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To much acclaim, the Supreme Court recently found against Pimlico Plumbers and in favour of Gary Smith, a self-employed plumber and heating engineer who had worked exclusively for the company for six years. But in doing so, it did not make new law.

In what has been widely referred to as a landmark decision for workers’ rights, the Supreme Court ruling may have significant ramifications for freelance workers, especially those in the gig economy, and could affect cases involving Deliveroo, and the cab companies Uber and Addison Lee, both of which are in dispute with their drivers over their employment status. But the outcome of these cases is not certain since the court’s unanimous judgment does not create an automatic precedent.

The Supreme Court ruled that despite being VAT-registered and paying self-employment tax, Smith was entitled to employment rights, such as holiday and sick pay. The appeal upheld earlier decisions by the Court of Appeal and the original employment tribunal, which was “entitled to conclude” that Mr Smith was a worker. Although the judgment emphasises the need for urgent legislative reform, to the disappointment of many, the decision does not establish any new legal principles.

Not yet the death of the gig economy

‘Is this the death of the gig economy?’ ran one newspaper headline. The answer is not necessarily, or at least, not yet. The Court took into account certain factors in rejecting Pimlico’s argument that Smith was “self-employed” and not of “worker” status – and therefore exempt from the entitlements and protections stipulated by current employment law.

During his employment by Pimlico, Smith suffered a heart attack, claiming that his subsequent request for a three-day week was rejected, the van that he rented from Pimlico was taken away, and that he was then dismissed. The judgment delivered by the Supreme Court turned on the specific facts of the case, but did not develop the law beyond existing legislation.

Pimlico argued that Smith was self employed: he was able to refuse work and also assumed financial risks if clients did not pay for the work done. The Supreme Court rejected this, determining that an overall review of the working relationship led them to conclude that Smith was a worker and not self employed, based on the following:

Smith’s services were marketed through Pimlico which required him to give notice to comply with administrative instructions and exercised strict conditions over when and how much was paid to him (payments were even described as wages at one point); he wore a branded uniform, drove a branded van with a tracker, and carried an identity card; in his contract, there were post-termination clauses which restricted his ability to compete after his employment was terminated and terminology which made reference to ‘dismissal’ and ‘misconduct’.

But a victory for Smith does not, of itself, mean a victory for every other worker in the gig economy, or indeed in any employment where the circumstances are different from those pertaining to Smith. Nevertheless, the judgment serves as a very clear warning to employers that they should examine their employment agreements very carefully and keep under review the nature of their relationship with each employee. This means looking carefully at the drafting of such agreements at the start of the engagement, but also considering the nature of the relationship as it develops.

Review of current legislation urgently needed

In light of recent social and technological advancements, current legislation is woefully out of date: a review is urgently needed. Even though the decision does not establish any new legal principles, it does, however, add significant weight to the demands of businesses, especially those in the gig economy, which are anxiously seeking greater clarity from the government. In response, ministers will hopefully now take long overdue action and implement legislative reform regarding worker status, freelancers and the gig economy.

Following the Supreme Court judgment, Smith’s case – for disability discrimination, unlawful deduction from wages and holiday pay – can now return to the employment tribunal. In the meantime, legislative reform is essential to curb the tide of similar disputes coming before the courts in order to provide greater clarity for employers and employees alike on worker status. Quite how the government will seek to strike the right balance between the two remains to be seen.

The post Supreme Court decision against Pimlico Plumbers emphasises necessity of legislative reform appeared first on ExcelloLaw.co.uk.

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In excess of a million EU enterprises currently trade through online platforms in order to reach their customers, while it is estimated that around 60% of private consumption and 30% of public consumption of goods and services related to the total digital economy are transacted via online intermediaries.

The proposal for a regulation of the European Parliament and of the Council on promoting fairness and transparency for business users of online intermediation services was published by the EC at the end of April. It appears to be based upon its core principle of creating a level playing field for comparable digital services. Accordingly, the language used in relation to the key aspects of the contractual relationship between online platforms is typically moderate and understated.

According to the proposal, although it offers great potential in terms of efficient access to (cross-border) markets, European businesses cannot fully exploit the potential of the online platform economy ‘due to a number of potentially harmful trading practices and a lack of effective redress mechanisms in the Union.’ This is at odds with the other EC policy principles: ensuring that online platforms behave responsibly to protect core values; fostering trust, transparency and ensuring fairness; and keeping markets open and non-discriminatory to foster a data-driven economy.

The draft regulation was initially developed for app stores, but the EC decided to extend its scope to include other categories of intermediary, like search engines and hotel booking services. Companies are not named individually, but the EC’s target is unambiguous from the wording of the proposal: platforms such as those used by Amazon, Apple’s App Store, and the booking service offered by booking.com– together with search engines, most notably Google, the dominant player in the market. By targeting app stores, search engines, and e-commerce sites, the new regulations should, in theory, coerce the tech giants to adopt more ethical digital business practices more in line with the EC’s guiding principles.

