In this round up of recent news items, we report on changes to tax rules on the payment of an employee's legal fees in connection with the termination of employment, the publication of draft guidance on the Agency Workers Regulations, recommendations in respect of private sector companies in the final Hutton Report, a consultation on proposed amendments to the Takeover Code, the merger of the Courts and Tribunals Service and the Government's launch of its "Red Tape Challenge" initiative.

Changes to tax rules for legal fees on termination of employment

At present, HMRC's extra-statutory guidance allows an employee's legal fees in relation to termination of employment (e.g. in relation to a compromise agreement or to settle a tribunal claim) to be paid by the employer tax free, provided that they are ordered to be paid by a court or tribunal, or are paid directly to the employee's solicitor under the terms of a settlement agreement.

The extra-statutory guidance is to be replaced by a formal legislative order.  However, as currently drafted, the order only refers to compromise agreements under the Employment Rights Act 1996.  This wording is much more restrictive than the previous "settlement agreement" wording and, potentially, excludes legal fees paid in connection with a COT3 agreement (used when a claim is settled through ACAS) or legal fees paid in connection with any compromise agreement that does not refer to ERA 1996 (e.g. a compromise agreement that only compromises claims under the Equality Act).

It seems unlikely that these types of agreement were deliberately excluded from the ambit of the tax concession in the order, and HMRC has confirmed that it is currently looking into the matter.

Department for Business Innovation and Skills publishes draft guidance on Agency Workers Regulations

Department for Business Innovation and Skills (BIS) published its draft Agency Workers Guidance on 1 April 2011, which aims to provide further guidance to organisations that use agency workers.  

Key points contained in the draft guidance include:

  • new guidance on the implications of the Regulations where an agency worker is engaged through multiple agencies or engaged to work for multiple hirers.  The draft guidance makes clear that responsibility for ensuring the equal treatment of agency workers may lie with more than one party in circumstances involving multiple parties, e.g. a master or neutral vendor company, a staffing company and an umbrella company;
  • more detailed guidance on the calculation of the 12-week qualifying period and the circumstances in which a gap or "substantively different" change in role will break the qualifying period and the requirements for re-starting the qualifying period after a break;
  • guidance on the concept of "pay" under the Regulations and the exemptions from the equal treatment principle (e.g. the guidance confirms that, where an agency is in a position to offer an agency worker a permanent contract of employment and pay the worker between assignments, there is an exemption from equal treatment provisions). 

BIS has invited interested parties to submit comments on the draft guidance until 15 April 2011. It is expected that the final version of the Guidance will be published shortly thereafter, and we will report more fully on the final version of the guidance in due course.

The Hutton Report

On 15 March 2011, the Treasury published the final Hutton report on fair pay in the public sector.  This follows the interim report published on 1 December 2010.  Although the majority of the recommendations set out in the final report relate to public sector companies, the report includes the following recommendations for private sector companies:

  • Listed companies should be required to publish, monitor and explain top to median pay multiples in annual reports from January 2012.
  • Companies delivering public services or supplying the public sector should apply the proposed 'fair pay code'. The code brings together various measures recommended in the report, including the disclosure of pay and details of executives' roles and linkage of pay to performance.

The Government announced in the Budget that it accepted the recommendations in the final Hutton report as a basis for consultation with public sector workers, trades unions and others and that it will set out proposals in the autumn that are affordable, sustainable and fair to both the public sector and the taxpayer. We will have to wait until then to see whether the Government pursues the recommendations for private sector companies.

Takeover Code consultation 

Following widespread criticism of the UK takeover regime as a result of Kraft Foods' takeover of Cadbury in 2010, the Code Committee of the Takeover Panel has launched a public consultation seeking views on proposed amendments to the Takeover Code.

The consultation includes a number of proposed amendments to the Code in order to provide greater recognition of the interests of the employees of the offeree by improving the quality of disclosure by offerors and offeree companies in relation to the offeror's intentions regarding the offeree and its employees and improving the ability of employee representatives to make their views known.

The proposals include:

  • requiring the offeror to set out its intentions with regard to the employees, including any material changes in their conditions and, if appropriate, a statement that it does not intend to make any changes;
  • holding the parties to any statements that they make during the offer period for at least 12 months, for example any statements by the offeror company regarding any course of action that it intends to take or not to take, such as a statement that it will not carry out any redundancies;
  • expressly stating that the employee representatives should receive certain documents; and
  • making it clear that the Code does not prevent the passing of information in confidence during the offer period to employee representatives.

The consultation closes on 27 May 2011.

Courts and
 Tribunals Service merge from 1 April 2011

Her Majesty's Court Service merged with the Tribunals Service on 1 April 2011 to form the new "Her Majesty's Courts and Tribunal Service (HMCTS).  The Government hopes that the merger will brings cost-savings and provide a more efficient service by merging the administrative functions of the services.

Anyone who is required to pay court fees by cheque or postal order should now make then payable to HMCTS.

BIS launches Red Tape Challenge website

BIS has launched a new website, the Red Tape Challenge, to allow members of the public a say over which pieces of legislation should be retained, which ones are due for an overhaul, or which ones should be thrown out altogether.  The Government hopes that this will help to identify which pieces of law create bureaucratic barriers for business, volunteers and the public in general.

Every few weeks a different set of regulations relating to a specific industry sector (currently the retail sector) will be "star guest" on the website, and visitors to the site will be able to submit their comments on the chosen regulations.  The Prime Minister has stated that, once the commenting period has closed to the public, Ministers will have three months to explain why the legislation is still required or the offending statutory instrument will be scrapped.

The site also targets general regulations that apply to all sectors, one of which is employment law.  Visitors are asked for their views on 151 sets of regulations affecting employment, listed under the categories:

  • Taking people on
  • Managing staff
  • Letting people go
  • Compliance and enforcement

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