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A Response to the Government Announcement to

"Streamline Employment Law" & "Boost Business"

» Posted on: 17 September 2012

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The Government has today confirmed that it is abandoning plans to introduce a form of compensated no-fault dismissal for smaller businesses as had been recommended by Adrian Beecroft in May this year.

However, with in the same press release, our Business Secretary, Vince Cable, took the opportunity to announce his “new package of employment reforms”.

In brief:

  • Government consultation with a view to reducing the cap on unfair dismissal compensation claims;
  • Streamlining employment tribunal claims;
  • Consultation to make TUPE simpler and more straightforward;
  • Consultation on the proposed introduction of settlement agreements, and
  • ACAS’ agreement to produce a new “code of practice for settlement agreements”

The reforms announced by Mr Cable are said to sit alongside the Government’s “red tape challenge to reduce the existing regulatory burdens on business”.

These are all impressive sound-bites – but are they really needed?

Settlement Agreements – we already have these, don’t we? They are what you and I currently call Compromise Agreements. As far as we are aware, the new proposals are not seeking to withdraw the obligation on employees to take independent advice before entering into a Compromise (sorry, Settlement) Agreement in exactly the same way as they have to today. Hmmm, perhaps the changes aren’t as innovative as the Department for Business, Innovation and Skills would have us believe?

Unfair Dismissal Claims Compensation Cap – the idea here as I understand it is to reduce the maximum award for unfair dismissal compensation in ordinary cases from its current limit of £72,300 (which has simply increased in line with inflation for the past 12 years) to a limit of either 12 months’ net pay or a multiple (1, 2 or 3 times) the national medium average earnings of £25,882, whichever is the lower figure.

There are a few obvious points to make in response to this proposal:

  • Higher earners, and probably many of those with families, who pay the most tax will be hit the hardest by these changes if they are introduced. Some will see this as a good thing; others will not.
  • Businesses may save a bob or two as a consequence of these reforms, but isn’t there a risk that, by making unfair dismissal claims cheaper for employers, the Government is incentivising unfair and unlawful treatment of staff? Whether or not the Government sees this as a vote-winner, it is surely going to lead to an increase in employment tribunal claims and I thought the whole point of these proposals was to try and reduce the number of claims?! I don’t get the sense that these proposals have been thought through at all.
  • Is there really a business case to reduce the cap on unfair dismissal compensation? According to the most recent set of employment tribunal statistics, the number of unfair dismissal claims over 2011/12 reduced last year (notwithstanding the fact that the cap on unfair dismissal increased). Furthermore, I can say with confidence that it is only a very small fraction of employment tribunal claims for unfair dismissal which result in a judgement or an award anywhere close to the statutory cap on compensation.
  • What will those employees who may suffer from these changes do to try and increase the amount of compensation they can receive through a tribunal claim following their unfair dismissal? I think this, together with the recent increase in the qualifying period for unfair dismissal claims from 1 to 2 years’ service, is bound to increase the number of related dismissal claims of discrimination or whistle-blowing or other such claims, for which there is currently no limit on the amount of compensation a tribunal can award.

Yes, there is a reasonable amount of regulation which affects the workplace but we are not as heavily regulated as some other jurisdictions one could mention. According to the Government’s own press release, the World Economic Forum Global Competitiveness Report cited the flexibility of the UK’s labour market as one of the main reasons for improving our global ranking to 8th position from 10th last year. Is the Government trying to fix something that isn’t broken?

There is plenty of help on hand for businesses to help them tackle difficult situations with employees and avoid the risk of employment tribunal claims. I think the Government would be thanked more for introducing more schemes to make that advice more accessible to businesses rather than introducing changes to the law which reduce costs at the expense of the rights of ordinary workers.

For more information, contact Will Clayton.

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