8 minute read
SBT Legal
from SBT issue 449
SBT
LEGAL
BY MAYO WYNNE BAXTER
EMPLOYMENT LAW: THE END OF FURLOUGH
BY ALEX JONES, 365 EMPLOYMENT LAW
SBT LEGAL SPONSORED BY:
The pandemic has put a strain on many business relationships, but what are the legal options when disagreements arise? Dialogue is often the best way to resolve matters, including mediation but if that is not possible, there are legal remedies.
Removing a Director
Legal The directors as a board generally have no power to remove another director unless included in the company’s constitutional documents, such as the ‘Articles’. Even if, as a shareholder, you hold over 50% of the voting shares and can remove a director:
• Make sure you give notice (called
‘special notice’) to the company at least 28 clear days before any meeting. • Check the company’s constitutional documents, including any investment
or shareholder agreements. These may contain several options for the removal of a director. Some of these agreements may have weighted voting rights granted to directors. • Check how removal will affect day to day running of the company, including access to bank accounts. • Are there directors’ loans to be repaid? Unless agreed otherwise these are payable on demand. • Do you need to preserve confidential information - clients lists or company credit cards? • Carefully check a director’s right to compensation under a service contract. If a director is also a shareholder, consider any shareholder agreement carefully as this might govern how to deal with the return of shares.
If the shares are held 50/50, and the shareholder agreement does not assist, then unfortunately, there will be deadlock, and court action may mean the dissolution of the company.
Unless there is severe or unlawful activity to justify gross misconduct, it may also be difficult to justify immediate termination of the director if they are an employee. Check the director’s contract
of employment, which may contain notice periods or compensation rights on dismissal. And:
• Get legal advice if you wish to suspend a director whilst you investigate any misconduct, as getting it wrong has serious consequences. • If there is no employment contract, you will need advice on whether the director is an employee and on statutory and implied notice periods. • Employees with more than two years continuous employment may have rights under the law, including remedies for unfair dismissal. Obtain advice before acting to avoid a claim. Even if the director has less than two years of employment, a dismissal may be an act of discrimination as defined by statute.
Shareholders
Generally, shareholders have certain rights which are contained in the company’s ‘Articles’, and these may contain additional rights not available under general law. A shareholder may have the rights to call a general meeting or to have the company’s accounts audited at the company’s expense. If a shareholder holds more than 25% of shares, they can block the passing of a ‘special’ resolution for instance to allow a change in the Articles to give a majority shareholder greater voting powers.
If shareholders are acting in a way that is ‘unfairly prejudicial’ to the interests of other minority shareholders (for instance being excluded from management), an application can be made to the court who has the discretion to prevent that form of conduct, or to request the buy-out of shares from those being prejudiced. A shareholder can also seek to wind up the company and appoint a liquidator where the court is persuaded that it is ‘just and equitable’ to do so.
Partnerships
In partnerships the relationship between partners will be governed by a partnership agreement. This will often cover:
• Removal of one partner from the partnership and the procedure. • The consequence of the removal of a partner, including compensation. • The process which must be followed if breaches of the agreement occur. • Notice periods
The agreement should also govern the process for termination of the partnership, either by unilateral notice or whether a vote is required and defining the % majority. A partner who cannot dissolve the partnership by notice or a vote, can apply to the court. There are various grounds for dissolution including, breaches of the partnership agreement or it is ‘just and equitable’ for the partnership to be dissolved. If there is no partnership agreement, you will have to rely on the application of specialist partnership law... However, the following issues may arise:
Karim Mohamed
• The partners are jointly and severally liable for the debts of the partnership. If the partners have changed over time, it is important to establish who was a partner at the time the liability was created. • Sometimes, there can be a debate over who the partners are and whether they are employees. • If there is no partnership deed, statute law may require a partnership to be dissolved – even if it is a thriving business. If there is no partnership deed, a partner may be able to demand that their capital be paid out immediately.
Disputes can be costly so ensure that you have shareholder or partnership agreements in place and take legal advice before deciding on a course of action.
By Karim Mohamed – Partner Mayo Wynne Baxter
www.mayowynnebaxter.co.uk
Employment Law: The end of Furlough
As we start to see an exit out of the Covid-19 pandemic, the Coronavirus Job Retention Scheme will end.
This scheme, through the furlough system, has meant that employers have been able to retain staff they would have otherwise made redundant. The issue of staff redundancies will be in the news as the end of furlough approaches at the end of September, as will the large number of these be news in October. The reasons for this are obvious. Since March 2020, businesses who otherwise would have made staff redundant, have, in many cases, avoided the need to do so because of the Coronavirus Job Retention Scheme (CJRS). This is the mechanism through which employers are able to place staff on furlough, and recover a percentage of their salary (at times up to 80%), through the scheme. My view is that once furlough ends, those redundancies that were put on hold, will start to happen quickly. Employers that have held off on redundancies would be wise to consider the next steps they might want to take, when the financial support ends. How those redundancies
happen is important from both a reason perspective, but given the short time Legal period until the end of September, also a procedural one. If employers make redundancies quickly at the start of October, once the furlough subsidy ends, they will face difficulty arguing that dismissals are not, at the very least, procedurally unfair. If the number of affected staff is over 20, then collective rules apply. I do not focus on those for the purpose of this article, but on the smaller number redundancies, that affect SME’s on a more regular basis, and that will have to
be faced when furlough ends. Many of these considerations should already be in the mind of employers.
The legal position relating to redundancy of staff sets out that it can happen in one of three situations, business closure, workplace closure (i.e. the location where the employee worked closes), and the most commonly used, a reduction in the need for staff to do work of a particular kind.
A reduction in the need for staff to do work of a particular kind is the most common route to staff redundancies at this time. The staff are redundant if the employer no longer has the requirement for staff to do work of a particular kind. The test is not whether the work still exists, but whether or not the role is needed to do the work. This means that redundancy can be because of specific work reduction, for costs saving purposes, or for re-organisation purposes. As an example, in hospitality, a widely affected area, a bar owner may have two bar managers, both of whom share shifts, so both are needed. The employer may decide to make one of those redundant to save costs, despite the work need being there, and do some of the shifts themself. That would be a genuine redundancy, as the requirement for a bar manager has ceased. They would of course have to have a fair selection process to decide which employee goes, but one of those roles is redundant.
A redundancy situation does not occur under this heading, if an employee is made “redundant” and someone else is hired into exactly the same role. Using the above example, if another bar manager is immediately hired, a redundancy situation would not exist.
An employee made redundant will be entitled to statutory redundancy pay. The right to qualify for that pay is conditional on two years continuous employment with the employer.
The reason why it is important for employers to get this process right, is that if an employee is not redundant, or they are unfairly selected, or a fair procedure is not followed, the employee will have an Unfair Dismissal claim, and could receive much higher amounts of compensation.
How that interacts with the end of furlough, will cause problems for employers. An employer who makes an employee redundant because “furlough has ended”, will not satisfy the test, and will face an unfair dismissal finding. Employers need to be planning for these issues now, if they want to deal with them in October. Employers should also think about selection, and whether or not genuine redundancies exist. The issue of accrued holiday and potentially unpaid wages will also be live in respect of the furlough period. In respect of holiday, using the example of an employee on furlough since last March, they will have 18 months worth of accrued holiday to pay. In respect of wages, an employee who objected to the terms of furlough, and continued to do so, would also potentially have a claim for the difference in wages for the period.
Please always take advice on any staff related issues.
By Alex Jones, Managing Director, 365 Employment Law
Alex Jones
Alex Jones 365 Employment Law Solicitors Tel: 01903 863284
