Update | Employment: Enterprise and Regulatory Reform Bill

The snappily named Enterprise and Regulatory Reform Bill has just completed its report stage and third reading in the House of Commons. It is making big changes to employment law and Royal Assent is expected before the end of the year, with some provisions coming into force shortly thereafter. A noticeable aim is to impede claims from reaching tribunals at all, even though there was a 15 per cent drop in claims in 2011-2012. As with the introduction of fees from next year when all claimants will have to pay to take a claim and again to have a hearing, the government's stated objective is to ensure that tribunals 'are used as the option of last resort to resolve employment disputes'.

Mandatory pre-claim ACAS conciliation

Prospective claimants will be required to contact ACAS before they can begin most types of employment tribunal proceedings including unfair dismissal and discrimination claims (new section 18 A Employment Tribunals Act 1996). They will have to submit details of their claim to ACAS and there will be a prescribed period for ACAS to attempt settlement. If during that time the conciliation officer concludes that a settlement is not possible, or the period expires without agreement having been reached, the officer will issue a certificate to the prospective claimant which the claimant requires before he or she can lodge a claim.

New regulations will provide further detail but it is already clear that there will be supplemental changes to limitation periods. In effect if a time limit for a claim expires at any time between the claim details being submitted to ACAS and one month after the claimant receives the certificate from a conciliation officer, the time limit will instead be taken to have expired at the end of that longer period. So cautious employers should build in the time provided for mandatory conciliation '“ plus a further month '“ in computing whether or not they are going to face claims from unhappy former employees. Practitioners who can recall the litigation created by the now defunct statutory disputes resolution procedures will shudder at the scope for more litigation around mandatory conciliation and time limits.

'Rapid resolution' scheme

This will apply to certain simple or low value tribunal claims to be detailed in regulations, where the parties consent in writing to the determination of their claim by a new type of person, a 'legal officer' without the need for a hearing. The government does not think the use of legal officers will breach the right to a fair trial under article 6 of the European Convention on Human Rights, because the appointment process and terms of appointment will be designed to ensure that legal officers are independent and impartial, presumably ?just like employment judges. Perhaps they will be on lower salaries to reflect their simpler jobs.

Compensatory awards for unfair dismissal

This provision has caused much comment. Predicated on the fact that the median tribunal award is currently under £5,000, the bill gives the secretary of state power to amend section 124 of the Employment Rights Act 1996 to change the maximum compensatory award for unfair dismissal.

The new limit could be a set amount not being less than the median annual earnings (as defined in the Office of National Statistics' Annual Survey of Hours and Earnings) or higher than three times the median annual earnings or at least 52 weeks pay or the lower of the two. And different amounts can be specified for different kinds of employer, e.g. a lower amount could be set for small businesses.

The current cap on the compensatory award in unfair dismissal cases is £72,300 and, on the basis of the current median earnings in the UK, the secretary of state could potentially lower the maximum compensatory award to as little as £26,000 thus incentivising those on higher incomes to find an (uncapped) discrimination claim to plead.

Settlement agreements

Settlement agreement is the proposed new name for compromise agreements and there are also several provisions aimed at making it possible to have 'protected conversations' with a view to an agreed termination but without those discussions and offers becoming known or taken into account by tribunals.

The protected conversations provisions won't apply to discrimination claims (because the government thinks that EU law precludes them from doing so); claims of automatically unfair dismissal for breach of statute; or anything said or done which in the tribunal's opinion was improper, or was connected with improper behaviour albeit in relation to impropriety tribunals will have a discretion as to whether to admit ?the evidence.

Readers with strong feelings can respond to the government's consultation about the compensatory cap and settlement discussions which runs until 23 November and can be downloaded from the BIS site.

'Public interest' test for whistleblowing claims

Employers will react with uncomplicated relief to the new clause 14 of the bill which amends Part IVA of the ERA on public interest disclosures and requires that, for a whistleblowing claim under the ERA to succeed, a claimant must show that he or she believed that their disclosure was made in the public interest and that the belief was reasonable in the circumstances. This amendment is directed at overturning current case law (Parkins v Sodexho Ltd [2001] UKEAT) to the effect that even a simple claim that the employee's own contract had been breached was a ?'protected disclosure'.

Financial penalties for employers

Clause 13 gives tribunals a discretionary power to impose financial penalties of between £100 and £5,000 on employers who are found to have breached a claimant's employment rights where the employer's behaviour in committing the breach had one or more aggravating features.

Whether there are aggravating features is a matter for the tribunal but according to the bill's explanatory notes a tribunal may be more likely to find aggravating features where the action was deliberate or committed with malice or the employer was an organisation with a 'dedicated human resources team', or had repeatedly breached the employment right concerned.

Deposit orders

The bill amends the Employment Tribunals Act 1996 so that tribunals will be able to make an order requiring a deposit of up to £1,000 to be paid by a party, usually the claimant, before he or she can pursue any specific allegation or argument in proceedings and a deposit order also constitutes a costs warning.

Currently, a single deposit of up to ?£1,000 can be required as a condition ?of continuing to participate in the proceedings as a whole. However in the future a party could potentially be required to make a number of £1,000 deposits as a condition of pursuing (or defending) each claim or argument.

Equality Act changes

In October the government laid amendments to the Equality Act 2010 presaged by its consultations in ?the summer.

Mandatory pay audits '“ the bill provides for regulations requiring employment tribunals to order employers who have breached equal pay law or discriminated on grounds of sex in non-contractual pay '“ such as discretionary bonuses '“ to carry out an equal pay audit, that is, an audit 'designed to identify action to be taken to avoid equal pay breaches occurring or continuing'. There are exceptions, for example where a tribunal considers that an audit completed by the respondent in the past three years meets prescribed requirements, it is clear without an audit whether any action is required to avoid equal pay breaches occurring or continuing or the disadvantages of an equal pay audit would outweigh its benefits.

Regulations may also provide for the content of audits, the powers and duties of a tribunal when deciding whether its order has been complied with, any circumstances in which an audit may be required to be published or disclosed to any person, and what should happen where an order is not complied with. Start-ups and micro-businesses will initially be exempt from such orders.

Repeal of questionnaires ection 138 of the Equality Act 2010 allows a person who thinks that he or she may have been unlawfully discriminated against, harassed or victimised to obtain information from his or her employer. The government does not consider that these questionnaires serve any real purpose and regards them as an unnecessary burden on businesses. In particular it thinks that claimants can still ask the same questions and rely on the same arguments as to inferences to be drawn from the response in the absence of any specific statutory provision.

Third party harassment ection 40(2)-(4) of the Equality Act 2010, renders employers liable for harassment of employees by third parties, such as customers or clients, in circumstances where harassment has occurred before and the employer has failed to take reasonable steps to prevent it are to be repealed. The government has decided that liability for third party harassment imposes an 'unnecessary burden' on business. This is curious as there are few such cases and where they occur the behaviour tends to be particularly egregious and the victim unusually vulnerable.