HM Insights

Cable’s latest employment law proposals introduced

Vince Cable last month announced that consultation on the following employment law proposals will commence:

Cap for the compensatory award for unfair dismissal claims cease to be set at £72,300 and be set at the lower of the national median average annual salary of £26,000 or an individual's annual net salary.

The apparent rationale is that the current cap at £72,300 deters employers from taking on new staff.  But, with only around 1% of payouts awarded by the Tribunal at this cap, will this really encourage employers from hiring more staff?  Given that the current median award for unfair dismissal is only £5,000 to £6,000, only 6% of cases lead to awards of over £30,000 and the average UK salary being around £26,000 per year, it is doubtful.  This proposal doesn't make it easier to dismiss employees who have attained the necessary qualifying service for unfair dismissal protection; it just makes it cheaper.

For those who earn in excess of £26,000, this is an extremely unsatisfactory proposal.  Presently, those who earn in excess of the current £72,300 cap are already limited in their right of recourse against being dismissed unfairly, with many taking smaller sums under a compromise agreement due to the limitations in pursuing a claim before a tribunal or the civil courts.  Decreasing this cap by £46,300 will only lead to those high flyers losing out more if they are unfairly dismissed.

No-fault dismissals have been ditched and settlement agreements may be introduced

Cable has ditched his proposal to adopt no-fault dismissals, which would have permitted employers to 'sack at will'. He instead opts to pursue a voluntary scheme where employers and employees can sign settlement agreements, with an employee being paid off with a sweetener in return for waiving their right to pursue unfair dismissal proceedings before an employment tribunal.

It is probably a wise move to abandon the no-fault dismissal proposal as discrimination laws still exist: many employers may have just experienced that claims of a different nature may be raised against them when dismissing an employee and it is worth bearing in mind that discrimination claims have no compensatory cap! 

Are settlement agreements really different to the current practice of compromise agreements?  The jury is out.  Employers and employees agreeing to part ways is probably already adequately dealt with by both signing a compromise agreement, with the employee receiving financial incentives in return for signing away their employment rights.  An employer not willing to entertain the idea of entering a compromise agreement with an employee in the knowledge that they may risk facing a claim before a tribunal is unlikely to change their view with the introduction of settlement agreements.  However, it may make things easier for both employer and employee if the legal requirement that the employee take independent legal advice is removed.  Frequently, an employee is happy to sign the compromise agreement and the requirement to obtain independent advice is just a nuisance.  It obviously could still be open to the employee to seek legal advice at their own expense if they are unsure about whether they are being offered a good deal. However, this obligation to seek legal advice was in place in order to prevent employers asserting undue influence on employees to sign – when the employee may be ignorant of their legal rights – and this safeguard will seemingly be removed.

In an attempt to negate the need for lawyers, the consultation provides a template letter and guidance on how employers and employees would reach a settlement agreement.  ACAS has also agreed to provide a new Code of Practice for settlement agreements, if introduced.

Changes to Employment Tribunals

Cable has proposed that he'll make it easier for judges to dismiss weak claims.  Aggrieved employees may currently raise vexatious or unreasonable claims before Tribunal.  A judge being able to dismiss cases with no prospects at an early stage would obviously assist small businesses hugely by removing the need to pay lawyers' fees to defend such meritless actions.  It will be interesting to see how Cable proposes that this is implemented as it would require judges to be much more ruthless in dismissing such claims and thus the fear that their decisions could be appealed to the EAT would have to be addressed.

ACAS Code of Practice on Discipline and Grievance

ACAS have agreed to provide a new Code of Practice and guidance on the Code for small businesses.

Cable also announced that, following the call for evidence, consultation of the specific issues raised by businesses regarding the TUPE Regulations will commence by the end of the year.  It is hoped that some clarity will be forthcoming on the TUPE Regulations, a constant source of litigation and headache to employers.

It is worth repeating that the introduction of tribunal fees will be next summer, which many still view as the most draconian of all the proposed changes.