Tribunal trouble: unfair dismissal and employment tribunals

Employment tribunal


According to Ministry of Justice statistics, single employment claims rose by 90% in the final quarter of 2017 compared with the same quarter the previous year. This increase follows the abolition of employment tribunal fees in July 2017.

Employees feel more empowered than ever to bring claims against employers now that they do not have the financial restraints they once had. But what does this mean to an employer and how can an employment tribunal claim against a company be avoided?

One of the most common reasons employment tribunals arise is dismissing an employee without a fair reason to do so, or if correct procedures and processes when dealing with a disciplinary or redundancy were not followed.

According to the government, a dismissal can be deemed unfair and challenged at tribunal if it comes after an employee: asks for flexible working arrangements; has resigned and given the correct notice period; joined a trade union; has taken part in legal industrial action for a maximum of 12 weeks; applied for maternity, paternity or adoption leave; exposed wrongdoing (also known as whistleblowing); needed to take time off work to attend jury service; or refused to give up their rights such as breaks.

Fair reasons for dismissing an employee include: if it is in the best interests of the business; if the employee is subject to a restriction that prevents him/her from carrying out the work he/she is employed to do (for example if a driver receives a driving ban as a result of breaking the law); if the employee has a long-term or persistent illness that has made it impossible for him/her to continue doing the job after receiving reasonable time to recover and looking at ways of supporting their return to work; if they are unable to do their job properly (for example, not being able to keep up with changes or unable to get along with other employees).

It is crucial that when dismissing employees for any of the aforementioned reasons employers follow the correct procedures and guidance as set out by Acas to avoid claims being made against the organisation. Sometimes employers have no choice but to make redundancies. This is never an easy choice but if there are no alternative options employers must ensure procedures are carried out correctly to maintain reputation.

If redundancies are handled incorrectly it can lead to an employment tribunal claim. Legal requirements must be adhered to and considered when making redundancies, including choosing the employees to be dismissed and how to handle the consultation process, to avoid claims of unfair dismissal or discrimination.

Employees are protected under the Equality Act 2010 and should be treated fairly. If an employer is found to be in breach of the law it could find itself at the centre of a discrimination claim at an employment tribunal.

The law states that individuals are considered discriminated against if it can be proven that the unfair act to which they were subject to was because of one or more of the following characteristics: their age; gender; race; sexual orientation; marital status; pregnancy or maternity; gender reassignment; religious beliefs; and/or disability.

If an employee feels they have been treated less favourably at work than another colleague due to a protected characteristic they may make a claim to the employment tribunal. So it is important to ensure reasonable adjustments are made to allow an employee with a protected characteristic to be treated as equal to their colleagues.

For example, employers might consider altering premises as far as is reasonably possible to allow the accessibility for a disabled employee to be as close to the standard as enjoyed by other employees without a disability. Failure to make reasonable adjustments could lead to a discrimination claim.

Compensation awards for discrimination claims are unlimited, so if a claim was lost employers could face a heavy financial penalty, depending on the severity of the alleged discriminatory behaviour or conduct. Disputes with an employee over wage payments could also lead to an employment tribunal claim if it cannot be resolved in the workplace.

To avoid such disputes ensure contracts of employment are up to date and signed by both parties. Contracts should include details of employee wages, holiday entitlement and hours of work and can be referred to if a dispute arises. They are important in ensuring employers are compliant should a complaint be made against it at an employment tribunal.

By Philip Richardson

Philip Richardson is partner and head of employment law at Stephensons. Tel: 01942 774192

Management buyouts: when management makes a move

MBO


A management buyout (MBO) is a form of acquisition where managers acquire a large part or all of their company from either its parent or from private owners.

Management and leveraged buyouts became common in the 1980s, originating in the US and crossing first to the UK and then the rest of Europe. MBOs are similar in all major legal aspects to any other company acquisition, but the particular nature of the MBO lies in the position of the buyers as managers of the company who want to get the financial reward for its future development more directly than if they were to remain employees only.

Often, the due diligence process is likely to be limited as the buyers already have full knowledge of the company available to them. The seller is also unlikely to give anything but the most basic warranties to the management, on the basis that the management know more about the company than the sellers do.

An MBO can also be attractive for the seller as they can be assured that the future stand-alone company will have a dedicated management team in place. This may also be a positive factor if the buyout is supported by a private equity fund, encouraging an attractive price.

The venture capital industry has played a major role in the development of buyouts in Europe, especially involving smaller deals in the UK. Here are 10 top tips for individuals thinking of conducting an MBO:

. Enlist the help of a team of professionals from the outset - solicitors, accountants and financial advisers. Ensuring you receive guidance from the start of the transaction will put you in a stronger position and prevent potential mistakes from occurring.

. Develop an idea as to what type of finance you need - this will usually be debt finance, equity finance or both. Your advisers will help you figure out what is required, and this will form a framework within which to work.

. Ensure the MBO doesn’t become a distraction from your usual line of work within the business. Preparing for an MBO will take time and effort, but try to keep this separate from your everyday role. You don’t want the business taking a hit when you are trying to source funders and, ultimately, you need to continue complying with any director’s duties imposed on you by law. Sections 171 to 177 of the Companies Act 2006 include various duties, including the duty to promote the success of the company and the duty to exercise reasonable care, skill and diligence. Simultaneously, you should be looking to create a more valuable company so that you can sell the concept of the MBO to any potential funders and be a part of that success in the future. It is essential to strike the balance between the company’s interests and your own, but your professional advisers will be there to assist.

. Create shareholders’ agreements with the help of your solicitor. Although the MBO is a positive step forward, it is essential to prepare for difficulties further down the line, and shareholders’ agreements will provide solutions to ‘what if’ questions. Think of a shareholder’s agreement as the business equivalent of a marriage pre-nup.

. Set a time-frame within which to complete various stages of the MBO so you have an idea of what you are working towards. At the same time, don’t be unrealistic - MBOs can require a lot of meetings, discussions, drafting and negotiating - they do not happen overnight.

. Preparation is key. MBOs can cause upheaval to a business, so it is crucial that the owners prepare with the MBO team to ensure a smooth transition. Identify the right people with the right skills to lead various aspects of the buyout, and make sure the whole team knows the business, its customers and its suppliers inside out.

. Ensure the structure of the MBO and the business is well thought-out. Will the management team purchase the business as individuals, along with the input of funders? Or will the individuals form a new limited company which will then buy the shares in the business? If it is the latter, solicitors and accountants should be involved in the new company formation and filing requirements at Companies House.

. Consider what warranties and indemnities are required by different parties, because it may not be as simple as having only the management team and current business owners involved: third-party funders may play a part. Generally, warranties and indemnities between the first two parties will be relatively straightforward because the management team will already be involved in the business, so should know it in significant detail. However, the third-party funders will probably ask for more robust warranties and indemnities as they are new to the operation and won’t want to risk their investment.

. Prepare your accounts accurately - funders will want to know exactly what they are contributing to. As importantly, prepare three-to-five-year forecasts to present the funders with a detailed idea of the growth opportunities and their return on investment.

. Get a confidentiality agreement (also known as a non-disclosure agreement or an NDA) in place from the get-go. The owners of the business will not want potential funders obtaining access to confidential information, then inappropriately sharing it with third parties. Before the management team meet with potential funders and/or advisers, they will no doubt be required to pass on an NDA from the business owners to the interested parties for signing.

By Brett Cooper

. Brett Cooper is the head of corporate at Backhouse Jones solicitors. Contact at 01254 828300 or brett.cooper@backhouses.co.uk