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government reformsOn 17 January 2013, the Government published a statement outlining the next steps in its employment law reform agenda.

The reform package consists of the following changes and proposals:

Confirmed changes: Settlement Agreements and Compensatory Award

Last September the Government launched its consultation Ending the Employment Relationship which (i) put forward proposals to reduce the unfair dismissal cap and (ii) gave details of how settlement agreements may in practice replace compromise agreements and how the preceding ‘confidential negotiations’ may take place (see September newsflash Consultation on unfair dismissal cap and settlement agreements and September newsletter Government: More red tape cuts?).

The Government has now responded to this consultation and confirmed that it is working towards introducing the following by Summer 2013. You can access the response here.

Settlement Agreements:

The Government confirmed that it is not making any major adjustments to the proposals it announced in last year’s consultation for putting compromise agreements onto a statutory basis and calling them Settlement Agreements. The plan remains for a non-compulsory ‘template’ Settlement Agreement and standard letters, to be published in conjunction with a new ACAS statutory code of practice. ACAS will shortly be publishing a draft Statutory Code for public consultation.

The Settlement Agreement is intended to be a standard set of wording for a compromise agreement, to make the use of such agreements easier and cheaper for employers. The ACAS Code is designed to help employers navigate the notoriously tricky task of exploring negotiated exits without such conversations being used against them in subsequent unfair dismissal proceedings.

Further, the concept of “confidential negotiations” (similar to extending the “without prejudice” rule to situations where there is no existing dispute) will be put on a legislative footing to the extent that evidence of settlement offers made and negotiations conducted during employment is inadmissible in unfair dismissal proceedings. There is, however, an exception for ‘automatically unfair’ dismissals and, importantly, where the employer acts improperly. In other words, such offers and negotiations would not be confidential in those circumstances.

Comment: We still believe that this innovation in the law will make little or no difference to the way that the majority of employers deal with a settlement, a compromise agreement or the exit of an employee. The Government’s stated aim of introducing this new ACAS Code of Practice and the model Settlement Agreement is to give employers more confidence when attempting settlement with an employee, so they should need less help from external services such as lawyers and HR consultants. Whilst we laud the sentiment (honestly!), it remains to be seen whether the Government’s proposals will achieve this.

In respect of the proposed ‘template’ wording for the Settlement Agreement, the Government recommends that an employer should only use the template after getting a lawyer to check that it reflects what the parties are trying to achieve. An employee will also still need to get independent legal advice in order for the Agreement to be binding. In other words, both parties will probably still end up consulting lawyers, the only difference being that, if they use the Government’s standard template to work from then it may cut down on legal costs. Having said that, if you and your lawyers already are perfectly happy working from a template compromise agreement that you’ve used in the past, you may well be content to continue using it.

Furthermore, it seems unlikely that the template Settlement Agreement will contain all the extra wording that a decent compromise agreement should contain and which you and your lawyers will want to use for the settlement or exit deal. You may recall that a lot of the clauses in a decent compromise agreement are not about the central matter of settling all claims, but deal with the tax treatment of the payments, the return of company property, the question of what will happen to company cars, laptops, mobile phones, etc., promises not to make non-derogatory comments about the other party, agreements not to solicit clients after termination, and so on. It is unlikely that the Government’s model Settlement Agreement will contain these important clauses. Consequently, you are likely to still want to use the type of compromise agreement that you are familiar and happy with.

In respect of the settlement process, the Government states that “As closely as possible, the approach [in the new ACAS Code] should reflect current practice in without prejudice negotiations“. So, without consulting an employment lawyer, it may be hard to spot the difference between a settlement proposal under the new rules and a ‘without prejudice’ one under existing rules.

Unfortunately, settlement offers are still only to be excluded from disclosure in unfair dismissal proceedings. Therefore the exclusion and Code will still not apply to ‘automatic’ unfair dismissals or discrimination proceedings. It will also not apply to unfair dismissal proceedings if the Tribunal decides that anything said or done by the employer in the course of such discussions was “improper”. Without a better understanding of what is meant by “improper”, many employers may well be discouraged from initiating confidential negotiations. Therefore, the content of the ACAS Code of Practice and accompanying guidance will be key to the success or failure of confidential negotiations and, for that reason, ACAS has a heavy responsibility on its shoulders. The risk being that, if employers remain unclear as to the scope of improper behaviour, they will shun confidential negotiations.

Overall, whatever the result of these proposals, and however helpful the new ACAS Code might aim to be in settling potential unfair dismissal claims, the fact remains that the law underpinning the settlement of employment related disputes is complicated. Unfortunately the Government has no plans to simplify this. Whilst the proposed change may quite possibly assist very small employers, who do not tend to use, or cannot afford, a lawyer, we do not expect any noticeable change to the way that most employers deal with such matters.

Compensatory award:

The Government has announced that from Summer 2013 the statutory limit on unfair dismissal compensation in the future will be the lower of:

  1. the statutory cap (currently £72,300 but £74,200 from 1 February); or
  2. 12 months’ net pay.

