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Case study: the establishment of a new mutual company owned by an employee ownership trust

Peter Ware and Stephen Howe

2 – 6

Transparency and technical specifications

Alex Kynoch 7 – 9

State aid – does it really affect trade between member states?

Sharon Jones 10 – 13

Public rights of way and barriers to entry – an open and shut case?

Kassra Powles 14 – 17

Collective consultation and the meaning of establishment

Sarah Hooton 18 – 19

Increased roles for local authority magistrates’ court prosecutors

Carl May-Smith 20 - 22

Election 2015 – implications of the Conservative manifesto

Craig Elder 23 - 26

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Matter: the establishment of a new mutual company owned by an employee ownership trust

Background

The transaction related to an initiative by a central government department to spin out part of its

work to the private sector. Our client was one of the sub-contracting parties involved in this process.

Our client wished to establish itself as a mutual company, being a company that is owned mutually

by all the employees. Following consultation with Browne Jacobson LLP, it was decided that the

optimum structure for achieving mutual ownership would be via an employee ownership trust (EOT).

The EOT structure was particularly attractive because of the income tax benefits that can attach to

such a structure and the possibility this gave to benefit staff who had been subject to public sector

pay constraints for several years.

Employee ownership trusts - introduction

Employee ownership trusts are a new category of tax advantaged employee benefit trust which was

introduced by the Finance Act 2014.

It is important to emphasise that the employee ownership trust is designed for companies seeking

mutual ownership by all employees and is very different to most employee benefit trusts which are

generally concerned with providing rewards to a select section of the workforce.

Employee ownership trusts – tax advantages

There are three new tax reliefs that relate to EOTs as follows:

o Capital Gains Tax – where an individual contributes shares to an EOT, the individual is not

charged any capital gains tax on the transfer and the EOT acquires the shares at the

individual’s base cost.

o Inheritance Tax – any transfer of shares to an EOT will be exempt from inheritance tax.

In practice, for new mutual entities, the first two reliefs will be of minimal benefit as the company

will be of little or no value at that stage. However, the income tax relief is likely to be of interest to

new mutual companies whose workforces’ salaries have been subject to public sector pay constraints

and accordingly this note focuses on this relief.

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There are two aspects to the income tax relief:

o the mutual company must be owned by an EOT; and

o the qualifying bonus scheme must satisfy the further requirements attaching to any

qualifying bonus payments.

This note considers both these aspects in the context of a mutual company.

Employee ownership trusts – key requirements

The primary conditions for an EOT to satisfy are:

o the ‘all-employee benefit requirement’, which goes to ensuring that, subject to certain

limited exceptions, all employees must be able to benefit from the EOT

o the ‘equality requirement’, which goes to ensuring that all beneficiaries benefit on an

equal footing – it is not necessary that all beneficiaries receive equal benefits but the

rules/conditions apply equally, and

o the ‘controlling interest requirement’, which requires the underlying company to be

controlled by the EOT.

Each of these conditions is discussed below.

The all-employee benefit requirement

To qualify, the terms of the EOT trust deed must not:

o permit trust funds to be applied otherwise than for the benefit of all eligible employees of

the company or group on the same terms (the ‘equality requirement’)

o permit the trustee to get round the EOT restrictions by creating a new trust or transferring

the trust fund to the trustee of another trust (otherwise than as an authorised transfer –

which effectively means the trustees can only transfer the trust fund to another EOT)

o permit the trustee to make loans to beneficiaries

o permit any change to the trust which would cause it not to comply with any of the above

requirements

o permit persons holding 5% or more of the rights in, or any class of shares of, the company or

any company in the group to benefit from the EOT.

In summary, these restrictions are designed to ensure that the EOT cannot be used to favour just the

directors and senior employees of the mutual company, which is commonly the case for EBTs.

The equality requirement

The ‘equality requirement’ requires that the trust property must generally be applied for the benefit

of all eligible employees on the same terms. There are some exceptions, including:

o transfers to spouses or dependants are permitted where an eligible employee has died

o employees with less than 12 months continuous service can be excluded if required.

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Benefits can be determined by reference to pay, length of service or hours worked, provided the

criteria apply to all employees. However, the equality requirement will be infringed if the criteria

result in some of the eligible employees receiving no benefits.

The controlling interest requirement

In broad terms, the controlling interest requirement is that the EOT must hold more than 50% of the ordinary

share capital and voting rights of the company and be entitled to more than 50% of profits distributed and

assets on a winding up.

Income Tax – relief for qualifying bonus payments of up to £3,600

(‘Qualifying Bonus Payments’) – qualifying conditions

The relief allows for bonuses of up to £3,600 per employee per tax year to be paid free of income

tax. Note that this relief does not extend to the Class 1 National Insurance Contributions that are

due on the bonus payments.

The ‘qualifying bonus payments’ are payments made by the employer and not from the EOT.

