STUDY NOTES ON CORPORATE ADMINISTRATION

BY
IBIENE PAMELA MBANO

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CHAPTER 1

The roles of company secretary and administrator vary from one organisation to
another but certain subjects run through them and which ICSA considers central to
professional corporate administration. These themes focus on managing the
organisation’s resources and include
 the Human Resource;
 Pensions, Insurance and Risk;
 Corporate Taxation and Corporate Assets.

Role and function of the corporate administrator

 The corporate administrator is the person responsible for administration
within the organisation. If the corporate administrator is responsible for the
affairs of the company, the pertinent question becomes: What then is
administration?’

What is corporate administration?

There are three possible definitions
 Administration is the management of the affairs of an organisation .
This definition places administration in the context of management so that the
concept of administration and management relate and are interchangeable.
 management include the concepts of Planning, organising, commanding,
coordinating and controlling (Henri Fayol )This definition shows that
administrators are manager’s not mere employees because his functions
presumes that the manager has an all-encompassing vision of what the
organisation’s purpose is. He shares with the directors, a view of the
organisation’s mission and strategy in order to effectively carry out his role
unlike ordinary employees.

 Management is Achieving things through other people- (behavioural

definition)
 Mary Parker Follet: ‘management is getting things done by other people’
 Rosemary Stewart defined management as‘ deciding what is to be done and
getting others to do it’.
 These definitions emphasise the importance of the human element of work,
as opposed to concentrating on the physical tasks and processes and is most
germane in this age of the information economy, when human and
intellectual capital is often viewed as the most important resource of the
organisation.

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 Communication– (a vehicle of management). In the broader perspective It is
the tool by which the administrator will exercise his responsibility and
authority to plan, organise and control the work of others in the organisation.
 Henry Mintzberg hypothesized 3 vehicles of communication that will facilitate
communication by the administrator
a) Monitor – acting as a focal point for information about activities in the
organisation
b) Disseminator – passing information to others within the organisation
c)Spokesperson – providing information about the organisation to‘outsiders’

 Through the management activity of the administrator:

a) ensures that the organisation complies with the plethora of rules, regulations
and expectations that are imposed on it;
b) ensures that it performs to the highest standard in terms of achieving its
aims
 Second, the definition talks about the ‘affairs of the organisation’.
All organisations are different, within its own industry and will have its own
individual approach to organising its resources and carrying out its activities. Thus
the administration in each organisation should reflect the unique circumstances of
that organisation. e.g. information and knowledge, human resources, risk and
taxation)
 Finally, the use of the word ‘organisation’ is helpful in pointing us towards
the diversity of enterprises in which administration will be found. corporate
administration is relevant and important to all organisation profit-making,
public service and not-for-profit organisations, and to both large and small
organisations.

Administrative management{2nd definition}

‘Administrative management is the skilled and creative process of handling
information necessary for an organisation to achieve its corporate objective.’
(Institute of Administrative Management)
This definition assumes greater importance in the eyes of the (IAM). Because
 It identifies Information Management as a central issue in attaining corporate
objectives.The IAM promotes the importance of managing information and
knowledge in this age because information assumes particular strategic
importance to organisations In a way that is not immediately obvious.
 Example Intellectual capital, in the form of intellectual property of the
organisation and of the people who are the source of that intellect, is no
longer merely a support system to the organisation, but the ‘source of value
creation’
 When an organisations appreciates employees as the source of the
intellectual capital of the organisation, the administrator is necessarily
compelled to ensure that there exist support systems within the organisation
to appropriately manage these human resources .

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 Professional administration(3rd defeinition)
 ‘Professional administration is about a framework of corporate governance,
communication and the handling of information in a rational approach to
identifying needs, making and implementing decisions and monitoring and
reviewing performance.’ (ICSA)
 This professional definition introduces some new issues to the definitions of
administration.
The increasing emerging trend of corporate governance
provides an incentive for paying more attention to effective
administration with a bid to applying its principles at work place.
The increased external pressures and scrutiny imposed on
organisations are raising the profile of corporate administrators
and increasing their tasks since the penalties for failure, in both
legal and public relations terms, are also increasing.
Performance monitoring and review is on the increase as
the stakeholder view of business becomes more important. The
traditional idea of measuring organisation performance in
financial terms only has been replaced by multifactorial models
of measurement, such as the balanced scorecard. (measuring
performance in terms of customer satisfaction, internal
effectiveness and organisational learning).
 The concept of stake holding –of identifying the needs of a seemingly ever-
increasing range of those individual or groups who depend on the
organisation to fulfil their own goals and on whom, in turn, the organisation
depends

Why is corporate administration important?

Pursuing the theme of the third definition on professional administration which is his
emerging role, we may surmise that proper administration
is the key to running an organisation that is open, ethical and efficient .the
impact of the increased attention given to corporate governance has affected
the nature of the work done by the corporate administrator. Via Compliance
with the increasing range and rigour of external codes of practice and
regulatory standards.
All these emphasises the importance of ensuring that the administrator is
operating at a strategic level of the organisation and has access to, and
respect within, the boardroom.
It has given impetus for growth in corporate governance due to highly
publicised examples of abuse of power and mismanagement.
examples,
 in the UK Robert Maxwell’s theft of £400 million from the Mirror Group
Pension Fund
 the ‘fat cat’ pay awards to Cedric Brown of British Gas and Ernest Mario of
Glaxo. These stories hit the headlines in the 1990s because of the corporate
governance refocus .
It can be argued that more rigorous systems of open administration with the
administrator operating at a strategic level within these organisations might
have prevented such extensive misconduct.
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 The development of codes and standards for disclosure of unethical
behaviour, such as the Public Interest Disclosure Act which protects so-called
whistle blowers, grew as a response to these and other events.

The ICSA phrase ‘the company secretary is the conscience of the company’ is
a reflection of the Institute’s belief that part of the role of the professional
administrator is the application of the highest standards of professionalism
and integrity within business.
.
The various corporate scandals created a need to regulate the power of
directors and a number of corporate governance measures led to the
publication of the Combined Code as means of curbing the abuse of power.
Thus we can say that increased pressure to ensure that administration is
effective has emerged as a way of avoiding negative outcomes for
corporations and by extension, for society at large.
Effective administration may also been seen as a positive way of enhancing
corporate performance by ensuring that the aims of organisations are
achieved.

Examining the emerging profile of the corporate administrator

With the increasing strategic importance of information management. Many of the
technical aspects of building knowledge based organisations lie in the hands of
specialists such as software engineers and web architects. thus , the need to ensure
that business systems are ‘legal, decent, honest and truthful’ to ensure that
individuals’ privacy and confidentiality are protected, that organisation’s intellectual
property is safeguarded bring information management within the remit of the
administrator or company secretary.

a core principle in understanding the nature of corporate administration, is

that administration is not an end in itself in time past it has been regarded as
a low-level function, Or a ‘Cinderella’ profession – not really wanted, usually
the first target for cuts when an organisation is looking to retrench, save
money or shed staff. Ironically, good administration goes unnoticed, whereas
poor administration is all too obvious.
It has been stigmatised as self-serving bureaucracy, typifying obstructive
procedurals, red tape and officiousness. The contrary is the case when the
professional approach to corporate administration applied. It is the ‘oil in the
corporate engine’. like oil, is usually unseen, but without it there would be
disruption at the heart of operations.
The professional corporate administrator is concerned to ensure that the
purpose of administration which is to enable organisational success, is
achieved through economy, efficiency and, above all, effectiveness.

.
The activities within corporate administration
As stated, it is not possible to identify a universally applicable list of duties that
defines the work of a corporate administrator.

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  The ICSA’s Best Practice Guide ‘Duties of the Company Secretary’ contains a
list of ‘non-core’ additional company secretarial functions based on reports
received from members of the profession. Several of these non-core duties
have been identified as essential areas for study Corporate Administration
there are sections on
 Knowledge and Information,
 Human Resource Management,
 Pensions Insurance and Risk,
 Corporate Taxation and Corporate Assets.
 In each case the administrator is required to be sufficiently familiar with the
content of each specialism to be able to identify potential problems and
opportunities for the organisation in each of the areas, and also to have that
breadth of vision and depth of understanding that marks out the professional.
See table of non-core duties.

It is important to consider whether Corporate Administration is simply a collection of

operational functions or whether it holds a place as an activity of strategic
importance. The answer is with reference to two theoretical models drawn from
studies of strategic management.

Corporate administration as a support service in organisations

some theoretical models that underpin our view of administration. One such model is
the systems approach or General Systems Theory.
The theory deals with the organisation (the system) as comprising a number of
Interrelated sub-systems. This concept is shown in Figure 1.1.

 The large, outer circle represents the firm or organisation.

 Each of the small circles inside the large circle depicts a functional activity
within the organisation. One of which is administration.
 These sub-systems are deliberately delineated with broken lines. This depicts
that none exists in isolation and that in order to achieve the overall objective
of the organisation all must interact.
 Administration is the Catalyst and facilitator in providing the information
systems that integrates the other activities.

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  In order to fulfil his function the corporate administrator must be fully
involved with the organisation’s activities and have knowledge of the business
functions insight into the relationships among the different sub-systems
highlighted in the last paragraph of the previous section.
 The administrator needs to have the wider vision of the organisation’s aims
and purpose

A second model the Value Chain, popularised by Michael Porter recapped here. See
figure 1.1

Porter’s model identified two sets of activities that take place in organisations –
primary and support.
The primary activities appear in the lower part of Porter’s diagram and comprise
those activities essential to the achievement of the organisation’s production of
goods or services. These include inbound logistics, operations, outbound
logistics, marketing and sales, and service.
 we are more interested in the other part of the model – the support
activities. These include firm infrastructure, human resource management,
technology development and procurement.
 These support activities cut right across all of the primary activities
 This model emphasises the importance of integrating all the activities in order
to achieve the ‘margin’ of competitive advantage for the firm.
 The importance of the linkages between the different support activities
themselves and also between the support and the primary activities cannot
be underestimated.
 Effective administration provides communication systems, for coordinating
the different activities and for ensuring that there is common knowledge and
understanding of the firm’s objectives.
 a failure in support activities will impact on the effectiveness of the whole
business;
 therefore, it is clear that administration is an absolutely essential strategic
support.

The concept of best practice

.Another major development that must be recognised is the increasing trend of ‘best
practice’ in many aspects of business, management and administration.
What is ‘best practice’?
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Best practice is:
 ‘the continuous process of learning, feedback, reflection and analysis of what
works (or does not work)
 best practice is about defining standards of performance to which business
organisations should aspire.
 best practice is a means of sharing information and thus spreading the
highest standards.
They are in sum professional procedures that are most accepted or
prescribed as correct

Why is best practice important?

 It promotes the concepts of transparency in matters relating to corporate
governance.
 It promotes the concept of Total quality management because total quality
management is simply about trying to ensure that every business adopts ‘best
practice’
 total quality management is a philosophy of operational practice that
involves everyone in an organisation to continuously improve all products and
processes to achieve quality that always satisfies customers' needs.
This policy is a response to the increasingly litigious nature of many
economies wherein organisations seek to be able to demonstrate that they
have taken all reasonable steps to discharge their obligations to their
stakeholders.

 One of the popular means of facilitating TQM is benchmarking.

Benchmarking involves comparing business processes against a fairly
Subjective standard of the most admired business engaged in the same
process.

The Limitations Of Benchmarking.

A number of difficulties that are impediments to successful benchmarking – they
include the problems of:
selecting the correct performance measures;
selecting an appropriate partner to compare
obtaining access to information about the organisation
understanding the particular circumstances of another business.

ASSIGNMENT
Write a Board Paper entitled ‘The changing role of the administrator and the need to
secure effective administration in the modern company.

INFORMATION AS A CORPORATE RESOURCE

CHAPTER 2

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 Like all resources, information is valuable to a company and can be used for
different purposes such as sales statistics, resource operations, market research
into new products Technology has facilitated the acquisition and management of
information, but bringing with it inherent risks and threats.
Information is increasing via technology and particularly the internet. The easy
access to information has led to enormous quantities being available, which may be
printed off for later reference or storage in filing systems. This potential sheer mass
of information is likely to cause decrease in productivity and rise in stress levels.
Therefore management of information is a necessity.

Information
Information can be described as data plus meaning. When data is organised and
understandable, data become information. Data alone is meaningless.

Good vs. bad information

Information can be good or bad. Bad information could be out-of-date or incomplete
or at best useless and at worst dangerous; to even life. Example a fire service officer
needs information to adequately put off the fire and save lives. Good information
would ensure that firemen enter a burning building only if it is necessary and to
know exactly where to go to rescue anyone trapped.

The characteristics of good information are as follows:

 relevant to its purpose;
 complete for its purpose;
 correct for its purpose;
 clear/transparent to the user;
 have integrity;
 be targeted;
 manageable in quantity;
 timely;
 communicated appropriately;
 Cost-effective.

Information needs
Information is necessary to run a corporation as it enables management to make
informed decisions on strategic or operational issues. Without information these
decisions would be void and be completely arbitrary. Example, If you are buying a
house your solicitor will carry out a search to ascertain necessary information to
enable decision making.

 Strategic decisions tend to be one-offs –major decisions such as whether to

make an acquisition of a company in a related or different field.

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  Operational decisions are more routine than strategic ones and the
information required to make these decisions is generally easier to predict.
See case example
.See stop and think 2.1
Sources of information
In a corporate environment information can come in the form of
memos, reports, circulated articles, newsletters, policy statements, seminars, emails,
manuals or via the internet or an intranet
 .A company can save many employee-hours by properly targeting its
information dissemination. For example, a monthly report circulation list
should be regularly reviewed to prevent it becoming out-of-date, so that the
report will go only to those who have a continued interest in the information it
contains, ensuring that all those who are interested are given the information.
 If a company targets its information accurately, their staffs is more likely to
be responsive and attentive to the information they do receive. If the IT
department frequently sends messages to all staff relating to problems in a
particular office only, staff in other offices is more likely to ignore subsequent
message the IT department sends as they have learned they are not relevant.
As a result, vital information could be missed.

 In a company where there is a culture of reading a daily bulletin, whether on

a notice board, via email or on an intranet, information can readily be
imparted to those who have an interest. An intranet bulletin board can be
very effective; using headlines, a reader can select which pieces of
information they want in detail with a click of their mouse, disregarding the
rest.
 seminars,
 Posters with information on matters such as staff assistance programmes,
health and safety or save as you earn share option schemes.
 Newsletters from external sources such as law firms or specialist publishers

The above kind of Information is not the same as communicating with staff.
Communication is a two-way process and occurs only where there is feedback from
the target audience, so that the originator of the message knows that it has been
received and understood.

Information needs of the company secretary

 The issues with which a company secretary deals are forever changing. At
The moment, for example, the regulatory and legislative environment is being
affected by changes in corporate governance practice, the company law
reviews process

1. In order to comply with the various statutory and regulatory requirements to

which a company may be subject, a company secretary should have access to
and be able to supply large quantities of information such as:

a. Basic details about companies, such as registered number, date of

incorporation and current directors,

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 b. Any changes in the composition, dates, locations and agenda of meetings,
details of agendas.
c. Information regarding the corporate strategy of a company in order to ensure
that all appropriate support for strategy is in place.
d. Answer to questions such as
Will board authority be required?
Will powers of attorney be necessary?
What filings may be required?
Will the company structure be changing and if so what are the
implications of this?
e. copies of documents such as the various statutes, records of previous deals,
annual reports and/or manuals.

Management and storage of information

 With the vast quantities of information that swamp an organisation, it is
important to manage and store it in an effective and efficient way.
Information is a resource in a corporation in the same way as skilled labour or
computers are resources and should be managed as such.
 To be useful, it is vital that information can be retrieved easily, when it is
required.
 But also protected from interference.
Paper filing
Paper filing systems are still in use in spite of the electronic age particularly for
historical purposes or if it is too expensive or time-consuming to scan them into
electronic form. It is still necessary to keep original hard copy documents, this may
soon be obviated.
 A paper filing system must be organised and documented.so that all users
know what files are available and under which categories documents should
be filed.
 No new files should be created without some form of sign-off or the system
could easily become unwieldy.
 A means of checking in and checking out files is useful to keep track of who
has which document and where it can be found.
 This can be achieved by using an insert sheet, placed where the document or
file should be, stating the date and name of the person removing it.
Electronic storage methods
1. Networks
 Computer networks allow the sharing of information throughout the network
if desired.
 It could be centralised or decentralised.
 centralisation means it is possible to standardise one software and format and
avoid duplication,
 disadvantages:
overloading and slowness;
if the system goes down, it is company-wide. this can be completely
paralysing;.
Decentralisation

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 
will encourage the use of non-standard software and formats, and, in the
event of a crash, it is likely that at least some areas will continue to operate.
However:
duplication can occur and the information will have no integrity
the information will not be readily available at every location;
however, in the event of a crash it is likely that at least some areas will
continue to operate. A combination will be preferable.

2. Electronic document management systems

The use of electronic document management systems (EDMS) is used to
create, manage, control and distribute electronic documents, thereby allowing the
company to manage their information. Document management can be divided into
various categories:
Library services – for saving, cataloguing and retrieving files,
Document security – rights and permissions can be assigned to documents based on
users, and the roles users play within the organisation.
Full text retrieval – this is a search mechanism that will search whole documents and
retrieve.
.
Document viewers – allow different file formats to be viewed from the system.
Archiving – files that have been moved to archive can be readily retrieved and
automated archiving can be implemented.
Version control – allows new versions of documents to be created or sub-versions;
the history of the document can thus be traced.
Document history –maintains an historical record of activity or audit trail for a
document.
Access control – allows collaborative authoring and editing of documents via
a‘lockout’ system for a document being worked on, or a ‘check-out’ system, both of
which block users working on a document simultaneously.
EDMS provide a useful interchange and access point for corporate information.

3. Databases
Databases are widely used to provide information. data can be manipulated
to generate reports such as charts or graphs to give meaning to the data.
They can be secured by password or restricted access.

Databases can be small and specific, for storing static items such as contact
details or filing lists. Such programs are not sophisticated and the data are
not easily shared.
,It could also be integrated. An integrated database can be used for the entire
company’s data requirements, ranging from Human Resources to Accounts
Payable, Integrated databases can allow access to information from anywhere
in the world at any time and inputting data in one application will update the
data appropriately in others, saving time and the risk of errors in data input.

4. Intranets
Intranet sites are an important tool in the management, storage and dissemination
of corporate information. It can be referred to as an internal internet. It can provide

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almost limitless information at employees’ fingertips. Access to the different areas of
an intranet can be restricted by use of passwords to keep it secure.

an intranet should be seen as a filing cabinet, with the different sites being
the drawers of the cabinet, within which are the files containing the
documents.
Each drawer, file and document should be appropriately labelled and cross-
referenced to other documents, files and drawers.

Whatever electronic storage systems are implemented it is vital that they are
backed up at regular intervals to ensure that if there is a problem, such as a
system crash or a virus infection, data can be retrieved or rebuilt as close as
possible to the original.

For large systems it is good practice to have safeguards such as back-up

server and uninterrupted power source that will not be affected by a power
outage.

5 Management of technological change

A lot of technological changes have occurred over the second half of the twentieth
century. Ranging from manual typewriters, carbon paper then to word
processors ,the internet ,video recorders, laptop and palm-held computers, mobile
phones, compact discs, DVDs, and Bluetooth.
While it is clear that most people are now used to changing technologies
there can still be resistance to overcome and learning to be done. Staff who
have been through regular changes in technology may become resistant to
change. Productivity will be affected if they dig in their heels
There is much cost involved. Cost of technology itself, costs of
implementation, cost of staff training and support .
During the staff learning immediately following the introduction of a new
system, efficiency will be reduced as familiarity and confidence are
gained.
Therefore It should be well considered very carefully whether upgrading or
changing from one system to another is really beneficial to the company.
Changing technologies can be confusing and unsettling for employees. They
may feel insecure that perhaps their skills will no longer be required if a
computer can do their job.
As technological change may be a sensitive issue it should be addressed with
 Consideration and support.
 Communication to staff on the necessity for the change and the
benefits that they will ultimately derive from it.
 Staff should be reassured where appropriate about their position within
the company.
 A plan should be formulated for the implementation of the new technology to
prevent it taking place in an ad hoc fashion. This plan should include dates for
the various stages of the introduction – by location, floor or department,
training and support.

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  During the implementation period support is vital example a helpdesks to deal
with queries and problems so that confidence is built and resentment is not
fostered.

Security and access

There is a fine balance between the security of corporate information and access to
it. Security should not be so onerous that one is unable to access information, nor
should it be so lax that all and sundry are able to access confidential company
resource.

Storage methods
 Electronically stored information should be regularly backed up at least twice
a week and certainly before a weekend to ensure that if a system outage
occurs when or because there are few support staff around; the maximum
amount of information can be retrieved and restored.
 . Local back-up should be done to the network, floppy disk or recordable CD
(CD-R).disks, whether floppy or compact, should be stored securely
themselves.
 Consider whether it is necessary to store a copy of it at separate locations.
 disaster recovery plans procedures to follow in the event of a disaster
 Fire is one of the greatest security risks to information. therefore Original
documentation with seals and signatures and title deeds such as share
certificates, must be stored securely. At a minimum they should be held in a
locked facility and the use of a fire-resistant cabinet or safe is highly
recommended.
 Other disasters include flooding or earthquake, depending on location should
be considered.

Access control
Electronic storage systems are vulnerable to abuse through unauthorised access,
hacking and viruses. Password protection systems are a very basic method of
providing security to information. It can be utilized as follows:
 by regulating levels of access by employees within the same organisation.
 Individual documents can be password-protected if necessary.
 Regular change of passwords to prevent detection. Passwords should be
unique and not obvious. Passwords should be complex, containing a mixture
of upper- and lowercase letters and numbers.
 The use of a personal identification number (PIN)

Vulnerability of electronic systems

 Electronic systems are vulnerable to viruses attack. A virus attaches itself to a
program or a file in such a way that it cannot be detected. These man made
‘infections’ occur via an infected email or sites.
 Viruses can be categorised as benign or malicious.
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  A benign virus causes no real damage and can be removed easily.
 There are two types of malicious virus. Destroys its original host duplicates
itself and continues to erase all the computer’s memory files.
 The second also duplicates and Uses all the memory of the computer making
it inoperative.
 It is recommended that a form of anti-virus sweeping software is installed
and regularly updated to protect the system.
 There have been many high-profile viruses, many of which are designed to
stay dormant until a specific date or event activates them. Example The
Melissa virus threatened to cause worldwide havoc, before the perpetrator of
the virus was caught.

A good security system via laws and regulations have been created in uk. Example
the Police and Justice Act 2006) made hacking a crime. The three elements covered
are:
 unauthorised access which include employees £2,000 fine or six months’
imprisonment
 Unauthorised access with intent to commit another offence. fine and/or five
years’ imprisonment
 unauthorised modification of data same as above .

- See example of the Chaos Club of Hamburg case and the Denco v Joinson
case.o 2.1

With the potential for liability being claimed against the employer as a result of
employees using their employers’ internet access for private purposes and
downloading unsuitable and even illegal material and then disseminating it to
other employees, there should be an internal security policy

Contents of an Internal security policy

1. Employees may operate only within own departmental operations and Access
to systems in other areas is restricted to those authorised staff.

2. Unauthorised access to, or tampering with, any computer system or software,

or computer installation will be regarded as gross misconduct and penalty is
dismissal.
3. All computer records, data files will be backed up daily including those stored
in remote location

4. Company computers should not be used for playing games or any purpose
other than the legitimate work of the business.

5. No software and/or disks, other than those owned or leased by the business,
may be used in business computers.
6. All software and disks must be purchased new from recognised and reputable
suppliers, backed by a confirmation that the items are virus free.

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 7. Anti-virus programs should be used regularly [specify intervals] to check that
all systems, software and disks, etc. are virus-free infected items must be
immediately eliminated.

Industrial espionage
 corporate information is a valuable resource, and may likely be of value to
others, such as competitors or those wishing to obtain price-sensitive
information in order to deal in the company’s shares. Precautions are
necessary to prevent leaks or theft of information.
These precautions might include:

- staff identity passes;

- Adequate security staffing for patrols,
- regular sweeps for bugging devices in sensitive areas such as board and
meeting rooms to ensure that no one is listening to acquire confidential
information.

-waste paper disposal wherein seemingly innocuous material, such as

company headed paper, can prove disastrous,
see Case example 2.6 On special confidential waste bins and shredders

Confidentiality of information;

it is vital that a company is able to keep sensitive information confidential. Indeed,

in some cases they are obliged by law to ensure confidentiality of Information of
their employees
a. Data protection
The Data Protection Act has extended the protection to data subjects and
increased the penalties for abuse.A company should have a recognised data
protection policy covering all aspects of the Act. Procedures should be established
for implementing the policy and adherence to data protection principles.
Requirements under the Data Protection Act are covered In more detail in chapter 5.
case example 2.6

Codes of conduct
Staff codes of conduct should refer to the requirement for staff to keep the
company’s information confidential. Many companies now have separate codes
covering areas such as electronic communications and can therefore be very explicit
in their requirements of staff.

a. They should not discuss the company’s business in public or where they can
be overheard.

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 b. They should not use laptops or mobile phones in situations, such as on
public transport, where someone can look over their shoulder or listen in to
their conversation.
c. it is a useful strategy to use confidentiality caveats as headers on documents,
classifying the level of its sensitivity. Examples:
 internal use only;
 confidential;
 strictly confidential – no further copying or distribution.

d. Care should be taken when placing confidential information on a networked

system. It Should be placed where restricted access is applied to prevent
wider dissemination than is necessary.
e. A clear desk policy, whereby all documents are locked away at The end of
the working day or during absences of more than an hour,

CHAPTER 3
PROTECTING INTELLECTUAL PROPERTY
outcomes
Intellectual property is a form of intangible asset. There are 4 forms of intellectual
property most commonly encountered in business: patents, trade marks, design
rights and copyright.

Defining assets
 asset is ‘any tangible or intangible thing which has value’. The Accounting
Standard Board’s defines assets as ‘rights or other access to future economic
benefits controlled by an entity as a result of past transactions or events’.

Assets may be fixed or current.

 Fixed assets, are assets which used on a continuing basis they could be
tangible or intangible example ‘Property, Plant and Equipment’(tangible) or
things that do not take physical form. They include research and development
costs, goodwill and intellectual property rights (IPRs)
 Current assets are assets that are readily convertible to cash and include
cash, bank accounts and debts. Fixed assets contribute in various ways to an
organisation’s prosperity and can be categorised as follows:

Intellectual property rights

All Intellectual property rights protect intellectual creative endeavour, such as
inventions, artistic work, aesthetic design or brand identity.
The jurisprudence of intellectual property is carefully circumscribed to minimise the
conflict between two competing interests:

17
1 the desire of governments and society in general not to be subjected to
monopolies wherein large corporations have total control over people’s lives and
livelihood and stifle industry and creativity;
2 the need to reward inventors, artists, authors and others with creative genius who
invest their time, money and talents in research and development.
Attempts to reconcile these two interests have given rise to a series of legal rights
and obligations under statute and common law generally covered by intellectual
property laws.
.
There is a distinction between ‘registered’ and ‘unregistered’ intellectual property
rights. Registered rights are acquired on completion of a registration process and,
when granted, are recorded on a public register. Registered rights include:
 patents;
 trade marks;
 registered design rights
Registered rights are referred to as monopoly Rights, because the process
of registration effectively prevents others from exploiting them without the
owner’s explicit consent, thereby providing them with a monopoly.
 Unregistered rights come into existence automatically without the need for
any registration and are not usually recorded on any central database.
Unregistered rights include:
 copyright;
 unregistered design rights;
 trade secrets and confidential information,
 the right to protect the goodwill and reputation that a business has
established in its trading name or trading style.

The protection conferred by monopoly rights differs from the protection conferred
by copyright or unregistered design right, which only provide moral protection,
basically against copying of their works. Authors of literary, dramatic, musical or
artistic copyright works and directors of copyright films have certain‘ moral rights’.
Moral rights are inalienable,.

Types of intellectual property rights (IPRs)

There are four main types of IPRs:
 1 Patents: is a registered rights protecting industrial inventions for up to
20 years. Patents protect features and processes that make things work so
that
inventors profit from their inventions.

 2 Trade marks: registered rights protecting elements of brand identity for

7 years. (S. 23(1) trademarks act.. Trademarks are symbols (like logos and
brand names) that distinguish goods and services in the marketplace.

 3 Designs: protect the aesthetic appearance of articles and which last for
15 years. it is all about the way an object looks: its shape, its visual appeal.
See s. 20

18
  4 Copyright: unregistered protection for the creators of literary, artistic,
dramatic and musical works against the unauthorised copying of their works
which lasts for the life of the author plus 70 years. Copyright also protects
other types of intellectual creations such as sound recordings, films,
broadcasts, cable programmes and published editions.

Intellectual Property Laws IN NIGERIA

 Copyright right Act cap 28 LFN 2004- copyright

 Patent and design Act cap p2 LFN 2004- patent & designs
 Trademarks Act – cap T13 LFN 2004- trademarks
Intellectual property symbols
Copyright: © ICSA 2009
Registered trade mark ICSA ®
Unregistered trade mark: ICSA™
Patent :Patent No…
Patent applications: Patent Applied for or Application No…
Designs: Registered design
.
Litigation
 an intellectual property owner has the right to exploit its intellectual property
and realise value from it. Any person who exploits intellectual property
without the owner’s consent infringes the owner’s rights. The owner can
enforce its his rights by commencing civil proceedings against the infringer
in the following ways:
 an injunction to prevent the infringer from continuing to exploit the
intellectual property.
 or orders to delivery up any infringing goods to prevent further
infringement.
 damages to compensate the owner for any loss caused as a result of the
infringement,
 or render accounts to the owner for any profits made as a result of the
infringement

Patents

‘A patent protects new inventions and covers

 how things work,
 what they do,
 how they do it,
 What they are made of and how they are made.
 It gives the owner the right to prevent others from making, using, importing
or selling the invention without permission.’

The application process is rigorous and protracted in order to prevent undeserving

patents being granted. a patent is valid for a maximum period of 20 years from the
application date. Because the monopoly granted is usually for a specific period of 20

19
years the period is usually taken as allowing the patentee the opportunity to reap
the fruits of his labour before the patent expires and falls into the public domain for
free exploitation thereafter. Example carl benz received a patent for the mercedez
benz in 1886

PATENT LAW:NIGERIA AND BEYOND

The country being a signatory to some international conventions relating to Patent

protection allows an applicant for a patent who had earlier filed the same application
in another country which is also a signatory to the convention(referred to as
convention countries in the Act) as long as he files the corresponding application in
Nigeria within one year of having filed the first application in the convention country,
he is entitled to claim the date on which he filed in the convention country
application as his priority date for the Nigerian application. Therefore, when the
question of novelty as concerns the Nigeria application is being considered, the court
will enquire into the state of the art for the period preceding the date on which the
convention country application was filed and not the later date on which the Nigerian
application was filed.

Patent corporation treaty has been signed by Nigeria since may 8 2005

Berne convention sept 14 1993

The benefits of patent protection

 A patent gives the patent holder the right to stop others from using the
invention.
 Has the right to choose to let others use it under agreed terms
 The right to take legal action against others whom might be infringing the
invention and to claim damages.
 Existence of a patent may be enough to deter a potential infringer.

 Patent protection is a bargain between the state and the inventor. The state
offers a short-term monopoly of 20 years from filing in return for a full
description of the invention, which is published by the Intellectual Property
Office.
 This exchange of a monopoly for a full description underpins the patent
system and leads to published patent documents being the most
comprehensive source of technical information in the world, for practically
every area of technology.

Patent requirements
To be patentable, an invention must meet the following requirements, for the
purposes of granting a patent, section 1 of the Nigerian Patents and Design Act

20
(PDA) stipulates the circumstances under which an invention could be considered
patentable. An invention is patentable if:

 it is new, results from inventive activity and is capable of industrial

application,

Newness is also called the incidence of ‘novelty.’ The newness of an

invention is usually measured against the ‘state of the art or existing
knowledge based, and prior use.’
In further explaining the import of a new invention, the PDA states that an invention
is new if it does not form the state of the art, in other words,

 being part of the existing body of knowledge in the field concerned which has
been made available in writing or orally to the public before the date the
application for patent was filed.
 The invention must not be obvious to an expert in the field
Inventive activity On the other hand, an invention is said to result from
inventive activity if it does not obviously follow from the state of the art (i.e
the most recent stage in the development of a product.) as to the method,
the application, the combination of methods, or the product which it
concerns, or as to the industrial results which it produces.
industrial application Under section 1(1)(C) of the PDA, an invention is said
to be capable of industrial application if it can be manufactured or be used in
any kind of industry
fully described

 An invention is not patentable if it is merely:

– a discovery;
– a scientific theory or mathematical method;
– an aesthetic creation, such as a literary, dramatic or artistic work;
– a scheme or method for performing a mental act, playing a game or doing
business;
– a computer program;
– the presentation of information. No patent for an invention where it is a method of
treatment, by surgery or therapy, of or diagnosis of the human or animal body or
any animal or plant variety.
However, an invention may be patentable even if it comprises ‘excluded matter’ if it
makes a technical contribution to the state of the art. For example, although a game
or a computer program is not patentable, a new type of apparatus on the computer
game to be played on it would be patentable.

