Employment Tribunal - fire at will plans dropped
By Jahad Rahman, partner at Rahman Lowe Solicitors
The Business Secretary, Vince Cable has announced various proposed reforms to employment law this morning. The consultation will start today.
The reforms have been proposed in response to calls from businesses to simplify and speed up the Employment Tribunal process. I've summarised these below.
Settlement agreements (also known as compromise agreements)
The Business Secretary wants to bolster the use of settlement agreements so employers can offer under-performing employees a pay-off.
Under the proposals, employers and employees can reach agreement in the event of a dispute by signing a 'settlement agreement' to avoid claims going to a tribunal.
Such agreements are already available for download on the internet and there's nothing new about this proposal because currently, employers and employees regularly use 'compromise agreements' to settle disputes.
Once an employee accepts the deal, it becomes legally binding and cannot later be used as evidence in a tribunal case.
Cap on unfair dismissal compensation award
The proposal is to reduce the compensation cap, which is currently £72,300 to a new reduced limit of £26,000 (the national median average earnings figure) or 12 months' net pay.
The Business Secretary believes the current cap deters firms, particularly small businesses, from hiring because they fear they could be landed with a big bill.
No fault dismissals
The "no-fault dismissal" proposals made earlier in the year in the Beecroft Report are being scrapped after a lack of support for the idea among the business community. It seems to me that common sense has prevailed because firing employees at will is unlikely to have helped the underlying aim of simplifying the tribunal process and getting the economy out of the recession.
While the reasoning behind the reforms may be well intentioned and supportive of employers, I would question their practical effect. In particular, reducing the compensation cap is unlikely to make it easier for employers to dismiss staff.
The Employment Tribunal statistics on unfair dismissal claims reveal that most cases are settled at around £4,000-6,000 and only a small minority of employees receive the maximum pay-out.
The real problem that businesses face in the current climate is that of vexatious employees who bring hopeless claims against their employers.
The only way to remedy this problem is to introduce a strict costs regime, where the loser pays the winners costs, which is the norm in other areas of litigation.
Rigorous enforcement of costs will probably result in a reduction in the number of claims received by the Tribunal, rather than the current proposal to cap payments.
Jahad Rahman is a Partner at Rahman Lowe Solicitors, a niche employment and discrimination law firm based at One Canada Square, Canary Wharf. rllaw.co.uk