IGA News

Be Aware - September 2020

Be Aware - September 2020

28 August 2020

Managing Holiday Post Lockdown

Many employers in the motor industry are facing a headache post lockdown with managing employees’ holiday entitlement. In this article, we thought we would bullet point some of the key considerations and potential options.

The key points to remember for an employer are as follows:

1. In the UK, entitlement to annual leave is split into different sections of leave:

(a) 20 days known as “EU” leave which derive from the Working Time Directive;

(b) an additional 8 days “UK” leave.

Together, the 28 days is the minimum in UK law, but as below, different rights attach to the different sections.

Anything beyond 28 days is extra contractual leave and again, different rules would apply.

2. Except on termination of employment, employers are not supposed to pay in lieu of any untaken holiday.

3. Employers should be facilitating employees to take all their leave within the holiday year, but if an employer does so and the employee does not take the leave, then (subject to certain exceptions) the employer can determine that any unused leave entitlement is lost at the renewal of the new holiday year.

As holiday will have continued to accrue during any period of furlough and lockdown, many employers are finding it difficult to grant employees their full leave entitlement within the holiday year.

What are the options in these circumstances?

  • One option is to try to “buy” some of the leave back from the employee. As above, with the statutory minimum leave, this is not technically allowed in law, albeit commercially, it is something that employers and employees might agree if both parties are willing to do so.
  • Where the Coronavirus has rendered it not “reasonably practicable” for employees to take their leave during the holiday year, then new regulations allow workers to carry over untaken holiday into the next two leave years (SI 2020/365). The two-year carry-over applies to the 20 days basic EU leave.

This is a relatively limited right and guidance suggests that it only relates to situations where it will be quite difficult for the employee to take their statutory leave, given the extent of the leave year remaining and the extent of the holiday entitlement remaining. Further guidance is available at:

https://www.gov.uk/guidance/holiday-entitlement-and-pay-during-coronavirus-covid-19#carrying-annual-leave-into-future-leave-years

  • Under the Working Time Regulations, it is possible for the employer and employee to agree to carry over the additional UK leave (effectively the 8 days of the 28) into the next leave year if there is agreement.
  • With any contractual leave above and beyond the 28 days, employers and employees have more leeway. As above, there is nothing to prevent the employer and employee agreeing a payment in lieu of the extra contractual holiday, if that makes it more manageable. In the alternative, if the employer can demonstrate a strong business case, it might, after consultation, decide that it needs to change the contract and reduce contractual leave in the present economic circumstances.

As the above summary demonstrates, the situation is somewhat complicated, and you should always seek specific legal advice which will depend on the individual facts of the case.

What is a payment in lieu of notice?

“Unfortunately, I am having to consider a number of redundancies. If I terminate an employee (or they resign) and I want to make a payment in lieu of notice instead of them working their notice period, do I still record their last working day as the date at the end of the one-month notice period?”

No, it is a bit of a common myth that the effective date of termination (i.e. last working day with the company) still falls at the end of what would have been the notice period where a payment in lieu of notice (PILON) is made.

A PILON is effectively “instead of” the employee working their notice period. This means therefore that you are cutting all employment ties with them on their last working day and whatever their notice period is (be it through dismissal or resignation), it is paid as a lump sum payment in their final salary.

Put in practice therefore if an employee resigns on 1st May 2016, they have a one month notice period and therefore if they were required to work their notice their effective day of termination and last working day would be 31st May 2016. Both parties agree it is not in either of their interests for the employee to work and therefore as there is provision for a PILON in the employee’s contract, the employee will stop working on 1st May itself. The one month’s salary is still payable and is paid in the company’s May payroll however, the employee’s effective date of termination is 1st May 2016 because the PILON acts to remove what would have been the notice period.

It can also work part way through a notice period. Therefore if an employee had served notice to resign on 1st May but the employer only needed them for a couple of weeks they could, for example, stop working on say Friday 13th May and the remainder of their notice period i.e. 2.5 weeks approximately, would be the PILON. In this scenario therefore the effective date of termination would be Friday 13th May because it is the last day, they are physically attending work and the remaining notice is paid instead of it being worked.

NB this is not the same scenario where an employee is placed on garden leave. Garden leaves seeks to continue the contract of employment albeit the employee is effectively suspended from their duties and stays at home for the duration of their notice period.

If in doubt when seeking to exercise a PILON clause, please contact the RMI employment team.

Renewing contracts

“I have recently signed an advertising contract which I thought was for 1 year only. I have now been contacted by the company and told it automatically renews if I do not cancel. Is this fair?”

Firstly, this is not an uncommon problem. We are seeing more contracts that automatically renew. This can simplify matters for regular contracts such as laundering services, insurance, and waste disposal. The problems come when members do not know they will renew until it is too late.

1. Were you told about the renewal or provided with contractual terms at the beginning of the contract?

It is a basic principle of contract law that only terms incorporated into the contract can apply. If you were specifically told about the renewal, then this will apply. However, the terms of any renewal or cancellation process must have been sufficiently clear to be binding.

