Category: Insights

Impact of Employment Rights Bill

Posted on by Nicole Slayton Hogan

On 10 October 2024, the UK Government published its Employment Rights Bill, which includes many of the measures previously set out in the Labour Party’s “Plan to Make Work Pay” which was mentioned in the King’s Speech. It proposes some wide-ranging changes in employment practices and law which will affect virtually all employers including small and medium-sized enterprises (SMEs).

The Bill includes a number of provisions, including the right to request flexible working (employers can still refuse these requests but only on certain specified grounds). There will be an obligation on employers to take all reasonable steps to prevent sexual harassment (previously the law required employers merely to take “reasonable steps”) as well as a broad duty for employers to prevent harassment of employees by third parties. The Government has also confirmed a number of other proposals concerning employment rights will be progressed alongside the Bill, including a right for employees to “switch off” outside their contracted working hours. Some of the other key proposals in the Bill are set out below.

Fire and Rehire

Employers may sometimes need to change contracts of employment, especially if the business needs to restructure to remain viable. If employees do not agree, the employer may dismiss them before offering to re-engage them in substantially the same role.  This is referred to as ‘fire and rehire’. This an acceptable practice when there is genuinely no alternative, but the Bill aims to end unscrupulous ‘fire and rehire’ tactics, insisting on a proper process based on dialogue and common understanding between employers and employees. Employment terms and conditions negotiated in good faith cannot be undercut by the threat of dismissal.

Unfair Dismissal

Protection against unfair dismissal is to be available from day one of employment for all businesses. The Government has said that it is committed to consulting on this proposal and the current unfair dismissal regime will remain in place until at least Autumn 2026. However, scrapping the two-year qualifying period before an employee can claim unfair dismissal will require the employer to have a fair reason to dismiss the employee, no matter what their length of service. This proposal will of course have implications for probationary periods with the Government suggesting a preference for a nine-month statutory probation period.

Zero Hours Contracts

Employers will be required to periodically offer guaranteed hours to workers on zero hours contracts. Such an offer must reflect the working patterns the employee previously worked, and the terms proposed must be as favourable as those the employee previously enjoyed. The employee would be free to accept or decline the guaranteed hours. Employers will need to consider the structure of their workforce and whether the use of flexible labour is appropriate.

Sick Pay and Parental Leave

The Bill will allow employees to claim statutory sick pay from day one of their sickness absence and also removes the qualifying period for parental leave and paternity leave, so these too can be taken by employees from the first day of employment. In addition, the Bill broadens the right of employees to take bereavement leave and extends existing protections from dismissal during pregnancy and for up to six months following the end of maternity leave.

Gender Equality Reporting

The Bill includes a requirement that organisations with two-hundred and fifty (250) or more employees publish an equality action plan every twelve (12) months. The plan should include steps that the employer is taking to advance equality and opportunity between male and female employees, including how they are addressing the gender pay gap and how they support employees going through menopause. Firms with two-hundred and fifty (250) employees should start reviewing their processes in this area before these obligations come into force.

Trades Union Recognition

Currently, a trade union has to demonstrate that it has membership of at least ten per cent (10%) of its proposed bargaining unit before making a formal request for recognition to the Central Arbitration Committee (CAC). The Bill gives power to the Secretary of State to reduce this percentage to as low as two per cent (2%). This change means that trade unions will find it easier to seek formal recognition in future.

Ensuring Compliance

The Employment Rights Bill 2024 represents the most significant change in UK employment law for almost twenty (20) years. Employers large and small must adapt to these coming changes to ensure compliance and support their workforce. The Motion Paradox team of start-up business and legal consultants, based in London and Los Angeles, can help you review and draft bespoke contracts of employment and HR legal guidelines that make sure your company is compliant with all the necessary regulations (whatever they may be) and whenever they may come into force.

Switching On The Right To Switch Off

Posted on by Nicole Slayton Hogan

The incoming UK Labour Government has announced several plans which should be music to the ears of SMEs. Proposals such as acting on late payments, making it easier for small and medium sized enterprises to access capital, as well as reforming procurement rules to give small business greater access to government contracts, would all be welcomed.

The much-anticipated Employment Rights Bill, published on 10 October 2024, provided a broad framework for an eventual overhaul of the employment landscape, but a significant number of original proposals were omitted from the Bill. The Labour government has pledged to implement further proposals after concluding reviews and consultations expected to begin in 2025.

It’s clear that, although not directly included in the Bill, a new ‘right to switch off’ which would give workers the right not to engage with work correspondence (including emails, telephone calls and instant messaging) outside their contracted working hours still features prominently in the Government’s “Next Steps” paper and remains firmly on the cards.

Maintaining Work-Life Balance is Good for Everyone

While most would agree that a healthy work-life balance is good for the employee and for the business, some SME operations could not function effectively if they were unable to contact key employees urgently. Many SMEs would also argue that the right to disconnect does not need to be legislated and could be achieved by a shift in culture and attitudes. Whatever form it may eventually take, businesses should prepare for its arrival.

