On 14th September 2012 the Business Secretary, Vince Cable, announced further changes to employment law which he said would give firms 'more flexibility and confidence in managing their workforce' and also 'reduce employment law red tape'. Whilst these proposals were included in one press release and widely reported in the press as a cohesive set of changes, in fact the proposals stem from a number of different consultations discussed in detail below.

Reducing the cap on unfair dismissal compensation and encouraging settlements

Both the proposals to encourage the use of settlement agreements and to reduce the cap on unfair dismissal compensation are included in a new consultation paper 'Ending the employment relationship'. Both issues are also included in the Enterprise and Regulatory Reform Bill (the Bill) currently before Parliament.

(1) Settlement agreements

As we noted in the July Employment Bulletin, the Government wants to facilitate open discussions between employers and employees about terminating employment without the concern that what is said could be used by either party in the event of an unfair dismissal claim. The Bill therefore proposes that offers of settlement are not admissible as evidence in unfair dismissal cases.

This represents an extension of the current protection afforded by the 'without prejudice' rules, which prevent statements made in a genuine attempt to settle an existing dispute from being put before a court as evidence against the party which made them. The new provisions will apply more widely and in particular to cases where there is no formal dispute but the employer wants to instigate a discussion over ending employment.

Note that the settlement provisions will not apply in claims of automatically unfair dismissal (for example for pregnancy-related reasons) or in discrimination claims.

The 'Ending the employment relationship' consultation expands on the Government's thinking and seeks views on the nature of guidance needed to support the proposed legislative change.

Two examples are given in the consultation of how the settlement provisions will work in practice. The first example suggests that the rule would prevent an employee from arguing that a settlement offer was evidence that an employer had already made up its mind to dismiss before taking the steps required to dismiss fairly, such as giving the employee a reasonable opportunity to improve. The second example suggests that the rule would prevent an employee from claiming that an offer of settlement breached the implied term of mutual trust and confidence, entitling the employee to resign and claim constructive dismissal.

The Government proposes that ACAS will draft a new statutory Code of Practice for settlement agreements. Employment tribunals would be required to take the provisions of the Code into account in determining a case. It is suggested that the Code would set out the procedure required to make a settlement offer and include examples of the types of improper behaviour not protected by the legislation.

Comments are invited as to the contents of the Code but the consultation suggests that the Code should include template letters and model settlement agreements to save time and costs. In addition, there would be a guidance document on settlement agreements. Drafts of all of these documents are included in the consultation for comment.

Note that employees will still have to receive independent legal advice before a valid settlement agreement may be reached.

(2) Compensation

The Government's intention in addressing the cap on compensation is to facilitate settlements by giving employers and employees a more realistic expectation of the damages that are awarded by employment tribunals. The proposals referred to below apply only to the compensatory award and will not affect the basic award, which is calculated by reference to age, length of service and weekly pay.

The current limit on compensation for unfair dismissal is £72,300. Given that the median average award for unfair dismissal is less than £5,000 the Government is worried that the cap leads to unrealistic expectations. The proposal contained in the consultation is to introduce a cap of up to 12 months' pay. In addition, the Government seeks views on whether the overall cap should be decreased to a 'reasonable, but not excessive' level. The provision in the Bill would allow the cap to be set between full-time annual median earnings (£25,882) and three times full-time annual median earnings (£77,646).

To guard against future above-inflation increases to the compensatory award, the Government has introduced a provision in the Bill to amend the uprating formula.

The 'Ending the employment relationship' consultation closes on 23rd November.

Changes to Employment Tribunal Rules

In July 2012 Mr Justice Underhill published the results of his review of the Employment Tribunal Rules of Procedure. On 14th September the Government published a consultation on his recommendations.

Effective case management

In order to assist with effective case management the Employment Tribunal Rules consultation seeks views on proposals to allow:

  • initial paper sifts to be carried out by judges to weed out weak claims and giving more prominence to judge's powers to strike out claims;
  • combining pre-hearing reviews and case management discussions into a preliminary hearing;
  • a simplified procedure for withdrawing claims;
  • rules limiting oral evidence, questioning of witnesses and submissions;
  • more discretion and flexibility in deciding whether anonymity or restricted reporting orders are required;
  • a lead case mechanism for dealing with multiple claims;
  • clear rules on the provision of written reasons;
  • whether costs should be able to be claimed by lay representatives and those representing themselves; and
  • tribunals to require deposit orders to be made in relation to parts of a claim not just the whole claim.

