July 31, 2013
In this update we review recent key developments in UK employment law and look forward to some significant changes that are on the horizon.
The Employment Law Review
A systematic review of UK employment law by the current Coalition Government began in 2010 and since then a package of reforms aimed at easing the perceived burden of employment regulation on employers (particularly small employers) have been proposed and consulted upon, many over the course of the last year. Some of the more controversial measures have been dropped following consultation, whereas others have been, and will continue to be, implemented this year through the Enterprise and Regulatory Reform Act 2013 ("ERRA"). The UK Employment Tribunals system has also come under scrutiny. Whilst originally established as an accessible, informal and inexpensive way of resolving employment disputes, the Employment Tribunal has seen an increase in claims in recent years, and defending claims can be disproportionately expensive and time consuming. We report on some changes that have been made to modernize and streamline matters and to help parties avoid the tribunal process.
Unfair Dismissal law
Changes to the unfair dismissal qualifying service requirement
In addition to rights under their contract of employment, qualifying employees in the UK also enjoy protection against unfair dismissal. In an attempt to reduce the number of unfair dismissal claims making their way through the UK Employment Tribunals the qualifying service requirement applicable in the majority of claims was doubled from one to two years, for those who commenced employment on or after 6th April 2012. These changes will not affect situations where there is no qualifying service requirement to claim unfair dismissal (e.g. if an employee is dismissed for "whistle-blowing").
New statutory cap on unfair dismissal compensation
Of potentially greater benefit to employers is the recent change to unfair dismissal compensation. Unfair dismissal compensation currently comprises two elements: a basic award of up to £13,500 which is calculated by reference to age, length of service and salary, and a compensatory award which is calculated in order to compensate for any financial losses flowing from the unfair dismissal. Save in limited circumstances, the compensatory award will be subject to a cap of £74,200. However, the average award received by claimants in the Tribunal is less than £5,000 due, in part, to the reluctance of the Tribunal to make substantial awards for future lost earnings. With effect from 29 July 2013, the compensatory award is now capped at the lower of £74,200 or 52 weeks’ gross pay. With average UK earnings running at approximately £25,000 per annum, it can be seen that the revised cap will significantly reduce the potential maximum liability for many unfair dismissal claims. It is hoped that that this will lead to a more realistic perception of potential tribunal awards on the part of claimants and will facilitate the settlement of Tribunal claims.
Dismissals due to political opinion or affiliations
In certain circumstances the qualifying service requirement which must be met to bring a claim for unfair dismissal is dispensed with, including dismissals as a result of making a protected disclosure or on maternity grounds. From 25 June 2013, dismissals relating to an employee’s political opinions or affiliation were added to this list and no qualifying service requirement applies.
Ending the employment relationship — separation discussions and settlement agreements
A key focus of the Government’s employment law review has been on ending the employment relationship. Consultation has revealed many employers’ concerns regarding their ability to deal effectively with employees who are under-performing or who have committed serious acts of misconduct, whilst avoiding the Employment Tribunal. In particular, employers expressed concern about negotiating settlement offers free from the fear that such settlement discussions might be used against them in a subsequent claim. This issue is particularly acute on account of the lack of certainty about whether such conversations will be protected by the ‘without prejudice’ principle, which prevents statements (written or oral) made in an attempt to settle a dispute, being put before a court or tribunal as evidence against the party who made the comment. An employer in a dispute situation has a certain level of comfort that these conversations will be protected, however, if there is no existing dispute then the ability of employers and employees to have conversations about ending an employment relationship is impacted.
To this end, in order to facilitate open discussions between employers and employees the UK Government has introduced a legislative change effective as at 29 July 2013 which means that offers of settlement are inadmissible as evidence in unfair dismissal claims. This means that offering a settlement route to an employee will not give rise to grounds for unfair dismissal if handled correctly by the employer. In the same vein, the Government has included model settlement agreements and letters used to propose settlement to employees in non-statutory Guidance accompanying the statutory code produced by Acas (Advisory and Conciliation Service) which also came into effect on 29 July 2013. From the same date compromise agreements are also renamed as "settlement agreements" in all relevant employment legislation. The change will not impact the requirement that independent legal advice be received by the employee on the effect of the agreement in order to ensure its validity.
While we applaud the Government for introducing these measures, this is not a watertight solution and employers should still proceed with care when discussing ending an employment relationship.
It remains the case that communications between employer and employee with the aim of resolving employment disputes are protected by the ‘without prejudice’ principle and may not be referred to in litigation and we consider that the new measures should help provide businesses with some clarity about what they can and cannot do when ending an employment relationship in circumstances where no dispute has arisen.
Under whistleblower legislation, it is possible to gain protection as a whistleblower in a number of circumstances, including where a breach of a legal obligation has occurred or is likely to occur. Following amendment to the whistleblowing legislation, for disclosures made on or after 25 June 2013, there is no longer a requirement that the disclosure must be made in good faith (although compensation awarded by the Tribunal can be reduced by up to 25% should the disclosure not be made in good faith), and there is now a requirement that the whistleblower have a reasonable believe that the disclosure is in the public interest. This has seemingly closed a legal loophole which previously permitted a complaint about a breach of an employee’s own personal contract of employment to be sufficient to lay the foundation for a protected disclosure and whistleblowing claim (not what the legislation was designed for).
