The Rule In West Mercia

The Rule In West Mercia

The Supreme court handed down its long-awaited judgment in BTI 2014 LLC v Sequana SA on 5 October 2022 (the rule in West Mercia) where it affirmed the existence of directors’ Creditor Duty.

Since 1988, the Court of Appeal rulings in West Mercia Safetywear Ltd (in liq) v Dodd [1988] BCLC 250 (popularly known as ‘the rule in West Mercia’) has been the leading authority subjecting directors of financially stressed companies to a duty to consider the interest of the company’s creditors, or Creditor Duty. Now in BTI 2014 LLC v Sequana the Supreme Court has considered the rule in West Mercia for the first time, and confirmed the existence of a Creditor Duty, its content and when that duty is engaged.

In the current economic climate, it is more important than ever for directors (and insolvency practitioners) to be aware of when the Creditor Duty is engaged, and from the time it is, to strike the right balance when considering the interests of the company’s creditor’s as against the company’s shareholders.


In May 2019, the directors of AWA, a UK limited company, cause it to distribute a dividend of €135m to its only shareholder, Sequana SA (“Sequana”). The dividend complied with the applicable statutory regime regulating the payment of dividends and was distributed at a time when AWA was solvent.

However, at the time the dividend was distributed, AWA had a contingent liability on its books regarding clean-up costs for pollution of the Lower Fox River in Wisconsin, which was highly uncertain. This gave rise to a real risk, although not a probability, that AWA might become insolvent at some point in the future. A third party, BAT Industries Plc (“BAT”), has agreed to guarantee that liability.

It later transpired that AWA’s clean-up costs were significantly greater than originally anticipated. As a result, it became insolvent, but some ten years after the May 2009 dividend.

As AWA’s main creditor, BAT sought to have the dividend set aside under section 423 of the Insolvency Act 1986 on the basis that it constituted an undervalue transaction defrauding creditors.

An assignee of AWA’s claims, BTI 2014 LLC (“BTI”) also brought proceedings against AWA’s directors on the basis that its directors’ decision to pay the dividend was a breach of their duty to consider the interests of the company’s creditors.

The two claims were heard before the High Court and the Court of Appeal.

BTI was unsuccessful in its claim. The High Court and Court of Appeal ruled that the Creditor Duty had not been engaged by May 2009. As for the BAT claim, the May dividend was held to have fallen foul of section 423, although Sequana went into insolvent liquidation, and no part of the dividend was repaid.

The Court of Appeal Decision

Lord Justice David Richards, delivering an extensive judgement, put forward four potential points in time at which the duty that directors owe to the company to have regard to creditors’ interest, i.e. when the Creditor Duty is engaged:

  1. upon actual insolvency;
  2. upon imminent insolvency;
  3. where insolvency is more likely than not; and
  4. there is a realistic, and not remote, prospect of insolvency.

David LJ concluded that the Creditor Duty is engaged when the directors know or should know that the company is likely to become insolvent, likely meaning probable.

As such, AWA was not likely to become insolvent when the May 2009 dividend was paid. Accordingly, the directors were not in breach of the Creditor Duty as the duty was never engaged.

For company directors, notably, it remained unclear whether, once the Creditor Duty is engaged, creditors’ interests are paramount or are merely one factor to be considered.

Supreme Court Decision

BTI obtained leave to appeal to the Supreme Court, where they argued that a real risk of insolvency was sufficient to engage the Creditor Duty. There were four questions before the Supreme Court:

  1. Is there a common law Creditor Duty at all?
  2. If so, when is the Creditor Duty engaged?
  3. What is the content of the Creditor Duty?
  4. Can the Creditor Duty apply to a decision by directors to pay an otherwise lawful dividend?

The Supreme Court ruled, unanimously, that BTI’s appeal should be dismissed on the grounds that, although a duty to consider the interests of creditors does exist, a “real risk” of insolvency does not suffice. The Creditor Duty is only engaged when the directors know, or ought to know, that the company is insolvent or bordering insolvency, or that an insolvent liquidation or administration is probable.

The Supreme Court’s response to the each of the above questions is summarised below:

Is there a common law Creditor Duty at all?

  • Section 172(1) of the Companies Act 2006 codified the long-established common law fiduciary duty owed by directors to act in good faith in the best interest of the company.
  • According to Lord Reed (and agreed by the other justices), there is no duty owed to creditors, or any duty separate from the directors’ fiduciary duty to the company.
  • There is, however, a rule which modifies the ordinary position under section 172(1) such that, when it applies, the company’s interests for the purpose of that section are to be taken to include the interest of its creditors as a whole. This finding was justified as follows:
    1. The existence of the Creditor Duty is supported by a long line of authority in the lower courts of England and Wales, as well as from New Zealand and Australia. Particular reliance was placed in West Mercia Safetywear Ltd (in liq) v Dodd [1988] BCLC 250 (the rule in West Mercia) which was decided at appellate level.
    2. Parliament confirmed the existence of the Creditor Duty by enacting sub-section 172(3) of the Companies Act 2006, which states that the duty in section 172(1) “has effect subject to any enactment of rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company”.
    3. In ordinary circumstances where the company is stable and is able to pay its creditors on time, then the interest of the company’s shareholders as a whole can be treated as the company’s interest for the purpose of the duty of the company’s shareholders as a whole can be treated as the company’s interests for the purposes of the duty owed under section 172(1). This position changes in an insolvency scenario when the company’s creditors as whole become persons with a distinct interest and dependent in the company’s residual assets, or a change in its fortune, for repayment.

If so, when is the Creditor Duty engaged?

The Creditor Duty is engaged where the directors know or ought to know that the company is insolvent or nearing insolvency, or that insolvent liquidation or administration is probable. A potential earlier trigger of a real and not remote risk of insolvency does not suffice.

What is the content of the Creditor Duty?

  • Where the company is insolvent, or nearing insolvency, but is not faced with an inevitable insolvent liquidation or administration, the Creditor Duty requires directors to have regard to the interests of the company’s general body of creditors, as well as the general body of shareholders. In these circumstances, the more “parlous” the state of the company, the more the interests of the creditors will predominant.
  • Where insolvent liquidation or administration is inevitable, the creditors’ interests become paramount as the shareholders cease to retain any valuable interest in the company. As put forward by Lord Briggs, this happens when section 214 (wrongful trading) of the Insolvency Act 1986 becomes engaged.

Can the Creditor Duty apply to a decision by directors to pay an otherwise lawful dividend?

Although this question did not need to be determined in relation to the case before it, the Supreme Court gave two reasons for which, in principle, the Creditor Duty can apply to a decision by directors to pay a dividend which is otherwise lawful:

  1. Part 23 of the Companies Act 2006, which regulates the payment of dividends, is stated as being subject to any rule of law to the contrary. It follows that as the Creditor Duty is part of the common law, it is therefore not excluded by Part 23.
  2. Under Part 23 availability of profits for distribution is determined on a balance sheet basis. A company can, nonetheless, have a balance sheet surplus while being cash flow insolvent.


Although directors can take some comfort that the Supreme Court clarified that there must be an imminent risk of insolvency or the probability of an insolvent liquidation or administration, this judgment reinforces that a prudent approach to corporate governance is essential.

This decision is equally important for insolvency practitioners when determining whether directors of an insolvent company have acted in breach of their duties and the potential claims which might arise against them.


For more information on Insolvency contact Blake-Turner

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Five unexpected ways inflation could affect construction

Five unexpected ways inflation could affect construction

The Office for National Statistics (ONS) last week revealed that consumer price inflation had hit 9 per cent in the year to April, while the Bank of England warned the cost of living was expected to rise further this year.

Climbing prices are nothing new to the construction industry. Bills for building materials rose in 11 of the 12 months of 2021, according to an index published by the government.

And with the war in Ukraine and the stuttering global recovery from the pandemic, the consultancy arm of contractor Mace warned in March that bid values could surge by more than 5 per cent this year.

But, as inflation grips the wider economy, what are some of the effects on the industry that you might not have thought about?

1. Incoming investment

British Land this week noted that it was seeing investors “rotate out of bonds and increase their allocations to real estate” because of high inflation. The developer said it was well-positioned for this trend. Essentially, in times of rampant price rises, most financial assets devalue in the short term. Taking a longer-term view, and putting cash into projects calculated to make a healthy return down the line, things start to look more attractive. Although it is a nuanced and wildly varying picture, there is definite potential for more cash to flow into commercial construction projects.

2. Two-tier decision-making

The rising price of construction, and the squeeze on household and corporate budgets, clearly acts as a brake on the industry. In just one recent example, development partnership Ambition North Wales said affordability was “the biggest risk” facing its £1.1bn portfolio of projects. Meanwhile, analysis by construction insight specialist Barbour ABI found the value of new work awarded to contractors recently hit its lowest level since summer 2021. But every cloud has a silver lining and, as inflation grips, some relatively cash-rich clients could look to bring schemes forward, rather than waiting for costs to rise further.

3. Focus on energy efficiency

With energy bills soaring at an alarming rate, will householders and leaseholders demand buildings with the energy-efficiency measures that the climate crisis has so far failed to truly make mainstream? Construction Products Association senior economist Rebecca Larkin believes properties with higher Energy Performance Certificate ratings could start attracting a premium in the market. “Will energy-efficiency work pick up in the repairs, maintenance and improvements market?” she asks. Similarly, will more clients and end-users demand heat pumps, solar panels and natural ventilation in new buildings?

4. Pay disputes

As the pound signs continue to spin at petrol pumps and supermarket checkouts, workers in the construction industry will be feeling the pinch as much as anyone else in the country. In a claim submitted earlier this year to the Construction Industry Joint Council, which sets the pay level for about 500,000 construction workers, the Unite union demanded a 10 per cent pay rise. Dozens of workers gathered to protest against a “derisory” offer made in reply. Separate demonstrations were held in March as pressure mounted on the contractor behind a Yorkshire energy-from-waste project to pay workers according to the terms of an industry-standard working-rule deal. With employers and employees both squeezed by rising costs, the potential for increased tension on site and even industrial action is very present.

