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Proposed employment law changes | a mixture of the good, the bad and the ugly

Posted on 7th December 2011
New legislation

Here is our summary of what can be, and has been, fairly described as the most radical employment law changes proposed for many, many years.

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Simon Quantrill Simon
Managing Partner Telephone: 01473 688100
These ideas flow from Government's attempts to stimulate economic growth but, if implemented, the initiatives will in reality become a mixture of the good, the bad and, in at least one case, the ugly; none of which will help grow the economy. The changes were announced first by the Business Secretary, Vince Cable, on 23 November and then followed up by the Chancellor of the Exchequer, George Osbourne in his Autumn Statement on 29 November 2011.

So what has been proposed?

Protected conversations

The idea behind "protected conversations" is to allow employers to raise workplace issues "in an open way, free from the worry it will be used as evidence in the employment tribunal".
This change seeks to resolve the problem of holding 'without prejudice' discussions - these only work if there is a pre-existing dispute, for example the existence of a formal disciplinary or capability procedure. If not, the without prejudice protection is then lost and the employee can potentially use the conversation to support a claim for actual or constructive unfair dismissal.
In practice, however, is there really a problem which needs fixing? Are there employers refusing to recruit because they worry about how to dismiss? That is not our experience. Keeping the head-count low is a direct consequence of the financial constraints we are all under.
Vince Cable believes, however, that it would be good to give employers the freedom to hold open and frank conversations about an employee's performance or conduct without the existence of a formal dispute. On first consideration the idea appears to be a good one; on reflection protected conversations are likely to be unworkable, unjust and actually lead to a new reason for an employee to hire an employment solicitor.
The existing use of without prejudice discussions works well, provided the employer knows how to set them up. 1000s of such conversations take place every week between employers and employees. Even if discrimination issues are excluded from this new concept this will lead to satellite disputes about whether an issue was linked to a protected characteristic and therefore falls outside of the meaning of a protected conversation. For some employees protected conversations may leave them feeling unfairly bullied and harassed and it would not be too long before an enterprising employment lawyer made the argument that Human Rights are being abused by the use of protected conversations.
For protected conversations to work the regulations will have to be carefully drafted; for example, when would protection start and finish? Will an employee be forced to take part even if he or she objects? How will an employee know that a conversation is a protected one? Will the employer have to use special words or invite the employee to attend a protected conversation on written notice? Will the employer have to keep a minute of what was said to help defend any claim that the conversation was not a protected one? Already you can see how a good idea could easily turn bad!

Compromise agreements

Compromise agreements are to be renamed "Settlement Agreements" because some employees apparently do not sign because they believe they are being asked to accept terms which are "a compromise". Exactly!
A standard form agreement may be introduced to encourage more employers to use this dispute resolution option and to reduce the need for them to obtain legal advice.
Subject to consultation it is proposed that compromise agreements shall cover existing and future claims without requiring long lists of causes of action.
Finally, concerns about the meaning of section 147 of the Equality Act will be resolved to make sure that compromise agreements can safely be used in discrimination cases.
These reforms should be good for both employers and employees. Compromise agreements are important documents because they remove employee rights but the current law is too technical and legalistic. This has resulted in agreements having to be long and detailed in order to protect the employer's best interests. If the legal technicalities can be simplified (without reducing the existing level of protection for employees) this will allow agreements to be drafted and completed more speedily at lower costs.
This proposal would quickly turn bad if employers had to use the standard form agreement. Employers must be free to use agreements suitable for their individual circumstances. Any such requirement would be going too far.

Increase in unfair dismissal qualifying period

From April 2012 the government is increasing the unfair dismissal qualifying period to two years.
Why? Where is the evidence that the tribunals are full of unjustified claims? In common with the majority of other employment lawyers we believe that this change will be bad for employers as employees will try and bring their unfair dismissal claim dressed up as a discrimination claim. Given that discrimination claims are the most time consuming and costly claims to defend, is this a good way to help employers?
As much as we support employers, do they really need two years to decide if an employee is up to the job? If so, you have been paying someone to be ineffective for the best part of two years before you part company with them! Far better to have proactive performance management in place with managers trained so they have the knowledge and confidence to use it.
For those claims which have little or no merit, Government would do better to encourage employment tribunals to make full use of the existing tribunal case management regulations, including strike out and payment of deposits.
In reality this change is politically motivated and sounded good to the CBI! It is a backwards step because it may encourage a hire and fire culture to develop and do little for job security. It rewards bad employment practices. We are surprised that Vince Cable thought this change had any merit. It is quite possible that, in any event, the change will be open to challenge as being, for one, age discriminatory.

