Unfair-dismissal law

11 March 2013

One of the stated aims of the coalition government was to bring confidence back to employers who feel overburdened by employment legislation.

The government believes employers are often reluctant to take on new employees due to fear of the 'red tape' that entangles them should they later wish to let these employees go.

The government hopes that removing or reducing this red tape will open up a wave of employment opportunities for the unemployed. There have been a number of changes and proposals.

Eligibility to bring unfair dismissal claims
One of the first (and most high-profile) changes was to increase the length of service required to bring an unfair dismissal claim from one to two years. This increase affects any employee that started in their employment from 6 April 2012.

In increasing the length-of-service requirement, the government's aims are clear: it hopes employers will be encouraged that it now takes new employees twice as long to acquire unfair dismissal rights. This gives employers two years during which they can safely dismiss employees without fear of unfair dismissal claims (provided that the dismissal does not fall into one of a limited number of exceptional categories).

It also hopes to cut the number of claims brought by tribunal, thus reducing the financial burden on both employers and the tribunal system.

Exception to the service requirement includes cases in which an employee is dismissed as a result of trade union activities, because they are a member of a trade union or refuse to join a trade union; where the dismissal was connected with the employee's pregnancy and maternity rights; where the dismissal was due to the employee observing health and safety rules; where the dismissal was due to the employee making a protected disclosure (whistleblowing); or where the dismissal was due to asserting a statutory right.

At present, it is difficult to assess whether this change has had the desired effect. The true impact, if any, is likely to be felt more long-term as employers get used to the additional freedom the longer qualifying period provides.

It will be interesting to see whether the next set of tribunal annual statistics show any significant reduction in the number of unfair dismissal claims brought. The initial view is that employees are being more creative and alleging that one of the exceptional categories applies, in order to avoid the two-year requirement.

Settlement agreements/protected conversations
Another proposal, likely from summer of 2013, is to permit employers and employees to have "protected conversations" when attempting to resolve unfair dismissal disputes. This would allow employers to deal with disputes in the knowledge that such conversations cannot be used in subsequent tribunal claims.

The proposal includes template 'settlement agreements' (and guidance on how to value disputes financially) to be produced by ACAS (Advisory, Conciliation and Arbitration Service) for use by employers.

However, the protection does not extend beyond unfair dismissal disputes and employers will not be protected if they behave 'improperly' (still to be defined) during such conversations. See FM World, 14 February 2013 for more on this subject.

Cap on dismissal awards
The government proposes to introduce a cap on awards made for loss of earnings in successful unfair dismissal claims. Currently, such awards are made at a level the tribunal considers "just and equitable" (albeit subject to an overall statutory cap of £74,200). However, the government proposes to limit these awards to cover a period of 12 months post-termination only.

In practice, the proposed cap is unlikely to have any real impact on the average level of awards, especially given that the existing statutory cap is very rarely applied and is relevant only for the most highly paid employees. For most claimants in unfair dismissal claims, the existing statutory cap would represent many years of lost earnings.

However, this is perhaps not the true aim of the proposed change. Instead, the government's aim appears to be to reduce the unrealistic expectations held by employees, who often mistakenly believe they will receive extremely large payouts if their claims succeed. Often, these unrealistic expectations encourage employees to bring weak or speculative claims.

Likewise, employers often worry they will be liable for large awards should unfair dismissal claims be brought against them. In turn, this may discourage them from taking on new employees.

The proposed cap should give employers and, in particular, employees more realistic expectations about the value of unfair dismissal claims.

Arguably, however, if this is the government's aim, it would be better achieved by making the tribunal's annual statistics more widely known. For example, the median compensatory award last year was only £4,600, which is a fraction of the current statutory cap.

Public knowledge of this statistic would do significantly more to change expectations than amending a cap that is rarely used in practice. There is also a risk that employees may pursue speculative discrimination claims (in which compensation is uncapped) in order to avoid the proposed new cap.

Impact
As the tribunal publishes its annual statistics, we may get a sense of the impact the changes have had on the number of unfair dismissal claims brought and the average value of successful claims.

The proposals should be seen as an encouraging step in the right direction and may give employers more freedom to take on new employees when they are needed and dismiss them safely (and cheaply) when they're not.

Gareth Matthews is an associate at Eversheds LLP