The Australian Rugby Union player, Israel Folau (known informally as ‘Izzy’), has announced that he intends to bring a claim against his former employers for terminating his contract. Mr Folau had his contract with Rugby Australia terminated as result of a social media post he made which read, “Homosexuals, Hell awaits you”. The backlash resulted in a number of sponsors terminating their commercial relationships with Mr Folau and the termination of his contract with Rugby Australia

Mr Folau claims that his contract was unlawfully terminated by Rugby Australia, as he was merely expressing a religious belief that he genuinely holds. In commencing this action, he has stated that, “No Australian of any faith should be fired for practising their religion”. He is reportedly claiming up to AUS$10m (£5.5m) in damages.

What does the law say? 

Here in the UK, legislation was passed on 1^st December 2003 which made it unlawful for an individual to be discriminated on the grounds of their sexual orientation. The very next day, another Act was passed which also made it unlawful for someone to be discriminated against because of their religious beliefs. Both these rights are now included within the Equality Act 2010. However, since some religions hold homosexuality, or at least homosexual practices, to be ‘sinful’, there is clearly a potential for conflict between employees with opposing rights.

Whilst Australia is ruled by its own legislation, many cases of this nature have previously been brought before the UK Courts:

1. In Apelogun-Gabriels v London Borough of Lambeth (2005), Mr Apelogun-Gabriels, a Christian, printed out a range of Biblical extracts which his employer (Lambeth Borough) considered homophobic. He was dismissed for distributing these extracts to members of a work-based prayer group and other “interested parties”.

The tribunal dismissed his claim for discrimination, as it found that the distributed material was “totally hostile” to homosexuals and that the Borough would have treated a non-Christian who distributed similar literature in the same way.

2. In McFarlane v Relate Avon Limited (2010), Mr McFarlane, a Christian relationship counsellor, was dismissed because he did not feel that he could provide psycho-sexual counselling to same-sex couples as it conflicted with his religious beliefs.

The tribunal found that the employer’s legitimate aim was to provide a full range of counselling services to all sections of the community regardless of, among other things, their sexual orientation. It further considered that where an employee refuses to comply with principles that are fundamental to the employer’s aims (in this case, Relate’s equal opportunities policy) and which the employer has pledged to the public to maintain, the employer does not have to compromise those principles by making arrangements to accommodate an employee’s requests.

3. In Ladele v London Borough of Islington (2010), a Christian registrar refused to carry out civil partnership duties on behalf of Islington Council on the basis that same-sex relationships were against her religious beliefs. The Council dismissed her on the basis that it considered that her behaviour conflicted with its equality and diversity policy, and was discriminatory against the gay community.

The Employment Appeal Tribunal held that any other registrar who refused to carry out civil partnership duties for same sex relationships, whether it was connected to a religious belief or not, would also have been dismissed. Her religious belief was therefore irrelevant to the Council’s decision and her claim of direct discrimination therefore failed.

4. The issue has also arisen in the US in Peterson v Hewlett-Packard (2004), where the court held that Hewlett-Packard was justified in dismissing a worker for refusing to remove a poster with various biblical passages condemning homosexuality that he had put up in response to company posters welcoming gay employees.

What would happen if Mr Folau’s case was tried in the UK or US ? 

If Mr Folau’s case were to be determined by UK case law, or even in the US, it is likely that he would lose and that Rugby Australia would be found to have acted proportionately in achieving its legitimate aims, presumably being the aim of making rugby accessible and accommodating of all people in Australia. If this were to be a case decided on UK law, Rugby Australia’s decision would likely be considered to be entirely proportionate.

This author also considers that in his capacity as a role model to thousands of young rugby fans, Mr Folau’s actions will be subject to an enhanced level of responsibility and accountability for comments or behaviour that could be considered to be divisive; he is, of course, free to hold whatever opinions he wishes, but there was no legitimate reason for these to be communicated to the wider world via a social media post.

If you feel you have been unfairly treated due to your expressed religious beliefs or if you are an employer who has an issue with an employee expressing discriminatory religious beliefs and need advice please contact Ben Stanton by email at ben.stanton@franklins-sols.co.uk or call our Employment Team on 01908 660966.

If you act like a Turkey at the Christmas Party, you could get stuffed; disciplinary issues and other issues may arise the next working day…

The work Christmas party is often eagerly anticipated and a chance for employees to let their hair down. All too often, the combination of a relaxed atmosphere and too much alcohol brings out the worst in employees, leading to problems within the workplace.

