UK: Employment Bill Update - Statutory Procedures

Last Updated: 26 February 2002

The Employment Bill has recently completed its review by the House of Lords Standing Committee and been given its third reading and passed in the House of Commons. It will now be considered by the full House of Lords. A summary of the Bill can be found in the update dated 12th November 2001, also available on our website at www.herbertsmith.com.

Many clauses of the Bill simply provide a power for the Government to make regulations on certain issues without including any detail in the Bill itself (a practice which the Government continually seems to favour despite heavy criticism!). However, the Government did provide some details as to the regulations it intends to make during the Standing Committee process and third reading (although, once drafted, the regulations will be subject to further consultation).

Of particular interest to employers are the controversial proposals concerning the new statutory disciplinary and dismissal procedures (DDPs) and grievance procedures (GPs). These minimum internal disciplinary and grievance procedures are at the heart of the Bill's employment dispute proposals. The aim is to encourage the resolution of disputes in-house without the need to resort to the tribunals. The Bill's provisions are set out below:

DISMISSAL AND DISCIPLINARY PROCEDURES ("DDPs")

Standard procedure

Step 1: statement of grounds for action and invitation to meeting

1 (1) The employer must set out in writing the employee’s alleged conduct or characteristics, or other circumstances, which lead him to contemplate dismissing or taking disciplinary action against the employee.

(2) The employer must send a copy of the statement to the employee and invite the employee to attend a meeting to discuss the matter.

Step 2: meeting

2 (1) The meeting must take place before action is taken, except in the case where the disciplinary action consists of suspension.

(2) The employee must take all reasonable steps to attend the meeting.

(3) After the meeting, the employer must inform the employee of his decision and notify him of the right to appeal against the decision if he is not satisfied with it.

[Note that the decision would not need to be in writing – although if the decision is to give a written warning, that would obviously need to be written.]

Step 3: appeal

3 (1) If the employee does wish to appeal, he must inform the employer.

(2) If the employee informs the employer of his wish to appeal, the employer must invite him to attend a further meeting.

(3) The employee must take all reasonable steps to attend the meeting.

(4) The appeal meeting need not take place before the dismissal or disciplinary action takes effect.

(5) After the appeal meeting, the employer must inform the employee of his final decision.

Modified procedure

Step 1: statement of grounds for action

4 The employer must set out in writing the employee’s alleged misconduct which has led to the dismissal and the employee’s right to appeal against dismissal, and send a copy of the statement to the employee.

5 (1) If the employee does wish to appeal, he must inform the employer.

(2) If the employee informs the employer of his wish to appeal, the employer must invite him to attend a meeting.

(3) The employee must take all reasonable steps to attend the meeting.

(4) After the appeal meeting, the employer must inform the employee of his final decision.

GRIEVANCE PROCEDURES ("GPs")

Standard procedure

Step 1: statement of grievance

6 The employee must set out the grievance in writing and send a copy to the employer.

Step 2: meeting

7 (1) The employer must invite the employee to at least one meeting to discuss the grievance.

(2) The employee must take all reasonable steps to attend the meeting.

(3) After the meeting the employer must inform the employee of his decision as to his response to the grievance and notify him of the right to appeal against the decision if he is not satisfied with it.

Step 3: appeal

8 (1) If the employee does wish to appeal, he must inform the employer.

(2) If the employee informs the employer of his wish to appeal, the employer must invite him to attend a further meeting.

(3) The employee must take all reasonable steps to attend the meeting.

(4) After the appeal meeting, the employer must inform the employee of his final decision.

Modified procedure

Step 1: statement of grievance

9 The employee must set out the grievance in writing and send a copy to the employer.

10 The employer must set out his response in writing and send a copy to the employee.

PART 3

GENERAL REQUIREMENTS

Introductory

11 The following requirements apply to each of the procedures set out above (so far as applicable).

Timetable

12 Each step and action under the procedure must be taken without unreasonable delay.

[ACAS will be expected to indicate how speedy the process should be in normal cases.]

Meetings

13 (1) Timing and location of meetings must be reasonable.

[This is intended to encompass a requirement for the notice of the meeting to be reasonable. The statutory right to be accompanied, with its provisions concerning timing of meetings to accommodate accompanying persons, will also apply.]

(2) Meetings must be conducted in a manner that enables both employer and employee to explain their cases.

(3) In the case of appeal meetings which are not the first meeting, the employer should, as far as is reasonably practicable, be represented by a more senior manager than attended the first meeting (unless the most senior manager attended that meeting).

Regulations will set out the circumstances in which the standard and modified procedures will apply. The Government minister indicated that the modified grievance procedure should apply to former employees (e.g. constructive dismissal cases) – on the basis that it is impractical to insist on the ex-employee returning to their former place of work to discuss the issues in person.

