UK: Employment law reform - consultations on settlements, unfair dismissal compensation and tribunal rules

The Government's position on a number of employment law reform proposals became a little clearer this month with the announcement of two new consultations, on termination and tribunal rules.

The consultation on "Ending the employment relationship" seeks views by 23 November 2012 on:

• the content of a statutory code to be drafted by Acas to support the use of protected settlement discussions (being introduced by the Enterprise & Regulatory Reform Bill).  There is no indication that the Government has taken on board concerns that limiting the protection to ordinarily unfair dismissal claims will reduce its usefulness, given that employers will not know whether an employee may allege discrimination or automatic unfair dismissal before starting the conversation.  The consultation paper makes clear that the idea of protected discussions as a more general management tool, not linked to termination, has been dropped;
• draft template letters, a model settlement agreement and guidance for their use (which will not be compulsory).  The model settlement agreement lists out all of the potential types of claim, a practice commonly adopted by employers in an attempt to ensure that the requirement for claims to have been raised is met.  There is still some uncertainty as to whether this works, but there do not appear to be any current plans to amend the law to ensure that it does and to make a clean break easier to achieve.  Note that there is no proposal to change the requirement for employees to obtain independent legal advice on the agreement;
• whether a guideline tariff figure or formula for settlement compensation, or a list of factors which may influence the compensation, would be helpful in giving parties more realistic expectations and reaching agreement;
• the cap on unfair dismissal compensation.  The Enterprise & Regulatory Reform Bill includes a provision enabling the cap to be set at (i) a specified amount between one and three times' median annual earnings (currently £26,200 to £78,600) or (ii) a specific number, not less than 52, multiplied by the individual's weekly pay  or (iii) the lower of the these two amounts.  The consultation paper suggests that the current cap leads to unrealistic expectations and impedes settlement, given that the median unfair dismissal award is less than £5,000.  It seems to favour adopting (iii) and seeks views on decreasing the current overall cap of £72,300 while imposing an additional cap of 12 months' pay using "the standard definition of week's pay", presumably without the statutory weekly pay cap of £430 (as it implies that the 12 month cap could be more than the overall cap).  The consultation notes that benefits in kind and pension would not be included in the calculation of 12 months' pay.

The Government expect to publish their response in spring 2013.

The tribunal rules consultation seeks views by 23 November 2013 on the new set of rules recommended by Mr Justice Underhill, summarised here.  The Government expect to respond within a further three month period with a view to making changes in April 2013.  Draft revised ET1 and ET3 forms are included in the consultation but do not contain any major surprises.