best endeavours

Best Endeavours And Other Endeavours Clauses

Best endeavours, reasonable endeavours, all reasonable endeavours - how are these terms used in a legal sense and what do they mean?

Contractual obligations are normally absolute and failure to satisfy an obligation will be a breach of contract. Endeavours clauses are therefore used when a party is only prepared to "try" to fulfil an obligation, rather than commit to it absolutely. For example, in the case Jet2.com v Blackpool Airport the clauses under scrutiny created an obligation for Blackpool Airport to use its “best endeavours to promote Jet2.com’s low cost services” and “all reasonable endeavours to provide a cost base that will facilitate Jet2.com’s low cost pricing”. We refer to this case in more detail below.

Best, reasonable or all reasonable endeavours

It is clear from cases such as Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 that there is a spectrum of endeavours clauses, with "best endeavours" being more stringent than "reasonable endeavours". Despite the fact they are widely used, there is some uncertainty as to what efforts each different endeavours clause requires in practice.

Best endeavours

The term best endeavours has received the greatest amount of consideration by the courts and the starting point is that the phrase "means what the words say; they do not mean second-best endeavours" (Sheffield District Railway Co v Great Central Railway Co [1911] 27 TLR 451).

This has been further refined by the Court of Appeal to require the obligor "to take all those steps in their power which are capable of producing the desired results … being steps which a prudent, determined and reasonable obligee, acting in his own interests and desiring to achieve that result, would take" (IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335). In other words, the obligor must put himself in the shoes of the reasonable obligee.

Reasonable endeavours

Reasonable endeavours are less burdensome. One formulation involves the obligor balancing "the weight of their contractual obligation" to the other party against "all relevant commercial considerations" such as the obligor's relations with third parties, its reputation, and the cost of that course of action (UBH (Mechanical Services) Ltd v Standard Life Assurance Company, The Times, 13 November 1986).

This has been restated as a question of "what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done to try" to achieve the objective (Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd [2017] EWHC 1457).

This suggests an objective approach based on the reasonable obligor (not obligee as is the case for best endeavours). However, it appears the assessment should still reflect the circumstances and position of the obligor. Crucially, the obligor is not normally required to sacrifice its own commercial interests and may be entitled to consider the impact on their own profitability (P&O Property Holdings Ltd v Norwich Union Life Insurance Society [1993] EGCS 69). This is one of the major differences between a reasonable and best endeavours obligation.

All reasonable endeavours

The third commonly used endeavours clause is "all reasonable endeavours". It is commonly adopted as a compromise between best and reasonable endeavours. However, it is difficult to decipher its meaning and an analysis of existing case law raises three interlinked questions:

  • Does it mean the same as best endeavours?
  • Is the obligor obliged to sacrifice its commercial interests?
  • Is the assessment based on the obligor's particular circumstances?

The answer seems to be that it depends on the context.

On the first question, the traditional orthodoxy is that all reasonable endeavours sits somewhere between best endeavours and reasonable endeavours. Courts have stated, obiter, that it is "probably a middle position somewhere between the two, implying something more than reasonable endeavours but less than best endeavours" (UBH v Standard Life). This reflects the natural and ordinary reading of the words.

By contrast, in Rhodia, the judge stated, obiter, that an "obligation to use reasonable endeavours to achieve the aim probably only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours". This passage is sometimes used to argue that all reasonable endeavours equates to best endeavours in all respects.

However, this comment may just relate to the number of courses of action a party needs to take and not to the other distinctions between these obligations, such as the extent to which a party might have to compromise its commercial position. Support for this approach comes from CPC Group Ltd v Qatari Diar Real Estate Investment Company [2010] EWHC 1535, which starts to touch on the second question. In that case, Vos J stated: "It seems to me, therefore, that an obligation to use all reasonable endeavours does not always require the obligor to sacrifice its commercial interests".