‘Right to Switch Off’ in Europe

While the right to disconnect is not legally defined, many countries in Europe have some form of it in their laws. In Germany, the Working Hours Act guarantees workers an eleven (11-) hour break every twenty-four (24) hours, but the digital revolution has made it harder for employees to take this time. There is no statutory right in Sweden for employees to disconnect, however, Swedish employers tend to respect their employees’ private time. There is equally no right to disconnect in Denmark, however, there is a maximum number of hours that an employee can be required to work as well as mandatory rest periods an employee must take during the working day and during the week.

France is seen as the pioneer of the ‘right to switch off”, passing legislation in 2016 that allows employees to switch off their phones outside of working hours. In Ireland, the right to disconnect is embodied in a code of practice which can nonetheless be used as evidence in claims for breaches of employment rights. In Belgium, legislation requires written agreements or rules on disconnection agreed through collective bargaining. Portugal has adopted a much stricter approach with it being unlawful for employers to contact workers out of working hours other than in situations of ‘force majeure’.

‘Right to Switch Off’ Overseas

Further afield, Australia recently introduced a law which still allows employers to contact their employees outside their contractual hours but puts no obligation on the employee to respond. A few states and cities in the USA have considered it, but there are no immediate plans for such federal legislation across the Atlantic. Canada is considering a right to disconnect policy that would allow employees to opt out of work-related communication outside of regular working hours.

Implications for Employers

So, what could the proposals include for the UK? Reports suggest that a combination of the Irish and Belgian schemes is the preference, with the ‘right to switch off’ enacted through a code of practice, with an obligation on employers to enter into workplace agreements detailing allowable contact hours and tailored ‘right to switch off’ policies. It is not clear when these proposals will come into effect. The Government has not formally confirmed whether any scheme would be a simple code of practice, which seems the most likely, or a statutory right. It is also unclear whether company size will impact any legal obligations. The Belgian scheme for example applies to companies with twenty (20) or more staff.

The Risk of Litigation

While there may be no right to bring a tribunal claim based solely on an employer’s failure to follow, say, a code of practice, employees might be able to claim uplifted compensation in connected tribunal claims. Under ACAS guidelines, compensation can be increased by up to twenty-five per cent (25%) if an employer fails to follow established codes of practice in cases related to grievances or disciplinary claims.

Increased Importance of Bespoke Contracts of Employment

Reviewing contracts of employment to include your own right to disconnect policy and tailored flexible working and home/hybrid working policies will be essential to protect your business operationally and legally, whatever form any future legislation may take. Published guidelines around switching off outside of working hours may also be helpful, but there will always be exceptions, which should be clearly stated with examples in any on-boarding documentation.

Supporting Your Employees to Switch Off

Switching off policies could actually benefit some SMEs. Productivity tends to be higher when staff have a chance to wind down and avoid burnout. Persistent sickness and resignations also tend to be reduced. Many valued employees may be keen to retain the flexibility of managing their own working hours, so creating flexible but consistent policies to ensure compliance will be essential.

The Motion Paradox team of start-up business and legal consultants, based in London and Los Angeles, are well aware of issues that face companies with remote workers, often in different time zones and global locations. We can help you draft bespoke contracts of employment and HR legal guidelines that make sure your company is compliant with all the necessary regulations (whatever they may be) so the distinction between home and work benefits you, your staff, and your business.

 

Pros and Cons of Global Remote Working and Relocation

Posted on by Nicole Slayton Hogan

Has business fallen out of love with remote working? Amazon has told its office workers that they may no longer work from home except in extenuating circumstances while PwC now insists that its UK staff work in the office for at least three days per week (a surprising volte face given PwC’s previously liberal attitude to remote/home working).

Many would maintain that the main advantage for business owners of remote working lies in recruitment. Offering flexible working arrangements makes the employer more attractive to candidates. By extension, remote working on a truly global basis also gives access to a vastly increased talent pool of highly skilled individuals in sectors such as IT/Tech or the creative industries that are, by their very nature, highly globalised.

Remote Working Beyond Geographic Boundaries

For potential recruits and existing staff global employment does offer great opportunities for personal and professional growth. But when those workers are located not just in different regions or places within one country, but on an entirely different continent, then the problems of working beyond geographic boundaries begin to emerge.

Managers of some quite large companies as well as more agile SMEs appear to have little option but to say to candidates and employees, who can work from anywhere in the world, that they are happy with the employee upping sticks, leaving their domestic base, and going to work remotely in say, a European country.

Problems with Trans-Atlantic Relocation

This is especially true for workers in the USA and UK, where the perception is, given that the English language and cultural norms are (more or less) common to both, a transition either way should be fairly straightforward. Even in this case, subtle cultural and language barriers do exist between the USA and UK, while misunderstandings and miscommunications that can hinder collaboration and productivity are even more pronounced in countries without the same shared Anglo-Saxon heritage. Some barriers are practical. Since Brexit, gaining permission to work in the UK has become much more complex and does not guarantee access to the rest of Europe.

