish government will have greater powers in relation to employment legislation and the work programme, and that, over time, we are likely to see a divergence in employment law in Scotland and England & Wales.  Of course, we are some way from any of these changes becoming law, but employers with UK wide operations should start thinking now (as part of their contingency planning) how they might deal with a future regime involving dual conflicting jurisdictions.



Once an employer makes its restrictive covenant bed, it must lie in it

avatar Posted on August 27th, 2014 by William Hampshire

Restrictive covenants can provide employers with valuable protection, but in order for them to be enforceable in an employment contract, they must go no further than is reasonably necessary to protect the employer’s legitimate interests.  Each case will be judged on its own facts, and there can be considerable judicial variability when it comes to enforcing a restrictive covenant.   But generally, the courts have adopted an “employer friendly” approach in recent years to their enforcement.  However, the Court of Appeal’s judgment in Prophet plc v. Huggett serves as a useful reminder of the need for careful drafting.

In Prophet plc v. Huggett, the Court of Appeal overturned a High Court decision to read words into a non-compete covenant where the literal interpretation of the clause gave rise to an absurdity. Although the purpose of covenant was no doubt directed at protecting the employer’s business interests by restricting the employee’s post-employment competitive activities, the literal reading of the wording offered the company no such protection.

The clause in question contained a very long first sentence, drafted widely, which both parties agreed on its own would have been unenforceable, and a succeeding proviso which limited the restriction to products the employee was involved with whilst in employment with the company.

The employer provided computer software for the fresh food sector and the employee was a sales manager who had been involved in the fresh produce industry. During his employment, the only company products the employee was involved in were called Pr2 and Pr3. It was accepted by both parties that no competitor of the company provided Pr2 or Pr3 software meaning the proviso limiting the restriction to only products the employee had been involved with whilst in employment with the company rendered the covenant pointless.

The High Court Judge was prepared to add words into the covenant to produce a commercially sensible result. In his view “something had gone wrong” in the drafting and the literal interpretation of the clause could not have been its true meaning, since it would not prevent the employee from working for a competitor of the company in the provision of software systems to the fresh produce industry.

The Court of Appeal acknowledged that where there is a clear choice between an interpretation that gives rise to an apparent absurdity and one that achieves a commercially sensible result, a court will ordinarily favour the latter interpretation.

However, the Court of Appeal found that the meaning of the proviso here was clear and there was no basis for interpreting it differently; the evident purpose of the proviso was to impose a limit on the unreasonably wide terms of the preceding sentence so as to achieve overall a covenant that was no wider than was reasonably necessary for the protection of the employer’s commercial interests. It was a “carefully drawn piece of legal prose” in which the draftsman chose his words deliberately.

The covenant did not contain an error of drafting, but an error of thought; the draftsman did not think through the practical consequences of the proviso as drafted. The Court of Appeal concluded that it was not for a court to re-make the parties’ bargain; the company had made its bed, and now it had to lie upon it.

The case serves as a useful reminder that restrictive covenants must be well thought through and carefully worded as a court will not rewrite a covenant that does not achieve the desired outcome, however absurd the result.

For further advice on the drafting of restrictions relevant to your business and on their enforcement in the event of a breach, please do not hesitate to contact any member of the team.



A review of the taxation of travel and subsistence expenses

avatar Posted on August 19th, 2014 by Olivia Baxendale

On 31 July 2014, the Government launched a consultation on the tax treatment of travel and subsistence expenses. The consultation is prompted by an OTS (Office of Tax Simplification) report on the taxation of employee benefits and expenses. The report highlighted that the current taxation system for travel and subsistence expenses could be simplified and improved. The OTS also suggested that the system does not properly reflect the way people work today, for instance, the rise in home working. It noted confusion about what expenses can be paid free of tax/NICs where home is a workplace or what can be claimed where employees regularly or irregularly attend more than one company office or site. Following consultation, the Government intends to produce a new set of rules that are simpler to understand and use and which reflect 21st century working practices.

The consultation will be a two stage process. During the first stage, which closes in October 2014, the Government invites views on various matters including:

  • the commercial realities of travel and subsistence expenses;
  • the circumstances in which employers pay such expenses;
  • how tax influences those decisions; and
  • what sort of payments should qualify for tax relief, who they need to be paid by, to whom and in what manner.

The second stage of the consultation will start in Winter 2014 and close in Spring 2015. During that stage, a working group will assist with producing a set of principles for a new tax regime based on the findings from the first stage of the consultation process. The Government has pointed out that this is a long term piece of work and it has no plans to legislate or make any changes to the present regime in the current parliament.

If you would like to take part in the consultation, you can find out more information by clicking here.