Right of access to company information held on ex-employee’s personal computer

When an employee leaves does their ex-employer have the right of access to the employee’s personal computer to see “documents” held on that computer that had to do with the work the employee carried out for the employer? The Court of Appeal gave an answer in Fairstar Heavy Transport NV v Adkins & Anor [2013] EWCA Civ 886

The issue in this appeal was whether Fairstar Heavy Transport was entitled to an order requiring its former Chief Executive Officer, Mr Adkins, after the termination of his appointment, to give it access to the content of emails relating to its business affairs. The relevant emails, which were stored on his personal computer, were sent or received by him on behalf of the company.

The Court of Appeal found that the relationship between Mr Adkins and Fairstar was not one of straight employment, but had been that of principal and agent. In such a relationship, the principal is entitled to require production by the agent of documents relating to the affairs of the principal.

“Documents” may, depending on context, include information recorded, held, or stored by other means than paper, and extends to electronic documents, including emails. Materials held and stored on a computer, which may be displayed in readable form on a screen or printed out on paper, are in principle just the same as paper documents. The form of recording or storage does not detract from the substantive right of the principal as against the agent to have access to their content.

Mr Adkins was under a duty, as a former agent of Fairstar, to allow the company to inspect emails sent to or received by him and relating to its business. The termination of the relationship between them did not terminate the duty binding on Mr Adkins to make these documents available.

Although this case has to be read in the context of agent and principal, it does not detract from the basic principle that an employer should be able to have access to electronic documents and communications held on an ex-employee’s personal computer. This right should be established by appropriate terms and conditions at the beginning of any situation where an employee could be using their own computer, notebook, and/or mobile phone to store company documents and email communications.

Certainly, where the employer owns the equipment being used by the employee, as a matter of policy all such equipment and the information and communications they contain should all come back to the employer at the end of the employment relationship.

Recording the Scheme Contracting-out Number on Full Payment Submissions

In the July 2013 Issue 6 of the ‘Pensions Industry Pensions Update’, employers are alerted about the mandatory requirement to include SCON numbers on Full Payment Submissions from 6 April 2014 onwards.

The Pensions Update explains why this is required from April 2014. With effect from 6 April 2016, the government is legislating to introduce a single-tier pension. This new State pension will mean that it will no longer be possible to contract-out using a Defined Benefits pension scheme.

This change in pension provisions will require closure of all open periods of contracting-out on members National Insurance records. To do this the NI Office need the Scheme Contracting-out Number (SCON) as this identifies which pension scheme an individual is in.

Currently all employers must show their Employer Contracted-out Number (ECON) on their FPS submissions, if an employee has been in a contracted-out scheme at any time during the tax year in question. Inclusion of the ECON is mandatory and failure to provide this information results in a rejection. At present there is no requirement for employers to include the SCON on their FPS, although they have the option to do so.

Therefore, with effect from 6 April 2014, it will become mandatory for employers to show the SCON in addition to the ECON on their FPS when submitting contracted-out National Insurance Contributions (categories D,E,L, N and O) for any employee who has been in a contracted-out scheme at any time during the tax year.

The ECON is in most cases unique to the employer but an employer can have several SCONs if they have a number of different contracted-out pension schemes. It’s important to ensure that the correct SCON is entered on the FPS for the individual.

From April 2014, HMRC’s validation checks will reflect this change and any FPS received without a SCON where NI category letters D, E, L, N or O are present will be rejected.

In preparation for April 2014, it would be good to make sure a relevant employer is aware of this change, and that their RTI software/service provider will be making the necessary changes to accommodate a mandatory SCON.

HMRC starts registering annual PAYE schemes once again

On 25 July, HMRC announced that they are now able to accept all the requests that have been made to change existing PAYE schemes to annual ones.

This 25 July announcement updates my blog item of 28 June wherein it was stated that HMRC needed to put a fix in place in their system before they could deal with any requests to change the status of an existing PAYE scheme.

Employers who request to change their PAYE scheme to an annual one should note that although HMRC can process their request, they state in their announcement of 25 July: “We will not, however, be notifying employers when that change [to an annual PAYE scheme] has been made.”

In their 25 July announcement, HMRC restated their guidance on how annual schemes work.


