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Where different works
Restrictive covenant clauses within employment contracts restrain how employees can act in the future. Ordinarily, this relates to dealing with clients of their employer, or working for a competitor following the termination of their employment. To justify a restraint of trade clause it must be proved that the clause is reasonable and in the interests of the parties. Generally, the courts will not enforce provisions relating to mere competition. It must be established that there is a legitimate interest which requires protection – for example, confidential documents, lists of clients or specific details within contracts.
 
Once a legitimate interest is identified, the restrictive covenant in question needs to be no more extensive than is necessary to protect that interest – i.e. limited in scope and time. The courts are much less sympathetic to restraints within employment contracts as opposed to in commercial contracts as it is understood that usually employees are in a weaker bargaining position than employers. The enforceability of restrictive covenants is highly fact specific and will depend upon the wording of the clause.
 
Let’s look at previous decisions relating to restrictive covenants and their enforceability and reasonableness.
 
Garden Leave
 
In one case the High Court was asked to consider whether a stockbroker could be placed on garden leave for the entirety of his 12-month notice period. The court considered that the provision was reasonably necessary to protect the company’s legitimate business interests. The stockbroker had signed a revised contract which included the clause and also increased his salary from £40,000 to £120,000.
 
In a further case relating to garden leave, an employer was entitled to place three employees on garden leave during the period of their notice period despite there being no garden leave clause within their employment contracts. This was due to the fact that the employees had breached their contracts and there was no onus upon the employer to provide work to the employees due to the breaches.
 
Non-Compete
 
A financial adviser had a restrictive covenant that prevented him from providing any services for a period of 9 months following the termination of his employment. However, this was ruled invalid as the adviser had been working with a client base in one particular region of the country. Furthermore, the length of the covenant was deemed too long as he had left his employment after only six months.
 
A six month non-compete clause was deemed invalid for a junior employee as the considered it was inappropriate for someone of that level. The clause was also deemed unenforceable as the scope was too wide. The clause sought to restrain the employee from being engaged in work of a similar nature to that of the employer to the employer’s questions – it was deemed too wide as it concerned all customers not solely those of which the employee had knowledge of or dealt with previously.
 
For more information, please contact Sean McHale on 0113 247 3800 or by emailing sean.mchale@legalstudio.co.uk
  2022 48 04 383
What is a Settlement Agreement?
 
A settlement agreement is a legally binding contract between an employer and an employee which brings the employee’s employment to an end. In essence, the employer terminates the employee’s employment in return for paying the employee a sum of money.
 
What sum of money should the employee receive?
 
The amount of money paid to an employee under a settlement agreement is discretionary. However, primarily, the employee will be entitled to payment of their notice pay and redundancy payment (which is dependent upon the employee’s age and the number of years which they have worked at the company). However, depending upon whether the employee has worked at the company for longer than 2 years, and dependent upon the circumstances of the end of the employee’s employment, they will be entitled to a further payment. As to the exact amount, the employee and employer will need to take advice from an employment law specialist. Relevant factors will include:
 
  • The seniority of the employee;
  • The validity or complexity of any claims;
  • The circumstances of the departure, whether it is on good terms or otherwise.
 
Can the employee still pursue a claim against the employer after signing the settlement agreement?
 
In order for the settlement agreement to be legal binding the employee must take independent legal advice. However, once this done the employee can no longer pursue a claim against the employer, save for any which have been exempted (usually in relation to pensions or an injury/illness of which the employee may not be aware).
 
Is an employee compelled to accept a settlement agreement?
 
There is no obligation upon an employee to accept a settlement agreement once it is proposed to them. However, there will almost always be circumstances which have led to a settlement agreement being offered – such as a breakdown in the relationship, a redundancy situation or pending disciplinary proceedings.
 
What happens to bonus payments?
 
The employee will need to be aware that if their termination date arrives before the date for payment of a bonus then they shall not be entitled to payment of the bonus. Therefore, either the termination date shall need to be amended to occur after the date of the bonus payment, or payment of the pending bonus made as part of the terms of the settlement agreement.
 
Is the Termination Payment tax free?
 
