Reforms to employment law take effect

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We thought it would be useful to take a brief look at the changes that came into effect 29 July 2013 and have set these out below:

The change: Compromise agreements to be renamed settlement agreements

The Enterprise Regulatory and Reform Act 2013 renames compromise agreements to settlement agreements for the purposes of negotiation and discussion as well as changing the wording of the document. “Settlement” means a settlement that brings proceedings to an end without their being determined by an employment tribunal.

What this means in practice:

All primary legislation is being changed to incorporate the new name. However, secondary legislation (such as the Working Time Regulations) is not being changed so for now settlement agreements may need to be referred to as both compromise and settlement agreements in order for the document to be legally binding. Otherwise, the document will be very much the same as the compromise agreement which many employers have used for years. The failure to amend the secondary legislation dilutes the purpose of the change of name which is supposed to be to encourage parties to negotiate and to prevent any party from refusing to sign an agreement because they feel they are “compromising”.

The change: Confidential discussion

Employers to have the ability to have confidential discussions with their employees about their departure from their employment. These will remain confidential from a tribunal in unfair dismissal cases only (subject to certain exceptions).

What this means in practice:

Offers of settlement made to employees will not be admissible to a tribunal in unfair dismissal cases.  Employees will be unable to refer to confidential discussions which led to the ending of the employment relationship as evidence in an unfair dismissal claim.  The reason for this change is to give employers the opportunity to have difficult discussions openly without fear of it being used against them at tribunal.  There are certain conditions that must be fulfilled in order for the discussions to remain confidential and remember this only applies to unfair dismissal claims. While the law settles down, care should be exercised that any discussion may ultimately be referred to.

The change: A cap on unfair dismissal compensatory awards

The pay based cap on unfair dismissal compensatory awards will come into force.  The maximum award will be capped at a year’s salary or £74,200 whichever is the lower.

What this means in practice:

Employers will be able to measure the financial risk of how much an unfair dismissal claim will cost them as the compensatory award will be limited.  This is a positive step for employers as they will be able to know the risk they take on when considering whether to dismiss.  The cap will not apply to discrimination claim awards.

The change: New employment tribunal rules

Come into effect in the hope of making the whole process easier.  Specifically there will be an initial “paper sift” of claims and any claims which are considered out of jurisdiction should be taken out of the process at an early stage.  Also there will be more of an emphasis on dispute resolution and mediation before getting to a hearing.

What this means in practice:

The aim here is to encourage settlement and save tribunals cost and time.  In theory this will benefit employers because any spurious claims that may be received will be caught by the sift and disposed of before significant costs are incurred defending them.  The additional emphasis on mediation may help save costs and, as ACAS will be involved, should allow for meaningful negotiation.

The change: Tribunal fees to be introduced

There will be an initial fee to be paid at a rate based on the type of claim being brought (such as unfair dismissal or discrimination) and a further fee payable if the claim goes to hearing.

What this means in practice:

This is a controversial change and is under legal challenge at the moment.  The hearing of UNISON’s application for a judicial review of the introduction of employment tribunal fees took place in the High Court on 22 and 23 October 2013 however the hearing went part-heard and will conclude at a later date. The issue of tribunal fees was also recently raised during Prime Minister’s questions. Until any review decision is made, however the fees will be payable by each claimant.  It is estimated that this will reduce the amount of tribunal claims by around 20% and should be a deterrent to employees who may otherwise have put in a claim on the off chance they could be successful.

If you would like any more detailed advice on the changes, please contact Siobhan Howard-Palmer on 0191 211 7940.