Financial penalties for employers

Discretion is to be introduced for the employment tribunal to award financial penalties, payable to the Exchequer, not the tribunal, on employers that lose a claim. This penalty will be in addition to the compensation awarded to the claimant, and will be half of the total award made by the tribunal, with a minimum threshold of £100 and a maximum of £5,000. This will be reduced by 50% if paid within 21 days.
This idea is a bad one! How does it help grow the economy to fine employers if they lose at the tribunal? Yes, it is a discretionary power but tribunal cases are lost for a host of reasons and employers should be entitled to defend a case if they wish. The respondent who has acted in breach of the Acas code is liable to pay an uplift of up to 25% on the value of the compensation award. Additionally, claimants who had to face a defence which had little or no merit can already be awarded their costs and, in discrimination cases, seek aggravated damages or an increased injury to feelings award.
Is this idea just a revenue grabbing initiative by the Government? Who is to say that the £5,000 limit will not be increased to perhaps £10,000 over time?

Compensation "no fault dismissals" for micro-employers

Government has proposed the introduction of "compensated no-fault dismissals" for employers with 10 or fewer employees (the so called micro-businesses). The idea is subject to consultation.
This is the first time a UK government has suggested an idea which looks and sounds like the American concept of 'termination at will'. This makes the idea not only bad but also ugly as it does not reflect the way we do things in this country. What was Vince Cable thinking of? In America, whilst they don't have the concept of unfair dismissal, they know all about the costs and expense of having to defend discrimination cases which abound as a substitute for the ability to claim unfair dismissal. And this proposal would discourage employees from leaving large employers to join smaller ones. This would result in micro employers being unable to attract the best candidates which in turn would restrict their ability to grow and help the economy!

Employment tribunal fees

Here is another bad idea - the Government wants to consult on the introduction of fees for bringing employment tribunal claims. Yes - this sounds like a good idea but who will end up paying these when a case is settled? It will be you, the employer. Furthermore, fees will not apply to anyone who is claiming benefits which tends to be most people who have lost their employment! The tactic will surely develop that claims will have to be commenced quickly after dismissal as this is the time when the claimant is likely to be in receipt of some form of state benefit. This proposal goes against the overriding objective which seeks to put the parties on an equal footing. Respondents are not being asked to pay a fee to defend a claimant. Again as much as we support employers our feelings of natural justice and fair play are challenged by this idea.
This idea is meant to discourage the vexatious litigant, but it will also disadvantage the legitimate claimant. Claimants who are responsible for wasting the tribunal's time can already be penalised by the use of cost orders, which is fairer as they apply on a case by case basis.

Early conciliation via ACAS

In an attempt to reduce the number of cases which proceed to a full hearing (as Vince Cable put it "because we believe the only winners from that are the lawyers" (we know what he means!)) all potential employment tribunal claims will have to be lodged with Acas first. Acas will then offer both parties the opportunity to engage in early conciliation in an attempt to resolve the matter without recourse to an employment tribunal. Where early conciliation is refused, or is unsuccessful, the tribunal will be able to proceed to lodge a claim.
Do you remember the statutory dispute resolution procedures? Acas could not cope with the increased number of people it had to deal with. For this proposal to work Acas would need to be better resourced. In today's financial climate is this likely? Currently Acas is unable to contact us in relation to all our tribunal cases - how will it seek to offer conciliation to every tribunal case within the first three months of dismissal? Is this another good idea that will quickly turn bad?
The proposals suggest that there will be no compulsion on employers to conciliate via Acas. There will be no penalty for failing to do so, nor any incentive to take part. This may well mean the scheme will have limited take up.

Employment tribunal rules of procedures

It is true that resolving workplace disputes can be time consuming and expensive for employers, often because the tribunal administration is appalling and weak cases are allowed to proceed with little or no risk to the employee. Government is therefore concerned that too many cases are not settled and have to be dealt with at an employment tribunal hearing and that it is too easy "to make unmerited claims". To reduce the number of cases which end up in the employment tribunal the following reforms are to be introduced:
  • Witness statements to be taken as read will be the normal expectation (this is a good rule change, especially as judges will still have the discretion to ask for the statement to be read out);
  • Expenses for witnesses will be withdrawn (that just seems mean!);
  • The tribunal will be able to award costs of up to £20,000, up from the existing £10,000 limit (this would be a good idea if the tribunals actually use their existing cost powers);
  • Judges will sit alone in unfair dismissal cases unless the judge decides otherwise. (This is a significant change. Judges, practitioners and parties all tend to agree that this is only a cost saving exercise with no real merit. The side members do bring to the hearing practical business experience which is appreciated. We wonder how judges will acquire the same experience of workplace HR best practice).
Independently of the above changes, Government has asked Mr Justice Underhill to lead a thorough review of employment tribunal rules and develop and recommend a revised procedural code. A key remit is to look at how "robust case management powers can be applied flexibly and effectively taking into account individual cases. The overriding objective will remain. A review of existing rules and procedures is welcome because improvements can be made. For a start it would help if every tribunal had to follow the same procedures and used the same template orders and letters. Currently there are wide and unhelpful discrepancies about how a case is managed between any two tribunals. This causes considerable uncertainly; just ask what different tribunals expect as a "case summary" or a "list of issues"!

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