Yes, the termination payment is tax free up to a limit of £30,000.00 pursuant to the Income Tax (Earnings and Pensions Act) 2003. However, notice and salary payments under the settlement agreement shall be taxed in the usual way.
 
For more information please contact Sean McHale on 0113 247 3800 or by emailing sean.mchale@legalstudio.co.uk
 
 
  2022 34 04 383
Probate Applications during Covid-19
 
Covid-19 has had a significant impact on the process of obtaining a Grant of Probate in the estate of a person who has died in order to administer their estate.

A Grant of Probate is a document issued by the Probate Registry giving the executors named in the Will of a person who has died, the legal authority to administer their estate.  If a person left no Will, then the people entitled to the estate are the next in line to apply for what is called a Grant of Letters of Administration.

Regardless of which type of Grant is needed, the process is largely similar requiring completion of an Inland Revenue account – an inventory of the estate assets and liabilities in effect.  This will enable the executors and HMRC to calculate whether any inheritance tax is due as a result of the death and if so, part of that tax must be paid ‘up front’ when the application for the Grant is made.  Once that tax bill has been, HMRC issue a receipt, which in turn allows the executors to apply to the Probate Registry for whichever Grant they require.   Incidentally, the remainder of the tax is usually payable around 6 months later and can be postponed to be paid by ten annual instalments if the executors and beneficiaries prefer this.  This means that it isn’t always necessary to have to sell property in order to pay the tax bill, which is helpful to families wanting to keep the family home, for example.

Once the Grant has been issued, the executors can then sell property, close accounts, and pay debts before making distributions to the people entitled to receive the estate.

As a probate practitioner, I can report it has been a painful journey, navigating through a new and improved online probate application process at a time when tragically, deaths as a result of the pandemic have increased significantly.  This has put a lot of pressure on the Probate Registry.

The days of advising clients of a wait of 7-10 working days to receive the Grant seem like a distant memory and we are now waiting anything from 1-3 months, more so in an estate where inheritance tax is payable.

The good news is that the Probate Registry and HMRC have taken steps to make the process a little easier in the light of the practical difficulties arising from the pandemic restrictions. 
 
  • Both will now accept electronic signatures on the probate application forms and the Inland Revenue accounts, which makes a lot of sense given electronic capabilities and avoids the need to circulate a document between several executors at different addresses, which could take weeks.
 
  • Applications for Grants are now made online through the Probate Registry’s portal and updates can be found by checking the portal after submission.  Enquiries are sent by email so can be responded to the same day meaning much quicker turnaround times where additional information might be needed to process an application.  It is still necessary to send paperwork after the online submission has been made – including the original Will, if there is one – but it is reassuring to know that the account has been opened already, so to speak.
 
The Stamp Duty Land Tax (SDLT) incentives offered by the Government through the pandemic has boosted the property market without question, but the knock-on effect is that there are horrendous delays in processing by the Land Registry.  The reason is that social distancing measures has meant a reduced workforce and so there simply aren’t enough people to keep up with the demand at the moment.  Hopefully, this will improve, and the backlog can be reduced but beneficiaries waiting for properties to be transferred to them are looking at 4-6 months, possibly more.   If property is to be sold, the pressure on conveyancers trying to cope with the demands of buyers frantically trying to complete before the SDLT incentive deadlines, has also created a log jam.

Introducing the above changes is a positive step, but at a time when many are struggling to cope with the impact of social distancing restrictions in the workplace caused by Covid-19, the pressures on the court system and other Government agencies is very apparent. 

If you have any questions about matters covered in this article, please contact Clare Young on 07802 618 132 or at clare.young@legalstudio.co.uk
 
 2021 12 01 333
 
Probate Fees Hike
 
A Grant of Probate is a document issued by the Probate Registry giving executors named in a Will the legal authority to administer the estate of a deceased person.

Probate professionals and bereaved families alike suffered a collective and significant fright back in 2019 awaiting the introduction of drastic increases to the cost of obtaining a Grant of Probate – set to be as much as £20,000 based on a sliding scale.  We all then breathed a collective sigh of relief as that proposal was shelved, although many were frantically submitting applications just in case the measures were pushed through.