It is important to remember that any work party or gathering can be argued to have effectively taken place at work. An employer may be vicariously liable for wrongdoing by an employee if that wrongdoing is “closely connected” with the employment. Employees can therefore argue that any unfair treatment that they have received at a Christmas party took place  within the workplace, opening employers up to liability and subjecting employees to disciplinary action for the same reasons. It is therefore important for employers to prepare for the worst, to hopefully avoid issues arising.

In a case heard in October 2018, by the Court of Appeal reiterated this view, in deciding that a drunken attack by the managing director of a small business on an employee was “in the course of employment”. In the case of Bellman v Northampton Recruitment Limited, following a heated discussion about work-related issues, Mr Bellman was punched twice by the Company’s owner and Managing Director, fracturing his skull and suffering severe brain damage as a result. The key to this case was the misuse of the MD’s authority and position; the Court made clear that this case does not mean that employers become insurers for violent or other acts by their employees at the Christmas Party, but that they may do for the acts of the most senior of employees.

Employers should have policies in place that specifically deal with potential problem areas. The standard of behaviour should be clearly outlined within the policy together with the potential consequences of infringing these expectations. Reminding employees of these policies in advance of the staff party may prevent infringing behaviour from occurring in the first instance, and will assist the employer in disciplining fairly. The standard of behaviour expected should be communicated to employees and any breaches should be actioned reasonably, to avoid the following issues:

• Fighting – In Gimson v Display By Design Ltd, the employer was found to have fairly dismissed an employee for a brawl after the end of a Christmas party.

• Drink driving after the office party – Other than giving the incredibly simple advice of ‘don’t do it’, ensure that employees are advised that; 1) they must arrange alternative transportation home if they are intending on drinking, and 2) if anyone drives home after they are reasonably believed to be in no fit state to do so, that they will be subjected to disciplinary action which could result in their dismissal.

• Absenteeism – If you are having the work party in the middle of the week, there will be a risk that employees will be absent the following day. Prior to the party, employers should make it clear whether an employee’s absence the next day will be treated as a disciplinary issue. An employer can make deductions from employees’ pay if they turn up for work late the morning after the company Christmas party, as long as the right to make deductions from wages for unauthorised absence is reserved in the employment contract.

Clearly, the above is only a short list of the things that can go wrong. It is important to strike the correct balance between ensuring that employees can let their hair down but also comply with their employer’s expected standards of behaviour. Advising employees of clear and consistent policies should avoid a number of issues from arising in the first place.

As a guide to other issues to avoid during the Christmas party, watch our video here: https://www.youtube.com/watch?v=DNYkea-NZfU

Automatic enrolment

To quote the TV adverts, “You can’t ignore the Workplace Pension”. Essentially, every employer with at least one staff member is legally required to automatically enrol ‘eligible’ employees into a pension scheme. The employer must also contribute to that pension, up to a maximum of 3% of an employee’s salary.

To determine whether an employee is eligible to be automatically enrolled for a pension, they need to be:

• classed as a ‘worker’;
• aged between 22 and State Pension age;
• earning at least £10,000 per year; and
• usually (‘ordinarily’) working in the UK.

The process is automatic for employees; they do not have to do anything to be enrolled. However, it is not automatic for employers and as such care should be taken to ensure that as an employer you are complying with your obligations and duties.

As your employees’ employment continues, you need to consider your re-enrolment duties which arise around every 3 years after auto-enrolment. The nature of your duties at the time of re-enrolment will depend on whether or not you have staff to re-enrol. Whether you are or are not re-enrolling your staff, you will at the very least need to complete a re-declaration to confirm that you have complied with your obligations.

Throughout the course of their employment, your employees then have the right to opt-out of any pension scheme. However, this right to opt-out is to be exercised only by the employee and should an employer look to act otherwise, as referred to below, then the Pensions Regulator will most likely look to prosecute.

Potential prosecution by the Pensions Regulator

Recruitment company Workchain, as was formerly Smart Recruitment UK, may potentially be prosecuted by the Pensions Regulator after being accused of using employees’ personal data to terminate their auto-enrolments into pension schemes.

Seven of the company’s directors and senior staff members have allegedly used a computer programme to effect the terminations of their employees’ pension memberships. This will be the first time the Pensions Regulator has looked to prosecute a company regarding this particular breach of section 1(1) of the Computer Misuse Act 1990.

