Today, Vince Cable has announced a number of significant employment law developments.

Unfair dismissal compensation

The Government had already added a provision to the Enterprise and Regulatory Bill, currently making its way through Parliament, to allow for unfair dismissal compensation limit to be varied from the current £72,300 to the lower of:

  1. an amount not less than £25,882 (annual median earnings) and no more than £77,646 (three times annual median earnings); or 
  2. twelve months’ pay of the individual concerned.

Somewhat late in the day, the Government’s consultation seeks views on this approach and the level of the cap in (1) above. It is interesting to note that the definition of a week’s pay, to be used in calculating the amount under (2) above, disregards pension. This has the potential to impact claimants suffering the loss of generous pension schemes. Currently, this loss may be added to compensatory award calculation (subject to the cap).

Most employers will welcome a lowering of the cap on unfair dismissal compensation.

Settlement agreements

The Government’s proposals regarding new look compromise (or settlement) agreements were the subject of particular interest when they were first announced in the Enterprise and Regulatory Reform Bill (see Eversheds' HR e-briefing 546: Enterprise and Regulatory Reform Bill update - Headline news but little detail and Eversheds' HR e-briefing 545: Government reveals employment law changes in Enterprise and Regulatory Reform Bill).

A further consultation has now been published, which includes a model settlement agreement which the Government suggests could be used by employers. Whilst this will be a useful starting point for employers, the fact remains that the law underpinning the settlement of employment related disputes is unnecessarily complicated. The tricky bit is ensuring a clean break and that means identifying in the agreement all the potential claims that a departing employee might have against the employer. Without knowledge of employment law it is easy to get this wrong, leaving employers exposed to tribunal claims they thought they had managed to settle. The risk is demonstrated by the fact that the list of potential claims in the model agreement runs to five pages. The Government has today indicated that it does not plan to simplify the law in this area. So employers are still going to have to be very careful about the way they use any template agreements.

The consultation paper also expands on the Government’s proposal to change the law with a view to enabling employers to explore with employees the possibility of a negotiated exit without fear of such discussions being used against them in a tribunal claim. The proposed new legislation is set out in the Enterprise and Regulatory Reform Bill, following an amendment submitted by the Government when the Bill was being debated in committee. Due to the way the new clause is drafted, however, it is questionable whether it will have the desired effect. The Government hopes to allay any doubts with a statutory Code of Practice, to be drafted by ACAS, which will set out a recommended approach for employers wanting to adopt this course. However, concerns remain about the new legislation and the potential for it to complicate proceedings and give rise to satellite litigation.


Following its recent call for evidence on the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), the Government has also today published its interim response. The response highlights a number of issues which have been identified by respondents to the call for evidence and on which the Government may consult in due course. One such issue identified is whether the concept of “service provision change”, which many see as “gold-plating” as it does not stem from the Acquired Rights Directive from which TUPE emanates, should be retained or repealed. Interestingly, the introduction of the service provision change was originally meant to simplify the application of TUPE by providing clarity. Whilst unpopular with some, it is somewhat ironic that clarifying case law has only just started to emerge in respect of the service provision change provisions and removing them all together may create a further period of uncertainty.

Employment Tribunal Reform

In July, Mr Justice Underhill recommended a new set of rules for Employment Tribunal claims. Although the proposed new rules were published, the Government did not say whether or not it intended to adopt them. Instead, it promised a consultation exercise before reaching a decision. Today, that consultation has been launched.

The consultation, notably, includes a new draft claim and response form and a proposal for an initial sift stage, at which every case will be reviewed by an Employment Judge on the papers after the claim form and response have been received, to consider directions and strike-out of aspects lacking a reasonable prospect of success. Although attractive in theory, if this process is adopted, it will be interesting to see how robust it is in practice, given the resources that will be entailed in having every case reviewed by a judge before hearing. It is likely that very few cases will be knocked out at this stage as many cases involve disputes between the parties about what actually happened and it won’t be feasible for Judges to resolve such disputes without hearing the evidence.

Other proposed changes include:

  • removal of the £20,000 cap on costs assessed by a Tribunal. However, the criteria for awarding costs is to remain the same.
  • a more flexible regime around holding hearings in private, and making restricted reporting and anonymity orders.
  • non-prescriptive guidance from the Presidents of Employment Tribunals in England and Wales and Scotland respectively. The hope is that this will assist in ensuring that a consistent approach to case management is taken across different Tribunals, to the extent that this is possible without infringing on judicial independence.


Some commentators have argued that lowering the cap for unfair dismissal will cause more claimants to pursue discrimination claims. This suggests a risk that there may be rise in the number of vexatious discrimination claims. Even aside of that argument, many employers are looking for a stronger approach to weeding out weak and vexatious claims. The proposals for Employment Tribunal reform do contain some proposals, such as the initial sift stage, which may provide some comfort for employers. There are, however, other changes planned that could help weed out weak and vexatious claims, including the introduction of fees for bringing employment tribunal claims (see Employment Tribunal fees to be introduced next summer: UK HR e-brief – 13 July 2012) and the proposal that workers must involve ACAS before going to tribunal.

Today’s announcements are part of reform on a significant scale and raise practical challenges for employers who attempt to keep abreast of developments.

Please see the following links:

Ending the employment relationship

Employment Tribunal Rules - review by Mr Justice Underhill

Effectiveness of Transfer of Undertakings (Protection of Employment) Regulations 2006: government response to call for evidence (PDF, 215 Kb)