An annual scheme must meet all of the following requirements:

  • all the employees are paid annually
  • all the employees are paid at the same time/same date
  • the employer is only required to pay HMRC annually

Submitting Employer Payment Summaries

Once a business is registered as an annual scheme, an Employer Payment Summary (EPS) is not required for the 11 months of the tax year where no payments are made to the employees.

HMRC’s debt management system will already have a record of the month the employer is due to pay, based on payments in previous years. This information has been transferred to a new accounting system and is recorded as the annual payment/filing month.

Presumably, where an employer who has requested to change to an annual scheme is not chased by HMRC for PAYE payments for the tax months when nothing is due, this will be confirmation that HMRC has accepted the change to an annual scheme?

Changing the date of payment to employees

If an existing annual employer changes the date/month of payment to the employee(s), they should complete a Full Payment Submission (FPS) for the month that the payment is made to the employee(s). On receipt of the FPS, HMRC’s systems will change the annual payment/filing month over to that month.

More than one payment in a tax year

If an employer pays an employee, or employees, and submits FPS for more than a single month in the year, HMRC will automatically cancel the annual payer status for that year and following years. They will issue a letter to the employer advising the status cancellation and the debt management processes will revert to expecting filing/payment on a monthly basis.

Non-annual schemes and NIL payments in a month – a reminder

Schemes not registered as annual schemes should submit a ‘NIL EPS/period of inactivity EPS’ for each tax month they do not make any payments to employees. This will also apply to schemes where the employer/agent intends to apply for a scheme to become an annual scheme – in which case they will need to submit a ‘NIL EPS/period of inactivity EPS’ until the registration has been accepted as an annual scheme.

This last statement I find confusing. How will an employer/agent know that their “registration has been accepted as an annual scheme” when HMRC “will not be notifying employers when [a change to an annual scheme] has been made”? Presumably, the employer/agent will just stop submitting monthly EPS returns once they apply to change to an annual scheme and if HMRC don’t chase them for unpaid PAYE, then everything is alright? HMRC may need to re-think their “not notifying” statement..

How collective agreements negotiated after the date of transfer are affected by TUPE

Under the Transfer of Undertakings (Protection of Employment) Regulations, can a new employer be bound by collective agreements made after the date of transfer? No, the Court of Justice of the European Union has decided in the case of Alemo-Herron & Ors v Parkwood Leisure Ltd Case C-426/11.

In this case, Lewisham London Borough Council contracted out its ‘leisure’ services to a private sector undertaking who then sold the business to Parkwood, another private sector undertaking.

When the leisure department was the responsibility of the Council, the employee’s employment contracts had the benefit of the terms and conditions negotiated by the NJC, the local government collective bargaining body.

At the time of contracting out of the ‘leisure’ services to the first private sector undertaking, the NJC agreement for 1 April 2002 to 31 March 2004 applied. The transfer of undertaking to Parkwood took place in May 2004.

In June 2004, a new agreement was reached within the NJC, which was retrospectively effective from 1 April 2004 and was to continue in force until 31 March 2007. The new agreement was therefore reached after the transfer of the undertaking to Parkwood.

Parkwood concluded that the new agreement was not binding on it. They hadn’t participated in the negotiations and, in any event, couldn’t have done so since they are a private sector undertaking and not a public authority. Therefore, Parkwood notified the employees of their refusal to grant the NJC pay increase for the period from April 2004 to March 2007.

The employees claimed that Parkwood was bound to apply the new pay settlement. The Employment Tribunal rejected their claim; the EAT reinstated their claim; the Court of Appeal restored the decision of the Employment Tribunal. The case was referred to the Supreme Court who decided to refer a number of questions to the CJEU for a ruling.

Council Directive 2001/23/EC deals with the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses. Article 3 of the Directive states that contractual obligation entered into by one employer (including collective agreements) automatically transfer to the new employer under a transfer of undertakings.

However, the CJEU recognised that the Directive does not aim solely to safeguard the interests of employees in the event of transfer of an undertaking, but seeks to ensure a fair balance between the interests of those employees, on the one hand, and those of the transferee, on the other. More particularly, the Directive makes clear that the transferee must be in a position to make the adjustments and changes necessary to carry on its operations.