The question of whether a party can have regard to his own financial interests is likely to depend on the nature and terms of the contract in question. In Astor Management AG v Atalaya Mining Plc [2017] EWHC 425, Atalaya had to use "all reasonable endeavours" to obtain senior debt facilities, an event which would trigger the payment of substantial deferred consideration to Astor. Atalaya could not raise funds in a different way simply to avoid paying the deferred consideration as that would defeat the purpose of the contract. However, the financial considerations were not irrelevant and Atalaya did not have to raise funds through senior debt facilities if it would make their activities commercially unviable.

Certainty case study

A final factor to consider is whether the endeavours clause is enforceable at all. It is clear that if the underlying objective is unenforceable due to a lack of certainty, an obligation to endeavour to achieve that result will also fail. Similarly, the combination of a less stringent endeavours clause (such as reasonable endeavours) with a poorly defined objective may lead to a very weak obligation.

Jet2.com v Blackpool Airport is a useful example of these principles. Blackpool Airport was under an obligation to use both of the following endeavours obligations:

  • Best endeavours to "promote Jet2.com's low cost services".
  • All reasonable endeavours to "provide a cost base that will facilitate Jet2.com's low cost pricing".

The Court of Appeal found that the former obligation was enforceable there being "a difference between a clause whose content is so uncertain that it is incapable of creating a binding obligation and a clause which gives rise to a binding obligation, the precise limits of which are difficult to define in advance, but which can nonetheless be given practical content". However, the Court of Appeal suggested the latter obligation might not be enforceable. Whilst Jet2.com argued the all reasonable endeavours obligation required Blackpool Airport to help Jet2.com to keep its prices down, Moore-Bick LJ stated the words were "too opaque to enable me to give them that meaning with any confidence".

Practical steps

There is a degree of uncertainty as to what an endeavours clause may actually require in any given case, and these uncertainties are best dealt with expressly in the contract.

A more useful approach is to set out the steps the obligor should take to achieve that particular obligation. The approach will vary from case to case, but parties should have regard to factors such as:

  • Whether the obligor must bear any costs or incur any expenditure and, if so, how much.
  • The period for which the obligor should pursue that objective.
  • Whether the obligor must take legal action or appeal to achieve the objective.
  • Whether the obligor must inform the obligee of its progress in meeting the objective.
  • Whether the obligor must step aside if it is unsuccessful and allow, or even assist, the obligee to solve the problem itself.
  • The extent to which a party is entitled to protect its own interests, is required to act in the interests of the other party, or base its actions on its own particular circumstances. These issues are, in part, determined by the type of endeavours clause used but it may be useful to set them out expressly.
  • Specific steps that the obligor is or is not expected to carry out.

Finally, probably the most decisive factor is whether the obligor does in fact take steps to comply with the endeavours clause. In the majority of cases the debate is not over the nuances in the differing level of obligation imposed by such clauses, but whether any real endeavours were used at all. The prudent obligor will also record evidence of its efforts and inform the obligee should any difficulties arise.

Endeavouring to try our best

Endeavours clauses are a complex and continually debated area in contract law. It is very context dependent and requires those with or willing to impose obligations to think ahead. If you have any questions about endeavours clauses or about contract law more generally please contact Neil Williamson.


Legal Protection of Software

Legal Protection Of Software

This blog considers the legal protection of software under UK law. It focuses on the application of the law of copyright to software, but also briefly considers other intellectual property rights which might be relevant.

Legal Protection of Software - Copyright

 A computer program is primarily protected as a copyright work. The Copyright, Designs and Patents Act 1988 (CDPA) provides that copyright subsists in an original literary work, which is defined as including a "computer program" and the "preparatory design material for a computer program", although the CDPA does not define what constitutes a computer program. The CDPA is, in this regard, implementing the EU’s Software Directive which provides that a "computer program", including for this purpose, their preparatory design material, is protected by copyright as a literary work.

However, software is quite unlike the more traditional forms of copyright work - such as books, paintings or letters - for which copyright evolved. Accordingly, the application of copyright to software is not entirely straightforward. In particular, software has a life beyond the black letter of its text in a way that books or paintings do not. It is both a copyright work - in the sense of being a record of information - and a functioning work, which creates effects - such as screen displays or sounds and which may include errors and need to be supported or maintained. This can lead to complications in terms of the legal protection of software by copyright because it is axiomatic that copyright protects the expression of ideas, but not ideas or schemes per se.

