Founder's blog: Employment law for startups 101

Here is what I have learnt about employment law for startups in the UK by Alia Ali and her colleagues from A City Law Firm on 10 November 2015 at WeWork Soho organised by Tech City Coffee.

 

Thank you Alia Ali and her colleagues from A City Law Firm for giving such informative talk. Thank you Tech City Coffee for organising this event. Thank you WeWork Solo for hosting us.

www.acitylawfirm.co.uk

enquiries@acitylawfirm.com

 

Key takeaways

• Know the rules.
• If in doubt, seek professional help.
• Unless you are Lord Sugar in the Apprentice, you can't fire people on the spot (only on TV)!
• Do some homework, check check check.
• Don't hire illegal worker. You get fined and could be sent to jail!
• Have the right documents, policies and procedures in place. Make them clear.
• Don’t forget to get the appropriate insurance

 

Notes from the event

Image source: Osmond Desilva of Tech City Coffee

 

Introduction

• Know your workforce (is it employee, contractor etc)
• Know your rights
• Have transparent policies/ procedures and clear contracts in place. If not you might be into a tribunal with £30K of legal fees

 

Know your workforce

Employee

• PAYE
• employment rights

Contractor

• self employed
• pay tax

Agency worker

• agency worker enters into a contact with the agency and the agency enters into a contract with the company/end-user
• no separate contact between agency worker and the end-user
• zero hour contracts?

 

ACAS, help and advice for employers and employees

http://www.acas.org.uk/

 

Government website on employment

https://www.gov.uk/browse/employing-people

 

Employing staff for the first time

1. Pay: Decide on pay (note the national minimum wage)
2. Legal: Check if they have legal right to work in the UK (if you hired Illegal worker, you get fined £5K per employee and could be sent to jail for up to two years!)
3. DBS: would they need a DBS (formally CRB) check?
4. Insurance: Get employer insurance
5. Statement: give employee a written statement of employment
6. HMRC: tell HMRC by registering as an employer. (A lot of people forget this bit)
7. Pension: Check if you need to automatically enrol for pensions

 

Decide on pay: Minimum wage

• Minimum wage:
  • 21 and over = £6.70
  • 18 to 20 = £5.30
  • Under 18 = £3.87
  • Apprentice = £3.30

You can also consider staff options (allow your staff to purchase shares as part of the enumeration, if you can't pay your employees the full wage)

 

Check if legal right to work in the UK

• There are significant fines for employing people who do not have a legal right to work in the UK
• Including people on expired visas
• If you employ the person knowingly, you can be sent to jail for up to two years.
• You can do an essential check of the required documents at https://www.gov.uk/legal-right-work-uk
• If in doubt, check with an immigration lawyer

 

Remember to do a thorough check. If you take on a student on a student visa, you need to check whether that visa allows them to work in the UK.

 

Check if your sector needs a DBS check (formally CRB check)

Depends on the industry that you operate in and/or your customers. You might need DBS check to work with a certain type of customers or you might work with a customer that needs DBS check to work with theirs. It is a snapshot at that time, so there might be a need to redo it at a later date.

 

How to get a DBS check:

• Get an application form from DBS https://www.gov.uk/disclosure-barring-service-check/overview
• Give application form to the applicant
• Form is returned to you and you submit to DBS
• DBS sends the certificate to the potential employee.

 

Now there is no expiry date – it is up to you to decide as and when a new search should be required.

 

Get Insurance!

You will need employment liability insurance as sons you become an employer. Otherwise you could get fined up to £25K.

 

Send a written statement of employment to your employee

Including: Sick pay and procedures, disciplinary procedure and grievance procedure

 

Written statement to include:

1. The business’s name
2. The employee’s name, job title or a description of work and start date
3. Any continuous employment and the date the period started
4. How much and how often an employee will get paid
5. Hours of work
6. Holiday entitlement (and if that includes public holidays)
7. Where an employee will be working and whether they might have to relocate
8. If an employee works in different places, where these will be and what the employer’s address is.

 

As well as principle statement, a written statement must also include:

1. How long a temporary job is expected to last
2. The end date of a fixed-term contract
3. Notice periods
4. Collective agreements
5. Pensions
6. Who to go to with a grievance
7. How to complain about how a grievance is handled
8. How to complain about a disciplinary or dismissal decision

 

You can put in place policy of how your employees can use social media. You can also put that in contract e.g. how much time they can spend on social media.

When recruiting, always say subject to reference. Otherwise you are implying a contractual agreement.

When giving reference, give more factual points than opinions to avoid litigation. If you need to give an endorsement, make it clear that it is an expression of opinion other than facts.

 

Register your employee

Register before you pay their first salary, can't register 2 months before

 

Pensions

All employers have to provide employees with work place pension scheme by law over the next two years - auto enrolment.

Pension enrolment site: http://www.workplacepensions.gov.uk/

 

Removing staff

• Don't dismiss someone on the spot!
• You must give the employee the chance to improve.
• Always follow the process.
• You must treat him/her fairly
• Always leave a gap between the meeting and the decision.
• Always ask is dismissal the right decision. It should be your last resort. Use warnings!

 

Irrespective of the length of service, always follow the statutory dismissal procedure when you dismiss an employee. This is a three-stage process:

1. Let your employees know that you are considering ending their employment / giving them a disciplinary.
2. Give them reasons and invite them to a meeting to discuss it.
3. Hold the meeting. Allow them to respond before you make a final decision and give them the right to appeal.

