The Houses of Parliament have given final approval to the many employment changes contained in the Enterprise and Regulatory Reform Bill, which will become an Act later today. Most of the changes are expected to come into force this year.

The Act is part of the Government’s Employment Law Review; an initiative to ‘make the improvements necessary to embed a flexible, effective and fair labour market’. It has provisions changing the following areas of employment law:

  • Acas early conciliation
  • Unfair dismissal
  • Whistleblowing
  • Tribunal procedure and penalties
  • Equality

The Act is not alone in changing employment law. Further changes to tribunal procedure, flexible working, parental leave and more are contained in other legislative vehicles. For further information, see our comprehensive update.

Acas early conciliation

The Act contains provisions setting out the Acas early conciliation (‘EC’) system, including providing for an extension to tribunal time limits to allow for conciliation. The EC system requires most prospective claimants to contact Acas before they can lodge tribunal proceedings. A conciliation officer will then endeavour to promote a settlement between the parties. Both parties remain at liberty to decline EC and the claimant may proceed to lodge a claim, providing they have a certificate from Acas confirming that settlement was not possible. The Government intends to introduce EC in spring 2014. Further details about how EC will work in practice are available here.

Unfair dismissal

Power to decrease compensatory awards

The Act provides a power to vary the unfair dismissal compensation limit (currently £74,200) and the Government has already stated its intention that, from this summer, unfair dismissal compensation will be limited to 52 weeks’ pay or the existing £74,200 limit, whichever is the lower for each claimant. The stated aim is to encourage more realistic perceptions of tribunal awards by all parties and to encourage the earlier resolution of disputes. While many employers will welcome greater certainty and realism in unfair dismissal compensation, critics argue that greater efforts should be directed at alternatives, such as requiring the early valuation of claims.

Dismissal for political belief

The Act amends the law to allow unfair dismissal claims from those without the usual qualifying service (one year for those engaged before 6 April 2012, otherwise two years) where dismissal was because of the employee’s political affiliation or opinions. The change is being made to address last year’s decision of the European Court of Human Rights in Redfearn v UK (read our briefing on this case) and will apply to dismissals taking effect on or after 25 June 2013. It is important to bear in mind that such dismissals will not be automatically unfair; this is just a change to the qualifying service.

Confidential negotiations before termination of employment

This change provides that evidence of offers made and negotiations conducted during employment with a view to an agreed termination is inadmissible in unfair dismissal proceedings. Taken on face value this might be expected to allow an employer to broach the subject of an agreed termination where an employment relationship is not working out, safe in the knowledge that such negotiations cannot be disclosed to a tribunal (should the employee bring a claim, if, for example, the negotiations fail). But, all is not what it seems and we urge employers to tread carefully because:

  • Such negotiations are admissible where the employer acts improperly, meaning that the protection of confidentiality is lost. While an Acas Code and guidance will seek to clarify what is meant by ‘improper’ behaviour to assist employers, uncertainty remains. Many employers may be discouraged from opening confidential negotiations given the risk of satellite litigation developing over whether a negotiation is or is not admissible.
  • The Act provides that settlement offers and negotiations are potentially inadmissible in normal unfair dismissal proceedings only – meaning that they are admissible in automatically unfair dismissal, discrimination and other claims. Given the many proceedings relating to one set of facts but involving complaints under more than one jurisdiction, this limited inadmissibility rule risks being eroded and complicating tribunals as claimants seek to introduce evidence of confidential negotiations via discrimination and other claims.

The Government intends to bring this change into force this summer.

Whistle-blowing

No less controversially, the Act will revise current whistle-blowing protection. Despite its title and the qualifications it imposes upon disclosures, the Public Interest Disclosure Act 1998 (which amended employment law to provide protection for those who report wrong-doing on the part of their employer) did not expressly require whistle-blowing to be in the public interest. As a result, many cases have involved individuals seeking to rely on the legislation to challenge alleged breaches of their own employment contracts. The Government perceives this to be contrary to the purpose of the legislation, and, as a result, the Act includes an amendment which requires disclosures to be in the public interest if they are to be protected. With a view to countering any deterrent effects of this change, disclosures will no longer need to be made in good faith, with motive only being relevant if or when compensation comes to be assessed. These changes will apply where a qualifying disclosure is made on or after 25 June 2013.

Possibly more significant for employers is the liability the Act imposes upon them as regards any bullying or harassment of whistle-blowers by colleagues. Unless an employer has taken reasonable steps to prevent this, it will be deemed liable for any detrimental treatment the whistle-blower receives from colleagues. Addressing any such issues after the event will be too late. It is vitally important, therefore, that employers have a policy in place to protect genuine whistle-blowers and communicate this to the workforce. The Government has not confirmed when this new vicarious liability will be implemented.

