Ending the Employment Relationship; the Governments Latest Proposals

Peninsula Team

October 07 2012

On the 14th September 2012 Vince Cable announced that the Government was to introduce a package of new employment law proposals, designed to simplify and speed up the process of ending the relationship between employers and employees when it breaks down, which in turn, will hopefully give employers the confidence to hire new staff, thus aiding Britain’s economic recovery. These proposals are part of the Government’s wider Employment Law Review agenda, which has already seen the extension of the period of eligibility for unfair dismissal from one to two years, and the removal of the Default Retirement Age. This article seeks to highlight the latest proposed reforms. Will they will be fit for purpose, and whose interests do they serve? Given that an employer and an employee share at least one thing in common; they are both voters. Reducing the Cap on Compensation for Unfair Dismissal Claims The consultation proposes a reduction in the cap on the compensatory award for unfair dismissal from £72,300. The Government is proposing a new lower cap; either 12 month’s pay or, a new reduced upper limit of the national medium average earnings, currently £25,882. However, this proposal has absolutely nothing to do with the actual levels of compensation paid to successful Claimants at Tribunal. That much is clear, following the release of the latest Employment Tribunal Statistics; 1st April 2011 to 31st March 2012. During that period the median award for unfair dismissal was £4,560 and the average award £9,133. This proposal will therefore have little or no impact on the vast majority of claims for unfair dismissal, that will still need to be dealt with properly and with advice at all stages. So why propose a change? Well according to the Government, the current high cap gives some employees unrealistic expectations about the level of compensation they might recover, when deciding whether to pursue a Tribunal Claim. The Government tells us that a lower cap might:- “Lead to more realistic perceptions of the likely level of awards and thereby encourage employers and employees to make better informed choices when resolving employment disputes”. That is not my experience. This is window dressing. The vast majority of employees who believe they have been unfairly dismissed can work out, very easily, the actual levels of compensation likely to be awarded, and that will be nowhere near the maximum, as the median and average awards last year ably demonstrate. And I’m also mindful of the unintended consequence of taking this step. Some commentators have suggested that the lowering of the cap will result in more Claimants pursuing discrimination claims, so as to put commercial pressure on their former employers to settle, as this proposal will not affect discrimination awards. A worrying development, given that median discrimination awards last year ranged between £4,267 and £13,505, and average awards between £9,940 and £102,259. Indeed an increase in age discrimination claims is widely predicted following the abolition of the default retirement age last year, and this proposal can only exacerbate that trend. A reduction in the cap also doesn’t address the very real problem that many employers face, and are likely to continue to face; that of vexatious or unreasonable former employees who bring claims with unrealistic expectations about the strengths of their case. Employers will have to continue to adopt a robust, intelligent and informed approach when dealing with such claims; made all the more easier with advice from the outset. A lowering of the cap will also result in some highly paid employees deciding to bring their claims for wrongful dismissal in the Civil Courts, where there are no such statutory limits. That can only increase, considerably, the cost burden on businesses having to deal with such claims. Settlement Agreements The consultation paper also confirms the Government’s support for settlement agreements as a way of ending employment relationships in a fair and consensual way. But of course there is nothing new about being able to resolve employment disputes without having to resort to an Employment Tribunal. Compromise Agreements, as they are commonly known, have been in existence for a number of years now, and they already provide that alternative route for settlement, either before a claim is brought, or during a claim once agreement has been reached. To move the debate forward and promote this idea, the Government has included in the Consultation Paper template letters and template settlement agreements that will no doubt be a useful starting point. But the fact remains; the law underpinning the settlement of employment related disputes is complicated, and ensuring a ‘clean break’ is tricky and fraught with difficulty. Employers run the risk of getting it wrong without advice; a risk demonstrated by the fact that the list of potential claims that is to be settled in the template settlement agreement runs to five pages. And the proposal includes no plans to simplify the law in this area. Neither is the government planning to abolish the need for employees to get independent advice from the CAB, Union or a Solicitor, before settling a claim, as they do now under Compromise Agreements. The template settlement agreement provides for the employee’s legal costs to be borne by the employer, and with this additional cost comes the inequality between the parties. If the employee has to proceed with the benefit of advice, then invariably it will be necessary for the employer to do likewise; particularly as Solicitors acting for employees often raise technical issues or propose changes, either to justify their fees or support a request for higher fees. None of this will change under the Government’s new proposal, and if settlement agreements are to become more commonplace, then this could well increase the legal costs that employer’s will have to bear. Employment Tribunal Reform The Government has also published a consultation on its plans to reform and streamline Employment Tribunals. Notably there is a proposal for an initial sift stage, when every claim made to a Tribunal will be reviewed (at an early stage) by an Employment Judge. The purpose behind this is to enable Employment Judges to strike out cases that have no reasonable prospect of success i.e. claims brought by vexatious former employees. Whilst this is to be welcomed, if it is to act as an effective sift, then an employers’ response to their former employee’s claim will need to be carefully drafted, cover all the relevant facts and matters, and refer to and enclose copies of the important documents. A further reason for employers to respond to such claims with the benefit of advice and assistance, as without such help, they will invariably be unable to the meet the demands that are likely to be made of them, in order to make this a workable and worthwhile proposal. Employment Tribunal Fees Although not specifically referred to by Vince Cable in his most recent announcement, in an effort to help weed out weak and vexatious claims, the Government is also considering introducing fees for bringing Employment Tribunal claims. It is anticipated that claims for unfair dismissal and discrimination will cost £250 to launch, and a further £950 to get a hearing date. I’m not convinced. Litigation in the civil courts has always attracted a Claimant fee at various stages of the proceedings, and yet Civil Courts across the Country continue to struggle with an excessive workload. This proposal has all the hallmarks of another Government fund raising initiative, which seeks to raise cash for the provision of a service. One only has to look to the Fee For Intervention policy, due to be introduced in health and safety inspections from October of this year, to get the picture. In my judgement, it will simply mean that Claimants will add on the cost of bringing claims, to the amount that they are prepared to settle for, thereby passing yet further cost onto their former employers. All of which brings me to one final conclusion. These proposals are only ever going to really benefit those employers who act with the benefit of advice and assistance, in the way that Employment Tribunal claims are managed and dealt with, once the employment relationship has come to an end. For any further clarification, please call our 24 Hour Advice Service on 0844 892 2772.

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