The CJEU found that because Parkwood was unable to participate in the NJC collective negotiations, the company’s contractual freedom was seriously reduced to the point that such a limitation was liable to adversely affect their freedom to conduct a business.

Therefore, the final decision is that Directive 2001/23/EC must be interpreted as precluding a Member State from providing, in the event of a transfer of an undertaking, that dynamic clauses referring to collective agreements negotiated and adopted after the date of transfer are enforceable against the transferee, where that transferee does not have the possibility of participating in the negotiation process of such collective agreements concluded after the date of the transfer.

Of course, if at the time Parkwood acquired the business the last NJC pay settlement was still effective, then they would have to had to abide by that settlement until the earliest that the settlement came to an end or twelve months from the date of transfer.

New “employee shareholder” status comes into law from 1 September 2013

Section 31 of the Growth and Infrastructure Act 2013 comes into force on 1st September 2013. Section 31 provides for a special class of employee known as “employee shareholders”.

This coming into effect from 1 September is as per the Growth and Infrastructure Act 2013 (Commencement No. 3 and Savings) Order 2013 (SI No. 1766).

Under a new type of employment contract, “employee shareholders” will be given between £2,000 and £50,000 of shares. The first £2,000 worth of shares can normally be received free of income tax and National Insurance contributions. Share awards in excess of £2,000 will be taxed in the normal way, except that the first £50,000 of any shares will be free of capital gains tax.

In exchange for their free shares, “employee shareholders” will give up their UK rights on unfair dismissal, redundancy, and the right to request flexible working, and time off for training. They will also be required to provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual eight.

In order to get the House of Lords to approve “employee shareholders” a number of concessions were granted:

  • There will be a seven-day ‘cooling-off’ period before any change in employment status comes into effect.
  • Changing an employee’s existing employment status to an employee shareholder, or employing a new employee as an employee shareholder, cannot take effect unless the employee concerned has first taken independent professional advice. The fees for this advice must be met by the employer.
  • The employer will be required to give the worker a written statement making clear exactly what are the shareholder’s rights if they accept the shares.
  • The written statement must also specify the rights the employee gives up when accepting the shares.
  • The written statement must also specify, among other matters, what are the rights that come with the shares, for example, as to voting rights and dividends.
  • The written statement should also deal with whether the employee would share in the assets of the company should it be wound up, and whether their shares are redeemable and at whose option, and whether they are transferable together with any applicable restrictions on transfer.
  • An employee will not suffer any detriment if they refuse to change their existing employment status.

Employers cannot insist that existing employees become “employee shareholders”, but an employer can with regard to any employee employed on or after 1 September 2013 require that they can only be employed under the status of “employee shareholder”.

There does not seem to be much about in the way of information about the new “employee shareholder” status at the moment. There is general online advice from firms of lawyers which you can find by entering “employee shareholder status” in a Google search field.

Employee’s right to untaken annual leave carried forward between leave years

When an employee has been unable to take paid annual leave during sickness, how much untaken leave do they have the right to carry over in to a following leave year, or to be paid in lieu at the time of termination of employment if necessary? The EAT judgement in Sood Enterprises Ltd v Healy [2013] UKEAT 0015/12 provides some guidance.

In this case, Mr Healy was unable to take all his annual leave entitlement during the leave year ending 31 December 2010 due to sickness. Mr Healey resigned in June 2011 having not taken any paid annual leave during that leave year. The question was how much untaken annual leave was he entitled to be paid at the time of termination?

The right to paid annual leave is contained in the Working Time Directive 2003/88/EC. Article 7 of the Directive provides that “every worker is entitled to paid annual leave of at least four weeks” and “the minimum period of annual leave may not be replaced by an allowance in lieu, except when the employment relationship is terminated.”

Court of Justice of the European Union (CJEU) case law has established that when an employee is unable to take statutory annual leave under the Directive by the end of the leave year in question due to illness, they are entitled to carry that untaken leave forward into a following leave year and take it when they return to work, or have it paid in lieu if their employment ends in the meantime. The employee has this right without having to make a formal request for the leave to be carried over.

In the UK the Working Time Regulations 1998 implement the Directive. Regulation 13 provides for entitlement to “four weeks’ annual leave in each leave year.” Subsection 9 of Regular 13 states that annual leave “may only be taken in the leave year in respect of which it is due, and it may not be replaced by a payment in lieu except where the worker’s employment is terminated.”