5. Greater co-operation

Counterintuitively, the very clear threat of increased tension on site due to rising costs could actually drive efforts to prevent this spilling over – and ultimately lead to more collaborative behaviour. Irish minister for public expenditure and reform Michael McGrath this month introduced the Inflation Co-operation Framework for parties engaged under a public works contract. This lays out the approaches and parameters that companies working for the state can use to calculate additional costs attributable to material and fuel-price fluctuations – with the government bearing up to 70 per cent of the extra costs agreed. Larkin says similar mechanisms could emerge in the UK to boost co-operation and prevent costly disputes caused by inflation.

This article was originally published on Construction News.

The Exit Strategy: What investors look for in a business

The Exit Strategy: What investors look for in a business

When investors sit for pitches, they expect to be told about an exit strategy. This includes a tale of future acquisition or IPO.

Nowadays, these contingency plans have become more creative. Take, for example, BodeTree.

In an article about creativity being a hook for investment, co-founder Chris Meyers unveiled the unconventional route he took.

“We started with two verticles: franchising and banking. This move enabled us to begin to isolate the value of each respective channel and package it for a potential sale.

“Next, we expanded the business through acquisition so that we had the cash flow necessary to support the company independently. At this point, we were in a position to do two things.

“First, we could sell our banking channel as-is at a valuation that made sense for more buyers. Second, we managed to retain the franchising segment of the business, which was profitable. This allowed us to offer investors an outsized and, far more confident, return.”

Tim Smallbone leads Inflexion Private Equity’s enterprise team. In The Supper Club’s latest guide, Planning for Scale, Sale & Beyond, Smallbone shares what he would normally look for in a business.

“We look at each company on its merits as businesses will have different drivers in their respective markets. But one important matter is whether there are any obvious vulnerabilities, namely issues out of their control such as forthcoming legislation changes.”

These are a no-go for many investors, he explained, as it’s a variable you cannot control.

He added: “Beyond this, the business must provide something worthwhile for customers, as this leads to decent margins and that’s crucial. A diversified customer base is equally as important, since overreliance can be risky.

“If we see a rhythm of profitable growth backed by a solid management team, we will take a closer look. We want strong net margins of 15-20% and robust growth, but don’t look for specific sectors or types of business we’re open to different opportunities.”
There must also be an element of continuity, whether it’s the founder or someone else who knows the business intimately and is able to manage change.

“Finally, we look for good alignment with us as the investor so tend to avoid management buy-ins, as alignment and continuity can be trickier there,” he explained.

A possible high valuation is also a factor in deciding which business to go with. So profits are important, as well as how they’ve been maximised.

“We look at the predictability of earnings and rates of growth, making recurring revenues particularly attractive,” Smallbone said. “Valuation is an art rather than a science and so we look for the potential of a business where can it go, and is management sufficiently motivated to drive this?

“Ultimately, we are only the temporary owners so we will think about the eventual exit and how to get there. Could it be an IPO or sale to a strategic trade buyer, for example ”

Smallbone suggested that founders look beyond capital. What else do they want from an investor?

One of the most common mistakes founders make, Smallbone explained, is failing to tap into an investor’s knowledge.

“Part of our role is to help founders understand the range of options available to them,” he said. “While our role is to provide capital, we can also introduce lawyers, accountants, and corporate financiers to help them make more informed decisions.

“Another mistake is not thinking through succession planning. Founders can get caught up crystallising value and getting the deal done without thinking about who will take the business forward after they step away.”

Research reoccuringly coughs up the fact that too few companies think of succession planning as important. Legal & General suggested it was particularly prevalent amongst family businesses, where 58% don’t prepare to pass on the baton.

Talking about the private equity field, Smallbone explained that the need for a change at the top was an opportune moment for a deal to be made.

“If you want to exit within five years, that is a great time to bring on board a backer who can help you get out with two bites of the cherry,” he said. “A key point is the founder’s willingness to remain involved for a period of time if the founder wants a speedy exit, trade is a better option than private equity.”

This article was originally published on Real Business.

Everything You Need To Know About Closing A Limited Company

Everything You Need To Know About Closing A Limited Company

When it comes time to close a limited company, especially one that you put a lot of effort into starting up, it can be an emotional and stressful time. One way to make this process less stressful is to know everything there is to know about closing a limited company. This way, you won’t be going backwards and forwards between different authorities and will be able to focus on closing your limited company as efficiently as possible.

The entire process can take as long as three months from beginning to end, so you should brace yourself. Whether closing your limited company will be a breeze or a challenge requiring professional guidance will all depend on your particular circumstances. In this article, we lay out everything you need to know regarding closing your limited company in the UK.

The easiest way to close your limited company: striking off

Want to know the easiest way to close your limited company? It is a process called ‘striking off’. In order to have your company struck off, you’ll need to send an application to Companies House.

Your business will also need to meet the following requirements:

  • The last three months have been no trade months
  • Your business hasn’t changed its name in the last three months
  • There are no current legal proceedings involving your business
  • No disposals for value of property or rights have been made

If you feel your company meets all of these criteria, you should go to the Companies House website and download the DS01 Form. Once the majority of directors has signed this, you can deliver it to Companies House via the mail or online. Within the week of submitting this form, you should notify all important parties, such as employees, creditors, shareholders, etc. If Companies House accepts your application, it will show the information on the public register within seven days.

Why do you need to inform important parties of the submission? So they have the opportunity to object to the closing, but we’ll get to that a bit later.

Member’s voluntary liquidation

Only solvent companies have the opportunity to close under a member’s voluntary liquidation. It is seen as the next best thing to ‘striking off’ for companies who do not meet the striking off criteria. In order to close your business through voluntary liquidation, the company directors need to declare that the business will be able to pay all of its debts within 12-months of the closing process.

The first step is to make a declaration of solvency. Within the next five weeks, your company directors will need to propose a resolution to liquidate the company voluntarily. There will need to be a 75% vote to proceed. Once this has been passed, a notice should be put in the Gazette within two weeks.

A liquidator will have to be appointed to take care of the entire process and complete and submit the LQ01 Form to Companies House.

Upon completing the liquidation process, an insolvency practitioner will hold a meeting with all members and creditors and discuss a full report. The report will also need to be sent to Companies House and the return of the final meeting. The company can expect to be dissolved within three months of the submission.

Creditor’s voluntary liquidation

The other option available to you is a creditor’s voluntary liquidation. This is an option if your limited company is unable to pay its debts. A director will need to call together all shareholders for a meeting to kick things off. A special resolution will need to be passed, and from there a liquidator will need to be appointed to handle the entire liquidation. Companies House will also need to be sent the resolution within two weeks of this meeting.

The resolution will also need to be advertised in the Gazelle, and a creditor’s meeting will need to be held within two weeks of submitting the resolution. They’ll also need a week’s notice before this meeting takes place.

Part of this process involves all business assets being converted into cash in order to pay creditors. The company can expect to be struck off the register within three months.

Compulsory liquidation

Compulsory liquidation occurs when a company cannot pay its bills or debts, and no compromise or resolution can be made with your creditors. In this case, creditors may become very unsatisfied and may ban together to apply to the court for a winding-down petition and have all of your assets liquidated.

This can be an incredibly stressful process, and you may want to seek professional help if you find yourself in this situation.

How much does it cost to close a company?

The obvious costs involved in closing a company are paying your debts and your employees’ wages and salaries. But there are also other costs involved in closing a company.

Striking off a company with Companies House is considered to be the cheapest option as all that is required is the £10 disbursement fee to Companies House upon submission. Any type of closure that involves a liquidator means that you’ll need to pay a liquidator’s fee, which can be anywhere from £1,500 upwards. Another fee you will have to consider is the fee you will need to pay to the Gazette for publishing various notices.

When it comes to the creditor’s voluntary liquidation, you can expect high costs, such as the liquidator’s fee. Anything that assets cannot cover will need to be covered by the directors themselves. In a creditor’s voluntary liquidation, some of the costs are handled by the creditors, but you can expect all of your assets to be liquidated.

Who can object to the closing of a company?

Since there is a notice period involved in closing a limited company, there is the opportunity for interested parties to make objections. Who could these interested parties be? These can include employees, directors, clients, creditors, shareholders, or even the company itself. All objections need to be made in writing to Companies House.

This article was originally published on Real Business.

Queen’s Speech 2022: What small businesses need to know

Queen’s Speech 2022: What small businesses need to know

In the annual state opening of Parliament, Prince Charles has outlined the UK government’s legislative agenda for the coming year. The Prince of Wales delivered the speech because, for the first time since 1963, the Queen did not attend. Buckingham Palace said her absence was due to “episodic mobility problems”.

Opening the speech written for him by ministers, Prince Charles said:

“My government’s priority is to grow and strengthen the economy and help ease the cost of living for families. My government will level up opportunity in all parts of the country and support more people into work.”

A total of 38 parliamentary Bills were announced. Here are the plans of interest to small businesses.

Local growth, high streets and ‘levelling up’

Levelling Up and Regeneration Bill

The new Levelling Up and Regeneration Bill will make law the government’s much trumpted ‘levelling up’ plans which aim to reduce the inequalities between different areas of the UK.

As Enterprise Nation previously reported, the Bill gives local councils in England new powers to force landlords to rent out shops that have been empty for at least a year by using compulsory rental auctions. The government says this “rejuvenate high streets and restores pride in local areas”.

In a policy paper outlining the Bill, the government said there will be a two-month notice period during which landlords can evidence a signed lease, and if none is presented, the local authority will be able to serve a final rental auction notice, triggering a two-month auction period for bidders to come forward.”

The change has been questioned for not properly tackling the problem of filling empty units due to the high cost of business rates.

Emma Jones, founder of Enterprise Nation, said:

“Every day an average of 50 shops close on the UK’s high streets. That’s a devastating blow that leaves a scar in its wake – which only adds to the problem of diminishing footfall in traditional bricks and mortar retail.

“At the other end of the scale, we are seeing increasing numbers of small businesses being started in the UK and with that a growing appetite amongst online-only retailers to test their product in a short-term physical space.

