The government has announced major changes to unfair dismissal laws which are expected to take effect from Summer 2013.
Background
The Government has confirmed that the new compensatory award will be the lower of £74,200 or the claimant’s annual salary.
The Government has been consulting with key stakeholders on numerous proposals relating to unfair dismissal as part of a consultation process called ‘Ending the employment relationship’. Emma Clark worked with the Employment Lawyers’ Association (“ELA”) to help formulate ELA’s response to the proposals.
The new proposals
Employers face a problem caused by a longstanding decision of the Court of Appeal (BNP Paribas v Mezzotero) which is seen to place an unnecessary barrier to amicable agreed terminations of employment. Existing case law requires there to be a “dispute” in existence before discussions will be genuinely “without prejudice” and as such protected from disclosure in Tribunal proceedings.
In an attempt to resolve this issue, the government has now proposed a specific provision enabling employers to raise settlement discussions with an employee instead of following, for example, a performance management and dismissal process.
Under the new law neither party will be allowed to refer to an employer’s offer of settlement in Tribunal proceedings. Therefore, an individual who chooses to resign instead of accepting an offer of settlement from the employer will not be able to refer to that offer in support of their claim of unfair dismissal. The only exception to this rule is if the employee can show “improper behaviour” on the part of the employer.
The Government has asked ACAS to produce a Code of Practice with template proposal (but not mandatory) letters and settlement agreements to assist employers in ending the employment relationship.
Commentary
The new proposals will help employers end employment relationships on a consensual and mutually agreeable basis through the use of a settlement agreement rather than fear an unfair dismissal claim.
One of the outstanding areas for concern is what will constitute ‘improper behaviour’. ACAS guidance is awaited on this point. It is expected it to include blackmail, unambiguous impropriety (whereby it is clear that there is an untoward reason for the settlement discussions) or perjury.
The revised cap on compensation for unfair dismissal will help employers in their understanding and management of the business’ financial exposure when they terminate an employee’s contract of employment.
It remains likely that high earners will continue to consider whether a discrimination and whistleblowing claim might be capable of being advanced instead or in addition to an unfair dismissal claim. There are no limits on compensation for such claims and they will therefore be financially more appealing than an unfair dismissal claim because (on the basis their salary exceeds £74,200) their maximum award for unfair dismissal will be capped at their annual salary.
As the Tribunal will need to determine whether or not the settlement discussions are ‘improper’ and therefore impermissible, the new laws may result in an increase, rather than the desired decrease, in litigation.
Resources
Government consultation “Ending the employment relationship”
For further information or to discuss the issues raised, please contact Emma Clark or David Widdowson on +44 (0)20 3051 5711.
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