 

There are tow reasons for following the above process:

1. Having a clear decision in writing helps defends and discrimination claims that may be brought and offering the right to appeal in writing shows evidence of a fair process.
2. The appeal itself allows you to address anything internally if there is going to be a formal dispute.

 

Is dismissal the right decision?

• Employees are only human and make mistakes once in a while.
• Dismissal should be your last resort
• The sanction should be proportionate to the issue in hand.
• Use warnings! Verbal, written and then final warnings where appropriate.

 

Gross misconduct (varies from industry to industry)

• Sometimes disciplinary is not appropriate and immediate action is required
• Grows misconduct depends on your business and unfortunately there is no magic formula.
• The behaviour must be so bad that it destroys the employee/employer relationship
• Be clear with your employees on the type of behaviour you consider to be gross misconduct. For example:
• Theft
• Fighting and abuse
• Intoxication
• Discrimination
• leak/breach of sensitive information

 (There is no notice required to dismissal, but what gross misconduct for one is not necessary for the other, do check with professionals)

 

Notice periods

Statutory minimum:

• 1 week notice if the employee has been employed by employer continuously for one month or more but less than two years (for one month to less than 2 years -> 1 week)
• 2 weeks notice if the employee has been employed by the employer continuously for two years and one additional weeks notice for each continuous complete year of employment up to a maximum of 12 weeks. (for longer than 2 years -> 2 weeks + every addition year they work. 12 weeks maximum)

 

Dismissal without notice

• Payment in lieu of notice (need to have a clause in the contract)

 

Statutory sick pay

Employer can pay a more generous sum, but not less.

• £88.45 per week – up to 28 weeks
• 4 days in a row – the first 3 days are waiting day, then you have to pay from the 4th day onwards.
• On the 7th day – need a doctor’s certificate
• For long term sickness, seek professional advice

 

Maternity/paternity Pay

Pregnancy:

1. Take time off for antenatal care
2. Maternity leave
3. Maternity pay/Allowance
4. Protection against unfair treatment; discrimination or dismissal

 

‘The other half” has the right to take time off work to go to two antenatal appointments.

 

Statutory maternity leave

There is a minimum, but you can offer more.

 Eligible employee can take up to 52 weeks of maternity leave.

1. The first 26 weeks are known an Ordinary maternity leave
2. The second 26 weeks are known as additional maternity leave

 The earliest that a maternity leave can start is 11 weeks before the expected due date.

 

Statutory maternity Pay

Expecting fathers are entitled to 1-2 weeks paid paternity leave.

 

Can be paid for up to 39 weeks

• For the First 6 weeks: 90% of average weekly earning before tax
• For the remaining 33 weeks: £139.58 per week or 90% of their average weekly wage (whichever is lowest)

 

Flexible working arrangement

Flexible working is a way of working which meets your employee’s needs.

All employees have the right to request flexible working arrangements (not just parents or carers).

What you as an employer needs to do:

• Assess the advantage and disadvantages of the application
• Hold a meeting with the employee to discuss the request
• Offer an appeal process

 

Confidentiality & Post termination restrictions

• Employees may have access to information about how the business works, its customers and its future plans and should be protected.
• Problems arise where employees want to take advantage of this information and use their knowledge to set up a competing business or work for a rival.

 

What happens when an employee leaves?

• Still bounded by the implied duty not to disclose confidential information – trade secret or highly confidential information
• Advisable to require all employees to enter into a non disclosure agreement
• The damage that could be caused through leaking of confidential information is immeasurable.
• May need an injunction
• Be preventative – express terms stopping employees and ex-employees from disclosing certain information
• What is considered a fair period 3, 6 or 12 months?
• Balance between protecting employer and allowing employee to earn a living
• Must prove that any post termination restrictive covenants should be given effect
  • Protect a legitimate business interest
  • Real or significant damage to the owner of the secret
  • No wider than is needed to protect the employer’s business interest
  • Reasonable with regards to period and geographical extent

 

There is an implied duty for employee who left not to breach this in all contract.

It needs to protect a legitimate interest of the legitimate business. It can't be for the entire world of course.

 

Non-competition clause

Non-solicitation – not poach your staff

Non-dealing – poaching the customers

Non-poaching – asking your colleagues to follow you to another business

 

More information

www.startupcapsule.co.uk

For startups, hand holding throughout the process, reasonability priced for startups

 

Q&A discussions

For changes in contract: such as change of role or change of pay, you can provide an updated version of the contract or a cover letter.

 

Change of contract

When you need to change the contact, have a meeting, consult with the employee. Say:

This is what we are proposing

This is why we are proposing it

 

There is a pot to compensate employees should a company get liquidated?

 

Discrimination:

You can only reject candidates based on merit not other things e.g. age, race, gender etc…

Don't put ads with things like looking for a pretty tall blonde white girl! That's a no no!

 

Co-founders:

From the legal agreement perspective, starts the discussion from equity e.g. 50/50 etc… then the rest will follow.

You might want to include the locking-in issue (the prenup)

 

Sub-Contractor:

Have a very clear remit of what they do and a very clear schedule of work. Are they sub-contractor or an employer/employee relationship?

 

Intellectual property:

IP are assigned in writing. Make sure you have a proper legal assignment letter in place.