The qualifying bonus payment:

o cannot be regular salary or wages

o must be awarded pursuant to a separate scheme (‘the Scheme’) which itself meets the

‘equality requirement’ and the ‘participation requirement’

o if made to a former employee, must be made within 12 months of the leaving date, and

o must not be made under an arrangement which the employee gives up the right to receive

salary, wages or any other type of employment income in return for the award (i.e. no salary

sacrifice is permissible).

As far as the employer is concerned, in the period of 12 months ending with the date any payment is

made, it must:

o meet the ‘trading requirement’ (which essentially means the mutual company, or its group,

must be trading)

o meet the ‘indirect employee-ownership requirement’ (meaning it must be primarily be

owned by the EOT)

o meet the ‘officer-holder requirement’, and

o not be a service company.

(N.B. in respect of the 12 month qualifying period, there is a relaxation for companies that have in

that period established EOTs and thereby satisfy the indirect employee-ownership requirement).

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Participation requirement

In order to satisfy this requirement, all employees when any award is determined must be eligible to

participate. There are some exceptions as follows:

employees with less than 12 months of service can be excluded from the award

subject to certain conditions, employees subject to disciplinary proceedings can be excluded.

Equality requirement

As with the EOT itself, the scheme pursuant to which the qualifying bonus payments are made must

also satisfy an equality requirement. This essentially means that every employee who participates

under an award under the Scheme does so on equal terms.

Equal terms does not mean equal payments and you are allowed to design your Scheme to determine

any award by reference to:

o an employee’s remuneration;

o an employee’s length of service; or

o hours worked.

It is very important to note that:

o these are the only permitted factors;

o you cannot use these factors to exclude employees from benefitting (the only permitted

exclusions are set out above in relation to the participation requirement). So in other words,

you could not have a de minimis of, say, £20K salary or a minimum number of hours worked

in your Scheme as this will exclude employees from any award.

An anti-avoidance point to note here is that the equality requirement will be infringed where your

Scheme has, or is likely to have, the effect of conferring benefits wholly or mainly on:

o directors or former directors;

o employees receiving the higher or highest levels of remuneration; or

o employees working in only one part of the business.

Indirect employee-ownership requirement

In order to satisfy this requirement, the EOT must:

o meet the ‘controlling interest requirement’ in respect of the mutual company (or if there is

a group, the principal company of the group); and

o the EOT itself must satisfy the ‘all-employee benefit requirement’.

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The office-holder requirement

This requirement relates to the composition of the class of employees of the company. Essentially,

the requirement is there to stop a company which is run by a very close group of persons claiming

tax relief via an EOT.

The requirement is that no more than 40% of the work force may comprise directors or other office

holders (or other employees who are connected to them – essentially family relations). If you exceed

this limit then the income tax relief will be denied.

Summary

There are several conditions attaching to EOTs which means that such trusts are certainly less

flexible than traditional EBTs. Having said that, if it is remembered that the spirit of the EOT is to

facilitate the collective ownership of shares by employees, then forgoing conditions attaching to the

EOT make sense in that context of a mutual company.

A particular attraction in the context of mutual companies recently established whose workforce

comprises staff who have been subject to prolong public sector pay constraints, is the ability to pay

bonuses of up to £3,600 per employee per annum free of income tax.

If an EOT model is to be adopted, it will be useful to carefully consider how the trustee

will be controlled by the board or directors and the general workforce. It will also be

useful to consider the role of non-executive directors in this context. It is certainly

possible to structure the EOT and trustee company in such a way that all groups are

equally represented to ensure that the mutually of the company is preserved.

Peter Ware | +44 (0)115 976 6242 | Peter.Ware@brownejacobson.com

Stephen Howe | +44 (0)115 976 6161 | Stephen.Howe@brownejacobson.com

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A recent judgment of the European Court of Justice (ECJ) has shed some light on how to ensure that

technical specifications comply with the principles of equal treatment and transparency.

Contracting authorities will be aware of the requirements for technical specifications under both the 2006

and 2015 Public Contracts Regulations, but this judgment is particularly interesting in that it dealt with a

below threshold contract and so considered technical specifications in light of the fundamental treaty

principles, specifically transparency and equal treatment. These will of course also apply to above threshold

contracts.

In November 2013 the Alba Iulia District Emergency Hospital (the Hospital) in Romania published an online

call for tenders for the supply of computing systems and equipment with an approximate value of just

€58,600, considerably below the €200,000 threshold at which the 2004 Directive would apply. However, the

court took the view, given the nature of the computer equipment to be provided, that it could have certain

cross border interest and therefore the fundamental treaty principles could apply. It is important to note

that the ECJ left it for the domestic court to determine whether the contract was of certain cross-border

interest, but in order to provide a useful response assumed for the purpose of the judgment that it was.

