Legal update December 2018/January 2019

The tail end of 2018 and the beginning of 2019 did have a number of noteworthy moments in the areas of Corporate and Commercial, Intellectual Property, Employment Law, and Brexit.

Corporate and Commercial

• Guides to: controllers, processors and joint controllers; and contracts and liabilities between controllers and processors, by the ICO - The Information Commissioner's Office (ICO) has published detailed guidance to assist organisations in understanding whether they are acting as a controller, processor or joint controller when processing personal data. A full copy of the guidance can be found here.
• Publication of the final six Wates Principles for large private companies and updated directors’ remuneration reporting Guidance - The six Wates Principles in respect of corporate governance and the requirement of large private companies to report on this, were published by the Financial Reporting Council (FRC) on 10 December 2018 and are: Purpose and Leadership (the North Star); 2. Board Composition and 3. Director Responsibilities (Characteristics of Leadership); and 4. Opportunity and risk, 5. Remuneration and 6. Stakeholder relationships and engagement (Specific Matters). The hope of the FRC is that these principles are flexible enough that other businesses, not yet required to report on their corporate governance in respect of the principles still wish to do so. A full copy of the Wates Principles can be found here.
  As a result of changes to reporting requirements introduced by the Companies (Miscellaneous Reporting) Requirements 2018 the GC100 and Investor Group have updated their directors’ remuneration reporting guidance.
  In respect of financial years beginning on or after 1 January are the Companies (Miscellaneous Reporting) Regulations 2018, which amend the reporting requirements for some companies, introducing mandatory reporting on employee and stakeholder engagement, and information on the ratios between CEO and average staff pay. They also require large private and public companies to include in their strategic report a statement explaining how the directors have had regard to the matters in section 172(1)(a) to (f) of the Companies Act 2006 when performing their duty to promote the success of the company.
• BEIS publishes final report of the independent review of the FRC - The BEIS published its report on 18 December having reviewed the FRC and critically recommended that the FRC be replaced, as soon as possible, with a new independent regulator to be called the Audit, Reporting and Governance Authority. They further recommended that the new regulator be given new powers to avoid major corporate failure, that the definition of a public interest entity be reassessed, that there be increased corporate reporting reviews and increased enforcement including against relevant directors. In respect of the Stewardship Code it was recommended that unless there is a shift in approach to ensure that it more clearly differentiates excellence in stewardship, it should probably be abolished altogether. Similarly, if viability statements cannot be reformed and improved it was also recommended that these be abolished. The BEIS has announced a further independent review into the quality and effectiveness of the UK audit market following the Competition and Markets Authority's market study and the Kingman review.
• Deed of Guarantee found invalid after power of attorney was not a valid deed - A deed of guarantee was used during a share purchase transaction. However, this had been executed under powers of attorney but the powers of attorney did not meet the requirements for a valid deed (the documents did not state explicitly that they were a ‘deed’ and it was not clear that they were intended to be a deed, which could not be implied) and the execution of the deed was not within the scope of the powers granted. Therefore, the deed of guarantee was found to be invalid on the basis of the power of attorney being invalid in a High Court case at the end of last year.
• CAP enforcement notice relating to misleading faux fur advertising - On 9 January the ASA (Advertising Standards Authority) made rulings against Boohoo.com UK Ltd and Zacharia Jewellers that their advertisements were misleading because their faux fur products contained real animal fur. On 17 January the CAP Compliance team issued an enforcement notice. This notice contains compliance tips such as retailers should test every batch of faux fur product. Advertising must be compliant by 11 February 2019, when targeted enforcement action will be taken by CAP. Whilst online sellers may find it difficult to comply, they are responsible for ensuring all descriptions of their products are accurate, including those of third party sellers. A ‘no animal fur policy’ is expected to apply to all products sold by a company and any other company selling through their website.
• Financial Reporting Council (FRC) report on Artificial Intelligence (AI) and corporate reporting - On 21 January a report into uses for AI in corporate reporting was published by the FRC here. The areas focussed on in the report were production (e.g. how AI could improve efficiency in the production of annual reports), distribution (e.g. in supporting auditors in the validation of annual reports) and consumption (e.g. for continued use in improving investment analysis by using sources of alternative data).