Regulation 13A gives a right to an additional 1.6 weeks’ annual leave, “subject to a maximum of 28 days”. Like Regulation 13, the additional 1.6 weeks’ leave “may not be replaced by a payment in lieu except where the worker’s employment is terminated”. Except that under subsection 7 of Regulation 13A “a relevant agreement may provide for any leave to which a worker is entitled under this regulation [i.e. the additional 1.6 weeks] to be carried forward into the leave year immediately following the leave year in respect of which it is due.”

Regulation 26A provides that where there is a relevant agreement in place that provides for an additional 1.6 weeks’ paid annual leave entitlement over and above the 4 weeks required by Regulation 13, this additional leave “may not be replaced by a payment in lieu except in relation to a worker whose employment is terminated; and may not be carried forward into a leave year other than that which immediately follows the leave year in respect of which the leave is due”.

In the opinion of the EAT judge in the Sood case, although Regulation 13 states that statutory paid annual leave can be taken only in the leave year in respect of which it is due, this has been construed so as to allow a worker who was prevented from taking their leave by illness to carry leave forward.  If he or she does not return to work due to illness they are then entitled to holiday pay in respect of leave which has accrued.

However, Regulations 13A and 26A read differently. These Regulations specifically mention the carrying forward of untaken additional leave only by agreement and that additional leave may not be a carried forward into a leave year other than that which immediately follows the leave year in respect of which the leave is due.

Therefore, the conclusion of the EAT judge was that the two leave years require to be considered separately, as there were no findings in fact that there was any relevant agreement between the parties about the carrying forward of any additional leave accrued during 2010 into the 2011 leave year.

In the leave year 2011, Mr Healy asked for his holiday pay on termination of his employment.  He was entitled to 4 weeks’ leave (Regulation 13) + 1.6 weeks’ leave (Regulation 13A), with a pro rata reduction in respect of his leaving in the middle of the year.  For the leave year 2010, Mr Healy was entitled to be paid in lieu for the balance of his untaken 4 weeks’ leave (Regulation 13) rather than 5.6 weeks’ leave (including Regulation 13A). As the additional 1.6 weeks’ leave under Regulation 13A could not be carried forward except by agreement this additional leave could not be paid in lieu at the time of termination in the following leave year.

The EAT judge also considered that CJEU case law meant that the UK Regulations implementing the Directive “should be read down so as to apply not only to emanations of the state but also to a private company”. Therefore, in this case the employer could not argue that the CJEU case law only applied to emanations of the state (e.g. local authorities, NHS hospital trusts, etc.); it applied equally to private companies like Sood Enterprises Ltd.

Whether Sood Enterprises Ltd will appeal is yet unkown. Therefore it may take other cases to explore in more depth whether annual leave accrued under Regulation 13A but which cannot be taken due to illness should be allowed to be carried forward and taken in a following leave year anyway, or paid in lieu at the time of termination. But that is just my opinion.

HMRC move to close National Insurance loophole used by offshore employment intermediaries

On 30 May, HMRC published a consultation Offshore Employment Intermediaries. Comments are invited by 8 August. The purpose of the consultation is to ensure UK based workers do not lose out on contributory social security benefits.

Recent years have seen a growing use of offshore employers to employ UK workers who are working for UK based companies. This can be for legitimate commercial reasons – for example workers on international secondments.

However, some businesses are using these structures to avoid paying employment taxes including National Insurance for their UK-based workers. This is not fair as often workers engaged in this way are unaware that their access to some contributory social security benefits (e.g. State pension) may have been put at risk. These structures are increasingly being marketed and promoted as a legitimate way to avoid National Insurance. In several industries their use has become widespread.

The proposal put forward in the consultation at its simplest is to create an income tax and NICs charge on offshore employers of workers engaged in the UK. The offshore employer will be liable in the first instance for deducting income tax and NICs from the worker and will be the secondary contributor, making them liable to pay employer (secondary) NICs and statutory payments (e.g. statutory sick and maternity pay) to the worker and deduct student loan payments.

If the offshore employer fails to account for and remit to HMRC the tax and NICs due, the employer’s responsibilities (with regard to tax and NICs) will move to the intermediary business contracting with the end client/end user of the labour to supply labour, or a service that includes the provision of labour. In the case that there is no intermediary business, or the intermediary business defaults on its new tax and NICs obligations, this responsibility will move to the end user of the labour/end client.

