Archive for the ‘Legal’ category

UK Government Modern Workplaces Consultation

19 May, 2011

In the United Kingdom, when government departments change or make policy, they listen to public views via a consultation. For those of us in the United States, this is similar to the our government’s request for public comment on a matter. You can read the consultation paper about what government wants to do or change and then send your thoughts back. For those with clients in the UK, this can have an effect on the administration of people in those offices.

The UK Government has just published consultation (Found Here) on its plans for flexible, family-friendly employment practices. There are four key elements:

  1. System of flexible parental leave,
  2. A right for all employees to request flexible working,
  3. Changes to the interaction of annual leave and sick leave, and
  4. Measures to encourage equal pay for equal work between men and women.

The changes to maternity, paternity and parental leave are likely to be of most immediate interest to employers, who have only just got used to the new rules on paternity leave and pay. The key proposal is that maternity leave and pay, reserved exclusively for mothers, will effectively be reduced to 18 weeks. There will then be an entitlement of 30 weeks flexible parental leave which can be shared between the parents in whichever way they wish, subject to their employers’ agreement. 17 weeks of this leave will be paid and 13 weeks will be unpaid. Payment will be on the same basis as now with reference to the same eligibility criteria and set financial limits. Parental leave can be taken by both the mother and father concurrently so that parents can be together. An additional period of 4 weeks paid leave will be reserved for each of the father and the mother. The father will also retain a right to the current 2 week paid paternity leave period available around the time of the baby’s birth. Employers will be concerned that the changes will have financial and administrative consequences and that it will be more difficult to plan for absences. The consultation seeks to minimize administration and states that the default position where the parties cannot agree when leave is taken is for parents to take leave in a continuous block.

The consultation also proposes extending the statutory right to request flexible working to all employees. However to reduce the administrative burden the current statutory process for considering requests will be replaced with a new duty on employers simply to consider requests reasonably. A statutory code of practice would be created to demonstrate a reasonable process. An interesting proposal is that employers will be allowed to take account of any factors they consider relevant in the event that they have to choose between multiple requests. The consultation makes it clear that employers would still have to show that all the requests could not be accommodated for purely business reasons and wider principles of discrimination would still need to be respected.

The Government also takes this opportunity to consult on changes concerning the carryover and rescheduling of annual leave in the light of recent European cases. The consultation proposes amending the Working Time Regulations so that where a worker has not been able to take his annual leave (due to sickness absence) in the current leave year he can carry it over to the next holiday year, provided he does not exceed a four week limit. The consultation recognizes that employers would still need to be aware of other contractual or statutory obligations such as the disability discrimination provisions of the Equality Act 2010.

The equal pay proposals would require tribunals (which have found an employer to have discriminated because of gender in relation to contractual terms or non contractual pay matters) to order that employer to conduct a pay audit. The pay audit would involve comparing the pay of women and men doing equal work and investigating the causes of any potential discrepancies.


The Impact on D&O for Multinationals with Certain Cuba Sanctions Restrictions Lifted

27 April, 2011

Earlier this year, the US Treasury’s Office of Foreign Assets Control (OFAC) amended the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR or Cuba sanctions). The amendments implement policy changes announced by President Obama on January 14, 2011 to continue outreach efforts to the Cuban people. The amended regulations took effect immediately and among other things, authorize general licenses for (i) certain transactions with Cuban nationals who are permanent residents outside of Cuba, (ii) travel to Cuba in connection with educational and religious activities, and (iii) remittances to Cuba.


Immediately, I began to wonder about the impact of this lifting on the D&O policies of U.S. firms with local policies outside the U.S. Specifically, I previously had an insured client who had a subsidiary in France. We were looking to provide a local D&O policy in France. The French subsidiary had a Cuban National who sat on their Board. In the case of a claim, we were advised that we would not have had the ability to provide indemnity payments to this board member. The broker and client sought other alternatives. No one wanted to have to tell the French board that one of their members were excluded from payments by the US insurer whose policy was acting as a DIC / DIL.


