More flesh added to the bones of the government's proposals for employment law reform | EEF

More flesh added to the bones of the government's proposals for employment law reform

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In this briefing, we provide some more detail regarding the government’s recent proposals for employment law changes.

The government's proposals for employment law reform fall into the following broad categories:

Encouraging employment disputes to be settled rather than litigated, through ‘settlement agreements’

The Enterprise and Regulatory Reform Bill (the Bill) is currently going through Parliament and it is possible that some provisions could be brought into force next year.

The Bill promotes the use of ‘settlement agreements’ (a new name for compromise agreements). The government has issued a consultation document, entitled ‘Ending the Employment Relationship’, which seeks views on the guidance needed to support the use of such agreements. The government states in the consultation document that it wishes to ‘facilitate open discussions between employers and employees without the concern that this could be used against either party in the event of an unfair dismissal claim’.

Under the current law, discussions between employer and employee can be ‘without prejudice’ or ‘off the record’ only where there is a ‘dispute’. However, it is not always easy to establish whether there is a genuine dispute and employers are often deterred from opening conversations with their employees in case settlement is not achieved, and those conversations are therefore admissible in the event of a tribunal claim. The current proposals (and importantly, the inadmissibility point), would, by contrast, be intended to apply even in the absence of a ‘dispute’.

The consultation document states that the proposed measures should help both employers and employees, and that ‘businesses will be able to manage difficult workplace issues, such as ending the employment relationship more efficiently and effectively, without having to incur substantial sums on legal advice, while individuals will be able to leave with their head held high and the certainty of a payoff, and avoid the uncertainty and stress of taking a case to tribunal’.

The consultation document includes a template settlement agreement and three template letters that employers could use to propose settlement terms in a variety of situations (unsatisfactory performance, conduct and unsatisfactory attendance). The 55-page consultation paper also seeks views on producing a scale or tariff for employers to assess their offers of settlement by.

There is also a proposal for ACAS to draft a statutory Code of Practice to underpin the use of these measures, something EEF has argued for, and also a step welcomed by ACAS. The Government proposes that the Code is drafted so that it is clear that:

  • settlement offers are inadmissible as evidence only in unfair dismissal claims;
  • either party may propose settlement;
  • employers need not have followed any particular procedure prior to offering settlement;
  • settlement offers should be made in writing, clearly setting out the reason for the offer, what is being offered (e.g. settlement sum and, if appropriate, agreed reference) and the next steps if the offer is rejected;
  • individuals should be given a clear, reasonable period of time to respond;
  • no undue pressure should be put on a party to accept the offer of settlement;
  • if an employer handles settlement in the wrong way (i.e. not as explained in the Code) this may breach the implied term of trust and confidence, allowing the employee to claim constructive dismissal;
  • if a settlement offer is rejected, the employer must go through a fair process before a dismissal;
  • the approach should reflect current practice in ‘without prejudice’ negotiations as closely as possible;
  • ‘improper’ behaviour will not be protected by the inadmissibility rule and the Code should include specific examples of what constitutes such behaviour.

The Government’s response to the consultation is expected in Spring 2013 but ACAS has indicated that work to begin drafting the new Code will start ‘shortly’. It is intended that the Code be made available before the legislative changes come into force.

Reducing the cap on the compensatory award for unfair dismissal

The ‘Ending the Employment Relationship’ consultation document also seeks views on whether the current cap on the compensatory award for unfair dismissal is set at an appropriate level.

The limit on the compensatory award in unfair dismissal claims could be set at an amount of between one and three times' median annual earnings (currently £25,882 - £77,646), or a number of weeks' pay (not less than 52 weeks), or the lower of these two figures.

The consultation document also seeks views on how the cap should be calculated.

Note that it is not proposed to change the cap/method of calculation for the basic award for unfair dismissal.

Abandoning the idea of introducing a compensated ‘no fault dismissal’

The government has formally announced that the proposal for the controversial ‘compensated no fault dismissal’ for micro-firms and confirms that this proposal will not be taken forward.

Instead, the government will work with ACAS to improve the Code of Practice on Disciplinary and Grievance procedures and to develop an interactive tool for small businesses.

The government has also asked ACAS to consider how procedures for poor performance could be better distinguished from procedures for misconduct, while also keeping the Code as concise as possible.

Committing to a future consultation regarding the TUPE Regulations

Last year, BIS sought views on the effectiveness of TUPE. It has now published its response to the call for evidence, stating that ‘it is clear that there are several areas which should be examined further with a view to improving the Regulations’ operation in practice, whether by amendments to TUPE or through improved guidance’.

The same consultation paper states that there will now be a period of ‘policy design’, in which the government will consider a number of suggested ideas. It states that the government will consult ‘in due course’ on whether:

  • the ‘service provision change’ provisions should be retained or repealed;
  • liability for employees should pass entirely to the transferee as now, or be held jointly and severally by transferee and transferor;
  • employee liability information should be provided earlier to the transferee (currently it must be provided 14 days before the purported transfer); and
  • an amendment to TUPE would be possible to ensure that a change of location of the workplace is capable of constituting an ETO (ie an ‘economic, technical or organisational reason entailing changes in the workforce’).

Reviewing the Employment Tribunal Rules

In 2011, the government asked Mr Justice Underhill, the outgoing President of the Employment Appeal Tribunal, to undertake a fundamental review of the Employment Tribunals Rules of Procedure (ET Rules). His recommendations, including new draft ET Rules were published in July 2012. A consultation paper, entitled ‘Employment Tribunal Rules: Review by Mr Justice Underhill’ now seeks views on a number of issues arising from those recommendations, including on draft ET1 and ET3 forms.

Employment Tribunal Rules: Review by Mr Justice Underhill

Ending the Employment Relationship

If you would like to input into our response to either, or both, of these consultations, please contact Tim Thomas, Head of Employment Policy on 020 7654 1523 or email Both consultations close on 23 November 2012.


Media Team 020 7654 1576

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