The Defendants have been summoned to Derby Magistrates Court on 7 June where a conviction for computer misuse carries a maximum sentence of six months’ imprisonment and/or an unlimited fine. Were the matter to be committed to the Crown Court, the conviction could be two years’ imprisonment and/or an unlimited fine.

Kate Smith, Head of Pensions at Aegon has commented that it is a “clear signal that outrageous behaviour by unscrupulous employers to avoid paying pension contributions will not be tolerated”.

She then went on to say that “Illegally opting employees out of their workplace pension, and denying them access to an employer contribution is a serious offence leading to criminal sanctions including imprisonment. The opt-out rules have been designed to protect employees from employer coercion, and should be an action taken by the employee alone.”

If you need assistance with any employment issues relating to your auto-enrolment obligations, or any other employment issue, please email me at ben.stanton@franklins-sols.co.uk, or call our Employment Team on 01908 660966 or 01604 828282.

The work Christmas party is often eagerly anticipated and a chance for employees to let their hair down. All too often, the combination of a relaxed atmosphere and too much alcohol brings out the worst in employees, leading to problems within the workplace.

It is important to remember that any work party or gathering can be argued to have effectively taken place at work. In Chief Constable of the Lincolnshire Police v Stubbs and other, work colleagues meeting in a pub outside working hours was deemed to fall within the remit of “course of employment”. Employees can therefore argue that any unfair treatment that they have received at a Christmas party took place within the workplace, opening employers up to liability and subjecting employees to disciplinary action for the same reasons. It is therefore important for employers to prepare for the worst, to hopefully avoid issues arising.

Employers should have policies in place that specifically deal with potential problem areas. The standard of behaviour should be clearly outlined within the policy together with the potential consequences of infringing these expectations. Reminding employees of these policies in advance of the staff party may prevent infringing behaviour from occurring in the first instance, and will assist the employer in disciplining fairly. The standard of behaviour expected should be communicated to employees and any breaches should be actioned reasonably.

To keep in mind my Grandmother’s adage – to be forewarned is to be forearmed – it is worth considering some issues:

• Fighting – In Gimson v Display By Design Ltd, the employer was found to have fairly dismissed an employee for a brawl after the end of a Christmas party.
• Drink driving after the office party – Other than giving the incredibly simple advice of ‘don’t do it’, ensure that employees are advised that; 1) they must arrange alternative transportation home if they are intending on drinking, and 2) if anyone drives home after they are reasonably believed to be in no fit state to do so, that they will be subjected to disciplinary action which could result in their dismissal.
• Absenteeism – If you are having the work party in the middle of the week, there will be a risk that employees will be absent the following day. Prior to the party, employers should make it clear whether an employee’s absence the next day will be treated as a disciplinary issue. An employer can make deductions from employees’ pay if they turn up for work late in the morning after the company Christmas party, as long as the right to make deductions from wages for unauthorised absence is reserved in the employment contract.

Clearly, the above is only a short list of the things that can go wrong. It is important to strike the correct balance between ensuring that employees can let their hair down but also comply with their employer’s expected standards of behaviour. Advising employees of clear and consistent policies should avoid a number of issues from arising in the first place.

As a guide other issues to avoid during the Christmas party, watch our video here:

If you would like further information about Reverse Mentoring or any other employment issues please contact Ben Stanton, Employment Partner at Franklins Solicitors LLP at ben.stanton@franklins-sols.co.uk, call on 01908 660966 (Milton Keynes office) or 01604 828282 (Northampton office) or contact us via our website www.franklins-sols.co.uk.

This Valentine’s Day, workers across the country will be confessing their love to their colleagues in a variety of different ways. Whilst this may be welcomed by some, it may lead others to feel very uncomfortable. This raises issues for employers in ensuring that the workplace remains a safe environment for all.

The Equality Act 2010 prevents harassment of an individual on the grounds of their sex. Sexual harassment is unwanted conduct of a sexual nature that has the purpose or effect of violating a person’s dignity or creating an offensive, intimidating or hostile environment. Workplace ‘banter’ may be a bit of fun but, where it oversteps the mark or is not welcomed by the recipient, can create problems for all.

Picture the scene; it is Valentines Day and a person thinks it may be funny to leave a card on their colleague’s desk. The card displays an inappropriate sexual image.  Instead of seeing the funny side, the colleague feels embarrassed and upset to find this on their desk. Whilst this may have been meant as a joke, this could give rise to a harassment claim under the Equality Act.

