20th September 2012

Government Makes Employment Law Reform Announcement

Since coming to power in 2010, the coalition government has made the review of existing employment legislation one of its main objectives and has stated on many occasions that it hopes that by encouraging recruitment and enhancing employer confidence it will be possible to speed up the economic recovery.

In view of its overall aims and objectives, on 14 September the Business Secretary, Vince Cable, made a number of announcements in relation to the government’s ongoing employment law reform programme. At the same time, the government has also published the results of its consultation covering dismissal (including compensated “no-fault dismissal”).  As a result of the responses received to the consultation, the government confirmed that it had formally abandoned the idea of compensated no-fault dismissals.

Despite the decision not to proceed with the concept of compensated no fault dismissal, the government confirmed that it intends to work with ACAS to improve the existing Code of Practice on Disciplinary and Grievance procedures and to develop an “interactive tool” for small businesses. It said that there was a clear call for greater clarity about the requirements placed on small businesses, and more help for small businesses in using the Code.  The government has also asked ACAS to consider how procedures for poor performance could be better distinguished from procedures for misconduct, while also keeping the Code as concise as possible.

In addition to the above, the government also announced the publication of two new consultation papers, covering proposed new employment tribunal rules, as well as the possibility of reducing the cap on unfair dismissal awards, and measures to encourage the use of compromise agreements (which would be renamed as “settlement agreements”) to facilitate termination of employment.

Under the government’s proposals for reducing the cap on unfair dismissal awards, the Secretary of State would be given the power to vary the statutory limit on the compensatory award in unfair dismissal claims. Furthermore, under the current proposals the government would have very wide powers in determining the extent of the cap – indeed, it could be set at an amount of between one and three times’ median annual earnings (currently £25,882 – £77,646), or a number of weeks’ pay (not less than 52 weeks), or the lower of these two figures. It has also been suggested that the amount could differ for different types of employer.

Despite the proposed changes as set out above, there is no indication that the basic award in unfair dismissal cases (which is based on an employee’s length of service and weekly wage) will be changed.  The consultation process is due to end on 23^rd November 2012 and we hope to report on the findings in a future edition of Lighthouse.

The government has also confirmed that it is keen to look at ways of encouraging employment disputes to be settled rather than litigated, which would potentially reduce the expense of matters being heard before the Employment Tribunal. To this end, it has previously said that it wants to encourage the greater use of compromise agreements (which it now proposes would be called, “settlement agreements”), to enable an employment relationship to be ended on agreed terms.  The government hopes that this will allow employers more freedom to have discussions with employees about a proposed termination deal without such conversations being used in evidence for a future unfair dismissal claim.

The government’s proposals in relation to settlement agreements include:

• A statutory ACAS code of practice on settlement agreements, including an optional model settlement agreement and guidance notes and optional model letters that employers can use to propose settlement terms in a variety of situations; and
• A “guideline tariff” to help parties set the severance payment.

The consultation in relation to settlement agreements closes on 23 November 2012 and we hope to be able to report on the findings in due course.

Further to its central aim of reviewing Employment Law provisions, in November 2011 the government also asked the outgoing President of the Employment Appeal Tribunal, Mr Justice Underhill, to undertake a fundamental review of the Employment Tribunals Rules of Procedure. His recommendations were published in July 2012 and the government has now confirmed that it is seeking views on a number of issues arising from the proposed draft rules. These include:

• The proposal for an early “paper sift” stage incorporating the power to strike-out claims.
• The proposal to combine pre-hearing reviews and case management discussions in order to reduce costs.
• How the problem of non-payment of tribunal awards could be addressed.
• The government has also published draft ET1 and ET3 forms on which views are sought.