Monthly update for the technology sector - June 2011

Video | June 2011

Mike Rebeiro and Oliver Stacey


Welcome to our monthly round - up of legal developments of interest to the technology sector. My name is Mike Rebeiro and I am Global Head of Technology. Today I’m speaking to you with my colleague, Oliver Stacey, a partner in our CMT team.

In this webcast we’ll be discussing the following issues:

  • BT and Talk Talk’s unsuccessful challenge to the Digital Economy Act
  • Employees’ improper use of social media
  • A case on excluding indirect losses
  • The latest on the abolition of the default retirement age, and
  • The Ministry of Justice’s guidance on the Bribery Act.

BT and TalkTalk challenge the Digital Economy Act 2010

The Digital Economy Act imposed various obligations on ISPS in an attempt to curb illegal, online file-sharing. ISPs are obliged to monitor networks, collect data on those illegally downloading music and films and notify the miscreants. Following a consultation, the government announced that the costs of implementing and enforcing the system should be split 75:25 between copyright owners and ISPs.

BT and TalkTalk applied for a judicial review of the relevant provisions of the Act. They claimed that the law had been rushed through parliament without proper scrutiny, was incompatible with EU law, was disproportionate to the harm suffered, and infringed the rights of internet users.

In a much anticipated decision the High Court rejected the ISPs challenge. The only area in which they had some success related to the issue of costs, where the court found that they should not be forced to contribute to the costs of setting up the system.

Following the judgment, TalkTalk said it would consider appealing to defend their customers’ rights. Copyright owners on the other hand were very happy with the decision. They believe that the system set out in the Act is the best way of dealing with illegal file-sharing online; an activity which has already caused serious damage to their business.

Preece v JD Wetherspoons plc ET/2104806/10, 2 February 2011

A recent case highlights the reputational damage which an employee’s improper use of social media can cause and the need for appropriate social media policies.

The case involved a manager of a Wetherspoons pub who made inappropriate comments about her customers on Facebook. Her employment contract stated that Wetherspoons could terminate her contract immediately if she were guilty of gross misconduct. The contract referred to the employee handbook which referenced compliance with its email, internet and intranet policy. This policy specifically provided that Wetherspoons could take disciplinary action if the contents of sites such as Facebook lowered the reputation of the company.

The manager was dismissed for gross misconduct. She subsequently brought a claim for unfair dismissal. The employment tribunal dismissed her claim. It did not matter that she considered the comments a joke between friends or that she mistakenly believed her privacy settings restricted access to her comments. Wetherspoons decision was considered proportional in the circumstances.

Use of social media is an every day part of life, especially amongst the young. We recommend that all companies review their employee social media policies to make sure they are adequate and give them appropriate remedies if employees are in breach.

McCain Foods GB Limited v Eco-Tec (Europe) Limited [2011] EWHC 66 (TCC)

In last September’s webcast we talked about the Court of Appeal decision in Centrica and Accenture and stressed the need to consider what is mean by “consequential loss”. Another case on a similar issue is a warning to those drafting commercial contracts about the risks of excluding “consequential loss”, without a proper consideration of what type of losses are likely to be direct and what type consequential.

In the case of McCain Foods and Eco-Tec, the court had to consider whether amongst other things a claim for loss of revenue fell within the meaning of consequential or indirect loss. McCain Foods purchased a clean energy system from Eco-Tec. McCain Foods encountered various problems with the system and brought a claim for breach of contract. It claimed damages including for a replacement system, loss of revenue, staff and contractors’ costs and additional energy costs.

There was a clause in the system supply contract excluding liability for consequential losses. Eco-Tec accepted liability for the costs of a replacement system but claimed all the other heads of loss were consequential and therefore excluded. The court decided that none of the additional heads of loss were consequential; they were all direct losses arising naturally from the breach.

We always advise that when drafting exclusion clauses, the draftsman thinks about the kinds of loss that might flow from a breach of the contract and consider where they would be considered direct or indirect. This will come down to the facts in each case.

We have written a briefing on the decision.

The abolition of the default retirement age

The law scrapping the default retirement age came into force on the 6th of April. We thought we would update you on its implications for HR teams in technology businesses.

An employer can no longer lawfully require an employee to retire at 65. The removal of the default retirement age does not mean that individuals can no longer retire at 65; it just becomes a matter of choice for the employee. If employers wish to retain a compulsory retirement age or wish to retire people on a case by case basis, they must be able to justify this objectively.

There has been some case law both in the UK and EU considering what could amount to a legitimate aim and such decisions will provide some guidance for employers. Little guidance has been provided by ACAS. The few examples ACAS has given suggest that a fixed retirement age will be effective only in exceptional cases. Any employer wishing to rely on a fixed retirement age needs to consider the legitimate aim it is trying to protect, for example health and safety or retention and training. As well as establishing the legitimate aim, an employer will also need to demonstrate that the retirement age is a proportionate means of achieving that aim.

There are currently transitional provisions in force until this October. For further details of these provisions and guidance for employers on complying with the new regime please view our briefing.

Ministry of Justice guidance on “adequate procedures”

The Ministry of Justice has published its final guidance on the “adequate procedures” that commercial organisations must put in place to successfully defend prosecution for “failing to prevent bribery”. This offence will also apply to any foreign business which carries on part of its business in the UK. In addition to clarifying the scope of the new corporate offence; the Guidance also advises how commercial organisations should approach the provision of corporate hospitability and discusses the issue of “facilitation payments”.

As the offence will apply to any foreign business which may be considered to be carrying out part of its business in the UK, such organisations should consult the guidance closely to ensure that they have in place policies and procedures to prevent bribery and are consistent with the guidance. If they do not currently have such policies, they need to put some in place by the first of July. We have spoken to a number of foreign technology companies who have an operation in the UK on compliance issues, and their concerns about how the new regime could impact on them. Please get in touch if you would like us to speak to you.

The issue of what corporate hospitality will be allowed under the new regime has excited much press comment. The guidance says that proportionate and reasonable business hospitality that seeks to showcase products or services or cement relationships will fall outside the scope of the offence. Welcome news for all sports fans, is that talking clients to sporting events is considered to fall on the right side of the line.

The guidance has a strong commercial focus and provides much needed clarification. We have prepared an in depth briefing on the guidance.

Thank you for listening to this video today. We hope you found it useful.

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Mike Rebeiro

Mike Rebeiro

Oliver Stacey

Oliver Stacey

London India