“While forcing landlords to accept bids might turn out to be very difficult to pull off because of the entrenched business rates issue – it’s a step in the right direction. What needs to happen now is to ensure local authorities understand the opportunity to embrace change – and help them to provide the support these small independent firms will need to make this work.”

The Bill will also:

  • make permanent the relaxing of pavement licensing rules that were introduced during the pandemic to make it easier for restaurants, pubs and bars to serve customers outside.
  • make it a legal duty for the government to report annually on its targets for reducing the inequalities between areas across the UK.

Public sector procurement

Procurement Bill

A new Procurement Bill promises to make it easier for small businesses to win public sector contracts.

The government says it will do this by “reforming the UK’s public procurement regime to create a simpler and more transparent system that better meets the country’s needs, rather than being based on transposed EU directives”.

There are currently more than 350 regulations governing public procurement which can put confused small businesses off from pitching for a contract. In a factsheet, the government said:

“Removing these and creating more sensible rules will not only reduce costs for businesses and the public sector, but also drive innovation by allowing buyers to tailor procurement to their exact needs, building in new stages such as demonstrations and testing prototypes.”

The Procurement Bill will:

  • introduce a single registration platform so suppliers to the public sector only have to submit their details once.
  • introduce a single central transparency platform to allows suppliers to see all procurement opportunities in one place.
  • as well as value for money, buyers will be required to take account of priorities such as job creation potential, improving supplier resilience and tackling climate change.
  • allow buyers to reserve competitions for contracts below a certain threshold for UK suppliers, SMEs and social enterprises.
  • put in place a new exclusions framework to “make it easier to exclude suppliers who have underperformed on other contracts”. In its response to a consultation last year, the government said this would include banning suppliers from winning public contracts if they deliver poor value or break the law such as a lax approach to safety or environmental concerns.
  • create a new “debarment register’”, accessible to all public sector organisations, which will list companies that should be excluded from winning contracts.

The Bill will apply to England, Wales and Northern Ireland.

Emma Jones, founder of Enterprise Nation, said:

“The government spends £300bn a year on procurement and we would be delighted to see more of this spend go to small businesses.

“This can happen through taking out the friction of some of the application processes, reviewing the merits of the Social Value Act which can favour larger businesses with deeper pockets, and encouraging more small firms to sell to government via the major suppliers.

“Developments such as Contractsfinder have been warmly welcomed by the small business community and taking further steps such as a single sign-on application will ensure that more small business owners have the time to look for relevant opportunities and apply for them with greater ease.”

Brexit and international trade

Brexit Freedoms Bill

The Brexit Freedoms Bill will allow the government to overhaul EU laws that are still in force in the UK.

New powers will ensure “EU law can be amended, repealed or replaced with legislation which better suits the UK, without this taking decades of parliamentary time to achieve”.

The government says the change will cut “£1 billion of burdensome EU red tape for businesses” and create “a regulatory environment that encourages prosperity, innovation [and] entrepreneurship”.

Trade (Australia and New Zealand) Bill

The Queen’s Speech also includes measures on international trade post-Brexit. The Trade (Australia and New Zealand) Bill will make changes to the UK’s domestic procurement regulations so businesses can benefit from free trade agreements with Australia and New Zealand.

The government said: “the UK-Australia and UK-New Zealand Free Trade Agreements will benefit all parts of the UK, delivering economic opportunities across a range of sectors and businesses including for financial services in Scotland, distillers in Northern Ireland, aerospace manufacturers in the West Midlands, fintech in Wales and carmakers in the North East”.

Business rates

Non-Domestic Rating Bill

Reform of business rates has long been demanded. In the Non-Domestic Rating Bill, which applies to England and Wales, the government says it “review and create a fairer, more accurate business rates system, meaning businesses will have the confidence they are paying the right tax”.

The reforms include:

  • shortening the business rates revaluation cycle from five to three years from 2023.
  • creating a power for the Valuation Office Agency to provide ratepayers with information on the calculation of their rateable value.
  • incentivise business ratepayers to invest in their properties and decarbonise with new government reliefs.

Digital and media

Draft Digital Markets, Competition and Consumer Bill

The draft Digital Markets, Competition and Consumer Bill will “boost competition by introducing a new regime to address the far-reaching market power of a small number of very powerful tech firms”. It would give statutory powers to the new Digital Markets Unit to enforce competitions rules on companies such as Google and Facebook.

The changes include requiring technology firms to warn smaller businesses about changes to their algorithms which impact on website traffic and business revenue.

The Bill will also update consumer law to tackle the problem of fake online product reviews. The Queen’s Speech briefing notes quotes 2015 research which estimated £23bn of purchases a year are influenced by online reviews, estimates showing that up to 50% of reviews on popular e-commerce websites are not genuine and that fake reviews make consumers more than twice as likely to choose poor-quality products.

Data Reform Bill

The Data Reform Bill will replace EU regulations on data protection. The government says it will “increase the competitiveness and efficiencies of UK businesses by reducing the burdens they face, for example by creating a data protection framework that is focused on privacy outcomes rather than box-ticking”. It claims the changes will create over £1bn in business savings over 10 years.

Electronic Trade Documents Bill

The Electronic Trade Documents Bill will put electronic trade documents on the same legal footing as paper documents which the government says “removes the need for wasteful paperwork and needless bureaucracy”, while enabling “businesses to move from paper-based to digital-based transactions when buying and selling internationally”.

This will update long-standing statutes such as the Bills of Exchange Act 1882 and the Carriage of Goods by Sea Act 1992.

An estimated 28.5 billion paper trade documents are currently used each year. The Digital Container Shipping Association estimates that if 50% of the container shipping industry were to adopt electronic bills of lading, the collective global savings would be round £3bn. According to CargoX, transferring a paper-based trade document can take seven to 19 days, whereas processing the document electronically reduces this to as short as 20 seconds.

Economic crime and cyber security

Economic Crime and Corporate Transparency Bill

The Economic Crime and Corporate Transparency Bill will “tackle economic crime, including fraud and money-laundering, by delivering greater protections for consumers and businesses, boosting the UK’s defences, and allowing legitimate businesses to thrive”.

Among the measures are:

  • broadening the powers of Companies House so it becomes a “more active gatekeeper over company creation and custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the company register”.
  • introducing identity verification for people who manage, own and control companies and other UK registered entities to “improve the accuracy of Companies House data”.

Product Security and Telecommunications Infrastructure Bill

The Product Security and Telecommunications Infrastructure Bill aims to “improve cyber resilience and digital connectivity for individuals and businesses”.

The original article was published on Enterprise Nation.

Am I employed, self-employed, both, or neither?

Whether you are employed, self-employed, both or neither will make a difference to the amount of tax and National Insurance contributions (NIC) you pay, as well as how you pay. You need to know which of these apply to you, so that you can comply with your tax obligations and claim tax reliefs available to you. On this page, we tell you where you can find out more about employment status and discuss your position if you work through an intermediary like an agency, umbrella company or limited company.

Am I employed or self-employed?

When you start working for someone, it is their obligation to understand whether the law sees you as their employee or sees you as self-employed – your employment status – in order to decide whether they need to operate Pay As You Earn (PAYE) on your wages.

There is no straightforward legal definition of what it means to be employed or self-employed. There is information on the issues to consider and what to do if you are unsure if you are being treated as employed or self-employed properly, in the self-employment section. We also give more information on the following topics in that same section:

  • when you are likely to be employed;
  • when you are likely to be self-employed;
  • what to do if you are still unsure of your employment status;
  • whether you can be employed and self-employed at the same time;
  • whether you can be neither employed nor self-employed;
  • where you can find more information.

Employment status is also important for working out what employment law rights you have. Employment law status is different from tax law status. Tax law only recognises two types of status – employed and self-employed. For employment law, there are three potential statuses to consider – employee, ‘worker’ and self-employed.

Some information on deciding employment law status can be found on GOV.UK.

I am working through an agency – what is my position?

Some people find work through a temping agency.

In a typical temping agency situation, an agency will supply you to an ‘end client’. You will usually perform tasks under the day-to-day supervision of someone at the end client location but will send time sheets to the work agency, who will pay you.

Technically, you are usually neither an employee of the end client nor of the agency, however under a special tax law rule, the temping agency is usually deemed to be your employer (see below for an exception) and is responsible for deducting income tax and National Insurance contributions (NIC) under PAYE from the salary paid to you. They must also pay employer NIC. This is a cost to the temping agency, but it is usually covered in the fee that is charged to the end client by the agency.

In terms of employment law (which is a bit different from tax law) agency workers are usually ‘workers’ for employment law purposes (the category that falls somewhere between employee and self-employed) and as such are entitled to basic protections, such as being paid at least the national minimum wage (NMW) or national living wage and working time entitlements such as paid annual leave). You can find information on your rights as an agency worker on GOV.UK.

Under the Agency Workers Regulations (AWR), agency workers are also allowed to use any shared facilities (e.g. a staff canteen or childcare) from the first day they work in an assigned location. After 12 weeks’ continuous employment in the same role, agency workers get the same terms and conditions as permanent employees, including pay, working time, rest periods, night work, breaks and annual leave.

You can find out more about the AWR on GOV.UK. There are rules in place that aim to stop businesses from no longer using agency workers as they get near 12 weeks of continuous work. If you think you have been unfairly treated, you should contact ACAS on 0300 123 1100 (Text Relay 18001 0300 123 1100). There used to be an exemption from the 12 week rule where the agency worker was on a ‘pay between assignments’ contract, however from April 2020 this is no longer allowed.

⚠️ Note: If you are taken on by a temping agency on or after 6 April 2020, you will be entitled to a written statement of employment particulars on or before your first day. In addition, from 6 April 2020, agencies will be required to provide new agency workers with a document known as ‘a key information document’ prior to signing them up. This is intended to help agency workers understand how much they will be paid (once all the fees and deductions in the supply chain have been taken into account) and by whom (for example, an umbrella company) – so that they can make informed decisions about whether to take the work. You can find more information on GOV.UK

If you have a problem with a temping agency, then you can complain to the Employment Agencies Standards Inspectorate (EAS). You should also check if the agency is a member of a membership body for recruitment agencies such as the Recruitment and Employment Confederation (REC) and the Association of Professional Staffing Companies (APSCo), as they would probably be interested to hear of any problems with their members.

