Employment Issues / In the News

Capping Unfair Dismissal

Last week, the business secretary Vince Cable announced that more reforms were planned to make it ‘easier for firms to hire staff while protecting basic labour rights’.

  • Further details of the consultation are available HERE.

This is the latest development in the coalition Government’s systematic review of employment law since it took office and follows the announcements in March this year which extended the qualifying period to claim unfair dismissal to two years for those commencing employment since April (twice the 12 months previously required).

There was, of course the headline-grabbing proposal to slash the compensation cap on unfair dismissal claims from just over £72,000 to either the lesser of the employee’s annual salary or another to be determined lower figure. This lower figure is expected to be based on the national median average earnings (currently £25,882). The figure to be used, however, will be determined at the discretion of the relevant minister and without any need for Parliamentary consideration or approval. Whatever happens, there is the distinct chance that many workers will not recover their full losses, especially in times of recession and in spite of these plans to ‘encourage’ recruitment.

Hiring and firing
On the face of it, this alone seems less about making it easier for businesses to hire new employees and more about making it cheaper for employers to fire them.  However, once you start looking at the detail under the headline, there is some comfort for those who have valid claims against their employers.

The truth is that very few unfair dismissal claims come close to hitting the current statutory compensation cap with only 1% to 2% of claims reaching it in each year and only 6% of awards being over £30,000.

What’s more, because of European legislation, there can be no upper limit on claims of discrimination. It is likely, therefore, that there will be an increase in claims under one or more of the discriminatory grounds as employees look for alternative ways to beat the cap, much in the same way as it is expected in order to beat the extension to the unfair dismissal qualifying period mentioned above. It may also mean that there is an increased number of employees making what they consider to be public interest disclosures (‘whistle-blowing’) in order to protect themselves against dismissal or laying the foundations for a greater award if successful in a tribunal.

Settlement agreements
The second part of the current proposals is the introduction of ‘settlement agreements’, something expected to be similar to the current compromise agreement. Termination agreements, if I can introduce yet another description of them, are already extremely common and in general and regular use.  Some employers rely on them more heavily than others, seeing them as an easy alternative to going through the prescribed dismissal procedure. Settlement Agreements, however, may be in a standard pro forma, limiting what they might or might not include and potentially incorporate a tariff attached to particular key factors (such as reason for dismissal, length of service etc.), thereby limiting the financial exposure of the employer.  Depending on the outcome of the consultation, settlement agreements are expected to be in effect within the next 12 months thereby making agreed ‘no fault’ terminations possible at minimal cost and with greater ease, probably for the benefit of employers.

In reality, it is doubtful whether these proposals will save employers any money or put off troublesome or vexatious claimants as intended. Yes, it will make it cheaper for an aggressive employer to fire at will, but it won’t make it any easier.

Employers are still restricted by procedures if they want to dismiss any employee fairly (which is often the least expensive way).

Failure to follow a procedure and rely on a settlement agreement or a compensation cap might still mean they are faced with unfounded, ill-conceived but no less expensive claims of discrimination in order to beat the system.

Employees, on the other hand, may lose out financially even where their claims are successful. We must wait to see the outcome of the consultation, but it seems already obvious that some decisions have been made, it’s just a case now of how deep the cuts will be.

This article first appeared at http://www.thejusticegap.com on 18 September 2012

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