SEARCHES
As patents are negative rights, anyone who is thinking of manufacturing a product or
putting a process into operation should first check whether they would be stopped
from so doing by an existing patent that is still legally enforceable. Organisations
seriously concerned with patent rights and their protection may carry out any or all

21
of the following classes of search probably using solicitors or patent agents, both to
strengthen their position and to direct their research profitably:
(a)Patent watching service: to answer the question ‘Who has recently registered
or applied for a patent in a given area, thus effectively locking us out of that market
area unless we can develop a product that is non-infringing, or else do a deal with
them?’

(b)Infringement clearance search: to answer the question ‘If we develop the

new product we have in mind, which existing patents do we have to consider to
avoid infringement in the future – and if we still want to proceed, whom do we need
to approach for permission?’
(c)Novelty search: to answer the question ‘Is our new product sufficiently novel,
against other patents already granted, to justify grant of a patent?’ Together with
the corollary: ‘Is anybody else’s patent within our market area so lacking in novelty
that we have grounds for challenging their grant of a patent and having it revoked?’
(d)State-of-the-art search: to answer the question ‘Which patents in our market
area have recently lapsed or failed to be renewed ,and can we now exploit this
area?’

Applying for a patent: Nigeria

When the conditions for patentability as identified above have been met, a letter of
patent is given for the invention. Procedurally, every patent application shall be
made to the Registrar of Patents and Designs and shall:

a) contain the applicant’s full name and address, and if the address is outside
Nigeria, there should be an address for service within Nigeria;

b) contain a description of the relevant invention with any appropriate plans

and drawings;

c) contain a claim for any product, process or application), however, an

application shall relate to one invention only;

d) the application shall also be accompanied by the prescribed fees as

determined by the Registrar from time to time;

e) Where the application is submitted by an agent, then a power of attorney

authorizing the donee of the power of attorney to that effect shall be
included.

Claims and examination

A patent application relates to only one invention
the Registrar is only permitted to examine every patent application as to its
conformity with the Act, such examination being in essence formal in nature.
There is no provision in the Act on the substantive examination of a patent
application.
Every patent in Nigeria shall lapse at the end of the twentieth year from the
date of the filing of the relevant patent application.

22
  A patent shall also lapse if the prescribed annual fees are not duly paid in
respect of it, provided that a grace period of six (6) months shall be allowed .

SEE GENERALLY S3-7 of the PDA 2004.

Remedies for infringement

By virtue of Section 25 of the Act, the right of patent holder will be infringed by
another person where the other person without the licence of the patentee does or
causes the doing of any act which that other person is precluded from doing under
section 6 of this Act as the case may be.

The remedies available for breach of Patent laws are as follows:

(a) Damages

(b) Injunction

(c) Delivery up

(d) Accounts

Trade marks
trade mark is ‘a sign which can distinguish your goods and services from those of
your competitors. It can be for example words, logos or a combination of both.’
.
To be registrable a trade mark must be:
 distinctive for the goods or services for which it is to be registered.
 not deceptive or contrary to law or morality; and
 not similar or identical to any earlier marks for the same or similar goods or
services.

Other features:
Unlike patents, they can be renewed indefinitely, provided that renewal fees are
paid .Registration entitles the owner of the mark to prevent others from using a
sign identical or similar to that mark in in respect of the same goods and
services.

The benefits of trade mark registration

 a registered trade mark gives the owner the exclusive right to use that mark
and to sue for infringement under trade mark law.
 it is only necessary to show that someone else has used a mark which is the
same as (or similar to) a registered mark on goods or services which are the
same as (or similar to) the goods or services

23
  Where civil proceedings are commenced by the trade mark owner, the usual
remedies for intellectual property right infringement, namely an injunction,
delivery up and damages or an account of profits are available.
 A trade mark which is not registered but is well known and associated a
certain product or service may be protected by use of the common law action
of passing off.

Passing off
It is common for a company to build up a reputation in a particular name, style or
get-up through use of that name, style and get-up in the course of its trading
activities. As a result of which the public come to associate products or services
supplied by reference to that name, style or get-up with the company. regardless
of whether the company has applied for or obtained any registered trade marks,
If another trader comes along and uses that same trading name, style or get-up, the
company can rely on its common law (common law is derived from customs and
precedent) rights to prevent ‘passing off’ to stop that other trader. In this way a
company can be said to have an ‘unregistered trade mark’.for a company to prevent
passing off it must establish the following:
1 Reputation/goodwill: That it has, through use of a trading name or trading style or
getup in relation to its goods and services, established a reputation and goodwill
such that members of the public associate the trading name, style or get-UP
with the company’s products or services. Example cway and Dway dispensing water
bottles.
2 Misrepresentation and confusion: That another trader has made a
misrepresentation to the public that his goods or services are the goods or services
of the company, by using a similar trading name, style or get-up. consequent upon
which the public is confused into thinking, or is likely to be confused into thinking,
that his goods or services are associated with the company’s goods or services.
Examples :
• dressing up a petrol filling station in the colours of the rival, for instance
• presenting a burger bar so that the frontage reminds people of a very well-
known chain of burger bars but which it has no connection.
3 Damage: That the misrepresentation of that other trader has caused or is likely to
cause the company damage.

Remedies for passing off are the same as those available for other IPRs and include
an injunction prohibiting further use, destruction of the offending articles or
equipment, and damages or an account of profits.
Passing off principally protects the goodwill of a company which is developed over
the years in connection with the way it does business and in particular the devices
which it employs in selling its goods or services.
A logo which has never been used by a company which is then copied by another
will not give rise to an action for passing off. The company must be able to show
that it has built up goodwill.
case example 3.2 on page 49
Key passing off cases
 Spalding v Gamage [1915] 84 LJ Ch 449, the ‘Orb’ footballs.

24
  Warnink v Townsend [1979] AC 731, the advocaat, a liqueur.
In both cases the court found that there was a misrepresentation which would injure
the claimant’s business. The requirements for passing off were held to be
established.
 British Diabetic Association v Diabetic Society [1996] FSR 1,
 In Reckitt & Colman v Borden [1990] 1 All ER 873, The claimant certainly had
goodwill in the lemon juice bottle. Customers were well aware that this
product was manufactured by the claimant and misrepresentation and
damage were found. The fact that customers may have been a bit stupid to
mix up the two products because there were differences did not help the
defendant.

Differentiating Trade marks, company names and domain names

 It is important to note that the law and/or procedures associated with
registering company names and domain names differ from the rules
governing trade marks

 Trade marks protect use in connection with goods or services, but does not
offer protection as a company name.
 A company registers its name pursuant to the provisions of the Companies
Acts this Registration does not give that company trade mark protection in
respect of that name.
 The company must apply separately for a trademark if it wishes to protect its
name when used in connection with goods or services.
 A company may not use its registered name in connection with its goods and
services at all.
.
 Similarly, a domain name is often used as a means of identifying a company
or organisation on the internet.
 to register a domain name, application must be made to an accredited
registrar .
 Owning a registered trade mark does not automatically entitle the owner to
use that mark as a domain name. because the same mark may be registered
by different owners as a trademark
.
 In The reverse, owning a registered domain name may not satisfy the basic
requirement for trade mark registration,

Marks which can be registered

The Trademarks is ‘any sign capable of being represented graphically which is
capable of distinguishing goods or services of one undertaking from those of other
undertakings’.
Trade marks may comprise words, personal names, designs, letters, numerals or
the shape of goods or their packaging.

Collective and certification marks

25
  Collective marks are marks which distinguish the goods or services of
members of an association which is the proprietor of the mark from those of
other undertakings. It can only be used by members of the relevant
association.
 Certification trademarks On the other hand show that a certain quality
standard has been met.

Registering trade marks in Nigeria

1. Conduct Availability Search (optional).

2. Filing the Application: An application is made in the prescribed manner to the

Registrar of Trademarks.

3. Acknowledgement of Application: The Registrar, on receipt of the application,

issues a letter of acknowledgement (i.e. Official Filing Receipt). The document
contains all relevant filing details on the trademark (e.g. Temporary Number, date of
application, the trademark etc.).

4. Examination of the Application: The Registrar examines the trademark and the
Examination is substantive. As regards –

(i) distinctiveness;

(ii) Similarity (or being identical) with existing trademarks on the Register of
Trademarks

(iii)compliance with the requirements of the Trade Marks Act.

5. Where the Registrar is satisfied, he issues a Notification of Acceptance for the

mark to be advertised in the Trade Marks Journal for opposition purposes.
Otherwise, the mark is refused and a Letter of Refusal is issued stating the
reason(s) for the refusal.

6. Refusal of Application: Where an application is refused, the Applicant through

its local agent must apply for a hearing in the matter within two (2) months
otherwise it will no longer be allowed.
7. Acceptance of Application: If the Examiner is satisfied as to above, the
Registrar accepts the mark for advertisement in the Journal.
8. 4. Opposition Proceedings: When a trademark is advertised, any
person may (2 within two) months from the date of the publication give
notice to the Registrar, of opposition to the registration of the mark. Clients
are advised to give opposition instructions timeously as any opposition filed
after the expiration of the opposition period will be time -barred.
The Registrar shall send a copy of the Notice of Opposition to the Applicant
and the Applicant shall within one month of receipt of the Notice of
Opposition, file a Counter-Statement of the grounds for which it relies for its
application to be registered. Failure to file the Counter-Statement within the

26
 prescribed period will result in the application being deemed abandoned (at
the application of the opponent)
the Registrar shall, after hearing the parties, decide on whether the application
should be registered or not. The Registrar’s decision shall be subject to appeal to the
Federal HighCourt. The parties may further exercise their right of appeal to the
Court of Appeal and finally to the Supreme Court of Nigeria.

5. Registration

Where no opposition is received at the expiration of the opposition period or the

opposition is determined and resolved in favour of the Applicant, the Registrar is
obliged to issue a Certificate of Registration for the trademark on payment of the
prescribed fee. The registration date of the trademark will be the date of filing.

27
28
What can be registered as a trade mark?
Trading names – where they are used in connection with goods or services e.g.
Marks and Spencer.
Stylised names – such as signatures, for example the stylised signature that appears
on Cadbury’s chocolate bars.
Newly invented words – for example, ‘Appletise’, coca cola which is registered for
drinks.
Geographical names – these may be registered under the 1994 Act provided they
are capable of distinguishing one trader’s goods from another – usually evidence of
use is required to establish this. An example of a trade mark which is a geographical
name is ‘Saint Tropez’ for cosmetics.
Distinctive packaging – providing valuable protection for many products, for example
the Coca-Cola bottle.
Smells, sounds and colours have long been protected by trademarks and this
continues to be the case. However to be registrable, they must be capable of
graphical representation.

Design rights
Benefits of registered designs
A registered design right:

Is a legal right that protects the overall feature of a product as to lines contours
shape,
􀀀 provides the exclusive right to use the design. Use of a design includes the
making, offering, putting on the market, importing, exporting, using or stocking of a
product to which the design has been applied or is incorporated.
􀀀 includes a right to let others use the design under terms agreed with
the owner
􀀀 gives the right to take legal action against others who might be infringing the
design and to claim the usual relief, including an injunction, delivery up, damages
or an account of profits.
􀀀 registered design may be enough to deter any potential infringement.
􀀀 Registration is also relatively quick, cheap and simple.
􀀀 Registration of an industrial design is effective in the first instance for five years
from the date of application, and can be renewed for two successive five-year
periods

Figure 1examples of registered designs

29
 S. 12 of the patent and design act provides in sum that an
industrial design is the ornamental or aesthetic aspect of an
article. The design may consist of three-dimensional
features, such as the shape of an article, or two-dimensional
features, such as patterns, lines or color.

Its all about visual features , colours , shapes , lines

and a unique appearance.
Industrial designs are applied to a wide variety of products
of industry and handicrafts such as technical and medical
instruments, watches, jewelry, house-ware, electrical
appliances, vehicles, architectural structures, textile designs,
leisure goods and other luxury items ( see pictures above).

Registering a design: Nigeria

s.13 states that an industrial design is registrable if

(a) it is new (novelty) and

(b) it is not contrary to public order or morality,

(3) An industrial design is not new if, before the date of

application for registration, if it has been made available to
the public anywhere and at any time by means of description.

 This excludes situations where within a period of six months preceding the
filing of the application for registration the creator has exhibited it in an
official or officially recognized exhibition.
s.14 States that the right to registration of Right to an industrial design shall be
vested in the statutory creator if He is the first to file, or validly to claim a foreign
priority for, an application for registration of the design.

(4) Where an industrial design is created in the course of employment or in the

execution of a contract for the performance of specified work, the ownership of the
design shall be vested in the employer or, as the case may be, in the person who
commissioned the work: Provided that, where the creator is an employee, then, if
his contract of employment does not require him to exercise any creative activity but
he has in creating the design used data or means that his employment has put at his
disposal- (a) he shall be entitled to fair remuneration taking into account his salary
and the importance of the design which he has created; and (b) the entitlement in
question is not modifiable by contract and may be enforced by civil proceedings.

S 15 provides that the Registry registers industrial designs in Nigeria.

An application requires:

30
  The applicant's full name and address, and if that address is outside Nigeria,
an address for service in Nigeria.

 Four specimens of the design or photographic or graphic representations of

the design, with any printing block or other means of reproduction.

 An indication of the kind of product (or where a classification has been

prescribed, the class of product) for which the design will be used.

 If the application is made by an agent, a signed power of attorney.

 Payment of fees

 A statement of novelty.

On registration, a registration certificate is issued

Unregistered design

An unregistered design has no statutory protection in Nigeria. It may however be

protected by copyright, if it is a work which qualifies for protection under the
Copyright Law. These are not a monopoly right but, like copyright, are rights to
prevent copying. well-known, ordinary or routine designs will not acquire design
right. Design right is like copyright in that the protection arises automatically when
the design is created.

Copyright
Definition
copyright is an unregistered right. Copyright comes into effect immediately, as soon
as something that can be protected is created either on paper or film, via sound
recording, or as an electronic record on the internet.
What does copyright protect?
The type of works that copyright protects are:
􀀀 original literary works, e.g.novels, instruction manuals, computer programs, song
lyrics, articles in newspapers
􀀀 original dramatic works, including works of dance or mime;
􀀀 original musical works;
􀀀 original artistic works, e.g. paintings, engravings, photographs, sculptures,
collages, works of architecture, technical drawings, diagrams, maps, logos;
􀀀 published editions of works, i.e. the typographical arrangement of a publication;
􀀀 sound recordings, , e.g. tape or compact
􀀀 films and videos, broadcasts and cable programmes.
All of these are protected by copyright regardless of the medium which they exist,
including the internet (see below).
Copyright protects the copyright work from being copied: copying of the whole
or a substantial part of a copyright work without the consent of the copyright owner
is prohibited. Copyright does not protect ideas. It protects the way an idea is
expressed in a piece of work, but it does not protect the idea itself.
Benefits of copyright protection

31
  Copyright gives the creators of a wide range of material, such as literature,
art, music, sound recordings, films and broadcasts, economic rights enabling
them to control use of their material in a number of ways, such as by making
copies, issuing copies to the public, performing in public, broadcasting and
use online.
 The purpose of copyright is to allow creators to gain economic rewards for
their efforts and so encourage future creativity and the development of new
material.
 Where copyright is infringed by a person the owner can enforce its rights in
the such as an injunction, delivery up and damages or an account of profits
are available from the court

Ownership and duration of copyright

the Nigerian copyright commission is empowered by law to grant what is known as a

compulsory license. This simply is an approval given to a qualified person other than
the author of the work to produce and publish a translation of a literary or dramatic.

The grantee shall however be expected to pay royalties to the owner of the
copyright in the work of copies of the translation sold to the public.

Duration of copyright
For Literary, musical or artistic works other than photographs, copyright in
the work will expire seventy years after the end of the year in which the
author dies. If the Author is a corporate body or Government copyright will
expire seventy years after the end of the year in which the work was first
published.

For Cinematograph films and photographs the copyright will expire fifty years
after the end of the year in which the recording was first made.

With respect to broadcast, copyright will expire 50 years after the end of the
year in which the broadcast first took place.

Infringement of copyright s.15

(1) Copyright is infringed by any person who without the licence or authorisation of
the owner of the copyright—

(a) does, or causes another person to do an act which is controlled by copyright;

(b) imports or causes to be imported into Nigeria any copy of a work which, if it had
been made in Nigeria, would be an infringing copy under this section of this Act;

(c) exhibits in public any article in respect of which copyright is infringed under
paragraph (a) of this subsection;

(d) distributes by way of trade, offers for sale, hire or otherwise or for any purpose
prejudicial to the owner of the copyright, any article in respect of which copyright is
infringed under paragraph (a) of this subsection;

32
 (e) makes or has in his possession plates, master tapes, machines, equipment or
contrivances used for the purpose of making infringed copies of the work;

(f) permits a place of public entertainment or of business to be used for a

performance in the public of the work, where the performance constitutes an
infringement of the copyright in the work, unless the person permitting the place to
be so used was not aware, and had no reasonable ground for suspecting that the
performance would be an infringement of the copyright;

(g) performs or causes to be performed, for the purposes of trade or business or as

supporting facility to a trade or business, any work in which copyright subsists.

CHAPTER 4

The internet and e-commerce

1 Introduction

The internet is now a well-established communications medium for businesses and

personal use. Example Company secretaries of public companies may use internet
for broadcasting their annual reports and other corporate information. They must
therefore necessarily anticipate the legal requirements of such online activities
especially as it relates to:

 consumer protection
 data protection
 intellectual property
 Liability for website content.

2 Legal background

33
areas which have a particular relevance to e-commerce are

 Ecommerce (EC Directive) Regulations 2002

 Data protection Act 1998
 Right to privacy and Electronic Communications (EC Directive) Regulations
2003
 Human RightsAct 1998
 Authenticity of communications Electronic CommunicationsAct 2000
 Consumer Protection Consumer ProtectionAct 1987, Distance
 Selling Regulations 2000
 Distance Marketing Directive Instrument 2004
 Trade descriptions Trade Descriptions Act 1968
 Libel law Defamation Act 1996
 Interception of communications Regulation of Investigatory Power Act 2000

Domain names

A domain name is an identification label that defines a realm of autonomy,

authority and control on the internet.Every website has a unique number
comprising four groups of digits called internet protocol numbers. Numbers are less
easy to remember than words domain names such as icsa.org.uk or
marksandspencer.co.uk are used instead, while the servers translate them back into
numeric form.

Domain names are categorised in three levels: top, second and third level domain
names.

The top level domain (TLD) usually tells us something about the type of company.
For instance, a company with .co.uk would typically indicate a business with
commercial interest based in the UK.

 Co.ng or co.uk – commercial organizations

 Org.ng Or org.uk – Non commercial organization

 Net.ng or net.uk – internet service providers

The second level, to the left of .co.uk, is the most important part because it is a
projection of its brand.EG flyaero

The third level of a domain name is not registered and this refers to particular
website pages such as /home html.

Restrictions In The Composition And Use Of Domain Names;

Uk position

domain names

34
To register an .eu domain name you must satisfy one of the following conditions:

1 an undertaking that has its registered office, or principal place of business within
the EU; or

2 an organisation established within the EU; or

3 a natural person resident within the EU.

3.2 Domain name dispute resolution

Disputes may arise in the registration of domain names. Cybersquatting or domain

warehousing is a situation where a third party has registered a domain name that is
identical or similar to the corporate identity or brand of a business in the hope that
the domain name purchased at market rates can be sold on to a business at a profit.
Court proceedings can be expensive and an alternative resolution process can be
sought through ICANN if

 the domain name is identical or confusingly similar to a trademark

 the domain name holder has no rights of legitimate interest in the name;
 the domain name has been registered and used in bad faith.
if the complaint doesn’t fall within the above criteria, a resort to expensive
traditional litigation should be considered as an option.

The benefits of seeking alternative dispute resolution are these:

 The process is quick.

 cheaper
 no requirement to attend proceedings.

Case example on domain warehousing or Cybersquatting

 GLAXO PLC AND ANOTHER V GLAXO WELCOME AND OTHERS

Following a press release announcing a takeover bid by Glaxo Plc for Wellcome Plc, the defendants registered
a company under the name of GlaxoWellcome Limited. The claimants then offered to buy the name for £1,000.
The defendants, however, demanded £100,000. The court decided in favour of the claimant, finding that the
defendant’s scheme was dishonest and aimed at appropriating then claimant’s goodwill. A mandatory injunction
was granted requiring the registrant to facilitate the transfer of the name to Glaxo. The judge stated:
‘The court will not countenance any pre-emptive strike of registering companies with names where other
parties have the goodwill in those names, and the registering party then demanding a price for changing the
names. It is an abuse of the system of registration of companies’ names.’

 In re one in a million, the judge stated:

‘Any person who deliberately registers a domain name on account of on account of its similarity to the name,
brand name
or trademark of an unconnected commercial organisation must expect to find himself on the receiving end
of an injunction to restrain the threat of passing off, and the injunction will be in terms which will make the
name commercially useless to the dealer.

NIGERIA

35
Nigeria internet registration Assoc (NIRA) has set up Nigeria Dispute resolution
policy that is analogous to ICANN (internet coporation for assigned names and
numbers) of uk to resolve conflicts arising from top level domain names The NDRP is
an adaptation of the Uniform Dispute Resolution Policy (UDRP) administered by the
Internet Corporation for Assigned Names and Numbers (ICANN) with respect to the
global Top Level Domains (TLD). It is not a compulsory resolution system.

Filing and enforcement

The procedure is to apply to NIRA using the dispute resolution form via any of the
approved providers list.

 The fee is dependable on the member panel chosen. N100,000 for 1 member
panel and 250,000 for 3 member panel

 Respondent must file response within 20 days of receipt of complaint. After

which the panel would compulsorily sit in his absence

 Respondent do not pay fees unless they insist on having a 3 man panel in
which case they pay for half of the N250,000

 Remedies available to the complainant include

 Cancelation of domain name thereby making the name available

 Transfer of name to the complainant

Enforcement of NDR Policies

 It is binding and no room for appeal except by legal proceedings.

 Only 10 days interval between panel decision and implementation is required

Internet service providers


An internet service provider (ISP) provides third party access to the
internet through servers, routers and modems attached to a permanent high-
speed internet ‘backbone’ connection. When selecting an ISP, organisations
should look for the following:
reliability and service availability;
security measures that are in place.
amount of storage space and bandwidth for your website;
support offered. there should be 24-hour support with sufficient response
and repair targets;
cancellation and refund policy if dissatisfied with the service;
exclude liability for website content.
Data protection

Website operators may wish to or will need to process personal data on individuals
visiting the site in ways that include the following:

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 registration of the names, contact details and possibly credit card details of
customers;
requesting visitors to the site to register their details;
conduct of marketing analysis and future marketing activity;
sharing the data with third parties;
recruitment;
Transferring the data abroad to parent companies or overseas operations.
 If the data processing relates to living individuals, the processing will fall
within the scope of the Data Protection Act 1998 wherein Unlimited fines,
criminal liability and damage to reputation can result from non-compliance .
(see chapter 5)
 If website visitors are not sure that their data protection rights are respected,
they are unlikely to patronise that company. Thus company need to
demonstrate their strict compliance with data protection law.
Website privacy policy

A policy posted on a website should be prominent and easy to access. It should:

 state the identity of the person or organisation collecting the data;

 give as much information as possible on the purpose for collecting the
data.
 State if personal data will be shared with sister companies or third parties
and the purpose
 indicate the right of the individual to request the removal or amendment of
his record.
The policy should be linked to an opt-in consent form whereby the individual can
give or withhold consent for his data to be used.

it is good practice for the individual to be enabled to opt into by the use of tick
boxes. Either to receive email, telephone and postal marketing material and other
communications.

Online forms

These are E-forms used in order to collect information from customers and website
users who wish to register for a service such as an email newsletter. they include a
mix of mandatory and non-mandatory fields to be filled or otherwise by the
individual.

These forms must comply with the third data protection principle that personal data
collected must not be excessive for the declared purpose as set out in the privacy
statement.

For instance, collecting a name, email address, postal address and credit card details
would not be excessive for the purpose, a contract for delivering goods. However
the collection of lifestyle data, however, may be viewed as excessive

ISSUES TO CONSIDER WHEN DEVELOPING A WEBSITE

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 1. Intellectual property
 Intellectual property does have an important bearing in the way in the
development of a website

 Usually, an organisation will recruit the services of a web consultant or

designer to build its website.it is important to construct a written agreement,
setting out the expectations of both parties particularly in the event of a
breach taking into consideration the following:
 cost
 stages in the contract which when completed part-payment is made;
Clarification of who owns the intellectual property in the website. That is
 copyright in the written text, images, animation, sound recordings, film
footage and the computer software that runs the website;
 trade marks
 patents;
 database rights.

2. Electronic contracting

Under the E-commerce (EC Directive) Regulations 2002 there are certain contracts
called Information society service. Information society service are defined as
services provided commercially, at a distance, and electronically, for the processing
and storage of data. A website owner must consider the following legal
requirements under the directive are as follows:

 providing website users with information in a ‘clear, comprehensive and

unambiguous manner’ before an order is placed:
 the terms and conditions applicable to their contract, should be available in a
way which allows for storing and reproduce them;
 describe the different technical steps to be taken to conclude a contract
online so that end users know at which point they commit themselves to the
contract;
 an indication of whether the contract will be filed by the business and
whether it can be accessed by the customer;
 clear identification of the technical means to enable users to correct any
inputting errors they make;
 an indication of the languages offered in which to conclude the contract.
 an order and the acknowledgement of receipt are deemed to have been
received when the parties to whom they are addressed are able to access
them.
 An order made online must be acknowledged without undue delay and by
electronic means.
If the requisite information is not made available to users ‘easily, directly and
permanently’, website operators could face damages claims. In the event of
failure to comply, a trading standards board or consumer body can apply for a
‘Stop Now’Order to force the site owner to amend the site, or face criminal
penalties.

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 3. Advertising

Accepting advertising

website owners try to attract advertisers to their sites to generate revenue. An

agreement setting out terms and conditions of taking advertising should be made
with advertisers and should include the following:

 price of placing an advert;

 positioning and size;
 Clarification of who has the responsibility to ensure that adverts comply with
advertising and other laws.
 a licensing provision to allow the website owner to display company logos and
screen shots on its website.
 Data protection issues should be covered in the agreement because adverts
can be interactive and allow for the input of data.
Legislation relating to advertising

 Trades Descriptions Act 1968. Here it is an offence to provide a false

description of goods and services. Most web advertisements are descriptions
and care is needed when preparing advertising material. Disclaimers cannot
avail website owners as It is a strict liability offence but they can raise a
defence of ignorance that the advert which would amount to an offence.
 Trade Marks Act 1994.See chapter 3.
 E-commerce (EC Directive) Regulations 2002.See below.
 Distance Selling Regulations 2000. These govern transactions between two
parties who do not meet face to face.Here consumers have the following
rights:
1. The right to all relevant information which includes:
– full cost of service, including taxes and delivery charges;

– the period for which the offer or price remains valid.

2. The right to cancel the contract concluded online within seven working days
following delivery of the goods or conclusion of the contract if it is for
services.
- If cancellation occurs, the consumer has the right to return the goods to the
supplier at the supplier’s expense and to be reimbursed within 30 days of rejecting
the goods. Contracts which cannot be cancelled are for magazines, personalised
goods, gaming betting and lottery services.

- Under the Consumer Protection Act 1987 it is an offence to mislead

consumers about the price of goods. Examples as to price or in hidden
charges such as VAT, postage and packaging that are included in the price.

Spamming

(Data Protection Act 1998 and the Privacy and Electronic Communications (EC
Directive) Regulations 2003)

39
The sending of unsolicited email marketing (spamming) can constitute an offence
under the Data Protection Act 1998 and the Privacy and Electronic Communications
(EC Directive) Regulations 2003 unless the individuals have given their consent for
their details to be used or unless an existing business relationship exists.

individuals should be given the opportunity to opt into receiving email marketing at
the point where data are being captured. This is achieved by a cancellation link in
the email advertisement so that the recipient can request that such marketing stops.
An example of such practice is shown in Sample Wording in text:

sample wording 4.1

As a Serif customer, you’ll occasionally receive news and exclusive customer offers by email. We
hope you’ll find these updates interesting and useful. To unsubscribe please CLICK HERE. Please
note that Serif will not give your email address to any other companies without your permission.
Serif is a member of the DMA www.dma.org.uk
© Serif (Europe) Limited 2003

. The Electronic Commerce (EC Directive) Regulations 2002 requires that email
marketers comply with the following provisions:

- Emails must show the name, postal address and email address of the sender,
details of any supervisory authority (such as the Direct Marketing
Association) to which it belongs so that recipients can take action to avoid
receiving such communications.
- Unsolicited emails must state so and identify the person on whose behalf it is
sent.
- Unsolicited emails must be identifiable by means of proper tagging so that
they can be deleted without opening them. This can be done by placing the
words ‘unsolicited advertisement’ or ‘unsolicited commercial communication’
in the title of the email.
- Senders of unsolicited emails should often check the opt out list to ensure
that recipients of such emails have not opted out.

4. Company details

Companies are required to state the following on their websites:

 company registration number;

 place of registration;
 registered office address.

5. Website accessibility

Under the Disability Discrimination Act 1995, your website should be accessible to
users with disabilities.

LIABILITY FOR WEBSITE CONTENT

sometimes websites owners may choose to post information provided by third

parties. Example the use of bulletin boards whereby customers and other interested
parties post comments and interact with other users. with such traffic, it is important
to understand where the legal liability for the content will lie in the event of a claim.

40
 1. Defamation Act 1996


Under the Defamation Act liability for posting a defamatory statement on a
website will depend on whether the website owner can be classified as the‘
publisher’.
 The Act will not regard a person as an editor, author or publisher if he is
involved only in physical production such as printing, producing, distributing
or selling printed material containing the statement; processing, making
copies of distributing or selling any electronic medium or (b) operating or
providing any equipment,
Such persons who though not publishers must however show that:

 took reasonable care in relation to the statement’s publication; and

 Did not know, or have reason to believe, that what he did caused or
contributed to the publication of a defamatory statement.

2. Racial hatred (Public Order Act 1986)

To be convicted of a criminal offence involving racial hatred under the Public Order
Act 1986, a website operator would have to

(i) display written material that is offensive, abusive or insulting; and

(ii) (ii) Publish and distribute written material designed to encourage racial
hatred. The maximum penalty is two years imprisonment and/or fine.
 A website operator may have a defence where it can prove that it was
unaware of the content of the material and had no reason to suspect that the
material was abusive, threatening or insulting.
 However, this defence will not be tenable where the website operator has
received a complaint from the public regarding the nature of the material.

3. Notice and takedown procedures

 a ‘notice and takedown’ procedure is a procedure for removing illegal

material. This procedure should also contain mechanism for Weeding out
frivolous claims. A complainant is required to do one of the following:
 prove its identity;
 make a sworn statement setting out why a posting should be removed within
a defined period;
 Agree to indemnify the website operator or ISP against any loss that it incurs
as a result of the takedown.

EMPLOYMENT AND HUMAN RIGHTS ISSUES

1. Email abuse
 Access to internet is a necessary evil However; such access has risks in that
employers may be liable for the email or internet abuse caused by employees
and find themselves defending claims for defamation, harassment or breach

41
 of confidentiality. Employers must therefore ensure that reasonable steps are
taken to limit the risk. Such steps may include
 an internet and email use policy disseminated to employees,
 training to ensure an understanding of that policy has been achieved
 and a system of monitoring usage.

a) Defamation
 is a generic term for libel and slander. If made in print, including email, the
statement will be subject to a claim for libel. complainant will usually target
the company because it will be deemed to have the funds available to settle
the claim.

 successfully defending a defamation claim is remote unless the defendant can

convincingly demonstrate that he took all reasonable steps to limit the risk of
defamatory statements being made. Such as having a company policy on the
acceptable use of email and internet

b) Harassment

 Harassment may be on grounds of sex, race or disability amounts to unlawful

discrimination Under the Sex Discrimination Act 1975 (SDA), Race Relations
Act 1976 (RRA) and Disability Discrimination Act 1995 (DDA).
 Harassment could be Sexual attention when the recipient has made it clear
that he or she finds it offensive or comprise physical, verbal or non-verbal
conduct. Example of verbal harassment is the use of Email in the work place
whereby one employee sends another unwanted and offensive emails.
 An employer will be held vicariously liable for such acts with or without his
knowledge unless he can rely on the statutory defence that he had taken all
reasonable steps to prevent such harassment.

c) Disclosure of confidential information

 Employment contracts place an implied duty of fidelity on employees not to

disclose confidential information relating to their employer to third parties.
 Contracts of employment and staff handbooks will usually stipulate the
categories of information to which this duty applies .Example companies
pricing policy,
 The wide availability of email and access to databases has made it relatively
easy for an employee to leak confidential information to a competitor it is
therefore of critical importance to have a clear policy on email use and the
outcome for employees who breach confidentiality clauses.

case example 4.2 Norwich union employees had to apologise and pay damages to
provident union for circulating an email scandal that the latter was in financial
distress

d) Inadvertent contracts
Businesses may find themselves being inadvertently bound by a contract by an
employee during the course of him sending an email.

