To print: Click here or Select File and then Print from your browser's menu

This story was printed from silicon.com, located at http://www.silicon.com/

Story URL: http://comment.silicon.com/0,39024711,11018495,00.htm

Ask the Lawyer @ silicon.com
Every month, silicon.com solves your IT law problems. Just send your questions to askthelawyer@silicon.com. This month, Alastair Breward of UK firm, Taylor Joynson Garrett, responds to your queries

By Alastair Breward

Published: Wednesday 30 August 2000

Q. Recently I was offered a job with a large IT vendor. I accepted the position and went on holiday only to return to find that the position I was offered had been withdrawn. This has put me in an awkward situation as not only have I handed my notice in at my current employers, but spent time and money looking at potential properties for relocation. Am I entitled to compensation from this company for loss-of-earnings, or some sort of redundancy package?

A. You don't say how you accepted the new job, and overall it looks as though any damages that might be awarded here will be low. But let's look at some possible kinds of redress.

First, regardless of the terms of their employment contracts, employees have a right to compensation for unfair dismissal in various circumstances - but these will not bind your 'new' employer (call them "E") in your case as the protections only cover employees of at least one year's standing.

Second, you would have a right to statutory redundancy pay from E, but again, you are not eligible until you have two years service. (E could operate a contractual or discretionary scheme, and you might just check but even so, it will most likely contain length of service conditions.)

Third, as long as there is a contract of employment in force (which need not be in written form), then even though you have not started work, you probably have a claim against E either (a) for the pay you were due during the notice period stated in the contract, or else (b) for loss suffered as a result of breach of that notice provision. Let's consider each.

Case (a) will apply if E complied with the contract between you. If the contract does not state the notice period, and there is no clear standard always applied by E, then statute law spells it out: after working for between a month and two years, you would be entitled to one week's pay. But for less than one month, there is no statutory entitlement. Possibly you can argue that the statutory period doesn't apply and you are entitled to "reasonable" notice, but this is unlikely.

Case (b) will apply if E terminated you in breach of the contract, i.e. didn't give you proper notice (or pay in lieu if allowed), or else did so but paid you out wrongly. So what is your loss? It is the difference between where you are and where you would have been if E had terminated you properly under the contract terms. So your damages would be: your compensation during the notice period (including fringe benefits such as a car, pension etc.) plus any other costs directly caused by the breach, less anything you have been able to earn elsewhere (because you must take steps to minimise your loss by trying to find other work).

Usually you don't get damages for loss of future prospects or injured feelings. And you won't get damages for costs incurred (e.g. relocation) which would have been incurred whether you'd been given proper notice or not.

Overall, it doesn't look good. However, you might want to push the company for additional compensation on the basis that they have messed you around and the company may want to protect its reputation in the market. It is definitely worth pushing for money to reflect the practical expenses you have already incurred and the losses you are now going to suffer as a result of their aborted recruitment exercise.

Q. The main compensation element in the company I work for is stock options. Since the company is a start-up and it will probably take a while before someone can assign a value to those options, I was wondering what is the tax treatment I should give those options when filling in my self assessment forms with the UK Inland Revenue.

A. What you have to say will depend on what kind of option you have, but basically you will need to complete the specific pages in your self assessment tax return dealing with share schemes.

You will be asked to set out the name of the company from whom you received the option, the date of grant, exercise and /or cancellation and the taxable amount. There are two types of schemes for tax purposes: 'Inland Revenue Approved' option schemes, and others (which are therefore 'unapproved'). If you were given a set of 'rules' with your option certificate, then this may well tell you whether the scheme is intended to be approved or not. Alternatively, your options may have been a one-off, not part of any scheme, in which case they are unapproved.

In a nutshell, with approved options, the tax implications are: no income tax or national insurance contributions (NICs) on grant or on exercise and a capital gains tax charge on the eventual sale of the option.

With unapproved options, there is usually no income tax or NICs on grant provided that (i) the options were not issued to you at a discount to market value at the time of grant, and (ii) the options could be exercised only within 10 years from the date of grant. Where there is no clear market value (private companies etc.), the first test is not hard to pass. There will be an income tax charge on exercise based on the market value at exercise less the subscription price. You may either have to account for this on your self assessment form, or if the company has gone through its IPO then your employer will account for the tax through PAYE and usually seek payment of this tax from you.

Given that you say the main element of your remuneration is these options, there is clearly a lot of money at stake if they come good, and hence a lot riding on getting your tax affairs right. It therefore makes sense to pay an accountant to give you advice tailored to your particular circumstances, rather than relying on generalities which may not fit you because of some seemingly minor point of detail.

Your company should also be a good source of information on what is best for you to do, as it is in its interest to grant options in a structured and tax effective way.

Despite this, you cannot completely rely on what the Company tells you - however, some of your colleagues are probably in the same boat so you could consider teaming with them to get a discount on private tax advice.

Finally, if you still want to handle this without further expense, note that the IR offers a helpline through which you can raise specific questions about how to complete the assessment. This service will help you complete the form correctly - it will not necessarily identify any technical errors in your option grant nor will it help you minimise your tax.

** Network Multimedia Television Ltd/silicon.com give no warranties as to the accuracy of the information and advice contained herein and can take no responsibility for any acts or omissions resulting from reliance upon the information provided. Commentary is intended only as general guidance on legal issues arising from the circumstances described, and specific legal advice based on all relevant facts should always be sought.