An employer can be held liable for acts of discrimination by its staff if they are committed ‘in the course of their employment’. The employer can still be liable even if the purpose of the act was not to cause upset or alarm, and if they have not taken reasonable steps to prevent the harassment from happening. It is therefore important that there are clear anti-discrimination policies in place to help prevent discriminatory behaviour, and that staff are made aware of them. Any complaint of discrimination must be properly investigated and acted upon, especially on a day like today.

If you’ve been caused pain by Cupid’s arrow in the workplace, please feel free to email me or call our Employment Team on 01908 660966.

In a recent ruling, Uber drivers were found to be workers, not self-employed by the Employment Tribunal. This recent decision reminds us just how subtle the distinction is between the different types of working arrangements…

Types of working arrangements

It’s generally accepted that there are three distinct types of working relationships in employment law:

• Employees
• Workers
• Self-employed individuals

Employees are protected by a whole host of employment rights, such as the right not to be dismissed unfairly, to receive a statutory redundancy payment, and holiday entitlement.

Workers are a ‘halfway house’ as they’re able to benefit from some, but not all, of the protection offered to employees. For example, workers benefit from National Minimum Wage and holiday entitlement, but they’re not eligible to complain about the fairness of a dismissal.

Self-employed individuals, meanwhile, don’t have any of the above rights.

Categorising working relationships

It’s often hard to identify the category a person falls into. Over time, the Employment Tribunal has developed a broad test to identify whether someone is an employee, a worker or self-employed. These include:

• Mutuality of obligation – an employee doesn’t have the freedom to turn down work and is expected to perform the work they’re given
• Personal Service – an employee couldn’t send a substitute to work on their behalf
• Control – the employee will be integrated within the employer’s business. They don’t have great freedom in how they perform their work, and will be subjected to the employer’s rules and disciplinary sanctions.

This test is not definitive, though, as there are other indicators that may be relevant. One example is whether the individual used their own tools to perform their work – employees wouldn’t be expected to use their own resources to perform the employer’s work.

If a person doesn’t fulfil all the employee criteria – for example if there’s no mutuality of obligation, but the other limbs of the test have been met – the individual could be deemed to be a worker instead.

This is distinct from a person who provides services as their legitimate business, offering services to the world at large, and not just the employer in question. A self-employed person would have greater autonomy in how they perform their services, would often use their own tools to perform the role, and would bear their own risk associated with their services.

The Uber Case

Uber argued that it wasn’t a transportation business, nor did it employ its drivers. They maintained that their role was to offer drivers the use of its app as a platform to provide transportation services to customers. Uber denied there being any employee/worker relationship and argued they were a client of their drivers, who had a contract with the customers directly.

The Tribunal didn’t accept this explanation, and found the drivers were workers and not self-employed. In the judgement, which extends to a total of 40 pages, the Tribunal revisited the test for employment status, and held that the drivers couldn’t be self-employed due to the fact that:

• The written contracts stating the drivers to be self-employed didn’t match up with the actual relationship between the parties
• Drivers would be penalised for not accepting trips by being suspended from the Uber app for a period
• Uber fixed the fare between the driver and the customer and the driver had no autonomy to increase this
• Drivers would be subjected to a disciplinary procedures for poor ratings by their customers
• Uber handled complaints made by the customers, without input from the driver
• Uber interviewed and recruited drivers for the role
• In some circumstances, Uber would bear the risk of non-payment by its customers and not the driver
• Uber reserved the right to amend its terms and conditions with the driver unilaterally.

Overall, the level of control asserted by Uber was not compatible with that of a self-employed individual and their client. The Tribunal found that the drivers were workers.

This case shows how easy it is to unintentionally create employment rights when engaging ‘self-employed’ individuals. Those that engage self-employed individuals should carefully consider the true nature of the relationship. The written agreement between the parties is only the starting point, and if it doesn’t reflect what happens in reality, the stipulation of a ‘non-employment’ relationship will not be upheld.

Unsure of how the Uber ruling may affect you? We offer clear and practical advice on all aspects of employment law, to both employers and employees. Contact Ben Stanton, Associate Partner & Solicitor on 01908 660966 / 01604 828282 or email employment@franklins-sols.co.uk.

Image courtesy of 123rf.com.

