Enterprise and Regulatory Reform Bill15 May 2012
Briefing by Thompsons Solicitors
The Enterprise Bill was announced in the Queen’s Speech (QS) on 9 May and published on 23 May in all its 224 page glory.
Just nine pages in Part 2 cover employment law changes - dispute resolution, employment tribunal reform, unfair dismissal awards, financial “penalties” on employers, whistleblowing and compromise agreements.
Most of the provisions were expected as they arose from various recent consultations. One bit was not however, and that potentially reduces the current loss of earnings award maximum by at least 65%. In all, the provisions represent a further nail in the coffin of effective employment rights in this country and are as damaging a set of nine pages seen since Thatcher.
The much leaked proposal of no fault dismissals isn’t in the Bill. However, the two years continuous employment requirement for unfair dismissal rights effectively achieves this for many anyway and the government is consulting on its introduction for those who employ 10 people or less. So it is too early to be writing its obituary.
Clause 7 deals with Conciliation Before Institution of Proceedings. It amends section 18 of the Employment Tribunals Act 1996 (conciliation) by introducing a mandatory period of ACAS conciliation before the claimant can start Tribunal proceedings.
The “prospective claimant” must submit prescribed information to ACAS where a conciliation officer will “endeavour to promote a settlement between the parties”.
The limitation period for lodging the claim will be extended (by an unspecified amount) to allow for conciliation.
If the conciliation officer fails to achieve a settlement then a certificate is issued by ACAS, after which Tribunal proceedings can commence (although the conciliation officer can continue to promote a settlement).
The prescribed information and mandatory conciliation period is not specified. It is assumed that these will be set out in yet to be published Regulations.
There are circumstances in which a claimant can start ET proceedings without going to ACAS. These currently include (though it is assumed that the Tribunals will ultimately specify all circumstances) where there is more than one claimant in the same matter and that claimant/s has already complied with the ACAS requirement and where the respondent in the potential claim has contacted ACAS.
We remain concerned that the requirement that claimants submit prescribed information of their dispute to ACAS, which will effectively “stop the clock” for the purpose of the time limit, followed by a mandatory period of conciliation and an application to an ET only when ACAS issues a certificate will lead to a re-run of the type of “satellite” procedural litigation seen after the 2004 Statutory Dispute Resolution Regulations.
Part 2 Clause 10 of the Bill introduces “Legal Officers” to the Tribunal process who can determine issues such as jurisdiction and make decisions that would otherwise be down to the Employment Judge, if all parties agree in writing to them doing so.
Any determination or decision they make will be treated as having been made by the Tribunal. It is not clear what sort of decisions Legal Officers would have the power to make or what qualifications they would need to be appointed.
Employment Appeal Tribunal
Clause 11, Composition of the Employment Appeal Tribunal amends the 1996 Act so that EAT proceedings are heard by a judge alone. The judge may appoint two or four other members.
The abolition of EAT wing members echoes a similar move in the Employment Tribunal. However it goes slightly further since it will be the default position for all appeals, rather than simply the default position for unfair dismissal claims. It is hard to see how this move away from the ‘industrial jury’ model will assist with robust and commonsense interpretations of reasonableness.
The Secretary of State is given the power to increase or decrease the limit of the compensatory award by a set amount (Clause 12 subsection (2) (a)) by a certain number of weeks pay (subsection (2)(b)), or the lower of those two things.
Subsection (3) allows for different amounts to be specified in relation to different types of employers. But the amounts cannot be below national median earnings or more than three times median annual earnings, capped at 52 weeks.
BIS has confirmed that it is working from a median national earnings of £26,000. So the compensatory award would be capped at between £26,000 (one year’s median earnings) and £78,000 (three years).
So if you earn £26,000 a year your compensation will be capped at a year's pay. If you are on £52,000, it would still be capped at £26,000 – i.e. six months pay. If however you are low paid and only earn £13,000, it would be capped at £13,000. This ignores entirely any pension loss which can often be very significant.
It is probably fair to assume that the cap will be one year, at least for now and the reality is that most unfair dismissal awards are for less than that amount, but the imposition of a cap (which can be done without parliamentary debate) means that Tribunals will be unable to award more even when the circumstances of the case would justify a higher amount.
As 24.2% of all periods of unemployment exceed 12 months this means a significant blow to a significant number of successful claimants. People found to have been unfairly dismissed will be unable to recover their full losses from the respondent.
Given that there is no independent evidence to back up the business lobby’s claims about the size of unfair dismissal awards, and seeing that even Adrian Beecroft said that “…the rules setting out the level of compensation for unfair dismissal seem reasonable”, this a deeply unjust change.
Importantly too the change represents a further erosion of the principle of ‘polluter pays’. If a business suffered a loss due to a supplier’s unlawful conduct it would expect reimbursement of the full sum. But if it causes loss to an unfairly dismissed employee it only has to pay them a small part of that sum.
The notion of allowing for different awards according to the type of employer (small businesses presumably) will inevitably lead to legal arguments and satellite litigation over the definition of employers. That will lead to increased costs.
For example, what of the SME which, by unfairly dismissing the claimant, became a small business? Would the claimant be entitled to the award the SME would be ordered to pay, or a lower amount applicable to a small business?
Clause 13 subsection 12A gives Tribunals the power to impose a financial penalty on employers if it concludes that the employer has breached the worker’s rights and that the breach has one or more as yet undefined aggravating features.
The penalty will nominally be 50% of any financial award, subject to a minimum of £100 and a maximum of £5,000.
Inevitably, the business lobby is demanding that this provision be removed from the Bill. But it’s a red herring introduced as a sop to claimants and will be little-used by Tribunals.
Few judges will be prepared to say that a breach had aggravating features. Today, in those relatively few claims that do not settle, it is rare for a judge to make recommendations (such as that a manager undertakes discrimination training) alongside an award.
Rogue employers won’t be deterred by the risk of a financial penalty. £5,000 is a small price to pay for getting rid of an unwanted employee when compensation for unfair dismissal will be capped at a low amount anyway.
There are also a number of ameliorating “get out” clauses for employers, including that in claims involving more than one employee, those employees are treated as a single claimant (i.e. the employer would not be fined for every worker whose rights were breached even though every one of them would have suffered a breach of their rights).
And the employer’s liability to pay the full amount is discharged if they pay 50% of the penalty within 21 days. The discount depends on payment of the penalty to the government, not payment of the compensation to the claimant. So what’s to stop an employer paying the penalty but refusing to pay the compensation – who pays to enforce the award to the claimant?
The government has devised a system whereby some employers are taxed for conduct that causes employees harm, but does so in a way which does not help that employee, and could even harm them further. But the upside (for the government), apart from helping their allies in business, is that it benefits the government’s coffers.
Clause 14 restricts the definition of “qualifying disclosure” in whistleblowing legislation to “in the public interest”, which has not been defined. Seemingly innocuous, this removes any protection from retaliation when an employee complains that their own contract of employment has been breached by the employer. It is a move which may discourage employees from standing up for themselves.
Clause 16 renames compromise agreements as settlement agreements. No-one really knows the point of this change and it will probably do nothing more than confuse everyone for years to come.