The consultation also seeks views on a number of measures to ensure compliance with tribunal decisions, including requiring payment of awards within 14 days.

Increased Presidential guidance

The consultation seeks views on whether it would be beneficial for the President to issue guidance on different procedures and give good practice examples. It is hoped that this will ensure consistency in case management and decision making.

Encouraging dispute resolution

A new rule will be introduced to give employment tribunals and judges a clear mandate to encourage and facilitate the use of alternative forms of dispute resolution at all appropriate stages of the tribunal process.

The Employment Tribunal Rules consultation closes on 23rd November 2012.


The consultation on the Employment Tribunal Rules is not to be confused with the Ministry of Justice's proposals in relation to tribunal fees. The response to the consultation on tribunal fees was published on 13 July 2012 and distinguishes between Level 1 and Level 2 claims.

Level 1 claims are generally for sums due on termination of employment e.g. unpaid wages, payment in lieu of notice and redundancy payments. Level 2 claims include those relating to unfair dismissal, discrimination complaints, equal pay claims and claims arising under the Public Information Disclosure Act.

Click here to view table.

These changes are expected to come into force in the latter half of 2013.

The Government has said that it will protect access to justice for those who cannot afford to pay the fee by extending the fee remission system which is currently run by HM Courts and Tribunals Service. For example, applicants in receipt of benefits such as income support are allowed a full remission and no fee is payable.

The transfer rules

In November last year the Government issued a call for evidence regarding the effectiveness of the Transfer of Undertakings (Protection of Employment) Regulations 2006. The Government has published a holding response to the call for evidence summarising the responses. It says that there will be 'a period of policy development and stakeholder engagement' following which the Government will issue and consult on specific proposals.

Whilst noting that the Government is bound to implement the provisions of the EC Acquired Rights Directive and that the UK trade unions are happy with the current Regulations, there are issues that seem to be areas of possible change. These include:

  • whether the provisions on service provision changes (for example, contracting out or re-tendering) are 'gold plating' and should be removed;
  • whether employment liability information should be provided more than 14 days before the transfer;
  • how TUPE applies in insolvency situations;
  • the definition of 'economic, technical or organisational reasons entailing changes in the workforce'.

Whether these issues are addressed by legislative changes, improving guidance or other steps remain to be seen.

No-fault dismissal rejected

Based on the evidence received in response to its call for evidence on dismissal the Government has announced that it will not be taking forward the proposal for compensated no fault dismissals for micro businesses (those with less than 10 staff). Most respondents, including the business community, were not in favour of the proposal.

In addition, the academic and international evidence provided no evidence to suggest that the benefits to introducing no fault dismissals would outweigh potential costs and risks.

ACAS Code of Practice on Discipline and Grievance

The Government reports in the call for evidence for dismissal that although there was a lot of positive support for the ACAS Code of Practice on Discipline and Grievance, the responses received did suggest that further work could be done on improving the Code. One area of concern was the general lack of awareness of the Guidance which accompanies the Code. Another area of concern was the tools available to small businesses; the Government will work with ACAS to develop interactive tools to assist small businesses. Lastly, ACAS will look further at making the distinction between procedures relevant to poor performance and procedures relevant to misconduct clearer in the Code.

New employee-owner contracts

On 8th October the Government announced it would shortly be consulting on the introduction of a new 'employee-owner' employment contract, under which an employee could be granted shares worth between £2,000 and £50,000 in the employer's business. Any gains made on the shares would be exempt from capital gains tax.

In return the employee would give up a number of employment rights, including the right to claim unfair dismissal or a redundancy payment, the right to request flexible working and the right to time off for training. Employee-owners would be required to give 16 weeks' notice of a firm date of return from maternity leave rather than the present eight weeks.

The Government stated in its announcement that employee-owner status will be optional for existing employees, but both established companies and new start-ups can choose to offer only this new type of contract for new hires. The Government will consult on some details of the contract later this month with a view to its introduction in April 2013.

Other news

New ACAS Guide

ACAS and the Equality Human Rights Commission have published a new guide on maternity rights and redundancy. This good practice guide looks at handling the redundancy process for employees who are pregnant or on maternity leave.