Following the Trunki decision, as we covered in our earlier blog post, the Intellectual Property Office (IPO) has released new guidance about the use of representations when filing registered design applications. Here are the key things you need to know’

Before you make an application

It’s up to you, as the applicant, to use your discretion when choosing an appropriate representation in terms of which will be accurate, as well as the most effective. Most representations under the Registered Design Rules 2006 are a combination of photographs of Computer Aided Designs (CAD) or pencil drawings.

The key points identified in the guide are:

• The applicant can now decide on the most appropriate representation of their design
• Proctor & Gamble v Reckitt Benckiser [2007] confirms it’s still advisable to use line drawings when representing shape alone – they’re the preferred representation for shape
• The Court may consider a line drawing to register both shape and minimalist ornamentation
• The protection should be defined as clearly as possible where an application is made, to protect the shape only. This can include written limitations and disclaimers
• CAD drawings shouldn’t be disregarded as a useful form of representations and their use shouldn’t be discouraged. However, applicants should consider that shading and light might represent shape and other elements, such as surface decoration. As such, applicants should consider, when looking to only protect the shape, using simple line drawings without the inclusion of any tone, colour, decoration or indication as to any other visible surface features.
• Where applicants are making a single application, no combination of formats should be used. If a combination of formats are filed in a single application, there will be an objection raised.
• Where applicants are uncertain of which way to represent their design, they may use the multiple application route. This, unlike a single application, allows them to submit different representations of the design. Plus, it’s more cost-effective than submitting numerous single applications.
• Rather than by reference to the type or format used, the design protection is likely to be assessed by reference to features disclosed in the representation.

If you’re an applicant, you should consider the above points when deciding on which method you’re going to use for representations, and what the Court will review when a registered design and an alleged infringing product are compared.

You should also bear in mind that designs are likely to be scrutinised to determine whether they’re novel. This is due to designs not having to show they’re novel when they’re being registered. In this respect, designs, especially where represented by pencil drawings, are more likely to be at risk of creating the same impression. Had the later registered design in the Trunki case been a pencil drawing rather than CAD, there would potentially have been a greater risk of a successful invalidation of the registration.

If you’d like advice about filing a registered design application, please contact us on 01604 828 282 or send us a message via our online service.

Image courtesy of 123rf.com

Websites aren’t just words. As well as pages of content, there’s also intellectual property to think about. We’re talking about logos, images, slogans – the list goes on. They’re not always owned by the website owner, so when it comes to copyright and trade marks there’s a lot to consider.

Copyright

Copyright is an automatic right that arises when a creator produces an original work, and writes it down, audibly records it or physically creates it. If you want to use this work, you need the consent of the creator, to prevent infringing the creator’s rights.

If a website is developed, the same principles largely apply. You need to get consent from the creator to reproduce their work on your website. However, not only do you need to establish the owner of the content, but also the owner of the website itself.

One common misunderstanding is if you pay someone, such as a contractor, to design or produce something for you – and this relates to other works as well as websites – because you’ve paid them, you own the rights.

This isn’t the case, however. The contractor will own the rights of the work as the creator, unless there’s an agreement in place saying otherwise. This type of agreement can be produced to transfer all rights from the contractor to the other party, which is commonly known as an assignment. Alternatively, the contractor could licence the work for your use by the other party.

If a website, or any work, is created by your employee, then unless there’s an agreement saying otherwise, any work created by the employee belongs to you, the employer.

It’s always best to have an agreement and understanding of what:

• you own
• you’ve had assigned to you
• you’ve assigned to others
• licences are in place, if any

Before you commission any work, it’s advisable to put an agreement in place, to deal with the ownership of copyright. This prevents disagreements and potential infringement further along the line.

Trade Marks

As well as identifying and agreeing ownership of copyright, another way to make sure components of your website are protected is to trade mark them.

A trade mark is a non-descriptive way of distinguishing your brand – including goods and services – from another. This can stop competitors trading under a similar name, or even using a similar logo or slogan.

To establish a trade mark in the UK, you need to make an application to the Intellectual Property Office. The content and similarity of any suggested new trade mark will then be considered before being granted.

Whether you’d like advice about your website or other work, our experienced Intellectual Property department can help you with copyright and trade marks matters. They can help with establishing ownership, licences of copyright, creating a trade mark, or infringements of any of the above. Please give them a call on 01604 828 282 or send us a message via our online service.