42
Thus in Hall v Cognos Limited it was held that once an email had been printed out it
constituted a written form and that each email constituted a signed document
containing the Christian name of its author who was a person with apparent
authority to vary the terms of a contract.

In order to avoid such inadvertent contracts, employers should consider attaching a

disclaimer or statement of limitation specifying that contracts will not be concluded
through the medium of email.
2. Internet abuse
a. Private use of the internet during working hours

 Providing access to the internet may result in falling productivity as a result

of employees surfing instead of working.
 For example Xerox Corporation dismissed 40 employees for ‘inappropriate
website visits’ using up to eight hours in one day visiting non-work-related
internet sites.

b. Pornography

The telecommunications company Orange sacked 30 workers after an internal

investigation revealed that they had downloaded pornographic images and circulated
them in the office. This was in line with its internet policy, which expressly prohibited
the accessing and downloading of pornographic images.

However, in another case, where no provision or internet policy existed the company
could not justify summary dismissal. (See case example 4.4 of UK text)

3. Monitoring

The legislation relating to the monitoring of employees’ use of the internet,

telephone and email is not entirely clear because of conflicts in the prevailing
legislation in this this area.

 S.8 of the Human Rights Act states that Everyone has the right to respect
for his private and family life, his home and his correspondence.’

 Regulation of Investigatory Powers Act 2000 (RIPA) This Act makes it a

criminal offence for a person to intercept, anywhere in the UK, any
communication in the course of transmission unless consent has first been
obtained. Except where law enforcement permits. Example:

1. Data Protection Act (DPA) does not prevent employers from monitoring
workers, but such monitoring must be consistent with the terms of the DPA.

2. A website owner can be ordered under RIPA provisions t disclose traffic data,
to a law enforcement authority such as the police. Failure can carry a two-
year prison sentence and/or fine

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 3. Under The Telecommunications (Lawful Business Practice) Regulations 2000
and the Data Protection Act 1998 it is permissible provided that the employer
advises employees that interception And monitoring will occur.

This Was established in the case of Halford v UK. Where The European
Commission for Human Rights however, held that since the employer had
given no prior warning that telephone calls were likely to be intercepted, she
had a reasonable expectation of privacy for such calls

4. The right to privacy is also qualified where monitoring is for the preventing or
detecting a crime.

 to avoid transmission of offensive messages and harassment claims that may

arise;
 to protect proprietary confidential information;
 monitoring internet sites visited during working hours to ensure that working
time is not wasted.
In 2003, the Information Commission issued its Monitoring at Work guidance to
clarify the legal position on monitoring. The Code outlines some of the activities it
might include, such as:

 recording the activities of workers;

 using CCTV cameras;
 randomly opening emails or listening to voicemail messages;
 checking internet usage;
 keeping records of telephone calls
The Code also outlines some core principles:

 It will usually be intrusive to monitor workers.

 Workers have a legitimate expectation that they can keep their private lives
private and that they are entitled to a degree of privacy in the work
environment.
 If employers wish to monitor their workers, they should be clear about the
purpose and be satisfied that the monitoring arrangement is justified by real
benefits.
 Workers should be aware of the nature, extent and reasons for any
monitoring, unless in exceptional cases when covert monitoring is justified.
 This awareness will influence their expectations.

5. Formulating an acceptable internet and email use policy

Such a policy should be drawn up and communicated to employees in order to:

explain the company’s position regarding the use of the internet and email;
shield the organisation against potential liability;
promote awareness and good practice;
encourage effective use of resources.
The advantages of having such a policy in place are:

44
 It demonstrates that the employer has made every effort to prevent liability
arising.
It defines what is acceptable to the employer in the use of email and internet.
It sets out the employer’s purpose for monitoring and defines the extent to
which employees can expect privacy..
It sets out the penalties for violation of the policy as a form of deterrence.
Elements of a policy might include:

 specified authorised and unauthorised uses;

 expressly prohibit viewing, downloading or distribution of improper material
– text messages or images which are derogatory, defamatory, obscene and
inappropriate;
 details of access and rules of conduct during use;
 Details of sanctions to be applied, for example, summary dismissal for
harassment or viewing pornography.

EMAIL AND INTERNET USE POLICY

(a) Use of e-mail – Introduction
The rules contained in this policy document form part of your staff handbook
and your employment contract. A serious breach of these rules could lead to
dismissal. You need to be aware of the security and legal implications of using
e-mail whilst at work. You should consult your departmental manager or the
Administration Manager if you are unsure about any issues. It is your
responsibility to read the latest version of this document which should be both
e-mailed to you and sent in the internal.
(b) You may use your company computer to access the Internet whilst at work
provided such access has been put in place by the IT department. You are
expected to use the Internet sensibly and not so that it interferes with efficient
working practices. You may be asked to justify the amount of time you have
spent on the Internet or the sites you have visited. You must not bring your
own laptop or other computer into work to surf the Internet unless permitted by
your Manager.
Any registration on websites, commitment to licences and contracts and
downloading of files and software requires prior approval by the company and
checking with the IT department.
(c) Personal Use
You may access the Internet for personal use only during your lunch breaks
provided that such use is limited to 20 minutes per day, you do not order goods
and services without your Manager’s permission, you do not access any sites
which would result in charges being levied, you do not use the Internet for
Unlawful material and you do not enter into any contracts or commitments in
the name of your company.
(d) Use of E-Mail
You may send work related e-mail but not send or receive personal e-mails at

45
work using the company’s computers. Private e-mails may only be sent by staff
using their own laptops during their lunch hours. You must ensure that the
company’s official corporate information is given on the e-mail and that the
messages are carefully read for typing and spelling errors. You must be aware
that the company can be sued for libel if you make inaccurate statements in
your e-mail which disparage or denigrate other people or companies. Do not
attach anything to an e-mail which may contain a virus as the company could
be liable to the recipient for loss suffered. The company will routinely monitor
your e-mails and websites accessed at work to ensure compliance with the law.
(e) Contracts
You will be told by the company whether you have authority to enter into
contracts on behalf of the company and the rules and financial limits that apply.
When ordering electronically on behalf of the company you must follow the
company’s purchasing procedures (available on the company’s Intranet). If in
doubt take advice from the Company Secretary.
(f) Copyright
Most information available electronically is protected by copyright in the same
way as printed material. Copying electronically is a breach of the Copyright,
Designs and Patents Act 1998, with which the company complies. If in doubt
check with the Company Secretary and do not assume that because information
is on the Internet it can be freely copied.
(g) Trade Marks
The Company’s name is a registered Trade Mark and you should advise the
Company Secretary if you see anyone else using it. You must not register any
new domain names or trade marks relating to the Company without prior
approval.
(h) Data Protection
The Company is registered under the Data Protection Act 1998 which governs

PRACTICE QUESTIONS

What features should employers include in an acceptable internet and email use
policy? (20 marks)

1. Why is it important to have such a policy in place? (15 marks)

2. Your responsibilities as Administration Manager of your company, a public

relations agency, include the management of information, data and
technology for the business and its employees. During the past five years
there has been little control over the use by employees of e-mail and the
Internet, and the company’s own Intranet. Your Board is concerned that the
company is at risk from the uncontrolled activities of its employees and has
asked you to address the issues.
Required: prepare An e-mail and Internet use policy for dissemination to all
employees. 25 marks

3. Explain the three internet domain name levels. 15 marks

46
 4. Erin Ltd receives a letter from Loadsofnames Ltd stating that it has registered
the domain names, Erin.co.uk and Erin.com, but is willing to sell them to Erin
Ltd for £1,000. What should Erin Ltd do? 25 marks

CHAPTER 5

DATA PROTECTION

Introduction and legislative background

Appreciating why information security/Data production should be taken seriously in

organizations~:
 The information age has given rise to massive online activities
because almost all organization have need to obtain data on
employees, customers, contractors and other stakeholders etc.

 Worldwide, individuals are becoming aware of their statutory right to

bring civil or criminal action to protect their data.

 The consequences of breach in processing personal data is very

damaging to the controller as same may incur heavy penalties. Thus
Company administrators have a need to protect their company from
bad publicity and attendant loss of reputation that may arise from
unlawful management of data.

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How data protection Laws work

Data protection laws begin to operate whenever a person processes data by storing,
deleting, using or transferring it .

Definitions

The data controller: the person or entity who determines the way the data is to be
used.

Personal data: is biographical information about a living individual which includes

email, address, names, photographs, cctv footage.

Data processing: is obtaining, recording, and holding, deleting of data. Note that the
processor is not the determinant of the nature of the data but merely processes on
behalf of someone else (the controller). Examples are accountants, payroll
companies employment agencies.

Sensitive personal data:- are distinguishable from ordinary personal data and it
includes information about

 Race
 Sex life
 religion
 trade union membership
 political opinion
 physical and mental health condition
.
OBLIGATIONS OF THE CONTROLLER UNDER THE DPA

1) registration (notification)

This is a means by which the data controller notifies the public through the
information commissioner yearly about its processing activities. By This notification
the data subject understands how their information is being processed. The
controller provides the following particulars:

 Name and address of Data controller.

 name and address of any representative such as a processor
 personal information to be processed
 The purpose of the information
 The recipients of the information.
 Destination countries where information will be sent
 Answer to any mandatory yes and no questions
 any changes to the registered particulars as and when they occur.
 Voluntary registration of exempted processing
Under s. 24 of the DPA The following processers are exempted from requirement to
notify

48
  Data controllers who only process personal information for their business
which does not involve services using personal information. Such as
– staff administration (including payroll);
– advertising,marketing and public relations (of their own business);
– accounts and records.

􀀀 not-for-profit organisations.

􀀀 Data controllers who only process personal information for the maintenance of a
public register.

􀀀 Data controllers who do not process personal information on computer.

􀀀 Organisations that are not data controllers. Example Third parties who process
information on behalf of the data controller called data processors.

In spite of this exemptions above, s.24 of the D.P.A provides that any member of
public may request for information as provided under the notification /registration
Even where the data falls within the exception from notification, the controller may
choose to still notify in order to pre-empt s.24 of the D.P.A. Since there is a penalty
for failure to comply, an ab initio Voluntary notification is advised.

Compliance with the DPA

The backbone of DPA is the eight principle and compliance is mandatory unless
controller falls within the exemptions aforesaid.

First principle – Personal information is to be obtained and processed

fairly and lawfully

The D.P.A provides that the controller must furnish the subject with fair
processing information. This includes:

 Identity of controller
 The purpose of information IPO
 Other relevant information e.g. an opt in clause or privacy clause
All these information must be provided before obtaining any data from the subject
before it can be regarded as having been obtained fairly. On the other hand

Information can be said to be unlawful where it is obtained as a result of;

 Breach of confidence
 Breach of contract

 Breach of human right (HC2)

In addition to the above fair and lawful processing of information the controller
must also have complied with one of the following:

49
  That he Obtained consent of Data subject
 that Processing information is in respect of contract which subject is
a party.

 Processing is for administration of justice

 Processing is to protect the interest of data subject

 Processing to comply with a legal obligation

 Processing for legitimate interest of controller but one that does not
jeopardize the subject. (CACILI)

When consent is the condition chosen by the controller to rely some form of
documentation should be provided by controller to facilitate declarations of (a)
withdrawal of consent (b) Duration of consent

Criteria for consent

 consent must be specific and informed, example the use of a signed

document would facilitate this

 consent must be adequate

It is therefore usually preferable to fulfil the conditions for fair processing by

selecting other criteria for fairness and lawfulness. Because consent as a criteria for
lawfulness and fairness is stringent by nature. due to its stringent nature consent
should be a last resort. see theory to practice 5.1

Where the data controller wishes to process information that is classified as

sensitive personal data, he must also satisfy at least one of the conditions contained
in Schedule 3 to the DPA. These are:

􀀀 he must obtain the explicit consent of the data subject.

􀀀 the data controller is required by law to process information for employment
purposes.
􀀀 Processing takes place in order to protect the vital interests of the data subject.
example disclosing the medical history of the data subject on admission to a
hospital casualty department. ‘that is a life-or-death situation.
􀀀 Processing in connection with exercising or defending legal rights.
􀀀 Processing in connection with the administration of justice or to carry out public
functions.
Processing deemed to be in the public interest which is:
 In connection with the prevention of unlawful acts, or undertaken by the
police, or Processing of political a opinion that does not prejudice the rights
of individuals;
 Necessary for research purposes or the provision of confidential counselling
services;
 processing undertaken by an insurance company or pension provider in
connection with medical underwriting

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􀀀 Processing for the purposes of equal opportunities monitoring.
􀀀 Details of personal sensitive data has been deliberately made public by the data
subject, for example, when a parliamentary candidate broadcasts his own details.

2ND PRINCIPLE Personal information shall be obtained for one or more

specified purposes
Processing must be compatible with the intended purpose any additional purposes
must be authorized by consent. The stated purposes to the data subject and
commissioner restricts the authority of the controller to that purpose.

3RD PRINCIPLE:
Personal information shall be adequate, relevant and not excessive in
relation to the purpose for which it is processed
the controller should only capture information that is needed to fulfil the purpose of
the processing and nothing more. see EG 5.1

4TH PRINCIPLE Personal data should be accurate and kept up to date

where necessay.

when out dated and inaccurate information is regard as excessive unless:

 Info that is timeless such as family name of a male subject

 Controller has shown that he took steps to ensure accuracy

 Data controller has noted subject complaint or challenge

 the inaccurate information was obtained from the data subject or 3 rd

party.

5th principle

Information not to be kept longer than is necessary for the purpose for
which it was processed.

Application of the 5th principle requires an assessment of the purposes of the data
and how long the organization needs to keep the information. for example
information relating to a contract should be kept for six years following the
termination of the contract, accounting records are kept for seven years for tax
purposes.

6th Principle: Processing According To The Rights Of The Data Subject

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 1. The right to access personal information on payment of fee . He is
entitled to be access the following information clearly and concisely on
payment of a fee and within 40 days of the application.

 The identity of the controller

 Purpose of the information
 Whether his Data is subject to automated decision making
2) The right to object automated decision making
 Under s.12 of DPA via a written notice subject may indicate the objection

 Controller must inform subject of automated processing where it exists in a

form that will affect subject significantly

 Subject must object within 21 days

 Controller must review automated processing within 21days

See case example 5.2

3) The right to object to direct marketing

 Direct marketing is any communication for the purpose soliciting a
response

 The controller must comply with the subjects objection.

4) Right to object to processing that can cause substantial damage or distress to

subject or someone else.
However Subject is not entitled to serve such a notice if

 The processing is in respect of a contract which the subject is a party

 The processing is for the purpose of compliance with legal obligations.

 processing to protect subject interest

 if the subject has given a valid consent (C3I)

5) The right to compensation for the data subject when there is contravention .
The assessment of the information commissioner on the extent of damage is of
persuasive value only to the decision of any court

6) The right to rectify block erase or destroy any inaccurate information . On

receipt of his personal information from the controller, he may seek a court order to
erase, block, the inaccurate information and also an order that any other party who
has received inaccurate information should also receive notification of change.

7th principle- security

52
There must exist Appropriate technical and organizational measures in place to
protect personal information.
Technical measures includes:

 firewalls
 virus protection
 password protection
 backups & and contingency planning

organizational measures include

 clean desk policy

 archival facilities
 file deletion
 effective disposal of unwanted electronic equipment

See case examples 5.3 on security standards of different data controllers

Dealing with third parties on security

The controllers usually depend on 3rd parties( the processors) to process personal
information. it is the controllers responsibility to choose the standards (technical
and organizational) which processors must strictly comply with. To facilitate this,
there should be a written contract between the controller and processer. The
content of such an agreement should be include. The following undertakings

 A warranty for the existence of technical and organizational measures

 Warranty to process according to explicit instruction of the controller

 A warranty to allow controller to access during normal business,

hours on giving notice to processor, on intention to inspect
processors compliance on the warranties aforesaid

8th principle

Eighth principle: Transfers Of Data Outside The European Economic Area

EEA

The 8th principle prohibits the transfer of personal information to countries outside
the EEA. This is because Countries outside the EEA are generally considered as
having inadequate data protection. EEA states are Norway, Iceland, Germany.

Exceptions to the rule against transfer of data outside the EEA

(1) Countries that EU has approved of their level of protection even if non-
members of the EEA

53
(2) Transfer of data outside the EEA for contract purpose between subject and
controller

(3) Subject have given consent to the transfer of data outside the EEA

(4) Transfer for public interest purposes

(5) For legal proceedings

(6) transfer has been approved by the information commissioner

At least one of the above conditions must be fulfilled.

consequences of non – compliance

Offenders can be tried in a magistrate’s court, where the maximum fine is £5,000 or
on indictment in the Crown Court, which can impose unlimited fine upon conviction.
The Criminal Justice and Immigration Act 2008 introduces new powers for the
Information Commissioner to impose heavier fines possibly commensurate with the
turnover of the offending organisation. Offence under the DPA shall include:

 Processing personal data without notification. This is a strict liability offence,

 Failure to notify the Information Commissioner of changes to registrable
details within 28 days of their occurrence. This is Not a strict liability offence
as the controller can raise the defence .
 Recklessly making a false statement in response to an information notice
is an offence.
 Intentional obstruction of someone in execution of a warrant.
 Unlawful obtaining or disclosure of personal information. under section 55(1)
of the DPA
 Enforced subject access is an offence under section 56 of the DPA, where an
individual is forced to provide the police evidence or lack of criminal record in
connection with a job offer or training provision.

Enforcement:
 The Information Commissioner’s Office will issue an ‘information notice’ if a
breach of the DPA comes to its attention. This notice seeks for information
within a set time limit.
 Where the Information Commissioner concludes that there has been a
breach, an ‘enforcement notice’ is issued to prevent the data controller
continuing with the processing complained of.
 An Application may be made to a Circuit Court judge to issue a search
warrant if the Information Commissioner’s Office is unreasonably hindered
during the investigation or refused entry to the premises of the data
controller.

54
  apart from the data controller, officers of a company such as directors and
managers and individual employees can be held personally criminally liable if
the court finds that the offence has been committed through their neglect,
connivance or consent. In particular, individual employees may be guilty of
the unlawful obtaining or disclosure offence

CHAPTER 6

Job planning and recruitment

Job and succession planning

Since Human input is indispensible to any organisation, proper management of it is
necessary. To achieve this the corporate administrator faces 2 main challenges:
 ‘how to source (and maintain) the right combination of skills needed at each
point in time.
 How to provide backup skills when an incumbent employee is unavailable.

This task arises due to the following:

 Recruiting well is key to organisational success.

 skills are dynamic and can become absolute.
 People no longer desire to work for one employer all their life. Most people
change employer and career severally in their life time.

55
 the administrators task begins with
successful recruitment
motivating those with good skills ,
improving those skills as requirements change
Retaining them for the successful development of the organisation.

Thus the task of the corporate administrator has six main facets or features :
1 To identify the variety of skills required both now and in the immediate future on a
departmental basis.
2 detail and record those skill requirements.
3 To identify the skills available from within either immediately or with training
4 To project the effect on this skill resource from anticipated natural wastage and
other losses.
5 To formulate a ‘list of skills and people wanted.
6 To update the whole process constantly.

To achieve all this, each department, division or unit arrangement will need to
`prepare an annual assessment of the skills they require and those already available
. Any shortfall between what is required and what the organisation has available will
create a recruitment and/or training demand.

MANAGERIAL SUCCESION

 planning for those who are to fill management vacancies needs greater
attention because in selecting them attitude and relationships ‘with other
executives is as crucial as important as their skills, so that an otherwise
suitable candidates may be disqualified for attitudinal and relationship issues.
 In planning Managerial succession two successors should be identified at an
early stage:
1 an immediate caretaker who can operate in the event of any calamity on the
incumbent; And
2 an ultimate replacement who will take over.

2 Job defining

job description is A written statement of all the facets of a job sometimes

supplemented by required levels of achievement to be attained by the person
performing the job

 to determine skills needed, each job needs to be broken down into

its essential parts and recorded on a job description (JD) or a
simple synopses. Ideally, the JD should be signed by both the
holder and manager so that in the event of performance analysis, it
would guide all on their expected duties thereby reducing conflicts.
 JDs can also be presented in a more sophisticated format wherein
the tasks are delineated alongside performance measures. This
format facilitates assessment whether the incumbent has performed

56
 well by a comparison with the performance measure instead of mere
discussion of achievement.
 anti-discrimination legislation prohibits ‘unfair criticism’ therefore being
able to Defend criticism will depend on the availability of a proper job
description as a reference point.

The content of a JD normally includes:

􀀀 name of subject, department, job title;
􀀀 name of person he reports to;
􀀀 details of any persons reporting to subject;
􀀀 one sentence aim of job;
􀀀 details of all specific duties or tasks;
􀀀 space for confirmation of content, etc., by both parties.
A JD can be further refined as shown in case example 6.1
see Kaplan & ors v Landschaftsverband Westfalen-Lippe & ors the ECJ ruled that
every job must have a job description.

3 Person descriptions
Is the identification of the requirements of the ideal person to fulfil a job called a
person description (PD). Such documents typically include:
􀀀 job title, grade, department;
􀀀 physical attributes (if required);
􀀀 qualifications;
􀀀 intelligence level;
􀀀 whether the appointed should be able to exercise their own initiative;
􀀀 aptitudes and/or skills;
􀀀 any special characteristics required;
􀀀 approval line and date.
sample wording 6.1
see example of Job description incorporating measures of performance

Recruitment authority
Recruitment is required to:
􀀀 replace those whom the organisation wish to retain but cannot (due to voluntary
resignation, retirement, incapacity, death, etc.);
􀀀 replace those whom the organisation do not wish to retain (due to dismissal); and
􀀀 fill new positions or gaps identified by skills or training needs.
Accompanying the synopsis of tasks and the skills required, contained in the JDs
and PDs, an ‘authority to recruit’ slip which, when authorised, can start the process
of finding someone to fill the identified gap. This can either be a simple authority
from a named person or a more detailed form, which could replace the need for a
person description.

Recruitment sources
Most employers will have a variety of sources from which new employees can be
sourced.
Promotion from within
Advantages : it gives employees opportunities to progress within the organisation.
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Disadvantage:The danger is that the spirit(life force) can become some what
insular(narrow minded) – some recruitment from external sources is essential.
Introduction from existing employee
This can be a successful means of attracting more junior personnel – it can even be
encouraged by payment of a ‘finder’s fee’ in some cases.
disadvantage: the existing composition of the workforce is perpetuated
advantage:it is effective and inexpensive .

Advertising on notice boards displayed outside the workplace

Disadvantage:For junior vacancies only.
Advantage: there is a potential local audience.
This can work reasonably well for more junior positions and where the office/works
are in or near a residential area so that there is a potential local audience.

Mailing list of previous applicants

here unsuccessful but very sound candidates are re-invited for similar positions.
Job Centres
Job Centres tend to have details of mainly junior and low-skilled jobs. Using it for
more senior jobs may reduce regard for such jobs.
Employment bureaus/management consultants
A good source but, the activities have generated need for greater legislation. geared
towards protecting and controlling the workers, organisations and their activities .

Advertising by handbill, local or national paper or radio

. a scattergun approach used to advertise senior and junior jobs and thereby reach
a large audience that would facilitate a reasonable shortlist.

Head hunters
Used for high-profile senior and/or a high salaried positions.
Head hunter firms fill such vacancies by identifying potential applicants and
approaching them to see if they are interested in applying,

APPLICATION FORMS
Application forms are usually handy to support a curriculum vitea. It helps to have
the details of applicants in same order and style, to facilitate the comparison of the
several candidates, avoid discrimination and provide evidence to resist any such
claims.
When Employers generate application forms they must ensure they do not
breach the law such as the various Discrimination Acts and employment laws
which are subject to frequent amendment. Consequently application forms
should be regularly reviewed and updated to ensure legal compliance.
- The applicant is also required to confirm that all information provided is
correct. To facilitate this the prospective employer Can add a clause that if
the completed form contains false information the appointment will be
cancelled.
samplewordin6.2 application form
1. Employment application principles

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Anti-discrimination laws make it unsafe to request details such as nationality, ethnic
origin, marital status, children’s ages, disability, religion or religious belief, sexual
orientation and age Unless such information is absolutely necessary.

Examples Where It May Be Necessary

- if recruiting a person to work In a foreign state where it is impossible and /or

illegal for a woman to work, or if a job has a genuine occupational
requirement (GOR) (e.g. a female actor to play a part) the gender of
applicants would be very important and can be specified.
- in an environment where persons not of the same religion as those in such
an Environment would not be acceptable, a person’s religion might be
important. For example, in a Christian school it is permissible to stipulate that
certain posts require to be held by a Christian,

- it would be essential for an employer to know of physical disabilities, where

the job would involve for example long distance driving.

- where there are legal restrictions on persons of a certain age working an

enquiry about age would not be illegal.

Accuracy of information
2. The data on an application form, in addition to the information derived from
the successful applicant at interview, are the basis for offering a job. Due to
the possibility of lying, It is advisable to include a declaration at the end of
the form which states that the applicant guarantees the accuracy of the data
and understand that if it is found to be false, not only will their employment
be terminated but also, should the employer suffer a loss, legal steps will be
taken to recover such loss.

3. Confidentiality
- An application form requires applicants to provide personal details of
themselves and their career. There is a moral and legal obligation on the
employer to treat the data as confidential. The Legal obligation is as
contained under the DPA 8 eight principles. The DPA requires that such data
should be kept:
􀀀 protected;
􀀀 retained only whilst needed; It is best to notify all those for whom such
information is kept of the basis of such retention.
􀀀 made available on a restricted ‘need to know’ basis. Anyone wishing to access
their own information must give written notice and the inspection must take place
within 40 days On payment of a fee. Failure to comply with an access request can
incur a fine with personal liability on directors or managers if it can be shown that
they were party to the failure.
4. Hours worked’ restrictions

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The Working Time Regulations (WTR) make provisions on daily and weekly rest
breaks and annual leave to ensure that employees and workers do not work for
periods of time that may adversely impact on their health. Specifically Under the
WTR, unless they have voluntarily signed an individual opt-out, no employee should
work and be paid for more than 48 hours a week.
6.3
PITFALLS IN RECRUITMENT
The recruitment process is constrained by many of the legal requirements which
must be taken into account in an application form.. Claims of discrimination can
even be made to an ET by an applicant for a job even though never employed by
the prospective employer. therefore, strict adherence to procedure that enables the
process to be monitored should be maintained: see case example6:3
checklist 6.1 objective selection
__ Details of all applicants should be kept with an analysis of the criteria used to
(objective) select the interviewees.
__ Details of the progress of the interview (see below) should be held in a central
file.
Interviewers need to ensure that they do not ask questions which breach the
antidiscrimination laws – no matter how idle or casual the enquiry can be – unless
similar questions are asked of all candidates, regardless of sex, race, ethnic origin,
sexual orientation, religion and age.

-if interviewer makes notes There needs to be some caution since such notes may
be subject to the access requirements of applicants. It may be advisable immediately
after the interview for any notes to be transcribed into a wording/format that is safe
if made subject to such access and for the original to be shredded.
Questions such as the following would breach the law:
1 To a woman only:
􀀀 Who looks after your children?
􀀀 Are you planning to have any more children?
􀀀 What happens if you need to work late/away from home?
(If the question is also always asked of men, this could be a defence in a
discrimination claim.)
2 To a black/Asian applicant:
􀀀 How do you get on with white people?
􀀀 How do you get on with black/Asian people?
􀀀 I am concerned that your face might not fit here.
3 To a follower of any religion:
􀀀 ‘What do you do about your religion’s daily/weekly/monthly/yearly observance
requirements? (but This is a reasonable question if the job entails regular working,
for example, as part of a team, where the loss of one person impairs the whole team
or where working certain key hours is essential.)
see case example 6.3
To a person who is disabled:
􀀀 I am sorry, we can’t have disabled persons here.
􀀀 This job can’t be done by a disabled person. (if the applicant is otherwise
qualified for the job, an employer is required at least to examine the
position with a view to making ‘reasonable adjustments’ to the work,

60
procedures, workplace, etc., subject to the availability of appropriate finance and
practical issues, to enable a disabled person to work.
5 To an older/younger person:
􀀀 I think that you are/may be too old to fit in with our youthful image.
􀀀 Don’t you think you would be uncomfortable within our workforce as most of
them are middle-aged/young?

Interview assessment
a full and frank exchange of information to enable both parties need to know as
much as possible about the other.
The applicant needs to be given an honest assessment of all aspects of the job such
as the department within which it operates, the terms, prospects for career
development, the rules etc . Failure to provide such information or giving a false
information is likely to lead to a failed appointment, waste of the applicant’s and
employer’s time and a need to repeat the whole process – which could be costly.

When there are several applicants a summary interview assessment form should be
completed so that the ‘scores’ of each candidate can be easily compared. Such a
form requires as follows
- the salient requirements of the job to be listed and
- a breakdown demonstrating how each candidate meets (fails to meet) the
requirements.
Job offers
A offer of a job, no matter how informally made, and an acceptance by an applicant,
no matter how informally indicated, creates a contract . In Sarker v North Tees
Acute Hospitals NHS Trust, the applicant was offered a job verbally. but confirmed
in writing and she accepted it. Before she started work the Trust wrote withdrawing
the offer’. It was held that Ms Sarker was entitled to bring a claim for breach of
contract. Even without the written contract Ms Sarker could have won her case
provided she was able to prove that the verbal offer had been made.

Example a post-interview chat could be taken by the applicant as part of a contract.

To avoid confusion It needs to be made clear at all stages that no job offer is
intended until it is confirmed in writing else the interview are not seen as binding.
sample wording 6.
See eg of letter of appointment

Since it is far easier to increase salary than to reduce it, it may be prudent to offer a
starting salary less than the salary for the job and Tying any salary review to a
satisfactory completion of a probationary period. Probationary periods usually last
three months but since they are a contractual requirement and not a legal one, they
can be of any length time.
Employee handbooks are a useful way of providing the mass of information that
modern-day employment requires. Thus the contract can be kept fairly short and
simply cross-referenced to the handbook.
- not everything in the handbook need form part of the contract of
employment . the hand book may have two parts one part that form part of
the contract of employment and another that does not.

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 - Changes to the contract of employment except very minor changes should
be made with the employee’s consent, whereas changes to the non-
contractual rules and procedures can be made by the employer without
consent simply by giving notice to the employee.
- To facilitate acceptance of changes it is advisable to include near a handbook
wording such as:
‘Please note that the policies and procedures within the employee
handbook form part of the contract of employment unless otherwise
indicated.’
It is essential in the contract to cross-refer to the handbook, thus making the
required contents of the handbook contractual.

References
. Employers are under no obligation to provide a reference, but if one is
provided it must be accurate.

But refusing to provide a reference for specific reasons may be counter-

productive – and costly. See Coote v Granada Hospitality Ltd also in
Guardian Royal Exchange v Springer a former employee brought and won a
sex discrimination claim against her employers. She Left their employ but
She failed to obtain a job because her ex-employers refused to provide a
reference simply because she had won her sex discrimination case. It was
held by the EAT, that failure to provide a reference in such circumstances
was itself discriminatory and compensation of £198,000 was awarded.
A reference must be factually correct. Thus salient facts must be disclosed
but facts should not be unfair or misleading to the recipient.
disciplinary matters can only be raised if it has been previously raised with
the subject and he has had a chance to answer. Thus In Bartholomew v
London Borough of Hackney the Court held that it was fair for the employer
to provide a reference for its former employee stating that at the time of him
leaving he had been suspended on disciplinary grounds, as same was true.
Also In the case of Dike v Ziegler Rickman Ltd, in providing a reference to a
prospective employer of Mr Dike, Ziegler Rickman referred to two complaints
of sexual harassment against him and stated: ‘ Mr Dike is a very difficult
person with whom to work. We shall not be sorry to lose his services .’ Dike
sued his previous employer and lost .
In TSB plc v Harris, Mrs Harris won her case of unfair constructive dismissal because the bank provided a
reference to a prospective employer which referred to a number of disciplinary matters of which Mrs Harris
knew nothing (and thus had not had an opportunity of rebutting). The prospective employer withdrew the job
offer on the basis of this reference.
Items of which the subject employee has no knowledge, or, if disciplinary,that the employee has not had a chance to rebut
must not be referred to in a reference.

case example 6.5

Employers are not obliged to give references, but cannot select those for whom they
will not provide a reference on discriminatory grounds.