Tech giants benefit disproportionately compared to smaller competitors

The online intermediation activities of the tech giants ‘usually benefit from important data-driven direct and indirect network effects which tend to result in only a limited number of successful platforms per intermediated segment of the economy.’ At least according to the EC proposal. In plain English, they benefit disproportionately compared to their much smaller competitors.

A key element of the proposal is an attempt to enable those small businesses that rely on much bigger platforms for their business to take active steps in dealing with unfair business practices by creating a “fair, transparent and predictable business environment for smaller businesses and traders.”

What does the EC proposal specifically suggest in its draft regulation? First, the imposition of transparency obligations for business users: the big tech owners of ‘online intermediation services’. Second, the introduction of collective redress for failure to comply. Specifically, the draft proposal suggests that if they fall short of the tighter competition standards, then developers and small businesses should be able collectively to sue online intermediation services- platforms such as Google, Apple and Amazon.

The new rules would also require those intermediaries which have 50 staff or more to have internal complaint departments. They would also be encouraged to hire independent mediators who could handle out-of-court settlements. Costs for setting up these systems would be undertaken by the tech companies themselves. Unsurprisingly, their response is unenthusiastic. They argue that such a system would inevitably increase the administrative and cost burden with the further possibility of protracted and expensive legal action.

Transparency re Google rankings

Terms and conditions also fall under the transparency umbrella: these must be clear and easily available, and when any changes are made, a minimum notice period must be complied with. Should it happen, there also has to be clear and precise explanation given of the reasons why a professional user has been suspended, demoted or delisted from their platform. The net effect is that Google and its smaller rival search engines will have to provide businesses with a pretty sound analysis of how their ranking algorithms work in practice. They will also have to answer the controversial question of whether companies are able to pay in order to generate higher rankings.

Collective redress would be applicable in various circumstances, such as the changing of terms and conditions without any explanation or the demotion of a business’ search engine ranking without any clear reason being given – should these not be dealt with adequately by an in-house complaints mechanism or through mediation. Until now, such collective redress has only been available to consumers.

Perhaps inevitably, the proposal has provoked strong reaction from some of the parties being targeted, attracting criticism from major industry groups, such as the Computer & Communication Industry Association. A trio of big names – Amazon, Google and eBay – are among its members. They argue that adequate mechanisms are already in place to resolve any such complaints.

They further suggest that the EU is pursuing a political objective, trying to step in order to protect the underdog when the tech giants and their working practices are not always easy to fathom. The recent Facebook debacle concerning its involvement with Cambridge Analytica is a prime example of how easily things can spiral out of control when consumers become complacent and automatically accept usage without the appropriate questions being asked on a regular basis.

Finally, there is the inevitable question of whether these draft legislations can ever be relied upon to have real substance in practice. For now, that remains an unknown. Either way, the lengthy bureaucratic process may take several years before it is implemented as EU law. First, the EU Parliament has to approve the draft proposal following which every EU government will also have to validate them separately. While this takes time, subject to the draft rules being approved, businesses may eventually be allowed to be represented in court by industry groups or non-profit organisations.

Published in Global Banking and Finance Review – 8 June 2018

The post EU proposal for fairness and transparency across online platforms targets tech giants appeared first on ExcelloLaw.co.uk.

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The gender pay gap reporting deadline has come and gone. The results are in and City law firms have filed their figures. So how did the legal sector perform and what can be done to address the issues of diversity and flexible working which underpin much of the gap that still exists?

But first, the legislation which required companies to report. Despite the Equal Pay Act 1970, which made it illegal to discriminate between men and women in terms of pay and conditions, a significant gap still exists between the genders. In an attempt to remedy this, the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 became effective on 6 April 2017. These regulations introduced annual gender pay gap reporting – mandatory for every company or business which has more than 250 employees.

Over 10,000 businesses met the April deadline while 1557 did not. Unsurprisingly, no law firm has yet been identified as one of the miscreants. For those organisations which did report, the data shows that the overall median pay gap is 9.7%.

Analysis of how law firms shaped up was provided by the FT, the Sunday Times and Legal Week, among others. The mean gender pay gap for law firms is 20.5% and the median 29% – notably much greater than the national average. But critically, these figures do not include equity partner earnings which were excluded by most participating firms. This is allowed under the reporting rules because partners are considered to be business owners rather than employees. Of the top 50 UK law firms, 15 included some information about partner pay, while only seven provided a combined figure for all partners and employees.

Once partners are included, the average gender pay gap rises sharply to 50.8%. Since nearly 80% of large law firm partners are men, their inclusion in the figures significantly widens the gender pay gap. Among the five magic circle firms, it stretches even further above the average: for example, the mean pay gap at Linklaters surges from 23.2% to 60% while at Clifford Chance it jumps from 20.3% to 66.3%.

The London offices of two large US law firms showed the biggest gaps of all: Latham & Watkins has a mean gender pay gap of 39.1% while the largest median gap – 68.2% – is at Kirkland & Ellis. It is worth noting that the Big Four accounting firms – KPMG, PwC, EY and Deloitte – did publish their gender pay gap figures to include partners.