The technical specification in question was that the central unit of the computing system (known as the CPU)

should correspond to ‘at least’ an Intel core i5 3.2 GHz or equivalent CPU. The more IT savvy readers will

now be thinking ‘hang on, there have been several generations of the core i5 CPU with different

performance capabilities at 3.2 GHz so which one do they mean?’ It was this lack of clarity that led to the

referral to the ECJ.

SC Enterprise Focused Solutions SRL (EFS) submitted their tender using AMD’s (Intel’s main competitor) A8 -

5600k chip with a frequency of 3.6GHz.

At the time of assessing tenders, the Hospital ascertained that the first and second generations of the core i5

3.2GHz were out of production (although not necessarily unavailable to purchase from existing stocks) and so

compared the AMD CPU against the third generation Intel CPU. In terms of performance, the Hospital

determined that the AMD CPU was inferior to the third generation Intel CPU and so EFS’ bid was rejected on

the basis that it did not comply with this minimum requirement.

The question considered by the ECJ was whether a contracting authority which has defined a technical

specification by reference to a product of a particular brand may, where that product is no longer in

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production, modify that specification by referring to a comparable product of the same brand which is now

in production but which has different characteristics.

The ECJ’s view was that it cannot as this would result in a tender being rejected on the basis of criteria

which had not been disclosed to bidders. This would be prohibited by the principles of equal treatment and

transparency.

In the present case, bidders had not been informed that the requirement was for the proposed CPU to match

the performance requirements of the third generation Intel CPU, rather than the first or second. Indeed, had

a bidder been able to source first or second generation Intel Core i5 3.2GHz CPU then presumably this would

have failed too, despite ostensibly meeting the requirements.

The key finding of the court, where a below threshold contract has cross-border interest, is that:

“The principles of equal treatment and of non-discrimination and the consequent obligation of transparency

must be interpreted as meaning that the contracting authority cannot reject a tender which satisfies the

requirements of the contract notice on grounds which are not set out in that notice.”

As a general principle, this has to be correct as, clearly, rejection on the basis of a requirement which was

not published is unlikely to be transparent.

The key lesson to take away stems from the application of this principle to brands and models which may

retain the same name but change over time as they are upgraded or replaced.

Contracting authorities should be wary when referring to specific brands or models as part of technical

specifications where the capabilities of specifications of those models may change even though the model

name remains the same. An example outside the IT sector would be procuring motor vehicles. If the tender

document specified ‘Vauxhall Astra 1.7 diesel or equivalent’ then a bidder could potentially supply a model

from a previous generation if it met this description and a ‘new’ vehicle could still be obtained. This can

easily be solved by linking to a manufacture date or generation number as, had it specified which generation

of Intel CPU it required, the Hospital would have been able to reject the tender while acting transparently.

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Of course, when dealing with above-threshold procurements the express obligations in Regulations 42 and 43

of the Public Contracts Regulations 2015 dealing with technical specifications and labels will apply alongside

the fundamental treaty principles. The principles drawn from the judgment will still be relevant in above-

threshold contracts but should be considered alongside these express requirements.

Alex Kynoch | +44 (0)115 976 6511 | Alex.Kynoch@brownejacobson.com

10

Does it really affect trade between member states?

One of the more frustrating aspects of state aid analysis – at least from the perspective of the funders and

funded – is the ease with which it can be determined that the aid affects trade between member states –

and thus the final piece of the jigsaw indicating state aid is completed. The Commission has always

interpreted this broadly – it is enough that a product or service is capable of being traded between member

states, even if (in practice) the undertaking in question does not export to or import from other markets

within the EU. In some decisions, the Commission has also analysed the market by looking at whether

undertakings involved in similar or competing services may operate in more than one member state or

compete with undertakings based in other member states. In short, it has looked at the supplier side rather

than the demand side. Either way, where the first three state aid ‘heads’ (namely: (i) it is granted by the

State or through State resources; (ii) it favours certain undertakings or production of certain goods; (ii) it

distorts or threatens to distort competition) are satisfied, the Commission generally takes the view that

‘head’ (iv) (that it affects trade between member states) will also be satisfied.

There are exceptions to this, of course, and the Commission has previously decided that activities with a

truly local nature may not affect trade between member states if they only serve the local population. It has

also usefully listed some of these examples in its draft notice on the notion of state aid pursuant to Article

107(1) of the Treaty on Functioning of the European Union:

swimming pools and other leisure facilities intended predominantly for a local catchment area

museums or other cultural infrastructure unlikely to attract visitors from other member states

hospitals and other health care facilities aimed at a local population

news media and/or cultural products which, for linguistic and geographical reasons, have a locally

restricted audience

a conference centre, where the location and the potential effect of the aid on prices is unlikely to

divert users from other centres in other Member states

financing of cable ways (and in particular ski lifts) and other types of facilities, where the following

factors should typically be taken into account: a) the location of the installation (e.g. within cities or

linking villages); b) operating time; c) predominantly local users (proportion of daily as opposed to

weekly passes); d) the total number and capacity of installations relative to the number of resident

users; and e) other tourism-related facilities in the area.