Prior to the amendments, the Cuba sanctions broadly prohibited transactions with Cuban nationals no matter where they resided. The amended regulations establish a new general license that authorizes persons in the United States to engage in certain transactions with individual nationals of Cuba who are permanent residents outside of Cuba. The general license is subject to the requirement that US persons obtain from the Cuban national at least two documents issued to the individual by the government authorities of the new country of permanent residence. However, all property in which a Cuban national has an interest that was blocked prior to the later of the date on which the individual took up permanent residence outside of Cuba or January 28, 2011, remains blocked.  


The amendments to CACR also add general licenses for certain educational and religious activities that had previously required specific licenses from OFAC. A specific license will still be required for any educational or religious activities not authorized under the new general licenses. The new general license for educational activities authorizes accredited US graduate and undergraduate degree-granting academic institutions to engage in travel-related transactions incident to certain educational activities. Students traveling under the general license must carry a letter on official letterhead, signed by a designated representative of the sponsoring US academic institution, stating that the study in Cuba falls within the scope of the general license.  


Similarly, the new general license for religious activities authorizes religious organizations located in the United States, including members and staff, to engage in travel-related transactions that are incident to religious activities in Cuba. Under the general license, travelers must engage in a full-time program of religious activities, and donations to Cuba or Cuban nationals are not authorized. In addition, individuals traveling under the general license must carry a letter on official letterhead, signed by a designated representative of the US religious organization, stating that the travel is within the scope of the general license.


Finally, the amended regulations add three general licenses related to remittances to Cuba subject to certain restrictions. Unfortunately, it appears that the D&O claims issue may not be resolved because these new licenses authorize (i) remittances of up to $500 per quarter to any Cuban national, except prohibited officials of the Government of Cuba or prohibited members of the Cuban Communist Party, to support the development of private businesses, among other purposes; (ii) unlimited remittances to religious organizations in Cuba in support of religious activities; and (iii) remittances to close relatives who are students in Cuba pursuant to an educational license for the purpose of funding transactions authorized by the license under which the student is traveling.

New EU insurance sector block exemption adopted

18 May, 2010

On 24 March 2010, the European Commission announced that it has adopted a new insurance sector block exemption regulation (BER). The new insurance BER came into force on 1 April 2010 and will last until 31 March 2017. The insurance BER exempts certain aspects of the insurance industry from the EU prohibition on restrictive agreements.

The headline points of the new insurance BER are that it:

  • renews exemption for joint compilations, tables and studies;
  • renews exemption for co-(re)insurance pools, subject to some amendments;
  • no longer exempts standard policy conditions; and
  • no longer exempts agreements on security devices.

This should not come as a surprise as it is effectively what the European Commission set out in its consultation draft of the insurance BER in October 2009, although there were some slight amendments.

The Commission observed that standard policy conditions are used in other sectors, such as banking, without the need for a specific block exemption. It reasoned that to give the insurance industry special treatment could result in unjustified discrimination against other sectors which do not benefit from a sector-specific BER. Security devices and their installation were found to fall into the general domain of standard setting.

Standard policy conditions

The exclusion of standard policy conditions and provisions on security devices from the BER does not mean that they are necessarily illegal – rather a regular competition analysis is required. This will consider whether the particular arrangements do actually comprise a restriction of competition, whether any other block exemption could apply (e.g. the vertical agreements block exemption) and/or whether the particular arrangement merits an individual exemption.

Associations and their members will need to carry out a self-assessment in relation to proposed standard policy conditions and their terms of use as for any other association activity.

The Commission plans to offer more guidance on standard policy conditions for all sectors (not just insurance) in its guidelines on horizontal agreements which it is currently reviewing and on which it plans to consult “in the first half of 2010”.

Joint studies

Key changes to the exemption regarding joint compilations, tables and studies are:

  • a new right of access to the results for customer and consumer organizations, subject to an exception on the grounds of public security (e.g. where information is related to the security systems of nuclear plants or the weakness of flood prevention systems); and
  • clarifications to the scope of the exchange of information covered by the BER.