Barriers to Globalised Employment

There are some legal barriers to globalised employment too. Individuals may need to demonstrate that they have a special talent to allow them entry to their chosen country. Governments globally are showing heightened vigilance against employers failing to comply with increasingly stringent immigration laws, with enforcement powers often including substantial fines. A visa and/or work permit may be required, which could place onerous burdens on the employer. Other questions may arise: How will payroll work? How will you deal with the payment of government taxes on earnings?

When hiring or doing business outside of your typical area of operation, being aware of local employment laws in that particular country is also essential. Failure to maintain local legal compliance could have far reaching financial consequences as could breaches of local data, privacy and protection laws.  Understanding the business ethics of different cultures around the globe will also feed into this issue. By way of example, we can look to Portugal. Portugal has banned bosses from text messaging and emailing staff out of working hours as part of laws dubbed the “right to rest”.

Managing Different Time Zones

Perhaps the greatest practical problem is managing different time zones between global locations. An employer may occasionally need to speak to the employee, sometimes on very short notice. Being based on west coast of the USA for example makes such communication with a remote employee somewhere in Europe tricky, given the up to nine-hour time difference.

Organisations with global operations therefore face complex issues that must be overcome to maintain an effective mobile workforce in an increasingly interconnected world. While embracing global remote employment can offer your staff professional and personal growth opportunities, it should only be attempted in the full knowledge of all the possible business pitfalls such a move entails.

The Motion Paradox team of start-up business and legal consultants, based in London and Los Angeles, are well aware of issues that face companies with workers in different time zones and global locations. We can help you through the process of managing such a distributed global workforce, making sure your company is compliant with all the necessary regulations to operate effectively and safely, whatever jurisdiction your staff may be based in.

 

 

 

 

Bespoke Contracts Beat DIY/Cookie Cutter Options

Posted on by Nicole Slayton Hogan

Small and medium-sized enterprises (SMEs) face just as many legal challenges as larger firms, from intellectual property protection to regulatory compliance. SMEs (and certainly all start-ups) may consider themselves too small to justify the cost of a full-time (or even part-time) in-house legal advisor, but most realise that they are probably big enough to require some sort of legal input and advice. This is especially true in the business-critical area of drafting and negotiating contracts – employment contracts, client contracts, and vendor contracts.

The Dangers of DIY Contracts

Contracts are the backbone of any business relationship with suppliers, vendors, clients, or employees, but if the cost of hiring an in-house specialist (let alone consulting external lawyers) is considered too prohibitive, the question then becomes where does the start-up or SME get that legal advice from? It’s here that it should be noted that, in business as in life, it is a cast iron truism that you only get what you pay for.

Many will take the cheapest, but also the riskiest, option and cobble together contracts based on documents they have seen others using or templates found on the internet for free. There are lots of things a start-up founder can do themselves, such as building a website or creating a logo, but legal work should not be one of them. Simply copying and pasting contractual provisions from different agreements you have seen or come across dilutes, and often negates, how those provisions work together to protect the parties’ interests.

Individual words in contracts also have consequences in law. Many court cases have featured expensive and lengthy litigation with parties arguing about the difference between ‘shall’ and ‘will.’ The authors of online contracts may not have spent as much time considering this detail as a skilled business lawyer would.

Risky Online Contract Templates

If the dangers of trying to put something together yourself are obvious, the apparent benefits of saving some money by using a free online contract or template are also massively outweighed by the risks. Sometimes business owners simply do not understand what type of contract they require, or indeed if one is needed at all. Some online contracts are simply bad contracts that could lead to costly litigation that will prove fatal to the business.

Free online contracts may not incorporate the latest laws and regulations, or worse may actually contain illegal provisions. Some cookie cutter contract templates may be so badly drafted that any agreement will be invalidated because clauses in the same contract contradict each other. If there is confusion in a contract document, liability is construed against the drafter – i.e. you.

The Importance of Professional Bespoke Advice

In the long run, it is always safer and more cost-effective to get professional advice from a firm such as Motion Paradox to ensure that your agreements are tailored to your exact needs, are clear and legally binding. This will protect your rights and minimise the risk of any potential liabilities. This is especially true when an SME is seeking investment in order to grow. Your existing contracts will be scrutinised by potential investors keen to determine if those documents actually protect your company and their interests.

Growing SMEs will also naturally need to expand their teams but may not have the resources for an in-house HR department. The experts in employment law at Motion Paradox can ensure that your employment contracts are up to date and tailored specifically to your business.

As an SME develops even further, perhaps contemplating expansion, mergers, or acquisitions, the legal landscape becomes even more complex. The legal processes involved in these circumstances could range from structuring deals and navigating tight regulatory requirements to drafting shareholder agreements and joint venture arrangements.

