UK: Employment Law - New Legislation - July 2012

Last Updated: 13 July 2012
Article by Blair Adams

Soundbites become law ... almost

Recently, our Radar has been bombarded by announcements by government ministers about changes to employment law that will "scrap red tape" or "boost growth", an energetic public debate about some of the recommendations proposed by the Beecroft report, and of course the proposals for mandatory shareholder votes on executive pay.

Finally, the Enterprise and Regulatory Reform Bill which contains many of these new measures (and some which have had considerably less publicity) is now working its way through Parliament.  As always, our Employment Law Radar reveals the essence of the proposals.

Protected conversations

A conversation would be protected if it was a conversation in which the employer made an offer to the employee to end their employment on agreed terms.

The protection would mean that an employment tribunal would not be allowed to take the conversation into account (although may presumably be told that it had taken place).  However, the protection would only apply in "ordinary" unfair dismissal claims – it would not apply in cases of automatic unfair dismissal, such as whistleblowing, dismissals related to health and safety or under the TUPE regulations.

The protection will be lost if a tribunal considers that the conduct of the employer has been improper or connected with improper behaviour.

The new rule is good for employers as it will allow them to pre-empt disciplinary, performance improvement and redundancy procedures by making an offer to terminate.  If the offer is not accepted they may have to go through the procedure, but the proposal will allow for conversations to become legally "off the record" in a wider variety of situations than is permitted under the "without prejudice" rule, which only applies once there is already a dispute between the parties.

What the concept of a protected conversation gives to employers in terms of potential to avoid disputes and lengthy procedures, it will arguably take away from employees: they will still be able in theory to insist on transparent processes and decision making, but against a background in which the employer will appear to have already made up its mind about the outcome.

Points for employers to consider are that:

  • trying to use a protected conversation in situations other than simple unfair dismissal  may not work – it will not always be possible to know in advance whether the employee may also seek to bring, for example, a discrimination claim;
  • there will be considerable uncertainty over what counts as acting improperly; and
  • as with the existing "without prejudice" rule, it is ultimately up to the judge to decide whether the conversation has protected status, regardless of what the parties may have agreed or said at the time.

Power to reduce the compensatory award for unfair dismissal

The limit on the compensatory award for unfair dismissal increases annually by reference to RPI and is currently £72,300.  The Bill includes a new power to increase or decrease the limit by reference to various different formulae.

First, there is a power to set the limit by reference to the median annual earnings of the UK workforce (as defined in the Office of National Statistics' Annual Survey of Hours and Earnings), currently £26,200.  The new limit could be a fixed amount that is anywhere between one times and three times median annual earnings, so currently a range of £26,200–£78,600.

Alternatively, it could be set at a minimum of 52 weeks' pay (by reference to the official median earnings figure) or any higher number of weeks' pay.

Finally, the proposed power contains the ability to set a different limit according to the type of employer.  So, for example, a lower amount could be set for small businesses, although whether size would be assessed by turnover, number of employees or other criteria is not yet clear.

These proposals are a significant change to the current regime.  The power could clearly be used to set a much lower limit on the maximum compensation that may be awarded for unfair dismissal.  Currently, an employee on median earnings who suffers loss in excess of one year's pay can be appropriately compensated.  That may change depending on how the new power is used.  The proposal to have different limits according to the type of employer is likely to be particularly controversial, if used.

Shareholder votes on director remuneration

The compromise proposal set out in the Bill is for UK quoted companies to be subject to a binding shareholder vote on remuneration policy for directors and senior executives every three years.  The vote will be an ordinary resolution matter requiring a simple 50% majority.  Whether such votes have any impact, given that three-year remuneration policies will have to be designed with flexibility in mind, remains to be seen.

The requirement for a separate vote on director termination packages in excess of one years salary has been dropped, although termination packages generally must fall within the terms of the remuneration policy.

Other measures contained in the Bill will have less impact on a day-to-day level:

  • Mandatory pre-claim ACAS conciliation – the Bill proposes that there will be a duty on the parties to most employment disputes to seek to resolve the dispute via ACAS before a tribunal claim is issued.   How this will be resourced by ACAS is a very relevant issue.
  • "Legal officers" to determine certain tribunal claims instead of judges – the Bill proposes to give employment tribunal judges the power to delegate certain types of claim to "legal officers", who may then make a decision in the claim without a hearing.  The powers will apply to simple or low value tribunal claims, although which specific claims would be affected remains to be identified.  Determination of a claim by a legal officer will have the same status as determination by an employment judge.  What qualifications or experience will be necessary to become a legal officer are not set out in the Bill.
  • No lay members in Employment Appeal Tribunal – following the reduction in the role of lay members in employment tribunals, the same is proposed at EAT level, with all cases capable of being heard by a judge sitting alone, subject to limited exceptions.
  • Financial penalties for employers in breach of employment law – the Bill gives employment tribunals a discretionary power to impose financial penalties on employers where they are found to have breached a claimant's employment rights and the tribunal considers that, in the circumstances, the employer's behaviour in committing the breach had one or more aggravating features. 

What constitutes an aggravating feature is for the tribunal to decide, but the Explanatory Notes to the Bill suggest that a tribunal may be more likely to find aggravating features where the action was deliberate or committed with malice, or the employer was an organisation with a dedicated HR function, or the employer had repeatedly breached the right concerned.

Where compensation is awarded to the employee, the penalty on the employer must be set at 50% of that amount, subject to a minimum of £100 and a maximum of £5,000.  If the employer pays the penalty within 21 days, it is reduced by 50 per cent.

  • Public interest test for whistleblowing claims - Currently, employees are able to obtain whistleblower protection by disclosing breaches of their own personal work contract, which is not what the Public Interest Disclosure Act was designed for.  The Bill seeks to amend this by ensuring that only disclosures that are in the public interest would attract protection under the Employment Rights Act 1996. 

What is not in the Bill:

Compensated no fault dismissals – the Government has said that it will not be pursuing Adrian Beecroft's proposal to introduce "compensated no fault dismissals" for small employers.  The proposal had generated significant public debate and, whilst popular amongst the business community, was hugely unpopular with organisations representing employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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