Another round of increases has been announced, but fortunately these are nowhere near as swingeing.

At the moment, the cost of applying for a Grant of Probate depends on whether a professional is applying - £155 - or an individual (known as a ‘personal application’) - £215. 

The new proposals set to take effect in early 2022, will mean a flat fee of £273 for all applications, regardless of the value of the estate.

The reason for the increase?  The Ministry of Justice claim that the increase is needed to cover the administrative cost of running the service, currently operating at a loss it claims.  Interestingly, the 2019 proposals were intended to generate extra revenue to help subsidise increasing costs across the court service as a whole.  At that time, the probate service wasn’t loss-making as it now appears to be!

A consultation period on the proposed increased has recently ended and so we await the outcome with interest.

If you have any questions about matters covered in this article, please contact Clare Young on 07802 618 132 or at clare.young@legalstudio.co.uk
 2021 09 01 333
                                           Should you disclaim or vary an inheritance?

Introduction

Receiving an inheritance from a loved one can be a very emotional experience and may also give rise to tax issues.  It may be that your personal circumstances are such that receiving an inheritance increases the value of your estate to a level where you become concerned about inheritance tax (IHT).

Redirecting an Inheritance

It is possible for changes to be made to the distribution of an individual’s estate after they have died to mitigate capital gains tax (CGT) and IHT.  The changes can be made in one of two ways:
  1. A Variation; and/or
  2. A Disclaimer.
What is a Variation?

A Variation allows you to redirect the inheritance you receive under a Will or the Rules of Intestacy so that the person you are gifting your inheritance to is deemed to have received it under the terms of the deceased’s Will for IHT and/or CGT purposes.

For a Variation to be valid the following conditions must be satisfied:
  • The Variation must be evidenced in writing and signed by the beneficiary who is redirecting their inheritance. The executors of the deceased’s estate will also need to sign the Variation if it results in a larger IHT bill;
  • The Variation must be executed within two years of the deceased’s death;
  •  The Variation must not be made for any consideration in money or money’s worth. In other words, the person who is receiving the benefit of the gift should not pay anything to the individual who is making the gift.
  • The Variation must contain a statement to the effect that certain tax provisions under the IHT and CGT tax codes should be included.
What is a Disclaimer?

A Disclaimer operates differently from a Variation.  It is where a beneficiary under the Will chooses not to accept the gift made to them by the deceased.  It is important that the beneficiary has not accepted the gift as it is not then possible to disclaim it.

The following should be noted to ensure a disclaimer is valid:
  • A beneficiary is unable to disclaim only part of a gift; and
  • It is advisable for a disclaimer to be made in writing to the executors of the deceased’s estate although it may be made orally.
The main differences between a Variation and a Disclaimer is:
  • The individual who is disclaiming their inheritance may seek some form of monetary consideration from the person who benefits under the Disclaimer.  This is prohibited under the rules applying to Variations; and
  • Under a Variation the beneficiary who is making the gift can decide who should receive the benefit of the gift whereas the beneficiary cannot do this with a Disclaimer because the terms of the Will to determine who will inherit it.
This can often produce some unexpected results.

Example

Mr Lucky sadly dies and leaves his estate equally between his two children, Soo and Not-Soo and if either child dies before him then the deceased child’s share passes to his or her children in equal shares on reaching the age of 25.

Soo has done very well financially and decides that she would like her brother, Not-Soo to receive her share of their late father’s estate.  Soo does some research on the internet and decides to disclaim her interest in her late father’s estate thinking that it will pass to her brother under the terms of their late father’s Will.

By entering into the Disclaimer Soo is treated as having died immediately before her father for the purposes of the Wills Act 1837. Under s33 of this Act Soo’s children will inherit her share of her late father’s estate. The Disclaimer is therefore, ineffective.

If Soo had taken legal advice she would have been advised to enter into a Variation where she could have nominated her brother, Not Soo to receive her share of their late father’s estate. 

For more information call Malcolm Emery on 07708 613 789 or email him at malcolm.emery@legalstudio.co.uk 2021 10 30 359
                                                Generating Tax Free Income!
 