The skilled business lawyers at Motion Paradox, based in London and Los Angeles, can give any start-up or SME the benefit of their expertise in matters such as contract law without the need for a full-time employee and for less than you might imagine. Their understanding of all aspects of contract law can ensure your business operates efficiently within legal boundaries, leaving you free to do what you do best – making your business a success.

Brexit Benefit for UK AI?

Posted on by Jay

At the moment it seems that a start-up firm only has to hint at involvement in Artificial Intelligence (AI) for its chances of getting investors on board to dramatically improve. Europe has imposed a lot of laws and regulations on AI, and some suggest that there could be a Brexit benefit in the UK being outside of the EU, and therefore not as tightly regulated. The question however is, assuming it is real, just how long might such a Brexit benefit last?

The EU Approach to AI Regulation

The Artificial Intelligence Act (AI Act), adopted by the European Parliament on March 13, 2024, is the first, and certainly one of the world’s most comprehensive, legal frameworks for AI, providing for EU-wide rules on data quality, transparency, human oversight and accountability. Contravention could result in fines of up to 35 million euros or 7% of global annual revenue (whichever is higher), so the EU AI Act when it comes fully into force will have a profound impact on AI companies conducting business in the European Union.

Risk-Based Approach

The EU regulations adopt a risk-based approach, with different requirements applying dependent on the perceived level of risk.

  • Unacceptable risk AI systems are prohibited as a clear threat to fundamental rights. These could include AI systems that manipulate human behaviour or exploit individuals’ vulnerabilities and biometric systems, such as emotion recognition systems in the workplace or real-time categorisation of individuals.
  • High-risk AI systems in application areas such as energy and transport, medical devices, and systems that determine access to educational institutions or jobs will be required to comply with strict requirements, including risk-mitigation and human oversight.
  • Limited risk AI systems intended to directly interact with human beings, such as chatbots, will have to be designed and developed so that individuals are aware they are interacting with an AI system and are informed if any content has been artificially generated or manipulated (deep fakes).
  • Minimal-risk AI systems, such as AI-enabled video games or spam filters do not fall within the ambit of EU regulations, however companies may commit to voluntary codes of conduct.

The UK Approach to AI Regulation

The UK government’s position was set out in Feb 2024 in its consultation response to the March 2023 white paper on a pro-innovation approach to artificial intelligence regulation. That response reasserts that there will be no new AI legislation for the UK. Existing regulators will use their current powers. This is similar to the approach adopted by the USA. In the absence of overarching regulation in the United States, AI is currently governed by a mix of the federal government through Presidential Executive Orders, state governments, industry itself, and the courts.

No Statutory Duty for UK Regulators

The UK government’s AI white paper of March 2023 set out a decentralised approach to regulatory oversight of AI, which proposed high-level principles to ensure trustworthy AI as a guide for regulators. Those principles being security and robustness, appropriate transparency and explainability, fairness, accountability and governance, and contestability and redress. However, the government’s desire to retain flexibility and what it terms ‘critical adaptability’ means that regulators will not have a statutory duty to have regard to these high-level principles. The present UK government’s approach to regulating AI remains very light touch, with the emphasis on creating an innovation-friendly regulatory landscape, in stark contrast to the EU AI Act.

Brexit Benefit May Be Short Lived

The wider domestic perspective in the UK of course is the upcoming general election, when it is widely expected that a new Labour government will be elected. At present, the Labour party’s position appears to be that major AI-specific legislation is not planned, but obligations in various areas will be made statutory. And while there is no appetite for resurrecting the Brexit debate, a closer, more harmonious relationship with the European Union is also clearly a priority for an incoming Labour government.

However, even without a change of government, any apparent Brexit benefit may be short-lived as there remains the strong, market-driven, possibility that compliance with the EU’s AI Act becomes the de facto standard for AI innovators who want to access markets throughout Europe beyond just the UK.

Whatever the regulatory landscape for AI may be in the next few years, the Motion Paradox team of start-up business and legal consultants, based in London and Los Angeles, can give you legal advice and guidance as well as assistance to ensure your firm is attractive to investors and remains compliant, resilient and profitable.

SEIS/EIS Investment Schemes

Posted on by Jay

The UK government established the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) to provide tax incentives for investors in start-ups, scale-ups and SMEs as well as higher-risk companies seeking to raise equity finance. So far, these schemes seem to have worked well during the critical early years, raising over £23 billion for forty thousand businesses since 1993.

Both schemes offer investors generous levels of income tax and capital gains tax relief. Reflecting the higher perceived risk of investing in start-ups, the schemes also mitigate any potential downside for investors. But for the business owner/founder it is essential to bear in mind that the SEIS and EIS schemes are only incentives (albeit attractive incentives) and not a source of direct cash income. There are differences between the two regimes, based upon the expectation that companies which have raised seed funding through SEIS will then go on and raise further investment under EIS. So how do the EIS and SEIS schemes work and how can you use them to get funding for your business?

