Agrilaw – February 2019
22 February 2019
The biggest conference held by Wilsons in 2019 so far, Agrilaw 2019: Issues facing a diversified rural business – which this year stepped back to take a look at a fictional large diversified "farming" business. This year we considered the consequences of; dealing with complicated business structures, fiduciary duties, unintended partnerships, employment issues, how best to restructure and hand over to the next generation and finally at protecting Landlords when negotiating leases.
This year was very well attended with over 100 professionals from the agriculture and rural estates sector making their pilgrimage to Winchester Guildhall. Hosted by Wilsons, with the help of our returning role-play actors, feedback from the day was very positive, including comments like "As ever, very informative and entertaining, one of the best seminars I attend every year" and "Fantastic use of actors to give context and keep engaging".
Peter Bourke, Partner at Wilsons, introduced the morning, referencing with a wry smile that due to austerity, the mother, daughter-in-law and prospective tenant were all to be played by the same actor! Giving some food for thought, Peter reeled off some statistics from the recent NFU survey in relation to diversification enterprises, highlighting how over 30% are not profitable after 5 years and only 30% take into consideration inheritance tax and he posed the question as to how much higher the profitability figure would be if you excluded investment enterprises such as solar farms.
Business structures: who are you acting for?
Mark Cook, Senior Associate at Wilsons and Abby Wild, Solicitor at Wilsons, kicked off the morning with a look at various issues relating to the two most common business structures which advisers see their clients using in practice: the private limited company and the general partnership.
Mark and Abby drew out a number of examples of why it is so important for advisers to understand the business structures within which their clients operate. They reminded delegates to bear in mind one of the important tests of what constitutes a general partnership: two or more individuals could well be in 'partnership' if they are carrying on a business in common with a view to generating profit. Mark further explained that, while a limited company has legal personality and is able to enter into contracts itself, a general partnership does not which means any contract for services or otherwise which is intended to be between a third party and the partnership needs to be with the partners personally. The liability of the partners (in the absence of anything to the contrary in a partnership agreement) is therefore unlimited and the actions of one partner will bind the other partners in law.
Mark and Abby wrapped up their talk by affirming how advisers should 'know their clients’ and understand the capacity in which clients are instructing them – for example is the client a director or shareholder of a limited company? Or a partner of a partnership? If the latter, is there a partnership agreement? The answer to these questions will dictate how advisers will engage with their clients to provide advice and how (and from whom) they will take instructions.
Terminating the difficult employee
Following a short sketch which showed an employer discussing the need to terminate an underperforming and difficult employee, Sophia Zand, Associate at Wilsons, stepped in to share her expertise stating, “You should always endeavour to terminate the employment of a difficult employee within 2 years of their start date.”
Sophia delved into the process of terminating a difficult employee. For employees with less than 2 years' service, Sophia advised these employees do not have ordinary unfair dismissal rights. She recommended carrying out a risk assessment to assess whether there are any claims these employees could bring that do not require 2 years' service. Claims for automatic unfair dismissals, for example, do not require 2 years' service and include dismissals:
(a) for blowing the whistle ("whistleblowing"); or
(b) for a health and safety reason.
When terminating an employee who has 2 years' service, employers must be able to show the reason (or principal reason) for the dismissal was fair, that they followed a fair procedure and acted reasonably in treating the reason as a sufficient reason for dismissal. Sophia advised in the event of an employee bringing a claim for ordinary unfair dismissal, this will result in:
(a) Management time to defend the claim.
(b) Legal costs being incurred.
(c) Potential adverse/bad publicity.
(d) Compensation being awarded if the employee is successful in their claim.
Compensation usually consists of a basic award and a compensatory award. A basic award is calculated in a similar way to a statutory redundancy payment. The compensatory award is subject to a cap which is currently set at £83,682 or if lower, up to a maximum of 52 weeks' (gross) pay.
One option, which avoids having to manage difficult employees out of the business and removes the risk of an employment claim, is to hold a ‘protected conversation’ with the employee. Protected conversations are a useful tool in bringing employment relationships to a quick and consensual termination. It allows both the employer and employee to agree terms of severance and avoids going through a formal dismissal process. The benefit of a protected conversation is that it is confidential i.e. the employee cannot refer to the conversation in any subsequent ordinary unfair dismissal claim.
Protected conversations can be commenced either by the employee or employer. Sophia advised employers require consent from the employee that they are happy to enter into a protected conversation. If they agree, the employer should set out their concerns (regarding their poor performance/conduct issues) and explain one option is to go through formal disciplinary or capability proceedings. The alternative is that the employer is willing to make a severance offer (i.e. a payment) to bring their employment to an end. This will be formalised by a settlement agreement.
Delving into why protected conversations can be beneficial to employers, Sophia explained it can save management time and the stress involved in carrying out a formal process to manage poor-performing / difficult employees.
Sophia summarised her expert advice, “Don’t wait for two years or more as removing a poor employee becomes harder". She also advised that with protected conversations, employers should put forward a sensible offer to the employee "on the basis of being willing to improve as it is likely the severance payment will be subject to negotiations. To seek agreement at this stage that your employee is willing to consider an offer…expect some negotiation, so start on the basis of being willing to improve.”