Definition of Software

The fact that the term "computer program" appears to be interpreted as referring only to the source code and object code can also lead to difficulties in terms of analysing the copyright works which may subsist in a software package, which, in practical terms, comprises more than just the code. Above the source code or object code of a computer game, for example, there is a layer of visible content - what the user sees and hears when they are playing the game - which may include, among other things, graphics, music or sound effects protected by copyright. 

Requirements for copyright protection of software

In order for copyright to subsist under UK law:

  • A work must fall into one of the categories of work protected by copyright under UK law.
  • A work must qualify for protection under UK law (this usually depends on the nationality of the author or place of first publication).
  • The term of copyright must not have expired.

Works protected by copyright

The works protected by copyright are:

  • Original literary, dramatic, musical or artistic works which, in the case of literary, dramatic or musical works are recorded in some way. A literary work includes a:
    • table or compilation other than a database.
    • computer program and preparatory design material for a computer program.
    • database which meets a specific originality test.
  • Sound recordings, films or broadcasts.
  • The typographical arrangements of published editions.

Computer programs and preparatory design materials

Computer programs and the preparatory design material for a computer program are protected as literary works (section 3(1)(b) and (c), CDPA). The term "computer program" is not defined in the CDPA. However the term has been regarded as referring to source code or, in its machine-readable form, object code by the ECJ in the case BSA.

The source code and object code of a program will be protected as literary works, provided they are original. Software is frequently modified and updated. In each case where a program is revised or modified to a substantial degree, the new version will also be protected as a copyright work.

Additionally, design documents relating to the computer program, such as flow charts, graphs and functional or technical specifications would be protected as preparatory design material for a computer program. The definition of "computer program" in the Software Directive, provides that a computer program includes the preparatory design work leading to its development.

Legal Protection of Software - Confidentiality Laws

 While copyright is the main form of legal protection of software, most proprietary software companies also ensure that the source code of the software is kept as a trade secret, and only disclosed under a secrecy agreement where disclosure is necessary, such as to producers of related software. This is because, as discussed above, the source code is the key to understanding how the software functions and is essential for the maintenance of the software, since it will need to be examined to develop the software or correct errors or defects in it.

There are two basic requirements for information to be treated as confidential according to UK law:

  • It must have the necessary quality of confidence. In other words, it must not be public property or public knowledge.
  • It must be imparted in circumstances importing an obligation of confidence i.e. when shared it must not be done so as if it were public property or public knowledge.

Legal Protection of Software - Database right 

The EU Database Directive (96/9/EC) sought to harmonise the legal protection of databases. A database is a collection of independent works, data or other materials arranged in a systematic or methodical way and individually accessible by electronic or other means.

The Directive standardised the "originality" threshold for copyright protection of databases, limiting such protection to databases which "by reason of the selection or arrangement of their contents, constitute the author's own intellectual creation" (Article 3, EU Database Directive). This requirement is reflected in section 3A(1)of the CDPA and hence also applies to software.

Legal Protection of Software - Patents

In the UK, a patent may be obtained in respect of an invention which is new, involves an inventive step, is capable of industrial or technical application and does not fall within any of the exclusions (Patents Act 1977). The owner of a patent can prevent any third parties from selling the product or process which is the subject of the invention. However, section 1(2) of the Patents Act provides that a patent will not be granted for "a program for a computer" to the extent that the patent relates to the program "as such". This is derived from a similar provision in Article 52 of the European Patent Convention (EPC).

Although under the EPC computer programs are not patentable "as such", it is well established that the application of a computer program may well be patentable if it possesses a technical character. What gives the application of a computer program the necessary technical character and takes it beyond the exclusion is difficult to determine. It should be noted that there exists some degree of inconsistency and uncertainty with regard to the approach taken to software-patenting across Europe by different national courts and patent offices. A proposed Software Patent Directive, which would have harmonised the position with regard to patent protection of software in the EU and resolved at least some of the questions on the patentability of software, was rejected decisively by the European Parliament.