The SEIS and EIS Schemes

Both schemes are designed to attract funding to high-growth UK-based businesses that need financial support as they scale up. The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) encourage investors to invest in small businesses by giving them a capital gains tax exemption as well as potentially generous income tax reductions. Investors are also given a relief loss if the small business fails, thus offering a safety net for their money. However, several key differences in how they work could affect your eligibility for either.

Differences in the Schemes

SEIS exclusively targets start-ups and early-stage businesses with less than 25 employees and less than three years of trading history. The EIS scheme is suitable for larger businesses with a maximum of 250 employees and up to seven years of trading history.

Under SEIS, a business can accept a maximum of £250,000 in total funding from individual investors only and these funds have to be spent within three years. Under EIS, a business can accept up to £12 million in total funding (up to £5 million in any tax year) from both individual and corporate investors and these funds must be spent within two years.

Eligibility for EIS/SEIS

If you want to attract funding from EIS and SEIS schemes, you must be a qualifying trade or business established in the UK. HMRC has a checklist of trades that are not eligible for either scheme which includes property development, hire-purchase financing, coal/steel production, and managing or operating hotels.

To qualify for SEIS early-stage start-ups must not be a partnership, not be controlled by another company, cannot have received EIS funding and have less than three years trading history. Headcount must not exceed twenty-five full time employees and maximum gross assets should not exceed £350,000 when shares are issued.

EIS qualifying criteria for slightly more mature, but still early-stage companies, are similar. In this case the business must have fewer than 250 full-time employees, less than seven years of trading history and maximum gross assets of £15 million when shares are issued. The business must not be controlling another company (unless it is a qualifying subsidiary), cannot be controlled by another company since incorporation, or does not have more than 50% of its shares controlled by another company.

A business can raise money by attracting investment under both schemes, but the initial fundraising round must come from the SEIS scheme (up to £250,000) moving on to EIS for more. While you can apply for both simultaneously, EIS investments can only be raised at least one day after any SEIS investments. In addition, no shares under SEIS or EIS can be issued unless fully paid up.

Advance Assurance for EIS and SEIS Schemes

Applying for an Advance Assurance (AA) from HMRC will deliver a certificate stating that any investment will likely qualify for EIS/SEIS funding. This certificate can then be shared with potential investors to assure them that you meet the SEIS/EIS criteria upfront and dramatically improve the likelihood of investment in your business. Any application must be filed via a company secretary, director or agent appointed to act on your behalf. Bear in mind that obtaining the AA certificate from HMRC can take up to eight weeks.

The information you will need to supply includes your business plan and financial forecasts, latest accounts, memorandum and articles of association as well as details of how much funding you hope to raise and what you plan to spend it on. Documents to certify that you qualify for SEIS/EIS schemes as well as details of any schemes under which you have previously raised funding and any information or literature that you have been using to explain your business to potential investors should also be attached.

Once the SEIS/EIS funding round is complete, you share a compliance certificate with HMRC so your investors can get their tax relief, HMRC will issue a unique investment reference number to each of your investors, which they must use to claim their relief amount.

Long-Term Growth Requirements in Both Schemes

It should be noted that both schemes increasingly require a company to provide evidence that the main objective of fundraising is to ensure long-term growth of a sustainable business (not a short-term project). Some companies have struggled to demonstrate their intended long-term viability beyond an initial short-term product or idea, especially if marketing and fundraising documents focus on short-term success. Companies must also demonstrate that they will use any money raised for the business’s long-term growth. A comprehensive business plan and projections to evidence intentions to trade beyond three years is essential in order to obtain the AA certificate.

The Motion Paradox team of start-up business and legal consultants, based in London and Los Angeles, can help you navigate the process of seeking investment through these schemes, providing informed feedback on your plans, and preparing bespoke documentation so you can convince HMRC and future investors to back your vision of a sustainable future for your business.

Disclosure is Key in Due Diligence

Posted on by Jay

For most start-ups and small businesses, due diligence is something to be endured when a potential investor undertakes an audit process before committing to investing in your company. The intensity of that audit often depends on the amount of investment involved. That much should be obvious to any viewer of the business reality TV shows ‘Dragon’s Den’ in the UK or ‘Shark Tank’ in the USA.

Accuracy and Transparency is Essential

Sometimes, due diligence can be as simple as a face-to-face conversation, especially if you are a start-up looking for pre-seed funding. More usually the process can involve business lawyers, accountants, and a lot of paperwork. Honesty and integrity as well as accuracy and transparency are paramount because the aim of due diligence is risk mitigation. Everything you say must match up with the data you provide because the truth will always come out in the end. Err on the side of disclosure.

Preparing for due diligence is a great opportunity to do an internal audit as well as verifying the growth plan that will be a major part of your pitch. Proper preparation also allows you to defocus on the day-to-day stuff and get an updated overview of your business which can reveal areas worth optimising even before the investor gets involved.