It becomes trickier where you agree to a contract without signing any terms and conditions. As businesses the courts will assume that you have read and intend to be bound by any terms signed.

2. What are the cancellation terms?

If the contract has renewed are there sufficiently specific terms to cancel the agreement. If these terms are not sufficiently specific, then the court will have to interpret their meaning. Each case will therefore turn on its facts. However, the most likely outcome is that the notice period for cancelation will be the period covered any one invoice. i.e. if you are billed monthly one month, is weekly one week.

3. What if the terms are unfair?

In some respects, tough. There are significantly less statutory protections in business to business contracts. If you have signed it you will likely be bound by the terms, so read any terms thoroughly.

That said, there is some protections and arguments that may apply. We would advise you to obtain legal advice so that any unfair clauses can be assessed.

Conclusion

Check all contractual terms before reaching an agreement as prevention is better than cure.

Once signed regularly review contracts to ensure they remain relevant and, where you are unhappy that you are familiar with the steps needed to cancel them. This is particularly important for ongoing contract such as Laundry contracts, waste disposal contracts advertising contracts insurance contracts

Company failures

“I have been trading with another company for some time, but I am now having difficulty contacting them and they are not paying the debts. I’ve been told that they have failed, what do I do?”

It is a sad fact of business life, but from time to time companies with which members trade will fail. Often such failures leave large debts to creditors, so what do you need to know if you become a creditor to a failed company?

What will happen?

When a company is failing it will have a number of options. If the company is capable of being rescued, or there is a tangible benefit to creditors, then it may enter Administration. Here all debts are frozen and an independent expert appointed to run the company as a going concern, or to achieve the best possible outcome from creditors if this is not possible.

If it is not possible to save the company it will enter Liquidation. Here it is not possible to rescue the company and an independent expert will be appointed to wind it up.

If the company is not trading do, I have to pay them?

Yes. Any debts due will still be owed to the company. They will continue in a non-trading state in order to collect debts. If the company is in administration, when it is restructured it will be sold and start again and any debts will be dealt with. If not, then once the liquidation has been finalised the company will cease to exist.

Will I get my money?

This will depend on your status. If the company enters Administration, then payment is possible once it is returned to a going concern. If the company enters into Liquidation, the company will collect in all debts as part of the insolvency process. Once all debts are collected, the amount recovered will be distributed between the creditors. Any secured creditors will be paid first, and in full, in line with their securities. Once these are settled, any remaining creditors will be paid a percentage of their debt.

Rarely do unsecured creditors get paid if the company enters Liquidation. Even if a payment is made, it is highly unlikely that a significant percentage of the debt will be recovered.

Am I a Secured Creditor?

I cannot say. You can gain a security over company assets in a number of ways.

The most likely will be a specific charge over an asset, similar to a mortgage. Most asset specific securities require a legal agreement between the parties. If you believe you hold such a security, you should review any written agreements as a matter of priority.

If there is no specific agreement, the most likely security held by a motor trader is a ‘Lien’ on the vehicle or goods held. Where you have carried out work that is more than maintenance, you may hold a ‘Lien’ on any vehicle or goods. If you are normally paid before you release the vehicle or goods to the owner and the company fails before you are paid but while you have the vehicle or goods, you may be able to withhold the vehicle or goods from the owner until you are paid. Furthermore, you may be able to sell any vehicle or goods to settle your debt. This is complicated, so it is essential that advice is taken as soon as possible.

Offsetting your debts

Where you have supplied a product to the failed company, check your terms to see if legal ownership has transferred at the time of failure. If the goods remain your property, then it is essential that the rights of ownership are exercised immediately. Any goods may be recovered to you and their value used to reduce the money owed.

If you bought and sold products and services to each other, and any goods and services have already passed to the failed company, you may have ‘a history of mutual credits and debits’. In this case you can offset that money owed to the failed company against that money owed to you by them.

For example, where the motor trader owes the failed company £1,000, and the failed company owes the motor trader £500 then the motor trader can withhold their £500 in order to reduce the amount they owe.

This right cannot be excluded under the contract. If there is the potential for such a relationship, it is essential that advice is taken as soon as possible.

Who is liable for any failures?

This is a trickier question and will depend on the nature of the contract and services provided.

Where the failed company is a parts supplier, then you will remain liable to your customer for the quality of any work, including the parts supplied. Where a parts supplier would normally arrange for a repair or replacement, this will no longer be an option and will result in a greater risk to you.

The same applies where the failed company is a supplier of work. You will have a liability to the failed company in the event they are sued for a fault on your work. However, this is unlikely if they are in liquidation. A much more difficult question is whether the ultimate customer can overreach your supplier and hold you responsible. Again, statutory protections apply, but this is arguable where your contract with the failed company excluded the Contract (Rights of the Third Party Act) 1999. It is essential that advice is taken as soon as possible on this point.

General Note

Don’t forget, this advice is general in nature and will need to be tailored to any one particular situation. As an RMI member you have access to the RMI Legal advice line, as well as a number of industry experts for your assistance. Should you find yourself in the situation above, call the Direct Member Helpline or 0845 305 4230 at any stage for advice and assistance as appropriate.