Introductory agencies

An introductory agency is one that assists you to find a permanent job by matching you with a potential engager. However it then has no further part to play in the arrangement and is not responsible for paying you after it has introduced you to a hirer. In this situation, it is for the engager you are matched with to pay you and also to decide if you are employed or self-employed and operate PAYE accordingly.

The special tax law rule mentioned above (where the temping agency has to operate PAYE) does not apply in genuine introductory agency situations. However, just because the special tax law rule mentioned above does not apply to make the agency your deemed employer, this does not mean that you are automatically self-employed for all purposes. All it means is that the agency is not your deemed employer. The engager you are matched with may still be your employer under general principles.

I incur lots of travel expenses as an agency worker – am I entitled to any tax relief?

Even though you may work on lots of different engagements and may incur substantial travel costs in getting to your various work locations, another special tax law rule says that agency workers are not normally entitled to tax relief on the travel and subsistence expenses they incur. This was one of the reasons for the emergence of umbrella companies in the temping industry – more on these below.

Travel expenses for agency workers are usually tax deductible if they are incurred while working (as opposed to getting to work) and include:

  • Trips from your assignment office or other work location to visit a customer or other workplace, and can also include travel directly from your home to visit a customer or to another workplace (unless the journey is practically the same as the journey from your home to your normal place of work, for example, because the customer lives near your office).
  • Travel expenses of those who have a ‘travelling appointment’ (that is, where the duties themselves inherently involve travelling) such as a delivery driver or meter reader, are also allowable. A person who holds a travelling appointment can get relief for all their travelling expenses (even where the journey starts from home!). Where he or she has to attend an office or depot at the start and end of the day to report in or receive instructions say, travel between there and home is not allowable.
  • Although not ‘travelling appointments’ as such, HMRC also accept that travel expenses of agency workers who undertake a number of different jobs for an end client on the same day are allowable. This rule is intended to cover people such as home care nurses or domestic cleaners. In these cases, HMRC say that they will accept that the cost of travel between different jobs on the same day is allowable, however they will not accept a deduction for the cost of travel from home to the first job of the day or to home from the last job of the day. (Note there has recently been a case where HMRC’s stance on this has been called into question.)
  • Following on from this, they also accept that when an agency worker incurs expenses in travelling between the premises of two or more end clients in the course of a day, the expenses of travelling from one to the other are allowable provided that the end clients were all obtained through the same agency, and the worker starts and finishes the day at his or her own home.


Neil lives in Reading and works for a construction temping agency. The agency arranges for him to work for a week as a labourer on a property development in the former athletes’ village in the Olympic Park. On day 3, he gets a call from the agency telling him to drop what he is doing (they have cleared it with the property developers) and spend the afternoon at the Maidenhead crossrail site as someone has phoned in sick and they urgently need an extra pair of hands. Neil gets in his car after his morning’s work in East London and drives about 66 miles round the M25 and up the M4 to Maidenhead. Generally, travelling expenses between two different ‘employments’ are not allowable, however under HMRC’s special rule they will probably accept a claim for the 66 miles in these circumstances. Neil can use the HMRC approved mileage rate of 45p per mile (for the first 10,000 miles and 25p thereafter), as the basis of his claim, worth £29.70. Neil can make a claim for tax relief at the end of the tax year, resulting in a tax refund of £5.94 (£29.70 @ 20%, as Neil is a basic rate taxpayer).

We provide further help and guidance on claiming back expenses, including a link to an annotated example of form P87 (the form you use to claim them), on our page What if I pay too much tax?.

Can I be a ‘self-employed’ agency worker?

Some temping agencies used to try to avoid having to operate PAYE for workers – this meant that their costs were reduced.

They did this by saying (or by using arrangements that said) that the worker was ’self-employed’, so that the worker has to pay their tax and NIC to HMRC themselves and there was no employer’s NIC to pay.

However, treating a worker as ‘self-employed’ when they should actually be treated as an ‘employee’ left the worker in a vulnerable position and meant that the government was losing money.

Since 6 April 2014, the government has tightened up the rules to prevent ‘employment intermediaries’ (temping agencies and other businesses involved in the supply chain), from being able to do this so easily. The special tax law rules essentially say that the only time an employment intermediary can escape operating PAYE is where the worker is under NO supervision, direction or control (or the right thereof) by any party as to the manner in which they undertake their work.

⚠️ Note: This test applies to agency workers working in the construction industry even though they often have their taxes deducted at source anyway (under CIS). Only if a worker is not caught under the supervision, direction or control test can an agency operate CIS rather than PAYE.

You can find HMRC’s guidance on supervision, direction or control on GOV.UK. It is likely that you would be under supervision, direction or control. Temping agencies are expected to report any payments made where they do not operate PAYE to HMRC. They also need to provide details of the workers and why PAYE was not used.

It may be tempting to turn a blind eye if PAYE is not being operated on your wages, as there may be perceived benefits to being ‘self-employed’. However, unless you are genuinely self-employed, it is best to tell the business paying you, that you want to be dealt with under PAYE, so as to protect yourself from any problems with HMRC later down the line. If they will not do this, you may decide to report them to HMRC so that their practices can be investigated.

You should be aware that recently, a variation of this arrangement is being used in the temporary worker industry. This ‘hybrid’ variation sees you being treated as an employee for tax purposes (so that PAYE is operated as is required under the special tax law rule) but you are being treated as self-employed for all other purposes.

This ‘elective deductions model’ or EDM, exploits the fact that employment law and tax law are different. In employment law you have three categories of person – employee, self-employed or ‘worker’. In tax law you only have employed and self-employed. Usually people have the same status for both employment law and tax law, however this is not always the case.

Self-employed people do not have the rights and protections that ‘workers’ have under employment law (remember agency workers are usually ‘workers’ and are very unlikely to be genuinely self-employed for employment law purposes). Putting workers in these ‘EDM’ arrangements saves the employment intermediaries concerned money, however, is unlikely to benefit you in any way at all (in particular your key rights like minimum wage, holiday pay and auto enrolment are bypassed). As such, you should think very carefully about accepting such terms and conditions.

How can I better manage my tax position if I am an agency worker?

Due to the way the system works, PAYE may not always operate smoothly for agency workers who change temping agencies a lot.


Jazz signs up for a marketing agency and starts an eight-month long assignment for them in April 2022 during which she earns £1,200 per month. A tax code of £1257L is allocated, which tells the agency she can have £1,048 of tax free pay each month and that tax of £30.40 is due on the rest (over eight months this equals £243.20). She has a few months off, then finds an assignment through another agency (she wants to stay on the books of the first agency in case they come up with a better role). Because this is technically a second job, a BR tax code will be allocated meaning 20% tax is deducted on every pound. She earns £250 a week for 8 weeks. Her weekly tax deductions are therefore £50 (£400 in total over the 8 weeks). At the end of the tax year, because of the availability of the £12,570 personal allowance, Jazz has overpaid £643.20 tax (that is, everything that was deducted). This will eventually be refunded to her by HMRC after the end of the tax year.

However, there are a number of simple things that agency workers can do to help ensure PAYE operates as smoothly as possible for them throughout the year:

  • If you have decided to finish with an agency, do not just assume that they will know to close down your payroll record once your last assignment has finished. Make sure you inform them you are leaving and request your P45. Unless you do this, the agency may consider that you are available for work and will keep you on ‘the books’ until they carry out a database cleansing exercise. This means 1) that you will not be able to provide your new employer with a P45, meaning an emergency tax code will need to be used and/or that 2) HMRC will have a ‘live’ employment record for you, meaning that they may consider a 20% flat rate deduction appropriate for your new job.
  • On the other hand, if you have not worked for an agency for a while, but don’t want your P45 – you should keep in touch with the agency, as if you don’t make contact for some time, then the agency may issue a P45 in line with HMRC’s guidance that unless an ‘irregular payment’ indicator is set on an employer’s payroll system for a particular employee, there will be an automatic cessation of the individual’s employment record should the employer stop sending payroll information for a period of time.
  • Sometimes the issue of a P45 by a former agency can be delayed (often due to large numbers of workers coming and going). It may be useful to know that by law, you must be issued with a P45 as soon as possible once you have finished your job. P45s may now also be issued electronically (for example as an email attachment) – hopefully making it easier for you to get it.
  • When you receive it, keep your P45 somewhere safe so you are able to provide it to your new employer – this may sound obvious, but please be aware that it is not possible for employers to issue duplicate P45s in the event that the original is lost or destroyed.
  • Where you do not provide a P45 or a starter checklist, emergency tax will likely take the form of a flat rate 20% deduction (code ‘0T’ – meaning you have no personal allowance allocated to you), even if you only have one job; however this can be displaced by providing your P45 or a starter checklist to your new employer.
  • If you are on the books of two agencies, consider if you can split your personal allowance (we explain more about this in our guidance on having multiple jobs).

What if I’m asked to work through an umbrella company?

Many agencies don’t like operating PAYE for the people they find work assignments for and so they ask them to work through an umbrella company, in order that the umbrella company can take on this function. See below for more information on umbrella companies.

A good agency should make sure the umbrella company they are handing you to meets all its legal responsibilities. They should also make sure they hand over sufficient funds to cover all the employment costs that the umbrella company will now have. This includes the gross pay rate advertised to you (‘the agency rate’) plus all of the costs of employment (for example holiday pay, employers NIC, auto enrolment costs) and the margin. These things together make the ‘umbrella company rate’ (the rate paid by the agency to the umbrella company). This money becomes the umbrella company’s income, from which they will then pay you your wage. It is important that you are clear on what rate your agency is quoting you to work through an umbrella – is it the ‘agency rate’ or is it the uplifted ‘umbrella company rate’. It should be the latter (uplifted rate).