What Investors Will Ask

Typically, investors will have a standardised checklist to go through, although it’s likely that each investor will ask different questions. Seeking the help of business and legal consultants like Motion Paradox can make due diligence easier by preparing in advance all the most common documents that investors will usually require. Given the sensitive nature of the data you will disclose, common practice is to enter into a confidentiality agreement with the potential investor, although the efficacy of these agreements is open to question.

Your business plan and financial records are the most common data points investors ask for. The aim of reviewing this information is to make sure that your pitch matches up with the concrete numbers and you are not saddled with debt. Start-ups often have multiple co-founders so make sure any documents detailing your ownership structure are up to date and ideally include a credible contingency plan for disagreements where there is 50/50 equity between founders. Angel investors and venture capitalist (VC) investors will also likely insist on seeing properly produced minutes of stakeholder or leadership meetings as well as complete openness about any legal issues, pending or threatened, that you may face.

Customer Data, Sales Revenue and Market Knowledge

Investors will want to know about your customer base and supply chain as well as gaining an understanding of your revenue streams, cost per customer acquisition and pipeline projections. As part of the due diligence process, investors will likely undertake an intense review of your competitors and the overall state of the market, so ensure you can answer any questions a potential backer may have to demonstrate your understanding of the space you are in and how you fit into it.

Ensure Contracts are Watertight

Your existing employment contracts, client contracts and vendor contracts are all likely to be a critical part of any due diligence exercise. Many start-ups and SMEs draft contracts without expert guidance, basing those documents on internet templates or what they perceive to be “common practice.” A serious potential investor will soon discover whether those off the shelf contracts actually protect your company, and hence their investment, and are sustainable in the long run. They will look far more favourably on your business if you have put in place bespoke contracts and services since, from their perspective, that will mitigate any risk and assist you in scaling properly.

Intellectual Property Rights

Potential investors will want to take a look at your Intellectual Property (IP) rights, so if you have not already done so, file for any patents and trade marks before meeting them. Your IP rights are a key economic differentiator for investors, particularly for technology start-ups. Even if you have a really great app or product, without IP protection (patent information, copyrights, design rights, trade marks) they will argue that a tech giant could offer the same thing at scale for free, so why should they bother investing in you?

Personal Interviews

Ask anyone in business and they will likely say that people tend to do business with other people, so even if all the numbers add up, the success of your company depends on you and your team. As part of due diligence, both your business and you personally are probably going to be put under the microscope. Potential investors may wish to speak with you and your team individually to get an idea of the personalities, values, and skills.

Establish a Data Room

You can get a head start on bringing in investment by building a data room to streamline the due diligence process, housing all the information most investors are likely to want to see in one convenient location – short pitch, team background, business and marketing plan, details of contracts and software licences, financial statements and IP assets. Virtual data rooms are now the norm, but whichever cloud sharing/hosting platforms you choose, you should ensure they offer both ease of access and high levels of encryption and security, since much of the information you place there will be business sensitive and confidential.

Investors in start-up businesses in particular will also likely initially propose a term sheet. Term sheets are agreements that outline the key components of the investment deal and although not legally binding, it’s still important to have access to sound legal and business advice at this stage of any negotiation After an investor has proposed a term sheet, they will need to verify all of your information to be sure that what you are selling them is real. A well-constructed data room will conveniently give them all the detail and confidence they need.

The Motion Paradox team of start-up business and legal consultants, based in London and Los Angeles, can help you through the process of due diligence, providing informed feedback on your completed plans, preparing bespoke contracts and securing your IP assets so you can convince VC or angel investors to back your vision.

Flexible Working in 2024

Posted on by Jay

Amongst the new employment laws expected to come into effect in 2024 is the Employment Relations (Flexible Working) Bill, which received Royal Assent and passed into law on 20 July 2023. Although a formal introduction date is yet to be announced, the new law is expected to come into force in April 2024, at which point employees across the UK will have greater access to flexibility over where, when and how they work. Employees will:

  • gain the right to make two flexible-working requests within any 12-month period, whereas they previously could only make one such request; and
  • no longer have to set out how the effects of their flexible working request might be dealt with by their employer.

Likewise, employers will:

  • now be required to consult with their employees before rejecting a flexible working request; and
  • be required to respond to a flexible working request within two months, a month shorter than the existing requirement.

From 6 April 2024, as a result of the Flexible Working (Amendment) Regulations 2023, which were laid before Parliament on 11 December 2023, employees will also have a new right to request flexible working from day one of a new job, removing the 26-week qualifying period before a request can be made. The measures will be supported by a statutory Code of Practice, which is currently being developed after consultation by Acas, the body that provides free, impartial advice to employers and employees on workplace rights, rules and best practice. This article considers the potential opportunities and ramifications of the new flexible working rules for employers.

