Government signals reform of employment tribunals

The Government has announced that it is extending its review of employment law to cover three new areas as part of its strategy to simplify legislation, improve efficiency and reduce business red tape.

The latest announcement follows a recent major consultation on proposals to reform employment tribunals and the resolution of workplace disputes, including extending the qualifying period for claiming unfair dismissal from one year to two years.

The three new areas under review are:
• compensation for unlawful discrimination
• the Transfer of Undertakings (Protection of Employment) Regulations  2006 (TUPE)
• the duty of employers to consult over collective redundancies.

Discrimination compensation

The Government believes that high awards at employment tribunals in discrimination claims may be encouraging litigation. Compensation for unlawful discrimination is currently unlimited and ministers are concerned that high awards may encourage people to take weak, speculative or vexatious cases in the hope of a large payout.

This echoes the concern that has been expressed by the Confederation of British Industry (CBI), which recently suggested that claimants are too often “dazzled by media coverage of multi-million pound City awards”.  It has mooted a cap on payouts mirroring the maximum for unfair dismissal (currently £68,400) or twice annual salary, whichever is greater.

Clearly, it appears that the Government may propose some sort of ceiling on discrimination compensation awards – although there is likely to be a question mark over how far that would be permissible under EU equality legislation.  In particular, the Equal Treatment Directive expressly precludes compensation for sex discrimination being “restricted by the fixing of a prior upper limit”.

More generally, EU law requires remedies for discrimination to be effective and proportionate to the damage suffered.  That was the basis on which the European Court of Justice ruled in 1993 that the UK ceiling on compensation then in force was unlawful – not altogether surprising since it was only £11,000.

Even if it is legally possible to introduce a compensation limit, the practical impact is likely to be very limited because tribunal awards in discrimination cases are generally low: the median in 2009/10 was around £5,850.

TUPE

The second area the Government is looking critically at is TUPE –the legislation that protects employees when the business in which they work is transferred to a new owner.  Some business groups believe that believe that the rules under TUPE are overly bureaucratic and “gold-plated” – i.e. extending beyond the requirements of EU law.

One clear example of gold-plating concerns the “service provision change” (SPC) provisions, inserted into TUPE in 2006 by the previous Labour administration.  Those reforms extended the application of TUPE to outsourcing scenarios and changes in service provider, even where it does not constitute a ‘transfer of undertaking’ as defined by EU law. 

TUPE would still be compliant with EU transfer of undertakings legislation even if the Coalition were to abolish the entire SPC regime.

That would be a popular reform with some employers (including the CBI), but others value the additional certainty that the SPC rules provide.  Many organisations in the outsourcing industry regard a consistent and uniform application of TUPE as beneficial to businesses as well as employees.

There are, however, other ways in which TUPE could usefully be amended to bring it more closely into line with European requirements – particularly in relation to transfer-related dismissals and changes to employees’ contractual terms.  For example, employers in other EU countries generally enjoy greater flexibility than TUPE allows when harmonising terms and conditions of a newly acquired business with their existing workforce.

Collective redundancies

The third issue now under review is the legislation requiring consultation over collective redundancies, set out in sections 188–198 of the Trade Union and Labour Relations (Consolidation) Act 1992. The Government considers that the current rules may be hindering employers’ ability to restructure efficiently.

Again, however, there is EU legislation underpinning the law so the Government’s room for manoeuvre is limited.  It remains to be seen what scope there may be under the EU Collective Redundancies Directive to introduce greater flexibility into the current redundancy consultation obligations.

One aspect the Government looks very likely to target is the requirement for 90 days' consultation when 100 or more employees face dismissal.  There are no minimum consultation periods in the Directive, so this is arguably an instance of unnecessary gold-plating.

The Government will start to “consider reforming” these areas this year, although “legislation will not necessarily be the route to implement any change if there is a case for reform."  That somewhat tentative statement suggests it is too soon to predict whether the review process will lead to any significant or specific changes.

Source Lewis Silkin