Neil Andrews - Partner, Coles Miller

Government employment law consultations announced17th Sep 2012

by on 17th Sep 2012

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Neil AndrewsFollowing the summer break the government has now published various consultation papers regarding its plans to change employment law. It seeks responses to its proposals by 23 November 2012. The most interesting are:-

1. Ending the Employment Relationship a) Consultation on proposals to lower the cap on unfair dismissal awards

In its consultation paper "Ending the Employment Relationship" the government seeks responses in relation to the proposals to lower the cap on the compensatory part of the unfair dismissal award to the lower of i) 12 months' net pay and ii) a capped figure (currently this is £72,300) of between £25,882 and £77,646 (technically these are 1x and 3x the country's full time annual median earnings).

Judging by the interviews and statements made outside of the consultation paper, the logic for the proposal appears to be that somehow when employers read about this current £72,300 cap they get an anxiety attack and think - wrongly (as the average unfair dismissal award is close to £5,000) - that this is what any unfair dismissal claim would cost them and this disincentives them a) from hiring staff in the first place and b) from considering early resolution of disputes between employee and employer e.g. via compromise agreements.

As other people have already pointed out, it's fairly patronising to take this view of employers. As it has been widely reported, many employers are aware that employees starting after 5 April this year effectively are in a 2 year trial period (as they do not gain general unfair dismissal rights for 2 years) and this change has been widely reported. Rational employers are therefore not going to be put off hiring because of any perception about unfair dismissal compensation that generally isn't going to affect them for at least a couple of years. Secondly, where they become aware that there may be an unfair dismissal claim risk, employers can quickly become informed (if they are not already) - via a brief chat to ACAS or an employment lawyer - that the compensatory award is not a £72,300 fine, it's all about the employee's loss of earnings and the employee adequately mitigating his or her losses by seeking alternative employment etc.

It may be that these "non" reasons are a smoke screen to cover the fact the introduction of a compensatory unfair dismissal award cap of £26,000 would be bringing in a relatively cheap "no fault dismissal" by the back door. Those of us who can remember far enough back will recall that prior to the last Labour Government the compensatory award unfair dismissal cap was £12,000 and acted as an effective "no fault dismissal" payment.

Commentators have stated that unless there's compelling evidence that these proposals will kick start the UK economy/growth by UK businesses why not leave it up to a Tribunal ­ who deal with unfair dismissal cases day-in day-out ­ to decide the appropriate compensation level based on its view of the employee's loss of earnings (if any) or likely loss of earning and mitigation efforts.

There is a balance to be struck between UK employee rights and economic growth. We consider there should be debate about whether there should be an effective "no fault dismissal" payment and whether this really will encourage economic growth or increased unemployment.

b) Settlement Agreements and Protected Conversations

The consultation paper also puts further flesh to the bones of the idea introduced earlier in the year to bring in "settlement agreements" by including a draft voluntary "model" settlement agreement and various model letters for employers to use when they want to offer staff these agreements. It also seeks views on its idea of the "protected conversation" that we mentioned in our last employment post (26 June). The government appears to indicate that employees will still be required to take independent legal advice on any settlement agreement offered, as they are currently with compromise agreements.

Our view: neither the introduction of settlement agreements or the governments plans for protected conversations are needed: compromise agreements work, by and large well, as does the current law on "without prejudice" (ie off the record) conversations. This said, it seems a fairly good idea to provide a voluntary "model" settlement agreement and model letters for employers to use in various circumstances, and it's worth noting that the government is proposing to introduce a Statutory Code of Practice on the use of settlement agreements and that it also seeks responses on the proposal to publish guideline tariffs on compensation levels (to assist employers to decide on what is a reasonable settlement offer).

2. Employment Tribunal Rules: Review by Mr Justice Underhill

The Government has also today published a consultation paper on the substance of Mr Justice Underhill's Employment Tribunal reform recommendations.

Among Mr Underhill's recommendations is the proposal to introduce fees (payable by the claimant) for issuing Tribunal claims (for unfair dismissal and discrimination claims these would be £250) and for the Tribunal hearing itself (for unfair dismissal these would be £950).

The introduction of fees is likely to bring about the Government's desire to reduce the number of employment tribunal claims. Whether the reduction will be seem as restricting access to justice or a more positive step towards facilitating and promoting alternative dispute resolution (eg conciliation and mediation) depends on which side of the political fence you sit on. It's worth noting that ­ as with the Court fee system - some claimants on low income will not have to pay the full Tribunal fee. It is likely that potential claimants who have lost their employment and hence their source of income are likely to qualify for fee reduction/remission.

If fees are introduced, they may have an impact on the future of current funding options available to claimants including legal expenses insurance and union backed claims. For example, will the insurer or the union pay for the cost of the Tribunal fee? If so, premiums and/or membership costs may increase.

Will employment law solicitors offering a pure contingency agreement (ie a no win no fee arrangement) to claimants agree to meet the fees?

Please do not hesitate to contact Neil Andrews on 01202 338822 or any other member of the Employment Law Team.

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