Major changes in employment law

Between now and April 2014, the government is introducing major changesto the procedures and costs of bringing and defending employment claimsin the UK. In this Keynote, the Keystone Employment Team explains how new rules regarding employment disputes are designed to cut red tape and reduce costs.

The changes following the UK Government’s promise to cut red tape and reduce the cost of employing and having disputes with employees in the UK. The changes follow the recommendations of private equity pioneer Adrian Beecroft and Mr Justice Underhill in their respective reports commissioned by the government.

The changes, which will have a significant effect on both businesses and employees involved in employment disputes, are as follows:

New employment tribunals rules of procedure

There are many major proposed changes to the employment tribunal rules of procedure under The Enterprise and Regulatory Reform Act 2013. These changes include:

• introducing legal officers;
• introducing mandatory pre-claim conciliation;
• introducing pre-termination negotiations; and
• imposing compulsory pay audits.

Key changes in the new rules

The new rules are intended to be clearer, more concise and easier to understand than the current rules. Key changes include:

• Sift stage -after the ET3 has been accepted, the claim and response will be reviewed by an employment judge to identify any weak cases which can be struck out, in full or in part, for having no reasonable prospects of success.
• Preliminary hearings -case management discussions and pre-hearing reviews will be combined into one preliminary hearing at which administrative, procedural and substantive preliminary issues can be dealt with.

• Withdrawal -the new rules simplify the current two-step procedure, removing the need for the respondent to formally apply for a claim to be dismissed after it has been withdrawn.
• Costs -the £20,000 cap on the costs the tribunal can order will be removed.

However, as many of the changes to the tribunal procedure are not imminent and are due to come into force over a phased period of time, this article will focus on the most immediate and significant changes to the tribunal rules of procedure and the introduction of fees.

Cap on unfair dismissal compensatory award – from 25 June 2013

The Secretary of State will have the power to order a variation of the statutory limit on the compensatory ward in unfair dismissal claims. It will allow the unfair dismissal compensatory award to be capped at the lower of one year’s gross pay (excluding pension contributions, benefits in kind and discretionary bonuses) and the existing limit.

Although the cap has yet to be finalised it is currently estimated that the cap will be between £26,200 and £78,600.

Deposit orders and costs– from 25 June 2013

A tribunal will be able to make a deposit order in respect of a specific part of a claim or response. It will also be able to make both a preparation time order and witness expenses order to a litigant in person.

New fees in the employment tribunals – From 29 July 2013

It is expected that for the first time ever, fees will be payable by both employers and employees within the employment tribunal and appeal tribunal claims, under The Employment Tribunals and the Employment Appeal Tribunal Fees Order 2013.

A claimant will be required to pay two fees: an issue fee on submitting the claim, and a hearing fee around four to six weeks before the full tribunal hearing.

Costs will depend upon the type of claims:

• Type A claims will include breach of contract, wages claims, holiday pay, redundancy pay, and some time off rights. The issue fee is £160 and the hearing fee is £230.
• Type B claims will include unfair dismissal, detriment, and discrimination claims. The issue fee is £250 and the hearing fee is £950.

If a claimant lodges a claim with a number of different types of complaint, the fee payable will be that which relates to the highest level claim. There are separate proposals for multiple claimant cases.

There will also be set fees for certain other applications, such as an application for setting aside default judgment, dismissing a claim on withdrawal, breach of contract counterclaims, judicial mediation (£600), or review of a judgment.

In the Employment Appeal Tribunal, the fees are £400 to lodge an appeal and £1,200 for a full hearing.

Tribunal judges will have a power to order the unsuccessful party to reimburse any fees paid by the successful party, although this will be at the judge’s discretion rather than being automatic.

There is also the expectation that fees will also be payable online.

Claimants who cannot afford the fees will be able to apply for a waiver of the fee under a scheme set out in the new rules which is still currently being assessed. As a general rule, everyone is deemed to be able to pay unless they can demonstrate that they are unable to do so by way of an application through the remissions scheme.

Generally, if fees are unpaid the claim will not be allowed to proceed.

Financial penalties on employers – from April 2014

Tribunals will have the power to impose a financial penalty on employers who lose at tribunal. If a financial award has been awarded, the financial penalty must be 50% of the amount of the award, with a minimum threshold of £100 and a maximum cap of £5,000. The tribunal must however take into account the employer’s ability to pay.

Where a non-financial award is made, the tribunal will be able to ascribe a monetary value. The penalty will be reduced by 50 per cent if paid within 21 days. However, the levy of a financial penalty will be at the tribunal’s discretion; it will not be automatic.

The above changes are likely to have a major impact on both employers and employees and are likely to act as an incentive to settle or mediate tribunal claims which is likely to reduce the amount of claims being bought in tribunals.

Who is behind this change?

The Ministry for Justice is behind the changes to employment tribunal system with the apparent dual aim of saving money and reducing the amount of claims proceeding to tribunal. They expect to recoup approximately 33 per cent of the current costs.

According to their website, “Fees are part of the Government’s programme to promote early resolution of disputes in order to help individuals and companies to get on with their lives and businesses. The intention is to encourage people to look for alternatives – like mediation – so that tribunals remain a last resort for the most complex cases”.

The Ministry for Justice argues that bringing a claim or an appeal to the employment tribunal is currently free of charge, with the full cost being met by the taxpayer. By introducing fees, people using employment tribunals will start to contribute a significant proportion of the £84m cost of running the system. Their aim is to reduce the taxpayer subsidy of these tribunals by transferring some of the cost to those who use the service, while protecting access to justice for all.

What is the likely impact?

Overall the changes should be welcomed by employers as the introduction of fees will mean fewer claims, particularly unfair dismissal and spurious claims. Some commentators predict a reduction by as much as 25 per cent.

There is likely to be an increase in settlements in such cases, but less impact is expected on larger more complex claims such as discrimination and whistleblowing claims. In these cases, the relatively low fee compared to the compensation value is unlikely to deter claimants.

Lord Sugar can be expected to support these changes to the employment law system, given his recent and well publicised opinions after the unanimous employment tribunal ruling in his favour against Stella English (a former winner of TV’s The Apprentice). Following the unsuccessful constructive dismissal claim against Lord Sugar’s IT firm, Viglen, Lord Sugar tweeted "A victory for the law against the claim culture"; and he is unlikely to be alone in his views amongst UK business owners.

Other commentators believe the introduction of fees will undermine access to justice, particularly for those who can least afford it but who may have a legitimate employment claim.

Conclusion

Overall, these changes to the employment tribunal system are more likely to be appreciated by employers, the tax payers and the government, rather than employees or their legal advisers, but only time will tell if the changes bring about the government’s intended outcomes.