Just £17,704 has been paid by losing employers in financial penalties since they were introduced to employment tribunals in 2014. However, this could be about to change.

Background

Since 6 April 2014, employment tribunals have had the power to order a losing employer to pay a financial penalty. This is in addition to any award for compensation which the employer is ordered to pay to a claimant.

The stated aim of financial penalties when they were introduced was to ensure high standards of employment practice are maintained in the workplace.

Money from the financial penalty goes into the government's coffers, not to the winning claimant.

A financial penalty can be imposed even where the employer has not been ordered to pay compensation to the claimant.

The minimum penalty is £100 and the maximum is £5,000, including where multiple claims are made. However, the penalty is reduced by 50% if it is paid within 21 days.

This financial penalty for losing employers should not be confused with the penalty regime for unpaid employment tribunal awards which came into force on 6 April 2016.

In what circumstances?

The circumstances where a financial penalty may be ordered are where an employer is found to have breached any of a worker's rights (as per their claim form) and the breach(es) in question has 'one or more aggravating features'.

There aren't yet any reported claims which provide guidance on what may be an 'aggravating feature'. The Explanatory Notes to the Enterprise and Regulatory Reform Act 2013 confirm that it will simply be for tribunals to decide, taking into account any factors it considers relevant, such as the facts of the case and the employer's own particular circumstances.

An employment tribunal may be more likely to find that an employer's behaviour does have 'aggravating features' are where the:

  • action was deliberate or committed with malice
  • employer is an organisation with a dedicated human resources team
  • employer has repeatedly breached the employment right concerned

The circumstances where an employment tribunal may be less likely to find 'aggravating features' are where the employer:

  • has only been in operation for a short period of time or is a micro business
  • has a limited human resources function
  • made a genuine mistake in committing the breach
  • is in formal insolvency proceedings and the imposition of the financial penalty would reduce the monies available to satisfy creditors or adversely affect the sale of the business as a going concern

Government report

Margot James, the Business Minister recently reported that just £17,704 has been paid in financial penalties since in 2014, as a result of 18 penalties levied against rogue employers. Only 12 of those penalties were actually paid.

From the report it seems that the government had expected employment judges to impose the sanctions in 25% of cases, which would have resulted in employers paying a total of £2.8million to the Secretary of State.

The limited use of financial penalties has been attributed to the significant decline in claims since fees were introduced. The number of claims that are either withdrawn or settled before a final hearing will also clearly affect the frequency of financial penalties being ordered, all of which means that there are fewer examples of bad practice being exposed.

Comment

While the report highlights that employment judges are clearly using this power infrequently, this could mean that they are now reminded of it, or may be encouraged to use it.

All employers should therefore ensure that they follow best practice and act fairly when implementing workplace practices and policies in order to avoid tribunal claims and the financial penalties which may now go with them.