Alongside their figures, nearly every law firm explained at some length that the gender pay gap is not the same as equal pay: their figures are affected by the much greater number of women in support roles since, on average, women comprise roughly 75% of the lowest-paid quartile in the top 50.

Beyond the myriad sets of figures, one thing is manifestly obvious: the gender pay gap at most UK law firms is much worse than the average UK business at every level. Remedying this disparity will take time and a sustained effort on multiple fronts since the causes are complex and varied. But one element is perhaps easier to achieve thanks to technology: genuine agile working practices. True, many law firms have bent over backwards in recent years to introduce flexible working initiatives which, like their diversity initiatives, they sell hard at every available opportunity. Yet too often in practice these fall short of genuine agile working policies that allow women to sympathetically maintain their careers when they start a family. If they were to pursue the substance behind the rhetoric, law firms would be leading the charge in ensuring women can maintain full progression in their careers while also enjoying motherhood.

This also requires greater gender equality in child care. But for more men to take up flexi-working and use their legal entitlement to parental leave necessitates a cultural shift. In the UK, the impact is still minimal. According to government estimates, only about 2% of 285,000 eligible couples each year take equal leave for childcare.

As more millennials enter the profession, law firms will need to adapt their culture to fit shifting expectations. Millennials are not enamoured of the 24/7 work culture, rather favouring collaboration and sociability. When deciding on where to build their career, they are likely to look for a flexible working culture which promotes a healthy work-life balance. This is both more sustainable in the longer term than the current traditional big-law office culture, and is much more attractive to younger lawyers who seek a career which does not cause any detriment to their personal lives.

This is confirmed by a recent report from Deloitte, which found that the millennial generation prefer people to money, collaborative working and being able to work irregular hours. Young lawyers everywhere want a better work-life balance – not an unreasonable demand since they only have one life. It’s about time that law firms started listening more carefully to what they say, and adjusting their business model to meet the need of this century, not the last one.

Published in New Law Journal – May 2018

The post Gender pay gap deadline highlights need for industry wide culture change appeared first on ExcelloLaw.co.uk.

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Inheritance tax (IHT) has a long and complex history stretching back to 1694 when a probate duty was introduced in a fixed stamp tax on the personal property in wills. A century later came the 1796 tax on estates, which helped to fund the imminent war against Napoleon. Meanwhile, modern IHT can be traced back to 1894 when Chancellor William Harcourt introduced estate duty – a tax on the capital value of land.

In its present form, IHT replaced Capital Transfer Tax in 1986 by which time it had already developed a philosophical basis: as protection for the poor by intentionally interrupting the cycle of inherited wealth and redistributing it instead.

The future of IHT has once again come under scrutiny. In January, the current Chancellor, Philip Hammond, asked the Office for Tax Simplification (OTS) to review the tax, describing the current system as “particularly complex”.  Writing to the OTS, he asked them: “I would be most interested to hear any proposals you may have for simplification, to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.”

The primary focus of the OTS review involves technical and administrative issues, including the processes for submitting IHT returns and paying any tax due, routine estate planning and disclosure. Further aspects, Hammond suggested, should examine the rules on gifts and their potential distorting affect on decisions about transfers and investments. Gifts are an obvious target: the annual IHT exemption for marriage gifts and small gifts has been £3,000 for over three decades.

Estate may not be liable for tax

Paul Morton, tax director of the Office of Tax Simplification, commented: “We understand that many people are worried about inheritance tax and might even take steps to plan for it when, in reality, their estate would not be liable for tax. We would certainly like to explore ways in which the position can be made clearer to put people’s mind at rest where that is appropriate.”

IHT has been subject to much tinkering. In July 2015, the then Chancellor George Osborne announced changes to IHT: those owning a property worth up to £1m would be able to leave it to their children or grandchildren completely free of IHT by 2020/2021. Confirmed in the March 2016 budget, the Residence Nil Rate Band Allowance (RNRB) raises the IHT threshold (introduced in stages from April 2017 onwards) for those who satisfy the stipulated, and fairly complex, criteria.

The RNRB provides an additional IHT allowance of £125,000 in the current tax year, which then increases by £25,000 in the next two tax years so that by 2020/21, the RNRB will stand at £175,000.  For those who qualify, IHT allowances will total £500,000, a figure that is doubled for married couples, resulting in £1m of combined allowances. From 2021/22 onwards, the RNRB will increase in line with the Consumer Prices Index (CPI).

Unless the RNRB criteria are satisfied, everyone else in the 2018-19 tax year has a tax-free IHT allowance which is still £325,000 – a level that has remained unaltered for eight years with no current plans for it to rise in the near future. The standard IHT rate is also static – 40% for anything above the £325,000 threshold (although this, in itself is adjusted to 36% when 10% or more of an estate passes to charity – another illustration of the complexity of IHT).