On 29 April, the Commission listed a further range of decisions which it had made in deciding whether

circumstances meant that aid was capable of affecting trade between member states. The Commission’s aim

in issuing this guidance – a copy of which can be found at on the website here - was to assist member states

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and other stakeholders in determining which cases do not need to be cleared by the Commission. The

guidance follows on from, and complements, the revised General Block Exemption which came into effect on

1 July 2014.

It is fair to say that the Commission emphasised (yet again) that aid that distorts competition between

companies will in most cases also have an impact on intra-EU trade. But it did remind us that where aid is

provided to an activity which has a purely local impact, there may not be an effect on trade between

member states. It also reinforces how the analysis of supply and demand should apply – i.e. aid is not caught

where:

the undertaking supplies goods or services to a limited area within a member state and is unlikely to

attract customers from other member states; and

the aid provided should have no - or at most marginal – foreseeable effects on cross-border

investments in the relevant sector or the establishment of firms within the EU.

Here are the decisions listed by the Commission:

Hradec Králové public hospitals (Czech Republic)

The public hospitals owned by the region receive public funding to ensure medical emergency services and

finance the equipment required to do so. The Commission considered that the is not liable to have an effect

on trade between member states because (a) the main activity of each hospital is to provide medical care

for people living in its local catchment area and (b) there is no indication of relevant cross-border

investments in hospitals or of the establishment of health-care providers from other member states in the

region.

Medical centre in Durmersheim (Germany)

The municipality rented out facilities below the market price to a medical centre which offered standard

medical services aimed at the local population, for which competition only occurs at local level. The

Commission determined that language issues and features of the national health/insurance systems made

cross-border competition unlikely for standard medical services. Also, the centre and the rent paid were

small so any possible advantage would be very limited and its effects negligible. The medical centre was

only engaging in activity where competition was local.

Städtische Projektgesellschaft ‘Wirtschaftsbüro Gaarden – Kiel’ (Germany)

The City of Kiel owned and ran a company providing, on a very small scale, basic, free information, advisory

and consultancy services to individuals, very small newly created firms and small and medium enterprises

(SMEs) in order to increase the attractiveness and economic activity in Kiel-Gaarden. Its services were only

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provided locally in that area - which also happened to be economically disadvantaged, benefitting from

urban development measures – and there were no relevant cross-border investments for these services.

Landgrafen-Klinik (Germany)

The Klinik is a 200 bed rehabilitation clinic in Lower Saxony. The land compensated the Klinik for losses

incurred in the provision of healthcare services. This public funding was not liable to affect trade between

member states because the services provided were of a purely local nature (of the 3080 patients it treated

in 2013 none resided in or came from another member state), and the public funding of the Klinik had never

attracted substantial investment to the region nor created concrete obstacles to the establishment of other

undertakings - there are more than 20 rehabilitation clinics in the area.

Investment aid for Lauwersoog port (the Netherlands)

The investment project consisted in a lengthening of the quay in the fishing port, modernising the marina for

pleasure boats and constructing a floating platform for recreational fishing. The port is mainly used by small

fishing vessels which are mainly influenced by closeness to the relevant fishing grounds. The investment will

not lead to a significant increase in the port's capacities or increase its capacity to cater for larger ships. So,

the aid is targeted at a local market and will not have any significant effect on the patterns of trade

between member states in that fishermen from other member states will not be incentivised to use the port

rather than ports in other member states. The recreational aspects are also targeted at a local market (the

marina only has 60 moorings) and, as such, will not have any negative effect on cross-border trade.

Glenmore Lodge (United Kingdom)

The Lodge is operated and subsidised by SportScotland and provides certification courses for mountain

coaches and instructors, offering qualifications recognised by sports governing bodies in the UK and offers,

training in mountain skills and mountain sports for the general public. The Commission found that there was

no effect on trade between member states because most of activity is targeted at a regional/national

customer base and there is no positive evidence of cross-border investments or establishment for these types

of services.

Member-owned golf clubs (United Kingdom)

Certain tax breaks applied to sports clubs qualifying as Community Amateur Sport Clubs (CASCs). The

complaint was that exemptions from corporation tax on profits from trading with non-members (i.e.

visitors), where the turnover of the trade is less than £30,000, and on income from property belonging to the

club where the gross income is less than £20,000 amounted to state aid. The Commission decided that CASCs

catered for the local community and there was no effect on trade between member states. The tax breaks

are capped at low levels, so excluding big clubs attracting significant revenue from non-member players and

competing with golf courses outside the UK.

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So, what can we learn from these decisions?

