The Government has recently made further announcements about reform of employment law.  We gave a webinar on 9 October 2012 about various employment law reforms.  If you would like to view the recording please visit our webinar page.

We have summarised some of the most recent announcements below.

  1. Compromise agreements

The Government’s proposals include:

  • changing the name of compromise agreements to settlement agreements
  • producing a template settlement agreement which employers are able to use if they wish.

The template settlement agreement will make it possible for employers to provide settlement agreements to employees without the employer paying for a lawyer to draft the agreement.  However, the current template is very limited and does not have many of the protections for employers that would normally be seen in a compromise agreement prepared by a lawyer.  Many employers are therefore likely to prefer to continue to use bespoke agreements prepared by their lawyer.

Prior to the announcements, some reports had suggested that the Government would remove the requirement that an employee must seek legal advice in order to validly waive statutory employment claims.  It is important to note that the consultation does not propose this.  The employee will still need to seek legal advice and the likelihood is that the practice of employers making a contribution to employees’ legal fees will continue.

  1. “Protected conversations” / “pre-termination negotiations”

The Government propose to enable employers and employees to have a “pre-termination negotiation” in limited circumstances.  This proposal is a much more limited version of the original idea for a “protected conversation”, which we commented on here.

The amended proposal is to allow either party to put forward a settlement offer in the knowledge that an Employment Tribunal is not allowed to take that offer into account in an unfair dismissal claim.  That would apply provided that the party making the offer does not behave “improperly”. 

The Government propose that ACAS develop a Statutory Code governing the use of these settlement discussions.  The Code would provide further details about how settlement offers should be used, including that they must be made in writing and must not put undue pressure on an employee to accept.  It will also give examples of when the conduct of the party making the offer would be improper.

If sufficient clarity can be given about when behaviour would be improper, the proposals are likely to help employers in some situations by limiting the risk of an employee arguing that they have been unfairly dismissed if an employer makes a settlement offer. 

However, the employer will continue to face the risk of the employee claiming discrimination.  Equally, it will not make it any easier for an employer to have a frank conversation about performance with the employee than at present nor make it easier for an employer to dismiss an employee who does not agree to an offer.

  1. Compensation limit for unfair dismissal claims

The Government has made three main proposals in relation to the compensatory award for unfair dismissal, which are to:

  • create a secondary cap of 1 year’s salary for the employee in question
  • limit the types of loss for which an employee can claim compensation under the secondary cap
  • reduce the overall cap from the current limit of £72,300 (the “Overall Cap”).

Under the proposals, the two caps would operate in tandem.  The compensatory award would be capped at the lower of the Overall Cap and 1 year’s salary. 

For the purposes of calculating 1 year’s salary, the employee will not be able to claim for benefits (such as a company car), discretionary bonuses or pension.  At present, it is possible to claim these losses in appropriate circumstances.  This therefore represents a further reduction in the real amount that an employee can claim.

Finally, the Government is consulting on reducing the Overall Cap, although they have not yet suggested a specific figure.  However there is already a power in the Enterprise and Regulatory Reform Bill which is currently going through Parliament to allow Parliament to change the Overall Cap at a later date.  The cap could be changed to anything between 1 and 3 times the medium annual earnings in the UK.  This would currently mean an Overall Cap of between approximately £26,000 and £78,000.  Assuming the Bill becomes law as currently drafted, it will allow any future Parliament to substantially reduce the Overall Cap with relative speed and ease if they wish.

These changes may drive employees to bring increased numbers of discrimination and whistleblowing claims.  It might be worth an employee bringing one of these claims alongside an unfair dismissal claim even if the discrimination or whistleblowing claim is weak.  This is because these claims would allow the employee to recover more types of loss than under the proposed unfair dismissal regime and are not subject to any cap.

  1. Reforms to Employment Tribunal rules

The Government is proposing to simplify the rules governing Employment Tribunal claims. 

It is also considering amending some of the rules, for example removing the £20,000 cap on costs awards in the Tribunal and introducing a “sift” stage, during which a Judge would review the claim and response and could make directions.

  1. And finally…

The Government has confirmed that the “compensated no-fault dismissal” idea proposed by Adrian Beecroft will not be taken forward (although the latest proposal for employee ownership explained here might have a similar effect.).

Meanwhile, Jo Swinson, the recently appointed Minister for Employment Relations, implied in her Party Conference speech that the Government will go ahead with the proposals to introduce shared parental leave and extend the right to request flexible working to all employees.  The next step is for the Government to respond to the Modern Workplaces Consultation which closed in August 2011 - watch this space!