Intellectual Property

• When can additional damages be awarded under section 97(2) of the Copyright, Designs and Patents Act 1988? - The Court of Appeal ruled in December that where the High Court imposed a suspended sentence for contempt on a defendant following breach of an injunction to restrain copyright infringement, there was no legal principle precluding it from also awarding the claimant additional damages under section 97(2) of the Copyright, Designs and Patents Act 1988. In this particular case it was decided though, that just because an infringement had taken place in breach of a court order did not automatically make the infringement flagrant and even if it did, the court still had a discretion to decline to award additional damages.

Employment law

• Are Uber drivers workers or self-employed contractors? - This case continues, as the Court of Appeal upheld the decision of the EAT, that Uber drivers are workers and so acquire rights in respect of annual leave and the right to be paid the National Minimum Wage, amongst others. However, this is not the end of the matter, as Uber has already been granted permission to appeal the decision.
• The Good Work Plan has been published, but what does it mean for businesses? - The government published the findings of the Taylor Review in the form of the Good Work Plan in December. The aim of the Plan is to provide fair and decent work; clarity for employers and workers; and fairer enforcement. Draft legislation is already in place to try and achieve these aims (for example to make enforcement fairer the fine for deliberate breaches of employment law is expected to increase from a maximum of £5,000 to £20,000 on 6 April this year).
• Can an enhanced pension amount to ‘unfavourable treatment’ because of discrimination arising from a disability? - Section 15 of the Equality Act 2010 deals with discrimination arising from disability. Under a case heard by the Supreme Court in December, the claimant had been awarded an early retirement enhanced pension, due to ill health. However, this was calculated on the basis of the claimant's actual, part-time salary. In this case it was found that the enhanced pension scheme was not of itself unfavourable and so the claimant was unsuccessful in his claim.
• What can be expected in the future for the UK’s skills-based immigration system? - The government published a white paper on the UK's future skills-based immigration system on 19 December 2018. The headline points are that freedom of movement will come to an end, reducing net migration levels and applying the same Immigration Rules to all migrants from 2021. Tier 2 of the points-based system will also be changed to simplify sponsorship, reduce the skills threshold, removing the resident labour market test and cap on skilled worker numbers each year. For lower skilled workers a new transitional temporary work route will be available for work lasting up to 12 months, after which there will be a 12 month cooling off period.
• GDPR breaches rife amongst workers - Following research published earlier in 2018 that over half of businesses did not have the correct processes in place to avoid breaches in the GDPR, Proband has now published research in January 2019 stating that from their sample of over 1,000 workers, 64% had breached GDPR rules by forwarding customer emails to their own personal accounts. Further, the survey found that 84% of the workers asked did not think that they were doing anything wrong, because they were unware that the actions they had taken in breach were unlawful. Unfortunately, a requirement to breach the GDPR with malicious intent is not required, a breach is a breach and would be punished accordingly.

Brexit

• Brexit has continued to have a likely impact on commercial activity - On 14 December 2018, Science Group plc announced that, largely due to the uncertain political and economic climate created by Brexit, it would postpone the formal sale process it had announced as part of a wider strategic review in September.
  A significant number of cross-border mergers, particularly involving German companies are still being announced (12 German companies in December are the counterparty to a merger and in only 1 of those mergers, the German company is not the surviving entity). Further, six cross-border mergers in the group reorganisation to try and simplify the corporate structure of Equinix, Inc. involved a company incorporated in the Netherlands as the transferee. This may mean that companies are looking to keep a stronghold firmly in Europe at the present time.
  Following the rejection by MP’s of Theresa May’s Brexit deal on 15 January, but failed vote of no confidence motion on 16 January, Theresa May tabled her Plan B for Brexit, for debate on 29 January, where the £65 fee for EU citizens applying for the right to remain would be covered by the government and not charged to individuals and the terms of the Irish backstop may be amended, but this would all have to be agreed with the EU before the 29 March 2019 if the UK is to leave the EU without no deal on that day (provided that an agreement to extend the leaving date is not brokered with the EU).

We shall report on any further updates arising on this in next month’s update.

*Please note that this update does not constitute formal legal advice and should not be relied upon as such. Always ask a solicitor if you are unsure of how the law relates to your business*