Ending the Employment Relationship, Settlement Agreements, Unfair Dismissal Compensation, Tribunal Rules and TUPE Regulations

In response to calls from businesses to simplify and speed up the process of dismissing employees when the employment relationship has broken down, for the benefit of both employers and employees, the Government has announced a “package of reforms” on employment law. Consultation papers have been published regarding settlement agreements, protected conversations and ending the employment relationship, as well as proposed reforms to Employment Tribunal rules.

Consultation on “Ending the Employment Relationship”

The Government is considering changes to two aspects of ending the employment relationship: the use of “settlement agreements” and the compensation element of unfair dismissals. Highlights of the Enterprise and Regulatory Reform Bill (the “Bill”) include:

  • A proposal to rename compromise agreements (‘settlement agreements’). It is thought that the term“settlement agreements” more accurately describes their content and is a widely understood term.
  • Employers are encouraged to make settlement agreements shorter and simpler, and to use a standard form or template. Settlement agreements and standard letters are intended to help businesses reduce uncertainty about how to carry out settlement discussions and to reduce the amount of time and legal resources required to achieve a consensual outcome. Examples of letters to send and a model agreement and supporting guidance are included as annexes to the consultation paper. Click here to view the Consultation
  • The Bill contains provisions that will make offers of settlement inadmissible as evidence in unfair dismissal claims. A statutory Code of Practice will give guidance on the circumstances in which employers can rely on “protected” (or without prejudice) discussions with employees.
  • The Code of Practice will give guidance and specific examples of the types of “improper” behaviour that will not be protected by the without prejudice rule such as discriminatory conduct.
  • The Government is also seeking views on the use of a “guideline tariff” approach to help parties set the amount of severance payment and on the approach/formula that should be used, for example, notice period plus £x.

Alternatively, it would list the issues an employer/employee should consider in deciding their own figure, for example, notice period and the perceived strength of the claim.

Unfair Dismissal Compensation

The Government considers that the cap on compensation for unfair dismissal (i.e. £72,300) is currently set at an inappropriate level and that this may lead to unrealistic perceptions from both employees and employers about the level of Employment Tribunal awards. The (median) average unfair dismissal award is less than £5,000 – less than 10 percent of the value of the upper cap on compensation and less than 20 percent of the annual median wage of £25,882. The Government wants to examine the option of a cap on an individual award of 12 months’ pay.

Review of Employment Tribunal Rules

In November 2011, Mr. Justice Underhill, former President of the Employment Appeal Tribunal, was invited by the Government to lead a fundamental review of the rules of procedure for Employment Tribunals. Mr. Justice Underhill’s review was published on 11 July 2012. The Government is now launching a 10-week public consultation on the substance of his recommendations including the idea of new “Presidential Guidance” to manage parties’ expectations and ensure consistency in case management.

Consultation in relation to “Ending the Employment Relationship” and “Employment Tribunal Rules: Review by Mr. Justice Underhill” opened on 14 September and will end on 23 November 2012.

TUPE 2006

The Government has published the responses to earlier consultation on the effectiveness of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). There will now be a period of “policy design,” in which the Government will consider a number of suggested reforms including:

  • Whether the “service provision change” provisions should be retained.
  • Whether liability for employees should pass entirely to the transferee as now, or be held jointly and severally by transferor and transferee.
  • Whether employee liability information should be provided earlier to the transferee than the current 14 days.
  • Whether a change of location of the workplace can constitute an ETO defence.

The Government will consult on specific proposals to reform TUPE before the end of 2012.

ACAS Code on Discipline and Grievance

The Government has confirmed that the previous controversial proposal to permit compensated no-fault dismissals for micro-businesses (businesses with fewer than 10 employees), i.e. to allow employers to dismiss employees where no fault is identified on the employee’s part by paying a set amount of compensation, will not be taken forward. However, it has decided to work with ACAS to improve the existing ACAS Code on Discipline and Grievance procedures to provide greater clarity for smaller businesses.

In the above package of reforms, the Government appears to acknowledge that more should be done to help businesses by reducing the burden of Employment Tribunal claims, and encouraging simplified dispute resolution through settlement agreements. It remains to be seen how effective these reforms will be if implemented.