Protection of software – other ways

Other than relying on UK laws, there are other ways in which software owners can and should protect their products. Adopting technical measures is the most obvious one for example, including encryption or the embedding of anti-piracy techniques directly into hardware. It is  also essential to have robust non-disclosure agreements and software contracts in place so that if a licensee infringes important rights the software owner can point to its NDA or licence agreement and take appropriate enforcement action.

EM law specialises in technology law. Get in touch if you have any questions on the above.


Open Source Software

Open Source Software - An Overview

A feature of the software world over the last 20 years has been the rise and rise of open source software (OSS). From its origins in US academia in the early 1970s, OSS emerged into the mainstream in the 1990s, continuing into widespread use throughout the 2000s and 2010s so that it is today approaching ubiquity.

What is open source software?

In essence, open source software is software provided under a licence which grants certain freedoms to a licensee. It is often free and used by developers to produce the foundational elements of software. But not always. It should properly be seen as a range of associated licensing techniques: there are many different types of OSS licences differing widely in clarity, length and legal effect.

Looking ahead

The scope and appeal of open source software is only likely to increase, due to a fairly unique combination of circumstances:

  • The internet. Open source software modules are readily downloadable from software library sites like netand github.com. To that extent open source is similar to other software delivery techniques that the internet powers, like virtualisation, software-oriented architecture (SOA), software as a service(SaaS) and cloud computing, all of which are following a trend of increasing adoption throughout the 2010s.
  • The current generational shift in the software industry. The generational shift from the traditional "software as a licence" – on the PC at home or in the server room at the office – towards remote, service-based computing which embraces these internet-enabled delivery techniques is now firmly established. This shift is another spur for OSS.
  • The rise of smartphone and tablet devices. Smartphones and tablets are increasingly challenging the dominance of the desktop and laptop as the primary computing device. The software running on these devices both from an operating system perspective (such as Android and Tizen) and also the applications available on "app stores", have opened up new markets and scenarios for open source software to be used.
  • The rise of the Internet of Things (IoT). IoT can be broadly described as the interconnecting of physical devices with software and sensors and enabling these devices to communicate with each other and the internet. IoT is tipped to be one of the greatest technology innovations of the 2020s and open source software is a key enabler of IoT.

Plethora of open source software licences

Today, there are many hundreds of open source software licences in use, varying widely in length, clarity, intent and legal effect, and ranging from the intrusive, "copyleft" General Public Licence (GPL) through to short licences containing virtually no obligations.

OSS licences can be broadly grouped into two distinct categories. These are:

  • Permissive licences.
  • Restrictive licences (also known as "reciprocal", "hereditary" or "copyleft" licences).

While the exact terms vary between OSS licences, the key difference between the two categories of licence is how subsequent amendments, improvements and adaptations of the open source software (or combinations of the open source software with other software) are licensed or restricted.

Permissive open source software licences

Permissive OSS licences usually only require that any distribution of the original open source software be on the same terms as those on which it was provided. Importantly, permissive licences permit a licensee to freely amend, adapt open source code and combine open source code with proprietary code without placing restrictions (or significant restrictions) on such amendments, adaptations or combinations (usually called "derivative works") and how these derivative works can be licensed onwards.

Restrictive open source software licences

Restrictive OSS licences, on the other hand, go one step further than permissive licences, imposing licensing restrictions or requirements where the open source software is amended, adapted or combined with any other software (whether proprietary or open source) to produce a derivative work. While the provisions vary, restrictive OSS licences will (to a certain extent) apply to both the original open source software and any derivative works based upon it. This can be of key concern to organisations when using restrictive open source software alongside their proprietary software, as proprietary software could unintentionally be made subject to the open source licence.

