UK: Employment Law Reform: Fresh Consultation

Last Updated: 19 September 2012
Article by Sarah Ozanne, Anthony Fincham and Liam Kerr

At the end of last week, in a fresh consultation paper, Ending the Employment Relationship, the Government provided more detail around its existing proposals to make it easier for businesses to dismiss employees. A separate consultation paper, Employment Tribunal Rules, picks up on the Government's proposed response to the recent review of the rules by Mr Justice Underhill. The reforms are intended to reduce employers' fears about the costs of dismissing employees, thus encouraging recruitment and economic growth. The Government has also issued responses to the calls for evidence on the effectiveness of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ('TUPE') and on no-fault dismissal for micro-businesses.

Ending the Employment Relationship

The key proposals of the consultation are to introduce the concept of settlement (rebranded from 'compromise') agreements and reduce the compensation payable in unfair dismissal cases. The Government thinks that in practice the arrangements would be as follows:

  • Employers propose a settlement to employees before commencing steps that could lead to dismissal – and this would not be admissible in unfair dismissal proceedings, despite arguably not falling under the traditional 'without prejudice' cloak. This appears to be a replacement for the mooted 'protected conversations', which the Government now looks to be abandoning on the basis it would confuse employers;
  • Employers could base the settlement proposition on a template letter. Surprisingly, given the idea is for these to be confidential and to minimise management time spent preparing for disciplinary hearings, the suggested letters annexed to the consultation seem to envisage putting the proposal in the same letter that invites the employee and their representative to a first stage disciplinary hearing, with the acceptance of the offer to be confirmed on the eve of the hearing;
  • There might be a guideline 'tariff' for settlement. The Government acknowledges this may come to be seen as a minimum point for starting negotiations, but is consulting on this nonetheless;
  • If settlement is agreed in principle, the employer can issue a settlement agreement to the employee. The Government has included a template agreement with the consultation. It is somewhere between the Acas COT3 and a full commercial settlement agreement. Whilst it may reflect a good starting point for employers, as the Government acknowledges, it will need to be amended according to the circumstances of each case, particularly more complicated senior management terminations;
  • If settlement is not agreed, and the case ends up in tribunal, the settlement discussions would not be admissible in unfair dismissal cases (but could be where discriminatory unfair dismissal is alleged). Financial exposure may be capped to basic award plus 12 months' pay per employee, to the extent that falls below the overall cap, which the Government is considering reducing so that it falls within a set range based on national median earnings.

The process would be fleshed out further in a new Acas Statutory Code of Practice, to be consulted on in due course. The Government intends these measures would be brought in under the Enterprise and Regulatory Reform Bill, to come into force from April 2013. To read the consultation click here. The consultation closes on 23 November 2012.

In light of the responses to the call for evidence on no-fault dismissals for micro-businesses, the Government has confirmed it will not be taking forward this proposal, although it may be increasing the guidance available to small businesses for dealing with dismissals effectively. For the response to the call for evidence, click here.

Employment Tribunal Rules

The Government has broadly adopted the reforms of the Employment Tribunal rules proposed by Mr Justice Underhill. We outlined these proposals in our Law Now when they were announced. Click here to read it or click here to read the Government's consultation, which closes on 23 November 2012.

TUPE reform

In its call for evidence on the effectiveness of TUPE, the Government asked for input on whether certain key elements of TUPE were working well or should be reformed. In particular, the Government called for views on whether  EU provisions 'gold plated' by the UK (for instance, 'service provision change') should be repealed. Not surprisingly, the Government has found that for every argument there is for amending TUPE, there are other arguments for keeping it the same. To read its response in full, click here. The Government is now undergoing a period of policy review, and intends to issue a consultation in due course, including on service provision change and knotty issues such as change of workplace location following transfer. For now it is therefore business as usual with TUPE, but watch this space for further developments.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 18/09/2012.

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