Why are Employers So Negative About Emplaw reforms?

In my last blog I wrote that the business lobby was unlikely to be impressed by the Government’s reforms of employment law. Then today I came across a report in Xpert HR, the online HR website and journal, stating that 62% of members of the Institute of Directors (IoD) believe that the government has been “ineffective” in its attempts to “simplify” employment law. Coincidentally another survey, this time on behalf of Brook Street was also published, in which only 9% of those polled thought UK employment law was “fit for purpose”.

The IoD polled 1,277 of its members and found a large number of them in a fairly depressed state about the economy.  When asked to comment on whether the government’s proposed reforms of  not just employment law, but the planning  system, tax law, education and transport infrastructure, improving ICT and energy infrastructure, reducing business regulation and taxation, more respondents felt the government’s reforms were ineffective than actually doing anything positive to rectify the current situation.  For instance, 62% of those pooled thought the government’s employment reforms were ineffective, compared to 11% who thought the opposite. 69% thought the government was failing in its aim to reduce tax complexity, while only 8% were in favour. Similarly, 68% were unfavourably disposed towards the government on its attempts to reduce business regulation and only 8% held the opposite, more positive view.

In the Brook Street survey 62% of respondents thought that employment regulation “had a negative impact on bottom lines and say that it leads to nervousness about under-performing and being non-compliant.”

What the IoD survey shows as a whole is that the government is not well thought of by IoD members in many areas affecting business.  It also begs the question of how well informed the respondents were on each issue before casting their votes.  The results may well reflect the mid-term boredom and disillusionment that affects most governments, rather than an educated, rational, decision on each issue.

The figure for employment law reform bears out what I said in my last blog though, namely that the business lobby are likely to be unimpressed by what the government has done (or proposed to do) to date. Are IoD members right to be so pessimistic?  And what to make of IoD Chairman Ian Dormer’s view that the Beecroft report was “halfway there” (to where? Complete insanity?) and employment law is a “pile of crap”? In respect of the Beecroft report, the Department for Business Innovation and Skills (“BIS”) has also published a comparative analysis of the proposed reforms alongside Mr Beecroft’s recommendations.  That should make interesting reading for Mr Dormer.

Over the last year the following headline reforms have been implemented, or announced;

1. The qualifying period for being able to claim for unfair dismissal has increased from one to two years (for employees employed since 5^th April 2012)

1. Fees for issuing claims and taking them to a final hearing at an Employment Tribunal will be introduced from summer 2013.  The level of fee will depend on the type of claim, but they will be comparatively steep in lower value claims, although there will be a remission system to assist the poorest.

1. The cap on the maximum compensatory award in the ET will be reduced from the current £72,300 to a much lower figure, possibly around £26,000.

1. Judges to sit alone in more straightforward cases and to be given more powers to dispose of weak cases

1. Compromise Agreements to be replaced by Settlement Agreements, which may be a much more standardised “off the shelf” product than currently exists. They may also introduce protection for employers suggesting entering into the agreements without fear they will be sued for unfair or constructive dismissal, a sort of “Protected-Conversations Lite”.

Employees’ rights have been significantly dented, particularly with the qualifying period for unfair dismissal claims having been increased to two years for new employees. The government estimates that this will reduce the number of unfair dismissal claims by between 3,700 and 4,700 per annum and save businesses £10mn per annum. According to HMCTS’s own statistics there were approximately 100,000 unfair dismissal/redundancy/breach of contract cases issued at ETs in 2011-12. The trend since 2009-10 has been markedly downward (see figure 4 at page 9) as it has for most types of ET claim, save for disability discrimination claims, which have remained constant throughout that period.

The anticipated reduction in claims is not, therefore, going to affect the volume of work going through ETs that much, or reduce the amount that employers are ordered to pay by an Employment Tribunal. It will, however, make a very significant difference to the number of claims that get settled before being issued, i.e. those cases where the employer thinks (or is advised) that they are at risk of losing and agrees to pay a settlement sum to the employee to avoid proceedings.  Of even greater significance in these pre-issue cases will be the reduction in the amount of compensation that will be paid to settle disputes, and this may be where the government believes the £10mn annual saving will be made. As Anya Palmer wrote in The Guardian on Monday, it won’t be easier to dismiss staff, but it will be cheaper.

That view may not actually be entirely correct because the government in its “Ending the Employment Relationship” consultation paper, published last Friday is seeking to introduce not just a simplified form of Settlement Agreement, but also a process that effectively extends the “without prejudice” principle to situations where there is no existing dispute between the parties,  enable employers to dismiss employees by offering a settlement agreement without fear of the offer being used against them at a Tribunal. This isn’t billed as a “protected conversation” but it is clearly similar. If implemented it would not only offer a way of avoiding disputes, but avoiding employment protections altogether. A settlement agreement can be offered where the employer may have no fair legal basis for dismissing the employee (capability or conduct, for example). Dismissing staff could become easier if they can be persuaded to accept a settlement agreement

The settlement agreement might not need the employee to seek independent legal advice either;

By creating templates, with supporting guidance, that can be used with minimal tailoring, we believe that employer and employee time and costs will be reduced as they will require less legal advice, if any at all, in creating and explaining the settlement agreement process and content. In this way, they offer a faster track to settlement. [1] (my emphasis)

So, the employer can offer a settlement agreement to an employee in a situation that might amount to an unfair dismissal and not face ET proceedings, whilst paying substantially less than now and without the need for the employee to obtain independent legal advice on the terms of the agreement. That will remove a fundamental safeguard for employees because, remember, the purpose of a settlement agreement is to create a legally binding agreement between the parties: “supporting guidance” will be no substitute for impartial legal advice to an employee facing unemployment. Employees will still be able to seek their own legal advice if they wish it, but how many will be “encouraged” not to do so?  There is great potential for unfairness in that proposal.

Finally, ET procedure is to be “streamlined” so that weak cases will be weeded out.  Much will depend on how this will be enacted, but ET Judges already have power to strike out unmeritorious claims, or order deposits of up to £1,000 to be paid by Claimants (in addition to the fees being charged to issue from next year).  Will any new streamlining actually tip the law (as opposed to the procedure) against employees? You can be sure that one outcome of this will be masses of satellite litigation as lawyers struggle to get to the meaning of whatever is introduced.

Should employers be so unimpressed with what the government is proposing on their behalf?  In my view, they should be fairly pleased. Employee rights are being wound back significantly and  unless one takes the opinion that employees should not be afforded any legal protection at all from unfair dismissal, what is proposed will have a significant effect on the legal landscape. And on employees who risk being inadequately compensated when dismissed.