Key changes to the pools exemption are:

  • market share calculation now covers gross premium income earned within and outside the pool by participating undertakings – bringing this area into line with other general and sector-specific competition rules; and
  • a broadening of the definition of “new risks” to cover risks the nature of which has changed so materially that it is not possible to know in advance what subscription capacity is necessary in order to cover such a risk.

The Commission emphasized that the pools exemption is not a “blanket” exemption and that careful legal assessment is required of whether a pool complies with the conditions of the BER. It intends to monitor their operation closely.

Subscription market co-(re)insurance agreements

The Commission has also underlined that ad-hoc co-(re)insurance agreements on the subscription market have never been covered by the insurance BER and remain outside the scope of the new regulation.

Transitional provisions

It is useful to note that there is a 6 month grace period until 30 September 2010 for agreements which comply with the expiring insurance BER but not the new insurance BER. This gives industry a little more time to adapt their agreements to bring them into line with the new rules.

New Mediation Rules in Russia

16 May, 2010

On 11 March 2010, draft regulations establishing mediation as alternative procedure for the settlement of disputes were introduced to the Russian Parliament. Assuming they are accepted, they will come into force on 1 January 2011.

Mediation has not previously been expressly provided for in Russian legislation nor has any law contained a detailed description or procedure for it.

In most cases, mediation allows parties to reach the best possible, and a mutually beneficial, compromise without involving judicial bodies or reducing the effectiveness of the settlement process.

The draft regulations contain complex and detailed legal mechanism for mediation, as well as various amendments and additions to civil law, civil procedural law and arbitration procedural law.

It is assumed that mediation can be initiated by agreement between the parties. A mediator may arrange meetings with both sides jointly or individually. This may culminate in the resolution of their dispute, which may be formalized in a civil law contract or an amicable settlement approved by a judge if the dispute has been already submitted to the court.

If the dispute is not resolved, the participants may not disclose during judicial proceedings any information provided by another party to conclude a mediation agreement or about their intentions to do so. They are also prohibited from disclosing any opinions or suggestions made by the parties during the mediation process and any information about a party’s readiness to accept any suggestions. The mediator may not provide the parties with legal counseling or other help.

The individual or organization providing mediation services is not authorized to disclose any information about the mediation procedure unless it is expressly permitted by the parties.

The draft regulations also contain certain quality requirements and procedures for the provision of mediation services, as well as some features of mediation in the course of initiated proceedings in arbitration tribunals and courts of common jurisdiction.

UK developments on climate change risks disclosure

13 February, 2010

In the UK there is a growing scrutiny of how climate change and environment issues are managed and reported.

1. The Companies Act 2006 (the “Act”)

The Act requires directors to carry out their duties in a way which is most likely to promote the success of the company for the benefit of its members as a whole. The Act also obliges most companies to produce a business review. Directors of listed companies must understand the likely consequences of any decision in the long-term and disclose the main trends and factors likely to affect the future development, performance or position of the company’s business in their business review. Large quoted companies must also report on environmental risks, policies and key performance indicators (KPIs). Environmental risks encompass a wide range of issues, not purely climate change although climate change may be an inherent factor. In order to assist with the reporting process the Accounting Standards Board has issued a statement of best practice and DEFRA has issued guidance on KPIs.

2. Recent Guidance for Auditors

In September 2009 the Environment Agency and the Institute of Chartered Accountants for England and Wales (ICAEW) launched new guidance on annual reporting in annual financial statements, entitled “Turning Questions into Answers: Environmental Issues and Annual Financial Reporting 2009”. The report provides guidance to assist preparers, users and auditors of annual financial statements to identify sufficiently relevant environmental issues, which affect company financials warranting disclosure. The aim being that the disclosure of management policies relating to environment matters and companies’ corporate commitment to these issues will assist in avoiding financial risks and prompt internal change. The report is expected to be of interest to directors and users of annual reports in addition to auditors.

Whilst particular obligations are placed by the Act on large and quoted companies to report on environment related risks, policies and KPIs, the report advocates voluntary reporting for all companies in excess of the required standards in order to generate information on environment performance.