Review must remove complexity

Some tax experts have asked the government to reconsider the family home allowance as part of its simplification strategy. John Bunker of the Chartered Institute of Taxation, said: “The review must begin with an understanding that you cannot add simplicity, rather you must remove complexity.”

Although there is scope for IHT simplification, it is unclear whether this is the limit of the Treasury’s ambition. The OTS has announced that it would ‘identify simplification opportunities.’ On April 26th it published a call for evidence together with an online survey seeking opinions from those who have experience in using the system.

Less than 5% of estates are currently liable to IHT, yet more of them are falling within its scope. For 2016-17, total HMRC receipts from IHT stood at £4.84bn, up from £2.396bn in 2009-10 – a 102% increase. This is largely the result of house price inflation in London and the South East: prices have risen by more than 60% since 2010.

Undoubtedly, some of the more complex areas in IHT legislation will be reviewed including: the taxation of trusts, exemptions and reliefs including business property and agricultural property reliefs, as well as the new Residence Nil Rate Band Allowance.

Should they be adopted, the OTS report proposals may have significant repercussions. Indeed, any recommended changes might jeopardise current IHT planning arrangements.

The use of Business Property Relief (BPR) assets in IHT planning is worthy of note.  Tax advisors often recommend that clients hold a proportion of their estates in assets that qualify for BPR after two years, which then enables them to remove assets from the tax net after the qualifying period.

But this was never BPR’s intended purpose. It was instead designed to enable business owners to pass on their businesses without them being ravaged by IHT. Questions about this issue are listed in the OTS survey.

Pensions to be considered

Pensions also form part of the review.  Since the pension freedom legislation, they have become very tax efficient, passing outside the dutiable estate on death.  The review is likely to widen the IHT net making them a potential target.

There may be further unintended consequences of amending current IHT legislation, particularly in relation to trusts which many people use for non-tax planning reasons.  There are current hindrances, notably since the introduction of the RNRB in creating trusts on death.  Such trusts can be appropriate to provide for profligate beneficiaries or to protect the estate following a second marriage.

Will simplification inevitably lead to replacement? There has been much talk of an annual ‘property tax’ or a general ‘wealth tax’. However, such reforms may well prove to be politically unpopular, and therefore unlikely to be implemented under the present government.

However, a future Labour government seems much more likely to make drastic IHT changes. They promised as much at last year’s general election, announcing plans to scrap the double relief IHT threshold on property for spouses. Some media reports have suggested that they might even reduce the overall IHT threshold to around £300,000.

Of course, what the OTS report might recommend may never be acted upon. It has previously made proposals, which were not subsequently adopted by the government of the day. We have yet to see how bold Philip Hammond might choose to be in his IHT reforms – and what consequences will ensue for future investment decisions.

Published in FT Financial Adviser – 23 May 2018

The post Is it time to reform inheritance tax? appeared first on ExcelloLaw.co.uk.

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Insolvencies are making an unwelcome return to the headlines. The number of individuals who were declared insolvent last year reached its highest level since the aftermath of the financial crisis. According to the Insolvency Service, 99,196 people in England & Wales were declared insolvent in 2017 – up by 9.4 per cent on the year before. Meanwhile company insolvencies also rose by 4.2 per cent, taking the total to 17,243 firms which failed last year.

To put this in context, personal insolvencies have reached a near six-year high as corporate failures have hit their highest level since the first quarter of 2014. Before the situation deteriorates further, it is time for the government to take a more direct approach in tackling this spike in financial failures.

So when interest rates have remained at a record low for a decade, what are the factors behind the increasing level of insolvency? The UK economy is still growing, albeit somewhat sluggishly compared to other G7 and EU economies. GDP growth in the UK slowed to 0.4 per cent in Q4 2017, reducing 2017 growth overall to 1.7 per cent, its lowest since 2012.

Slower economic growth may be one contributory factor. But of arguably greater importance is the failure of the government to act in stemming the increased flow of insolvencies. Government initiatives announced so far have simply not been effective enough in practice.

Prompt Payment Code

This is most obviously demonstrated by the Prompt Payment Code (PPC). In essence, signatories to the PPC promise to pay suppliers within 60 days of an invoice being submitted. Originally conceived in 2015, the government’s biggest suppliers signed up to a strengthened PPC in July 2017 with the aim of helping small businesses to be paid on time: 32 of the government’s biggest suppliers voluntarily committed to pay 95% of outstanding invoices within 60 days of their being submitted – and to work towards adopting 30 days as the norm.

Nevertheless, it is estimated that the UK’s small and medium-sized enterprises (SMEs) are collectively owed more than £26bn in overdue payments. This is because there are still many companies which typically pay suppliers and sub-contractors in 90 days, rather than 60. A notable example of this phenomenon emerged with Carillion. Prior to its insolvency earlier this year, many Carillion suppliers were having to wait 120 days, and in some cases longer, before payment was made.

The impact of late payments on the UK economy is significant. Research by the European Commission examining business-to-business and government-to-business payments found that late payments were a direct cause of deteriorating cash flow positions, particularly for smaller firms.

