Employment reforms: where are we now?

Now that autumn is upon is, it is a good time to take stock of the Coalition Government’s programme to make employment law more business-friendly. While there is a lot that is still up in the air, last month’s announcements by the Department for Business Innovation and Skills have clarified things considerably.  

Unfair dismissal

The qualifying period has increased to two years for those starting work from 1 April 2012 onwards. The Government is now consulting on a proposal to limit the maximum compensatory award to a year’s median earnings, which would reduce it to about a third of its current level.  

Next year we can expect to see the introduction of fees in the employment tribunal and a new streamlined set of rules. The Government hopes that both measures will discourage weak claims.

In addition, the Government is proceeding with a number of initiatives to encourage early settlement of claims. Of these the most important is likely to be the requirement to refer most types of claim to ACAS before issuing proceedings. It also plans to promote greater use of compromise agreements (to be re-named settlement agreements) by making it easier to open discussions with under-performing employees, and introducing a new statutory code of practice.  

No-fault dismissal

Plans to introduce an exemption from the unfair dismissal rules for small businesses have been abandoned. However, the Government plans to introduce extra guidance to help smaller employers navigate the ACAS code of practice on disciplinary and grievance procedures and the related guidance.  

Collective redundancies

Earlier this year plans were announced to shorten the longer of the two collective consultation periods. The options are to shorten the 90-day period to 45 days, or simply retain the shorter consultation period of 30 days to cover all redundancy programmes which trigger the collective consultation requirements. There are also plans for a code of practice to help employers navigate the trickier aspects of the legal requirements, but no plans to introduce other legal changes.


A consultation paper was published last month, following up from a call for evidence in 2011. However, there are as yet no firm plans to introduce changes to the 2006 Transfer of Undertakings Regulations. There are, however, a number of possibilities that the Government is continuing to explore, including the repeal of the extra measures dealing with service provision changes that were introduced five years ago.  

A new type of employment contract?

George Osbourne announced plans for a new type of employment contract on the first day of the 2012 Conservative Party Conference.  

According to the very brief details currently available, employees would be given between £2,000 and £50,000 of shares in their employer’s company that would be exempt from capital gains tax. In exchange, they could be made to give up their unfair dismissal and redundancy rights.  

These plans are primarily aimed at fast growing and medium sized companies, but would be open to all employers. The Government hopes that the necessary legislation will be in place in time for employers to use these new contracts in April 2013.