Introduction

You may be thinking of ways to mange your exposure to inheritance tax by making provision for your children and/or grandchildren.

One way is to gifts assets directly to family members but there is always a risk of it being spent immediately or it could be swallowed up in divorce proceedings if they are in the process of a marital break-up.

What is the Solution?

Rather than make an outright gift direct to the child or grandchild a trust could be created which would offer greater protection against the issues mentioned above.

You could appoint yourself as a trustee so that you can continue to be involved in investment decisions and decide when money should be released from the trust to a beneficiary in terms or income and/or capital.

How to generate tax-free income using a Trust

Another benefit of making gifts via a trust is that, in certain circumstances, you can generate tax-free income in the hands of the beneficiary who has received income from the trust.

The trustees of a discretionary trust pay income tax at 20% on the first £1,000 of their income (7.5% on dividend income) and 45% on the balance (38.1% on dividends).  Whilst this may be higher than your current rate of income tax do not worry as help is at hand.

If the trustees make income distributions to a beneficiary, the income tax that they have paid is credited to the beneficiary who is receiving the income. Therefore, if the beneficiary pays tax at a lower rate than 45% then they can recover the excess from HM Revenue & Customs through their self-assessment tax return.

Example

The trustees of the ABC Trust receive gross rental income of £10,000. Ignoring the £1,000 basic rate band the trustees will pay income tax of £4,500 on this income leaving a sum of £5,500 available for distribution to one or more of the beneficiaries of the trust.

The trustees decide to make an income distribution to John of £5,500. John is studying at university and has no other income.

For tax purposes John is deemed to receive gross income of £10,000 with a tax credit of £4,500. As John has no other income sources the gross trust income he has received is covered by his personal allowance which for the current tax year, 6 April 2021 to 5 April 2022, is £12,570.  John can submit a tax repayment to HM Revenue & Customs to recover the income tax of £4,500 paid by the trustees, thereby generating tax free income in his hands.

A Word of Warning!

The above planning will not work if the beneficiaries of the trust are your children and are under the age of 18. If you have created the trust and trust income is distributed to your minor children, it is treated as your income for tax purposes.  

This type of planning works very well if the beneficiaries are your children and are aged 18 or over or your grandchildren (any age). This is because the income will be treated as their own for income tax purposes.

For more information call Malcolm Emery on 07708 613 789 or email him at malcolm.emery@legalstudio.co.uk
 
  2021 42 30 359
 
Introduction

We all hope that throughout our life we will be able to make decisions about our affairs including those which impact on our health and wellbeing. However, recent statistics have shown that 25% of the UK population will experience issues with their mental health which may mean they are unable to do this.

How can a Lasting Power of Attorney help?

A lasting power of attorney (LPA) is a legal document in which you authorise a chosen person (an attorney) to make certain decisions on your behalf if you lose mental capacity and are unable to do this yourself.
The decisions that you authorise your attorneys to make can be either in relation to your finances, for which an LPA for property and affairs will be created, or in relation to your personal life, where an LPA for personal welfare will be created.

Perhaps you feel that an LPA is not necessary as family members can automatically step in to make these decisions for you. Unfortunately, this is not the case as family members do not have an automatic right to make decisions on your behalf.

What to do if you run a business

If you run a business as a sole trader, through a partnership or through a company you should consider putting a business LPA in place so that your business can continue to trade in the event of you losing capacity. The remainder of this article will focus on the issues facing businesses which are trading through a corporate structure.

The importance of the articles of association

The articles of association set out the rules on how your company is run and so it is important to check these first to ensure you have authority to appoint an attorney. Most companies are covered by what are known as “Table A” articles which are a default set of provisions.

For companies incorporated on or after 28th of April 2013 under Table A articles, the Mental Health Discrimination Act 2013 provides that directors who have lost capacity must be supported in their role rather than removed from it. The only exception to this rule is if a medical practitioner confirms that the director will be unable to fulfil his or her role as a director for at least three months due to losing mental capacity.
If your company was set up under an earlier version of the “Table A” articles they will contain different provisions relating to the termination of a director's role due to mental incapacity and you may wish to consider updating these.
  
Can I have more than one LPA?

