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Proposed employment law reforms

14 Sep 2012

The Secretary of State for Business, Innovation and Skills, Vince Cable, has announced various proposed reforms. Most notable amongst these is the proposal to cap unfair dismissal compensation and introduce “settlement agreements”.

The Government have stated that idea behind the proposals is to put in place new steps to give firms more flexibility and confidence in managing their workforce and to reduce employment law red tape, thus simplifying and speeding up the process of ending the employment relationship when it breaks down. They claim that this will benefit of both employers and employees.

Details of the proposals are:

  • a consultation on “settlement agreements” to end the employment relationship by consent and a related Acas code of practice;
  • a possible reduction of the cap on compensation for unfair dismissal claims from £72,300 to the lower of £26,000 or the individual’s net annual salary;
  • proposals to streamline the Employment Tribunal process and by making it easier for Judges to dismiss weak cases;
  • consultation regarding possible changes to TUPE rules to make the transfer of new employers more efficient; and
  • recommendations to improve guidance for small businesses on the Acas code of practice on discipline and grievances

It remains to be seen whether these proposals will achieve the stated aims.

Settlement agreements – these are nothing new, and most employers are familiar with the existing concept of “compromise agreements”. What is being proposed is a standard template “settlement agreement” which will be freely available. It’s not clear whether the requirement for employees to obtain independent advice from a lawyer, union representative or CAB will be abolished. But if it is, there is a risk that employees may be pressurised to sign up to patently bad deals by their employer.

Reduction in the cap on compensation for unfair dismissal – this will not make it easier for employers to dismiss staff, and the normal rules on reasonableness and a fair procedure followed will continue to apply. Similarly, it will not discourage unreasonable claims or ex-employees with unreasonable expectations. What the proposal may do is encourage some employers to take a calculated risk on the basis that the maximum exposure in Tribunal will be greatly reduced.

Fees to commence claims in the Employment Tribunal – whilst not directly referred to on the face of the press release, this is another of the key reforms proposed. Straightforward deductions from wages claims will cost £390 to take to a hearing. For unfair dismissal and discrimination cases there will be an initial fee of £250 with a further £950 to take the case to a hearing. This is likely to discourage employees from bringing claims. However, with remissions being available for those with low (or no) incomes, the proposal’s impact is uncertain; although it is likely to result in more administrative work for Tribunal staff.

Further details can be found at on the BIS web site

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