Questions usually posed in a reference request include:

62
􀀀 name and address of subject;
􀀀 dates the person claims to have worked for, addressee and details of position and
salary;
􀀀 their reason for leaving;
􀀀 details of quality and/or quantity of work performed;
􀀀 details of dependability and personal interrelationships;
􀀀 whether the subject was (to best of their knowledge) honest, reliable,
trustworthy, punctual, etc;
􀀀 whether the previous employer would re-employ.
􀀀 Where there are gaps in an employment history.

CHAPTER 7

THE EMPLOYER/EMPLOYEE RELATIONSHIP

learning outcomes
This chapter considers the relationship between an employer and employee, as well
as the variety of contracts under which they operate whether as a ‘contract of
service or contract for service.

The employer/employee relationship

formerly the relationship between employer and employee was purely that of
‘master and servant but constant legislation on employee rights and protections and
has metamorphosed the relationship into one more like partners than that of ‘boss
and worker’. This has led to some confusion about who is employed or self-
employed . thus the control test, integration test and multiple test, all geared
towards ameliorating this confusion

CONTRACT OF SERVICE AND CONTRACT FOR SERVICE

A contract of service arises where the employer engages the employee under agreed
terms and conditions and the employee is subject to the direction of the organization
with regards to working hours, standard of work and the rules and regulations
governing the organization. A contract of service occurs where someone known as
the employee is under the exclusive employment of another person known as the
employer and the employer is held liable for the acts done by the employee in the
course of his employment. A contract for service, on the other hand where an
organization engages a third party to provide certain services but the third party is
not subject to the dictates or direction of the organization as to how it does or
achieves his work. A contract for service occurs where a person is contracted for
the purpose of rendering services to another person and the person engaged is not

63
under a contract of employment with the other person. A contract for service is
otherwise known as Independent Contractor or self employed person.

self-employed? (Contract for service)

Generally a person is self-employed if:
􀀀 managerial control of operation;
􀀀 responsibility for profit
􀀀 investment responsibility;
􀀀 the right to hire and fire those who work for them
􀀀 the right to choose to work or not to work for clients;

Other criteria for distinguishing a contract of service from a contract of service are :
(a) PAYMENT/ entitled to be paid for the hours committed to the organisation
even when there is no work. Wages are paid in a contract of service while fees are
paid in a contact for service

(b) OWNERSHIP OF EQUIPMENT

Where the employer provides the equipment and tools used for the work, then the
relationship is of Contract of service..

(c ) HOURS OF WORK- / subject to the working hours of the organisation

Where the hours of work are not fixed, then it is likely to be a contract for service
and not of service.

(e) Exclusive service- Where the contract allows the contractor to work for
people other than the employer, then this is an indication that the contract
is for service and not of service.

(f) Where the employee is subject to the direction on standard of work

and attitude by discipline in event of breach , it is a contract of service.

Employers are legally bound to include the following in the contract:

􀀀 names of both parties (employer and employee);
􀀀 date employment began and date continuous employment began. ‘Continuous
employment’ is referred to in cases of acquisition particularly under Transfer of
Undertakings (Protection of Employment) (TUPE) below);
􀀀 job title or brief description of job
􀀀 pay, scale of pay and details of payment arrangements;
􀀀 place of work;
􀀀 hours of work;
􀀀 holiday arrangements
Other data which must be given to employees, but which may not necessarily be in
the contract, are:
􀀀 details of occupational sickness leave and payment) for which the employer is
responsible for provision and payment on behalf of the state ;

64
􀀀 details of pension schemes;
􀀀 notice period and/or termination date in case of fixed term
􀀀 particulars of collective agreements;
􀀀 disciplinary arrangements.

It may be preferable to only outline these in the contract, with the detail set out in
an employee handbook. To ensure that those parts of the handbook which you wish
to form part of the contract are incorporated into the contract, the following
wording should be used within the contract:

The detailed requirements of items set out in this contract will be found in
the Employee Handbook, the contents of which, unless otherwise
indicated, form part of the contractual arrangements between the parties
Thus employers will only want to incorporate only the essential elements into the
contract.
However, all items, whether in the contract or handbook, need to be drafted with
care and presented with a complete lack of ambiguity and total clarity to ensure that
employees and employer understand the contract to avoid breaches. See case
example 7.4
Sample Wording 7.2 is an example of a contract that covers the basic legal
requirements but also sets out some additional items the employer wishes to
include. Putting such items into the contract makes their provision contractual, which
means that it may be difficult to remove unless the contract is terminated
Conversely, if such items are left out of the contract but still provided they may still
be deemed to be contractual and may then be removed by mere negotiation.

FORMATION AND PARTIES TO CONTRACT

A contract of employment is governed by the general law of contract and as such its
formation is subject to the general applicable contractual rules or principles of
contract. The law which a contract of employment is subject to may be determining
its formation in most cases. The category under which a particular contract falls may
also determine its nature and its formation. In some cases, a contract can entered
into either verbally, orally or may even be inferred or implied from conduct of the
parties.

Essentials/ingridients of a valid contract

(a) Offer
An offer is an expression of willingness to contract made with the intention that it
shall become binding on the person making it as soon it is accepted by the person to
whom it is addressed. Contract is usually commenced with an offer.
Acceptance
Once an offer is made by the offeror, it is expected that same will be accepted by
the offeree. Offer is expected to be communicated before acceptance. Acceptance is

65
a final and unqualified expression of assent to the terms of an offer. Where the
mode in which the acceptance must be given is indicated on the terms of the
contract, the said mode must be strictly complied with. The supreme court in the
case of Afolabi v Polymera Industries Ltd 1 22 stated that if the terms of the
offer expressly require the offer be accepted in writing, no other mode of acceptance
will be effective unless, of course, the method is condoned or the requirement of
writing is waived expressly or by the conduct of the offeror.
In the case of Offiong v African Development Corporation, 2 the court held that
where no particular mode of acceptance is provided, then failure to communicate to
the offeror in writing the terms which are already known to the offeree in some
other ways will not vitiate the element of communication required by law.
Acceptance of an offer can be demonstrated in several ways. One way in which
acceptance can be communicated is by conduct of the parties as was held in the
case of Federal Government of Nigeria v Zebra Energy Ltd.3
The case of Oyedeji v Fasheun4 has also proved that performance of the terms of
a contract is an evidence of its acceptance where no particular mode of acceptance
was expressly stipulated in the contract.
Conclusively, where an offer made by the offerer has been accepted by the
offeree, then it constitute an agreement in law between the two parties.

(c ) Consideration
Consideration is the exchange of promises or exchange of promise for performance
of a contract. Consideration may be executed or executory. An executed
consideration is where a party made a promise in exchange for which the other
party has done something for him. It is anything of value promised to another when
making a contract. It can take the form of money, physical objects, services,
promised action, abstinence from a future action. Under the Common law, it is a
prerequisite that both parties offer some form of consideration before a contract can
be thought of as binding.
Consideration must be mutual between the parties and any agreement that is devoid
of mutual consideration will not be enforceable unless it is under seal.
(d) Capacity to Contract
Capacity to contract is an essential ingredient of a valid contract. As previously
discussed above, where a party lacks the requisite capabilities to enter into contract
and he goes ahead to do so, the contract can be avoided. Examples are Young
Children, Persons of Unsound mind, Lunatics, Aliens etc .

(e) Intention to enter into legal relationship

1
(1967) 1 ANLR page 144
2

3
. (2002) 18 NWLR page 162
4
(1976) (1976) University of Ile ife law report page 134

66
For there to be a valid legal contract, the proposed contract must be legal in its
objects, manner and performance. Legality of contract confers validity of the
transaction and where parties agree to do an illegal act, such contract will in law be
held to be void should one of the parties fail in his obligation to carry out his own
agreed obligation under that contract. This is exemplified in latin maxim “Ex turpi
cause non oritor action” meaning that out of an illegal contract, no legal obligation
can arise therefrom. Illegality of contract could culminate in the vitiation of a
contract. This was the position in the case of Chief Harold Sodipo v
Lemminkainen where the supreme court held that a court should not enforce an
instrument or obligation arising out of a contract or transaction which it knew was
forbidden by law.

Express terms and implied terms in a contract

Express terms of an employment contract are stated as follows:

(a) Payment of wages

In any contract of employment between the employer-employee, the issue of
payment of wages/salary is an essential factor. Remuneration is a fundamental
features of an employment relationship. In Nigeria, an employee compensation
package will include such factors such as Basic salary and other benefits or
allowances that will be payable to an employee in the course of employment by the
employer.
b) Housing Allowance
By virtue of Section 1 (2) of the Labour Act, it provides that an employer may
provide food, a dwelling place or any other allowance or privilege as part of a
worker’s remuneration if the food, dwelling place allowance or privilege is prescribed
by law, by a collective agreement or by an arbitration award because it is customary
or desirable in view of the nature of the industry or occupation in which the worker
is engaged.
(C) Provision of transport
By virtue of Section 13(1) of the Labour Act, but provides that where a worker
is required to travel sixteen kilometres or more from his normal place of work to
another worksite, he shall be entitled to free transport or an allowance in lieu
thereof. Where the employer provides a vehicle or vessel for the purposes of sub
section (1), above he shall ensure that the vehicle or vessel is suitable, is in good
sanitary condition and is not overcrowded.

(d) Sick pay

This is provided by virtue of Section 15 of the Labour Act, subject to the
Workmen’s Compensation Act, a worker shall be entitled to be paid wages up to
twelve working days in any one calendar year during absence from work caused by
temporary illness certified by a registered medical practitioner.

67
Implied terms
Implied terms are terms which are not explicitly specified on a contract of
employment but which are considered to be implicit in the employer-employee
relationship. Implied terms may be implied into a contract of employment which
would impose obligations on the parties though they are not expressly stipulated in
the contract.

Implied terms may arise in a number of ways. Implied terms can arise in
the following ways:
(a) Those implied by the court into individual contracts
(b) Those implied by Statutes
(c) Those implied by customs and practices

TERMS IMPLIED INTO INDIVIDUAL CONTRACTS

in addition to the express terms written into a contract there are implied terms.
They include:
1 Mutual duty of care: employers have a duty to take reasonable steps for the
safety of their employees. In return, employees have a duty to assist the employer
to maintain safe procedures and facilities, as well as a duty of care to co-employees
2 Mutual duty of respect: Both parties have an obligation not to do anything that
damages the reputation of the other. Thus in the Bank of Credit and Commerce
International case where there was fraud at the highest levels in the bank, innocent
former employees found their reputations ‘tainted’ when the bank failed and they
sought other employment. Their class action for damages was settled by a payment
of £30million.
sample wording 7.2 CONTRACT OF EMPLOYMENT CONTINUED
3 Fidelity: Employees have a duty to act in good faith towards their employer, and
not to steal from ,them. in the case of Adamson v B & L Cleaning Services Ltd an
employee who tendered for a contract which was held by his employers was held to
have breached the implied term of fidelity and was fairly dismissed .

4 A duty not to disclose confidential material: This is effective only if it can be shown
that the employee knew or should have known that the item was confidential. If
they were ignorant of its confidentiality status, such a term cannot be implied. For
clarification, an employer can adopt a rule that all confidential items should be
inscribed ‘confidential’ and then set out in a confidentiality Undertaking and
sanctions for breach.

5 The right to reorganise the work and the workforce: This requires both fairness
and adequate consultation with employees to avoid allegation of unfairness. In
Trebor Bassett v Saxby and Boorman a company tried to introduce a new shift
system in its factory by reducing the pay of two claimants, the EAT held that the

68
failure to spell out the effect the changes would have on some employees’ weekly
earnings made the employer liable.
6 Duty of support: There is a duty of support by the employer to managers and
supervisors to ensure that they are not harassed, or their control undermined by
employees or others. In a decided case, a deputy head teacher was bullied by his
junior staff to such an extent that he suffered a nervous breakdown. His employer
chose to settle his claim out of court for £101,000. In another case, a council
employee was awarded £67,000 for stress brought on by her being required to deal
with aggressive council house tenants following her transfer into that department
without training in such matters.
7 A duty not to change material terms of the contract unilaterally: If this is found to
be restrictive, a flexibility clause maybe inserted into the contract. Which if accepted
by the employee cannot easily be changed. However there must still be adequate
notice and reasonableness.
8 A duty to provide work: the existence of such a duty is not clear. In practice it is
dependent on the contract. There is a default duty of an employer to provide work
for agreed hours of work and where he fails may be held liable to pay the employee
for the days or hours when no work was provided.

In the case of Ibama v Shell Petroleum co limited5 the court stated that in
certain contracts where there are no express wordings, then implied terms may be
imported into such contracts in so far as they do not contradict the express terms of
the particular contract.
9. Duty to obey lawful orders

(a ) Implied terms into a contract by Statutes. Under Section 47 (2) of the

Trade Dispute Act. The section provides that
“ “…..an award or terms of a settlement shall be binding on the employers
and the workers to whom an award or terms relate, then as from the date
of the award or settlement, if any, the contract between the employer and
workers in question shall be deemed to include conditions of employment
to be observed under the contract shall be in accordance with the award or
terms of settlement until varied by a subsequent agreement, settlement or
award and accordingly the provisions of that contract shall be read subject
to the award or terms of settlement, and any failure to give effect to the
award or terms of settlement shall constitute a breach of contract”.

(d) Terms implied by custom and practices

In order to prove the existence of a term implied by customs and practice, it
will necessary to prove certain things:

(i) Notoriety- It must be shown that the term is well known in the trade, industry
and company and has been in use over a period of time.

5
1998 3 NWLR pt 542 page 493
69
(ii) Reasonableness- The scope and operation of the terms must not be onerous
between those to whom it applies.

(c) Terms implied by court

It is the fundamental responsibility to determine what the parties have agreed
between themselves and where there are no express terms, the court could imply
certain things within the ambits of the law. The basic principle for this is that the
court will imply a term into the contract, whether of employment or any other type
where the inclusion of such a term is necessary to give business efficacy to the
contract. The business efficacy test was developed in the case of The Moorcock6 In
this case, the Plaintiff and Defendant had a contract by which the it was agreed that
the Plaintiff could discharge their cargo at the Defendant’s jetty. Due to high sea
swell and the high tide, which both parties realized, the tide ebbed whilst the cargo
was being unloaded, the ship would go aground. The Defendant had not guaranteed
that the tide would not ebb or that it would be safe to unload the cargo at a
particular time and since there was no express term of the contract which covered
the matter, the question arose as to whether a term could be implied into the
agreement that the river’s bottom was reasonably safe for the ship whilst it was
unloading.

Types of Employment contract

In Nigeria, there are two most common types of employment contract. They are
(1) Ordinary contract of employment which may be indefinite
(2) Fixed term contract

Ordinary contract of employment

Ordinary contract of employment creates a master-servant relationship. This is
regarded as employer-employee relationship in modern industrial relation practice.
Such relationship can be determinable by notice served by either party and the
remedies for breach can result in damages, order of reinstatement by court
depending on the nature of contract.
For employees whose employment is governed by statutory flavour, .The Supreme
court in several cases has laid several factors which are expected to govern
employment s with statutory flavour, In the case of Fakuade OAUTH7, the
supreme stated that:
“ Where the conditions for appointment or the determination of a contract of
service are governed by the pre-conditions of an enabling statute, so that a
valid determination or appointment is predicated on satisfying such statutory
provisions, such contract is one with statutory flavour. The contract is
determinable not by the parties, but only by statutory pre-conditions
governing its determination”
6

7
1993 5NWLR page 291
70
In Adesegun Katto V CBN8, the Supreme court said that “ In ordinary contracts of
employment where the terms provide for one month’s notice before termination or
salary in lieu thereof, the only remedy an employee who is wrongfully terminated
can get is a month’s salary in lieu of notice and any other legitimate entitlements
due to him at the time the employment was brought to an end”.

Contract for a fixed term

Fixed term contract can be defined as a contract where the term of employment is
pre-determined at the commencement of the contractual relationship. In fixed term
contract, notice may or may not be in the contemplation of the parties.
In the case of BBCV Dixon,9 the English court of Appeal held that contract which
on the face of it is a fixed term contract is nonetheless a fixed term contract in spite
of a notice clause in the contract.
In the case of Igbe v Governor of Bendel State,10 the court made the under-
mentioned memorable pronouncement when dealing with a contract for a fixed term
“The proposition of law that a person appointed to a post for a fixed term by statute
has a right to serve out the statutory term of his appointment is correct. He cannot
be removed from the office by any person during the period of the term except for
misconduct or when the master or body or institution he is appointed to serve dies
or ceases to exist..5

CHAPTER 8
The work/life balance
Due to the increase of women in the workplace Businesses need to be more flexible
in the way that women and even men with family responsibilities work.
In chapter 7 we clearly saw the move away from the traditional ‘full-time’ permanent
contract relationship it is claimed it helps improve productivity and retain the better
employees. In short, the emerging trend is to ensure that employers recognise that

8
1999 6 NWLR pt 607 page 390
9
1979 1CR 281
10
40 1983 2.S.C 144

71
those who work for them also have non-work priorities which sometimes must take
precedence. This is known as ‘work/life’ balance.

Discrimination
General requirements

1. Most laws require that employers protect employees against discrimination at

the workplace and sometimes outside It this is because If an applicant,
employee, ex-employee proves discrimination, the penalties can be severe .
an employer to be able to escape liability for discrimination if he can show
that he had an antidiscrimination programme.
 they told everyone,
 regularly checked compliance with the policy
 took firm and prompt action in the event of any transgressions.
See case example 8.5 In Al-Azzawi v London Borough of Haringey, coote

2. A detailed policy/procedure should be devised which addresses the various

existing types of discrimination – sex, race, disability, sexual orientation,
religion or belief and age incorporated with a complaints procedure.

3. Discrimination can be alleged by a person with no direct relationship with the

‘employer’ – for example, a job applicant. Thus recruitment, selection and
interviewing Criteria must be examined to ensure fairness. all applications are
recorded, and reasons for selection or rejection are inserted to ensure that
appointments are made on the basis of skill, experience and suitability.

In Al-Azzawi v London Borough of Haringey, In Al-Azzawi v London Borough of

Haringey, a colleague referred to Mr Al-Azzawi as a ‘bloody Arab’. The employer
made the colleague apologise and disciplined him. Despite this, a case of racial
discrimination was brought against the employer. The EAT rejected the claim as
Haringey had a comprehensive antidiscrimination programme, which every employee
had to attend, and disciplined offenders. Thus this employer had taken all
reasonable steps to prevent discrimination occurring.

REQUIREMENT OF A COMPLAINT PROCEDURE

To make a complaint of discrimination, harassment, victimisation or unfair

treatment, it will be necessary to have available:
􀀀 details of what, when, and where the occurrence took place;
􀀀 Any witness statements or names;
􀀀details of any former complaint made about the incident, date, where and to
whom made;
􀀀 a preference for a solution to the incident

Names of others

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 Harassment, Bullying, Initiation Rites And ‘Unfair Criticism’
Harassment could be sexual, age related, religion, racial , sexual preference,
disability and even dialect or accent can all form the basis harassment.
 Victimisation is also a form of harassment

 Bullying In a recent case, an employee obtained an award in excess

of £100,000 when his employer failed to stop him being bullied. Even so-called
‘harmless fun’ and/or initiation ceremonies could be termed harassment. Therefore
it is vital to stress to employees that what may be acceptable to one person may not
be so regarded by others. Usually it is the view of the victim that carries more
weight

See case example 8.6 Rv Lancashire and Wakefield (the office jester)
See case example 8.7 Coote v Granada Hospitality Ltd (reference case)
 Any employee who feels that (s)he has suffered discrimination in any way
should use the company’s Grievance Procedure.To make a complaint of
discrimination, harassment, victimisation or unfair treatment, it will be
necessary to have :
􀀀 details of what, when, and where the occurrence took place;
􀀀 any witness statements or names;
􀀀 names of others treated in a similar way;
􀀀 details of previous complaint made about the incident, date, where and to whom
made;
􀀀 a preference for a solution to the incident.

Social activities
An employer can also be made vicariously liable for an employee’s discriminatory
acts, harassment, etc., at social events or other activities outside workplace
sponsored or related to the employer because the ‘outside location’ can be regarded
as an ‘extension of the workplace’. Employers need to make it clear that at such
events/locations employees are expected to behave in the same way as at workplace
itself. Employer may need to monitor behaviour discreetly and intervene if
necessary.

Electronic harassment
With the rapid development of technology it is now possible for employees to access
inappropriate images and data from the internet during office hours as well as
transfer same to other employees’ at the workplace. employees who have no wish to
see such images can hold their employer liable for ‘failing to provide a safe place of
work’. Employers should devise an Acceptable Internet and E-mail Use’ policy and
make this known to all employees. Example by programing the technology so that
when computers are switched on the whole policy is displayed. Before the employee

73
can use the system they must scroll through the whole policy and type ‘YES’ . mrs
moorse case

Measures against discrimination

Employers must protect employees against discrimination at the workplace (and in
some cases outside it). as the penalties can be severe .Employers must devise a
policy outlawing and curtailing offences, and also ensure that there is awareness and
compliance. for the employer to be able to defend a discrimination claim, they must
show the following
 that all concerned were informed, regularly checked compliance and took
firm and prompt action in the event of any transgressions.
 the policy should address the various existing types of discrimination – sex,
race, disability, sexual orientation, religion or belief and age.
 The policy should incorporate a complaints procedure.

Since Discrimination can be alleged by a person with no direct relationship with

the ‘employer’ – ,a job applicant recruitment selection and interviewing criteria
must be examined to ensure fairness. applications should be recorded and
reasons for selection and or rejection inserted and a senior person should
regularly monitor the records to ensure that appointments are made on the basis
of skill, experience and suitability.

In Coote v Granada Hospitality Ltd an employee who had brought and won a
discrimination case against her employer applied for another job, which was offered
subject to reference. Her employer refused to give her a reference because she had
brought the original case. She brought an action for discrimination The ECJ held that
Member States were required under the Equal Treatment Directive to provide
protection to an employee in such an instance, and thus Ms Coote won her second
case against Granada.

SEE HARASSMENT GUIDANCE

1. Disability discrimination
The Disability Discrimination Act (DDA) protects disabled people. It applies in respect
of recruitment, job offer, refusal to appoint, terms and conditions, promotion
prospects and dismissal.
A disabled person is one who:
􀀀 cannot perform the everyday acts of life for themselves (e.g. washing, dressing,
shopping, cooking, climbing stairs, lifting, etc.) without assistance.
􀀀 has a long-term disability (one that is expected to last at least twelvemonths).

employers are required to make reasonable adjustments to the working environment

such as:
􀀀 alterations to premises; ramps and conveniences.
􀀀 alterations to working hours, site, duties and equipment;
􀀀 alterations to manuals, procedures, etc. (e.g. providing written instructions in
Braille);
􀀀 allowing absence for training, assessment and rehabilitation;

74
􀀀 providing assistance (e.g. a reader ,writer or interpreter) and supervision.
What is reasonableness’ will depend on individual cases. The test of reasonableness
is dependent on:

 the practicality of making the adjustment;

 the cost
 disruption of the employer’s business.

2. Sexual orientation discrimination

Employers must not:
􀀀 treat workers less favourably because of their sexual orientation. example gay,
lesbian, bisexual or heterosexual;
􀀀 subject workers to harassment because they (or someone connected with them,
e.g. a son or daughter) have a particular sexual orientation;
􀀀 discriminate against a person after their employment has ended on such grounds
(e.g. not providing a reference because of sexual orientation).

3. Religion or religious belief discrimination

Employers (and those they employ or direct) must not:
􀀀 treat workers differently on grounds of their religious belief unless there is a
special reason.
􀀀 discriminate or subject workers to harassment because they (or someone
connected with them, e.g. a son or daughter) hold a particular religious belief;
􀀀 discriminate against a person or harass them after their employment has ended
on such grounds (e.g. not providing a reference because a person holds a particular
religious belief );
􀀀 apply unnecessary rules regarding dress codes which could discriminate against
followers of a certain religion.
􀀀 ensure that any genuine job requirements are made clear to all applicants (e.g. a
need to work late regularly on a Friday could conflict with the religious requirements
of those of the Muslim or Jewish faith).
Employers may need to respect the requirements of certain faiths, e.g. providing
separate changing facilities, providing prayer rooms for those whose religion
requires regular prayer during the working day; ensuring canteen facilities provide a
choice of food so that religious dietary requirements can be satisfied
Since employers are responsible for the acts of their employees, these requirements
should be brought to the attention of every person (employee and worker) in
the business and it be made clear to everyone that failure to respect a person’s
sexual orientation and/or religion or belief is both a breach of the business’s rules
and thus subject to sanction.

4. Age discrimination
Employers need to examine the following areas and documentation to ensure any
age discriminatory wording, language and/or attitudes are eradicated:
􀀀 recruitment and job advertising;
􀀀 person and job descriptions wording;

􀀀 performance review/appraisal forms and discussions;

75
 􀀀 management generally and promotion discussions;
􀀀 training and succession planning;
􀀀 benefits;
􀀀 bullying, victimisation and harassment;
􀀀 retirement.

CHAPTER 9

DISCIPLINE AND DISMISSAL

1 Disciplinary rationale

Every disciplinary procedure has two distinct purposes:

A ‘positive purpose’:

 To show an ‘offending’ employee, the nature of his offense, with the purpose of
changing unacceptable behaviour to an acceptable one and also to demonstrate to
other employees what behaviour expected and management future reaction wrongs.

76
A ‘negative purpose’:

demonstrate that the employer and employee relationship has broken down and provide
evidence that may ultimately support a dismissal and or successfully defend any litigation
therefrom.

2 Disciplinary procedure

Disciplinary matters can be dealt with informally by the immediate superior by few – friendly
or stern words called an ‘informal nudge’. If such informal ‘nudges’ need to be constantly
repeated, it should be noted in the employee’s personnel file, with a copy given to the
employee.

For more serious offences or in case of repetition of minor transgressions a formal warning
procedure used. Any such formal procedure should be outlined in a formal disciplinary policy.

2.1 Implementing a disciplinary procedure

 Investigate and review the offence

 Give written notice
 Conduct a hearing
 Informal warning
 Formal/written warning
 Suspension without pay
 Demotion/Dismissal
 RIGHT OF APPEAL

Details
b) Investigate and review the alleged offence
Except for serious/gross misconduct, the supervisor/manager will first ascertain
the facts and review any evidence. Only facts not opinions should be relied on.
For grievous matters an investigation report may be commissioned.

c) Give written notice

An offending employee should be given written details of the alleged offence
in reasonable time in advance of the hearing.

d) Conduct a hearing
During a hearing an employee will be asked for an explanation, comments.or
may call for witnesses, following which a decision on a course of action will be
taken.

e) Informal warning
If an informal reprimand is deemed appropriate, the supervisor/manager will
execute this out and record the findings and sanction on a reprimand note in
duplicate. One copy for the employee and the other is placed in the employee’s
personal file.

f) Formal/written warning

77
 If a formal warning is required such as when informal reprimand has already
been given for the offence, or because of the severity of the offence, this will usually
g) be carried out by a more senior personnel ,recorded in duplicate and placed in the
employers file as well as handing a copy to the employee. .A formal warning might
state there will be dismissal in the event of reoccurrence.
h)
i) Final Written Warning in some cases
 Nary Policy Continued
 Suspension without pay
An employee may be suspended without pay if the contract of employment allows
for this, if the employee is incapable of performing his duties or can only do so to the
detriment of the company and/or its employees, or whilst further investigations take
place. A written copy of the notice of suspension will be given to the employee whilst
the original will be placed in the employee’s personnel file. A suspension can only
take place after sufficient investigations and hearing from the employee. suspension
is usually paid and is a precautionary measure prior to the disciplinary hearing to
enable uninterfered investigation in grievous cases where dismissal is a possible
outcome.

j) Demotion
Demotion usually applies to serious misconduct and if it is provided for in the
employee’s contract of employment. The employee has a right of appeal against this
sanction.

k) Dismissal
Where the employee is dismissed with or without notice the employee will have right
of appeal.

l) Right of appeal
If a warning or other sanction is given as a result of the disciplinary hearing, this must
state that there is a right of appeal).

3 Legal obligations

 Right to notification

Employers are expected to:

􀀀 give employees written notification of matters, which could lead to ‘disciplinary
action or dismissal’ with reasonable notice of a hearing date;

 Right to be accompanied

the employee should have the opportunity of being accompanied by a representative. ‘where
[the hearing] could result in the employer administering a formal warning to a worker or
taking some other action in respect of him or her’. This applies also to redundancy hearing.

 Right of appeal

78
employee has the right to appeal against any sanction or its severity.

4 Hearings

Regardless of the severity of the offence or potential sanction, a meeting to discuss it must be
conducted in accordance with the rules of natural justice.

 by an impartial ‘adjudicator’ listening to both sides of the argument, and to any

witnesses,
 giving both parties every opportunity to ask questions of the other and of any
witnesses.

If the complaint is serious, it may be preferable to suspend the employee on full pay pending
the decision

4.1 Record

Full notes of the hearing should be made by an independent person with transcripts made
available to both employee and supervisor/manager, anyone disagreeing with the transcript
can challenge it and, the adjudicator is authorised to correct the record .

4.2 Procedure

All hearings must be run in accordance with the principles of natural justice.
comprehensive and accurate record should be taken, so that in the event of a
challenge to the fairness of the procedure it can be used as a defence.
The new Acas Code of Practice provides that the disciplinary procedures should:

 be in writing;
 be non-discriminatory;
 provide for matters to be dealt with speedily;
 allow for information to be kept confidential;
 tell employees what disciplinary action might be taken;
 say what levels of management have the authority to take the various forms of
disciplinary action;
 require employees to be informed of the complaints against them and proofs of
same, before a disciplinary meeting;
 give employees a chance to be heard before management reaches a decision;
 provide employees with the right to be accompanied;
 provide that first offenders are not dismissed, except for gross misconduct;
 Require management to investigate fully before any disciplinary action is taken;
 ensure that employees are given an explanation for any sanction and allow
employees to appeal against a decision
 apply to all employees, irrespective of their length of service or status, or state
whether there are different rules for different groups.

5 Sanctions

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5.1 Warnings

normally in writing. If the employee has already been given a warning for the same offence
this may be classified as a final warning. Warnings may specify a requirement of action (or
inaction) within a certain time. Any penalties specified should be commensurate with the
offence. There is the informal warning, the formal written warning and the final written
warning.

5.2 Demotion

Demotion needs to be exercised carefully particularly where it involves a reduction in pay or

benefits. Mostly an employee would need to choose between dismissal and demotion. the
employee should be asked to sign a statement agreeing to the demotion and to a reduction in
pay from a future date.

5.3 Suspension

During investigation of an alleged offence it may be helpful to suspend the subject employee
on pay. The right to suspend without pay is possible if included in the contract documentation
it should be specifically agreed to by the employee without any duress.

6 Dismissal

(1) Gross immorality- Where the acts of immorality perpetrated by an employee has a nexus
on the kind of work the employee is doing, then it could justify a dismissal of the employee.

(2) Wilful disobedience- It is the primary duty of an employee to obey all lawful and
reasonable orders of the employer. This position was postulated in by the supreme court in
the case of Olatubosun V NISER . Any disobedience of lawful order from any servant high or
low, big or small is viewed with seriousness, such conduct normally and usually attracts the
penalty or summary dismissal as disobedience ranks as one of the worst forms of misconduct
in any establishment. This position was established in the case of Turner v Mason where a
domestic servant who visited her sick mother contrary to her master’s orders was held rightly
dismissed in consequence.

(3) Fighting on duty/assault- where an employee engages in fighting in the office, such acts
can also justify an employee summary dismissal from employment..

(4) Drunkenness/Drug addiction- Where the drunken nature of the employee is such that it is
capable of bringing the employer into disrepute or where it adversely affects the image or it
constitute an embarrassment to the employer,

(5) Bribe taking/Corruption –Where an employee is caught taking bribe or observed to have
corrupt tendencies, then such act could justify summary dismissal of the employee. This was
the position held in the case of Boston Deep fishing V Ansell

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 (6) Use of bad language The use of bad language could also constitute a ground for summary
dismissal.

The decision to dismiss should be taken carefully to avoid litigation, the attendant cost,
publicity and waste of time . to achieve this four checks are pertinent:

a. as a last resort;
b. after calm consideration, and reconsideration, of the events which led to the
decision;
c. after checking that the whole process is in accordance with the procedure laid
down;
d. (if in any doubt)after taking legal advice.