EU Workers and Brexit
Tackling the ever-looming issue of Brexit, Natasha Letchford, Solicitor at Wilsons, jumped straight into setting out the potential options for employing EU nationals post-Brexit. Natasha began her talk hoping to give a useful overview of the proposed schemes as they currently stand, however, jokingly mentioning this may not be clear until March!
Natasha began with a useful reminder of the importance of conducting right to work checks and noted that it was more important that employers were clear on the process once they could not rely on a worker’s nationality giving them the right to work.
Discussed in some depth was the small-scale pilot scheme for agricultural workers, which the government has confirmed they will be rolling out over 2019 and 2020. The aim of this is to explore the viability of the scheme to roll out to more workers. Natasha also set out the proposed ‘12-month, low-skilled visa’ and the possibility that this could be used for temporary farm-workers, noting that it was only a transitional measure in place until 2025.
Natasha explained the industry was heavily reliant on migrant labour and many are worried that the agricultural scheme’s restriction on numbers will simply not meet demand. She noted that “in 2016, it was estimated that there were 64,000 seasonal, temporary or gang workers in the agricultural sector, and the National Farmers’ Union have estimated that 99% of these workers are EU-nationals.” With the agricultural pilot scheme being open to only 2,500 workers in 2019, Natasha commented that “the numbers simply don’t add up!”
If the UK does manage to reach a deal with the EU and this is completed by ‘exit day’, EU nationals will continue being permitted to work in the UK under current arrangements until 31 December 2020. This will allow workers to make the next harvest season, relieving farmers of the worry of ‘fruit rotting in the fields’, as has been grimly predicted by some within the sector.
Natasha followed up the previous point affirming that “if the UK leaves without a deal the situation is very unclear, and given the current reliance on migrant labour, it is likely that some interim measure will need to be put in place.”
Succession issues – ideas for handing on to the next generation
Following the well-deserved mid-morning coffee break, Jonathan Stephens, Partner at Wilsons and Andrew Radice, Consultant at Wilsons, looked at succession issues and ideas for handing over to the next generation. Jonathan started by taking a look at ‘The Conversation’ regarding succession. Jonathan drew on fresh experience saying “Not so long ago I was consulted by a farmer in his late 70’s, who had farmed all his in partnership with his brother who was now in his 80’s. The farm was effectively being run by the nephew who was in his early 60’s. It was pretty clear the family had never really addressed the question of how the two brothers were going to pass down the farm.” Jonathan followed by urging that advisors should encourage their clients to talk about how they plan to pass down their farms or estates.
Following Jonathan, Andrew stepped into the topic of Business Property Relief (BPR). Andrew explained that “…if you give away, either in your lifetime or on death, a business or an interest in a business, you can claim 100% BPR provided that the business does not consist wholly or mainly of holding or making investments.”
On the subject of BPR, Andrew added that the McCall case gives us helpful guidance on the trading/ investment divide, explaining how the business in question owned 33 acres of land and profited from letting to farmers under seasonal grazing agreements or agistments. Mrs McClean, the owner, had lost mental capacity and her son-in-law arranged the lettings thereafter. The son-in-law spent an hour or two each week maintaining the land. The Special Commissioner held that the maintenance and letting of the land constituted a business. The business, however, fell at the leasing end of the spectrum. With a chuckle, Andrew remarked that the son in law cheekily claimed he provided the farmers with grass although it was the herders who fertilised the land!
Jonathan summarised, “succession can be a difficult issue for farming and estates families to deal with… The structuring possibilities to deal with succession are many and various… we must make sure that these issues are dealt with in good time before incapacity or an untimely death make these things a lot more difficult.”
How good are your Heads of Terms?
Following Jonathan and Andrew, there was a disturbance amongst the seats as the actors playing ‘Steve ’and ‘Elsa’ made a less-than-anticipated arrival through one of the back doors. They were chatting as they walked to the stage, and began to negotiate a tenancy agreement for a pottery making studio on the same site as the farming business.
Following the sketch, Jane Lonergan and Sue Russell, both Partners at Wilsons, took to the stage to give an interesting role-play on the negotiations as though they were representing each side. As they negotiated the tenancy, they took pauses to explain their decision making and shed some light into the negotiation process.
Following the meticulous negotiations, Jane and Sue concluded by offering the simple advice of “…the more detail set out in the Heads of Terms, the less time expensive solicitors need to spend negotiating non-legal points.”
Code of Leasing Property
To conclude the afternoon, Peter Bourke stepped back in to take a look at the Code of leasing property with particular reference to the obligations the RICS is intending to impose on its members and how these obligations impact on the requirement that professionals must give their independent advice as to what is in their client's best interests.
Peter summed up the RICS template noting “We are asked by our clients to give professional advice on a set of circumstances. Your job is to guide them through the decision-making process. Your job is to give the client the best advice and then take their instructions as to what they require to be inserted into the Heads of Terms. You must use your professional expertise in each and every case and not simply follow a pro-forma guide but be sure to make detailed contemporaneous notes if you are advising your client not to follow the Code!.”