3. Calls for harmonized climate change disclosure framework

The ICAEW, the Climate Disclosure Standards Board and Prince’s Accounting for Sustainability Project and others including 12 accountancy institutes from around the world have called for a single set of universally accepted standards for climate change related disclosures in mainstream financial reports.

In 2009 the Climate Disclosure Standards Board (CDSB) consulted on a Draft Reporting Framework designed for companies to use in evaluating the type and extent of disclosures that should be made about climate change in their mainstream reports. The Framework is to apply to disclosures made in or connected to information provided outside financial statements – such as the business review – that assists in the interpretation of a complete set of financial statements or improved users’ ability to make efficient economic decisions. A response to the public consultation is expected in the first quarter of 2010.

Ceres report on survey of asset managers practices

A recent report by Ceres entitled “Investors Analyze Climate Risks and Opportunities: A Survey of Asset Managers Practices” (January 2010) is also of significance. The report is the result of a survey conducted in 2009 of the world’s 500 largest asset managers asking them to describe how they are considering climate risks in short and long-term decisions. The report examines best practices that asset managers are using to incorporate climate and environment risks into their due diligence, corporate governance and portfolio valuation. The key findings reveal that many companies are still developing protocols for reporting on their carbon emissions and the risks and opportunities that they face. Whilst these disclosures are more prevalent, they are still voluntary and lack consistency.

The report notes that five of the world’s largest financial institutions have adopted the Carbon Principles, a roadmap for banks and utilities to evaluate and mitigate climate risks in lending to electricity generation projects. These financing entities acted out of concern about long-term viability of high-emission electricity generation. This means that the Carbon Principles initiative could increase the cost of financing high-emission enterprises if lenders demand more favorable terms to compensate them for potential liability, or if they simply avoid financing high-emitting projects. Ceres identifies that utilities that are investing in energy efficiency and cleaner renewable energy may not only face fewer material risks related to climate change regulation, but may also benefit from lower financing costs and higher market share, as emission regulations and renewable portfolio standards take effect.


Increasingly climate change impacts, sustainability issues and environmental compliance are being considered in making investment decisions. The emergence of new guidance on requirements for disclosures on climate change risks is indicative of heightened awareness of how environment related legislation, policy and risks should be factored into business decision making in a cohesive way.  More developments in this area should be expected.

For UK Hotels — A duty to reduce carbon emissions

8 December, 2009

(This article first appeared in Hotel Report.)

In April 2010, a new regime designed to improve energy efficiency and reduce the amount of carbon dioxide emitted by businesses will be implemented in the United Kingdom. As well as the large hotel chains, this will also affect owners of unbranded hotels that exceed the relevant electricity usage thresholds and all owners of branded hotels.

To be known as the Carbon Reduction Commitment (CRC) scheme, it is a mandatory scheme and will apply to organizations whether in the public or private sector who have at least one electricity meter settled on the half hourly market and whose annual UK electricity usage exceeded 6,000 MWh which represents an annual electricity bill of roughly $985 million at current rates.

What is the CRC scheme?

Under the CRC scheme, participating organizations must purchase “allowances” sold by the government for each ton of carbon dioxide that they emit.  The initial price will be nearly$20 per ton. So there is a direct incentive for these organizations to reduce their emissions and therefore their energy bills.

Additionally, the better a participating organization performs at reducing its emissions, the higher its ranking in the annual performance league table that the Government plans to publish showing the comparative performance of all participants. Government proceeds from selling allowances will be handed back to those organizations that feature most highly in the league tables.

What constitutes an ‘organization’?

Group organizations will be treated as a single entity under the CRC scheme and all members of that group will be required to participate. There are two main groupings that constitute ‘organizations’:

  1. Corporate groups, i.e. all parent companies and subsidiaries, including subsidiaries of foreign parent companies; and
  2. Franchise groups, which include not only the franchisor’s corporate group, but also all franchisees of the franchisor.