There are now six fair reasons for dismissing an employee:

 redundancy;
 lack of capability or qualifications;
 unacceptable conduct;
 where continued employment would breach legislation;
 some other substantial reason(sosr)
 enforcing retirement at 65

In addition to clearly identifying under which heading a proposed dismissal should be

classified, the employer must also follow four principles:
 follow procedure;
 act reasonably;
 give the employee chance to explain (and if a question of capability) improve;
 provide an opportunity to appeal. (rape)

6.1 Summary dismissal (‘instant’ dismissal)

Applies where the offence or incident goes to the heart of the contract so that continuation of
the employer/employee relationship is impossible: ordinarily an instant dismissal should be
considered unfair unless the following is done:

􏰀  the employee is asked for an explanation; and

􏰀  representation should be offered for a hearing;

Instant Dismissal can only be proper if the accusations are sound, and there
is no defence;
􏰀  a decision to dismiss without notice could then be taken.

However, in practice, it is safer to suspend the employee (with pay) for 24 hours to
provide time for reconsideration of the circumstances and make investigations .
7 Appeals

everyone should have a right of appeal. It is advisable to use a very simple and unconditional
appeal clause or a employer’s grievance procedure. Making the right to appeal in the appeal

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clause unconditional is necessary to prevent cases of unfair dismissal.

8 Audit trail

An audit trail is a procedure which will enable an employer at every stage to defeat any
suggestion that the employee did not ‘know’. This is ‘a defence often used by tribunal
claimants. employers should be able to refute such claims of ignorance by proof of
documentations such as issue of a contract, warning, etc. If the employee will not sign for it, a
witness should be called who will write a confirmation of the issuing of the item.

9 Constructive dismissal

In a constructive dismissal situation, an employee ‘dismisses him/herself’ on the grounds

that certain behaviour or an action by the employer makes it impossible for the employee to
continue in employment. 2 instances may apply:

 a one-off action on the part of the employer that is so fundamental, it goes to the
heart of the contract.
 one particular act, the last in a series of such acts, which is the ‘last straw’ and
makes continued working for the employer untenable.

In the case of O’Grady v FP Financial Management Group Services Ltd the EAT set out four
tests incorporating the above mentioned definition that demonstrate when a ‘constructive
dismissal’ would be valid:

1 when there is an actual or impending breach of the contract by the employer;

2 when such breach is sufficiently serious (i.e. the action goes to the ‘heart of the
contract’ so much so that continuation of the employment relationship is impossible) or is
the last in a series of incidents which damage the mutual trust and respect (i.e. the ‘last
straw’ concept);

3 the employee leaves because of the specific breach

4 does not delay too long in taking action to terminate the contract in response to the
breach .

see Omilaju v Waltham Forest where the Court of Appeal set out further guidelines of the
principle as follows:

1 if the employer conducts itself in a manner calculated to damage or destroy the mutual
trust and onfidence between employer and employee, that is the basis of the employment
relationship;

2 such a breach amounts to a repudiation of the contract;

3 the test of whether the breach is sufficient to amount to a repudiation of the contract is
objective.

a relatively minor act may be sufficient to enable the employee to resign and claim

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 ‘constructive dismissal’ if it is the last in a series of incidents which cumulatively amount
to a repudiatory breach (the ‘last straw’ situation).

 For example, if an employee were to be asked to carry out a specific task in

addition to or as part of his duties and the employer stated that providing
everything was done satisfactorily the employee would be given a substantial pay
rise on completion, and the employer then reneged on paying the increase despite
satisfactory performance, the employee would probably be entitled to resign and
claim constructive dismissal.
 If however, he did not resign for (say) three months, that would probably be too
long a delay for any successful constructive dismissal claim.
 Conversely, if after those three months of inaction the employer carried out another
adverse act, e.g. took away his right to eat in the management restaurant without
good cause, then the ‘last straw’ concept can be invoked– making the former injury
(the non-payment of the promised pay rise) part of his complaint of constructive
dismissal.

.
10 Grievance procedure

it is very important for an employer to have a grievance procedure to enable employees’

grievances to be heard within a structured framework. It should be made available whenever
an employee feels aggrieved that their point of view or interest has not been, listened to or
considered by someone – particularly by their immediate superior.

A grievance procedure should provide details of:

 how to notify the concern, or, the appeal as the case may be
  whom to appeal to and, if the appeal is rejected, details of the next stage or stages;
  time limits that apply regarding each decision; and
  how decisions are to be communicated.
see sample of a grievance policy

11 Redundancy

Dismissal for redundancy is unlike any other because it results from an occurrence that is
entirely beyond the control of the employee. Making an employee redundant is a ‘dismissal’
and if improperly handled may incur ‘unfair dismissal’ penalties.

11.1 Proving a genuine redundancy

In order to prove that there was a genuine redundancy figures drawn from management
accounts, order book, etc., demonstrating the downturn will be required. The employer must
also show that during consultation the reasons for the redundancy were discussed.

The ERA defines redundancy as:

. (a)  the employer ceasing or intending to cease  to carry on the business for the purposes of
which the employee was employed by him or  to carry on that business in the place where

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 the employee was so employed; or

. (b)  the requirements of the business for employees to carry out work of a particular kind, or –
for employees to carry out work of a particular kind in the place where the employee was
employed by the employer have ceased or diminished or are expected to

11.2 Determining an excess of productive hours

When management becomes aware of a downturn in demand which mean that there are too
many productive hours being paid for on an on going basis, they need to assess the number of
surplus hours. It may be preferable at this stage not to refer to the excess in terms of people.

11.3 The procedure

Making an employee redundant is a form of dismissal and, following the correct procedure is
necessary to create a fair dismissal and avoid consequential penalties. The following checklist
if followed as stated should provide such a procedure:

 􏰁  Explain the reasons for the redundancies.

 􏰁  Determine by proof the excess of productive capacity (see above).

 􏰁  Consult about the situation by asking for comments/alternatives/suggestions,

 􏰁  Consider these suggestions and alternatives.

 􏰁  If some of these suggestions or alternatives can be used, say so and reassess
capacity left after these have been taken into account.

 􏰁  If the suggestions or alternatives are not feasible, give reasons for not using
them.

 􏰁  Decide on the hours/days/numbers to be lost.

  Identify the pool (the particular area – or the whole organisation – from which the
number to be made redundant are to be drawn).

 􏰁  Ask for volunteers.

 􏰁  Identify those to be made redundant, ideally using totally objective criteria.

 􏰁  Inform those affected (allowing them to be accompanied if requested) giving

notice under contract, details of redundancy payments and right of appeal. 􏰁  

 􏰁  Deal with queries and appeals.

 􏰁  Check the calculations again (particularly those undertaking trial periods).

 􏰁  Arrange for the provision of references.

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See sample Invitation to final dismissal meeting

11.4 Consultation

Consultation may result in saving jobs otherwise lost. Current legislation requires employers to
consult individually as well as with elected representatives of their workforce if 20 or more are
to be declared redundant within a period of 90 days.

In the event that a person is not given work as a result of redundancy, they are entitled to
guarantee payments for five days each quarter. Guarantee payments are generally made
when the employer has a contractual right to lay off the employee. Where there is no such
right under the contract, the employee may be entitled to full pay unless he/she specifically
agrees to the lay-off.

11.5 Selection

 The manner of selection of those to be made redundant should be based on an

objective criteria and facts available at the time of assessment.
 Management needs to determine whether the reduction is from the pool or from the
overall organisation in accordance with the selection criteria already agreed.
 Those selected should be notified and given the opportunity to further consult – for
example, if they have had any alternative ideas or possibly wish to be considered for
another job if there are any vacancies.

11.6 Notice

Once selected, a notice of termination of employment on grounds of redundancy should be

issued stating the leaving date and amount of notice required under the contract If the
required period of notice cannot be given then a payment in lieu of notice (PILON) must be
paid in respect of the amount of notice required that has not been given.

During the notice period an employee is entitled to all benefits under the contract

11.8 Alternative work

Those made redundant are entitled to ‘reasonable’ amounts of paid time off to seek other
work and to arrange training for such other work. If they have the offer of an alternative job
and leave earlier than the date they were advised their contract was to come to an end, they
would not lose out on their redundancy payment.

Termination

Termination, unlike Dismissal is the bringing to an end of the employment relationship

between an employer-employee. Either party may terminate the employment relationship or it
may be mutually agreed upon by the parties.

The question in relation to the duration of an employment or the length and nature of the
notice period required for the determination of an employment relationship depends on the

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intention of the parties. Intention may be expressed or implied into a contractual relationship
from the surrounding circumstances. Consequently, where the duration of an employment is
not express, then it is the responsibility of the court to give judicial determination to the
construction of the wordings.

Basically, a contract of employment can be terminated in three main ways:

(a) Contract determinable by notice

(b) Contract which expires on the happening of a specified event or by performance

(c) Contract for a fixed term.

(a) Contract Determinable By Notice

A party seeking to determine the contract is required to give adequate notice as prescribed
under the contract. Hence, termination could be for a reason or for no reason at all once the
requisite notice has been given or the notice is given.

Section 11(1) provides that “Either party to a contract of employment may terminate the
contract on expiration of notice given by him to the other party of his intention to do so”.

Section 11(2) provides that “The notice to be given for the purposes of subsection (1) of this
section shall be –

(a) one day, where the contract has continued for a period of three months or less

(b) one week, where the contract has continued for more than three months but less than two
years.

(c) Two weeks, where the contract has continued for a period of two years but less than five
years and

(d) One month, where the contract has continued for five years or more

Section 11(3) provides that” Any notice for a period of one week or more shall be in writing.
The period of notice specified in subsection (2) above exclude the day on which notice is
given. Nothing in this section affects any right of either party to a contract to treat the
contract as terminable without notice by reason of such conduct by the other party as would
have enabled him so to treat it before the making of this Act.

Section 11(6) provides Nothing in this section shall prevent either party to a contract from
waiving his right to notice on any occasion or from accepting a payment in lieu of notice.

Section 11(7) provides that “All wages payable in money shall be paid on or before the expiry
of any period of notice”.
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Notice of termination must be in clear and unambiguous term. the notice must either specify
the date or contain material details from which the date is positively ascertainable. In the case
of Honica sawmill Ltd v Hoff the court of Appeal held that the dismissal of an employee or
termination of his employment must be expressed in clear terms or be capable of being
inferred from the conduct of the employer.

for employees in public employment, The supreme court in the case of Olaniyan v University of
Lagos has held that “………..in public employment where the employee is qualified by
appointment to a permanent and pension able position and has actually satisfied the
conditions, there should in the interest of justice be a presumption that the employment
cannot be terminated by mere notice, but should be terminated only for misconduct or other
specified reason”.

The Supreme Court also held the same position in the case of Olatubosun v NISER Council

Under the Nigerian law, a master can terminate the employment of a servant for any reason
or for no reason at all upon due notice or payment of salary in lieu of notice. The case of
Chukwuma v Shell Petroleum Development Corporation , the Supreme court held that:

“It is well established principle of the common law and of Nigeria law that ordinarily, a master
is entitled to dismiss his servant from his employment for good or for bad reasons or for no
reason at all. Consistent with this principle, is also the law that the court will not impose an
employee on employer. Hence, an order for specific performance of contract of employment is
an aberration which is rarely made”

“where the employment is one of master and servant at common law, the employer has no
obligation to give reason for determining the employment”.

In a contract of employment, where a contract gives a party a right of termination of the

contract by either party giving a particular length of notice or payment in lieu of notice, and
the latter course is chosen, the party who seeks to put an end to the contract must pay to the
other party the salary in lieu of notice at the time of terminating the contract.

A question then arises as to the legal effect where a formal written notice is not complied with
and the employee or the employee decides to terminate the contract. Unfortunately , there are
no Nigerian authorities on the subject but English court have held in the case of Latchford
Premier Cinemas Ltd v Ennion & Paterson where the resignation of a Director of the company
was required by the Article of Association to be in writing, oral resignation were tendered by
two Directors and accepted at the general meeting. The two Directors later claimed, by reason
of informality of their resignation never to vacate their offices and it was held that they had
validly resigned but only as the result of mutual agreement rather than as the result of proper
notice duly issued.

(b) Contract expiring on the happening of a specified event or by Performance

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Under a contract of employment, where an employee is employed to perform a specified duty
of indeterminate duration, then it will be taken that the contract of service expires at the
completion of the specific task. However, where there is a notice clause in the contract, then
the court will be most unlikely to treat same as one determinable by performance. In the case
of Wiltshire Country Council v NATFHE , where the English court refused to treat the contract
as one which will expire by performance.

Generally, in relation to employment contracts that are determinable upon the occurrence of a
specified event or performance of a contract and where there is a mutual agreement between
the employer and the employee to terminate the contract, there is neither a dismissal by the
employer nor a resignation by the employee- the contract merely comes to an end
automatically on the happening of the pre-determined event or on its completion.

(c) Contract for a fixed term

A contract for a fixed term is one whereby the term of employment is pre-determined at the
commencement of the contractual relationship. In such contract of employment, notice may or
may not be within the contemplation of the parties but the inclusion of the notice clause does
not necessarily mean that it is not for a fixed term. In the case of BBC V Dixon, the court held
that a contract which on the face of it appears to be a fixed term contract is nonetheless a
fixed term contract in spite of a notice clause in the contract.

Contract protected by statutes

In order to determine the status of contracts protected by statute, there is the need to look at
the contract of employment or service agreement between the employer and employee. In the
case of Fakuade v OAUTH, the supreme court held that :

“The fact that an organization or authority which is an employer is a statutory body does not
mean that the conditions of service of its employees must be of a special character ruling out
of the incidence of a mere master and servant relationship. The court must confine itself to the
terms and contract of service between the parties”

The supreme court in the case further said that

“where the conditions for appointment or the determination of a contract of service are
governed by the pre-conditions of an enabling statute, so that a valid determination or
appointment is predicated on satisfying such statutory provisions, such contracts is one with a
statutory flavour. The contract is determinable not by the parties, but only by statutory pre-
conditions governing its determination.”

In the case of Katto V CBN the supreme court held that :

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“In the ordinary contract of employment where the terms provide for one month’s notice
before termination or salary in lieu thereof, the only remedy an employee who is wrongfully
terminated can get is a one month’s salary in lieu of notice and any other legitimate
entitlements due to him at the time the employment was brought to an end”

For an employment to enjoy statutory protection, it depends on the nature and character of
the contract of employment or service contract. Therefore, a contract with statutory flavour is
one where the appointment or its determination is governed by the pre-condition of an
enabling statute so that a valid determination of the appointment can only take place upon
compliance with statutory laid down procedure.

In a contract of employment protected by statutory or constitutional flavour, the procedure for

employment and discipline including termination and dismissal of an employee are clearly spelt
out. In a contract governed by statutory flavour is determined in any other way other than
that prescribed by statute, then such determination will be rendered null and void and of no
effect.

Chapter 10

EMPLOYEE TRAINING AND DEVELOPMENT

1. Employee retention

Each time an employee leaves, an accumulation of knowledge is lost. An important

first step in employee investment is employee retention.

The Best Practices in Employee retention

a.  Ensure managers consult with (and create) their teams, and motivate them by
involvement and stretching (without straining) their capabilities.

b.  Outlaw demotivating forces such as unfairness, discrimination, harassment,

favouritism, verbal and physical violence, bullying and perceptions of personal
worthlessness, etc.

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c.  Construct a reward package that can attract/retain the better candidates, to
reward initiative and endeavour, and to motivate the workforce.

d.  consider the personal lives and responsibilities of employees, creating flexible

working arrangements if required.

e.  Identify areas of high labour turnover and, by constructive survey and

investigation of attitudes, asses the real reasons for labour turnover,
identifying strategies to avoid this.

f.  Ensure policies and procedures are applied fairly and that the views of
employees are considered

g.  Reward loyalty

h. Engage employees at all levels in the organisation. Employees who feel their
views are considered, are less likely to leave than those who are ignored.

Continuous development11

This is a process by which employees, particularly members of professional bodies,

ensure that each year they commit a number of days off for job retraining or being
coached in new developments affecting their jobs and/or skills.

i. With the pace of organizational changes, employees have an obligation to respond

to change and to learn new skills and procedures. Training needs to be integrated to
reflect the organization’s operational plan. There must be commitment to continuous
development and include it as an important part of capital investment,.
Consequently, it is necessary for employees to keep records of trainings they have
undergone throughout their career. This is because today many professional bodies
also require, as a condition of membership, that their members undertake regular
updating and training with required levels of time to be spent each year on such
activities. Refer see sample in page 164. See case eg 10.1

3 The training plan

There is now an expectation by an increasing number of employees that their

employers will invest in them by providing them with training so that they in turn
can cope with the rapidly changing working environment. To ensure the value of
training is understood and appreciated by the employee, the training plan should be
a joint effort between employee and employer representative. And should be
regularly updated.
11

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checklist for training needs assessment

 Skills analysis and comparison of availability with requirement.

 Job descriptions for current and future jobs.
 Succession planning.
 Current training requirements from performance review.
 Anticipated requirements.

4 Familiarization

1. familiarisation is a structured and comprehensive guidance to acquainting a

newcomer to both the organization and their own responsibilities. The process of job
familiarization’ can be divided into three periods:

1.  An introduction period. covering the time from the conclusion of the final
interview, the period of offer and acceptance, up to and including arrival
period

2. An induction period arrival time to the end of the second month of

employment, when a great deal of information must be absorbed so that the
recruit can actually begin to work effectively.
3. An instruction period covering the the beginning of the third month to the
end of first year of employment

5 Mentoring

A mentor is an established employee, who is available to the recruit for informal,

friendly and usually confidential advice. The concept of a mentor is akin to an
eminence gris – a powerful guiding force which remains in the background or a

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‘mother hen’ process. The mentor watches over the recruit, to be on hand to
answer their questions or concerns.
2 advantages of mentoring
 to assist the newcomer to settle in –and so avoid the high wastage of
newcomers experienced by many employers –
 it is the first opportunity that the employer has to assess how well the
employee copes with challenges, how likely it is that they will be successful in
their current tasks and whether there is any likelihood of them being able to
progress

6 Capability improvement

When an employee fails to perform to the level required by the organisation

disciplining such an employee may be counterproductive. A ‘capability procedure’
may provide improvement after which a disciplinary procedure can be used in the
event of failure A confidential meeting can also be aranged to asses the problem.
clearly concern may yield a better result than than criticism. See case example 10.2
and 3. The cololary of this is that hard work should also be praised so that when
there has to be criticism it will bewell taken.

7 Recouping the investment

Training involves a considerable investment and loss of productive time. Even

though many employees want to be trained, many use the training provided by one
employer as a means to progress with another, leaving the original employer after
the training with no return. To prevent this an employee may sign an undertaking
that, if they leave within a set time, they will repay a proportion of the cost of the
training. The wording of such a repayment clause needs careful attention to ensure
it is legally binding particularly if the intention is to deduct outstanding amounts from
wages.

The training should be linked to an undertaking that only if there was agreement to
repayment would the training be granted, and only if the training was completed on
this basis would it lead to any increase in pay. see case 10.4

8 Performance review/appraisal12

This is the process by which an employee's performance in the job is assessed by

their superior, usually in conjunction with the employee.

The purpose of a performance review or appraisal scheme is:

􏰀to provide a regular opportunity for employer and employee to discuss the
progress and performance of the employee since their last review session;
12

92
􏰀 to consider whether any shortcomings in past performance or any skills can be
provided by training or coaching;

􏰀 to determine the priorities, training and career path for the future;

􏰀 to determine exactly what the expectations of the other are for progress.

 the means by which aims and targets for the following period can be set and
measured;
 enabling employee and manager to assess systematically actual performance
against objectives and planned performance

A review of an employee’s performance, particularly where the results are linked to

financial reward, can be very emotive and the process should be implemented with
great care. The term ‘performance review and plan’ may be more positive than
‘appraisal’, which has connotations of criticism of what past performances .The
emphasis must be on the employers support for better performance rather than an
opportunity to criticise which is not productive.

The reviewers must be briefed on the above aims, and be trained in conducting the
process and interviews.

Reviewer preparation

The reviewing manager should prepare for the interview by reading and considering
the self-assessment form and by completing a checklist. The checklist should be
completed with total objectivity outside the structure of the interview, and exists as
an information prompt during the interview. See check list

Some organisations have developed what is called ‘360 degree appraisal’ so that
everyone is appraised from all those with whom they come into contact at work.
Example a manager would appraise his team members, and they in turn will
appraise him, as well as his colleagues and those with whom he interfaces.

The advantages:

 to develop a more objective view of each person and their capabilities.

 results in improved communication.
 It removes the‘ sole manager’ assessment, which many be overbearing
and unfair.

9 Study leave

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Employers have a legal obligation to allow 16–18-year-olds to take reasonable
amounts of paid leave to continue their studies where they have not achieved a
required level. This training may only be very indirectly related to the requirements
of the employer. The time off must be reasonable ‘in the circumstances’ and subject
to the requirements of the business, but the costs of the course of study are not
required to be borne by the employer.

CHAPTER 11
Safety in the workplace and the environment
11
1 The legal obligations
accidents that happen at work are usually caused by carelessness, negligence, poor
systems and/or poor precautions. There is both a common law duty and a duty
under HASAWA on employers to provide a safe place of work for employees
breaching of which could result in the employer paying compensation to those
injured. Employers are therefore required to take reasonable precautions to ensure
the safety of those for whom they are responsible which include their employees and
visitors to their premises.
The current legal framework for safety at work is the Health and Safety at Work,
etc. Act 1974 (HASAWA). ). In Nigeria we have the factories Act and the Employee
Compensation Act.

Two of the prime responsibilities under the HASAW Act are:

1 employers are to provide a safe place of work for their employees, this extends
from a duty to provide safety from physical harm as well as protection from
harassment, bullying and discrimination; on the other hand:
2 employees are to take reasonable care of themselves and their colleagues.

 The legislation places a wide-ranging and onerous responsibility on the

employer. Usually Implementation must be made the responsibility of a senior
or board level, manager in the organisation. to carry out a detailed and on-
going out safety and risk assessments.
 All organisations with five or more employees are also required to prepare
and display their policy statement on health and safety matters.

2 Risk assessments
2.1 Safety

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There is a duty on the employer to carry out risk assessment in the workplace. A risk
assessment:
􀀀 identify all the hazards in a particular situation;
􀀀 considers ways of minimising or eradicating the risk;
􀀀 identifies who is at risk;
􀀀 evaluates the risk by considering the likelihood of occurrence, the number
exposed to the risk, the severity of injury and the existing control measures;
􀀀 decides on control measures to reduce or eliminate the risk;
􀀀 implements the controls and monitors their effectiveness;
􀀀 records the assessment and brings it to the attention of those affected;
􀀀 sets a timetable within which the situation will be re-assessed or reviewed.
 when risks cannot be removed or even minimised they must be brought to
the attention of all likely to use the area and suitable advice provided.
 the competency of those likely to be at risk should be considered and noted
especially where skills, experience, etc., are not felt capable of dealing with
the risk .suitable arrangements should be made to protect those at risk.
 Risk assessments should be made available in written form, but this would
not prevent an employer being held liable if a risk could have been minimised.

See Re Rhône Poulenc Rorer Case example11.3

In the case of Re Rhône Poulenc Rorer,an engineer went on to the roof of an
industrial building. Like many such roofs it was not designed to bear the
weight of a man and a notice stated that it was fragile and that ‘crawling
boards should be used’. Ignoring this advice, he stepped onto the roof,
plunged through and was killed. His widow sued the company, whose defence
was that because he was an engineer and thus competent, he must have
known the risks and they could rely on the notice. The court stated that an
employer could not rely on a sign; there needed to be practical preventative
measures so that reasonable precautions could be shown to be in place.

At first consideration many may think that the court in Case Example 11.3 is
asking an impossibility and that the engineer was master of his own destiny
This case showed that there are proactive steps an employer was expected to
take – primarily, preparing a risk assessment along the lines of the following
stages:
1 a notice should State that working on the roof was restricted to competent
personnel.
2 Access to the roof should be locked and the key retained by a manager.
3 a law that the manager to accompany the person to the roof to provide access
(i.e. not simply issuing the key).
4 Before opening the door, the manager should state that access would be granted
only if crawling boards provided would be used. The employer would also
need to be able to show that these were in good condition and fit for use
5 The manager might instruct the person to put on a full protection harness which,
if he still falls, would prevent him hitting the ground.
6 The person might even be required before stepping on the roof to sign a
statement that all the foregoing had been explained to him.
7 Whilst the roof door was open the manager remaining there in order to ensure no

95
one else (unless under the same procedure) went on the roof.
See also O’Neil v DSG Retail Ltd

The need for employers to be proactive concerning risk to employees in the

workplace was highlighted in the case of O’Neil v DSG Retail Ltd. the court stated
that where an employer was required to reduce risk of injury to the lowest level, he
must
• assess the task, the context of where it was to be performed and the
employee who was to perform it (that is, level of skills, experience, etc.)
• must take into account that employees would not always behave with a
proper concern for their own safety.
• steps to reduce the risk could include training to increase awareness of the
risk.

2.2 Pregnancy
Risk assessments is of particular concern for pregnant women at work because
there is a duty of care both to the employee and to her unborn child. employers
are required to conduct a risk assessment detailing the dangers to pregnant women,
their unborn babies, and to new mothers (those who have given birth within the
previous six months) caused by the workplace under the Management of Health and
Safety at Work Regulations 1999 (MHSWR).
Failure to have a risk assessment made available to employees who are pregnant
and/or new mothers breaches the above MHSWR regulations (and the employer is
liable) and is tantamount to sex discrimination

Case example
 In the case of Hardmanv Malon(t/a)Orchard Lodge Nursing Home, Mrs Hardman was
a care assistant, a job which required a certain amount of lifting or supporting residents.
When she became pregnant and informed her employer of that fact, Mrs Hardman attended
a meeting in which the need for a risk assessment was discussed although one was not
carried out. Her employer’s only action was to offer her alternative work as a cleaner. She
refused and obtained certification that she should refrain from heavy lifting. Another meeting
ensued where the employer again offered the cleaning job, which she again refused. She
complained of sex discrimination and at the EAT it was found that, because: she had suffered
less favourable treatment the cause of which was her pregnancy; and the employer had
breached the law by not conducting a risk assessment as set out in DayvT Pickles Farms Ltd;
and because this was a detriment on her. Mrs Hardman had suffered sex discrimination (for
which there is no upper limit on compensation).
 A telesales operator trainer had a history of miscarriages and when she became pregnant
asked her employer to review the requirement that she attend fast-track, intensive training
away from home and that they should make allowances for her pregnancy (she suffered from
bad morning sickness and intermittent bleeding). They refused and threatened her with
dismissal if she did not attend and complete the training, which was followed by allocating to
her two substantial training contracts that she had to fulfil. Her doctor certified her as sick
and her employer asked the doctor if her pregnancy was genuine. She resigned and
successfully claimed constructive unfair dismissal and sex discriminatio
see Day v T Pickles Farms case.

The dangers

96
The HSE identifies a number of risks to pregnant women in the Workplace. but this
is subject to the peculiarity risk of the organisation. The risks include:
􀀀 working with dangerous substances;
􀀀 violent or stressful environments;
􀀀 lifting;
􀀀 confined working space;
􀀀 using an unsuitable workstation.
During the time she continues working, a pregnant woman has a right to the
following options:
􀀀 have the risks removed, or, if impossible;
􀀀 have her work location moved. If impossible;
􀀀 work on other tasks (without detriment to her contract as regards hours, pay,
benefits, etc.).
􀀀 If this is impossible; to be suspended on full pay until her maternity leave

3 Safety policy
Maintaining a safety policy is an obligation under HASAWA, in case of accident, the
omission could lead to personal fines and or imprisonment of those responsible.
Students should attempt to draft safety policy

Content Of A Safety Policy

Sample Wording 11.1 Safety policy
1. AIMS
a) To ensure, as far as is reasonably practicable, the health and safety of all employees whilst at work.
b) To comply with all relevant health and safety legislation, regulations and codes of practice.
c) To provide safe and healthy conditions of work, plant and systems.

2. RESPONSIBILITIES

i. Of the company
a) To work towards the achievement of these policy aims.
b) To provide appropriate training, advice, protective clothing, equipment and documentation as
is necessary or advisable.
c) To carry out assessment of risks and endeavour to reduce or eliminate these.
d) To provide written systems of work for all and any procedures which are exposed to hazard.
e) To record notification of hazards and accidents and incorporate improvements suggested as a
result of investigations conducted following such notifications as soon as possible.

ii. Of [named director]

a) To ensure that all the requirements of this policy are implemented

iii. Of managers and supervisors

a) To be responsible for the execution of the safety policy in their respective depts
b) To be responsible, as far as reasonably practicable, for the safety of all persons working in or
visiting his/her department, and for all plant/equipment under his/her control.
c) To ensure, in the event of accident, that prompt and appropriate first aid is administered, that
further medical assistance is obtained if necessary, that the circumstances of the incident
are investigated and reported on, and that recommendations made as a result of an
investigation are implemented.
d) To ensure the Workplace Safety folder (see below) is kept and displayed, that its contents are
brought to the attention of every employee, and that all employees are conversant with
such data.
e) To ensure protective clothing/equipment is used at all times where and when necessary.
f) To ensure that employees are conversant with the accident/hazard reporting procedure (see
below) and that notification of a hazard is passed to the appropriate person for action.

Of employees
a) To make themselves familiar with and adhere to safety procedures, including the fire alarm
procedure and evacuation route(s).
b) To wear protective clothing/equipment at all times as and when necessary, and to report any

97
defects in such clothing/equipment to their supervisor.
c) To report all accidents/incidents to a supervisor, and to carry out instructions given by a
supervisor.
d) To report all safety and health hazards and machinery defects using the Hazard report
procedure.
e) To co-operate with the organisation at all times on matters of safety.

Of safety representatives (if applicable)

a) To assist the employer (and employees) in the assessment and reduction of risk and hazards,
by being aware of the implementation and effect of procedures and work in the workplace.
b) To advise the employer on matters of concern evinced by employees and liaise/help in
rectification thereof.
c) As a member of the Safety Committee to take full part in its deliberations and operations.

Of Safety Committee (if applicable)

a) To further the interest of all involved in the reduction and/or elimination of risk, or, failing
this, of its control.
b) To advise management on safety matters.
c) To assist in the education of employees in operating safe working practices.
d) To raise awareness of the need for high-profile safety policy/procedure.

3. ADMINISTRATION
The Safety Director is [name] and is responsible for overall attainment of safety principles and
the creation of places of work that are as safe as reasonably practical.
The Safety Officer is [name] (Deputy) and is responsible for:
a) Preparing, reviewing and updating this Policy, accident/hazard reporting procedures, fire and
safety procedures and evacuation guidance.
b) Accepting and actioning Accident/Hazard Report Forms.
c) Ensuring compliance with the responsibilities laid down in this policy statement – and
reporting failure to comply to senior management for sanctions to be applied.
d) Liaison with Health and Safety officers, Insurers, Factory and Environmental Health Officers,
Fire Brigade, etc., and ensuring appropriate recommendations are effected.
e) Implementing the requirements of (Reporting of Injuries, Deaths and Dangerous Occurrences
Regulations (RIDDOR) and all such other legislation or requirements as may be enacted from
time to time.

Signed Managing Director Safety Officer

Date of issue ................... To be reviewed on [date] ............

4 On-site data
4.1 Safety folder
A copy of the safety policy should be given to every employee. It provides a prompt
for action and a criterion for guidance.
It may be feasible and advisable to post in every place of work (and on every floor where there is
multi-floor occupation) a readily identifiable and visible folder in which a number of forms are kept,
including hazard reporting forms.
The visible sheet of such a folder could include a checklist of items demonstrating when each was last
checked (e.g. fire evacuation, equipment inspection dates, etc.) so that employees’ views can operate
as a reminder if it is too long, for example, since the last time there was a fire drill.
4.2 Hazard reporting
A supply of hazard reporting forms can be included in the safety folder.The principle
behind this is that the sooner the organisation knows of a hazard, the better the
chance of avoiding injury by being able to effect remedial work. Hazard reporting is the process by
which employees are encouraged to report health and safety hazards which they identify, providing
the employer with the opportunity to address the hazards.
sampl wording 11.1 safety policy continued wording 11.1 safety policy
First aid
First aid is an instant action carried out by (normally) untrained persons in
order to preserve life, pending attendance by a trained medical
practitioner. As well as covers a need to provide instant assistance in the event of
injury, etc.

