The ERRB brings much change to legislation which inhibits innovation and enterprise. It aims to remove barriers to growth by (amongst other things) promoting alternative routes to dispute resolution.

Pre-termination negotiations

Under the ERRB employers will be allowed to engage in pre-termination negotiations with an employee which will not be disclosable to Employment Tribunals in the case of an unfair dismissal claim unless either party has engaged in "improper behaviour".

Protected discussions which take place prior to termination are nothing new – employers can have without prejudice discussions with employees which are not admissible before the Employment Tribunal, but only where such discussions are part of a genuine attempt to resolve a pre-existing dispute. There is no such requirement in the case of pre-termination negotiations. Employers may start a discussion with an employee and make pre-termination offers without fear that either the content of the discussion or the detail of the offers will be disclosed. However, an employer cannot rely on the protection afforded if an employee issues an automatically unfair dismissal claim or a claim of discrimination. Its protective status is also defeated where there is "improper behaviour".

ACAS has issued a draft statutory Code of Practice on Settlement Agreements (the "Code"), which sets out when pre-termination negotiations will be protected, what amounts to improper behaviour, and the format of settlement agreements.

The Code's main points are as follows:

  • a settlement agreement should be in writing;
  • the parties must be given a reasonable period of time to consider the offer of a settlement    agreement (a minimum of 7 days is suggested); and
  • a meeting may be held between the parties and the employee should be allowed to be accompanied at such meeting.

Examples of improper behaviour include: (a) any form of harassment, victimisation, discrimination, physical assault; and (b) undue pressure – for example, by the employer not providing 7 days for consideration of any offer, reducing an offer during the 7 day offer period, and telling an employee he or she will be dismissed if he or she rejects an offer (and where disciplinary action has not yet commenced). Undue pressure could also include where an employee threatens to undermine his or her employer's reputation unless the employer agrees to the terms of his or her offer.

Whilst the reform may encourage employers to have honest and frank discussions with employees regarding termination, if pre-termination negotiations are not conducted carefully and sensitively, an employee may go on to bring additional claims and the protection will not apply in the discrimination claim. Therefore, pre-termination negotiations may find their way into a public Tribunal hearing especially if they form part of the allegations against the employer. With this possibility in mind, employers will need to carefully consider how they conduct any pre-termination negotiations – they might not be confined to just being between the employer and employee.

Whistle-blowing – public interest requirement

The ERRB contains a provision that, for a whistle-blowing claim under the Employment Rights Act, the claimant must show that he or she believed their disclosure was made in the public interest and that their belief was reasonable in the circumstances.

Linking a dismissal to a protected disclosure is an attractive objective for a claimant as there is no financial cap on compensation and no service requirement. Disclosing information about a "breach of any legal obligation" is one of the six possible categories of a qualifying disclosure under the Public Interest Disclosure Act 1998. Despite the use of "public" in the Act's title, this category has been interpreted broadly in case law to include a breach of the worker's own employment contract.

The change under the EERB means that, for a whistle-blowing claim under the Employment Rights Act, the claimant must show that he or she believed their disclosure was made in the public interest and that their belief was reasonable in the circumstances. Essentially, workers will no longer be able to bring whistle-blowing claims relating to a breach of their own contract of employment, unless they can show it is in the public interest; for example, where an employee complains about a general discriminatory culture or practice in the workplace. This change is proposed to come into force in April 2013.

Whistle-blowing – vicarious liability

The House of Lords has approved amendments to the whistleblowing provisions of ERRB so that workers and agents may be personally liable if they victimise a worker on the ground that he or she has made a protected disclosure.

New subsections of the Employment Rights Act 1996 will provide that:

  • A worker has the right not to be subjected to any detriment by a worker in the course of employment or agent of the employer with the employer's authority, done on the ground that the worker has made a protected disclosure.
  • The worker or agent will have a defence if he or she relies on a statement by the employer that doing the prohibited thing is not a contravention of the Act and it is reasonable for him or her to do so.

The employer or principal will be vicariously liable for any contravention of the section by a worker or agent, if done in the course of their employment. However, the employer will have a defence if it can show that it took all reasonable steps from preventing the worker from doing the prohibited thing, or from doing anything of that description.

Compensation

The ERRB amends the way in which the compensatory award in unfair dismissal claims is calculated to introduce an additional cap on individual awards to be applied of 12 months' pay (where this is less than the overall cap).

The compensatory award in an unfair dismissal claim is an amount the tribunal considers to be "just and equitable", having regard to the loss suffered by the employee. It is generally subject to a statutory cap: currently £74,200. This cap is not applied in some cases where compensation is unlimited.

The Government believes the current cap has contributed to unrealistic perceptions about the level of tribunal awards. The change means that the overall cap remains subject to the existing formula for its annual revision. However, the existing overall cap will be supplemented by a new individual cap. This means that, for employees earning an annual salary in excess of the overall cap, the overall cap will apply. For employees having an annual salary less than the overall cap, compensation will be capped at 12 months' pay (the individual cap).