What Can Be Requested?

Employees meeting the requirements to make a flexible working request from their employer may submit requests to:

  • reduce their working hours to work part-time;
  • change their start and finish time;
  • have flexibility with their start and finish time (sometimes known as ‘flexitime’);
  • do their work over fewer hours (‘compressed hours’);
  • work from home or elsewhere (‘remote working’), all or part of the time; and/or
  • share their job with someone else.

Such changes can be requested for all working days; specific days or shifts only; specific weeks only (for example, during school term time); or for a limited time only.

Access a Wider Talent Pool

Using the tagline “Happy to Talk Flexible Working” in job advertisements will certainly open your recruitment to a wider talent pool and help create a more inclusive workplace. The Chartered Institute for Personnel Development (CIPD), which has long campaigned for flexible working, suggests that employees who have greater flexibility report higher levels of job satisfaction, well-being and performance in their roles.

There’s no doubt that for many SMEs the key to being resilient right now is maintaining that sense of employee satisfaction, becoming an ‘employer of choice’ by recruiting and holding on to the best people. This can be achieved through a benefits strategy, and flexible working is certainly a part of that offer. Jobseekers are increasingly searching for vacancies offering flexible working, which according to recruitment agency Reed is proving to be more popular than four-day-week working arrangements.

Do the New Measures Go Far Enough?

Some commentators have noted that the new flexible working measures may not make a substantial difference to either employees or employers since some of the legislative reforms many organisations have championed have not materialised. The statutory grounds for refusing a flexible working request, for example, will not change. Employers can still reject a flexible working application for any of the following reasons:

  • the burden of additional costs;
  • detrimental effect on ability to meet customer demand;
  • inability to reorganise work among existing staff;
  • inability to recruit additional staff;
  • detrimental impact on quality;
  • detrimental impact on performance;
  • insufficiency of work during the periods the employee proposes to work; and/or
  • planned structural changes.

Consultation Need Not Be Substantive

After an employee has made a flexible working request, there is no minimum time frame for the required consultation with their employer and the new law does not stipulate that it needs to be a ‘substantive process’ (nor any other detail about what such consultation has to include). It therefore appears to be entirely open for employers to determine the nature, length and content of the consultation. However, while it is not a legal requirement for employers to properly consult employees on any outcome, taking the time to speak with them about how you arrived at that decision and the thought processes involved in considering their request, is a small step that can help minimise the risk of claims and maintain good relations with employees.

Sex Discrimination Claims

The right to request flexible working from day one is still to be dealt with in secondary legislation, so for now employees will still only be able to make requests once they have completed 26 weeks’ continuous service. While it may not be too difficult for employers to fit any refusal into one of the permitted reasons, the potential issue of indirect sex discrimination claims does remain.

These could arise where, for example, the requirement to work full-time hours is applied equally to men and women, but because more women have childcare responsibilities, fewer women than men are likely to be able to comply with the requested working pattern or hours.

So, if the reason for the flexible working request is childcare responsibilities, and the employer refuses, the employee may be faced with no choice but to resign. She may then look at bringing a claim for constructive unfair dismissal on the basis of indirect sex discrimination (and because the constructive dismissal is discriminatory, she does not need two years’ continuous service).

The burden of proof is then on the employer to demonstrate that their decision was proportionate within the law and that the consultation was, if not substantive, then certainly serious. Any decision to refuse a flexible-working request must be supported by a strong rationale.

Preparing for the New Flexible Working Measures

In light of the above, employers should take steps to prepare for the new flexible working measures, such as:

  • updating flexible working policies to remove the requirement for 26 weeks’ continuous service before making a flexible working request;
  • ensuring that flexible working policies and procedures are reviewed in light of the most up-to-date Acas Code of Practice and guidance;
  • developing clear guidelines for management for the process of assessing requests for flexible work arrangements; and
  • ensuring that managers are given training in order for them to be able to adapt to the new legislation.

The team of Motion Paradox start-up lawyers based in London and Los Angeles can give you legal advice and guidance in all aspects of employment law to ensure your firm hires and retains the right people to make your business more resilient, scalable, and profitable.

GDPR Compliance is Essential for Tech Start-Ups

Posted on by Jay

Several business surveys suggest that the most problematic issues facing any small business or SME include cash flow management, hiring and retaining talent, and regulatory compliance. This last issue is especially relevant to tech start-ups in particular and one of the regulations with the greatest potential for causing problems through non-compliance is the UK/EU GDPR (General Data Protection Regulation) rules.

GDPR is immediately relevant to countries in the European Union, however following Brexit, UK companies still have to follow UK GDPR rules which are essentially the same regulations simply copied and pasted into UK law. If businesses breach GDPR rules, they face a substantial fine that could prove terminal for any nascent firm.