Local use/customer basis is good; so is the absence of cross border investment for services (etc) of the type

being funded. Given the potential for cross border competition (and indeed use) within healthcare in the UK,

the three healthcare decisions may not be quite so helpful, but the other four decisions provide a helpful

indicator of the scale of services or operations which are likely not to provide state aid problems if funded.

Assuming, of course, that the Commission is consistent in its interpretation…

Sharon Jones | +44 (0)115 976 6284 | Sharon.Jones@brownejacobson.com

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An open and shut case?

In this article we are going to summarise the decision of the Planning Court in the case of Ali v Secretary of

State for Environment Food and Rural Affairs and Others [2015 EWHC 893] (Admin) (the Ali case) and

highlight some practical points that can either help local authorities dealing with public rights of way

applications or simply in their role as a landowner.

The Ali case concerned an order made by Essex County Council under section 53 of the Wildlife and

Countryside Act 1981 that modified the definitive map of public rights of way by adding a new footpath that

formed part of property owned by Mr Ali.

Mr Ali brought proceedings to challenge the order on the basis that he had been locking a door annually at

Christmas to prevent access by locals who used the footpath to access shops on the same street.

However, the court held that this was not sufficient to prevent rights of way from arising because the door

was being locked at a time when no one was going to use it, so the fact that it was locked was never brought

to anyone’s attention.

Background

Mr Ali owns 57 and 59 Connaught Avenue Frinton-on-Sea. There is a 1 metre wide footpath between numbers

59 and 61 which forms part of the freehold title to number 59. The footpath had long been used by

members of the public as a means of gaining access to shops and businesses on Connaught Avenue. There

was also a door at the entrance to the accessway footpath.

In February 2012 Mr Ali became concerned about the use of the footpath and spates of vandalism and so

constructed two metal gates at either end of the footpath. This prompted the town council to seek an order

under section 53(2)(b) of the Wildlife and Countryside Act 1981 to add the footpath to the definitive map as

a public right of way.

The Secretary of State for Environment approved the granting of the order, as did a local inquiry following

objections raised by Mr Ali. Mr Ali then took his appeal to the Planning Court.

The focus of the appeal was on the door to the footpath and the extent to which it had been closed and/or

locked and whether this was sufficient evidence that there was no intention for the footpath to be dedicated

as a public right of way.

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The law

The key legislation and case law relevant in this case is:

section 53(2)(b) of the Wildlife and Countryside Act 1981: provides that a county council has a duty

to keep its definitive map and statement of public rights of way under continuous review. Where it

discovers evidence of a right of way not appearing on the map it should make an order under this

section for the definitive map and statement to be modified to include this right of way

Section 31(1) of the Highways Act 1980: provides that “where a way over any land… has actually

been enjoyed by the public as of right and without interruption for a full period of 20 years, the

way is to be deemed to have been dedicated as a highway unless there is sufficient evidence that

there was no intention during that period to dedicate it.” In the Ali case, the inquiry and the court

heard evidence of use of the footpath over the 20 years up to February 2012 when the gates were

erected.

R (Godmanchester Town Council) v Secretary of State for the Environment Food and Rural Affairs

(2007) (the Godmanchester case) (which was referred to extensively during the inquiry and

subsequent appeal) established a principle that closing or blocking a path or accessway one day each

year is generally recognised as providing evidence to users of that path that the landowner has no

intention to dedicate. However, another relevant passage was that this had to be sufficiently ‘overt’

and that it had to be clear to users of the path that the landowner was asserting that the public had

no right to use it. These passages became relevant as the case proceeded.

Decision

The central focus of this case was the use of the door by Mr Ali to prevent use of the footpath. The use of

the footpath for over 20 years was not disputed by Mr Ali.

The key argument by Mr Ali was that he would close the door overnight and lock it every Christmas. This was

supported by previous owners of the property and a statement signed by 23 local residents confirming that

they recalled seeing the door closed.

The Godmanchester case set out principles that some overt action by a landowner demonstrating there was

no intention for a footpath to be a public right of way did not have to be “continuously manifested” during

the whole 20 year period but merely at some point and that “traditionally one day a year is the norm”.

However, the inquiry and the Planning Court decided that this evidence was not sufficient for a number of

reasons.

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Firstly, there was a distinction between closing the door on the footpath and locking it. Whilst this door may

have been closed most evenings, this would not prevent anyone from simply opening it and there was no

evidence from any users of the footpath that they could not do so because it was locked. There is clearly a

distinction between locking the door and simply closing it. It was therefore only the annual locking of the

door at Christmas that was relevant.

Secondly, a planning application submitted in 2006 by a predecessor in title to Mr Ali included on

redevelopment plans an architect’s plan that marked the footpath as a ‘public right of way’. Mr Ali and the

previous owner argued that this was a plan produced by the architect rather than the owner and so did not

show the intention of the owner.