Some examples

As a practical matter, when using open source software, a good starting point is to identify the OSS concerned and the licence terms under which it is made available and then to assess whether the licence attaches any particular terms which might pose a risk to your business. A leading OSS service provider publishes data in relation to trends in OSS usage under the most common OSS licences. The table below sets out the position based on the most recent data:

Top 10 open-source licences in 2016 and 2018

LicencePermissive or restrictive?2016 (percentage of all open source licences) %2018(Percentage of all open source licences) %Change%
MITPermissive25261
Apache 2.0Permissive15227
GPL 3.0Restrictive1916-3
GPL 2.0Restrictive1510-5
LGPLRestrictive660
BSD 3Permissive65-1
Microsoft PublicPermissive53-2
BSD 2Permissive32.2-1
Eclipse 1.0Restrictive110
ZlibRestrictive110

Software as a Service

Software as a Service (SaaS) is the term used to describe an arrangement in which software is hosted by a company and made available to users indirectly via a web browser. An example would be Dropbox where a user logs in via a portal to access and use the software provided for a subscription fee. There has been considerable controversy over whether the source code for OSS hosted by a SaaS provider must be made available to the users.

Under the wording of current OSS licences (except the GNU Affero General Public License (AGPL)), the hosting of OSS software by a SaaS provider would not appear to be a problem. Indeed, Section 0 of GPLv3 notes that mere interaction with a user through a computer network, with no transfer of a copy of a program, is not conveying and as a result, the obligations to publish source code may not be triggered. As a result, AGPL was created. It is a modified version of the ordinary GPL version 3, with one added requirement: if a modified AGPL program (or a derivative of it) runs on a server and users access it there, the server must also allow them to download the corresponding source code.

Final Thoughts

This blog is only a brief introduction to open source software and some legal issues to consider. Before supplying any software which contains OSS or, in some cases, before buying any software which contains OSS, understand how the supply or acquisition of the open source software may impact your business model is crucial. Generally speaking there has been a trend towards more permissive licencing in the last decade. Whilst encouraging, this should not prevent organisations from having a deeper look into the OSS licences they use.

EM law specialises in technology law. Get in touch if you have any questions on the above.

 


Bribery Act

Bribery Act 2010 - Ten Years On

The Bribery Act 2010 came into force in July 2011. For UK businesses operating in the emerging and frontier markets its effect was seismic. Organisations were suddenly faced with having to comply with some of the toughest anti-corruption rules in the world - many simply stopped doing business in certain countries. Ten years on, how has the Bribery Act fared?

The Bribery Act - Criminal Activities

The Bribery Act 2010 repealed the existing anti-bribery legislation and abolished the common law offence of bribery. It created the following offences:

  • Active bribery, which prohibits giving, promising or offering a bribe (section 1).
  • Passive bribery, which prohibits requesting, agreeing to receive or accepting a bribe (section 2).
  • Bribing a foreign public official (section 6).
  • An offence committed by a commercial organisation where a person performing services on the organisation’s behalf pays a bribe to obtain or retain a business advantage for the organisation (section 7). This is commonly known as the offence of failing to prevent bribery.

What is a bribe?

The Bribery Act refers to a "financial or other advantage" so it doesn't just cover the payment of money. it can include things such as:

  • gifts and hospitality.
  • employing the relatives of public officials.
  • paying for travel expenses and accommodation costs.
  • making political of charitable donations.
  • engaging the services of a company which a public official has an interest in (e.g. as a shareholder).

The Bribery Act - Section 7

It was section 7 of the Bribery Act that caused businesses (and directors - see below) the most concern. Under section 7 if a person (e.g. a supplier or a subcontractor) associated (e.g. working with) with an organisation bribes another person, intending to obtain or retain business or a business advantage for that organisation then that organisation is guilty of an offence under section 7 unless it can rely on the defence outlined below. So if the subcontractor of a UK business bribed a foreign official, the UK business would, on the face of it, have committed an offence under the Bribery Act for failing to prevent that bribery.

There is a defence to section 7 though: if the UK business can demonstrate that, on the balance of probabilities, it has in place adequate procedures in place designed to prevent bribery then it would not be guilty. Putting in place “adequate procedures” can be complex, costly and time-consuming, depending on the type of work and the jurisdictions in which the UK business is operating in. We will publish a note on “adequate procedures” at a later date.

Bribery Act Penalties

An individual guilty of a section 1, 2 or 6 offence is liable to a maximum 10 year imprisonment or a fine or both. Any other person (such as a company) guilty of an offence under section 1, 2, 6 or 7 is liable to a fine. Organisations can also be barred from participating in tenders for public contracts.

