Chris Leitch, employment partner with Tods Murray LLP
The current economic climate means most business including SME’s face difficult and challenging obstacles to growth and profitability.
Employment claims are perceived by many as a significant diversion for their management who more than ever need to be planning for and doing business.
Against this backdrop, the Enterprise and Regulatory Reform Bill received its Second reading on the 12th June 2012 and has been presented by The Secretary of State for Business, Innovation and Skills Vince Cable as being part of the package of measures that the Government wish to introduce to generate economic activity.
The Bill has had a controversial journey. Radical proposals in the Beecroft report for cutting risks faced by employers from claims in employment tribunals included the much derided concept of doing away with unfair dismissal and allowing what some referred to as a charter for “fault free sacking with compensation”. Many, including the Labour Party and some Unions, feared it would appear in the Bill.
Instead, when introducing the bills second reading this week, Vince Cable stated: “We want to do more to encourage parties to reach an agreed solution at an earlier stage.
"We will therefore introduce an additional clause in Committee to ensure that the offer of a settlement cannot be used against an employer in an unfair dismissal case. That will facilitate the use of settlement agreements, making it easier and quicker for employers and employees to come to an agreed settlement where an employment relationship is not working.”
Very many employers already use compromise agreements with employees to draw a line under failing employment relationships. Some employers are more risk adverse than others about how they present such offers to employees.
There is a real and justified fear about raising a discussion prior to dismissal for fear of giving evidence to employees they can use against them in tribunal or bolstering other claims which have no potential limit to the compensation which may be awarded. That is the case in many of the discrimination claims available to workers under the Equality Act.
My experience is that many SME’s wish that they could solve a difficult employee issue by frank discussions about the fact that “things are not working out” making a quick, “clean” payment which is without risk of repercussion and bringing the employment to an end.
This idea of “protected conversations” was consulted on by the Coalition last year and some comparisons may be drawn in the current bill with the concept of a legal basis for making an offer in a “settlement agreement” which cannot be relied upon in tribunal in any unfair dismissal case. It is suggested that there will be standard forms and templates for employers to use.
As well as settlement agreements and its related provisions the bill introduces a raft of potential new measures which if used “to their limit” would mark a significant change to the tools and powers available. For example the draft introduces a potential power for the Secretary of State to limit a “simple” unfair dismissal compensatory award and ‘incentives’ for prompt payment for fines on employers who lose cases.
It is tempting for some to look for a quick legislative fix. The reality is that employment relations are complex and the tensions between workers’ rights and employers desire for freedom of action a controversial topic.
The Global perspective is illuminating. Many US states have very limited employment law protections compared to European nations. Within Europe what is very clear is the UK is perceived by business as having a very flexible workforce and relatively lax dismissal laws.
Any employment lawyer who has advised on redundancies or dismissals in Scotland and has knowledge of similar cases in European operations will tell you that experience shows that on the Continent employees are generally more difficult to dismiss and payouts significantly higher.
Perhaps after this week’s announcement, cynics will dismiss the current Bill as more of the same minor change spinned as significant change.
Once an employer makes an offer to an employee to go the relationship is usually fractured beyond repair. Offers will be refused and may simply encourage bargaining for more. Recourse to uncapped discrimination or other claims available already does and will happen.
The use of “settlement agreements” is just one possible tool for employers to use. The complex web of regulation, dispute resolution and human relationships between workers and business appears likely to be largely unchanged in tribunal or at the coalface as a result of this Bill. It represents change but I suspect the pendulum is only swinging a little.