BLOGPOST substantially rewritten at 12pm 14/9/2012 following publication of consultation document
Vince Cable has announced various consultations on employment law this morning. The consultation papers are here. Here are my initial thoughts (and you can hear me on the Today programme on iPlayer, at 2:51:20).
CAP ON UNFAIR DISMISSAL COMPENSATORY AWARD
The consultation proposes reducing the cap on the compensatory award from £72,300 to the lower figure of the national median average earnings (£25,882) or an individual's annual net salary. The rationale is a huge increase in the award in 2000 (to £50,000) and above-inflation rises since then. This is utterly disingenuous; the annual rises are inflation linked to the nearest £10 (thus, technically, there may be a rise that marginally greater than inflation; but it is deeply misleading of the government to suggest its anything other than trivial), and the increase to £50,000 was to link the compensatory award back to the inflation-adjusted equivalent to that which it had been in 1971.
The government is being vague on the exact cap - it's saying a cap of one year's earnings, subject in any event to something between 1x and 3x median earnings. Not to be decided by parliament, but by a statutory instrument. Let's see how long we have to wait for that one.
A lower cap doesn't make it easier to dismiss staff. An employer must still act reasonably to justify dismissing someone with more than two years' service. Instead, it makes it cheaper for employers to behave unreasonably.
A reduction in the cap doesn't address the real problem that businesses face: that of vexatious or unreasonable employees with unrealistic expectations. That needs to be dealt with by rigorous enforcement of costs rules, and requiring employees who bring hopeless claims to repay an employer's legal costs, as happens in other areas of litigation.
Many jobs last as long as a marriage - some last longer. People are as reliant on employment income as they are on spousal income. Nobody would suggest capping maintenance payments at one year's earnings; it is absurd to do so for unfair dismissal claims.
The proposals mean that bad employers can take a calculated risk that the maximum exposure is £25,882 - and take a commercial decision to act badly when they might not previously have done so. Employment law comes down to three basic principles: (1) be reasonable; (2) be consistent; and (3) be nice - until it's time to stop being nice. If employers follow those three rules, they'll be fine.
Employees will still try to claim discrimination - which has uncapped compensation because of European laws - in order to put commercial pressure on employers and inveigle higher payouts.
SETTLEMENT AGREEMENTS
There's nothing new about employers and employees being able to settle employment claims before going to a tribunal.
Vince Cable is publishing standard template 'settlement agreements'. You can see sample templates at the back of the consultation document. One question that DBIS is posing is whether there should be recommended tariffs for levels of settlement, depending on length of service, reason for dismissal etc.
The government is missing, however, the sensible development of abolishing the need for employees to get independent advice from a CAB, union or lawyer before settling claims. Many settlements are straightforward and advice isn't needed, just as it isn't needed when settling a claim for a neighbour dispute or a badly installed kitchen. Admittedly there is a risk of employers pressuring employees to sign on the dotted line and withholding pay entitlements until they do. But as long as suitable safeguards are included, such as a cooling off period and a statement that the employee should consider taking advice, it would be a sensible move forward to save enormous costs for businesses. But it's not going to happen.
EMPLOYMENT TRIBUNAL FEES
This is the most insidious of all the changes, although it's not obvious from the terms of the Press Release.
Straightforward claims for unpaid wages will cost £390 to take to a hearing. There is no way an employee on £300 a week, who has been underpaid £50, can afford to bring a claim. It makes justice unaffordable for workers on low incomes and gives unscrupulous employers comfort that their actions won't be challenged.
Claims such as unfair dismissal and discrimination will cost £250 to launch, and a further £950 to get a hearing date - £1,200 in total. This prices many ex-employees out of the tribunal, and will encourage employers not to settle claims because they will gamble that the employee can't/won't pay the £1,200 fee.
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