You can put any number of LPAs in place providing none of them conflict with each other. You could, for example, consider making an LPA for certain attorneys to manage your personal assets (i.e. your home and personal bank accounts) and another one to cover your role as a director.

If you are considering making personal and business LPAs, they should both contain specific instructions limiting the scope of the attorneys’ powers. For example, a personal LPA should specify that your attorneys will have general powers in relation to your personal affairs except for your role as a director which is covered under a separate business LPA. Your business LPA should contain specific instructions in this respect too. Your attorneys will then be clear about their powers and will not encroach on the others attorneys’ responsibilities and decisions. You may also wish to put a separate letter of wishes in place which gives your attorneys more guidance and direction on your vision for the business and the markets in which it operates.

You could, for example, appoint your spouse to make decisions about your personal property and affairs whilst someone with suitable experience as your attorney in relation to your role as a director. If you also own shares in the company these will be dealt with under your personal LPA rather than your business LPA. Therefore, you should consider carefully who should make decisions in relation to your shareholding in the company. If appropriate you may decide to create a separate LPA relating to your shareholding in the company.

In this example you would have three LPAs. The first one would relate to your personal assets whilst the second would relate to your role as a director and the final one would relate to your shareholding in the company.

Putting separate LPAs in place for your directorship and your shareholding avoids potential conflicts of interest arising.

Who should I appoint as a suitable attorney?

An attorney should be trustworthy, competent, and reliable. They should have the skills and ability to carry out the role.

When choosing a business attorney, you should consider:
  • Does the individual have the necessary skill, ability, and experience to carry out the role? How have they demonstrated this?
  • Do any regulations prevent their appointment?
  • Are there conflicts of interest between the personal attorney and the business attorney?
What happens if I do not make a business LPA?

If you are unable to make a business decision in the future and have not made a business LPA, it may become necessary to make an application to the Court of Protection for the appointment of a deputy to act on your behalf. The process can be expensive and there are no guarantees that the Court of Protection will choose someone he would have chosen yourself. It could also take more than six months before a deputy is appointed, during which time your business may be vulnerable and at risk.

Summary

Whilst no one wants to think that they may not be able to make decisions for themselves or run their business due to a lack of capacity, it is important that the risk is considered as part of your risk management strategy. Putting a business LPA in place will certainly help minimise the risks of the company ceasing to trade due to a lack of management and decision making.

For further information on LPAs please contact Malcolm Emery.
  2021 01 23 359

FINANCIAL AFFAIRS OF THE HEART!
 

With hits such as “toxic” and “criminal” we probably should not be surprised by the recent court case that has developed between Britney Spears and her father.

What is a Conservatorship?

Due to Britney’s troubled past and her vulnerability, her father was appointed to look after his daughter’s financial affairs and wellbeing by the Court under an arrangement known as Conservatorship. This arrangement has been in place now for some 13 years and whilst Britney may not have had the mental stability to make decisions for herself when the Conservatorship was put in place, it appears that her mental state has clearly improved and she now wants to take control back for all aspects of her life. This is the decision that the courts must consider and decide on.

Can you put a Conservatorship in Place in the UK?

The UK does not have an equivalent of a Conservatorship although a trust is sometimes used to manage the affairs of an individual who is vulnerable or perhaps does not have capacity to look after their own affairs. 
A trust can be a very flexible arrangement to manage an individual’s financial affairs, offer protection against undue influence and potential tax savings.  The individuals who manage the trust are known as the trustees although their powers can only be used to manage the financial assets held subject to a trust.  The trustees’ powers do not extend to making decisions about the beneficiary’s health and welfare.

The Benefits of putting Lasting Powers of Attorney in Place

If you have capacity to make your own decisions, there may come a time when this is not the case. To safeguard against this, you can put legal documents in place known as lasting powers of attorney.  There are two different types. The first is known as a property and affairs LPA (PAFLPA) and allows the people you appoint (known as your attorneys) to make decisions about your financial affairs such as paying bills or buying/selling property.

The other type of LPA is known as a Health & Welfare LPA (HWLPA) and allows your attorneys to make decisions on your behalf about your health (i.e., medical treatment) or your welfare (i.e., living accommodation, how you live day to day, etc).