However, the court pointed out that his plan was attached to a planning application submitted by the then

owner of the property and as this plan was a second revision there were at least two opportunities for the

owner to correct this error (or at least what the then-owner said was an error). This was therefore a

document put out in the public domain publicly stating that the owner of the property believed this footpath

to be a public right of way.

Thirdly, whilst evidence from Mr Ali and predecessors in title that the door to the footpath had been locked

once a year at Christmas was not itself doubted, this evidence was not deemed sufficient to rebut the

presumption that this was a public right of way.

The footpath was used during the day by customers of shops and businesses on Connaught Avenue who would

have not used the footpath at night or at Christmas when those shops and businesses were closed. Therefore

the locking of that door would not have been brought to the attention of the users of the footpath and so

they would not have been made aware that the landowner was refusing them the ability to use the footpath.

The 23 locals who signed the statement in support of Mr Ali’s claim may have seen the door closed but

admitted that they had never used the footpath so could not be in a position to say whether the door was

ever locked. No users of the footpath had ever found the door locked according to the evidence presented in

defence of the appeal.

The comment in the Godmanchester case that the landowners acts must “come to the attention of the

public who used the way and demonstrate to them that he had no such intention” to dedicate the footpath

as a right of way was relevant here as the locking of the door never came to the attention of the users.

The Planning Court therefore upheld the decision to grant the order and dismissed the appeal.

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Practical points

County councils dealing with dedication of footpaths as highways can take a number of practical points from

this case when dealing with future applications (given that each case will turn on its own facts):

are there any barriers to entry such as gates? If so are these locked at any time, and if so, when?

are the gates locked at times when members of the public are likely to try and use the accessway

and know that they are locked?

have any other steps been taken by the landowner to inform users that the access way is not a public

right of way. For example, has a landowner put up clear signs stating that it is private land and not a

public right of way?

check whether a landowner has deposited any maps or statutory declarations pursuant to s.31(6) of

the Highways Act 1980 setting out admitted rights of way, which also acts as a rebuttal to the

argument that there might be any other public rights of way on their land

consider planning applications made by a landowner and how the accessway has been treated in

those applications by the landowner

and finally, what evidence is there for any of these and how credible or reliable is it?

Kassra Powles | +44 (0)115 908 4806 | Kassra.Powles@brownejacobson.com

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Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) requires an employer

who is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90

days or less to collectively consult with appropriate representatives.

All relatively straightforward – that is, apart from the meaning of ‘establishment’.

Previous cases have considered whether ‘establishment’ should be interpreted by applying a geographical or

an organisational test. Guidance given by the ECJ suggests an establishment may consist of:

a distinct entity

with a certain degree of permanence and stability

which is assigned to perform one or more tasks

which has a workforce, technical means and a certain organisational structure to allow it to do so.

It need not have any legal, economic, financial, administrative or technological autonomy.

Location is important but will not always be the deciding factor and there have been cases in which separate

geographical locations have been aggregated to form a single establishment – for example, building

operations carried out at multiple sites with a common headquarters were aggregated to form a single

establishment.

Then came the decision of the Employment Appeal Tribunal (the EAT) in USDAW and others v WW Realisation

1 Ltd and others (the Woolworths case).

The EAT concluded that TULRCA is incompatible with Council Directive 98/59/EC (the Directive). This is

because a reference to dismissals being at ‘one establishment’ is not included in Article 1 of the Directive.

The EAT decided that ‘at one establishment’ must be disregarded for the purposes of any collective

redundancy exercise involving 20 or more employees. The implications of the EAT decision was that

collective consultation would be required whenever the threshold of 20 or more employees was met across a

number of different sites.

The Woolworths case was appealed to the Court of Appeal and a referral was made to the ECJ including on

whether the 20 employee threshold referred to dismissals across all establishments or in each individual

establishment and, if the latter, what the meaning of ‘establishment’ was.

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The ECJ has now given its judgment in respect of this case and concluded that the wording of the Directive

requires account to be taken of the dismissals effected in each establishment considered separately.

Establishment is stated to be term of EU law which cannot be defined by reference to the laws of member

states and that where an undertaking comprises several entities, “it is the entity to which the workers made

redundant are assigned to carry out their duties that constitutes the ‘establishment’”.

The Woolworths case will now return to the Court of Appeal to consider whether the separate stores in this

particular case can be classified as separate establishments but this is likely to be a formality, reversing the

EAT decision.

Sarah Hooton | +44 (0)115 976 6033 | Sarah.Hooton@brownejacobson.com

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Increased role for their prosecutors

A change in magistrates’ court procedure and new draft sentencing guidelines for regulatory offences are

likely to have a notable impact on the role of prosecutors in the criminal courts.