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HS(FA)R (and the revised code of practice issued in 1997) sets out detailed
requirements placed on an employer regarding the provision of first aid facilities, as
follows:
1 Provide suitable first aid staff and services in accordance with the nature of the
business, the degree of danger or hazard in the operations, the number of
employees and the proximity to medical assistance. A first aider is defined as
someone who holds a current certificate in first aid.
2 If there are 400 or more employed at a single site, an employer will normally be
required to provide a first aid room.
3 Provide properly stocked first aid boxes.

7 Fire precautions
 Quick reaction to fire can be facilitated by constant practice, so that the
automatic response to a fire alarm is to move not freeze. This can be enabled
by specially appointed employees acting as fire marshals (with deputies, to
cover absences). Regular fire alarm tests and even fire drills (which are now
mandatory in some cases) should be held.
 The need to provide fire certificates has been replaced by a requirement to be
completely proactive particularly regarding in the preparation of risk
assessments. This assessments is carried out by a ‘responsible person’ (RP).
Who may be either the employer or owner or a person in charge.

samprding 11.2 fire safety du

EXAMS
The Fire Precautions (Places ofWork) Regulations 1997 requires employers to be
Proactive regarding:
􀀀 carrying out assessments related to fire risks;
􀀀 ensuring there is appropriate fire-fighting equipment and, if manual equipment is
provided, indicating its location clearly;
􀀀 Training employees in fire-fighting procedures and techniques;
􀀀 ensuring all emergency exits are kept clear, are well indicated and accessible and,
when dark, are lit;
􀀀 adequately maintaining all fire-fighting equipment.

STRESS(EXAMS)
To try to ensure that they avoid stress claims, employers should:
􀀀 stay aware of the developing situation (see below);
􀀀 have a policy and procedure in place;
􀀀 ensure all managers are proactive in watching for signs of stress;
􀀀 emphasise that if there is a suspicion of stress, action must be taken;
􀀀 inform all employees that the organisation wishes to know if and when any
employee is subject to stress;
􀀀 investigate fully all claims of stress, referring cases to expert advice and
counselling;
􀀀 ensure that a person who has suffered stress is not, on recovery, placed in a
Similarly stressful position.

To be able to hold the employer liable for stress an employee must be able to prove:

99
􀀀 there was a breach of the employer’s common law obligation to provide a safe
Working environment; and
􀀀 there was medical evidence demonstrating that the condition was stress-related
and the stress linked to the working environment; and
􀀀 the employer was in some way negligent in that the condition was foreseeable
and yet the employer did nothing about it.
To some extent the exposure of employers has been alleviated as a result of a
ground breaking decision in which the Court of Appeal reversed the bias in favour of
employees who claim to be suffering from work-induced stress. The court listed 12
items of advice, of which three are given here.
1 Employers are entitled to take at face value what they are told by their employees
and do not need to make searching enquiries. Presumably, therefore, if the
employer suspected an employee was under stress but the employee stated they
were not, the employer would be able to accept that answer without further enquiry,
2 Employers are entitled to assume that an employee will be able to withstand the
normal pressures of the job unless they know of a particular problem.
3 Any employer who offers a confidential counselling service with access to
treatment is unlikely to be held liable in the event of a stress claim.
Confidential services is provided by an employer to counter the effects of work
based pressures which could lead to clinical stress and a possible claim against the
employer.

However The adverse decision of the Court of Appeal in one case was overturned by
the House of Lords and thus the above advice should be used with caution.
Generally every case will depend on its own facts.

1. JUNE 2012 1(I)

2. June 2013 nos 5 pg 63
3. Dec 2013 1 (F)pg 59
4. 2014 june h and i
5. Dec 2014 nos 5
6. 2015 1c
7. 19th june 2016 nos 1 (j) and 3
8. Identify the five main and/or common risks to a pregnant woman in the
workplace.
9. If a risk cannot be removed and it is hazardous for the pregnant woman to
work, what must an employer do?

100
 CHAPTER 12/13

PENSION SCHEME AND ITS ADMINISTRATION

Definition:

 Pension is an arrangement for the provision of income to persons who no

longer earn a regular income from employment.

 It is a payment received by persons upon retirement usually under pre-

determined legal and or contractual terms.

 Pension is a regular monthly payment which is received by a retired person

called the pensioner for the duration of his life time.

1. TYPES OF PENSION SCHEME

The two main types of Pension scheme in Nigeria are:

 Defined Benefit

 Defined contribution

A traditional Defined Benefit Plan (DBP) has a formula for determining the
monthly pension payments during retirement. It is an employee’s salary history and
the number of years of service. It is therefore up to the employer to make sure
there is enough money set aside to fund the promised pension. Under this scheme,
the employer solely funds it. E.g. Government.

Defined Contribution Plan (DCP) sets out how much money an employer and
an employee will pay into the plan. The amount may be a flat rate or a percentage
of the earning. The exact amount of the eventual retirement benefit is left
undetermined until the employee retires.

THE KEY OBJECTIVES OF THE NEW SCHEME

 To ensure that every person who has worked in either Public or Private sector
receives his retirement benefits as and when due;
 To assist improvident individuals by ensuring that they save in order to cater
for their livelihood during old age.

101
  To establish a uniform set of rules, regulation and standards for the
administration and payment of retirement benefits for the public service of
the federation, Federal Capital Territory and private sector.
 To make for smooth operation of the contributory pension scheme

2. FEATURES OF THE PENSION REFORM ACT

The new pension scheme is contributory, fully funded, based on individual

accounts that are privately managed by Pension Fund Administrators with the
pension funds assets held by Pension Fund Custodians.

The breakdown of the new pension scheme is as follows: it is

 contributory
 fully funded
 individual accounts
 privately managed by Pension Fund Administrators with the pension funds’
assets held by Pension Fund Custodians.

Contributory System

Under the old system, the employees contribute a minimum of 7.5% of their Basic
Salary, Housing and Transport Allowances. Employers shall contribute 7.5% in the
case of the Public Sector Employers and employees in the private sector will
contribute a minimum of 7.5% each. An Employer may elect to contribute on behalf
of the employees such that the total contribution shall not be less than 15% of the
Basic Salary, Housing and Transport allowances of the employees.
An Employer is obliged to deduct and remit contributions to a Custodian within 7
days from the day the employee is paid his Salary while the Custodian shall notify
the PFA within 24 hours of the receipt of Contribution. Contribution and retirement
benefits are tax exempt.

There are now changes in the rates of contribution to be made to the Scheme.
Under the Act, both employer and employee are required to make a minimum of
10% and 8% respectively of the employee’s monthly emoluments as opposed to
7.5% of the employee’s monthly basic, housing and transport allowances by both
parties under the repealed Act).

1. The definition of ‘monthly emoluments’ has been expanded to mean the total
emolument as defined in the employee’s contract of employment.one of the
credible interpretations that could be considered by companies is that all items
that are paid on a monthly basis (in addition to basic, housing and transport)
would form part of the base on which the pension rates are applied.
2. The Act also provides that an employer can take full responsibility of the
contribution. In that case, the contribution shall not be less than 20% of the
employee’s monthly emolument.

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Fully Funded

The contributions are deducted immediately from the salary of the employee and
transferred to the relevant retirement savings account. By so doing, the pension
funds exist from the onset and payments will be made when due.

Individual Accounts

The employee opens an account to be known as a ‘Retirement Savings Account’

in his name with a Pension Fund Administrator of his choice. This individual account
belongs to the employee and will remain with him through life. He may change
employers or pension fund administrators but the account remains the same. The
employee may only withdraw from this account at the age of 50 or upon retirement
thereafter.

Privately Managed

The new scheme requires pension funds to be privately managed by the PFA and
PFC. Private Management was adopted because of the general distrust of
government enterprises. Private management enhances the efficient and effective
management of investment portfolios and offers better services to workers through
competition.

6. MANAGEMENT OF PENSION SCHEME IN NIGERIA

The responsibility for the management of Pension funds in Nigeria lies with License
Pension Fund Administration (PFA’s). The PFA’s are to open a Retirement Savings
Accounts for all employees with a Personal Identity Number (PIN) attached through
which their contributions could be adequately kept.

KEY SECTIONS REGARDING PROVISION

MANAGEMENT OF THE SCHEME

Section 44 Provides that the Pension management

shall be by Pension administrators
licensed by the Commission under the
Act

Section 45 Provides details of the function of the

pension fund administrators. The
function includes:

(a) Open retirement savings account

for all employees with a Personal

103
 Identity Number(PIN) attached.

(b) Invest and manage pension

funds and assets in accordance
with the provision of this Act.

(c) Maintain books of account on all

transaction relating to pension
funds managed by it.

(d) Provide regular information on

investment strategy, market
return and other performance
indicators to the Commission and
employees or beneficiaries of the
retirement savings accounts

(e) Provide customer service support

to employees including access to
employee account balances and
statement on demand.

(f) Cause to be paid retirement

benefits to employees in
accordance with the provisions of
this Act

(g) Be responsible for all calculations

in relations to retirement benefits
and

Carry out other functions as may direct

from time to time by the Commission

Section 46 Provides that pension funds and assets

should only be held by pension fund
custodian licensed by the Commission.

Provides for the function of the pension

fund custodian as follows:

(a) Receive the total contribution

remitted by the employer under on
behalf of the Pension fund
administrator within 24 hours of
the receipt of contributions from
any employer.

(b) Notify the pension fund

administrator within 24 hours of

104
 receipt of contributions from any
employer.

(c) Hold pension funds and assets in

safe custody on trust for employee
and beneficiaries of the retirement
savings account.

(d) On behalf of the Pension fund

administrator, settle transaction
and undertake activities relating to
the administration of pension fund
investments including the
collection of dividends and related
activities.

(e) Report to the Commission on

matters relating to the assets
being held by it on behalf of any
pension fund administrator at such
intervals as may be determined
from time to time by the
Commission.

(f) Undertake statistical analysis on

the investments and returns on
investment with respect to pension
funds in its custody and provide
data and information to the
pension fund administrator and the
Commission and

(g) Execute in favour of the pension

fund administrator relevant proxy
for the purpose of voting in
relation to the investment.

Pension Reform Act 2014 Key Highlights and Salient Points

105
Some of the key changes include:
 increase in the minimum number of employees required to make
contributions under the Act mandatory,
 increase in the minimum contribution into the Scheme
 imposition of fines and penalties on Pension Fund Administrators (PFA) for
failure to meet their obligations to contributors and violation of the provisions
of the Act.
.

On 1 July 2014, President Goodluck Jonathan signed into law the new Pension
Reform Act 2014 which repealed the Pension Reform Act No. 2 of 2004 (repealed
Act). Like the repealed Act, the new Pension Reform Act governs and regulates the
administration of the contributory pension scheme for both the public and private
sectors in Nigeria. The commencement date is 1 July 2014.

a) Contribution to the Scheme

There are changes in the rates of contribution to be made to the Scheme. Under the
Act, both employer and employee are required to make a minimum of 10% and 8%
respectively of the employee’s monthly emoluments (7.5% of the employee’s
monthly basic, housing and transport allowances by both parties under the repealed
Act).

1. The definition of ‘monthly emoluments’ has been expanded to mean the total
emolument as defined in the employee’s contract of employment. one of the
credible interpretations that could be considered by companies is that all
items that are paid on a monthly basis (in addition to basic, housing and
transport) would form part of the base on which the pension rates are
applied.
2. The Act also provides that an employer can take full responsibility of the
contribution. In that case, the contribution shall not be less than 20% of the
employee’s monthly emolument.

3. Scope of the Act

 The crux of the Act is to encourage participation in the Contributory Pension
Scheme (Scheme). The Scheme applies to two categories of employees.
These include all employees in the public sector and employees of private
organisations in which there are 15 or more employees.
 The Act also provides that in the case of private organisations with less than 3
employees participation in the Scheme would be governed by guidelines
issued by the National Pension Commission (PenCom).
 the Act is silent on the applicability of the Scheme to private organisations
with more than 3 but less than 15 employees.

106
 4. In addition, a Group Life Insurance Policy must be maintained in favour of the
employee for a minimum of thrice the employee’s annual total emoluments
similar to the old Act.
b. Investments
5. The Act expands the scope in which the pension funds can be invested and
this includes specialist investment funds and other financial instruments the
Commission may approve.
c. Offences and Penalties
1. The Act criminalises attempts to commit an offence and imposes the same
penalty as the offence itself.
2. The penalties for misappropriation have also been increased. In addition to a
prison term of 10 years and a fine of three times the amount
misappropriated, a convicted person would refund the amount
misappropriated as well as forfeit to the federal government any property,
asset or fund with accrued interest or the proceeds of any unlawful activity
under the Act in his/her possession, custody or control.

3. The Act also criminalises any reimbursement or payment by a Pension Fund

Administrator (PFA) or Pension Fund Custodian (PFC) to a staff, officer or
director upon whom a fine has been imposed under the Act. The penalty
prescribed for this is a minimum of N5 million.

4. the Act imposes a penalty of at least N10 million, upon conviction, where the
PFC fails to hold the funds to the exclusive preserve of the PFA and PenCom
or where it applies the funds to meet its own financial obligations.

5. Under the Act, jurisdiction is vested in a Court of ‘competent jurisdiction’

which includes the Federal and State High Courts including the High Court of
the FCT as well as the National Industrial Court. The court may lift the veil of
incorporation where necessary and ensure speedy and just determination of
any case before it.

d. Pension Protection Fund

A pension protection fund is created under the Act to include an annual subvention
of 1% of the total monthly wage bill payable to employees in the public sector. The
objective of the Fund is to serve as a hedge or guarantee for the benefit of
contributors. Money from the fund is paid to the contributors in the form of
minimum guaranteed pension, as compensation for shortfalls in investment of
pension funds and any other use PenCom may determine from time to time.

e. Withdrawal from the Retirement Savings Account

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The Act creates another condition in which a contributor may be allowed to
withdraw from his retirement account. An employee who disengages from
employment or is disengage before the age of 50 and is unable to secure
employment within 4 months of disengagement is allowed to make withdrawals from
the account although not exceeding 25% of the total amount credited to the
retirement savings account.

f. Appointment of the Director –General (DG)

Under the Act, the level of professional qualification and experience required to
occupy the office of the DG of the Commission has been lowered. A person is eligible
if he, amongst other criteria, possesses relevant and professional qualification in
pension matters and at least 15 years cognate experience. Under the repealed Act,
the relevant number of years of experience was 20 years cognate experience in
pension, insurance, actuarial science and other related field .

g. Confidentiality
Members of board, officer, employee or agent engaged by a PFA or PFC are
expected to maintain confidentiality with respect to information received in the
course of their duties failing which a person may be liable, upon conviction to a fine
of N10 million or custodial term of 5 years or both.

h. Exemption from tax

In line with the spirit of the repealed Act, the Act clearly mentions that any interests,
profits, dividends, investments and other income accruable to pension funds or asset
are not taxable.

i. Public Officers Protection Act and Pre-action Notice

The Public Officers Protection Act applies to any suit commenced against any officer
of PenCom. Accordingly, the Act prevents the institution of an action against an
officer or employee of PenCom for any act done in execution of the Act or any other
law if not commenced within 3 months of the act or in the case of a continuous act,
within 6 months after the act ceases.

Furthermore, no action can be taken against PenCom except after the expiration of
one month following the service upon the Commission of a notice setting out the
cause of action, particulars of the claim, name and place of abode of the intended
plaintiff and the reliefs sought.

The requirement of a pre-action notice is a condition precedent to be fulfilled by a

person aggrieved by PenCom or any of its officers before such persons can approach
the courts. The utility is that it gives PenCom the opportunity to resolve such
matters before they escalate into a full blown litigation.

j. Dispute resolution

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Any employee aggrieved with his employer of PFA is obligated to approach the
Commission for a redress before exploring arbitration or commencing an action at
the National Industrial Court. Previously under the repealed Act, the avenues for
dispute resolution were arbitral panels and the Investment and Securities Tribunal.

The takeaway
 The inclusion of more penalties targeted at individuals is expected to serve as
a deterrent to pension crimes.
 The vesting of jurisdiction in three superior courts of record suggests the law
gives more opportunities for quick dispensation of justice and dispute
resolution. This is a positive development as it gives more contributors
confidence in the Scheme.
 Employees may find some satisfaction in the fact that employers would
contribute at least 10% of monthly emoluments if they are lucky to keep their
jobs. Employers must prepare for either an increase in staff cost or some
restructuring of staff compensation to maintain the contribution at the current
levels.

It is expected that PenCom will provide clarifications or issue guidelines regarding

certain aspects of the new Act. These include commencement and transition
arrangements, contributions by employers with 3 to 15 employees, combined
contribution where the employer choses to solely contribute and definition of
monthly emolument.

109
 INSURANCE AND RISK:

.CHAPTER 14

What is risk?

 Risk can be defined as a combination of the probability of an event

occurring and the consequences of that event.

Types of risk

Fundamental Risks are Risks which cannot be controlled by any one person, e.g.
natural disasters such as storms and floods, or environmental factors such as war or
inflation. They arise from acts of God or unforeseen or unavoidable external factors
such as natural disasters example storms, flood or environmental changes such as
inflatin.

A Particular Risk particular risk is A risk which an individual or business can

partially control, for example, driving a car or crossing a road. Types of particular
risk include speculative risks, entrepreneurial risks or business risks. In
speculative risk the events may turn out better or worse than expected, for
example a change in interest rates or a business venture.

A Pure Risk is a situation where, if the event occurs loss is inevitable. For example,
in a fire, the only possible outcome is loss or damage to property and/or injury to
persons.

Hazard and risk

Hazard is the potential danger present in almost all that we do in life and can be
subdivided into:

 Physical hazards EG poor maintenance or construction, and

 moral hazards.( Insured’s attitude) deliberately cause losses in order to claim
from their insurance or adopt a careless attitude because they are insured.
in assessing whether or not to take on a risk, insurers need to consider both the
physical hazards and the moral hazard .

Dealing with risk

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Risks can be treated in a number of ways:

1. Elimination: remove a risk entirely by abandoning a whole operation

or replacing a hazardous project with a safer one. Examples; a
chemical company abandoned experiments near a small town when
there was a risk of danger to the town.
2. Reduction: risk can be reduced by providing Security measures to
reduce the likelihood of break-ins or Physical devices, such as
sprinklers and fire appliances, to reduce the severity of loss ln an
accident.
3. Transfer: The most common form of risk transfer is insurance or by
out sourcing by transferring the risk to a third party.

Insurance as a form of risk

In full insurance the insured transfers all the financial impact of the risk to the
insurer. Occasionally he may decide to retain some financial impact of the risk this
called partial insurance.

Examples of partial insurance

1. A policy condition whereby the insured agrees to pay a certain amount on

every claim in return for a discount on the premium. Example, a Policy
excess of £100, means that the insurer pays any amount in excess of £100
on each claim, While the insured pays claims below £100
 Franchise: a franchise of £100means that the insured pays all the losses
under £100 but the insurer pays the entire loss if it is over £100. Franchises
can also be related to time periods. For example, in a personal accident and
sickness policy, if the illness ‘incident’ resolves within the franchise period, no
claims are paid. If the illness extends beyond the franchise, then a claim
payment will be made, including the franchise period.

2. First loss: the insurer pays all losses up to an agreed figure, and the insured
pays the balance.
3. Retention of risk by the insured: insured can retain risk

 -by Paying for losses from revenue

 By Self-insurance: this is building up an internal fund from which losses
are paid.

Captive insurance company: A wholly owned subsidiary of trading company

established for the sole purpose of underwriting (guaranteeing) its parent
company’s risk.

Insurable risks(exam)

Not every risk is insurable. The criteria for an insurable risk are:

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􀀀 The insurer must be able to calculate the probability and the severity of the loss
with some certainty,

􀀀 The loss must be measurable in monetary terms

􀀀 The risk must not be a speculative or entrepreneurial risk.

􀀀 The potential loss should be large enough to justify the expense of insurance.

Direct and indirect losses

Direct losses are the costs which arise directly from the event. They can be
covered by insurance such as:

cost of reinstatement of property damaged or destroyed, loss of or damage to

product – stocks, raw materials or finished goods,
 repair or replacement of plant and machinery damaged or destroyed
 the cost, fines or penalties as a result of contract not completed, and legal
costs and other professional fees such as architects and surveyors.
Indirect losses are losses which arise as a consequence of the event. They are
unlikely to be covered by insurance. These include

 costs of loss of production

 loss of reputation
 currency conversion costs if equipment is purchased abroad
 The possibility of loss of orders resulting from the delay
 overtime working to catch up on delays
 costs of recruiting new employees sick pay, management costs for
investigations and compiling the claim.

RISK ANALYSIS, ASSESSMENT AND MANAGEMENT

Identifying and assessing risk should be a central part of any organisation’s
management. It should be a continuous, developing process that addresses all the
risks surrounding the organisation’s activities and property. Such as:


risks of failing to execute the organisation’s strategy (e.g. bringing inferior
and uncompetitive products to market)
 risk of employees being injured in carrying out their duties.
 The risk of fraud or dishonesty from within the company
 costs arising from failure to comply with current regulation
 damage to an organisation’s reputation, because of adverse publicity arising
from an error or accident.
 failure of processes and procedures essential to the achievement of the
organisation’s objectives. EG to overstate oil reserves to obtain larger
bonuses.
Risk and corporate governance

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Managing risk is an important feature of corporate governance. It is the
responsibility of the board to take measures to prevent losses through error,
omission, fraud or dishonesty.

For companies, external risks can be broadly divided into

 business risks or strategic risks

 financial risk.

 Regulatory risk

 Reputational risk

Risk awareness

, risk awareness should be high up the board agenda. consequently It is a

requirement of the Combined Code that listed companies include a statement from
the board on internal control in their annual report and accounts. The statement
state that:

 there is an on-going process for identifying, evaluating and managing

significant risks;
 that the process has been in place for the year under review;
 it is reviewed regularly by the board;
 it complies with the code of corporate governance

The risk management function

The risk management function may be the responsibility of a single person such as
the company secretary or a full-scale risk management department. The following
are Their main tasks:

 Setting policy and strategy for risk management.

 Identifying and reporting risks to the board.
 Monitoring and reviewing identified risks to determine whether the risks have
changed and their responses are still appropriate.
 Ensuring that there is a risk-aware culture throughout the organisation,
which should include continuous training of employees to ensure that risk
management is embedded in the organisation.
 Designing and reviewing processes for risk management.
 Developing risk responses, including risk transfer by insurance, or
outsourcing, contingency and business continuity programmes.
 Coordinating the various activities which advise on risk management issues
within the organisation (e.g. health and safety, business continuity and quality
control).

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The risk analysis and management process

There are four steps in a risk analysis and management process:

 risk identification;
 risk assessment;
 risk evaluation;
 risk control.
Risk identification

Risk identification is the structured attempt to identify all activities or events that
might cause a loss. This requires:


a thorough knowledge of the organisation from legal, social, political and
cultural environment based on a sound understanding of the objectives of
the company.
 visiting each of the organisation’s operations to become familiar with the
particular risks that each faces and the capabilities of the staff to handle
them.
 build up a good relationship with those in charge of each operation to gain
their assistance in identifying risks . SEE case example table 14.1
Risk assessment

This is the estimation of the risks identified and assessing the probability of their
occurrence by the risk manager


he examines data from previous incidents and consider the severity of each
loss and the financial impact
 estimates the gross loss and net loss. For example, the gross loss from a fire
at a factory may be estimated as £50 million, whilst the net loss, after taking
into account the fire detection and suppression systems, no smoking
environment, trained fire wardens, etc. may be only £50,000.
Risk evaluation

 This is the evaluation of risks by placing them in order of significance based

on its financial impact to the organisation.by considering the legal,
environmental, social and moral aspects of the risks.
 the potential wider effects of those risks as well as their direct financial
implications. Example, a successful prosecution against a baby food
manufacturer for contaminated product would result in a small fine, but may
have a potentially a disastrous effect on market share through adverse
publicity.
 a risk manager needs to be able to identify the largest predictable loss that
the organisation could suffer as a result of a particular risk called estimated
maximum loss (EML). EML provides

i. useful data for insurers in assessing premiums.

ii. a way which measuring risk reduction techniques can be assessed.
example, if the EML resulting from a fire in a factory is known to be £50
million and the cost of providing sprinklers which will substantially reduce

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 the potential for a serious loss through fire is £300,000, the investment in
sprinklers looks like relatively good value.

Risk control

Risk control is the selection and implementation of measures to reduce, transfer or

avoid the risk. This will include introducing new procedures to help avoid errors or
accidents. Such as:

 outsourcing an activity to a third party.

 taking insurance cover.
Key factors to bear in mind are:

􀀀 Cost-effectiveness. What is the cost relationship between implementing the

control and the risk reduction benefits expected?

􀀀 Compliance. controls must comply with the law (e.g. health and safety;
employment law).

􀀀 Stakeholders. What risk reduction measures would stakeholders expect?

Planning for disaster: business continuity programmes

All organisations, large or small, should have a business continuity plan (BCP)

It is a plan geared towards facilitating recovery in the event of a disaster such as

power failure or flooding.

Creating the disaster plan

An effective (BCP) or recovery programmes will assess where the true exposures to
disaster lies and how they can be avoided especially where there is a single point of
failure for an important process.

For example, an organisation that has all its activities in one headquarters building
in the centre of a large city (possibly near an airport) at which all its technical,
managerial and staff records are held, as well as its manufacturing capacity, will
present a relatively high-risk target for accidents. Even a relatively small fire might
put it out of business for an indefinite period because there exists a single point of
failure. A big disaster could put it out of business altogether, unless it has standby
facilities in place. Procedures might be developed to encourage this dispersal of risk
by avoiding any single point of failure. Such as:


moving to a number of dispersed sites, to reduce The probability of one of
the perils arising in more than one of the sites at once is greatly reduced.
 Duplicating technical records and keep at several sites
 Stand-by production facilities may be held at more than one site.
 Not all of the trained staff will be at any one place at the same time.
A BCP plan must address the following in advance:

 Who is to take charge and If that person is incapacitated by the disaster, who
will take over?

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  emergency services, and maybe the police.
 families, relatives and other employees who may be affected
 the media.
 financial press and stock exchanges (if relevant).
 site security.
 recovery and/or standby services, such as Portakabins,
 temporary public utility services
 acquisition of temporary factory accommodation.
 plan of where they might go?
 customers and suppliers, insurance assessors and the like.
 the bank.
One way to anticipate possible events is to :

 examine accident books and records regularly.

 Near-misses should always be recorded and the reasons for them examined
as actual accidents are often preceded by a series of near misses.

Insurance contracts

Under English contract law, a contract is defined as being an agreement between

two or more parties which is legally binding. For the contract to be valid there must
be an offer and acceptance, and consideration.

Terms in insurance contracts

The usual legal terms used in producing an insurance contract are:

􀀀 Contract – the agreement between the insurer and insured.

􀀀 Policy – provides written evidence of the contract.

􀀀 Consideration – the insured pays a premium and the insurer agrees to make
future payments to the insured in defined circumstances.

See case example 14.2

Making a contract
An insurance contract is primarily one between the insurer and the policy-holder
(the insured). It may be written or verbal but, in practice, virtually all insurance
contracts are in writing.

checklist in forming a contract

 The proposer provides information to the insurer about the risk(s)
to be insured. Via a proposal form. But For large commercial insurances,
the insurers would prefer to carry out their own surveys before taking on any
risk.
 The insurer decides what risk he would like to accept.

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  The insurer then makes an offer to the proposer of the premium he would
require to accept the risk.
 The proposer accepts by paying the premium, and the contract is now in
existence.

Essentials of a valid insurance contract

A contract of insurance like every other contract must satisfy the following
requirements to be valid: Offer, Acceptance, Consideration, Intention to create
legal relations, and Capacity to contract.

The contract confers the following rights and obligations:

– The insurer is entitled to the premium in exchange for the obligation to make
future payments to the insured in the event of certain specific events, such as the
insured’s car in an accident.

– The insured is required to make premium payments in order to enjoy the cover the
policy offers.

It is not always necessary for the premium to be paid before the insurer is prepared
to be on risk, in the case of most existing contracts once the renewal date is past
the insurer usually continues and allows the insured time to pay. This facility is called
providing days of grace. It is a Period between insurance renewal date and payment
of premium when insurer remains on risk.

Policy excess(deductibles). and policy franchise see pg

Principles and concepts of insurance

Insurable interest

 Without an insurable interest, an insurance contract is not valid.

A person has an insurable interest in the subject matter of a policy if he stands to
lose by its damage or destruction, or if he benefits by its existence.
essentials of insurable interest:

 there must be some feature capable of being insured (e.g. property or life).
 This feature must be the subject matter of the insurance.
 Insured must have a legal or equitable relationship with the subject matter.
Sometimes, contractual agreements may create an insurable interest. For
example, a tenant would not ordinarily be able to insure a rented property
because he would suffer not loss if it were damaged. However, if the tenancy
contract makes the tenant liable to make good any damage, the contract
gives the tenant insurable interest in the property.
 insurable interest must be valuable in monetary terms, although (except in
person’s own life or that of a spouse).

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How insurable interest arises
Insurable interest in people

1. A person has an unlimited insurable interest in his or her own life or in the life of
their spouse

2. A creditor has an insurable interest in the life of his debtor up to the amount of
the debt because he will lose if the creditor dies before paying up.

3. Business partners have an insurable interest in each other’s lives because The
death of a partner could cause a loss to the surviving partners.
4. Key personnel – an employer can effect policies on the lives of key personnel
within an organisation because the death of such people would cause a loss of
expertise and a resultant cost to the employer in finding suitable replacements.
3 Ownership of property generates an insurable interest, to the full extent of his
ownership, including following:
 􀀀 Part-owners or joint owners.
 􀀀 Mortgagors (lenders) and mortgagees (borrowers)
 􀀀 Agents.
 􀀀 Spouses have a mutual and unlimited insurable interest in each other’s
property.
 􀀀 Administrators, executors and trustees are given the power to administer
the estates or affairs of others. They may insure any property for which they
are legally liable.
 􀀀 Bailees may insure up to the value of the goods they hold.

Insurable interest in liabilities

There is an unlimited insurable interest in any legal liability to third parties. Examples
include:

􀀀 Professional people, such as doctors, dentists, insurance brokers (even Chartered

Secretaries)may insure their liability to the public. This is referred to as professional
indemnity

􀀀 Manufacturers can insure against their liability for causing injury, death or
property damage to consumers or members of the public as a result of negligently
producing defective or unsafe goods.

Assignment of insurable interest

It is possible to assign insurable interest but note that it is the personal qualities of
the insured that influenced the insurers’ willingness to issue a policy, and the rate of
premium. Therefore assignment can only be with the insurers’ consent because it is
a new contract. This form of transfer is called novation. Examples:

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  Marine insurance
 Life policies
 It is possible to assign the proceeds of a policy,

Utmost good faith and the duty of disclosure

An insurance contract requires trust and honesty from both parties to operate
successfully. Thus the principle of utmost good faith (uberrima fides) applies. This
means that there is an explicit legal obligation on all parties to disclose all material
facts and information which would influence the other party’s willingness to enter
into the contract, whether or not they are specifically asked about them

What is A Material Fact?

‘a material fact is one which would influence the judgement of a prudent
insurer in fixing the premium. This duty of Disclosure begins when contract
negotiations start and terminates when cover is offered and accepted and the
contract is formed.
 However policies may extend this by including a requirement that any
changes to the risk during the contract period must be disclosed and the
insurer may emphasise his right to decline to underwrite such changes.
checklist disclosure requirements

Facts which should be disclosed Are Facts which are material at the time the
contract is taken out should be disclosed, such as

 factors which make the risk greater than would ordinarily be expected;

 make the amount of potential loss greater than ordinarily expected;

 Facts that relate to previous losses or claims and which relate to other
policies held;
 relate to the subject matter of insurance;
 Facts that limit the insurer’s chance of recovering from liable third parties,
such as existing contractual agreements.
 Where there is any doubt about whether or not a fact is material, it should be
disclosed.

Facts which need not be disclosed

 Facts that reduce the risk, e.g. the installation of a sprinkler system;
 facts which the insurer already knows, or is deemed to know, or are common
knowledge;
 those which the insurer should know in the ordinary course of business;
 those which are matters of law;
 those which can be discovered, where the insurer has been put on enquiry,
e.g. incomplete information on a proposal form, into which the insurer should
then enquire;
 those that are unnecessary because of a warranty, or policy conditions.
Breaches of the duty of utmost good faith

Examples of breaches of the principle of utmost good faith:

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 
􀀀 concealment, i.e. deliberately concealing a material fact;

􀀀 non-disclosure, i.e. an innocent act of failing to disclose a material fact
either accidentally or because it was thought not to be material.
 􀀀 fraudulent misrepresentation, i.e. making a statement knowing it to be
false, to deceive the insurer;
 􀀀 innocent misrepresentation, i.e. making an inaccurate statement of fact
believed to be true;
Consequences of non-disclosure

 breach by insurer – consequence is cancellation of the cover and refund of

premium;
 breach by insured – in the case of innocent misrepresentation or non-
disclosure,---Insurer will need to amend the policy and premium rating to
reflect the increase in the risk. In fraudulent misrepresentation or
concealment, insurers are entitled to cancel the policy, retain the premium
paid and not meet any claims
 If non disclosure relates to a minor fact, non fundamental issues, insurers
may still refuse to pay a claim. insured must commence legal proceedings
and may succeed if the non-disclosure was innocent..
Disclosure and intermediaries

QUERY whether disclosure of information to an agent or intermediary discharges

insured’s responsibility to the insurer. This depends upon the role of the
intermediary.