The modified disciplinary procedure is to apply to cases "of instant, summary dismissal resulting from extreme cases of gross misconduct. The circumstances may involve violence or serious criminal wrongdoing and will require an urgent response." However, in other passages the Government minister seemed to indicate that the modified DDP would be appropriate for any gross misconduct case where instant dismissal was justified. This would deprive employees of the right to a hearing when it is most needed, purportedly on the basis that employers cannot be expected to allow such employees to remain on the premises while a procedure is followed. An alternative, and perhaps better, way to deal with such cases would be to provide for employers to have a statutory right to suspend employees in all gross misconduct cases while they go through the full DDP. It remains to be seen whether the Government will be forced to give way on this point.

The Government minister also stated in Standing Committee that the regulations would set out exemptions from the statutory procedures (presumably both full and modified versions). Examples suggested were cases where a manager has been assaulted by their employee or vice versa and it would not be reasonable to expect them to meet face-to-face, and grievances where the subject matter was already being dealt with as a collective grievance between employer and union.

The DDP will apply to all formal disciplinary action, misconduct dismissals and dismissals for reasons other than misconduct – including individual redundancies. However, "it will not apply to collective redundancies that are dealt with collectively by a trade union or other body" (whether or not pursuant to a statutory right to be consulted) or to other collective procedures.

The Government apparently take the view that the DDP would be complied with provided the letter was sent, the meeting held and the appeal provided. Compliance would not require an examination into whether the employer approached the required meeting in good faith, trying to resolve the matter. This would be relevant to the general issue of fairness (discussed further below in relation to the limited reversal of the "no difference" rule).

Implied term

The statutory DDP and GP will be an implied term of all contracts of employment (which cannot be expressly contracted out of). This means that a breach of the procedure could, if sufficiently fundamental, render a dismissal wrongful (in breach of contract) and thereby deprive the employer of any post-termination protection in the employment contract (such as restrictive covenants).

Requirement for employees to raise grievances through the GP before they can complain to a tribunal

The original Bill simply provided a power for the Secretary of State to make regulations preventing tribunals from hearing claims unless conditions with respect to the taking of any step under a statutory procedure (to be specified in the regulations) were met. At the Bill's third reading in the House of Commons, the Government replaced this provision with a clause actually setting out the conditions of admissibility.

The new clause applies only to tribunal complaints arising out of grievances (and not disciplinary action). Tribunals will not be able to hear such complaints unless the employee has completed step one of the statutory GP (sending the employer his written grievance) and then waited 28 days prior to lodging his complaint. Step one must also have been completed within a period of no more than a month after the expiry of the normal period for submitting the application to the tribunal.

These requirements will apply to complaints by current employees and complaints of constructive dismissal by ex-employees, but will not apply to cases of extreme bullying, harassment or threats of violence.

The tribunal will only be able to exclude claims not in compliance with the requirements if this is clear from the information supplied to it by the employee or if the employer raises the issue to the tribunal's satisfaction. The employer may therefore need to raise it at an early stage in the proceedings as it may be unable to do so once the tribunal has accepted jurisdiction to hear the complaint.

Note that the Government does not intend to make tribunal applications inadmissible where an employee has failed to exercise a right of internal appeal against his dismissal or disciplinary action or otherwise failed to co-operate with the operation of the statutory DDP.

Extension of time limits for tribunal complaints

Under current law, tribunals will not extend the time limits for submitting an unfair dismissal claim simply because the delay was caused by the employee deciding to await the outcome of an internal procedure. The rules on extending time for discrimination claims are more lenient, but the Court of Appeal in Apelogun-Gabriels v London Borough of Lambeth [2002] IRLR 166 has recently confirmed that there is no general principle that time will be extended where the delay was caused by the applicant seeking to deal with the matter through the employer's internal procedure before launching legal proceedings – it is just one factor that will be taken into account.

The Bill will override this position – it allows the Secretary of State to make regulations extending the time limits for lodging a tribunal complaint to allow the statutory procedure to be used. The current proposals are that complaints should not be regarded as out of time if a DDP or GP was begun within the normal period for complaining (or within the following month, at least with regard to the GP – see above) and the tribunal application is made later during an extended period of a further 3 months. If the DDP/GP were started after the normal time period for complaining had expired, there might be other circumstances where claims should still be permitted, e.g. where the employee was seriously ill. There will in most jurisdictions also be a further 2 months after the initial 3 month extension if both parties agree that they have made sufficient progress to be able to resolve the case internally.

Variation to compensation for failure to use DDP or GP

Tribunals will be able to increase or decrease compensatory awards made in respect of most claims that can be brought in a tribunal (including unfair dismissal and discrimination claims) by up to 50% where employer or employee has failed to use the statutory DDP or GP. The overall cap on unfair dismissal compensatory awards (currently £52,600) would appear still to apply.

The Government has indicated that this penalty will not apply to harassment cases where the GP would require the victim to complain to the harasser, or where there was a threat of violence by either party – procedures for these will be set out in separate regulations. Other suggested exceptions from the penalty for failure to use the procedures were where the failure was due to serious illness, or where a complaint has been handled as a collective process.

Dismissal in breach of procedures automatically unfair; limited reversal of the "no difference" rule.