Tribunal procedure and penalties

Financial penalties for employers

One of the least popular changes for employers is the introduction, from spring 2014, of financial penalties for those found to have breached employment rights. The penalty will be payable to the Secretary of State, on top of any compensation due to the employee. The starting point for determining the penalty is 50% of the compensation awarded, subject to a minimum sum of £100 and maximum of £5000, with reductions applying for early payment.

Importantly, not all unsuccessful respondents will find themselves liable to a penalty; in addition to finding a breach of employment rights, the tribunal must identify one or more ‘aggravating features’. What these features might be are not elaborated upon, although the Government has suggested that negligence or malice are possible examples. One would hope, therefore, that the use of these penalties will be reserved for relatively few, extreme cases. With a right of appeal attached to this provision, it seems unlikely tribunals will interpret ‘aggravating features’ so liberally as to make these penalties commonplace.

Legal officers deciding tribunal claims

The Act provides for legal officers to determine certain employment proceedings, typically without a hearing, providing all parties consent. The Government will set down in Regulations, yet to be published, what proceedings are included; it has previously indicated that they will be ‘low value, straightforward’ claims. No implementation date has been given for this change, as yet.

EAT judges sitting alone

Currently, the majority of Employment Appeal Tribunal (EAT) cases are determined by a panel comprising a judge and lay members. The Act requires all EAT cases to be heard by a judge alone, unless a judge directs otherwise or where the Lord Chancellor orders that certain proceedings should be heard by a panel. By reducing the role of lay members in the EAT, the Government is looking to cut costs, however, critics fear that the quality of decision-making will deteriorate in their absence and tribunals will become more legalistic. This change will apply to any EAT hearings that start on or after 25 June 2013.

Deposit orders and costs

The Act extends tribunals’ power to make a deposit order. Currently, tribunals can only make a deposit order in respect of the whole claim or response. The amendment will allow tribunals to make a deposit order in respect of a particular weak aspect of a party's case only. The Act also enables tribunals to award both costs and expenses to litigants in person. Currently, there is no power for the tribunal to award a litigant in person both their own costs under a preparation time order and their witnesses' expenses, which can only be awarded under a costs order. This change comes into force in two months’ time.

Equality

Third-party harassment

The Act revokes the rule that employers are liable for repeated discriminatory harassment of their staff by people from outside their organisation where inadequate steps have been taken to prevent it. The Government has not yet confirmed when this takes effect.

The change should ease some of the regulatory burden on employers, in that there will be less of a need to take proactive steps to attempt to control the behaviour of, for example, customers, service users and suppliers. However, its impact should not be over-stated. Many employers will consider it a matter of best practice to do what they reasonably can to protect their workforce from offensive behaviour by others anyway and in this regard the law changing could prove unhelpful, as the ability to point to a legal obligation can help employers to tackle difficult customers. Furthermore, turning a blind eye when staff are clearly being harassed could still lead to problems: quite apart from the risks to morale and performance, there is the potential for claims of constructive unfair dismissal and, if the impact is particularly severe, stress-based personal injury. What is more, if the reason for the employer’s inaction is related to race or sex or some other characteristic covered by discrimination law, the failure to intervene could constitute unlawful harassment in its own right.

Questionnaire procedure

The Act also repeals the ‘questionnaire procedure’ that enables people who think they have been unlawfully discriminated against to seek information and an explanation from the person they believe has discriminated against them. Again, there is no commencement date, as yet, for this change.

It is important to bear in mind that, even after this change takes effect, an employee or customer will still be able to ask questions; if the employer or service provider refuses to respond or provides an answer that is evasive, a tribunal or court could still, in an appropriate case, take account of that fact in deciding if there has been discrimination. Therefore, Acas is to produce guidance for employees and employers regarding the appropriate use of questions, in the absence of the more formal questionnaire procedure.

Caste discrimination

The Act requires the definition of ‘race’ in the Equality Act 2010 to be extended to expressly cover caste. The term ‘caste’ itself is left undefined. This provision made its way into the Act despite Government opposition. However, it will only become effective when the Secretary of State makes an order; this is not expected to happen until 2014 or 2015, following further evidence gathering and consultation.

Equal pay audits

The Act also gives the Government power to make regulations that would require employers to conduct a pay audit if they lose an equal pay case (or a sex discrimination case related to pay). There will, however, be an exemption for organisations that have conducted an appropriate pay audit within the previous three years.

The precise details of what an audit will require, and how and where the results of an audit must be published, will be set out in Regulations, on which there will be a further consultation in due course.