HMRC move to legislate an extension to the RTI reporting relaxation for small employers

On 22 July, HMRC published draft amendment regulations which will allow employers with fewer than 49 employees to send in their RTI returns by the end of the tax month in which they pay their employees.

In March 2013, HMRC announced an initial relaxation of the requirement for employers with fewer than 49 employees, as at 6 April 2013, to send in their RTI return on or before they pay their employees. This relaxation, legislated in the Income Tax (Pay As You Earn) (Amendment) Regulations 2012 (SI 2012. No 822), is to continue until 5 October 2013.

In June 2013, the government announced that the relaxation is to be extended to 5 April 2014 and will apply to those employers with 49 or fewer employees in a PAYE scheme as at 6 October 2013. Additional amendment regulations for both PAYE and Class 1 NICs have now been published for comment.

An example of how the relaxation could apply is where an employer finds it difficult to report every payment to their employees at the time of payment because they don’t normally run their payroll software until the end of the month. In these circumstances, they will be permitted to send in their RTI return no later than the last day of the tax month in which the payments are made (e.g. by 5 November 2013 for payments made during the tax month commencing 6 October 2013).

The new amendment regulations will only apply in respect of payments made in the period 6th October 2013 to 5th April 2014. As from 6th April 2014, any small employer who takes advantage of the relaxation will be required to file on or before the making of the payment to an employee.

Delays to HMRC’s new online end of year expenses and benefits service

Have you been trying to use HMRC’s new online year-end expenses and benefits reporting service without success? It seems the service is now working.

On 28 June, I blogged about the new online service and the delays in going live experienced by users. The site was supposed to be fully functional from 2 July, although this was only five days before the deadline for making form P11D, P9D, and P11D(b) returns.

On 17 July, HMRC announced that: “Employers who have been unable to submit forms P11D, P11D(b) and P9D due to problems with the new online service should now submit their forms as soon as possible.”

If an employer does this before 4 August 2013 but they are then issued with a penalty notice because they didn’t get their returns in by 6 July, HMRC advise writing to them to appeal the penalty. The employer should explain that they tried to file their expenses and benefits returns on time but experienced problems with the new online service.

If HMRC are satisfied with an employer’s explanation of why they experienced problems with the new service and they file their forms before 4 August 2013, the penalties will then be cancelled but only after the employer’s written request has been received. HMRC cannot cancel penalty notices over the telephone.

Once an employer has successfully filed their returns, they should wait for the arrival of any penalty notice before writing to HMRC.

The address for appeal letters is:

HMRC Customer Operations Employer Office
Room BP4009
Chillingham House
Benton Park View
Newcastle Upon Tyne
NE98 1ZZ

HMRC’s ‘List 3’ of professional bodies has been updated

HMRC’s ‘List 3’ of professional bodies and learned societies has been updated. List 3 details those bodies approved by HMRC for the purposes of Section 344 of the Income Tax (Earnings and Pensions) Act 2003, up to 31 July 2013. The List is periodically updated.

Section 344 allows a deduction from earnings where an employee pays an annual subscription to a professional body that is on List 3 and the following apply:

  • The employee pays for the subscription out of their earnings from an      employment, and
  • The activities of the body are directly relevant to the employment.

The activities of a body are ‘directly relevant’ to an employment where the performance of the duties of that employment:

  • Is directly affected by the knowledge concerned, or
  • It involves the exercise of the profession concerned.

For example, a payroll manager is a Member of the Chartered Institute of Payroll Professionals (included by HMRC on List 3). As part of their annual subscription they receive Payroll Professional each month. This keeps them up to date in payroll practice. Also, their membership of the CIPP is directly related to their job.

Where the payroll manager meets the costs of their CIPP membership themselves, they are able to claim a deduction from earnings, via self-assessment, against the annual subscription costs.

If the employer meets the subscription costs, they should either report the expense on the payroll manger’s P11D (leaving them to make the deduction claim), or agree a dispensation with HMRC covering the professional membership. In the latter case, nothing need be reported on a P11D and the payroll manager doesn’t have to bother making a business deduction claim.