Dismissals in breach of the statutory procedures (through the employer's default) will be automatically unfair (as well as being a breach of contract) and will give rise to a minimum basic award of 4 weeks' pay (which would be subject to the statutory cap of £250 per week currently).

There is also to be a limited reversal of the House of Lords in Polkey v A E Dayton Services (1988), in which it was held that, if an employer failed to follow fair disciplinary procedures before dismissal, he cannot generally justify this on the basis that it would have made no difference to his decision to dismiss had the procedure been followed. Such dismissals are still unfair, but the compensatory award made may be reduced.

The Bill provides that:

    "failure by an employer to follow a procedure in relation to the dismissal of an employee shall not be regarded for the purposes of section 98(4)(a) as by itself making the employer's action unreasonable if he would have decided to dismiss the employee if he had followed the procedure."

S98(4)(a) of the Employment Rights Act referred to is the requirement for an employer to act reasonably in treating his (potentially fair) reason as sufficient to dismiss, bearing in mind the circumstances including size and administrative resources. The tribunal must have regard to this and to equity and the substantial merits of the case in determining fairness.

Confusion has arisen as to whether an employer who has dismissed an employee after complying with the statutory DDP, but where there is some other procedural flaw, will always be able to use the "no difference" defence. The statutory DDP is very basic and, for example, does not include the right to have an allegation of misconduct properly investigated. Can a procedural flaw other than a failure to follow the DDP, such as a failure to investigate properly, give rise to an unfair dismissal? Could such an employer simply argue that he would still have dismissed had he investigated - either because the results of the investigation would have supported his belief in the person's guilt, or because he would have disregarded the results anyway (there is no requirement for it to have been reasonable for the employer to act in the same way)? The Government's intention seems to be that such a case would still be unfair, but it is less clear that the Bill as drafted has this effect.

This issue is highlighted by the fact that the ACAS code of practice on disciplinary and grievance procedures (which is currently taken into account by employment tribunals) sets out higher procedural standards than the new statutory procedures (although ACAS will be asked to review its code in light of the new provisions). Commentators on the Bill have queried how the statutory procedures and the ACAS code of practice can work together. At the Committee stage, the Government made it clear that, in its view, the Bill will not undermine the ACAS code. It considers that the ACAS code will still be used by tribunals in assessing fairness. As the ACAS code allows the tribunals discretion to determine how much is to be expected of different types of employer, larger employers will still be expected to follow more of the ACAS code than smaller employers, who may have to do no more than follow the statutory procedures. However, following the minimum DDP will not always be sufficient to establish fair treatment. The Government thought that whether a case has been investigated properly is one thing tribunals will still take into account.

One possible way of marrying up the Government's expressed intentions and the drafting of the Bill is to construe the reference to "a procedure" as meaning a particular procedure which the employer has adopted – rather than "any procedural step". If a particular step is included in an employer's procedure, which goes further than the DDP, a failure to comply with it will not of itself make the dismissal unfair if compliance would have made no difference. However, there will still be some procedural steps that may be essential requirements of general fairness - for example, usually a proper investigation will be necessary – and the no-difference rule will not apply to these (whether or not they are part of a procedure adopted by the employer). Of course different standards of general fairness will apply to different sizes of employer. Hopefully the drafting on this issue will be clarified before the Bill is finally enacted.

(Note that, in any event, it seems that it will still be open to employers to argue that the compensation award for a procedurally unfair dismissal should be reduced on the basis that a fair procedure would have made no difference.)

Written statements of terms and conditions of employment

The existing obligation to provide written statements of terms and conditions is to be widened to require all employers to provide full details of disciplinary and grievance procedures (although the employer can still put these details in a handbook and simply refer to the handbook in the written statement). Employers with under 20 employees will no longer have reduced obligations. Employers will not be obliged to issue separate written statements if the required particulars appear in the contract of employment or offer letter.

Failure to comply will only be penalised if the employee successfully brings one of certain statutory complaints (including unfair dismissal and discrimination claims) and the tribunal will then be able to award further compensation in respect of that complaint by no more than 25% and no less than the greater of 5% or 1 or 2 weeks' pay (subject to the statutory cap of £250 per week currently). (However, if the award has also been increased as a result of the employer's failure to use a statutory procedure, the total uplift cannot be more than 50%.) The overall cap on unfair dismissal compensatory awards (currently £52,600) would appear still to apply.

Timing

The dispute resolution provisions of the Bill could, in theory, be brought into force before the family-friendly provisions (which are coming into force in April 2003). The Government have simply said that they will bring them in as soon as possible once the Bill is passed and appropriate guidance for businesses has been produced. The Bill itself will need to be passed by the summer as it provides the authority for parts of the draft Fixed Term Employees Regulations which are required by EU law to be implemented by 10th July 2002.

The Bill includes provision for the Government to extend the rights to workers who are not employees, but the Government has confirmed that this will not be done prior to a review of the whole issue of worker/employee status (which the Government has said will be carried out in late Spring).

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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