On 12 March 2015, section 85 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Act) came

into effect in England and Wales. This removed the cap on fines imposed by magistrates’ courts where the

previous maximum was £5,000 or more.

These new provisions will affect many of the prosecutions brought by local authorities including in the areas

of health and safety offences, environmental offences, benefit fraud and many more.

The new powers apply to offences committed after 12 March and have the potential to save local authorities

some of the legal costs associated with Crown Court trials and sentencing hearings.

Against the background of the Act, the consultation phase for the new Health and Safety Offences,

Corporate Manslaughter and Food Safety and Hygiene Offences Guidelines (Guidelines) concluded in February

this year.

Magistrates’ courts increasingly place greater emphasis on sentencing guidelines particularly in relation to

regulatory prosecutions. The new proposed Guidelines on health and safety and food safety, which may well

come into force later this year, have the potential to notably increase sentences for offences deemed to fall

into the most serious categories.

However it also raises the possibility of greater arguments in relation to offence categories and aggravating

features, with the potential for more Newton hearings to resolve disputes. Likewise magistrates’ courts will

have to become much more accustomed to analysing the accounts of larger companies in order to assess

their ability to pay substantial fines.

The practical effects for local authority prosecutors may include:

prosecution advocates before the magistrates’ courts will be expected to be able to provide very

significant assistance to magistrates in these matters

prosecution advocates are likely to be dealing with more complex cases with much larger volumes of

evidence, both for trial and sentencing. As a result, the courts’ expectations with regard to the

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advance service of prosecution material will be heightened. Some cases may require significantly

more preparation time for prosecutors

it will be important for local authorities to liaise with their local courts to ensure that adequate

court time is found to compensate for the increased volume of cases as well as the time more

complex cases will take. Busy private prosecution court lists are likely to get busier.

The changes do not mean that every prosecution of a company will be dealt with in the magistrates’ court.

Courts retain the right to allocate or commit cases to the Crown Court for reasons other than insufficient

sentencing power, including the potential for a complex trial. Defendants retain the right to elect Crown

Court trial.

Guidance has been provided to the magistrates’ court about the types of cases that should be considered for

Crown Court allocation, namely those:

involving death or significant, life changing injury or a high risk of the same

involving substantial environmental damage or polluting material of a dangerous nature

involving a major adverse effect on health or quality of life, animal health or flora has resulted

where major costs through clean up, site restoration or animal rehabilitation have been incurred

where the defendant corporation has turnover over £10 million and has acted in a deliberate,

reckless or negligent manner

where the defendant corporation has a turnover in excess of £250 million

where the court will be expected to analyse complex company accounts

cases with a high profile or of an exceptionally sensitive nature.

An amended Criminal Practice Directions Division XIII: Listing (D.4 & Annex 3) requires an authorised District

Judge (MC) to consider whether such cases should be allocated to the Crown Court. If the decision is made

not to do so, they are required to record their reasoning.

According to the Directions, where an authorised District Judge is not appointed for the first hearing, the

court must adjourn the case. In order to avoid this, a duty is placed on the prosecuting agency to notify the

justices’ clerk where practicable of any cases falling into these categories at least seven days before the

first hearing.

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It will be important that local authority prosecutors are aware of this duty. Wasted costs applications by

defendants are entirely possible if a first appearance is ineffective due to a lack of notice. Early

identification will also be vital in avoiding listing delays in relevant cases.

Carl May-Smith | +44 (0)115 934 2024 | carl.may-smith@brownejacobson.com

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Implications of the Conservative manifesto

Until 6 May 2015, the end of single party government and a new age of consensus building collation

administrations had been much heralded. As many commentators pointed out, the impact on parties’

manifestos was striking. With a coalition government in prospect, manifestos could be seen as more akin an

initial bargaining position for coalition discussions, than a rounded programme for government.

By 8 May (and much to the embarrassment of the pollsters and many political commentators), the idea of

coalitions, and the numerous ‘red-lines’ not to be crossed by potential coalition partners, had disappeared.

An unexpected, slim majority for the Conservatives meant that, for the first time since 2005, a single party

will be accountable for delivering all of its manifesto pledges.

So, and assuming every element is implemented during this parliament, what are the implications of the

Conservative manifesto for local authorities?

The big picture - financial constraints

The conservative policy that was most debated by all parties was the need to continue to reduce the deficit.

Reducing government spending by 1% a year for three years may not sound challenging. But, with

international development, health and education ring-fenced, ‘unprotected’ departments face deep real

terms cuts over the first three years of this parliament. Local government spending falls into this category

and local authorities can therefore expect continued tightening of their budgets until at least financial year

2018-19.

Housing and planning

One of the most eye-catching and controversial manifesto promises is the extension of the right to buy to

housing association tenants with three years’ tenure. Housing stock is to be maintained by requiring local

authorities to sell-off their most expensive properties as they fall vacant, using receipts to purchase new,

cheaper properties.

