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No fault dismissal by the back door

The Department for Business Innovation & Skills has today confirmed its intention to "streamline" Employment Law and in doing so looks likely to seriously erode workers Employment Law Rights.

The government has already laid the legal foundations that will allow it to reduce the compensation that an employee receives where they have been unfairly dismissed. Under the current law an employee who has been unfairly dismissed will be awarded compensation for the financial losses they have suffered as a result of losing their job. For example, you may be awarded your lost earnings until the point you are likely to find a new job at the same level, and also compensation for any lost pension. The amount you can be awarded is capped at £72,300. Today the government has confirmed that it will be lowering this cap and is looking at either a cap of up to 12 months’ pay or a new lower cap. Details of the consultation are awaited but the legal framework that the government has already laid would allow them to potentially set the limit at the average yearly wage in the UK of £26,000. So, the maximum compensation you can get for unfairly losing your job looks likely to drop to a third of what it currently is.

So Unfair Dismissal law itself will become even more deeply unfair. As of March of this year a third of all unemployed individuals had been out of work for over a year. So your employer breaks the law in dismissing you without good reason, you cannot find work, you suffer severe financial losses but the most compensation you can be awarded does not cover what you have lost. Oh and by the way, it is likely that you will now also have to pay employment tribunal fees, when currently the employment tribunal service itself is free. Also bear in mind when you are able to secure new employment, you will not qualify for fresh protection from being unfairly dismissed or become entitled to Redundancy pay until you have been with your new employer 2 years (recently changed from 1 year).  

This reduction in Unfair Dismissal Compensation will particularly hit hard those who have lost valuable irreplaceable pension rights, such as those in a final salary pension scheme. There has never actually been any real logic behind the setting of the cap on Unfair Dismissal awards. In other types of claims, for example where workers have been unlawfully discriminated against by their employers, there is no cap. Instead compensation is awarded for the actual financial losses suffered. In any claim the worker is under a duty to look for work and to take steps to minimise his losses and the employment tribunals expect good evidence of this. The Unfair Dismissal cap therefore works not as a windfall to employees but a windfall to employers who can avoid having to meet the true cost of what the employee has lost.

The second key proposal is the introduction of "settlement agreements." Details are awaited, but what the government seems to envisage is that if an employer wishes to dismiss an employee he can offer the employee a "settlement agreement" at the outset as opposed to undertaking basic steps such as counselling the employee about where their conduct or performance may be letting them down, or allowing the employee a chance to put across their version of events. It would appear that the employer would give the employee a template letter and agreement provided by BIS. If the employee refuses the offer, the employer then takes whatever steps it considers appropriate and the usual employment protections would apply. The proposed settlement agreement then cannot be referred to in any employment tribunal proceedings that may follow. No one would doubt that where a relationship between an employer and employee is irreparable there must be some sense in the parties reaching an early agreement, which may save stress and costs for all.  What the proposals seem to ignore, however, is the impact on potentially vulnerable workers. BIS has said that it wants to allow "small employers to use fast settlement agreements without having to resort to legal advice” But employees of small business are themselves often the most vulnerable workers. Is it really fair to have a system in which an employer can potentially ride rough shod over basic Employment Law protections, make an employee what will potentially be a time limited offer against the threat of facing Dismissal, particularly in circumstances where it would appear the employee can sign away their rights without having to seek independent legal advice. Keeping employees ignorant of their rights cannot be a recipe for fair settlements.

Today BIS also confirmed that they would not be proceeding with the proposals for "no fault dismissal", which proposed allowing small businesses to dismiss staff for potentially no good reason, by paying a fixed sum of compensation.  I cannot help but wonder however whether these steps set out above achieve that by the back door. It is said the purpose is to make it easier for businesses to hire staff. Yet seemingly what it actually achieve is making it easier, or at least cheaper, to fire staff. Another likely consequence is to encourage poor management practice and poor workplace fairness standards as there will be no real disincentive for employers who are not concerned about treating staff fairly. With the continued erosion of worker rights, employee insecurity about their jobs can surely not be good for the economy. This is bad for business and bad for the UK. By Employment Law expert Rachel Harfield