However, "public interest" is not defined in the legislation and what constitutes "public interest" will be a matter for the Courts to determine. It is possible that employees may consider (and hold a reasonable belief) that breaches of their own employment contract are in the "public interest" on the basis that they want to protect other employees from the same treatment. This could circumvent the intention of the change.
Further amendment to the legislation means that employers can be vicariously liable should an employee victimize a whistleblowing colleague, although an employer does have a statutory defence if it can show that it took all reasonable steps to prevent the detrimental treatment.
Broadly, we see these changes as a positive development for employers. It will generally help prevent employees from claiming that they were dismissed due to ‘blowing the whistle’ with regards to a breach of their contract of employment, which under the previous rules could have rendered their dismissal automatically unfair.
The UK Employment Tribunal Reforms
Costs awards — Earlier this year saw changes to the limit for costs awards in the Tribunal increase from £10,000 to £20,000. In line with this change we have seen a trend whereby the Employment Tribunals are taking a more aggressive approach to ordering costs awards, and earlier this year we successfully represented a client at a costs hearing achieving a five-figure sum victory against an unsuccessful claimant, notwithstanding the fact that they were unemployed. In a traditionally cost-free jurisdiction such awards are considered very rare.
From 29 July 2013:
Tribunal fees — Claimants are now required to pay a fee to issue proceedings in the Employment Tribunal and the Employment Appeal Tribunal. Should the claim proceed to a full hearing, the claimant will also be required to pay a hearing fee. The level of the fee will depend upon the nature of the claim, for example, level 2 claims, which will include claims for unfair dismissal, discrimination, equal pay and whistleblowing, will be subject to a £250 issue fee and a £950 hearing fee. Whilst designed to discourage unmeritorious claims and encourage settlement, the changes remain highly controversial in an arena that has predominantly been a cost free jurisdiction.
Tribunal rules of procedure — Following a review of the Tribunal system new rules of procedure are to be introduced. These rules aim to be less cumbersome and use simpler language to improve accessibility and understanding, particularly for unrepresented parties.
The following change is anticipated to come into force next April, subject to Parliamentary approval:
Compulsory pre-claim conciliation — The majority of claimants will be required to submit their complaint to Acas before their claim can be issued in the Tribunal. This proposed scheme for early conciliation aims to encourage settlement and to reduce the number of hearings.
Collective Redundancy Reform — changes to minimum collective consultation periods
Where an employer in the UK envisages engaging in a reduction in force, it is required to consult individually with affected employees and may also be required to consult collectively with appropriate employee representatives. The collective consultation obligation currently applies where an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less.
Earlier this year, on 6 April 2013, changes were made to the collective redundancy rules such that the minimum consultation period for an employer that proposes to dismiss 100 or more employees as redundant within a 90 day period is reduced from 90 to 45 days. The minimum consultation period for an employer that makes at least 20, but fewer than 100 employees redundant has not been altered and remains at 30 days.
Further changes under these reforms include confirmation that fixed term contracts which have reached their agreed termination point are specifically excluded from the collective redundancy consultation exercise, although this exemption does not apply if the employer is considering early termination as a result of the redundancy. Also, Acas has published new guidance on how to manage collective redundancies.
The shortening of the 90 day minimum consultation period should afford employers increased flexibility and reduce delays in the restructuring of businesses. The 45 day period is a minimum period and businesses can consult for longer where it is considered appropriate. Indeed in some cases, longer consultation may be necessary due to the particular circumstances. Notwithstanding this reduction in minimum period, it is crucial to note that the maximum protective award for failure to inform and consult will remain at 90 days’ pay per employee and redundancies made without prior collective consultation may also be unfair dismissals in which case further compensation may be awarded.
Workplace Pensions Reform — is your business ready for Automatic Enrolment?
On 1 October 2012, automatic enrolment laws came into force in the UK, requiring all employers to automatically enroll jobholders into a qualifying pension scheme and make minimum level of contributions on their behalf for the first time. Employers are being brought into their duties in stages according to the size of their PAYE scheme over the course of the next four years, with larger employers going first. Contributions are also being phased in so that the full effect of the changes will not be felt until 2018. Employers employing between 30,000 and 49,999 workers had a staging date of 1 January 2013 and by 1 January 2014 those with PAYE scheme size of 350-499 workers will have to automatically enroll workers.
Should you require any assistance navigating through the key issues arising in the run-up to your staging date and beyond, please do not hesitate to contact us.
2013 has already seen a number of changes to the UK employment law landscape, many in an attempt by the Government to reduce regulatory burdens on businesses and to cut ‘red tape’ and more are expected. Of particular note are the new simplified TUPE Regulations, expected to be unveiled later this year and upon which we will report in due course. Predominantly, the recent and upcoming changes are to be welcomed by employers.
Gibson Dunn’s UK labour and employment team will be on hand to help clients understand and respond to these changes as and when they happen.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these and other developments. Please feel free to contact the Gibson Dunn lawyer with whom you usually work or the following lawyers in the firm’s London office:
James A. Cox (+44 207 071 4250, firstname.lastname@example.org)
Kathryn Edwards (+44 207 071 4275, email@example.com)
© 2013 Gibson, Dunn & Crutcher LLP
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