This year the government is continuing its employment law shake up. But Justin Govier questions whether it really will cut red tape.
Last year the coalition government’s shake-up of the employment law regime got underway. The first show of intent was back in the spring when the qualifying period needed to bring a claim for a standard unfair dismissal claim was increased from one year to two years. This was widely welcomed by the business community, which is increasingly viewing the unfair dismissal qualifying period as effectively a statutory probation period.Since then there has been a constant flow of announcements from the government (most notably Vince Cable) relating to the assault on red tape and bureaucracy.
The rationale behind many of the reforms is that the employment law regime in the UK acts as a barrier to growth, particularly in small-and-medium-sized businesses. Personally, I do not believe that the owners and managers of small businesses are reluctant to grow the business due to potential liabilities and bureaucracy involved in increasing the size of their workforce.
I believe there are more fundamental issues hindering growth, namely the lack of available finance and lack of consumer confidence, both of which are so acutely highlighted in the construction industry.
It may be that “every little helps”, but there are far more effective ways of enhancing growth in the economy than employment law reform. Nevertheless, the government is ploughing on with reforms, most of which are contained in the Enterprise and Regulatory Reform Bill that will come into force next year. The following is a summary of the key changes.
Pre-claim Acas conciliation
There will be a mandatory procedure which an employee must follow before an employment tribunal claim can be lodged. The claimant must write to Acas outlining certain information and a conciliation officer will be appointed to try to promote a settlement within one month. If the parties are unable to reach a settlement the conciliator will issue a certificate and the claim can then be filed at the tribunal.
The time limit for the employee to lodge a claim in the employment tribunal will be extended by this period. My concern, particularly in the construction industry, is that many employees will send the form to Acas, whether or not they actually intend to issue a claim in the employment tribunal, to see if they can get a “quick buck”. Therefore this proposal may well increase the bureaucracy and management time involved in disputes rather than decrease it.
Unfair dismissal compensatory award
There is currently a cap on the unfair dismissal compensatory award of £72,300. It is felt that the cap is out of touch with the average compensatory awards and may encourage claims and artificially enhance claimants’ expectations. The new figure is undecided as yet, but proposals are 52 weeks earnings or the national average annual salary (multiplied by between 1 and 3).
For the majority of employers in the construction industry it is unlikely that a change in the compensatory award cap will have a significant effect on the number of unfair dismissal claims brought, or the value of settlement.
Financial penalties for losing respondents
In future tribunals will have the discretion to levy penalties on employers against whom employment tribunal judgments are made. The penalties can be between £100 and £5,000 and will be dependent on aggravating factors in each case. This will be payable to the exchequer rather than the claimant, but clearly claimants will use this as leverage when trying to negotiate a settlement.
Employment tribunal fees
Tribunal fees are likely to start in the summer of 2013. However, they will be subject to a remission system which means that many dismissed employees (particularly those who are subsequently in receipt of benefits) will not pay the fees. For relatively straightforward claims (level one claims), such as breach of contracts or unlawful deduction of wages, there will be an issue fee of £160 (payable when the claim is issued at the tribunal) and a hearing fee of £230 (payable when the claim is listed for a hearing). For more administratively complex claims (level two claims), such as unfair dismissal, an issue fee of £250 and a hearing fee of £950 will be payable.
There is no doubt this will discourage claims, however, where claims are brought, many employers will wait until the hearing fee has been paid before even entertaining the idea of settlement. Therefore, once again, this may increase rather than decrease the red tape, bureaucracy and management time spent on disputes.
Settlement discussions
Currently, employers are reluctant to enter into “without prejudice” discussions for fear it will be used against them in any tribunal proceedings. The Bill allows for settlement discussions to take place even when no dispute has arisen and be inadmissible in any subsequent unfair dismissal claims. However, many employees bring discrimination claims if they believe any actions are as a result of their race, sex, etc and settlement discussions can still be referred to in such proceedings. I therefore imagine that most employers will approach the settlement discussions just as cautiously as they currently do, but equally they will continue to take place with the same regularity. In short, I am not sure this was something that needed legislation.
Employee share ownership
Somewhat out of the blue, George Osborne announced this in the budget. The idea is that, with their agreement, employees will be given between £2,000 and £50,000 worth of shares and in return will waive various employment rights (such as unfair dismissal, flexible working and redundancy). I am not convinced that construction industry employers will want to give away shares in this manner, or that many employees would be prepared to give up their employment rights in return (even with the added incentive that any growth will be exempt from Capital Gains Tax).
There is an awful lot in the pipeline for 2013. Some of the reforms are very welcome, some are not so welcome, some are unnecessary and some may well end up having unwanted unintentional consequences. Whether or not the reforms will have the desired effect of reducing red-tape, weeding out weak tribunal claims and allowing SMEs to grow remains to be seen — but as you can see, I have my doubts.
Justin Govier is a partner and head of the employment department at IBB Solicitors