Image courtesy of 123rf.com

Many contracts include liquidated damages provisions agreed upon by all parties to the contract.

Liquidated damages are an agreed sum which becomes payable upon breach of the contract by one of the parties to it. The general rule is that the agreed sum is recoverable upon breach as liquidated damages clauses are enforceable. However, liquidated damages clauses are unenforceable if they constitute a penalty.

The Supreme Court has recently reset and clarified the penalty rule. This has been eagerly anticipated for a century since the ruling of Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] which was the previous case governing the rules on penalty clauses.

This case set out the traditional test so as to distinguish between liquidated damages and penalty clauses. It is this test which has been reviewed by the Supreme Court in the joint appeals of Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Ltd v Beavis [2015]. The Supreme Court declined abolishing or extending the test, but rather decided to reset and clarify it.

Cavendish Square Holding BV v Talal El Makdessi

Mr Makdessi, and his co-owner Mr Ghossoub, entered into a sale and purchase agreement with Cavendish. The agreement stipulated that Mr Makdessi and Mr Ghossoub, who had held the majority shareholding, would sell a significant amount of their shares so that Cavendish would hold the majority shareholding. Upon completion of the sale, the sale and purchase agreement stipulated that, dependant on the operating costs of the Group, an interim and a final payment would be made to Mr Makdessi and Mr Ghossoub.

Clause 11.2 of the sale and purchase agreement stipulated that there were certain activities which Mr Makdessi was prohibited from carrying out. The prohibited activities were any that would potentially compete with the interests of the Group. Should clause 11.2 be breached, then clauses 5.1 and 5.6 stated that:

• “He would not be entitled to the Interim and Final Payments.
• He could be required to sell to Cavendish the remainder of his shares in the Group at a default price, based solely on asset value and without reference to goodwill (to which significant value had been attached in the sale price).”

Mr Makdessi confirmed that he had breached clause 11.2 but stated that clauses 5.1 and 5.6 could not be enforced as they were penalty clauses. At first instance, Cavendish was successful in arguing the enforceability of the clauses, however, this was overturned and the appeal was held in favour of Mr Makdessi.

ParkingEye Ltd v Beavis

Mr Beavis parked his car in a car park where ParkingEye were employed by the car park owner to manage the use of the car park and provide a “traffic space maximisation scheme”. Notices stipulating the length of stay permitted in the car park were displayed stating “2 hour max stay” and “Parking limited to 2 hours” and, importantly, “Failure to comply… will result in a parking charge of £85″.

ParkingEye notified Mr Beavis that it had been recorded on camera that he had exceeded the maximum stay of 2 hours. Mr Beavis was therefore fined the £85 as stipulated on the signs displayed in the car park. The fine, if paid within 14 days, could be reduced to £50. Mr Beavis neither paid the fine, nor did he dispute the fine using the appeals process. In response to ParkingEye commencing proceedings against him, Mr Beavis argued that the £85 fine was unenforceable as it was a penalty or that he would look to rely on the terms of the Unfair Terms in Consumer Contracts Regulations 1999 to show that the fine was unfair and invalid.

The Court dismissed Mr Beavis’ appeal and found that the £85 fine did not constitute a penalty as ParkingEye, in looking to manage the car park’s efficiency, had a legitimate aim and therefore were entitled to claim for the outstanding fine. The £85 fine was also found not to be extravagant or unconscionable in relation to other UK car parking fines and was also not in breach of the Unfair Terms in Consumer Contracts Regulations 1999.

The effect of the recent case law

The recent case law identifies that the true test in determining whether a clause is unenforceable due to being a penalty clause is whether there is a secondary obligation in the clause which is to the detriment of the party who has breached the clause and out of proportion in relation to the innocent party’s legitimate interest in enforcing the primary obligation.

The previous test would determine whether a clause was in relation to liquidated damages or a penalty clause. The new test recognises that it is not whether there has been a pre-estimate of loss, but rather whether the clause is penal. Determining that a clause is to be a deterrent does not establish that it is a penalty. The enforceability of clauses depends in part on whether the clause is deemed unconscionable or extravagant.

Expert advice

Companies should now consider reviewing their terms of business with their legal advisers in light of Cavendish to ensure that they contain clauses which are valid and can be enforced. Such reviews will determine the likelihood of clauses being deemed as penal, namely as unconscionable or extravagant, and as such will allow any necessary amendments to ensure they are not likely to be considered as unenforceable penalties.