Employment Law, UK Edition: Employment Law Merry-Go-Round

by Orrick, Herrington & Sutcliffe LLP

There is a lot going on in the world of coalition-led employment law and we set out below a round-up of some of the main upcoming changes of which you need to be aware. 

Settlement Agreements
It is hardly ground breaking stuff but the Government has announced that compromise agreements shall henceforth become known as settlement agreements. An eminently sensible and more accessible description. As part of this, there will be a template settlement agreement available which employers will be able to use without having to involve lawyers. Eminently sensible again, but the current proposed template is very limited and does not contain many of the protections that our readers would consider standard, so we think you will probably continue with your own template agreements (renamed obviously!) which provide the tried and tested protection that you need.

There were some rumours earlier on in the consultation process which led to this change that the requirement for independent legal advice for settlement agreements to be binding would be removed. This has not happened so the legal advice requirement (which is the tricky bit) is still very much in place and in reality little has changed.

Protected Conversations
At the moment it is only possible to have a conversation about settlement with an employee if there is a dispute between the parties. The Government is keen to extend this so that an employer can have the “it’s not working” conversation at any time without fear of the discussion itself being grounds for a claim. To address this they have come up with the concept of ‘protected conversations’ where the employer can put forward a settlement offer in the knowledge that an Employment Tribunal will not be allowed to take that conversation into account in an unfair dismissal claim, provided that the party making the offer does not behave ‘improperly’. 

Without wishing to be cynical, we can see some potential issues with the “how” of this proposal. The question of what behaving ‘improperly’ means is going to be a difficult concept to pin down and although ACAS intend to produce a statutory code to help with this, we see it as an area ripe for argument and therefore litigation.

In addition these “protected conversations” will only apply to unfair dismissals, so you may think you are having a protected conversation but if you get a discrimination claim (the most costly and feared scenario) it may no longer be protected. We think that you will probably prefer to stick to the old principles of ensuring there is a dispute before having a without prejudice conversation and even then being cautious about what is said. 

Tribunal fees
The Government has now confirmed that fees will be introduced into Employment Tribunals from next summer with the aim of encouraging parties to settle a dispute rather than going to full hearing. The fees will be in two parts with the first fee payable upon issuing a claim and the second payable about four weeks prior to the hearing. There are two fee levels depending on the nature of the claim but level 1 fees will only cover basic claims for unpaid holidays and wages, so the majority of claims will fall under level 2 (including unfair dismissal) which is going to be £250 to lodge the claim and then £950 for the hearing.

This is an interesting change when the current average tribunal award for unfair dismissal is around £9,000. Employees earning very low wages will potentially be unable to bring claims at all, whereas the high earners will easily be able to do so. Everyone will have to pay the fees but some may be able to reclaim them through the civil court remissions system which allows claimants to provide proof of their financial eligibility for either a full or partial remission of the fee, based on their receipt of certain benefits etc. This is a complicated system and the Government plans to consult over the shortcomings of the current remission system. 

Reducing the unfair dismissal cap on the compensatory award
The Government is also proposing to lower the limit on the compensatory award in unfair dismissal claims (which currently stands at £72,300). It is unclear at what level it will be set but the current proposals are the lower of either an amount between one and three times the median annual earnings (currently £26,000 - £78,000) or a number of weeks’ pay to be not less than 52. No decision has been made yet but it is looking highly likely that it will be reduced from current levels.

Employee ownership scheme
This proposal envisages a new type of contract of employment where some employees could opt to take up between £2,000 and £50,000 of shares in the employer in exchange for giving up their statutory rights of unfair dismissal, redundancy payments, the right to request flexible (part time) working and take time off for training, and will be required to provide sixteen weeks’ notice of a firm date of return from maternity leave (instead of the current eight weeks’ notice). The proposal is very much at a fledgling stage and is fraught with questions and difficulties. For further discussion on this please visit the Orrick Employment Law and Litigation blog.

Gender Balance Reporting
From October 2013, quoted companies (those incorporated in the UK and listed on certain UK, EU or US markets) will be required to report on the number of men and women on their board, the number of men and women who are 'managers' and the numbers of each in the organisation as a whole. They will also be required to produce a report on their strategy, business model and any human rights issues.

The stated aim of the gender reporting requirements is to enable chairmen and CEOs to better understand the composition of their workforces and monitor attrition rates.

Together with the increase in unfair dismissal qualifying rights from one year to two, what we appear to have is a set of quite radical employment law reforms, largely aimed at reducing employee rights and, in the Government’s view, increasing efficiency and allowing business to flourish. On closer inspection the reality seems to be that the actual impact may be largely peripheral. Furthermore the real risk is that contrary to the Government’s early pledge to cut red tape and simplify things for business these proposals may actually create more litigation around interpretation, much like what happened with the statutory dispute resolution procedures introduced by the previous Government which were eventually repealed. 

We await the next instalments of the employment law merry-go-round with interest.

If you would like to discuss any aspect of this alert or require further information on the matters referred to please contact Nicola Whiteley on +44 (0)20 7862 4670, Mandy Perry on +44 (0)20 7862 4637, Stephen Cope on +44 (0)20 7862 4611 or Brad Hillson on +44 (0)20 7862 4714.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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