I give it a year: Ending the Employment Relationship

As part of its on-going spring-clean of employment legislation, with the objective of cutting red tape for business and boosting the economy, the Government has been consulting on ways to make the labour market more flexible, efficient and fair.

The consultation covered two issues:

Ways to encourage the use of “settlement agreements” as a means of bringing the employment relationship to a mutually acceptable end, allowing both parties to avoid the time, costs and stresses of a tribunal case; and

Changing the limit of the compensatory award in unfair dismissal cases to give employers more certainty about their potential liability and give employees more realistic expectations of the value of unfair dismissal claims

The Government has recently published its response to the consultation, and we can expect the following changes to employment law to take effect, probably from Summer 2013.

THE SETTLEMENTS FORMERLY KNOWN AS COMPROMISE AGREEMENTS

Firstly, “Compromise Agreements” will in future be known as “Settlement Agreements” and endorsed as an acceptable option to ending an employment relationship.

The ultimate aim of this measure is to give employers greater confidence and flexibility when hiring and firing employees. So, where an employment relationship is not working out, employers should feel less inhibited about making a settlement offer, safe in the knowledge that (provided they go about it the right way) the employee will not be able to use the offer or negotiations against them in an unfair dismissal claim.

As with the old Compromise Agreements, employees will still have to seek independent legal advice on their Settlement Agreement before signing up to it. The Government plans to work with ACAS to devise a new Statutory Code of Practice giving best practice guidelines on how settlement discussions should be conducted, a model Settlement Agreement and examples of where “improper behaviour” or “undue pressure” by either party during the course of settlement discussions could make the offer admissible as evidence in a tribunal claim. It is likely that these settlement discussions will be admissible where an employee brings a claim for, say, discrimination or whistleblowing, as part of an unfair dismissal claim.

I GIVE IT A YEAR

Secondly, the Government intends to cap the compensatory award in unfair dismissal claims at 12 months of the employee’s salary.

Presently, the maximum compensatory award that can be made to a successful claimant for unfair dismissal is £74,200. In reality, very few claimants achieve a compensatory award anywhere near this level; current tribunal statistics show that the median tribunal compensatory award for unfair dismissal is only £4,560.

Once this change takes effect, the maximum compensatory award that a claimant will be able to receive will be either 12 months’ pay (this calculation would be based on the actual pay that they received prior to their dismissal) or £74,200, whichever is the lower.

It is hoped that time-limiting the compensatory award in this way will lead to more realistic expectations of likely tribunal awards, which will either discourage employees from bringing claims to begin with, or encourage parties to settle their disputes earlier.

WATCH THIS SPACE

There are several other employment law reforms in the pipeline. For instance, for the very first time, fees will be introduced for bringing employment tribunal claims. Also, it will be compulsory for a claimant to attempt an ACAS conciliation before they are allowed to proceed with their claim. It is hoped that these measures will help to reduce demands on the employment tribunal system. We can expect to see these and other changes rolled out over 2013.

If you would like any further information please contact: Pritti Bajaria on 01689 887846 or email pritti.bajaria@cwj.co.uk