According to a recent study by Small Business Insights – Xero, over half of SMEs in the UK are presently operating in the red. Data from the study of 250,000 SMEs showed that 50.5 per cent of them were operating with a negative cash flow last year. It also found that many of UK’s largest companies were paying SMEs late – on average 30-day invoices were being paid after 46 days.

Mike Cherry, National Chairman of the Federation of Small Businesses has commented: ‘The UK is gripped by a poor payments crisis, over 30 per cent of payments to small businesses are late and the average value of each payment is £6,142. This not only impacts on the small business and the owner, it is damaging the wider economy.’

Powers of Small Business Commissioner

Beyond the PPC, another potential route for protecting the interests of small businesses must lie in strengthening the powers of the Small Business Commissioner (SBC). Introduced in 2016, the SBC is enshrined with powers to help small businesses resolve their disputes and also to consider complaints from them in relation to payment problems with larger businesses.

Last December, the government launched the SBC complaint handling service to ensure fair payment practices for small businesses. This coincided with the appointment of Paul Uppal to the role of Small Business Commissioner. He has the power to name and shame those businesses which do not honour the terms of purchases from smaller companies.

A Conservative MP from 2010 to 2015, and before that small businessman for 20 years, Uppal has suggested that the SBC be given greater powers to ensure that large business feel increased pressure to pay their suppliers on time. ‘Small businesses are crucial to the health of our economy so it is vital that they feel supported in all areas, but particularly in the fight against late payments,’ he said in April.

To address the late payment epidemic, ‘businesses should not be afraid to come to us for help.’  But for that help to be given substance, he wants greater powers for the SBC to punish miscreants: big companies should face hefty fines if they persistently pay suppliers late, he told MPs on the Business, Energy and Industrial Strategy select committee. ‘The ability to fine would bring more gravitas to the role’ he added. More than that, the very real threat of large financial penalties would also force big companies to pay up quicker. Perhaps only then would SMEs begin to feel some real benefit in their squeezed cash flows.

Published in Small Business – 23 May 2018

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When employers are faced with potential claims from their employees it is quite common for them to enter into settlement agreements to resolve the dispute. However, not every claim can be resolved in this way. Some can only be settled through The Advisory, Conciliation and Arbitration Service (Acas), by using conciliation, which avoids the need for an Employment Tribunal. There is also quite a sizeable category of other claims which cannot be dealt with by either method: those where no compromise is possible.

In a number of these circumstances, the law is silent and legislation notably absent. As a result, there are different assorted claims that do not have any statutory mechanism for settlement. These include the right to statutory maternity or paternity pay, statutory adoption pay and statutory shared parental pay. Instead, there is an absolute restriction on contracting out of these payments. Other categories include claims for failure to notify the right to request working beyond retirement, and breach of the right to be accompanied at a meeting to discuss retirement.

Current legal opinion is that rights under the Data Protection Act 1998 (DPA) cannot be compromised. However, it may be possible to waive any civil claim for damages in respect of a breach of the DPA that occurred prior to the settlement agreement.

When it comes to personal injury claims, it is possible to reach a compromise. Nevertheless, employees’ professional advisers will often insist during any negotiations that latent personal injury claims, which the employee is not currently aware of, should not be compromised. It is, therefore, standard practice for such claims to be excluded from the list of claims waived.

Pensions are generally very well protected by the Pensions Act 1995 and other legislation. It is not, therefore, possible to waive any accrued pension rights, except in certain limited circumstances.

The conclusion: if in doubt, seek professional advice.

Published in Employee Benefits – 15 May 2018

The post What employers need to know about settlement agreements appeared first on ExcelloLaw.co.uk.

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Everyone has felt the effects of a long cold winter. But this year, it was particularly bitter for some of Britain’s best-known retailers. Toys ‘R’ Us will soon be no more with the loss of 3,000 jobs in the UK alone. The administrators are also in action at Maplin, where closing down sales are already underway. Carpetright is in the process of closing stores and raising emergency finance. Meanwhile, Mothercare is in talks with its bankers over a planned restructuring, Next has announced its toughest trading period for 25 years, and Moss Bros and B&Q are the latest companies to issue sharp profits warnings, joining John Lewis where profits fell by 77% last year.

So why is this happening to so many household names when the British economy is not in recession, or indeed set on a downward economic path? It might be tempting to give a one-word answer: Amazon. The exemplar of online retail success, Amazon has gone from being a start up business only a generation ago to becoming the second most valuable company in the world this year with a market cap of $750bn.

Changing consumer market

However, to claim that Amazon is the main cause of retailers’ problems is both simplistic and flawed. The picture is much more complex. The failures of Maplin and Toys ‘R’ Us are a direct consequence of a changing consumer market: the online threat facing bricks and mortar retail stores in the UK is considerable with total sales down by 2.5% last year, continuing a pattern of decline established over nearly a decade. Year on year, in-store sales of non-food items fell by 4.4% in December – the worst Christmas performance for five years.