Company directors can also be found individually liable if they consented to or connived in the commission of the offence. "Conniving" in an offence means that the individual knew it may occur but did nothing to prevent the offence from happening - "turning a blind eye" would be connivance.

Bribery Act - the consequences

The combination of a strict approach to corporate liability, a reverse burden corporate defence and a global jurisdictional reach resulted in the offloading onto businesses of a wide-ranging responsibility to police themselves and their supply chains to do their utmost to eradicate the risk of bribery. Compliance departments bulked up and lawyers were kept busy advising on the Act and the procedures and policies that organisations had to put in place. As we allude to in the opening section, some businesses drew a line halfway down Transparency International’s Corruption Perception Index and adopted a policy that they would not do business in jurisdictions below that line. Other countries have adopted similar tough laws to prevent corruption and, although corruption still goes on, it is harder (and more costly) to behave in this way. As to whether the Bribery Act and other modern anti-corruption laws have reduced corrupt behaviour over the last 10 years - that is difficult to say. Some commentators indicate that illicit financial flows are larger now than before.

Litigation under the Bribery Act

Freedom of information requests have revealed that, after ten years, there has been a grand total of 99 convictions under the 2010 Act (www.sfo.gov.uk/foi-request/2020-040-bribery-act-2010/). What is particularly notable is that only two of those convictions have been made against corporates for the failure to prevent bribery offence under section 7 of the 2010 Act.

The majority of the Serious Fraud Office’s (SFO) wins in relation to bribery principally relate to the use of deferred prosecution agreements. Deferred prosecution agreements (DPAs) were introduced in the Crime and Courts Act 2013, which set out a statutory mechanism that allows investigations into fraud, corruption and other crime committed by corporate organisations to be concluded without prosecution. A DPA is made between an organisation and the prosecuting authority and is supervised by a judge.

Some commentators have noted that the use of DPAs has diverted the more substantial and complex section 7 cases away from the courts. This has denied the courts any opportunity to grapple in detail with the issue as to what procedures are considered to be “adequate” for the purposes of establishing the reverse burden defence in section 7.

House of Lords Bribery Act review

The House of Lords select committee’s ten-year review of the 2010 Act is clear in its view that the 2010 Act has been a resounding success (https://publications.parliament.uk/pa/ld201719/ldselect/ldbribact/303/303.pdf). Despite this, the committee did recommend that the meaning of “adequate procedures” for the purposes of establishing the section 7 defence should be further clarified. One possible suggestion was that it should be interpreted to mean “reasonable in all the circumstances”, which echoes section 45.

The committee also requested greater clarity as to where the dividing line should be between what is considered legitimate corporate hospitality and what would be considered as bribery. This was in the context of the fact that government guidance on these topics is perceived to be inadequate, which can contribute to a misinterpretation of these terms (www.gov.uk/government/publications/bribery-act-2010-guidance).

A Challenge for SMEs

Whether or not the government will give greater clarity at some point remains to be seen. But in the meantime, for small businesses the financial burden of having to produce sufficiently adequate compliance procedures, together with the practical burden of implementing and monitoring them is proving to be a real issue.

The committee noted that there was a particular difficulty for those organisations that export goods from the UK to countries where established practices relating to hospitality may be very different to the UK. In these instances, the committee recommended that more should be done by local experts in UK embassies to bridge this gap and reduce the burden on these businesses.

Serious Fraud Office handbook

Some of the issues raised by the House of Lord’s are referenced in the SFO’s operational handbook “Evaluating Compliance Programmes” (the handbook). The handbook is intended for internal use by the SFO and so is not intended to give any guidance to practitioners or businesses. However, it is publicly available and was updated in January 2020 (www.sfo.gov.uk/publications/guidance-policy-and-protocols/sfo-operational-handbook/evaluating-a-compliance-programme/). That update provides details of the SFO’s approach to assessing an organisation’s compliance systems when it is considering whether or not to take action and, if so, what type of measures a business needs to take.

