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Is this the most radical employment law reform for decades?

Government’s debate over unfair dismissal has been big news recently, reflecting the interest in employment law policy during difficult economic times. Laura Samuel is a lawyer in the employment team at national law firm Berrymans Lace Mawer LLP.

Earlier this month a report, written by the venture capitalist Adrian Beecroft, suggested employers should be able to “fire at will”, lawfully dismissing employees without explanation in return for a minimal compensation payment. It is thought this would encourage companies to take on more staff. Business Secretary, Vince Cable has expressed reservations, citing the effect on consumer spending that greater job insecurity would induce. Last week, in a speech to the Engineering Employers’ Federation, Mr Cable unveiled a series employment law reform proposals, some of which had been leaked previously. Despite Mr Cable’s concerns, the government is “seeking views” on the “fire at will” proposal in respect of “micro-companies,” with fewer than ten employees reportedly on David Cameron’s insistence. There is also to be consultation on the introduction of employment tribunal fees. These would require claimants to pay an initial fee on lodging a claim and a further one when the matter is listed for hearing. A further proposal is to introduce higher fees for claims in excess of £30,000.

It is thought these proposals, if introduced, would significantly reduce the number of tribunal claims; the first proposal through removing the right to claim unfair dismissal altogether for micro-company employees and the second through encouraging employees to reconsider before bringing a claim due to the costs involved. As Mr Cable points out, the average claim costs an employer £4,000 and takes an average of 24 weeks which may be an issue for an SME. Given the expense to small businesses of defending claims, in a system where costs are rarely awarded against claimants even where claims are unmeritorious, many employers will hope the proposals weather the undoubtedly strong political opposition they will face.

Mr Cable has also this week unveiled the government’s response to the Resolving Workplace Disputes consultation, launched in March 2011. The most controversial proposal – an increase in the qualifying period for unfair dismissal claims from one year to two years’ service – received strong opposition. Nevertheless, the government is ploughing on with the reform, citing support among the business community as evidence it will enhance job creation. The government also proposes an independent review of tribunal procedure by Mr Justice Underhill (current President of the Employment Appeal Tribunal), with a view to cutting out time-wasting and complexity. A consultation will also be launched into whether lay members of tribunal panels should be removed. Furthermore, all parties will be required to undergo ACAS pre-claim conciliation before proceeding to tribunal. Mr Cable has calculated that, taken together, the Resolving Workplace Disputes reforms will result in annual savings for employers of £40 million.

However, the savings must be seen in the context of proposed financial penalties to be levied against companies who have breached employment law, and are found to have done so in “aggravating” circumstances. The charge looks set to be half the amount of the claimant’s total award, but with a minimum of £100 and a maximum of £5,000. The penalty will also be reduced by 50 percent if the charge is paid within 21 days. Finally of note will be the launch of a consultation on instituting “protected conversations” which allow employers to have frank discussions with workers, without them forming part of the formal dismissal procedure which can be used as evidence within the tribunals. This protection would be lifted only insofar as anything discriminatory is said by the employer.

Taken as a whole these reforms may represent a positive development for employers, saving costs by reducing the number of unfair dismissal claims, discouraging misconceived claims and encouraging early settlement. However, the proposals may result in a rise in other more expensive claims (e.g. discrimination) as employees try to shoehorn their claims into those for which there is no qualifying period, or seek pass on the cost of issuing Tribunal claims to employers when settling claims. That said, which of the current proposals become law in the face of stiff opposition and the effect of the reforms when they do remains very much to be seen.

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