It is important to note that there are significant financial penalties for non-compliance and liability for compliance with the CRC scheme will be joint and several and attach to all entities within the CRC organization.

The implication for the hotel industry

The implications depend on whether the hotel in question is leased, managed or franchised. Whilst a managed hotel is distinguished from a franchised hotel in the hotel industry, any managed hotel that is operated under the manager’s brand will be treated as part of a franchise for the purposes of the CRC scheme.

Leased hotels

Under a standard lease, a hotel operator as tenant is likely to be the counterparty to the energy contract in place as opposed to the owner as landlord.  Under the CRC regime as currently envisioned, CRC liability for energy use will attach to the hotel operator itself if it is a single entity or where the hotel operating company is part of a group, all of the companies in the group (subject to certain exceptions) which together will constitute the CRC Organization.

In the less common situation where the landlord is the energy contract counterparty (perhaps where the hotel is part of a larger mixed-use building), then the CRC liability will reside with the landlord. The commercial lease arrangement between the landlord and the tenant will determine whether the landlord can recover the cost of the allowances through the service charge and/or whether the tenant is entitled to share in any rebates – the CRC regime does not govern this private matter.

Franchised or branded managed hotels

The definition of a franchisee is where the franchisee “presents or equips [the hotel] premises to a standard or specification which results in that premises having an internal appearance which is substantially uniform with premises belonging to other franchisees of that franchisor or of the franchisor itself.” This means that:

  1. The owner of a branded hotel is associated with the operator under the CRC scheme.
  2. The operator’s corporate group will be aggregated with all its franchisees’ hotels for the purposes of determining the ‘CRC Organization’.
  3. The parent of the operator’s group (or the UK group company nominated by the parent) will need to purchase allowances for the whole CRC Organization.
  4. The management agreement will need to determine whether the operator can recover the cost of purchasing allowances as an operating expense and, if so, how rebates given back to the CRC Organization will be re-credited to individual owners.

Unbranded managed hotels

Normally the owner will have the liability to purchase allowances, if it is large enough to qualify. However, if the manager has a single contract for electricity under a group-purchasing scheme for all hotels managed by it, and it pays the bill with a re-charge to owners, then the manager may become responsible for purchasing the allowances. If the manager contracts with the electricity provider, but merely as agent for the owner, then that contract will be considered to be the owner’s and the owner will be responsible for purchasing allowances.

Next steps for owners and operators

Hotel operators, who may be aware of the need to measure their own electricity usage in owned and leased hotels and their head offices, may need to ensure that they are in a position to measure usage of all UK hotels operated under one of their brands, whether on a managed or franchised basis. On the basis that no management agreements expressly deal with this issue, operators should ensure that they agree a protocol with their owners as to how the system will operate in terms of re-charging for allowances and re-crediting of rebates.

Owners of branded hotels should challenge their operators/franchisors to explain what they intend to do to minimize the cost of the scheme by maximizing emissions reductions and therefore the rebates available under the scheme.

There will also be implications for investors, purchasers and developers of hotels who, together with owners and operators, will need to seek advice on how the CRC scheme will affect their involvement in the sector.

Sentences of up to 10 years for Insurers or Brokers breaching Export Control Order

12 October, 2009

The International Traffic in Arm Regulations (“ITAR”) should be well understood by those who operate in the United States. However, if you operate in the UK, you need to also be cognizant of the Export Control Order.

The Export Control Order 2008 is intended to restrict the international movement of arms or other military goods, and penalties for breaching these trade controls can be severe and include an unlimited fine as well as a prison sentence of up to 10 years. Insurers and brokers are caught by the Order if they are involved in insuring, or arranging insurance, in relation to actions prohibited under the terms of the Order.

The Export Control Order is enforced by H.M. Customs & Excise and came into effect on 6th April 2009. Insurance companies and brokers will be expected to comply with the Order, and must have structures in place to ensure that the Order is not being breached. Breaches of the Order can result in criminal penalties being imposed on individual underwriters and brokers as well as their employers, including imprisonment for up to 10 years or unlimited fines.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.