The handbook states that a business’s systems will be examined by reference to three timeframes:

  • At the time that the offending incident occurred, although this itself may span a period of time and so cover changes in systems.
  • At the time that action is being considered by the SFO.
  • At a possible date in the future; for example, in instances where systems may have yet to reach their full potential.

The need for this approach is in itself evidence of the complex and fluid landscape of anti-bribery compliance that businesses need to come to terms with. In producing and maintaining anti-bribery procedures, an organisation has to be aware that whether or not the procedures will be considered to be “adequate” can be assessed against all of those timeframes.

Changing times

While it seems that the 2010 Act will continue in its current form, nevertheless real issues still exist when it comes to the practical implementation of systems in order to satisfy the adequate procedures defence to section 7.

Risk has to be assessed and procedures and policies have to be drafted, regularly reviewed and disseminated to those affected. Staff have to be trained and effectiveness has to be monitored. All of this must potentially accommodate laws local to a business’s overseas base or customers. It all costs money. How this will play out in practice in a world grappling with the financial impact of COVID-19 remains to be seen.

The near future

With Zoom meetings replacing business lunches and business trips taking a serious dive, there are a number of factors that may provide a natural downward pressure on opportunities for corporate bribery to take place. However, within a globally savaged economy, competition for business opportunities will be fierce and, by its very nature, this competition is the principal driver for almost all bribery that occurs. So it is likely that there will be further prosecutions and DPAs obtained as a result.

A sign of the future may be the impending announcement that the government will go ahead with a £100 million investment into the funding of anti-money laundering systems. Notably, the government proposes to raise this money by way of a levy on financial institutions. In its paper setting out the economic crime plan, the government clearly stated that it believes it to be fair that those institutions whose activities are exposed to risk should pay the government costs that are associated with responding to and mitigating those risks.

If you have any questions on Bribery Act compliance or if you would like us to help you with staff training please get in touch.


Dealing with redundancy

Dealing With Redundancy

Dealing with redundancy can be daunting for both employers and employees: employers need to ensure that they follow correct procedures and apply them fairly. Employees have a number of rights in a redundancy situation and both parties need to understand what these are. Before you read this article you may find it useful to check our settlement agreement calculator to see our estimate of what you should be entitled to receive from your employer if you are made redundant.

Dealing with redundancy from an employee perspective

Employees who are dismissed by reason of redundancy may be entitled to a statutory redundancy payment and they may be able to challenge the termination of their employment as an unfair dismissal.

The definition of "redundancy"

The definition of "redundancy" encompasses three types of situation: business closure, workplace closure, and reduction of workforce. The dismissal of an employee will be by reason of redundancy if it is "wholly or mainly attributable to" the employer:

  • ceasing or intending to cease to carry on the business for the purposes of which the employee was employed by it (business closure);
  • ceasing or intending to cease to carry on that business in the place where the employee was so employed (workplace closure); or
  • having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work (reduced requirement for employees).

Redundancy payments

Employees who are dismissed by reason of redundancy may be entitled to a statutory redundancy payment. Additionally, they may have an express or implied contractual right to an enhanced contractual redundancy payment. In circumstances in which an employer is liable to pay an employee a statutory redundancy payment, if the employer either fails to make the payment because it is insolvent or refuses to do so, the employee may apply to the Secretary of State for payment out of the National Insurance Fund.

Statutory redundancy payments

Under section 135 of the Employment Rights Act 1996 (ERA), employees with at least two years' continuous employment at the relevant date are entitled to a statutory redundancy payment if they are dismissed by reason of redundancy.

Statutory redundancy pay is calculated according to a formula set out in section 162 of the ERA 1996, which is based on age, length of service (subject to a maximum of 20 years) and pay (subject to the upper limit on a week's pay).

Claiming from the National Insurance Fund

Where an employer refuses to make a redundancy payment (or has made a part payment only), or the employer is insolvent, an employee may apply to the Secretary of State for a redundancy payment out of the National Insurance Fund under the scheme contained in section 166 of ERA 1996.

