Loss of mental capacity: considerations from a business perspective


Life expectancy has been rising worldwide as a result of better-quality healthcare and technological advancements. According to the Office for National Statistics (ONS), life expectancy in the UK in 2018 to 2020 was approximately 81 years, with women living 83 years on average and men 79 years.

Whilst people are glad to live longer, it also poses a number of socioeconomic challenges. A recent report published by the World Health Organization (WHO) found that dementia affected 47 million people globally in 2015. This figure is predicted to nearly triple to 132 million by 2050.

While loss of capacity is an unpleasant subject, within the context of an ageing population it is critical that businesses take proactive steps to both safeguard operations and support affected individuals. This is particularly important for family businesses, which often rely on compact teams and a sole director.

How can a family business future proof itself, and what are their obligations? Here is a list of key considerations to be taken into account:

  1. Act early to protect the business and the individual's health

It can be difficult to raise concerns with the head of the family business, particularly where they are not willing to acknowledge that there is an issue. Even so, it is best to take a proactive approach. 

Where the relevant individual is a director or employee of the company, the business owes them a duty to take reasonable care of their health and safety. This becomes increasingly difficult to navigate as they lose capacity. Dealing with the issue early is the best way to ensure that a health and safety plan can be put in place, as well as a succession plan for the individual's role to promote a smooth transition where they are no longer able to perform it. It also enables the business to consider whether there are any reasonable adjustments it can implement to support them in their role.

However, when approaching the conversation and deciding who should have those discussions, you should also consider the individual's right to confidentiality and that you will be discussing sensitive personal health data (such as their diagnosis and symptoms) which has special protection under the GDPR. On a human level, you will also want to ensure that you treat the impacted individual with compassion and dignity.

     2. An individual's loss of capacity can affect other staff members

Businesses should remember that they also owe a duty of care to other staff members. It's important to ensure that they are not working in an environment that makes them feel uncomfortable or places them at risk of harassment or from a health and safety perspective.

Progressive diseases such as Alzheimer's and dementia can operate to reduce the inhibitions of the affected individual, meaning that they might behave inappropriately in a work environment. An employee can successfully bring a harassment claim against a colleague and their employer regardless of whether the individual intended to create a hostile or degrading environment. In brief, an Employment Tribunal does not consider the intention of the alleged harasser but the impact of their behaviour on the claimant and whether that impact was reasonable.

From an employee relations perspective, failing to address that the business owner is losing capacity can also place significant pressure on other staff members, as they attempt to manage a business owner who may not always be making rational decisions and monitor their behaviour while also juggling their normal duties.

     3. A business Lasting Power of Attorney may be the answer

Part of the proactive approach could include planning how the business would be run day to day if something happened to the head of the family business – how would suppliers be paid, who would access the business bank accounts and how would the staff get paid?

Putting in place a lasting power of attorney (LPA) for key people in the business can be an excellent solution. It enables them to appoint others to make decisions on their behalf if they no longer have capacity to do so. Unlike a general power of attorney, an LPA endures beyond a loss of capacity and so provides a long-term insurance policy. However, depending on the type of business, other considerations are also required:

  • Sole Trader – an LPA is often sufficient to enable an attorney appointed by an LPA to continue the business.
  • Partner in a partnership – this can be a little more complicated as the position will partly depend on what the partnership agreement says about a partner losing mental capacity.
  • Limited Company – in this instance, decisions tend to fall into two categories: shareholder decisions and director decisions. An LPA can be used for an attorney to make shareholder decisions but not director decisions. This is because directors' duties can't be delegated to an attorney.

Where a business has a sole director, this can cause significant stress and upheaval, especially if the company's constitution doesn't deal with such an eventuality. The best preparation in these cases is to review the company's articles and ensure that they contain a clear and agreed process should a director lose capacity. 

From a practical standpoint, the head of the business could start early to share essential information with the future decision makers or, if that is not appealing, they could write confidential guidance which could be made available if they become unable to run the business in the future. 

However big your business, effective contingency plans can be made to manage the loss of capacity and often starting early is the best solution.

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