Employment Law News Analysis

Update on Employment Law Reforms

David Reid
27th Jun 2012

The Business Secretary, Vince Cable, has outlined further details of the government’s plans to reform employment law through the Enterprise and Regulatory Reform Bill.

Employment contract

It has now been confirmed that Compromise Agreements will be re-named Settlement Agreements. The name change in itself does not appear to alter the nature or effect of a compromise agreement in any significant way. However, we await confirmation of whether it will remain necessary for employees to obtain advice from an independent advisor on the effect of the agreement. Standard forms for settlement agreements will also be published by the government.


The draft legislation introducing the concept of a ‘protected conversation’ has also been published. This new law will enable employers to offer employees terms of settlement to leave their employment, without the employee being able to use this conversation as evidence in an unfair dismissal claim.


This is intended to address the current problem that where no dispute exists between employer and employee, the employer offering severance terms in this way can often be used by the employee as the basis for a constructive unfair dismissal claim.


However, employers should not perhaps feel too reassured by this additional protection. Employees will still be able to lead evidence about the protected conversation, for example, in a discrimination claim or a claim for breach of contract.


It now appears clear that the government will not proceed with the controversial Beecroft Report proposal to introduce the concept of compensated no-fault dismissal into UK law. This proposal would have allowed small employers to terminate the employment of their employees, making a payment equivalent to a statutory redundancy payment, without the risk of an unfair dismissal claim. It is perhaps unsurprising that this proposal has been dropped in light of the political problems it would have been likely to cause between the coalition partners, and also in light of the fact that it found only lukewarm support in the business community.


The government’s proposal to reduce the length of the period of collective consultation in redundancy situations where 100 or more employees are proposed to be dismissed has also been announced. Views are sought on whether the current period of 90 days before the first dismissal can take effect should be reduced to 30 days, or alternatively 45 days. However, there is no intention to reduce the period for which a protective award can be made for failure to fulfil collective consultation obligations, so the maximum award of 90 days pay per affected employee will still be available in cases where the failure to consult has been substantial.


Finally, and perhaps most significantly, the Enterprise and Regulatory Reform Bill provides the Secretary of State with the power to vary the limit on the compensatory award for unfair dismissal. If this power was exercised to its fullest extent, then the cap on a compensatory award for unfair dismissal could be reduced from its current level of £72,300 to the lower of the national median annual wage (currently £28,000) or a year’s salary for the employee bringing the claim.


Clearly, if this power was to be exercised, an unfair dismissal claim may become a far less attractive remedy for higher earning claimants or claimants whose circumstances might otherwise have attracted compensation for a substantial period of loss. However, it has to be remembered that the average award for unfair dismissal is already significantly lower that the national median average wage.


On Sunday 3 June, Gillian Melville, Louise Elster, and Emma Grossmith of Just Employment Law all ran the Glasgow Race for Life in aid of Cancer Research (proudly sporting their Partick Thistle shirts!). We would very much like to thank clients who sponsored the ‘girls’. To sponsor them, please follow this link.

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