The following example explains how this works:

Bob’s agency finds him an assignment for £175 a day (gross). On top of this, there are employment costs for the agency of about £55, meaning that the amount the end-client pays the agency is £230 (plus a margin). If the agency pays only the £175 to Bob’s umbrella company, then Bob is going to be very disappointed when he gets his first payslip, as he will see that all the umbrella’s employment costs have come out of the £175. Bob needs to make sure that the agency pays the umbrella the £230 they received from the end client.

Unfortunately, some agencies do not uplift the rates properly. Some can also be incentivised by a commission into encouraging you to join up to certain problematic umbrella companies (more on this below), and in these situations, if you are unhappy or uncertain about what you are being asked to sign up to, you should think very carefully about how to proceed.

I am working through an umbrella company: what is my position?

Sometimes an agency will ask you to work through an umbrella company. An umbrella company is an employment business that takes on agency workers as its own employees. Thus, if you are working through an umbrella company, you normally become an employee of the umbrella company. They then have to deal with your pay, tax, and other legal obligations, just like any other employer.

You can read more about umbrella companies in our factsheet on working through an umbrella company, which we have created in partnership with PRISM, a not for profit umbrella company representative body.

The factsheet covers a range of issues on which workers are likely to have questions including holiday entitlement and other employment right issues, the availability (or otherwise) of travel expense relief and why they may have been handed over to an umbrella company by an agency in the first place. It includes a helpful diagram explaining how umbrella companies work, a sample payslip to help demystify the sometimes confusing payslip entries and links to more help, including an article written for IWORK website, in which we explain some of the terminology used in the umbrella company sector for those new to this way of working.

Very importantly – on the basis that workers passed to an umbrella company should be offered an ‘umbrella company rate’, which should always be higher – it includes a ‘ready reckoner’ to help workers understand whether the rewards they are being offered through an umbrella company are roughly equivalent to what they might have otherwise received, once the various deductions the umbrella company has to make have been considered.

Travel and subsistence

Traditionally umbrella company employees enjoyed tax and NIC relief on their home to work travel expenses (something not available to agency workers), due to the special type of employment contract they worked under – an ‘overarching’ contract of employment (or an ‘umbrella’ contract).

Essentially, these contracts provided a framework within which a worker’s successive work locations could be turned into ‘temporary workplaces’, supporting the payment of non-taxable and non NICable home to work travel expenses to them by the umbrella company. To the extent that these expenses were paid to workers in lieu of ordinary taxable salary (as opposed to on top of it), there was also an employer NIC saving of 13.8% on the value of the expenses.

Since April 2016, the rules around relief for travel expenses from home to work if you work through an umbrella company have been really tightened up. You can read more about some problems with umbrella companies that led up to the April 2016 change in our report.

The April 2016 rules say that relief for home to work travel and subsistence expenses is restricted where a worker:

  • personally provides services to another person
  • is employed through an employment intermediary (such as an agency or umbrella company)
  • is under the supervision, direction or control (SDC) of any person in the supply chain (or the right thereof).

If all of the above apply, each engagement the worker undertakes will be a separate employment for the purposes of obtaining relief for travel and subsistence; that is, the overarching contract is ineffective (resulting in the same approach as is already applied to agency workers).

  • You should note that even where travel and subsistence expenses could still be allowed for tax purposes, for example because of multi-site visits, different rules mean that an umbrella company should probably not be reimbursing your expenses (apart from, possibly, mileage expenses) on a tax and National Insurance free basis as part of your normal pay.

But all of this makes it more expensive for the umbrella company to employ you as they cannot claim employer’s NIC relief on your travel expenses.

To get round the new rules, some unscrupulous businesses may try and say that you are not under the supervision, direction or control of any person (which would be highly unlikely unless you are genuinely self-employed) so they can continue making use of the special mileage expense rules; or even try and pay you in ‘loans’ or use other non-compliant arrangements such as those we describe below.

Non-compliant arrangements

There are a huge number of umbrella companies out there and so the marketplace is very competitive. In order to win customers and generate profits, they often come up with new models to try to get round the rules introduced by government.

In particular, at the moment (and in addition to the poor practices around ‘travel and subsistence’ we are aware of as described above) we understand that the following non-compliant umbrella company models are currently in operation for low paid workers:

Elective deductions model: as explained above. This is a very harsh model which does not benefit workers at all. The problem, however, is that there is not an overarching body looking after employment law (HMRC only look after tax law). This makes the question of who people should complain to if they disagree with their employment law status unclear. (If you are affected, as a first step, you could try talking to ACAS or the Pay and Rights helpline.)

Wage theft: because of problems inherent in very short-term agency work when it comes to calculating holiday leave and pay, workers used to get extra pay on top of their hourly rate instead of being given paid holiday. However, this ‘rolled up’ system has now been deemed unlawful, meaning many umbrella companies accrue holiday pay for workers instead and pay it out at the time the annual leave is taken. If a worker is not on a rolled up system and leaves an umbrella company having taken fewer holidays than they are entitled to, they should be paid in lieu of the untaken holiday – but it is our understanding that this does not always happen. It seems there can also be problems if holidays aren’t taken by the end of the holiday year.

Cloning and Cyber attacks: Cloning and cyber attacks are two risks for workers to be aware of. We outline the risk in our February 2022 umbrella company market Call for Evidence response.

Mini-umbrella companies: this model sees the formation of lots of individual companies, often with foreign nationals as directors. On the face of it, all is well as the worker will be having PAYE operated. However, in the background, workers are being put into mini companies, where the Employment Allowance is being claimed inappropriately. Despite an HMRC spotlight, and media/press attention, we have recently heard of someone seemingly in mini umbrellas – the key giveaway is that each of their payslips had a different PAYE reference. Further guidance which should be useful for workers can be found on GOV.UK.

Payroll-fraud: it would appear that some umbrella companies are calculating and taking deductions from people’s pay based on one set of (proper) pay figures but are then understating these pay figures in their submissions to HMRC thereby reducing the tax/National Insurance amounts that are calculated and that they pay over. If you work through an umbrella company, it is a good idea to check your Personal Tax Account regularly to make sure that the pay and tax details being submitted to HMRC by the umbrella company match your payslips.

Non-taxable payments: some highly aggressive umbrella companies set up arrangements where, instead of receiving normal taxable pay, workers receive payment in the form of artificial ‘non-taxable’ loans, investment payments, grants, credits and so on. This is very likely to be disguised remuneration (tax avoidance) – we explain more about it in our news article Agency workers: being promised the world by an umbrella company? Don’t fall for it!.

Any umbrella company that appears to offer higher than expected take home pay should be avoided as it is likely that they are doing something that is just not right, which may include operating this type of arrangement. You need to be really vigilant about being offered payment in the form of loans, grants, advances etc. (even if the arrangement has a ‘QC’s opinion’ or appears to have been ‘approved’ by HMRC – both of which really mean very little in this context).

As explained at the end of our recent article, HMRC probably will not go after the umbrella company for unpaid tax (they may not be able to as the umbrella company could be based offshore or could simply fold); they will go after you.

Some umbrella companies may pay you in non-taxable elements without your knowledge, as we explain below. You need to be extremely wary about being exploited in this way.

(If you have been in loan arrangements in the past and are now affected by the ‘loan charge’, we have published a series of articles looking at the situation in some detail, what it is, what is happening and where to get help – you can find the date they were published under the title.)

How can I avoid getting caught up in disguised remuneration?

Sometimes umbrella companies use disguised remuneration arrangements to pay their employees without making it clear that they are doing this. Such arrangements reduce their employer costs and obligations so there is a benefit to them of doing this.

Some possible warning signs of disguised remuneration schemes for you to be wary of are:

  • Arrangements that offer to let you keep more of your pay than you normally would
  • A contract of employment showing that you’ll only be paid the National Minimum Wage, when you know you’ll be paid more than that
  • An agreement where you get payments that you are told are not taxable
  • Perhaps receiving more than one payment into your bank account each pay period
  • Perhaps paying a hefty fee – which you won’t be able to get back if the arrangements don’t work
  • Confusing or unclear paperwork (contract/payslips etc.) – or none at all
  • Information in your Personal Tax Account about the pay and tax details being submitted to HMRC by the umbrella company that do not match what you are being paid per your bank statements.

We set out the problem in more detail and what to do if you think you are in a disguised remuneration scheme in a previous article.

Not all umbrella companies act non-compliantly, but you should ensure you check any arrangements carefully. If you have concerns about a certain umbrella company, you should ask if you could use a different one. You should be aware that some agencies are incentivised by a commission into encouraging you to join up to certain umbrella companies, so they may push back. If this happens, you need to think very carefully about how to proceed. You may decide to report them to HMRC so that their practices can be investigated.

You should also check if the umbrella company is a member of a membership body such as Professional Passport or the Freelancer & Contractor Services Association (FCSA), as they would probably be interested to hear of any problems with their members.

If you are in an umbrella arrangement that you do not understand or that seems different to what we have covered here, please let us know, as this will be very useful to feed into our work.

Where can I find more information on umbrella companies?

We published a factual report looking at the umbrella marketplace in 2021. The title is: ‘Labour Market Intermediaries: A technical report outlining how umbrella companies and other intermediaries operate in the labour market and the implications for workers who use them’.

The purpose of this report is to look at two areas:

  • The nature and scale of the use of labour market intermediaries, for the large part, focusing on better understanding the use of umbrella companies.
  • The nature and scale of the use of disguised remuneration schemes that are used to pay workers instead of traditional wages.
  • The report will be useful for a wide variety of stakeholders – including workers – who we hope will be able to use it to help inform themselves, navigate the system and protect themselves.

Tips on umbrella company working from LITRG

We are concerned about the lack of understanding about how umbrella companies work by the workers who use them. We are offering people the following tips on how to find a safe, compliant umbrella company. These tips come from what we have learnt through our research into the marketplace.

