The UK Government has recently announced its latest proposed reforms to Employment Tribunal procedures and the key changes are set out below.

Clarity over settlement agreements

Currently compromise agreements (to be called settlement agreements) enable employers to provide a severance payment to an outgoing employee in return for them agreeing not to pursue any claims in an Employment Tribunal. Where the settlement agreement is proposed to settle an existing dispute between the parties, it is subject to without prejudice principles i.e. should the discussions break down and the agreement not be concluded, neither party can refer to it in any subsequent legal proceedings. However, where such an agreement is discussed in a non-dispute situation and these discussions ultimately fail, the proposals may later be discussed in front of a Tribunal.

Under the Government’s new proposals, any settlement discussions will be inadmissible in unfair dismissal cases. This gives employers more freedom to discuss settlement terms without the fear that their offer may subsequently be used against them as purported evidence that a subsequent dismissal was unfair.

ACAS are in the process of consulting and drafting a new statutory code to provide guidance on the use of settlement agreements. It is expected that this Code will include principles such as:

  • Settlement may be proposed by either party
  • There is no requirement for the employer to follow any set procedure prior to offering settlement
  • The reason for offering settlement should be made clear
  • If an employer deals with the issue of settlement unfairly, it may give rise to a breach of the implied term of trust and confidence allowing the employee to resign and claim constructive unfair dismissal

Decrease of awards for unfair dismissal

Currently, where an employee succeeds with a claim of unfair dismissal, he will be awarded:

  1. A basic award - calculated by reference to his length of service and age
  2. A compensatory award - covering, for example, earnings for whatever period the Tribunal considers to be just and equitable

The compensatory award is currently subject to a maximum of £72,300.

Government research has found that, despite the existence of the cap, the average compensatory award is less than £5,000, or less than 20 per cent of the annual average wage of £25,882. The Government has therefore proposed that imposing a cap of 12 months’ salary of the particular Claimant would provide individuals with a more realistic expectation of their likely award should they succeed at Tribunal. It would also assist the parties to have meaningful and realistic settlement discussions.

It is further proposed that the award of 12 months’ salary be subjected to a cap of no more than three times the annual average salary i.e. £77,646. This would mean that high earners would likely receive less than a year’s salary although it would not place them in a worse position than under the current regime.

Impact on employers

Consultation on the above proposals is due to last for 10 weeks. If accepted, the proposals will not, in theory, make it any easier for employers to dismiss employees as the existing principles of fairness and reasonableness will continue to apply. However, the risks to employers of failing to comply with these principles look set to reduce.

This is particularly so given the Government’s intention to introduce Tribunal fees with effect from 2013. Fees of up to £250 will be payable by the Claimant to issue a claim in the Tribunal with further fees of up to £950 to proceed to a full hearing. Therefore, some employers may increasingly take the view that, given the reduced financial risk to them of an adverse judgment together with the increased likelihood that individuals will not be able to afford the fees required to pursue their cases to a full hearing, they do not need to comply with fair dismissal procedures quite so stringently!

Read other items in the September 2012 Employment Brief