Hogan Lovells partners comment on the Enterprise and Regulatory Reform Bill

The Enterprise and Regulatory Reform Bill, due to get Royal Assent in the near future, will bring unfair dismissal awards and whistleblowing claims under much stricter scrutiny and give employers more options when dealing with under-performing employees, according to Hogan Lovells.

According to Elizabeth Slattery, Hogan Lovells partner and head of the employment team, the government has listened to business concerns that the weighting in tribunal claims is too strongly in favour of employees.

‘Many of the changes introduced by the bill are designed to redress that perceived imbalance and to ensure a more level playing field when considering what is fair to both employees and employers,’ she said. ‘It should make it easier for employers to settle claims at an early stage and reduce the risk of having to incur costs and management time in defending vexatious claims.’

One of the main changes is that only disclosures made ‘in the public interest’ will be protected. This is intended to close a loophole that gave workers scope to argue that they should be protected as ‘whistleblowers’ even where the disclosure they had made had no obvious public interest to it — such as an allegation that their own employment contract had been breached. This enabled employees to bypass the normal qualifying-period requirements and compensation limits in unfair dismissal claims.

Slattery said: ‘This is a welcome attempt to address the whistleblowing loophole. However, the fact that there is no definition of what is meant by “in the public interest” is likely to lead to litigation to clarify the point, at least in the short term.’

Key parts of the reform package are designed to reduce the number of claims going to tribunal in the first place. From early next year, all claims will have to be referred to ACAS for a month-long conciliation period before they can be lodged with the employment tribunal. This may mean that more potential employment disputes are settled before they get as far as tribunal.

In addition, from summer it will be easier for employers to have protected ‘settlement discussions’ with staff who are not working out, for example because of concerns about their performance. Employees will not be able to refer to such discussions in support of a later unfair dismissal claim.

Staff who feel they have been unfairly dismissed are also likely to receive less compensation in the future if they win their claim, as a new cap on compensation for unfair dismissal is being introduced. Although the overall cap for unfair dismissal settlements will remain in place, no claimant will be able to recover more than a year’s pay in unfair dismissal compensation, even if this is less than the overall cap.

‘Typical settlements for unfair dismissal are already at a lower level than the cap, so the new cap should not affect claims for unfair dismissal too greatly, other than offering greater certainty for employers about their maximum financial exposure,’ said Slattery. ‘However, when combined with the new rules on “settlement discussions”, it should become easier for employers to agree a financial package with employees where the employment relationship is not working out, in return for which the employee will agree not to pursue employment claims against the employer.’

In addition, a new power will be introduced for tribunals to order employers that are found to have breached workers’ rights to pay a penalty of between £100 and £5,000 where the breach has “aggravating features”. In most cases, the penalty would be 50 per cent of any award that the tribunal has made against the employer. The penalty is payable to the government, not the employee.

According to Slattery, the definition of ‘aggravating features’ is not clear – what is excusable in a small or medium-sized enterprise (SME) may not be excusable in a large organisation with a significant HR capability. ‘It will be interesting to see how this is interpreted by any tribunals in the future, as it is currently a real grey area, and the possibility of a fine is likely to be exploited by employees in settlement negotiations,’ she said.

As part of the government’s drive against red tape the right of employees to ask specific questions through discrimination questionnaires about why they have been treated in a certain way, or to find out about pay differentials, is due to be repealed. The so-called ‘third-party harassment’ provisions, whereby an employer can be liable for harassment of one of its employees by a third party over whom the employer does not have control (such as a customer), are also being repealed.  

Ed Bowyer, partner at Hogan Lovells, said: ‘Businesses will particularly welcome the repeal of the discrimination questionnaire procedure. The process was designed to allow claimants to work out whether they had been discriminated against before bringing a claim.

‘In fact, they are often used as a litigation tactic, forcing employers to expend time and money responding to lengthy questions that do not have a direct bearing on the way in which the employee says they have been treated.’