  • There is no single definition of an umbrella company. Anyone can set up a company and label itself an umbrella company. Some umbrella companies are not compliant with employment and tax law and the sector is currently unregulated. It is vital that you are on guard.
  • In particular, be aware that some agencies are incentivised by a commission into encouraging you to join up to certain umbrella companies. Do not go with an umbrella company just because it is on your agency’s Preferred Supplier List, or just because it has certain accreditations – you still need to do your research thoroughly.
  • Be clear on what rate your agency is quoting you to work through an umbrella – is it the PAYE rate (the rate they would pay you if you worked through them) or is it the ‘uplifted’ rate (that is, the PAYE rate plus all the ‘on top’ employment costs the umbrella company will now have). As stated above, It should be the latter (uplifted rate).
  • Make sure your umbrella company is not a disguised remuneration scheme! As explained at the end of our recent article, HMRC probably will not go after the umbrella company for unpaid tax; they will go after you.
  • Make sure you do not get caught up with problematic ‘mini’ umbrella companies. There are obvious impacts to the Exchequer but also to you – as you will never be with any one employer long enough to accrue any rights, and you will have an unusual and fragmented employment record, which could impact on you in many ways.
  • Check how the umbrella company will deal with your holiday pay – if it is not on a ‘rolled up’ basis ask them to confirm the circumstances in which you may lose the holiday pay (for example, if you do not request it before the end of the holiday year). If you leave the umbrella company, ask them to confirm that all outstanding holiday pay will be paid to you with your final payment.
  • Do not get swayed by all the different ‘perks’ that may be advertised. Some of these may be worth very little, for example, same day bank transfers (which are pretty standard these days), or may not be relevant to you (for example, tailored mortgage deals). Some may carry an extra cost over and above the standard ‘margin’.

I work through a limited company: what is my position?

If you supply your services via your own limited company, you may do this, or have been asked to do this (by an agency or umbrella company for example), for many different reasons. But one of the main ones is that it can result in significant tax and National Insurance savings, as compared to being taxed like an ordinary employee, for both you and others in the supply chain that you supply your services in.

The cost savings arise for you because basically, you can receive income from the company as dividends, which are taxed more beneficially then salary. Cost savings arise for others in the supply chain, because if an agency or umbrella pays a limited company rather than a worker, then it is a business to business transaction and they do not have any ‘employer’ costs or responsibilities. There can also be an additional revenue stream created, from the fact that most workers in limited companies will need help from an accountant with running the limited company and so can be charged for this service.

However, setting up a limited (Ltd) company is very different from working through an agency or umbrella or just being an employee or self-employed.

A business which is run as a Ltd company will be owned and operated by the company itself. The company is recognised in law as having an existence which is separate from the person who formed the company and from the directors/shareholders. A company is liable to corporation tax on all ‘profits’. A company must file accounts in a specific format to Companies House and file corporation tax returns to HMRC.

In your personal capacity, you will be a director/shareholder of the Ltd company and also the person that the company hires out to provide services (you would usually set yourself up as an employee of the company to do this). As such, you may be receiving income from the company in the form of a salary and/or dividends (which are taxed at more beneficial rates than salary).

In this situation, the end client that you work for will pay your Ltd company for its services (or will pay the agency/umbrella company who will then pay your Ltd company), usually on production of an invoice (they should not pay you in your personal capacity). The Ltd company will have to run a payroll to process your salary correctly under PAYE and you should probably be completing personal tax returns to declare dividend income and pay any income taxes.

For general information on working through a Ltd company, see our dedicated page.

If you work through an agency or umbrella company and aren’t sure if you are also currently working through a Ltd company, you should double check with the agency or umbrella company. You could also search for your name on the Companies House website.

IR35/Off payroll working rules

If your Ltd company is not supplying goods, but services – your own services, for instance you are a IT contractor, care worker, teacher or labourer then things can get complicated. This is because your company will be a ‘Personal Services Company’ and you will have to consider the impact of the intermediaries legislation (commonly known as IR35 / the off payroll working rules). These rules ensure that individuals who effectively work as employees are taxed as employees, even if they choose to structure their work through a Ltd company.

Under IR35, if you would be an employee of the end client you are working for, but for the Ltd company (there is a tool on GOV.UK to help you decide this), then the Ltd company is supposed to tell HMRC and potentially pay them some extra tax. This will usually apply where money has been taken out of the company in the form of dividends – to make up for the fact that they are taxed more beneficially than salary. You can find an overview of the IR35 rules on GOV.UK.

Please note, these rules are particularly complicated and professional advice would be needed if this applies.

Because historically, IR35 has not been complied with or enforced consistently by HMRC, since April 2017, if a person is working through their own Ltd company in the public sector, then they are no longer in charge of determining if IR35 applies. The IR35 determination now falls to the public body and if it applies, PAYE tax and NIC are withheld at source on any payments to the Ltd company (even if the Ltd company is paid by an agency or umbrella company rather than the public body).

You can find more information about working through an intermediary in the public sector on GOV.UK.

The public sector reforms have been extended to the private sector from April 2021 (delayed from April 2020) but they only affect workers in Ltd companies that supply their services to medium and large size businesses (that is, those that meet two or more of the following conditions: annual turnover of more than £10.2 million, a balance sheet total of more than £5.1 million, more than 50 employees).

Those providing their services to ‘small’ clients in the private sector (as well as individuals, for example, homeowners needing an electrician or gardener) will still need to consider whether the old IR35 rules apply to them – these do not just fall away altogether post April 2021. In fact it is foreseeable that the old rules may start being better enforced after April 2021 – so you need to make sure you are clear on whether your client is ‘small’ and if so, what the IR35 rules mean for you.

More detail on off payroll working in the private sector

You can find a factsheet and summary of the new rules on GOV.UK. HMRC’s technical guidance can be found here.

Basically, the new rules in the private sector say that if you look like an employee for the medium or large end client that you work for in the private sector, then you should pay tax like an employee. However, because it is only a ‘deemed’ employment relationship, you will not get any of the employment rights that usually go along with being an employee.

This means that PAYE tax and National Insurance will have to be operated on the amount paid to the company for your services, by whichever entity is responsible for paying your Ltd company (this will probably be the agency or umbrella company). You should then be able to draw out the money from the company as either a salary or dividends without further deductions. You can read more about the requirements on GOV.UK. Further help and support with the changes from April 2021, including things like webinars, is available from HMRC.

The end client that you work for is responsible for deciding whether you look like an employee (as opposed to a genuinely self-employed person), by applying the general ‘status’ tests. They then need to pass the result to the entity responsible for paying your Ltd company so that PAYE can be operated as appropriate. If you are a lower-paid worker, you are not likely to have much autonomy over the work that you do for them, so you will probably be determined to look like an employee.

This is really the key difference between the new rules and the old rules. Under the old IR35 rules, the decision as to whether you look like an employee or not rests with your own Ltd company, whereas under the new rules, the end client makes the decision instead (with ramifications if they get things wrong). This makes it much more likely that the rules will be applied properly and that everyone will then pay the correct amount of tax and National Insurance in accordance with the law.

Indeed, the change from April 2021 is expected to affect how much tax hundreds of thousands of those people pay. As a result, some of those affected may decide to shift away from working through their own Ltd companies. If you work through an agency or umbrella company and have a Ltd company set up, you need to make sure you are clear on what will happen after 6 April 2021, for example, whether you will still be required to work through the Ltd company or not.

Things to note if you stop using a Ltd company after April 2021

If you fall under the new rules, post April 2021 the cost savings you may have received until now will disappear, so working through a Ltd company therefore becomes much less attractive, especially when you consider all the admin and hassle that usually goes with running a Ltd company. (Indeed, there will be so much potential cost and complexity in supply chains involving Ltd companies, that if you are a lower paid worker being asked to work through one post April 2021 – you probably need to ask yourself why.)

Therefore, you may wish to, or be asked to, stop working through your own Ltd company. Your options are then to try and get taken on directly by the end client as an employee, or carry on working ‘flexibly’, via agencies for example, but under PAYE. This will usually mean that you will need to work through an umbrella company, as agencies do not usually operate PAYE on workers’ wages themselves.

If you are asked to work through an umbrella company, please be very wary of the potential problems with umbrella companies we outline above.

If you stop working through your own Ltd company, you also need to take steps to ensure that your old Ltd company will be closed down properly.

If you are paying for accountancy services, arranged perhaps by an entity in the supply chain, you should be aware that they may not be prepared to deal with the winding up of the Ltd company as part of their normal fee. You should also consider whether there will be costs involved in terminating the accountancy services (particularly if you have signed up to pay for a ‘package’ of services on an ongoing basis).

These ‘extra’ costs may be unwelcome but the bottom line is that if you do not make sure that the Ltd company is closed down properly, you could be left with messy Ltd company and corporation tax compliance issues that could follow you around for many years.

Independent, professional advice may ultimately be needed.

This article was originally published on LITRG

ESG Training – Become a Leader in Environmental, Social & Governance

ESG Training – Become a Leader in Environmental, Social & Governance

ESG training, increasing your understanding of environmental, social and governance, can make a world of difference. ESG impacts how your company performs; it affects the planet and people and contributes to a better society. ESG is going to dominate many major business decisions for decades.

The Corporate Governance Institute has created, along with leading, global ESG experts and partners, the first self-paced, fully online certificate in ESG.

This certificate was created and developed by directors for directors. Click here to learn more about the first ESG for Directors certification and download the course brochure.

You can now become the champion in your organisation who brings practical ESG insight to address the environmental, social and governance factors already impacting your business.

Bring your knowledge of ESG to the next level. You will learn:

  • Key ESG concepts: Gain a solid understanding of ESG and be in a position to share the multiple opportunities with your board.
  • ESG investing: Take an in-depth look at the organisations approaching ESG effectively, how they are gaining from this and the strategies your board needs to adopt for similar gains.
  • ESG data: Be clear about the need for quality ESG data and how to interpret it. Learn the best ways to incorporate ESG and sustainability reporting in your organisation.
  • Performance: Learn how to persuade the board to build an ESG integrated organisation that links processes, systems and culture to core ESG values.

What is ESG, and why should businesses care?