As a result, insolvency practitioners have been busy. Another prominent casualty this winter was Carillion, Britain’s second largest construction company and a diversified international business with multiple outsourcing and public service projects on its books. Quite different from the problems facing those in charge of high street retailers, it went into liquidation in January, putting nearly 20,000 UK jobs at risk, as a consequence of systematic management failure. In what happened during the months leading up to its collapse and in subsequent events during the insolvency process, there are echoes of the April 2016 demise of BHS.

In both cases, the directors and former directors of Carillion and BHS have been subject to much scrutiny. No-one can forget Sir Philip Green’s memorable TV performance when he was questioned by a parliamentary committee, broadcast live on the BBC, while the Financial Reporting Council recently announced that two former Carillion directors are set to face an investigation into their conduct over the company’s activities.

Overhaul of insolvency framework

Responding to what it calls “recent corporate governance failures”, the government has also announced an overhaul of Britain’s insolvency framework with plans designed to prevent any repeat of failures such as BHS and Carillion. This will involve new legislation that makes it easier to bring criminal proceedings against the most “reckless” employers and directors of businesses which are either already in, or approaching insolvency. Given what happened at BHS and what is reported to have happened at Carillion, this initiative is very welcome.

On the face of it, the administrations of Toys ‘R’ Us and Maplin are quite different from these problems, but there may in fact be a common link: the conduct of auditors. According to the International Forum of Independent Audit Regulators, lapses in accounting were identified at an astonishing 40% of the 918 audits of listed public interest entities which they inspected last year.

This raises inevitable questions about the quality of work that is being carried out by some of the world’s largest accounting firms. However impressive they may be in the scope and scale of their operation, there may be a lack of transparency between businesses and their auditors which has resulted in very large companies falling into administration.

A difficult winter for Britain’s consumer economy has passed. According to the Office for National Statistics (ONS), although trade fell at non-food stores, the latest retail data showed a rise in sales at supermarkets in February as overall retail sales volumes picked up by 0.8% compared with January.

We can hopefully look forward to further improvements in the spring. Likewise, it is to be hoped that in addition to the outcome of the government’s plans to overhaul the insolvency framework, there will also be heightened transparency between businesses and their auditors. This would benefit everyone concerned: employees and consumers, as well as businesses themselves.

Published in Accountancy Daily – 9 March 2018

The post Are auditors to blame for Britain’s high-street woes? appeared first on ExcelloLaw.co.uk.

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Does Britain have a clear 2020 vision? Over halfway through the two-year time limit prescribed by the terms of Article 50, but with no Brexit deal yet in sight, several critical fault lines remain between the government in London and EU leaders in Brussels. Despite endless discussion, debate, and dissection of the myriad issues over the intervening months, there is still uncertainty about the eventual outcome and how matters such as trade will work in practice.

This leaves the shape and structure of a defined model for post-Brexit Britain’s future relationship with the EU unclear even though, at last, it seems that there has recently been some progress that could ultimately result in a trade deal, rather than political brinksmanship between the Government and EU. The question therefore remains as to how the UK might become a more flexible and attractive country for trade and investment than it has already been recognised up to now?

For most businesses, which are far less concerned about the political minutiae and much more anxious about the practical affects, there is hope – at least in the potential for some reduction in bureaucracy and regulation, colloquially known as red tape. To this end, The Red Tape Initiative (RTI), dubbed the “other Brexit department”, was launched in April 2017: a non-partisan project, comprised of a group of senior Remain and Leave-supporting figures from across the three major UK-wide political parties, as well as from non-aligned organisations in business and industry, such as the CBI, the IOD and the British Chambers of Commerce. Founded and chaired by the former Conservative cabinet minister, Sir Oliver Letwin, its principal aim is to create a consensus on the regulatory changes that could benefit businesses and their employees post-Brexit, and on cutting some of the bureaucracy that currently impedes business.

Identifying the early wins

Between them, this cross-party initiative is working to identify changes ‘that could quickly be made in specific areas of EU regulation, with immediate benefits for jobs and businesses in the UK and with no adverse effects on our ecology or our society,’ according to its website. The main objective is to identify ‘early wins’ that could command cross-party support in both Houses of Parliament immediately after Britain leaves the EU. So far, RTI has identified more than 50 rule changes in cutting Brussels-derived red tape that could be implemented as soon as Brexit happens. After a transition period, this is presently scheduled to be at the end of 2020, subject to a deal being agreed this year. Designed to address the most problematic examples, as identified by businesses, UK regulators and trade unions, cutting red tape will include an overhaul of “state aid” rules which prevent the government from offering cheap loans to builders, for example.

In addition to housing, RTI has proposed scrapping restrictions across nine different sectors, including infrastructure, training and apprenticeships, retail, research and technology, health and energy. This reduction in red tape might not turn out to be a bonfire of regulations, but it may well be a step in the right direction for attracting new business.RTI is therefore a positive development, although it remains to be seen how pragmatic and efficient its proposals will be. The first results from its efforts are expected to be published shortly.