Contractual redundancy payments

In addition to a statutory redundancy payment, an employee may also be entitled to an enhanced contractual redundancy payment. This entitlement may be either express or implied:

  • If the employee's contract of employment expressly sets out a redundancy policy, the policy will be an express term of their employment. However, it is more common for a redundancy policy to become expressly incorporated by being set out in another document or collective agreement which is referred to in the employee's contract of employment. Another way in which a redundancy policy can be expressly incorporated into an employee's contract of employment is where a person with ostensible authority makes a verbal or written statement that results in a commitment by the employer to pay enhanced redundancy payments.
  • The most common way in which redundancy terms may be implied into an employee's contract of employment is where a set of redundancy terms are regularly applied in a particular trade or industry or by a particular employer. In order for employees to show implied incorporation of the enhanced redundancy terms into their contracts of employment, they must show that the custom in question is "reasonable, notorious and certain". This means that the policy's terms must be fair (and not arbitrary or capricious), must be generally established and well known, and must be clear cut.

In operating an enhanced redundancy payments scheme, an employer must be careful to ensure that the manner in which it applies enhancements will not leave it open to the accusation that it has disadvantaged some employees over others in a manner that is discriminatory. Age discrimination is a common issue in schemes which use age and/or length of service to calculate the payment, unless they closely follow the statutory redundancy pay model (above).

Redundancy and unfair dismissal

An employee who has sufficient qualifying service, i.e. has been employed for two years (although this time period depends on a number of factors and should by no means be taken for granted), is entitled not to be unfairly dismissed. Redundancy is a potentially fair reason for dismissal. Even if a dismissal is genuinely on grounds of redundancy, whether it is fair or unfair to dismiss for that reason normally depends on the application of the general test of fairness in section 98(4) of ERA 1996, namely whether the employer acted reasonably in dismissing the employee in all the circumstances.

A redundancy dismissal is likely to be unfair unless the employer:

  • Identifies an appropriate pool of employees for redundancy.
  • Consults with individuals in the pool.
  • Applies objective selection criteria to those in the pool.
  • Considers suitable alternative employment where appropriate, subject to a trial period.

Collective consultation (employer perspective)

Where 20 or more employees are being made redundant over a period of 90 days or less, an employer has a duty under the Trade Union and Labour Relations (Consolidation) Act 1992 to:

  • Inform and consult appropriate employee representatives. Where 100 or more redundancies are proposed, consultation must begin at least 45 days before the first dismissal takes effect. For less than 100 redundancies, the consultation period is 30 days.
  • Notify the Secretary of State (in practice a Form HR1). Notification must be received by the Secretary of State at least 45 days before the first dismissal where the employer proposes to dismiss 100 or more employees. Where less than 100 redundancies are proposed, the notification period is 30 days.

A tribunal may award up to 90 days' pay in respect of each employee where there has been a breach of the information and consultation duty. An employer may be fined if it fails to notify the Secretary of State.

Whenever there is an obligation to consult collectively, the employer will also need to ensure that it has followed a fair procedure in relation to individuals, including consulting with them properly, so as to minimise claims for unfair dismissal.

Alternatives to dealing with redundancy

When dealing with redundancy from the outset of the procedure (and throughout the consultation process), an employer should consider whether it can avoid making compulsory redundancies or reduce the number of compulsory redundancies.

If the employer is undertaking collective consultation, this is one of the matters over which it has a statutory duty to consult the employee representatives. It should also consider this during individual consultation as part of a fair redundancy procedure.

Initial steps that the employer should consider include:

  • Suspending or restricting recruitment.
  • Reduction or removal of overtime opportunities.
  • Not renewing the contracts of contractors.
  • Ceasing or reducing the use of agency workers.

If these initial steps are unavailable or are not sufficient, the employer could consider:

  • Inviting potentially redundant employees to apply for suitable alternative vacancies.
  • Inviting employees to volunteer for redundancy.
  • Inviting employees to consider early retirement under the pension scheme.
  • Temporarily laying off employees or reducing their hours. In some cases this may itself entitle the employees to claim a redundancy payment.

Dealing with redundancy - we're here to help

If you have any questions or need help dealing with redundancy or other employment law issues please contact any one of our employment lawyers Helen Monson or Imogen Finnegan or call us on 0203 637 6374.