GDPR Applies to Start-Ups and Small Businesses

Companies with 250 employees or more are required to comply with GDPR rules, however, GDPR is still relevant for small businesses with fewer employees. For very small companies, separate data processing rules still apply (see the Information Commissioner’s Office ICO website for more details) but essentially, if you or any of your sub-contractors take, process, or store any personal data or identifying information in the course of your business, whether as part of product development, marketing campaigns, or dealing with staff and customers, you must comply with GDPR rules.

Compliance Risks in Using Foreign Developers

There is however an additional potential danger for SMEs in the tech space who, for reasons of cost or accessing the necessary expertise, use developers abroad. Depending on where these third-party vendors are based, they may operate in jurisdictions which lack data protection safeguards (perhaps in some cases none at all) concerning personal identifying information and personal data that meet the standard required by the UK/EU GDPR.

If these third-party vendor companies are not GDPR compliant they are also highly unlikely to have the appropriate insurance policies in place in case a breach on their part occurs. If their input and contribution are part of your product or service offer, you will be the one facing the fine for non-compliance.

Essential Contractual Protections

Smaller tech start-ups may not have the legal knowledge or staff to spare. Entrepreneurs understandably are focussed on developing their product above all else may not be aware of the commercial data and cyber security contractual protections and obligations that need to be put in place with such third-party vendors to avoid just such a potentially damaging risk.

That’s where the Motion Paradox team of start-up lawyers, based in London and Los Angeles, can advise you on the current regulations and put in place the legal and contractual provisions that can help protect your business from any risk that non-compliance with GDPR could pose to your business.

SME Gender Pay Gap Reporting

Posted on by Jay

Although under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 only employers with 250 or more employees are required to report their gender pay gaps, many smaller businesses are deciding to do it anyway. It is certainly true that trying to reduce a gender pay gap becomes more difficult as a business’s size increases.

By making it an early priority, employers can get the right processes in place to prevent the growth of larger gaps as the business grows. However, gender pay gap reporting can be time-consuming and difficult, so why should a small business want to voluntarily report its gender pay gap when it doesn’t have to?

Attracting Candidates

Research by the Equality and Human Rights Commission (EHRC) suggests that almost two-thirds of women look at a prospective employer’s gender pay gap before applying for a job with that employer. With fierce competition for talent, it’s important to attract the best candidates, irrespective of gender or ethnicity.

Historically, women have likely had a lower salary range in their previous roles and there is evidence that women are less likely than men to ask for higher salaries and raises. There can therefore be a temptation to simply offer female candidates and employees in your firm what they ask for or slightly above what they already earn. This is still likely to be lower than what men at the company in a similar or identical role receive and will not be helpful in attracting the best candidates.

Being open and transparent about pay gaps will demonstrate a commitment to gender diversity and can help give you a competitive edge in not only recruiting, but more importantly, retaining the right people for your business.

Issues Facing Small Businesses

There are a few practical issues that a small business should consider when thinking about gender pay gap reporting. The gender pay regulations require comparison of the average woman to the average man. If a company hires no or very few women in either the lowest-paid jobs or the highest-paid board roles, and only a few women in mid-level roles, it could end up with a seemingly very good-looking gap. But that doesn’t necessarily tell you a great deal about what that workplace is like for women.

Pay gaps are calculated from averages, so when the number of people in a group is small, the average could be changed dramatically by the addition or removal of just a few individuals. The smaller the business, the bigger the impact. For example, if an employer has just 12 staff, the inclusion or exclusion of just a single person will have a huge effect on the average female hourly rate, and therefore the apparent pay gap. There’s not much that can be done statistically to resolve this small group dilemma, which is why the associated narrative in your gender pay gap report is so important.

Crafting the Narrative

The narrative in the report allows for any gender pay gaps to be properly explained and given some context. There is a fine balance to be struck in writing the narrative between giving enough information so that the statistics have relevance, but not so much that the fundamental message gets lost.
Anonymity is also important, and you need to be wary of publishing anything that might reveal personal data. For example, a gap in a business of 13 men and 1 woman could reveal that woman’s pay, relative to the average man.

It is also important for employers to be sensitive to how an employee identifies in terms of gender and, if employees have not already provided gender identity information, then employers should establish a method which enables all employees to confirm or update their gender.

Reducing the Reporting Threshold

The Fawcett Society, a UK charity established in 1886 and active in pursuing women’s rights, recently suggested that the threshold for pay gap reporting be dropped to 100 or more employees. In Ireland new gender pay gap reporting legislation will apply to employers with just 50 staff while employers in France and Spain with 50 employees or more must currently report gender pay gap information.

The trend is undoubtedly towards more transparency and more reporting of data and although small businesses are exempt from gender pay gap reporting at the moment, that may not be the case for much longer. Those businesses investing in transparency now may find themselves reaping benefits in the short and long term.

The team of Motion Paradox start-up lawyers based in London and Los Angeles is female-founded and female-led, so we have the personal experience that makes our legal advice and guidance here more insightful, practical and useful for your business.

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