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Commercial Question

Shaking up the system

updated on 13 December 2011


Will radical employment reforms get the balance right between encouraging growth and protecting employees?


The government has been considering and consulting on employment law reforms and has now published what it calls "the most radical reform to the employment law system for decades".

One of the key changes is the extension of the qualifying period for unfair dismissal from one to two years, due to come into effect in April 2012. The government has suggested that this will encourage small businesses, which may be put off recruiting by the spectre of tribunal claims, to hire more staff. In addition, the government suggests it will reduce the number of unfair dismissal claims by 2,000 per year, and consequently save businesses £6 million per year.

This measure has been broadly welcomed by employer groups, and vilified by trade unions. The CBI, the United Kingdom’s top business-lobbying organisation, said that this will "make it easier for firms to grow and create jobs". The Trade Union Congress General Secretary, Brendan Barber, said: "It's not employment law that is holding firms back, it's the tough economic climate.”

One of the key objections to the reform is that it may leave many employees without protection from bad employers. Further, some argue that removing the protection afforded by unfair dismissal will encourage employees to make discrimination claims, for which there is no qualifying period, and which are often more difficult and more expensive for an employer to defend.

Another key proposal is the introduction of fees to bring a claim to the employment tribunal. At present there are no fees to issue a claim before a tribunal, and often no costs orders against an unsuccessful litigant. The chancellor, George Osborne, described this as an end to "the one-way bet against small businesses". The tribunal fee will be recoverable by a successful litigant. The quantum of fees has not been determined and will be subject to further consultation. The government also proposes that the fee should be waived or reduced in cases of low-paid claimants, although the threshold for this status has not been determined and will be considered as part of the consultation process.

Again, there has been some opposition to the proposal; this time on the basis that fees are likely to deter genuine claims as well as spurious ones. Further, with some small- value claims, such as those for unlawful deduction from wages, the tribunal fee may be higher than the amount that the employee is claiming from their employer.

The government is entering into further consultation regarding proposed changes including:

  • reducing the period of consultation with employees required in a collective redundancy situation under the Trade Union and Labour Relations (Consolidation) Act 1992;
  • allowing 'protected conversations' - essentially without-prejudice discussions - to be introduced to encourage employers to talk frankly with employees about sensitive issues like under-performance and retirement, without this being used as evidence in subsequent employment tribunal claims;
  • changes to the tribunal system so that all claims are initially referred to the Advisory Conciliation and Arbitration Service, encouraging settlement at an early stage;
  • introducing financial penalties for employers that breach employment rights; and
  • changing the Transfer of Undertakings (Protection of Employment) Regulations 2006, which operates on a business transfer or a service provision change to transfer staff and preserve continuity of employment, to reduce its burden.

'Radical' is the correct word to describe the proposals: there is already a whole raft of proposed measures and there is more change to come. The Red Tape Challenge is the government's consultation process on ways of reducing excessive regulation in order to assist business and boost the economy, and has already considered numerous areas of law including equality, health and safety and the environment. As part of the Red Tape Challenge, the government consulted on 159 employment law regulations. According to the business secretary, Vince Cable, over 40% of these regulations will be merged, scrapped or simplified. How this will be achieved, and whether it will strike a balance between providing protection for employees and encouraging growth for business, remains to be seen.

Angharad Schell is a second-year trainee in the employment department at Field Fisher Waterhouse LLP.