Improving UK’s infrastructure

What really matters in RTI’s work is that time is spent efficiently in finding the areas of most concern and doing something practical about them by establishing the right framework for the private sector to step up its efforts to improve the UK’s infrastructure – particularly in sectors such as housing and transport. Despite the obvious attraction to businesses of less red tape, there is a balance to be struck between a beneficial reform of regulations that creates greater freedom for business to operate and keeping enough on the statute book to protect the rights of consumers and preserve the high standards which they can expect. As Sam Woods, deputy governor of the Bank of England, said in February when he warned against a “bonfire of the regulations” after Brexit, while pledging to “maintain standards of resilience in the financial sector at least as high as those we have today”.

Clarity of purpose and robust regulation can protect consumers and business alike by creating a level playing field and helping to encourage investment.For lawyers and other advisers in the professional services industry, clients are invariably interested in whether their business operations will really be as seamless as possible once the UK exits, or whether unforeseen problems may yet emerge.

Encouraging responsible, long-term investment

Above all, international investors look for certainty. In practice, this ideally means preserving a stable regulatory backdrop and creating minimal bureaucracy in a business-friendly environment that encourages responsible, long-term investment in the UK. For our politicians to achieve that utopian balance is no easy task. A perfect 2020 vision will be possible in the years to come with the wisdom of hindsight, but looking forward rright now there is realwork to be done to reassure and attract investors.

Published in Global Banking and Finance Review – 26 March 2018

The post Cutting the red tape: a potential boon to business from Brexit appeared first on ExcelloLaw.co.uk.

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Quickly following on from the Harvey Weinstein scandal, the #MeToo hashtag went viral across all forms of social media. After it first appeared on Twitter, the hashtag was used 850,000 times within the first 48 hours.

Since then, #MeToo has been posted on Twitter and elsewhere tens of millions of times, often accompanied by a personal story of sexual harassment or assault. This has helped to demonstrate the common prevalence of both phenomena, particularly in the workplace.

Almost a third of theatre professionals in the UK, for example, have been sexually harassed at work, according to an online survey published by The Stage magazine. Nor is the problem confined exclusively to the entertainment industry. Women in medicine, politics, PR, advertising, insurance, banking and a host of other sectors are all subject to the same type of harassment, according to a raft of similar surveys.

80% of women experiencing sexual harassment at work have not reported it

Research by the TUC has found that over half of female workers have experienced sexual harassment with four out of five women not reporting it to their employers. Of these, 25 per cent had suffered unwanted verbal sexual advances at work while 12 per cent experienced unwanted sexual touching or attempts to kiss them at work.

Following the now infamous Presidents Club Dinner held at the Dorchester Hotel in January, where women working at the event had to sign non-disclosure agreements (NDAs) beforehand, the Unite union found that a remarkable 90% of workers in hospitality have experienced harassment.

Even those who practise law are not immune. Online research done by Legal Week last year found that two thirds of female lawyer respondents had experienced sexual harassment while working in City law firms. Individual lawyers shared their #MeToo stories as part of the report.

A common theme from those who made comment was a reluctance by law firms to respond appropriately. Instead of dealing with the miscreant, the problem was turned on the victim as one respondent explained: ‘Firms where there’ve been big issues just write a cheque and get an NDA signed.’

#MeToo is starting to create dramatic change in the workplace

The #MeToo campaign is the latest online initiative set to impact professional culture for the better. The influence of social media, both in its immediacy and global reach, have been illustrated by the remarkable spread of this global story. From professional networking sites like LinkedIn to social platforms like Twitter, it is already starting to create dramatic change in the workplace.

A raft of companies have pledged to beef up their ‘zero-tolerance policy’ towards sexual harassment by punishing transgressors and, where appropriate, reporting them to the authorities.

Some have already changed their methods of operation. For example, Vogue publisher Conde Nast will no longer use models aged under 18 following a new company code of conduct in the wake of widespread claims of harassment and sexual misconduct in the fashion industry.

Of course, the problem is not exclusively female. A BBC survey in October 2017 revealed that while half of British women have been sexually harassed at work or a place of study, a fifth of men have also suffered the same fate.

Most incidents continue to go unreported in the workplace. Notably, of the women who said they had been harassed, 63% said that they did not report it to anyone, while 79% of the male victims also kept it to themselves.

Following the #MeToo campaign, these numbers are expected to change dramatically: more women and men will be encouraged to report harassment in the future. Why? Because the culture is changing, and fast – both online and offline.

Facebook is a good example. In December 2017, the world’s biggest social media platform with 2bn users decided to make public its internal sexual harassment policy. Facebook hopes that this initiative will help other companies struggling with how to deal with sexual harassment claims.