 If a person is an agent for an insurer disclosure to the agent may be deemed

to be disclosure to the insurer.
 Where An insurance broker is a representative of the insured disclosure to
the broker is not disclosure to the insurer.
 However, the insurance broker still owes a duty of care to the insured and
may be liable for any loss in the event that important information is not
passed to the insurer promptly and accurately.
 The courts can make the insurer or the intermediary responsible for paying an
insured’s claims, where the intermediary or agent was given sufficient
indication of information that must be disclosed to the insurer.

Warranties


warranties is a statement of truth , promise or a duty incorporated within the
insurance contract and fundamental to it. For example a warranty may
require that an intruder alarm kept in good working order and regularly
tested.
 breach of a warranty gives the aggrieved party the right to repudiate the
contract.
Proximate cause

 proximate cause is the dominant cause not the remote cause from which a
direct chain of events can be seen to lead to the loss.

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  however a proximate cause is not always immediately obvious.

Example:
 a ship that had been hit by a torpedo sank some time later in a storm. It was
held that the effective cause of the loss was torpedo damage not the storm

 In Marsden v City & County Assurance Co.(1865) a crowd gathered to watch

a fire, and then started to loot the premises. It was held that fire was a
remote cause, and that the proximate cause was the action of the mob.

Proximate cause and insurance policies

A valid claim may be made if the proximate cause is covered by the policy, but a
valid claim cannot be made if it is excluded or omitted.

In Etherington v Lancashire &Yorkshire Accident Insurance Co. (1909) a man fell

from his horse, could not move, and so contracted pneumonia and died. It was held
that the proximate cause was the fall (which was covered by the policy).

 If a proximate cause, which is insured occurs alongside with one that is

excluded or omitted, but the occurrences can be separated, then the
claim for the insured cause only will be valid.
 If losses from concurrent causes and one is insured and the other excluded
and they cannot be separated then no claims will be paid.


if losses from concurrent causes of which one is insured and and the other
omitted and they cannot be separated, then all claims will be paid.
See theory into practice 14.1

 But a Contract wording can override proximate cause. For example, a

standard fire policy can exclude any losses caused by explosion .

In Stanley v Western Insurance Co.(1868) an explosion that was proximately

caused by fire damaged property. It was held that, although fire was the proximate
cause of the damage, the insurers were not liable, because of the exclusion.

Indemnity

 indemnity means that after a loss, the insured should be restored to the same
financial position as he had immediately before it occurred.
 Life and personal accident policies are policies of benefit not indemnity,
because it is not possible to place an absolute monetary value on life or the
loss of a member. The insurer guarantees to pay a prearranged sum if the
insured event happens, in accordance with the terms of the policy.
 In the event of a claim, an insurer may provide indemnity in the following
ways.

1. Payment of cash to the insured:

2. insurers pay for repairs by negotiating directly with the repairer.

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 3. Reinstatement: These policies pay the cost of reinstating or replacing
damaged property without making a deduction for wear and tear. Also called
‘new for old’ policies.

Subrogation

Subrogation is The right of one person to stand in the place of another for the
purposes of litigation. In insurance, this commonly occurs where the insurer takes on
the insured’s rights to recover costs from a third party responsible for causing an
event which has led to a claim..
 Subrogation is an attempt to prevent double compensation for the same loss.
 Subrogation allows the insurer to take over all of the legal rights of recovery
against third parties which the insured may have, once the insurer has paid
the claim. By the insurer standing in the shoes of the insured the insured
cannot recover from a third party as well as claim on an insurance policy on
the same subject.
 But if the insured receives less than full indemnity from his insurer he can still
claim the balance from any liable third party.
Sources of subrogation rights

The right of insurers to take action against third parties arises from the following:


Tort – e.g. negligence, trespass, defamation.

Contract –A contract may contain a clause making one party responsible to
another for losses suffered by the other party, e.g. a contract for hire of a
television set makes the hirer responsible to the owner for any damage to the
set, irrespective of negligence.
 Statute
 Salvage – If insurers have paid full indemnity, they are entitled to salvage
the debris,
Waiver of subrogation

Rights to subrogation may be waived if it is convenient for the insurer to do so, via

Knock-for-knock agreements in motor insurance: Some motor insurers have

agreed between themselves not to exercise subrogation rights against each
other.
 Employer’s liability: Employer’s liability insurers have agreed that they will not
take action against an employee in the name of his employer (where an
employee has been negligent and caused injury to another employee).
Contribution

The principle that the insured does not receive more than indemnity applies when at
least two policies cover a common interest, subject matter and peril, and become
liable for a loss, each will contribute a proportion of the claim..
For two or more insurers to contribute towards a loss, there must be certain
common features between them:

 􀀀 They must be policies of indemnity.

 􀀀 The policies must cover the same perils.

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  􀀀 The policies must cover the same subject-matter.
In the event of a claim, the common law position is that the insured may choose to
claim from any liable insurer. The insurer, if the claim is valid, must pay it to the limit
of its liability, only then can he seek contribution from other policies .

How contribution rights are waived

Contribution rights can be waived in three ways:

1 Non-contribution clause: This clause states that the insurer will not provide cover if
another insurance exists, for the same risk.

2 More specific insurance clause: if a more specific policy exists, then it pays for the
loss. but if the more specific policy is insufficient to pay the whole loss, the wider-
ranging policy will pay the balance of the loss.

3 Specific market agreements: These are designed to prevent contribution where it

is technically allowable. For example, an employee driving a vehicle carrying fellow
employees could cause their injury through an act of negligence. This could result in
an employer’s liability claim and a motor claim, but insurers have agreed that such a
claim would be met by the employers’ liability insurers who would not seek
contribution from the motor insurers.

CLASSES OF INSURANCE AND THE INSURANCE MARKET

chapter 15

1 INSURANCES OF PROPERTY

1 Fire and material damage insurance or fire and special perils insurances
this covers materials such as buildings, including fixtures and fittings . material
damage insurance (fire and special perils) provides compensation for loss of assets,
there are 4 kinds of special perils.

 Natural perils: Storm, tempest, flood, hail and, earthquake and thunderbolts
etc
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  Social perils: Vandalism, riot, commotion, strikes and lockouts, political
activities
 Perils caused by chemical reaction: Spontaneous combustion.
 Other perils: Accidental damage, bursting or overflowing of water tanks,
pipes, aircraft and articles dropped from aircraft, impact by road vehicles,
livestock.

exemptions from a material damage policy:

 war risks;
 ionising radiation or contamination by radioactivity;
 terrorism
 pollution or contamination;
Premiums
Factors that affect the fixing of premiums as follows:

 risky trades involve higher premiums. for example, a chemicals factory will
face higher premiums than an office, because of the greater risk involved.
 the construction and condition of the buildings
 The risk management culture of the board
 Adverse features that increase risk. Example absence of safety equipment.

Sum insured
In material damage insurance, there are two bases for calculating the sum insured:


Under the basis of indemnity, the insured will be compensated to the
current value of the property destroyed.
 Under the basis of reinstatement, the insurer agrees to provide cover on
the value of a new property. Wear and tear is not considered.
Average
 Average is a way of preventing under insurance by ensuring that insurers
obtain cover at the full value of the risk by payment appropriate premium.
 Under the principle of average if, the risk is found to be under-insured, the
insured must bear part of the loss pro-rata to the under-insurance. This is
calculated as follows:
Sum insured at time of loss
Full value at time of loss X cost of repairs

SEE case example 15.1

2 Business interruption insurance or consequential loss insurance

 While material damage insurance (fire and special perils) provides

compensation for loss of assets, business interruption insurance covers the

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 earnings which would have been produced by those assets and the additional
costs incurred following a loss from an insured peril.
 Business interruption claims can only be made where there is already a
material damage claim (e.g. a fire) which has been accepted by insurers.
See checklist 15.1

Included
 __ The loss of net profit suffered while the business is affected.
 __ fixed expenses which must still be made even though no revenue is
earned, rent, interest on loans, wages and salaries or even redundancy costs
if employees have to be dismissed.
 __ The additional costs incurred in restarting the business, such as the rental
of temporary accommodation during the period of rebuilding

Excluded
 __ Depreciation of undamaged stock after a loss.
 __ Failure to recover pre-loss debts.
 __ Fines or penalty payments under contracts breached as result of the loss.
 __ Third party claims.
 __ Loss of goodwill.

Indemnity period
Is a maximum period during which benefit can be paid, generally depending on the
time required to construct buildings or find suitable alternative premises, replace
machinery, regain lost markets and train new employees. The basis for selecting the
indemnity period is how long the effects of the incident would be felt by the
business, and not how long it would take for the business to become operational
again. The indemnity period selected will affect the premium charged by the insurer.

Risk assessment and premiums

Insurers assess the physical risk which include
 location of premises,
 type of business,
 fire spread risk,
 time required for repair or reinstatement following a loss)

and the interruption risk such as :

 raw materials,
 Alternative arrangements,
 seasonality of trade
 suppliers, utilities and power,
 regulations applicable to the replacement of buildings.

With this information, the insurer will calculate the estimated maximum loss.

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(EML) is the maximum probable business interruption loss arising out of
the maximum possible material damage loss to the key interruption risk,
at the most critical time.
Note that that some businesses have special factors to take into account such as
seasonal demand – for example, a fire at a toy factory just before Christmas will
have far worse business consequences than a fire in the summer.

Premiums are calculated according to;

 sum insured,
 the risk potential
 estimated length of time for rebuilding – a central London department store
will take longer to rebuild than a warehouse in a rural location.
 the status and robustness of business continuity plans
 an estimate of gross profit to be earned by the organisation during the period
of the policy.

Key man insurance

Smaller businesses also insure their key personnel under a business interruption
policy because death or long-term disability of a key staff could have serious
financial implications for the business. Life assurance is arranged to cover the death
risk, and critical illness or disability risk.

There are two main methods of calculating the appropriate sum: deciding a multiple
of the key person’s gross remuneration, or multiplying the company’s gross profit by
the key person’s remuneration and dividing the result by the total wage bill for the
company. This is then multiplied by the number of years that cover is intended to
last.

Company,s gross profit x key mans remuneration X no of years for cover

Total wage bill

3. Theft insurance
Theft includes:
 Robbery – stealing with use of force.
 Burglary – entering a building as a trespasser with intent to steal.
 Aggravated burglary – burglary carrying an offensive weapon.
 Fraud – taking of property by deception.
 Blackmail – demanding money with menaces of disclosing unwanted
information.

 the Cover is usually restricted to where there is evidence of forcible

entry or exit .consequently businesses have to give far greater
consideration to security measures, such as alarm systems, vetting of
staff, security locks and guards.
 Theft cover is usually an extension to a material damage policy. Which
typically includes stock-intrade and materials, goods held on behalf of

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 others, trade and office furniture, fixtures, fittings, plant, machinery,
computer equipment, appliances and business records.
 The cover will exclude any property specifically insured under another
policy.
 Theft cover should carry warranties which aim to ensure that the
insured behaves in a particular way for cover to apply; for example,
cover might be conditional on the installation of intruder alarms or any
other security arrangement. Premiums will be calculated after a survey
of the premises. Factors to be taken into account include ;
location,
value and type of products stored
security measures.

4. Money insurance
 Companys can arrange cover for money at their own premises.
 The level of cover will depend on security measures taken by the insured such
as safes and strong room. It may include Money kept at the homes of key
employees and money in transit if adequate security measures are adopted
 but does not cover shortages owing to errors or omissions such as losses
from unattended vehicles, loss or damage from vending, amusement or
gaming machines, war risks and losses caused by radiation and radioactivity
from nuclear fuel or waste.
5. Fidelity insurance or fidelity guarantee insurance covers loss arising
from:

 dishonesty of employees, pilferage to large-scale computer fraud.

 insurers will often impose specific conditions on the insured to ensure
reliability of staff such as references, and other internal controls within the
organisation to reduce the risk of fraud by employees.

6. Engineering insurance
 Engineering policies provide compensation for damage to machinery caused
by its failure, or breakdown .
 Engineering insurers provide a regular inspection by qualified engineers to
check the condition of the plant in order to prevent losses by identifying and
remedying faults before a breakdown in line with health and safety at work
regulation.

2. Liability insurance

This is liability to pay damages to someone who suffers injury or loss owing to our
negligence in a duty owed.

1. Employers’ liability
 every employer in the UK is compulsorily required to take out an insurance
policy against liability for bodily injury or disease sustained by employees
arising out of and in the course of their work..
2. Public liability insurance

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  The object of public liability insurance is to protect or indemnify the insured
against legal liability for loss or damage to property or bodily injuries to third
parties, such as members of the public.
 it is not compulsory.
3. Professional indemnity insurance
 professional indemnity insurance protects the organisation and its employees
from liability to compensate third parties who have suffered loss or injury
from the professional negligence of the organisation or its employees.
 professionals should exercise reasonable care and skill in dealing with not
only their client (but since the case of Hedley Byrne & Co.v Heller & Partners
Ltd) and to third parties, even without any contractual relationship with them.
the cover usually includes:

1 Indemnity against claims for damages for breach of professional duty.

2 The policy to cover even acts of negligence committed prior to the policy.

3 The policy relates to negligence only. Other Claims such as libel or slander or
arising from dishonest, fraudulent, criminal or malicious acts of the insured or his
employees are excluded except with additional premium.

Insurance brokers, chartered secretaries in public practice and other

professional bodies such as those for accountants, surveyors are required to
hold professional indemnity cover
4. Directors’ and officers’ liability
 Directors’ and officers’ (D&O) liability policies provide cover for the costs of
personal awards, costs of defending actions against directors and officers of
an organisation and for compensation due to claimants.
5. Product liability
 Product liability insurance is designed to indemnify the insured against legal
liability to third parties for death or injury or loss of or damage to their
property caused by goods sold, supplied, repaired, serviced or tested by the
insured.
 Neither Negligence nor the existence of a contract needs be proved, between
the insured and the victim. The mere existence of a defect is sufficient basis
for liability.
 product liability insurance should cover all the territories in which an
organisation’s products are sold.
6. Product guarantee insurance
Product guarantee insurance covers the risk of a product failing to meet its
intended purpose. The policy scope is as follows:

 financial loss suffered by a consumer who used the defective product,

 financial loss suffered by the insured as a result of the defect in its product,
 recall and replacement expenses incurred by the insured
 damage which one component causes to another component in the same
product.

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 3. GOODS IN TRANSIT INSURANCE OR INLAND TRANSIT INSURANCE

The insurance of goods in transit has legal issues.

Hauliers and bailees who carry and keep goods are liable at common law for
loss of or damage to the goods that they carry.

I. Domestic transport of goods by rail

 rail companies mostly desire that the sender insures their own goods.
Thereafter Insurers will usually pay a claim and then exercise subrogation
rights against the rail company for losses for which it is liable under the
contract.
 The most suitable policy is an annual declaration policy, where a premium
is paid at the policy inception, based on the estimated value of consignments
for the year, and a premium adjustment is made at the end of the year
based on the actual value of the sendings.

II. Domestic transportation of goods by post

commonly used for small goods of comparatively low value. The liability applicable
by the post office depends on whether or not the parcel is registered. The insurers
can exercise rights of subrogation against the Post Office.

III. Domestic transportation of goods by road

For smaller vehicles the policy will specify the vehicles to be used and will cover all
transit risks, to wit: loading, unloading, collection and delivery, with a limit usually
placed on each vehicle.

for larger fleets of vehicles is involved a declaration policy will be used. And
premiums based on haulier’s charges and not on the value of the goods,

Special classes of goods

Agricultural produce usually attracts lower premium rates because of the

lower value per load.
 Vehicles carrying livestock or bloodstock have to be approved cattle
carrying vehicles and death from disease or natural causes is excluded.
 Small retail traders will usually have a trader’s combined policy which will
cover deliveries to suppliers and the collection of goods from suppliers.
 Furniture removers are likely to have their own insurance arrangements to
cover the removal and transit of household contents from one address to
another. Alternatively, such insurance can be taken out as an extension to a
household contents policy.
 The transportation of bullion and precious stones usually requires the use
of special security vans with appropriate guards.
Policy exclusions
Goods in transit policies usually have the following exclusions:

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  theft or pilferage involving employees or collusion;
 seizure under legal process;
 insufficient or improper packing;
 riots, civil commotion;
 goods not properly secured or protected;
 consequential loss, e.g. loss of market for perishable goods;
 deterioration and change by natural cause;
 goods accompanying commercial travellers.

MOTOR INSURANCE
Motor insurance is one of the largest classes of insurance, because all motor able
vehicles must by law be insured for third party risks. The scope includes:

 cost of emergency treatment and ambulance conveyance of the victims.

 death or injury to persons
 damage to vehicles and property of ‘third party’ passengers, and

checklist 15.2 types of motor cover

1. Third party insurance includes as above

2. Third party, fire and theft insurance includes:

 All of the above.
 Damage caused to the vehicle as a result of fire.
 Loss of or damage to the vehicle as a result of theft.

3. Comprehensive insurance includes:

 All of the above.
 Loss of or damage to the vehicle other than as a result of fire or theft.
 Personal accident benefits for the insured and spouse.
 Medical expenses for the insured and passengers.
 Personal effects.
 Legal expenses.
.

Premium rating will depend on:

1. Type of car: premium ratings take into account factors such as
 Performance
 ease of repair
 cost of spare parts.
High-performance cars, likely to be owned by the more reckless driver and to be
more attractive to potential joy riders, attract higher premiums.
2. Use: Insurers divide use of a car into classes.
 Vehicles used for business will attract higher premium than cars
provided merely as an employee perk for social, domestic and
pleasure purposes.
3. Age and driving experience:

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  Young drivers are accident prone than mature drivers. Insurers
therefore tend to offer discounts to older drivers and demand a higher
excess for younger drivers.
 elderly drivers may be required to produce a medical certificate of
fitness to drive.
 Different insurers will set the age limits at differing ages.

4. Experience rating: Where there is a fleet of vehicles to be insured, the

insurance company will probably base the premium on previous claims
experience.
Incentives and penalties

insurers also operate a system of incentives and penalties to attract the types of
business they consider profitable. Incentives include:

 no-claims discounts, where policyholders who have not made a claim are
granted a discount at each annual renewal of their premium
 discounts to drivers who are regarded as a safer risk, such as women or
teetotallers.

penalties include:
 increased premiums on a proposer who has had a previous conviction for a
motoring offence or Incidents of several claims where the insured was at
fault.
 May decline to insure proposers in certain occupations or impose special
terms. Such as entertainment industry, students and members of the armed
forces.

MARINE AND AVIATION INSURANCE

Modern marine insurance covers compensation for losses and injury to third parties
caused by perils of the sea, such as damage due to bad weather, sinking, collision,
fire, theft, jettison, piracy and other similar perils. Marine losses arise in four main
areas:

1 Hull: These are losses relating to damage to the vessel and associated machinery.
ocean-going ships and boats, vessels under construction and offshore oil and gas
installations .

2 Cargo: an insurance that covers goods that have been sold and are being shipped
to the purchaser. The terms of the sale will specify the level of insurance cover.

Sales can be:

– free on board (FOB): the seller’s responsibility ends once the goods have been
loaded at the port of departure. Thereafter it becomes the responsibility of the
purchaser.

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– cost, insurance, freight (CIF): the seller is responsible for arranging delivery and
insurance cover of the cargo up to the point of delivery at final destination.

3 Freight: this is the cost of transporting the cargo.

4 Marine liability: This covers damage or injury to third parties such as collision with
other vessels, pollution caused by oil spillage.

Aviation insurance
Aviation insurance is available on a similar basis to marine insurance to cover
aircraft, cargo, freight and liabilities. The liabilities covered include injuries to
passengers and damage to their property, and to other third parties, such as airport
staff. This insurance will be arranged by airlines.

INSURANCE OF THE PERSON

Insurance of the person covers injury, sickness, death or prolonged life of the
insured. They are called policies of benefit and not subject to the principle of
indemnity subrogation and contribution. Policies of benefit provide a fixed, pre-
agreed benefit, payable without regard to the principle of indemnity.


Example a third party caused the death or injury and a successful claim were
made against that third party, the insured person would still be paid the
benefit.
 A person can have several of these policies with different insurers, and can
claim full benefits from each.
Examples
 Private health insurance. ensures that private medical bills can be paid;
 personal accident insurance provides a financial benefit in the event of an
accident.

1. Personal accident and sickness insurance

a policy provides compensation for the insured if he is injured (or for his estate if he
is killed) as a consequence of an accident, or if an illness prevents him from working.
Benefits vary among policies and insurers. Depending on a schedule such as in the
event of death, total loss of sight in one or both eyes etc.

The level of premiums is often related to the person’s occupation and the risk he is
exposed to. Lower premiums are charged for lower risk jobs and higher premiums
for hazardous occupations.

When a sickness benefit franchise usually applies. This means that the insured can
only claim if the illness exceeds a set number of days. If the illness exceeds the time
franchise agreed, the benefit will be paid for the full period of sickness, including the
franchise period.
2. Permanent health insurance
 Permanent health insurance is a long-term contract, which provides an
income up to an agreed ceasing age (usually retirement age) to the insured if
they become unable to work following an accident or an illness.

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 In the event that the insured follows another occupation, benefits will be
reduced. insurers should be notified of any changes in occupation and
earnings.
 The benefit payable is usually limited to 75 per cent of the insured’s earnings
prior to the sickness or accident. benefits are payable only after an agreed
waiting period.

premiums charged depends on:

 occupation,
 levels of earnings
 the individual’s personal and family health history.
3. Private medical insurance
private medical insurance covers medical treatment, accommodation in a private bed
in a hospital or nursing home, surgeon’s and anaesthetist’s fees, consultation fees
and operating fees.

Such policies do not normally cover pre-existing conditions, emergency

treatments or chronic conditions.
Premiums depend on the level of cover required and the number of family
members to be included in the policy.

4. Life assurance
These are benefits which become payable on the death of the insured, to their
dependants or to others who have an insurable interest in their life. The level of
premiums depends on the type of life assurance.

The main types of life assurance cover are:

 Term assurance paid out of the sum assured on the death of the insured
during the term of the policy. If the insured does not die during the term of
the policy, nothing is paid and no premiums are returned. The premiums will
depend on:

the amount of the sum assured

the age of the proposer
the length of the term.
Whole life assurance provides life cover for the duration of the assured’s life, not
just the term of the policy. Premiums is calculated based on the age of the life
assured at the inception of the policy and the amount of the sum assured.

Employers have an insurable interest in the continuing life of their senior

employees, as the cost of managing without a key employee and then finding
a suitable replacement can be high. Employers may take out key man
insurance which will pay an agreed lump sum to the company in the event
of the death of a key person.

7. Purchasing insurance

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 organisations may employ an insurance manager to deal directly with
insurance companies and insurance brokers. The insurance manager will be
concerned with the placing of insurance, dealing with claims and keeping the
employer’s insurance arrangements constantly under review. In a smaller
organisation, this responsibility falls to the company secretary.
the cost of insurance must be weighed against the benefits and a business
may choose to
 take all the risk
 part of the risk itself and
 not insure the risk in question,
but he must always ensure that the company buys sufficient insurance to cover
those losses which are too large for it to meet from its own resources. In all his
duty remains to obtain the best cover for the company within the risk threshold and
financial constraints laid down by the management.

1. Direct insurance
Businesses can shop around for the best insurance deal or better still use an
insurance broker (see below) or consultant to negotiate the best terms.

2. Package insurance
This is a package of a number of insurance policies which can be purchased together
for Lower premiums

3. Self-insurance
Some organisations choose not to buy insurance but instead set aside funds to cover
losses. This is clearly different from non-insurance, which is the failure to insure at
all.
 The amounts set aside can then be invested and interest earned.
 Most times such amounts are not as high as the premiums would have been.
 There is however the danger of a massive loss which the fund will be unable
to meet, forcing liquidation of the company.

4. Captive insurance companies

A captive insurance company is established for the sole purpose of underwriting its
parent company’s risks.

 the parent company is able to benefit from the premiums paid for its
insurance within the business while Some of the fund would be used to pay
claims,
 occasionally the organisation’s claims experience is better than similar
conventional insurer and hence may be cheaper.
 the captive can retain the profit margin which would have otherwise been
earned by the conventional insurer.
 captives are a viable option where premiums payable are substantial and/or
the risks are difficult to insure in the conventional market.
 provides greater control of premiums and risks

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  an incentive to keep losses at a minimum in order not to deplete the
company fund.

Disadvantages:

 unless premiums are substantial, the fund may not meet a major claim.
 For smaller companies, captives are rarely an option, because it can reduce
the initial investment required and introduce a degree of risk-spreading.

International considerations
Companies with overseas operations must consider special risks associated with their
operations.

liability claims differ from country to country Account should also be taken of
differing legal requirements, such as compulsory insurance, Currency
fluctuations and political situations as same can render policies void.
The insurance market can be broken down into three segments:

 the insurers, such as the proprietary companies and Lloyd’s;

 the intermediaries, such as brokers and agents;
 the buyers, such as commerce, industry, the Government and individuals.
Unless the risk you are insuring is very specialised, there are usually a
number of insurers offering suitable insurance. most businesses arrange
insurance through intermediaries.
Intermediaries.

Duties

Insurance intermediaries are agents in law, mostly they are the agents of the
insured (their client), since they are acting on their behalf in order to obtain
insurance cover. occasionally intermediaries are regarded as agents for the insurer,
if they have authority from the insurers to issue cover notes, receive premiums,
survey risks, etc.

Types of intermediary

Insurance brokers –

.An insurance broker’s main business is placing risks on behalf of the insured. the
broker is usually remunerated by commission by the insurers.

Insurance consultants/advisers –These are intermediaries who do not claim to be

insurance brokers but offer very similar services

Part-time agents – These are intermediaries who place insurance business on behalf
of their clients. They offer a service as intermediaries but their main business is
something other than insurance. For example, solicitors, estate agents, garages,
accountants, building societies, may act as part-time agents. Remuneration is by
means of commission received from insurers.

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Advantages of using intermediaries

Intermediaries have knowledge of the insurance market

they have access to a very wide range of companies with which to place
business and will often be able to assist clients with risk assessment and
control.
 using an intermediary should result in obtaining the best cover available
because a large broker often has a negotiating power with insurers which a
non-broker does not have.
Selecting insurance brokers

Brokers, in addition to the role of purchasing insurance cover on behalf of clients

may carry on additional services Which may commonly include:

 the provision of risk management advice specific to the business or industry

of the client,
 risk management surveys
 assistance with risk assessments,
 advice on property and/or liability risks,
 assistance with health advice on contracts where there is an insurance
element;
 training in respect of particular areas of risk such as product liability, fire,
computer risks, etc.;
Selecting an insurance broker requires as much consideration as selecting any
professional adviser. See checklist 15.3 Choosing a broker

Loss adjusters

Loss adjusters are firms of independent specialists who investigate large insurance
claims on behalf of insurers.

Their activities typically include :

advising insurers on the claim covered by the policy

ensuring that costs claimed by the insured are valid and payable under the
policy.
their knowledge can make them a useful source of advice and help to
insured on how to manage claims or mitigate losses.
Loss adjusters should not be confused with loss assessors who investigate claims
on behalf of the insured with the purpose of pursuing a claim against insurers on
behalf of the insured.

Co-insurance and reinsurance

Insurers seek to spread the risk in the following ways:

refuse to underwrite the risk; or

agree to accept part of the risk (co-insurance); or
accept the risk with the intention of reinsuring all or part of it.
Co-insurance

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Where a large risk is concerned an insurance broker can approach several insurers
until the whole risk is covered. This is called co-insurance. The leading insurer (i.e.
the one with the greatest proportion of the risk), carries out a survey and prepares a
collective policy on behalf of all the co-insurers. The premium claims are shared
pro-rata. The insured has a contractual relationship with each co-insurers, and each
co-insurer is directly and separately liable to the insured for paying its proportion of
the claim.

Advantages of co-insurance

 The cost of survey and policy preparation is shared.

 a reduction in (or elimination of ) the costs of reinsurance.
 each co-insurer is responsible only for his own share of a claim,
Reinsurance

reinsurance is carried out by direct insurers, who reinsure business with each other,
sometimes through subsidiary companies which specialise in reinsurance. Unlike co-
insurance, where each co-insurer has a contractual relationship with the insured,
reinsurers have no contractual relationship with the insured. The direct insurer is still
directly responsible to the insured for claim-settlement, regardless of any possible
inability to pay on the part of the reinsurer.

Advantages of reinsurance

 Risk-spreading: Reinsurance is a risk-spreading technique of insurance.

 Capacity-boosting: A new insurer, or established insurer opening a new
account, will want to be cautious in underwriting. However as Reinsurance is
non-competitive and can boost its capacity to insurance. For example, an
insurer may decide to retain one-fifth of his risks and reinsure four-fifths. here
he has boosted his capacity, while his actual risk-exposure remains low.
 Removal of uncertainty: losses are usually uncertain (e.g. a severe storm
can cause unusual losses). Reinsurance gives stability to the direct insurer.
 Protection against catastrophe: protects the insurer from the financial
consequences of some inevitable losses.

5.o Benefits of insurance –

.
The benefits include:
a. Providing security- There is always a fear of sudden loss e.g. a fire in a
factory, storm in the sea or loss of life. It is difficult to bear such losses hence
insurance provides a cover against any sudden loss.

b. Spreading Risk.
Insurance policies are meant to spread risk among a large number of people who
get the insurance policies and pay premium to the insurer such that in the event of a
loss, it is compensated out of the pool of funds.

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 c. To the society, it is a source of collecting funds. Large funds are
collected regularly in installments by way of premium. Such funds
collected can be gainfully employed in the industrial development of
a country.
d. Encourages savings: Insurance dose not only protect the risk but also
provides an investment channel especially in the case of life
insurance policies which provides an avenue for long term
investment.

e. Any insurance relieves policy holders from the financial burden in

the event of the risk covered occurring or manifests.

f. It secures the financial state of an individual at all times

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 CHAPTER 16

CORPORATE TAXATION

1.o Taxation:-Principles & Benefits

1.1 Definition of terms:

 Tax is a universal contrivance whereby the government
imposes upon its citizens a compulsory financial levy or
contribution for the benefit of society as a whole (Richard
Toby – Theory & Practice of Income Tax).
 It is a financial burden laid upon individuals or property to
support the government…… a payment exacted by legislative
authority. It is not a voluntary payment or donation, but an
enforced contribution exacted pursuant to legislative authority
- Black’s Law Dictionary, 5th Edition.

Corporation Tax is a tax on a company’s profits and chargeable

gains.

1.2 Principles of Taxation

These are the basic concepts by which a government is meant to be
guided in designing and implementing an equitable taxation regime.
They include:

1. Equitable/Ability to pay principle:

The principle states that taxes are based on the income or
resource – ownership ability of members of society, IOW,
those with more income pay more taxes. Example is the
personal income tax.
Taxes should equally burden all individuals or entities in
similar economic circumstances. IOW, taxation should be
governed by people’s ability to pay that is, wealthier
individuals or firms with greater income should pay more in
tax while those with lower incomes should pay comparatively
less. To comply with this principle, 2 taxing systems are
favored, that is, the proportional tax and the progressive tax
as opposed to the regressive tax.

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 Proportional Taxation - This is a system of taxation in
which the rate of taxation is uniform no matter what the size
of income. Used mostly for non-personal income taxation
(esp. corporate taxation) because of the relative ease with
which it can be administered. Example is the provisions in
Companies Income Tax Act which charges corporate bodies
to tax at a constant rate of 30% .

Progressive Taxation. This is a taxing system in which the

higher one’s income, the higher the tax bracket one is put in.
Here the rates applicable to lower levels of an income are
invariably low, while those applicable to the higher levels are
high. E.g. under the Personal Income Tax Act, for tax payers
in employment, the first 30,000 of their income is tax free,
but the 1st 30,000 above that is 5%, next 30,000 is 10%
e.t.c.

Regressive Taxation
This is a system in which, unlike progressive taxation, as
more and more income is earned, the tax rate falls. This
system is extremely unpopular as it seems to favor wealthy,
high income individuals over more needy households.

