As you will doubtless have seen in the press, the Government has recently made a number of announcements on its ongoing proposals to reform employment law. The Government’s stated aim is to reduce red tape, to stimulate the economy and encourage recruitment by making it easier for employers to dismiss people, and to reduce the potential financial cost to employers of getting it wrong.
The latest announcement is of a further consultation paper on Ending the Employment Relationship. The two main points under consideration are reducing the cap on unfair dismissal awards, and encouraging the use of Compromise Agreements (to be renamed Settlement Agreements). The Government has also scrapped the idea of introducing no fault dismissals under which employers could have dismissed anyone for no reason, provided they paid a statutory level of compensation.
Unfair Dismissal Compensation
Currently, compensation for unfair dismissal is made up of 2 parts: the basic award which is based on length of service, age and salary (calculated in the same way as statutory redundancy pay) and a compensatory award based on the loss suffered by the former employee. The compensatory award is currently capped at £72,300, but the current median award is £5,000.
The consultation document proposes the same structure with the basic award unchanged, but with the compensatory award capped at a maximum of 52 weeks’ pay, or for high earners, between 52 weeks and 156 weeks’ median pay, if lower (currently between £25,882 and £77,646). Although it had been mentioned in the press, there is no proposal to introduce a cap on discrimination claims, which in any event would be likely to fall foul of European law.
So what would this mean in practice? Well from an employer’s point of view this is good news of course, as it reduces the potential exposure. It may also make it cheaper for employers to get insurance against claims, although this may not be significant because discrimination claims are unaffected.
The Government says that Settlement Agreements can be a valuable way of resolving disputes without having to resort to an employment tribunal. We agree – but they are far from being a new concept, as we advise on hundreds of Compromise Agreements each year!
With Settlement Agreements, the Government is trying to streamline the process. The intention is for employers to be able to use template letters and model agreements, and will also give guidance to employees. Previously there had been talk of making the agreements shorter and avoiding lengthy drafting – but the proposed standard form Settlement Agreement included in the consultation is 11 pages long – so no simpler than most of the Compromise Agreements we see at the moment. In fact, many of the terms are the same as we already see in the majority of Compromise Agreements. It should however make things easier if everyone is working to the same terms, although our view is that there will always be some occasions where different wording may be required.
Despite some suggestions that the requirement for independent legal advice would be scrapped, it is still included in the proposed agreement. In our view this is an essential safeguard for both parties – for employees to make sure they are not being bullied into agreeing inappropriate settlements, and for employers not to have to potentially defend claims for duress.
The main proposed area of change is to increase the freedom for employers to have protected conversations with employees to address issues such as poor performance and to lead to a Settlement Agreement. This is because the Government believe that the existing ‘without prejudice’ rule does not go far enough to protect employers who instigate such discussions. The proposals in the consultation document include an amendment to the Employment Rights Act to state that offers of settlement will not be admissible in evidence in an unfair dismissal claim (with exceptions where the employer is behaving “improperly” or in a discriminatory manner). We have doubts about how this would work in practice, as covered in our previous article on Settlement Agreements.
As always, the devil will be in the detail, and we wait to see whether, and if so how, this idea is to be introduced. The consultation suggests that ACAS will produce a Code of Practice on Settlement Agreements to give guidance on when conversations will be protected under the new rules and what behaviour will be considered “improper”. There are also plans to introduce a guideline tariff to help employers can assess what to offer and employees to consider whether to accept.
There are also proposals to review the rules for Employment Tribunals, including giving Employment Judges a greater power to weed out weak cases at an early stage without the need for a hearing. This is certainly one area which would be welcomed by many, but it remains to be seen how this will work in practice – in our experience there are not many claims which can be identified as being weak purely on paper.
The consultation paper says that steps have already been taken to put the average award and the average length of time it takes for a case to get to hearing onto the front page of the Employment Tribunal claim and response forms, in a bid to manage the parties’ expectations.
As always, we will review the proposals as they work through the system and will be submitting a response to the consultation before the closing date of 23 November 2012 – so please let us know if you have any comments you would like us to add. We will of course keep you up to date with developments and are happy to help if you have any queries about the new proposals. Please call us on 01243 836840 or email [email protected].
Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.