Sharing best practices can help all businesses improve

“Harassment, discrimination and retaliation in the workplace are unacceptable but have been tolerated for far too long,” Facebook’s COO Sheryl Sandberg and its head of HR, Lori Goler, wrote in a blog post. “These are complicated issues, and while we don’t believe any company’s enforcement or policies are perfect, we think that sharing best practices can help us all improve, especially smaller companies that may not have the resources to develop their own policies.”

The role of social media within the contemporary workplace is important for every company in fighting this battle. Employers therefore need to recognise the importance of having express terms in their contracts of employment to deal with social networking site content.

It is strongly advisable to consider upgrading restrictive covenants. Not dissimilar in effect to the now notorious NDAs, these are clauses in an employment contract that place restrictions on employees during and after termination of their employment.

It is equally important that companies provide clear guidance for their employees regarding the use of social media both in and out of the workplace. Beyond that, every modern employer should embrace and promote the opportunity and capacity of social media campaigns to instigate real world change to professional life everywhere.

Published in HR Zone – 9 March 2018

The post Social media and the workplace in the #MeToo era appeared first on ExcelloLaw.co.uk.

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Ask someone to list innovative companies which have become notable disruptors in their market and they invariably respond with two names – Uber and Airbnb. That is because both brands are positioned squarely and successfully at the retail consumer: for people who use a taxi or take an occasional short break in a foreign city, they have become the automatic default options. But there is another equally successful business targeting the corporate space, aimed particularly at small businesses and millennial tech start-ups: WeWork. Just like Uber and Airbnb, it is less than a decade old. In that time, WeWork’s ambition of being the world’s leading coworking company has been realised. Championing itself as a disruption revolutionary, it has succeeded more prosaically by ‘creating environments that increase productivity, innovation, and collaboration,’ according to its website. WeWork’s model involves renting office space cheaply via long-term lease contracts. Small units are then re-rented at higher rates to start up companies which are happy to pay a premium because they need very little space.

Co-founded in 2010 by Miguel McKelvey and Adam Neumann with only $300,000 between them, WeWork is headquartered in New York. Eight years on, it now provides shared workspaces, technology startup subculture communities, and services for entrepreneurs, freelancers, startups, small businesses as well as large enterprises in dozens of cities. Still privately owned, should it eventually seek a NYSE listing the business is valued at around $21bn according to PitchBook – a staggering sum for a company renting out short-term office space.

WeWork epitomes the new unicorns (start up companies valued at over $1bn). Having raised private capital to generate a hefty valuation, to date, it has received over $8bn in funding – more than half of it since last July. In the US, this makes it the third most valuable start up after Uber and Airbnb, and the largest in New York. Globally, it is the sixth-most-valuable, according to VentureSource, managing more than 10m sq ft of office space. London has become its key global hub: WeWork is now the largest non-renter of office space in the capital covering 2.6m sq ft.

The promise made by WeWork – to “humanise” work, making the office a more creative place, with the right lighting, the right snacks, and, crucially, the right people – seems set to flourish. Its biggest growth markets in 2018 will be in Hong King and China: by the end of the year, WeWork will be developing in several new locations in Hong Kong and expanding its existing presence in China to eight more cities: Shenzhen, Suzhou, Hangzhou, Xia Men, Cheng Du, Nan Jing, Xi’An and Wuhan. It will also accelerate its expansion into areas outside the office market, with support from some of the world’s biggest tech investors.

The WeWork phenomenon underscores the demand for agile working models, giving start up businesses exactly what they want as the trend become absorbed into mainstream corporate culture. Rapid success of the agile working model is rooted in a variety of inherent benefits.

Hot-desking involves an employee having no set workspace – instead they work at the nearest available empty desk – part of what WeWork offers. For established employers wondering if it will work for them, there are plenty of successful examples. Even at major organisations like the the BBC, around a third of their employees are already hot desking. In addition to better collaboration and greater productivity, it encourages more communication and improves professional relationships.

But the type of agile working encouraged by the WeWork model goes further, allowing people choice in where, when and how they choose to work. This is achieved with maximum flexibility and minimum constraints, allowing workers to optimise their performance. Based on the concept that work is what we do, rather than a place we go, good IT is integral to its success. Here, a critical barrier for employers can be trust. But the evidence from those who have already integrated agile working into their organisation is that it improves productivity and increases staff loyalty rather than diminishes it.

The third element of modern practice encouraged by the WeWork model is flexible working. Increasingly commonplace in companies of all sizes, the benefits of flexible working for employees are self-evident. But what about employers? Well, they experience benefits too, not least increased morale, engagement, and commitment from employees, as well as higher rates of retention. Surveys show that it also reduces absenteeism and lateness. Perhaps most significantly, it increases the ability to recruit outstanding employees by projecting an image of an employer with family-friendly flexible work schedules.

Overall, the flexible and agile office models developed by WeWork fit perfectly with the new patterns of work. Post Brexit, this will continue to have an overwhelmingly positive impact both on the British economy and the well-being of Britain’s workers.

Published in WorkplaceInsight – 5 March 2018

The post Is it time to accept coworking and flexible working as the new normal? appeared first on ExcelloLaw.co.uk.

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