2. The benefit principle

This principle is one out of the two major principles of
taxation. It states that taxes are collected from those
members of society who receive benefits from the goods
provided by the tax revenue. IOW, the people who benefit
from public goods are logically the ones who should pay for
their provision. Thus, Drivers should pay for highways,
students should pay tuition, library patrons should pay for
library.

Some government functions such as college education

involve the provision of services that can be effectively
provided in exchange for a user fee. In such a case, the
benefit principle is invoked.
But, other government functions, such as national defense,
cannot be exchanged for a user fee. In fact, these functions
generally involve services that benefit all members of society
without exception. In such cases, it makes sense to collect

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 tax revenue from the general public using the ability to pay
principle (equitable principle) which is to the effect that taxes
are based on the income or resource – ownership ability of
members of society, hence, those with more income should
pay more taxes.

Merits of the benefit principle

a. it is considered fair because tax payers pay

proportionately for the government benefits they
receive.

b. it simultaneously determines the tax levels and public

services of different governments, IOW, how extensive
the individual benefits from the government should
determine, along with taxation, who should pay for
these services. E.g. NEPA

Demerits of the benefit principle

a. The benefit theory limits the scope of government
activities
b. The government can neither support the poor nor take
steps to stabilize the economy
c. This theory can be applied only when the beneficiaries
can be observed directly, which is not possible for most
public services
d. Taxation in accord with the benefit principle would
leave the distribution of real incomes unchanged.

Merits of the ability to pay principle

a. It is the most progressive tax system

b. It leads to the equal distribution of after tax income.
c. It is also the least aggregate sacrifice as the total
sacrifice will be the least

Limitations of the principle

a. Taxes paid are seen as sacrifice by tax payers as there

is no quid pro quo(i.e. no item or service has been
traded in return for the tax paid, there is no exchange

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 of something of value for something else of economic
value).

b. The assumption that everyone in the economy shares

the same marginal utility [i.e. derives the same gain
(or loss) from an increase (or decrease) in the
consumption of a good or service (income)] is
unacceptable as this implies that everyone has the
same tastes and preferences which is not correct.

c. It is not possible to measure utility, so there are

difficulties for the personal comparison of utility.

Other Principles

3. Certainty/Simplicity
The income intended to be taxed, the occasion for tax
payment, the rate of tax, the modalities for assessment,
determination and general administration of the tax should
be clearly spelt out, and in a manner that should be easy to
understand by an average tax payer.

4. Convenience
This requirement means that a tax payer be made to pay at
the most convenient time. Taxes should be enforced in a
manner that facilitates voluntary compliance to the
maximum extent possible. To comply with this requirement,
tax laws normally stipulate the occasion for payment which is
usually the time at which the income to be taxed accrues to
the tax payer.

5. Administrative efficiency
Tax administration (that is, assessment, collection and
adjudication) efforts should not cost an inordinately high
percentage of tax revenues, otherwise, the tax will be
inefficient.

6. Neutrality

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 Taxes should not favor anyone group or sector over another,
and should not be designed to interfere with or influence
individual decisions-making.

7. Broad basing
Taxes should be spread over as wide as possible section of
the population, or sectors of the economy, to minimize the
individual tax burden.

8. Restricted exemptions
Tax exemptions must only be for specific purposes (such as
to encourage investment) and for a limited period.

2.0 Types of taxes and Tax Legislations in Nigeria

2.1 Types of taxes in Nigeria

a) Personal Income Tax

b) Companies Income Tax
c) Petroleum Profits Tax
d) Capital Gains Tax
e) Value Added Tax (VAT)
f) Education Tax
g) Withholding Tax
h) Stamp Duties
i) Nigerian Social Insurance Trust Fund (NSITF)
j) Excise Duties
k) Tenement rates
l) Land tax

2.2 Tax Legislations in Nigeria

a. Personal Income Tax

The legal basis for this tax is the provisions of the Personal
Income Tax Act 104 of 1993(Cap. P8, L.F.N. 2004).
Every taxpayer in Nigeria is liable to pay tax on the aggregate
amount of his income whether derived from within or outside

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 Nigeria. The salaries, wages, fees, allowances, and other gains or
benefits, given or granted to an employee are chargeable to tax.
The Employers of labour are deemed to be agents of the tax
authority for the purposes of remitting taxes deducted from
salaries due to employees. However residency of the Taxpayer
determines the extent of a taxpayer’s liability in Nigeria. A person’s
place of residence for this purpose is defined as a place available
for his domestic use in Nigeria on a relevant day, excluding hotels
and rest houses. A person is deemed resident in Nigeria if he
resides in Nigeria for 183 days in any 12month period, expatriates
holding residence permits are liable to tax in Nigeria even if they
reside in the country for less than 183days in any 12-month period
as long as the income is from a Nigerian source. The following are
however exempted from tax: -

• Medical or Dental expenses incurred by the employee;

• Retirement gratuities and compensation loss of office;
• The cost of passage to or from Nigeria incurred by the
employee;
• Interest on loans for developing an owner-occupied
residential house;
• Leave allowance, which is computed as 10% of annual basic
salary .

b. Companies Income Tax

Companies Income Tax Act Cap. C21 L.F.N. 2004.
This is the provision for the taxation of corporate bodies. A
company is liable to taxation in Nigeria if it is established by or
under any law in force in Nigeria or elsewhere.
Thus, whether the coy is a local or foreign coy, it is taxable in
Nigeria on any part of its profits which are legally connected to
Nigeria- S.8 (1) CITA- .

If a company is incorporated, it is treated as a legal entity

separate from its owners or shareholders. Nigerian companies are
taxed on their worldwide income – S.11 CITA, while foreign
companies are taxed only in terms of their profits, which is
attributable to business operations carried on in Nigeria- S.8 CITA..

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 In addition to the company’s income tax, all incorporated
companies are required to pay 2% of their assessable profit into
an Education Tax Fund in compliance with the Education Tax Act.

Corporate profits exempted under CITA

 Profits of a statutory or registered friendly society, co-
operative society, or formed for the purpose of promoting
public educational, ecclesiastical, charitable and sporting
activities are exempted so long as its profits are solely
devoted to those purposes –
 Any oil coy whose profits are derived from petroleum
operations and already subjected to Petroleum Profits Tax;
 Any coy established by or under a local government statute
in Nig.;
 Any foreign coy the profits of which would have been
chargeable to tax solely because such profits were brought
into or received in Nig.-S. 19 CITA

N/B: expenses incurred within the tax period in the

production of the taxable profits including rents, interests on
borrowed capital, cost of maintenance of equipments….etc;
donations made to any fund or charitable orgs., are
deductible in calculating the coy’s profit and loss to ascertain
the amount payable as tax for the period.
The tax is payable for each year of assessment of the profits
of any company at a rate of 30%.
Also companies paying dividends to its shareholders are first
obliged to pay tax on its profits at the companies tax rate.
Generally, in Nigeria, Company dividends or other company
distribution whether or not of a capital nature made by a
Nigerian is liable to tax at source of 10%. However dividends
paid in the form of bonus share or scrip shares to individual
shareholders are not subject to tax. Also where a company is
a shareholder in another company then such dividends are
excluded from the profits of the company for the purposes of
computation of the tax.

By S. 3 CITA, the first N6,000 of every coy’s profits is tax

free provided no part of that amount is shared as dividends
or return on capital; or given as a loan to a director of the
coy.
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 N/B a coy which is yet to commence biz after 6 months of
incorporation shall pay a levy of N500 for each year of
assessment for which the coy remained without commencing
biz.

 Any coy which fails to declare profits when it should

have or which declared lower profits may be charged
to tax on a percentage of its turnover instead of
profits.
 Every coy is required to make and deliver a return (a
computation of the tax payable) at least once every
year to FBIR for assessment. Breach of which is
punishable with a penalty of N5,000 for every year of
default or 50% of the tax payable whichever is higher.
 A coy which disputes its tax assessment may object to
the Board in writing, to review or revise it. Further
appeals may be made to the Appeal Commissioners
and the federal high court.

c. Petroleum Profits Tax

Nigerian law, by virtue of the Petroleum Profits Tax Act
(PPTA), Cap. P13 L.F.N., 2004 requires all companies engaged
in the extraction and transportation of petroleum to pay tax. The
taxable income of a petroleum company comprises proceeds from
the sale of oil and related substances used by the company in its
own refineries plus any other income of the company incidental to
and arising from its petroleum operations. Any income which is
taxed under CITA is exempted under the Petroleum Act and vice
versa.

d. Capital Gains Tax

Capital Gains Tax Act of 1967(Cap. C1 L.F.N., 2004).
Capital gains tax is a tax on the gain accruing when an asset is
sold, otherwise disposed broadly speaking, a gain accrues when
the proceeds of disposal exceed the cost of acquiring and
enhancing the asset.
This accrues on an actual year basis and it pertains to all gains
accruing to a taxpayer from the sale or lease or other transfer of
proprietary rights in a chargeable interest which are subject to a

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 capital gains tax of 10%, it does not matter that such asset is not
situated in Nigeria. Where however the taxpayer is a non-resident
company or individual the tax will only be levied on the amount
received or brought into Nigeria.
Computation of capital gains tax is done by deducting from the
sum received or receivable from the cost of acquisition to the
person realizing the chargeable gain and expenditure incurred on
the improvement or expenses incidental to the realization of the
asset.

e. Value Added Tax (VAT)

This was introduced by the VAT Decree No. 2 of 1993 (Cap. V1
L.F.N., 2004), to replace the old sales tax. It is a consumption
tax levied at each stage of the consumption chain, and is borne by
the final consumer. The duty to charge and collect VAT is on the
supplier at a flat rate of 5% of all invoiced amounts of taxable
goods and services.The Federal Inland Revenue Service (FIRS)
handle VAT on behalf of federal, state and local governments.
Proceeds from VAT are shared among the three tiers of
government. VAT is charged on any person who trades on VAT
able goods and services. Exemptions from VAT include

f. Education Tax
Education Tax Act Cap. E4 L.F.N, 2004. An education tax of
2% of assessable profits is imposed on all companies incorporated
in Nigeria. This tax is viewed as a social obligation placed on all
companies in ensuring that they contribute their own quota in
developing educational facilities in the country.

g. Withholding Tax
Nigerian law subjects certain activities and services to Withholding
Tax. This basically means that where during transactions in any of
the specified activities or services, a payment is due from one
person to another, the person making the payment is expected to
deduct tax at the applicable rate and remit it to the relevant tax
authority. This should be done not later than 30 days after the
deduction. This provision can be found in Sections 60 to 64 of the
Company Income Tax Act (as amended), and Section 51(a) of the
Petroleum Profits Tax Act (as amended).

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 Some of these activities and Services and their current applicable
rates include:

Payment % Corporation %Individual/Partnership

Rent 10 10
Construction 5 5
Dividend 10 10
Royalties 10 5
Commission 10 5
Professional Fees 10 5
Technical Fees 10 5
Consultancy Fees 10 5

h. Stamp Duties
The administration of stamp duty is jointly carried out by the State
and Federal authorities depending on the type and nature of the
document. Stamp duties are regarded as transaction taxes, and
the rates chargeable would depend on the classification of the
document. Some documents attract stamp duties on flat rate basis
while others are assessed individually. This provides for the
imposition of tax on a range of documents and transactions. The
Stamp Duties Act 1939 (Cap. S8 L.F.N. 2004) imposes tax on
a wide range of documents and transactions. Where one of the
parties is a corporate body, the tax is paid to the Federal Board of
Inland Revenue, others pay to the State tax authorities.

i. Nigerian Social Insurance Trust Fund (NSITF)

This is governed by the NSITF Act No. 73 of 1993, and requires
everybody employed in a Nigerian incorporated company to
contribute a certain percentage of their salary to the fund.
Expatriates are excluded from this requirement where they can
show proof of a similar contribution in their home country.

j. Excise Duties: The Customs and Excise Management Act

Cap. C45 LFN, 2004 provides for the imposition of customs
duties on importers of specified goods. This tax is charged solely
by the Federal Government and collected through the Nigeria
Customs Service.

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 k. Tenement rates: These are imposed on building in particular
local government areas. They are part of the sundry levies and
rates which local governments are authorized to collect. Tenement
rates are payable annually on buildings situated within a particular
local government area. This is levied by virtue of Tenement Rate
Laws of the various states.

l. Land tax: This occurs when real property is transferred, before

the governor grants his consent in accordance with the Land Use
Act of 1978(Cap. L5 L.F.N., 2004), the property owner has to
pay some charges to the state government.

BREACH OF TAX LEGISLATION

Offences and Penalties
1. Failure to deduct or Remit Tax
Any person being obliged to deduct any tax, but fails to deduct or
having deducted, fails to pay to the Service within 21 days from
the date the amount was deducted commits an offence and liable
on conviction to pay the withheld or not remitted in addition to a
penalty of 10% of the Tax withheld or not remitted per annum
and interest At the prevailing CBN re-discount rate and
imprisonment for a period of not more than 3years.

2. Obstruction
Any person who:
a. Obstructs, hinders, molests etc,
b. Impedes, search, seizure, removal or distrain
c. Rescues, damages or destroys anything liable to seizure etc,
d. Prevents the arrest of any person,
Shall be liable on conviction to a fine not more than N200, 000.00
or imprisonment for a term not exceeding 3 years or both.
3. False Declaration
Any person who makes a false declaration shall be liable on
conviction to a fine not exceeding N200, 000.00 or imprisonment
for term not exceeding 3 years or both.
4. Counterfeiting Documents

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 Fine not exceeding N200, 000.00 or imprisonment for 3 years or
both.
5. Penalties for offences by authorized and unauthorized
Persons.

Any person who is appointed for the administration of the Act or

employed in connection with assessment and collection of tax
who:
a. Demand from any company an amount in excess of the
authorized assessment of the Tax;
b. Withholds for his own use any portion of the amount collected,
c. Renders false returns,
d. Defrauds any person or embezzles any money,
e. Steals or misuses the document of the Service,
f. Compromises on the assessment or collection of any Tax,
Commits an offence and shall be liable on conviction to a fine
equivalent to 200% of the sum in question or imprisonment for a
term not exceeding 3years or both. Unlawful assumption of
character of an authorized officer by assuming the name,
designation or impersonates the character of an authorized officer,
commits an offence and shall be liable on conviction to a fine of
N200,000.00 or imprisonment for a term not exceeding 3 years.
6. General Penalty
Any person who contravenes any provision for which there is no
specific penalty, the penalty conviction shall be a fine not
exceeding N50, 000.00 or imprisonment for a term not exceeding
6 months or both.
7. Information and Document to be Confidential
i. All information and documents supplied or produced in pursuant
of any requirement shall be treated as confidential
ii. Any officer, member, or former member of the Board that
commits the offence shall be liable on conviction to a fine not
exceeding N200, 000.00 or to imprisonment of a term not
exceeding 3years or both.

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 CHAPTER 17

Physical assets and Facilities management

chapte outcomes
Key issues : acquisition, management and disposal of tangible assets( not intangible)
for an organisation’s benefit . also facilities management, management of physical
assets in the built environment.

Physical assets

‘Assets are rights or other access to future economic benefits controlled by an entity
as a result of past transactions.

Practical asset management

Management of physical assets involves:
1. acquisition
2. management
3. Disposal.

1. Acquiring assets
Issues to consider before acquisition:
1. 􀀀 Cost:
2. 􀀀 Usage rates
3. 􀀀 Support: Warranties or guarantees; after sales support. staff training.
4. 􀀀 Time-scales: Availability and delivery.
5. 􀀀 Maintenance: Expected breakdown rate and possible back-up facilities;
guaranteed call-out times.
6. 􀀀 Compatibility and flexibility: With other current assets and the future
objectives of the organisation.
7. 􀀀 Space and location: Storage, special requirements.(ccustms)

a) Buying assets
key to successful purchase is
 right price;
 right time;
 right quantity;

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  right quality.

Advantages of buying
 full benefit of ownership
 right to sell and keep the proceeds.
 favour with suppliers.
 cheaper than leasing in the long term

Disadvantages of buying assets

􀀀 ties up capital,
􀀀 risky because costs are involved in repairing damaged goods
􀀀 depreciation in value,

Buying second-hand
good second-hand purchase will depend on the
 type of purchase
 the age and condition of the asset
 use to which it will be put.

Advantages of buying second-hand

􀀀 saves cost.
􀀀 economical
􀀀 enables experimentation of different models without the costs of purchasing

Disadvantages of purchasing second-hand

􀀀 likelihood to break down.
􀀀 no guarantee or warranty.
􀀀 has no third hand value,
􀀀 difficulty in finding replacement parts for older equipment.
􀀀 likely incompatible with other assets.
􀀀 may not meet current health and safety and other compliance requirements.

Good purchasing practice

 buying is a relatively informal in small organizations. However for bigger
organisations buying may become a professional function

Centralised purchasing

 When supply is needed a purchase requisition is filled and submitted to the

company buyers.
 The buyers ascertain Whether or not the item is already in stock or whether
it can be manufactured in-house or bought.

 If to be bought, tenders are invited to get the best available price.

 When the buyer is satisfied, the purchase order will be issued. The
purchase order is an offer to do business. if accepted by the supplier

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 responds with a letter of acceptance or by commencing work as instructed. It
becomes a contract for the supply of goods or services.
 In-house copies are sent to the original requisitioner, accounts and to the
relevant delivery point, for identification on arrival, and assesment for
quantity and quality by an incoming goods.
 If the goods fail inspection, reject notes will be issued and copied within the
organisation. Suppliers will be informed and summoned to collect the faulty
goods.
 If satisfactory, they are admitted into the stores. The requisitioner will be
told, and paperwork sent to accounts payable so that the invoice (bill) can be
cleared for payment on arrival.

Supplier payment and performance

 Some companies insist that suppliers quote the correct purchase order
numbers this acts as a check for suppliers within the company before
payment.
 Supplier performance is measured by vendor rating whereby, key suppliers
are awarded marks based on their financial stability, quality of merchandise,
quality of service, promptness of delivery and any other factors of importance
to the customer. If a supplier’s performance slips against the rating system, a
discontinuance warning shall be issued

Rotation of buyers and buyer objectivity

 Rotation of buyers prevents cosy relationships
 Prohibition of gift collection esp in public sector.
 Occasionally allowed if not too excessive
b) Leasing
Leasing assets is another form of acquisition
Advantages of leasing
􀀀 lessor is responsible for servicing and maintaining.
􀀀 regular payment makes budgeting easier.
􀀀 prevents tying up capital.
􀀀 Offers a short-term solution for temporary increases in workflow.
􀀀 Leasing can be the best option where capital is insufficient.

Disadvantages of leasing
􀀀 cannot be used as security.
􀀀 limited use by user
􀀀 The lessor receives the proceeds when the asset is sold.
􀀀 more expensive in the long term
􀀀 the lessee may still be responsible for insurance
􀀀 the asset is likely to need regular maintenance or
􀀀 Leased property is susceptible to obsolescence.

Asset registers

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This is a record of their current assets in the company for accounting, insurance and
security purposes. Example of assets: land and buildings, shops, offices, factories,
vehicle fleet cars; vans, lorries.

Assets are also categorised by separate entries for each asset, comprising details
such as:
􀀀 the asset’s unique reference number or code;
􀀀 asset type/category;
􀀀 department or cost centre code;
􀀀 user details and asset location;
􀀀 basic description;
􀀀 date of purchase and purchase price;
􀀀 lessor and lease details;
􀀀 supplier details;
􀀀 insured value;
􀀀 estimated life and residual value;
􀀀 maintenance contract details;
􀀀 disposal details;
􀀀 any other relevant details specific to a particular type of asset.
 maintenance of a good asset registers is a key elements of asset
management. It facilitates the identifyin, locating and easy cataloguing
of movement, disposal and transfer of assets.

Facilities management
It is the strategic and operational tasks connected with the management of physical
assets. such as offices or factories.
According To The British Institute of Facilities Management (BIFM) defines facilities
management as the integration of multidisciplinary activities within the
built environment and the management of their impact upon people and
the workplace.

Importance

at a corporate level it contributes to the delivery of strategic and

operational objectives.
On a day-to-day level, effective Facilities Management provides a
safe and efficient working environment . this is because property and
facilities often represent more than 30 per cent of an organisation’s
assets.
 working environments impact on productivity, recruitment and staff
retention.

The role of the facilities manager

In most organisations, a facilities manager functions which might either direct or via
contracts with third party organisations. include:
2. 􀀀 property strategies;
3. 􀀀 freehold and leasehold negotiations;

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 4. 􀀀 location and space planning;
5. 􀀀 landscaping;
6. 􀀀 cleaning and waste management;
7. 􀀀 catering;
8. 􀀀 energy management;
9. 􀀀 security;
10.􀀀 maintenance;
11.􀀀 lift management;
12.􀀀 car parking;
13.􀀀 vehicle fleet management;
14.􀀀 office services, such as reprographics;
15.􀀀 air conditioning;
16.􀀀 fire protection;
17.􀀀 cabling;
18.􀀀 health and safety.

This list can be broken down into two groupings, commonly known as hard
and soft facilities management.
 The first is usually associated with engineering or technical aspects of
facilities and the second with environmental and hygiene factors.
 an organisation’s facilities management is dependant on the size of the
operation of the company.
I. In a small company it is executed by the company secretary or finance
director. A large organisation will need a large facilities department.
II. Or Managed in-house or outsourced to a third party.

Key issues in facilities management

.􀀀 audit stage;
􀀀 detailed requirements analysis
􀀀 service specification;
􀀀 on going performance monitoring and review.

Business property location and relocation

Type of occupation
FREEHOLD
 Buying a freehold should be contemplated only when:
􀀀 capital is available for the purchase;
􀀀 exist long-term plans that cannot be moved easily;
􀀀 confidence that the value of property will not depreciate;
􀀀 desire to control the costs of property occupation;
􀀀 desire to control the use of the property and its layout.

LEASE
lease does not need any capital investment, however:
􀀀 The organisation is locked into several financial obligations (rent, maintenance,
service charge, insurance, etc.).
􀀀 landlord entitled to review rent periodically.
􀀀 landlord can control the use of the building (e.g.may prohibit the subletting)

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􀀀 The property to be kept to landlords standard as stated in the lease.
􀀀 onerous covenants placed on the lessee.
􀀀 The lessee cannot avoid the obligation under the lease.

Location and relocation strategy

 Location of a business has a significant impact on business costs, efficiency,
employee motivation and productivity.
 For a new business, choosing a location – and the facilities associated with it
is crucial in attracting staff and/or customers, keeping costs under control
and organise the business.
 For established businesses, regular buildings and premises audit to review
the siting and general condition of buildings and spaces which they occupy or
may wish to occupy in the future is important.
 Accommodation needs are also affected by a wide range of other factors,
including:
􀀀 Availability:The right premises or leasing conditions are not always readily
available.
􀀀 Workforce changes: Planning should take into account likely expansion or
downsizing.
􀀀 Workforce availability and expectations: The availability of appropriate staff and
their expectations can vary widely.
􀀀 Design and construction: Buildings need to be fit for purpose.
􀀀 Business-specific needs: Certain organisations may have geographical or other
requirements specific to their operation.
Financial considerations: such as the cost of kind of aquisition
􀀀 competitive environment: The location strategies of other similar or competitive
organisations may be relevant.
􀀀 Internal infrastructure: Systems, technology and equipment needs.
􀀀 External infrastructure :The proximity to related facilities and key suppliers;
transport and communication links both for staff and the delivery and despatch of
materials and finished goods.
􀀀 regulatory environment: Health and safety requirements,
􀀀 Customer expectations – Is location a real or perceived issue for your customers
(e.g. a prestige urban location for a large law firm with high-profile clients)?
􀀀 Maintenance and risks: Bear in mind the maintenance cost and reputational risks
associated with certain buildings – especially the old and‘worn-out’ ones.

Relocation

Planning a move
checklist 17.1 Business relocation
__ Set a fixed date for the move and use this to determine all other deadlines.
__ allocate responsiblity for planning the move – example a committee,
__ Allocate space on the basis of current and future business needs
__ Make arrangements for the physical movement of equipment and furniture.
__ Plan for any necessary alterations to the new building as soon as access is
possible.
__ Use the move as an opportunity to clear out old unused materials

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__ Communicate with staff on plans and schedules
Accommodation and space planning
The high cost of business premises.
the availability of lower-cost technology
the increased mobility of the workforce such as remote working
have only served to raise more questions about the use of workplace space

a rethink of space management may be necessary and this can be achieved

through a space (or building) audit, it is a review of how space is used,
and whether or how it meets the needs of its occupants.
can be conducted in-house or out sourced and will need to factor in:
􀀀 the potential of growth in the organisation;
􀀀 workflow and interdepartmental relationships;
􀀀 technological and service considerations;
􀀀 the type of work carried out and staff employed;
􀀀 existing space standards and layouts. See stop and think 17.4

Effective office layout

considerations for effective office layout:
􀀀 economical use of space;
􀀀 efficient work flow (movement of people and documents);
􀀀 ease of supervision;
􀀀 security and safety. (seee)

Types of office layout

I. Small closed offices linked by corridors :
Advantages :
 increases privacy
 aids security
 seen as a reward for status and seniority.

Disadvantages:
 inimical to communication
 encourages departmentalisation
 Increased lighting and heating costs.

2. Open plan: here employees are grouped together in one room, arranged
into work stations and sometimes separated by moveable partitions

Advantages
􀀀 Ease of supervision/team-building.
􀀀 freer communication.
􀀀 Economy on heating and lighting.
􀀀 Shared use of equipment.
􀀀 substantial space savings
􀀀 A breakdown of departmental barriers.

Disadvantages of open plan

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􀀀 Lack of privacy.
􀀀 Distraction by noise and movement.
􀀀 Perceived loss of status by some managers.
􀀀 The difficulty of satisfying individual needs and preferences.

 These disadvantages can be lessened by the use of movable screens,

equipment and furniture to give workers a greater sense of personal space
while still maintaining the overall space savings of an open plan environment.

 Split sitesis an emerging trend in uk wherein organisations to move their

administrative functions away from expensive, high-profile, urban locations,
while at the same time keeping a small shop window or public profile
presence .
 Relocation within a building is called office churn necessitated by changing
business eg increase or reduction in staff requirements

Flexible space planning techniques

hot-desking :each employee will work at a desk or terminal also used by other
colleagues. This sharing of workstations is facilitated by a shift arrangement.
Hoteling is more suited to organisations where Workstations are booked in advance
so staff are assured of a space .
Both hoteling and hot desking are similar but not the same thing. In hoteling the
space is reserved and or booked in advance. In hot desking the space is not usually
assigned but is compatible with shift arrangement. The following features will exist:
 A clear desk policy.
 Staff will need a mobile laptop computer and Mobile storage space for their
own papers and files
 a personal telephone number that can be used on any phone.
Workflow considerations
 Effective workspace design must take into account the proximity of personnel
who need to work together and the accessibility of equipment and facilities
regularly used and shared by departments and groups. Facilitating seamless
staff movements and the movement of documents. Examples of good
workflow planning might include:
􀀀 locating a post room near an external access point;
􀀀 having meeting rooms in areas where there is minimal noise or disruption;
􀀀 siting departments who collaborate closely in the same, open plan office;
􀀀 keeping recreational areas separate from those where work is taking place.

Physical factors
There are a range of environmental factors which affect the physical comfort –
and,the productivity – of employees:
 Heating, lighting and ventilation:
 Noise:
 Décor: of work.

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  Office furniture: functional but attractive contribute to a positive working
environment.
 Ergonomics: The matching of functional machines and working conditions to
the capacities and requirements of the human body.
 See case example 17.1

Benefits vs. costs

The costs of purchasing and maintaining office buildings, furniture and
equipment,etc must be weighed against all possible benefits to the organisation, to
justify itself in terms of cost and durability.

Access
The Disability Discrimination Act 1995 requires all property owners, providers of
goods and services to give ’reasonable’ access to disabled people by arranging
necessary alterations to provide such access for them. Examples ramps, lifts and
special toilets,

Outsourcing
facilities management tasks are often divided into those managed in-house and
those which can be outsourced.
 Outsourcing involves the buying of specific services from an external supplier
who will be a specialist in the provision of the outsourced goods or service
allowing the original organisation to concentrate on its core business.
Example cleaning and security
case example 17.1
The main strategic argument for outsourcing is that it allows an organisation to
focus on its core capabilities. especially where the task concerned is a necessary (e.g
cleaning) but is not core to the development and success of the business.

In the private sector, outsourced services often include

cleaning;
􀀀 security;
􀀀 payroll calculation;
􀀀 debt collection;
􀀀 legal work;
􀀀 vehicle fleet management;
􀀀 pensions administration (
Outsourcing and facilities management
Outsourcing is a key issue in facilities management. There are a number of options
in managing facilities:
a. Retain all functions in-house.
b. Outsource all functions to an integrated facilities management contractor.
c. Outsource selected services or defined projects.

The decision about services to be outsourced has to take into account :

 the size and type of organisation,
 business priorities
 strategic direction of the company

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  overall cost
 the need for flexibility or otherwise
 required management input
 expected levels and quality of service.

advantages and disadvantages of outsourcing decisions:

The advantages of outsourcing
􀀀 Access to specialist expertise not usually available in-house.
􀀀 Improved service quality.
􀀀 Reduction of overall administrative burden.
􀀀 Provides the flexibility to cover variations in workflow and changes in
organisational profile.
􀀀 Reduces direct management time.
􀀀 Costs can be easily predicted and controlled.

The disadvantages of outsourcing

􀀀 Potential (or perceived) loss of control.
􀀀 Outsourcing decisions can be difficult to reverse.
􀀀 Opportunities for in-house staff development might be limited.
􀀀 There is still a need to monitor service levels and under-performance might be
more difficult to tackle indirectly.
􀀀 The risk that security and confidentiality might be compromised.

Choosing a supplier
Once a decision has been made about which, if any, services should be outsourced,
an appropriate supplier needs be chosen.
key factors to be taken into account when choosing a supplier:
􀀀 What are the cost implications?

􀀀 Proof of quality/evidence of relevant experience

􀀀 The size of the supplier relative to your organisation: Finding the right fit is
important.
􀀀 Is the supplier financially stable?
􀀀 Does the supplier vet its staff efficiently? Especially in dealing with confidential
information or are employed as security staff.
􀀀 how well does the supplier understand your business?
understanding of your business is necessary to interpret your brief appropriately.
􀀀 How will the supplier monitor performance? What mechanisms in place to ensure
reliability and quality of service?
􀀀 Exit strategy., how and on what grounds can you end the agreement? penalty
clauses?

Service specification and service level agreements

service specifications (or contracts) and service level agreements are required in
outsourcing.
 SLA is a commitment by the service provider to deliver services in
accordance to an agreed standard. it will include the following:

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 􀀀 details of agreement (names of parties; date of commencement; duration
of agreement);
􀀀 scope of services;
􀀀 service standards (categories; priorities);
􀀀 performance (reports; measures);
􀀀 client interface (communication; satisfaction; issue resolution);
􀀀 payment terms and conditions, including incentives and penalties;
􀀀 revision/amendments procedures.


The service specification is a description of the minimum service required to
meet an organisation’s needs and expectations including legal, regulatory or
industry standard requirements. It will include the following:
􀀀 a definition of terms used and a summary of the contact’s conditions;
􀀀 scope of the contract;
􀀀 standards required;
􀀀 required outcomes.

DEFINITION OF TAXATION TERMS

1. CTSA (corporation tax selfassessment)

The system whereby companies calculate their own corporation tax liability .

2. corporation tax accounting period

The period, which cannot exceed 12 months, for which returns and self assessments
are made under corporation tax self assessment.

3. filing date The date by which a company tax return must be delivered

4. capital allowances method of providing a business with tax relief for

certain types of capital expenditure.

5. zero-rated supplies Items that are zero-rated attract a zero per cent rate
of VAT. As supplies are sold at that rate of VAT any associated input tax can
normally be reclaimed.

6. exempt supplies Supplies of goods and services that are specifically

exempt from VAT. Related input tax may not be reclaimed.

7. partial exemption This occurs where a business makes a combination of

exempt and taxable supplies. Such businesses are termed ‘partly exempt’
and they will not usually be able to recover all of their input tax against
taxable supplies.

8. cash accounting scheme A VAT arrangement that allows suppliers to

input and output taxes only when payments and receipts are made

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 9. default surcharge The financial penalty imposed for late payment of VAT.

10. surcharge liability notice This is a notice issued by HM Revenue &

Customs to a trader who fails to submit his VAT return with payment on
time, i.e. within one month from the end of the VAT quarter. The notice
covers a 12-month period from the date of the first default and can be
extended if a subsequent default arises within that period .

11. Output tax is the VAT chargeable on taxable supplies made in the
course of a business

12. Reduced-rate supplies

Certain supplies are liable at the reduced rate of 5 per cent. They include:
 domestic fuel or power;
 certain residential conversions;
 certain residential renovations and alterations.

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