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Lincoln Lawyer: The Red Tape challenge

The Red Tape Challenge was launched by the Prime Minister in April 2011, with the aim of reviewing some 6,500 regulations and deciding whether they were more of a hindrance than a help. By September 10 2012, at least 3,000 were destined either to be scrapped or significantly reduced.

The employer’s perspective

One of the areas most beset by red tape in recent years has been employment law, and now Business Secretary, Vince Cable, has announced consultations on a package of employment reforms as part of the on-going challenge. The package includes support for settlement agreements, caps on compensation for unfair dismissal claims, streamlining employment tribunals, clarifying the TUPE rules and further guidance from ACAS on disciplinary and grievance procedures. The reforms are aimed at giving employers more flexibility and confidence to handle their workforce, and particularly to speed up and simplify managing the end of the employment relationship.

That is never an easy time for employer or employee as, in the majority of cases, the decision will have been made by one party and not by both in agreement. There’s nothing new about the parties being able to conclude a dispute with a settlement agreement once a claim has been made to the employment tribunal, but the position is far more precarious for the employer just before the relationship actually ends. Sometimes both parties know that the relationship has broken down, but neither know what to do about it.

Discussions prompted by the employer which have ended with “off the record” offers to pay employees to leave have, in the past, been used as a springboard to claims for unfair constructive dismissal. The Government says that cannot be right, and aims to provide a statutory framework for consensual settlement agreements. ACAS has also been asked to draft a new code of practice.

The current law on the enforceability of settlement agreements requires the employee to take independent legal advice from a CAB, union or lawyer as to the terms and affect of the proposed agreement, and it’s the employer who foots the bill for this. It was hoped that this requirement may have been abolished, but unfortunately it looks set to remain.

However, there is a glimmer of light for employers dealing with unreasonable employees with unrealistic expectations, and that’s the introduction of employment tribunal fees next year and a lower cap on compensatory awards for unfair dismissal (currently £72,300). The Government hopes to discourage vexatious claims being issued by charging claimants £390 for unpaid wages claims and £250 for starting unfair dismissal and discrimination claims, where currently there is no issue fee.

The employee’s perspective

One of the biggest changes to employees will be the introduction of fees to start claims in the employment tribunal. Currently it costs nothing to start or run a claim yourself and, unlike other areas of litigation, even if you lose your claim, you do not have to pay your opponent’s costs. There are exceptions to this rule, and it is becoming more frequent that the tribunal judges will make costs orders where hopeless claims have been issued and run all the way to a final hearing, but it is still not the norm.

The fees are intended to discourage vexatious claims but, once the new fee structure is in place, there is a concern that employees with genuine claims will not be able to afford to take action against their employers and so may be deprived of access to justice.

Another potentially worrying development is a proposal to reduce the cap on compensation awarded for successful unfair dismissal claims. There is no exact figure yet, but it could be down from the current £72,300 to one year’s earnings — about £25,882, which is the national average salary. This would not make it easier to end the employment relationship, but it would give employers the comfort of knowing they would have to pay less if an employee was prepared to pay the £250 fee to issue a claim in the employment tribunal and went on to win it.

Which brings us to settlement agreements and the idea of reaching an agreement with your employer before you leave employment, so that there is no need for a claim. The Government wants to make it easier for the parties to manage this difficult time in the relationship and proposes a statutory framework for discussions leading to full and final settlement. ACAS has been asked to draft a new code of practice and the consultation will ask whether there should be set levels of payments to employees based on, for example, length of service and reason for dismissal.