Your PAFLPA and your HWLPA cannot be used until they have been registered with the Office of the Public Guardian. Your HWLPA cannot be used by your attorneys unless you have lost capacity.  Whilst your PAFLPA can be used before you lose capacity you can include a restriction in the document itself which specifies that it cannot be used unless you have lost capacity.  This ensures that you retain control over all financial and health and welfare decisions until you are unable to make the decisions for yourself. A crucial difference from the conservatorship that Britney Spears is subject to.
 
A recent survey has identified that at least 25% of the UK population will suffer some form of mental health issue during their lifetime.  Therefore, it is crucial that you consider putting PAFLPA and HWLPAs in place before it is too late.
 
For further information on the use of trust and LPAs to protect you and your family please contact Malcolm Emery.
 

 2021 49 29 359

We just wanted to say a big Legal Studio Thank You! to everyone who applied for our paralegal to trainee role.

We had an exceptionally high standard of applications on paper and everyone performed really well in the interviews. It's going to be a tough choice for us.

We know that it's difficult out there at the moment for aspiring lawyers to get started or to secure a Training Contract and we wish we could offer more opportunities (maybe next year).

In the meantime, we hope that all our applicants get the opportunities they fully deserve. Keep persevering and good luck to you all!

PS. The picture of Wolfgang (Wolfie) as a puppy was entirely gratuitous, as is the picture below now that he's grown up abit.

Wolfgang2.jpg  Wolfie at Long Meg in Penrith, Cumbria 2021 57 16 47
 
Can’t wait to go back to the Office? No, thought not. Get in touch with Legal Studio and we’ll explain how you can be happier, wealthier and enjoy work again. We are only a Zoom call away.

P.S. There's a Bonus prize [*] if you can spot Theresa May in the photograph below.

 2021 28 12 47

Following Covid-19, remote working in the legal sector became ubiquitous overnight. How can firms control and manage risk, and ensure that they remain compliant?

Legal Studio's Ian McCann attended April 2021's Law Society Round table event which discussed risk and compliance in the context of remote working. The full article can be viewed here.

Ian featured in the section enitled 'People', parts of which are reproduced below:

People

As a profession, the law has always policed its ‘gateway’, with members assessed most heavily on entry. It is no surprise therefore that careful recruitment is the most important risk safeguard for many.

‘The greatest risk management tool that you’ve got is actually recruitment,’ Ian McCann, chief executive of Leeds litigation firm Legal Studio, says. ‘Start right with culture and character – find the right people to become part of your team.’

Legal Studio operates on a consultant model. McCann advises that when looking at candidates, the way to do it is ‘reckless honesty’. ‘Having those conversations with people and understanding: why do you want to do this? What motivates you? What is it that you want to bring to this? Why do you want to become a consultant? What does your client base look like?’

Keeping the welfare of consultants front of mind is also important in limiting risk, he adds: ‘Make sure you’re looking out for them, because another risk factor is that it’s been a challenging year.’
 

 2021 57 12 47
Clare Young  featured in a great article in the Yorkshire Post by Ismail Mulla about the reasons behind her move to Legal Studio Solicitors and the trend of lawyers becoming Consultant Solicitors during the Pandemic. 

Clare says: “It has brought into focus what you think is important in your life”.

Clare specialises in Private Client Services and can assist you with:
  • Making a Will;
  • Making a Lasting Power of Attorney;
  • Creating a lifetime trust to protect property and other assets for children;
  • Inheritance Tax and ways in which you might reduce your tax bill;
  • Declarations of Trust to protect unequal contributions when buying property;
  • Probate to sort out the estate of a loved one who has died.
Clare says:

The peace of mind brought about by knowing that have put your affairs in order is immeasurable.  By ensuring that you have a valid Will in place in the event of your death and that you have appointed trusted people to act on your behalf if you become physically or mentally incapacitated, you can rest assured that your loved ones will not be left with any difficulties later on in life.  If you have accumulated some wealth during your lifetime, you are likely to want to preserve that wealth for the benefit of the next generation and our expert advice can assist you to achieve this.

 2021 53 22 333
 
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