There will also be a new ‘Right to Build’, requiring councils to allocate land for the building of new homes,

and new housing zones (funded by receipts from council house sales) on brownfield sites.

The theme of localism will be continued by allowing residents to have more say on local planning, and

allowing votes on local issues.

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A new London Land Commission will identify ‘surplus’ brownfield land owned by the public sector, with the

aim of releasing this for house building.

Local government and public services

The manifesto does not have a specific focus on, or detail an overall programme for, local government. But

does contain elements specifically relevant to local authorities. There is a commitment Review of business

rates to report by 2016 Budget. Local authorities in Cambridgeshire, Greater Manchester and Cheshire East,

will also be allowed to retain 100 per cent of growth in business rates. This is consistent with previous

comments from the Prime Minister: that local authorities will be financially incentivised to encourage

growth, rather than being allowed to levy additional taxes on residents.

Recent government announcements on enhanced powers for Greater Manchester, as part of the ‘Northern

Powerhouse’ strategy, are also consistent with this theme.

Voluntary integration between and within councils, continuing the previous government’s theme of shared

services, will be further encouraged. The drive towards mutualisation will also be strengthened, with a ‘right

to mutualise’. Social Impact Bonds (SIBs) will also be extended into new areas such as youth unemployment,

mental health and homelessness. As yet, there is no clarity on precisely what is meant by a ‘right to

mutualise’, or how SIBs will be extended.

Councils will also be encouraged to rationalise their property portfolios, retaining at least a 10 per cent

stake in public sector land sales. It is not clear precisely what this means (for example, will public sector

land include health estate?), and we await more details in the government’s new legislative programme.

The manifesto also commits to repeal of the Human Rights Act (a step that no coalition partner was likely to

have permitted). The impact of this move on local government will depend on the way in which this

potentially complex legal manoeuvre is implemented.

In relation to littering, there will be a review of the case for higher fixed penalty notices, and allowing

councils to tackle small-scale fly-tipping through fixed penalties rather than costly prosecutions.

Employment

The manifesto refers to the living wage and encourages employers to pay it. This may have an impact on any

public sector bodies which employ staff on less than this figure (currently £9.15 per hour in London, and

£7.85 elsewhere).

Public sector workers will also have a new right to entitlement to paid leave, three days a year, to volunteer

to undertake charitable and community work. In this, and the community asset provisions referred to above,

can perhaps be seen echoes of the key idea from the 2010 Conservative manifesto: the Big Society.

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Devolution

Given the Scottish National Party’s virtual clean-sweep of Scottish constituencies, increasing discontent

amongst MPs in relation to some form of English devolution (for example, English votes for English laws – or

‘EVEL’), the government’s in-tray is awash with constitutional questions at a national level. This is even

before a promise to renegotiate the founding treaties of the European Union and hold a referendum on the

UK’s membership is taken into account.

For the moment, the government appears to be offering Scotland the additional developed powers

recommended by the Smith Commission and nothing more. Should this change, and enhanced powers (or

even a federal model) be considered, calls for more significant devolution in the rest of the UK can only

intensify.

Moreover, the first page of the manifesto refers to a ‘Northern Powerhouse’ in Manchester, and plans to

devolve further powers to conurbations which choose to have elected mayors. Many previous governments

have asserted their wish to devolve power more locally, but few have put this commitment front and centre

of an election manifesto. In any event, the political landscape is now very different from that which

surrounded previous discussions of localism and devolution. George Osborne recently announced, in a speech

in Manchester, that “this is a revolution in the way we govern England”.

We can therefore expect to see more powers and budgets devolved to authorities with directly elected

mayors, in addition to legislation to enshrine the deal for Greater Manchester announced before the general

election.

A key element of this will be further integration of health and social care, which was a key plank of the

Greater Manchester deal.

Infrastructure

A common criticism of the previous government’s austerity measures was a failure to invest in

infrastructure. The manifesto, if implemented, may see reversal of this approach with a commitment to

deliver £100 billion in infrastructure spending over the parliament and the controversial HS2 scheme.

Of particular relevance to local authorities is: the aim of providing of superfast broadband to 95 per cent of

the UK’s population by the end of 2017; investing £200 million to encourage safe cycling, aiming to double

the number of cycle journeys; and a fund to tackle problem junctions and fix 18 million potholes.

At the time of writing this briefing, the government’s first Queen’s Speech had not yet been promulgated. It

is therefore very early to know the precise impacts that the government’s policies will have on local

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government. But it is impossible to ignore the increasing drive towards devolution and continued financial

pressures. This means that, although the public has voted (at least in England) for a broad continuation of

Coalition policies and ‘business as usual’, for local government, the 2015-2020 Parliament will be anything

but.

Craig Elder | +44 (0)115 976 6089 | Craig.Elder@brownejacobson.com