New steps to give firms more flexibility and confidence in managing their workforce, whilst still protecting employment rights, were announced recently by Business Secretary Vince Cable and by the Chancellor of the Exchequer, George Osborne.  If implemented, they are most likely to benefit small businesses, which are usually the most vulnerable to the employment law minefield. 

The proposals come in response to requests from businesses to simplify the termination of an employment relationship without disadvantaging either of the parties involved. 

The most significant proposals are:-

Cap on the Unfair Dismissal Compensatory Award

The consultation proposes to reduce the cap on the compensatory award from the current sum of £72,300.  The Government is concerned that the existing compensation cap leads to unrealistic expectations of an award by employees, which may be preventing parties from resolving the dispute at an earlier stage. 

The precise decrease is not yet known.  However, the Government has indicated that it will introduce a cap of 12 months net salary, subject to an overriding maximum of between one and three times the national median earnings (approximately £26,000).  

Settlement Agreements

The aim of the Government in respect of settlement agreements, is to promote less confrontational resolutions, thereby decreasing the burden on Employment Tribunals and reducing the legal costs to all parties concerned.  

A template settlement agreement has been produced during the consultation.  However, for some time, Compromise Agreements have been widely used as a method of settling employment claims.  The proposed settlement agreement still requires the employee to seek independent legal advice so it is unclear how this method will differ from Compromise Agreements.   

Employment Tribunal Fees

It is proposed that a straightforward claim for unpaid wages will incur a fee of £390 to take to a hearing.  Unfair dismissal and discrimination claims will incur a fee of £1,200 to reach a hearing.  These sums may well be unaffordable for employees on low incomes and may well encourage employers not to settle claims because they will gamble that the employee will not be able to pay the full fee.

Owner-employee Contracts

These have been proposed by George Osborne.  Under this new type of contract, employees will give up their rights on unfair dismissal, redundancy, the right to request flexible working, time off training, and will be required to provide 16 weeks’ notice of a firm date of return from maternity leave (instead of the usual 8).  In exchange, they will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax.

Owner-employee status will be optional for existing employees, but both established companies and new start-ups will be able to choose to require new employees to enter into this new type of contract. Companies recruiting owner-employees will be able to insert more generous employment conditions into the employment contract if they want to. Although the Government states that the new contract is ‘principally’ intended for fast growing small and medium sized companies, companies of any size will be able to use the contracts.

Legislation to bring in the new owner-employee contract will come later this year so that companies can use the new type of contract from April 2013.