Employment Reforms: Back to the Future?

 

The Government today announced reforms of employment law. After all the consultations, leaked reports and speculation we finally know what the government intends to do to reform employment law so as to stimulate the economy and “give firms more flexibility and confidence in managing their workforce and to reduce employment law red tape.”

So, to try and reach this state of nirvana the government proposes to consult on (yes, consult, not introduce)

• Introducing settlement agreements “to help end employment relationships in a fair and consensual way” (umm, isn’t this what compromise agreements do?). ACAS will produce a new Code of Conduct.
• Reduce the cap on compensation claims for unfair dismissal
• Make it easier for Judges to dismiss weak claims by streamlining  ET procedures
• Responses from the business community on TUPE
• Review and improve guidance for small businesses on the ACAS Code of Practice and Grievance

Ok, we could have been facing the nightmare of “Compensated No Fault Dismissals”, for which we should be grateful. The proposals do contain a great deal of potential unfairness though, which I shall deal with below.  But I find it hard to see anything in these proposals that will kick start the economy and the Government’s case on this point is hardly strengthened by its admission that

The UK has a lightly regulated, flexible labour market that the OECD considers to be amongst the best in the world, behind only USA and Canada.

The recent World Economic Forum Global Competitiveness Report cited the flexibility of the UK’s labour market as one of the main reasons for its improvement in the global rankings to 8th from 10th. 

Why do we need them then?  let’s dispense with the smokescreen of making the economy more competitive. This is about turning the clock back on employee’s rights. Although these proposals may lack novelty value, they are not without bite and the effect will be to reduce the amount of compensation that employees can potentially be awarded if they are unfairly dismissed.  The cap currently stands at £72,300, but it now looks like it will be reduced to a much lower upper limit, possibly based on median salary (approximately £26,000) or one year’s pay, whichever is the lower.

Reducing the cap will be grossly unfair on those employees paid more than whatever figure the cap is set to be.   The median award in ETs is said to be £4 – 6000 and only in 1 – 2% of cases is the employee actually awarded the maximum of £72,300 so why the need to reduce the cap anyway?

This takes the position almost back to the late 1990s when the then Labour government increased unfair dismissal compensation from £12,000 to £50,000 and allowed it to increase in line with inflation each year thereafter.

Better paid employees who are unfairly dismissed are already penalised by the very existence of the cap – why have it at all? –   and this will only aggravate an already difficult situation, particularly in a recessionary job market. As usual, it will be the “squeezed middle” that gets squeezed by these proposals: the sort of middle class, middle aged above average earning people who probably vote Conservative.  They won’t be fooled by the fact that it is St Vince of Cable that is bearing the bad news.

As I have written before, if the new cap is actually limited to the employee’s actual pay of one year that would be a sensible proposal, but I doubt that that will actually happen.  In other words, the limit is placed on the number of months rather than an actual figure and would thus mean a potentially reasonable maximum level depending on the employee’s own personal circumstances, rather than an arbitrary figure plucked out of the air.

It’s a bad idea for another reason. Most employment disputes, even if issued, don’t make it all the way to a final hearing at the Employment Tribunal. The vast bulk settles.  However, that may no longer be possible because employers will not offer more than the new reduced cap to make the claim go away.  That, in turn, will probably lead employees to look for more creative uncapped claims to bring, such as discrimination and whistleblowing, which in turn will waste more time and money for employers in dealing with them. Whether they get struck out under the new streamlined ET rules remains to be seen.

What about the proposals on “Settlement Agreements”? Why is this necessary and what will it do that we don’t have at the moment? Compensated no fault dismissal for micro-businesses may have been abandoned, but instead employers and employees will be able to enter into “voluntary settlement agreements” allowing them to settle disputes. But aren’t these already known as compromise agreements and haven’t we had them since 1996?

Nothing that Vince Cable has suggested will simplify employment law. Nor will it stop unmeritorious claims. It reduces employees rights, does very little to reduce Red Tape and, I suspect, will do little to appease the business lobby.