ESG is how a company behaves itself when it comes to the environment, the people it interacts with and the wider community it which it operates. Investors, business leaders, employees, and the general public increasingly care about environmental, social, and corporate governance issues.

Some companies are already making strides towards meeting significant ESG goals; others are earlier in their process.

This guide is meant to set the ESG table for boards still in the early stages of addressing the issues.

ESG stands for environmental, social, governance

ESG stands for “environmental, social, governance” and is a set of non-financial corporate performance indicators being used to measure the impact that companies have on the environment, their people, and society.

While many third parties are working to address this issue, there is no universally adopted framework for measuring and reporting ESG.

Large investors like BlackRock are increasingly more interested in corporations that support societal goals rather than focusing narrowly on shareholder returns.

ESG training is about the world and its people, not just profits

BlackRock CEO Larry Fink wrote in 2022 that corporations should aim to maximise their positive social impact and shareholder value.

In 2019, nearly 200 CEOs of the United States’ largest companies rejected a decades-old policy that defined a corporation’s primary purpose as shareholder return.

Their new purpose would be to “not just serve their shareholders, but also deliver value to their customers, invest in their employees, deal fairly with suppliers, and support the communities in which they operate”.

According to a 2020 McKinsey study, 83% of executives and investors expect ESG programs to provide more shareholder value in five years than today.

ESG training can drive shareholder value

Another factor driving ESG is employee expectations. Employees expect more from their employers. They are also more willing to use their power.

You can look at Google’s global walkout in 2018 as an example, in which 20,000 employees walked out of work to shed light on harassment and discrimination inside the company.

Due to all these factors, companies that don’t focus on ESG may soon find themselves at a competitive disadvantage.

What are the three pillars of ESG?

Let’s briefly look at the highlights of the three pillars within ESG: environmental, social, and governance.


The environmental aspect of ESG examines how a business impacts the environment. Everything from a company’s operations to the natural resources and every step it takes in the supply chain can be included.

Many corporations find it difficult to disclose climate-related information. The fact that industry-specific standards are evolving and indeed converging is positive.


The social component, by far the most challenging of the three, relates to how a company navigates its workforce and its place and activities in the context of society at large, including politics.

In the “S” category, major movements like #MeToo and Black Lives Matter are driving much of the narrative. These movements are propelling historically challenging issues to the forefront of corporate boardrooms.


Institutional investors and proxy advisory firms have focused on governance for such a long time that it is the most mature of the three pillars. Governance relates to how a company makes critical decisions and can include a broad range of issues, including board diversity, CEO succession, executive compensation, and more.

The next steps for the board

ESG reporting can seem like an enormous task. Boards are increasingly addressing ESG issues, with nominating and governance committees taking the lead.

First and foremost, it is imperative to understand what has already been said internally and externally about ESG and what steps are being taken to follow them up. Disclosure should be factual and not aspirational.

In a changing world, board members must have the ability to navigate new and updated thinking.

Boards must continue to engage with stakeholders on what ESG metrics are meaningful for their companies to measure and disclose.

This article originally featured on The Corporate Governance Institute

Assessing the Adjudication Pilot

Assessing the Adjudication Pilot

This article provides a summary of the outcome of a review and evaluation of the Professional Negligence Adjudication Scheme (the scheme) pilot, which concluded in November 2017 and was subsequently approved by the Civil Procedure Rule Committee in 2018. Paragraph 6(i) of the protocol now states that the letter of claim should, inter alia, include: ‘An indication of whether the claimant wishes to refer the dispute to adjudication. If they do, they should propose three adjudicators or seek a nomination from the nominating body. If they do not wish to refer the dispute to adjudication, they should give reasons.’
picture of Masood ahmed

1. The working party

At the direction of the then master of the rolls, Lord Dyson, a working party was set up in 2015 which included representatives from the Ministry of Justice, the Professional Negligence Lawyers Association, Professional Negligence Bar Association and the Association of British Insurers. I was appointed as the independent reviewer to consider and evaluate the scheme and make any necessary recommendations. The pilot was relaunched in May 2016 under the supervision of Mrs Justice Carr and Mr Justice Fraser and ran for about 20 months.

2. Rationale behind the scheme

The scheme is a novel alternative dispute resolution (ADR) procedure for professional negligence disputes which is entirely voluntary. It is an idea based upon the statutory adjudication scheme which enables parties to a construction dispute to obtain a swift interim decision on disputes. The intention behind the scheme is to enable parties to a professional negligence dispute to obtain a quick adjudication of their dispute, at relatively minimal cost, which will be binding upon the parties, unless one or both of them wish to take the matter to a court or an arbitration hearing.

3. Scheme documents, structure and main features

The scheme documents comprise the Scheme Rules; Guidance Notes; and the Standard Terms of Instruction for Adjudicator.

The essential features of the scheme are as follows:

  • The parties must agree in writing that a dispute will be referred to adjudication and be bound by the scheme rules. Although participation in the scheme is entirely voluntary, once committed the parties are required to see the process through.
  • Once the parties have agreed to participate, an adjudicator will be selected by the chair of the PNBA from a panel of barristers who specialise in professional negligence disputes. However, the parties are at liberty to bypass the appointing body altogether if they jointly agree on an adjudicator and that person has agreed to act.
  • The adjudicator will ask for evidence and written submissions from the parties.
  • Within 56 days of their appointment the adjudicator will provide a reasoned written decision which will be legally binding upon the parties unless and until altered by a court or arbitral tribunal (unless the parties have opted for finality).
  • The parties will be jointly liable for the adjudicator’s costs, which will be within a set limit. The Guidance Notes provide a helpful table by way of guidance on the likely costs that may be incurred.
  • Although the process of adjudication is intended to be confidential, the adjudicator’s decision will not be confidential unless the parties agree otherwise. The Guidance Notes explain that the rationale for this is that many claimants and defendants ascribe value to the notion of public evaluation or declaration and therefore the decision does not remain confidential once rendered. It should, however, be noted that the parties are at liberty to opt for confidentiality from the outset.

Not every professional negligence dispute will be suitable for the scheme. For example, disputes which genuinely require complex expert evidence to enable a decision to be made on issues of breach of duty or causation may not be suitable and for these reasons the scheme is not suitable for medical negligence disputes.

4. Summary of feedback

Written feedback was obtained from claimant solicitors, defendant solicitors, insurers and adjudicators. This was followed by detailed telephone interviews. At the time of writing the report in November 2017, a total of 45 proposals had been made to the scheme. Of those, 33 were made by defendants and 12 had been made by claimants. There were a total of six accepted proposals and five completed adjudications. Following the confirmation of the review and evaluation report, a total of seven cases successfully went through the pilot.

Feedback from scheme cases

The claimant solicitors spoke positively of the structure of the scheme, the clarity of the documents, the effectiveness of the timeframes and the decision which was rendered. It was noted that the scheme allowed deadlocks on issues such as quantum and causation to be broken, and provided a means of settling an otherwise lengthy and costly dispute. The defendant solicitors also spoke positively of their experience with the scheme. Because trial was the only alternative, which would have cost far more in legal fees, the defendant solicitors felt the scheme provided the parties with a quick and cost-effective means of resolving their differences. It also helped the parties to avoid having to incur substantial costs in carrying out extensive disclosure and preparing witness statements. The defendant solicitors stated that the scheme had provided the parties with the flexibility to agree to limit the issues to be decided by the adjudicator.

Adjudicator feedback

The adjudicators provided feedback of their own experiences as well as obtaining feedback from the parties on cases which had successfully been through the scheme. The adjudicators indicated that the appointment procedure was clear and effective, and that the timeframes were realistic and met the policy objectives of the adjudication process (which was to provide the parties with a quick decision). The adjudicators observed that the scheme proved successful in providing parties with a clear answer to the disputed issues. In all of the cases proceeding through the scheme, the parties opted for a binding decision rather than a temporarily binding decision.

Insurer market feedback

Interviews with insurers indicated that although they preferred mediation over litigation, they considered that the scheme was a useful alternative to mediation in certain cases. It was also stated that insurers were actively encouraging defendant solicitors to consider and make proposals to the scheme.

5. Recommendations and amendments

I made a number of recommendations. The two most important concerned the following:

(i) ADR compulsion

Some claimant solicitors indicated that there should be an element of compelling the parties to engage, because some parties simply ignored an invitation to engage with the scheme. Clearly, ignoring an invitation to ADR, whether mediation, the scheme or any other form of settlement procedure, may attract adverse cost consequences for the defaulting party (PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288 and Thakkar v Patel [2017] EWCA Civ 117).

Although litigating parties in England and Wales cannot be compelled to engage with ADR (Halsey v Milton Keynes NHS Trust [2004] EWCA Civ 576) they can be encouraged to engage with ADR and therefore the scheme. My recommendation, therefore, was to amend the Guidance Notes so that the extent of the parties’ ADR obligations within the civil justice system is made clearer. In particular, I recommended that the Guidance Notes be amended to make clear that: (i) there is a judicial expectation that the parties will constructively consider ADR; (ii) parties cannot simply ignore a proposal to refer the matter to adjudication, which will be considered as unreasonable conduct by the courts; and (iii) the courts may penalise parties for unreasonably refusing ADR. This recommendation is currently being worked on.

(ii) Adjudicator conflicts of interest

There was concern from some respondents regarding the potential for conflicts of interest arising between the panel adjudicators and their ‘day job’ in accepting instructions from panel firms specialising in high-quantity defendant professional negligence work from the same insurers. Here my recommendations to revisit and amend the existing provisions in the scheme to strengthen the provisions concerning disclosure by adjudicators of conflicts issues is currently being worked on.


As the results of the pilot indicate, the scheme provides disputing parties with a quick and effective adjudication of their dispute without the need to incur the potentially vast expense of seeking redress from the courts. The scheme’s flexible nature allows it to be adapted to the nature of particular disputes and can be used to break any deadlocks on difficult legal issues which would otherwise cause the parties to issue proceedings. The scheme has been and will continue to be a success, as more solicitors and insurers recommend it in the resolution of professional negligence disputes.

The original version of this article was first published in The Law Society Gazette by Masood Ahmed

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Corporate Financial Frictions and Employee Mental Health

Corporate Financial Frictions and Employee Mental Health

A growing amount of literature documents that binding financial constraints during economic distress or financial distress, including impending bankruptcy, can have an adverse effect on firms’ human capital. During economic distress, firms suffering from financial frictions might dismiss short-tenured employees with high future expected productivity due to their relatively low severance pay (Caggese, Cuñat and Metzger, 2019). On the other hand, workers with the highest cognitive and non-cognitive skills might also leave financially distressed firms voluntarily (Baghai, Silva, Thell, and Vig, 2016), while talented job applicants might be reluctant to join (Brown and Matsa, 2016).

In our recent paper entitled ‘Corporate Financial Constraints and Employee Mental Health’, we document a novel cost of financial constraints on firms’ human capital: we provide evidence that financial constraints during an episode of economic distress can have an adverse effect on employee mental health. Deteriorating employee mental health is not only a personal concern of employees but also a concern for firms as mental health is an important determinant of labor productivity. To study the effects of financial constraints on employee mental health, we build a rich dataset based on administrative microdata from the Netherlands that links firm-level financial data to employee-level antidepressant use. Antidepressants are frequently prescribed as a first line of treatment for mental health complaints including major depression disorder and anxiety disorders as well. To identify the causal effects of financial constraints, we exploit variation in firms’ need to refinance their long-term debt in 2008, a period when refinancing became more difficult due to the credit crunch. The Netherlands is an ideal laboratory for this exercise as the country experienced a strong negative bank credit supply shock in 2007-2008, and bank lending is the main source of external financing for Dutch firms.

We find that employees of firms that had to repay a higher share of their long-term debt in 2008—at least 25% of their outstanding long-term debt in our baseline specification—exhibited a 0.44 percentage points higher average probability of antidepressant use in the 2008-2012 period. This is an economically significant 9% increase with respect to the 5% average probability of antidepressant use in our sample.

A possible channel from financial constraints to deteriorating employee mental health is job loss or the threat of job loss. Several studies have documented that the credit crunch associated with the Global Financial Crisis had a negative effect on employment levels. We also find that employees of firms that had to repay a higher share of their long-term debt in 2008 had a 6.2 pp higher probability of job separation in the 2008-2010 period, whereas employees of these firms did not exhibit different turnover prior to the crisis.

While job loss is a potential transmission channel for employees who actually lost their jobs due to the binding financial constraints, the increasing threat of job insecurity could have also had an adverse mental health effect on employees who eventually managed to keep their positions. Arguably it is the mental health burden on this latter group that is of greater concern for employers given employee mental health’s role in labor productivity. We separately study this sub-sample of employees and estimate an average treatment effect on the probability of antidepressant use in the 2008-2012 period of 0.28 pp. This result indicates that much of the 0.44 pp total treatment effect accumulated at employees who managed to keep their job.

Treatment heterogeneity estimates also support the argument that job insecurity is a driver for greater antidepressant use for employees who stayed in their jobs. Based on the relevant economics and psychology literature we identify five personal/household characteristics that are expected to increase the mental health burden of job insecurity: older age, being male, having no partner, having children in the household, and having a salary that constitutes the larger part of the household income. When we interact our treatment indicator with these moderator characteristics, we find statistically significantly larger treatment effects for employees without a partner, those with at least one child in their household, and for employees whose salary constitutes a large share of their total household income. Treatment effects appear to be larger for employees who are at least 45 years old, but the difference is not statistically significant at any conventional level, whereas male and female employees appear to be similarly affected.

Our study contributes to two broad lines of literature. First, a growing literature in finance studies the effects of financial constraints on firms’ human capital. We combine firm-level financial data with rich employee-level data on antidepressant use to document a novel cost of financial constraints, their detrimental effect on employee mental health. We show that the mental health toll of financial constraints is not restricted to dismissed employees but is also substantial for employees who stay with the firm. As argued above, the mental health of employees, particularly of those not dismissed, should be a prime concern of firms due to mental illnesses’ burden on employee productivity.

Second, a large body of literature examines the health effects of financial and economic crises, and among other findings reports a negative correlation between unemployment rates and mental health status. We also study how employment relations contributed to the mental health of employees during a crisis period, but contrary to the previous literature, we use employer-employee matched data to disentangle the mental health effects of the financial crisis (credit supply shock) from the effects of the ensuing economic crisis (the Great Recession). Furthermore, we show that crisis periods may have an adverse mental health effect even on employees who manage to keep their jobs but who may suffer from decreased perceptions of job security.

Dániel Kárpáti is a PhD Student at the Department of Finance, Tilburg University.

Luc Renneboog is a Professor of Corporate Finance, Tilburg University, and a research member of the European Corporate Governance Institute (ECGI).

The original version of this article was first published in Personnel Today By Dániel Kárpáti, and Luc Renneboog

EE Employee Discrimination

EE Employee Discrimination With Mental Health Condition

An EE call centre agent with anxiety, depression and post-traumatic stress disorder (PTSD), who was told to ‘get a grip’ by her manager, was discriminated against because of reasons arising from her disability.

The Cardiff employment tribunal found that a line manager’s comments and behaviour when claimant Bethan Oakley was late returning from a lunch break caused her to become “extremely distressed”, despite his knowledge of her disability.

Oakley began working as a customer services representative at the telecom company’s offices in Merthyr Tydfil, South Wales, in October 2013.

In 2019, Gareth Roberts became Oakley’s line manager. She informed him that she had been attending counselling sessions via EE’s health and wellbeing provider. Her treatment notes confirmed she had been suffering with PTSD following the death of her father, which she had witnessed and to whom had delivered CPR. She regularly had nightmares about her father’s death, often became upset and overwhelmed at small things and cried for no reason.

At the tribunal it was accepted by Roberts that he understood and was aware of her mental health conditions, which amounted to a disability under the Equality Act 2010.

On 27 September 2019, Oakley accompanied a colleague to a sickness review meeting for moral support. The meeting was with Roberts and lasted two hours – an hour over what Oakley had expected. She missed her lunch break as a result.

As the canteen had closed by the time the meeting concluded, Roberts allowed her to take 30 minutes to get lunch off site.

When she returned, she went to her desk with her food. EE’s office had a policy that employees were not allowed to eat at their desks, but Oakley wanted to go through the callbacks and emails she had missed. Roberts told her she wasn’t allowed to eat at her desk and to go to a break out room to finish her lunch.

After no more than five minutes, Roberts entered the break out room to tell Oakley she was late. The claimant alleged he was aggressive towards her and stood over her while she cleared the table. He told her they were very busy and that she was in the break out room not doing her job.

‘Get a grip’

The claimant became upset and began to cry. She said she did not like the way Roberts was speaking to her and that she had already apologised for being late.

At that point, Roberts told her to “get a grip” and to “come on”. He told the tribunal that this latter comment was to reduce the tension in the room and accepted he could see she was upset. The claimant felt his behaviour was humiliating, which Roberts disputed at the tribunal.

Oakley returned to her desk and Roberts continued to argue with her about the fact that she had been late and that eating at desks was not allowed. When he left her desk after Oakley she did not want to speak to him, Oakley began to shake and had difficulty breathing. She told the tribunal this had been a panic attack.

She went into another break out room to calm down and a colleague, along with Roberts, entered. She told Roberts she did not want to speak to him and he said he wanted her back online in five minutes. The claimant said she would not be able to as she was too upset, at which point Roberts said she would have to take sick leave if she could not return to work. She left her shift early.

A few days later, Oakley sent a resignation letter to EE stating, “I was humiliated in front of everyone, being harassed and bullied into experiencing the worse panic attack of my life, something that I have never had happen to me previously in work”.

On 7 October 2019, after having had an email from EE that invited her to discuss the issues raised in her letter, she retracted her resignation and said she may have acted too hastily. She raised a grievance that suggested Roberts had harassed her and had “historical cases of abuse/harassment of other female staff with mental health issues/vulnerabilities in the workplace which have been covered up/neglected”. She also alleged she had been denied first aid care when she had a panic attack, but evidence given in the tribunal hearing suggested that she turned down first aid when it was offered.

Oakley refused to return to work until the issues were addressed and Roberts had received disciplinary action.

EE’s investigation concluded that Roberts’ actions were not discriminatory nor did they amount to harassment.

It partially upheld the claimant’s grievance about the “get a grip” comment and offered an apology.

The claimant resigned after finding a new job in December. In her resignation letter she suggested that the grievance outcome letter was inaccurate and that she was not given a chance to rebut the statements made by Roberts during the investigation.

Tribunal ruling

In the tribunal’s judgment last month, Employment Judge Havard said: “[The tribunal is] satisfied that the respondent treated the claimant unfavourably as a result of the way in which Mr Roberts spoke to, and behaved towards, the claimant. Such conduct not only caused the claimant to exhibit symptoms of distress/panic attack which led to her being unable to continue to work on the afternoon of 27 September 2019 but he continued to talk to her in an unacceptable way during the time that the claimant was exhibiting symptoms of distress.

“The tribunal also considered that the respondent treated the claimant unfavourably by Mr Roberts expecting the claimant to resume work in circumstances where she had demonstrated, and continued to demonstrate, symptoms of distress and panic attack and an inability to work.”

It agreed that the way she had acted arose as a consequence of her disability, which EE and Roberts had been aware of.

“It must have been evident to him that the claimant was a vulnerable individual. However, it was significant that, whilst he admitted that he knew the claimant was disabled, Mr Roberts stated that he would treat every employee under his leadership in exactly the same way,” the judgment added.

The tribunal upheld Oakley’s claim of constructive dismissal, wrongful dismissal, disability discrimination and disability-related harassment. Claims of sex harassment and victimisation were dismissed.

Compensation will be determined at a later hearing.

EE told Personnel Today it did not have a written statement in response to the tribunal’s findings.

The original version of this article was first published in Personnel Today By Ashleigh Webber