The Government has been persuaded that a pay-based cap will provide greater certainty for employers (given the relatively straightforward calculation involved) and a sense of realism amongst employees. It expects that few individuals will be disadvantaged, given that the (median) average unfair dismissal award is less than £5,000.

Comment: The Government’s aim in this reform is to encourage employers to take on new staff without the threat of an excessively high penalty if such new recruits bring unfair dismissal claims in the future. This is because the Government believes that the current cap has led to unrealistic perceptions about the level of Tribunal awards.

Overall, employers will welcome a lower cap and the greater certainty that comes with a cap at 12 months’ net pay. However, although the compensatory award is currently capped at £72,300, the reality is that Tribunals rarely make an award anywhere near that amount. In fact, the full £72,300 was awarded in less than 2% of cases last year. The average award in unfair dismissal claims was only £9,133, while the median award was £4,560.

SO, although reducing the cap may correct some mistaken perceptions of the amount of Tribunal awards, it seems unlikely, in light of the above statistics, that reducing a statutory cap which affects only a very few employers each year will make any significant impact on the jobs market. What seems more likely is that employees will still try to claim discrimination, which has uncapped compensation, to keep the pressure on employers to make higher payments when negotiating settlement.

Proposed changes: TUPE, Early Conciliation & Employment Agencies

The Government’s January reform package also includes three further consultations as part of its on-going employment law review. A link to the  consultation documents are available here: TUPE, Early Conciliation, and Employment Agencies.


Following the Government’s ‘Call for Evidence’ on TUPE, which concluded with a brief response from the Government in September 2012 (see our September 2012 Newsletter, Effectiveness of TUPE 2006: Response to call for evidence) the Government is consulting on the following options for a seemingly radical reform:

In addition, the Government will provide better guidance on a range of issues, and is seeking views on whether in-coming employers should be able to rely on the out-going employer’s ETO reason in respect of pre-transfer dismissals (which is not currently permitted).

The consultation closes on 11 April 2013 with a view to introducing change in October 2013. (However, the Government recognises that a lead-in period prior to any repeal of the “service provision change” provisions is important to allow those providing and receiving services to plan for the change in the law).

Comment: The wide-ranging extent of this consultation makes it clear that the Government plans to make significant changes to TUPE. However, employers should very much continue to apply TUPE in its current form for now as this is all still in a long pipeline and there are no imminent changes planned. Indeed, given the complex and ambitious nature of the proposals, it seems a hard task to implement these changes by October this year.

Overall, employers will, no doubt, welcome further opportunity for review of the most problematic aspects of TUPE. However, a repeal, rather than clarification, of the rules on service provision changes is likely to disappoint those looking for certainty. In outsourcing it will be a throwback to how things worked pre-2006, when there was often quite extensive legal debate regarding whether TUPE did or did not apply to a transaction.

Early Conciliation in Tribunal cases:

The Government announced in November 2011 that it intended to introduce ‘Early Conciliation’ as the first step towards its stated aim of simplifying and streamlining the Employment Tribunal process. It has been pursuing this within its Enterprise and Regulatory Reform (“ERR”) Bill, which contains provisions outlining the Early Conciliation system. However, there are some missing details as to how Early Conciliation will work in practice. The Government is therefore now consulting on such details.

The proposed process is broadly as follows:

Employers will be interested to know that the procedure will also provide for prospective respondents to request Early Conciliation where they consider there is a matter that might give rise to Tribunal proceedings if it is not settled. Where EC is requested by the prospective respondent the time limits on bringing claims will run as usual and there is no specified time in which Early Conciliation must take place. The case should be referred directly to a conciliator as there is less of a role for the ECSO.

If the prospective claimant declines the offer of conciliation, or if conciliation is unsuccessful, the conciliator will issue an EC certificate to the claimant confirming that their obligation to contact ACAS has been satisfied as a result of prospective respondent contact. This will make it clear to the Tribunal that there is no suspension of the time limit to be taken into account but will allow the prospective claimant to lodge a Tribunal claim.

However, if the prospective claimant subsequently sends an Early Conciliation form to ACAS in relation to the same dispute, this will trigger the “stop the clock” provisions, and ACAS will manage the EC process as for any other prospective claimant.

The consultation closes on 15 February 2013.

Comment: The Government’s intention behind this proposal is that Early Conciliation should help head off unmeritorious claims, thus preventing such claims from wasting time and money by progressing through the Tribunal system. This is because the Government believes that ACAS will be able to offer guidance to claimants on the merits of their claim and dissuade claimants with no prospect of success from presenting any claims. However, whether an already overstretched ACAS will be provided with all the necessary additional resources needed to fully meet this aim remains to be seen. Also, as many employers will be aware from experience, there are some claimants that will continue to pursue their claim in spite of all attempts, ACAS included, to persuade them otherwise!

Employment Agencies – reforming the recruitment sector:

The Government has published a consultation on proposals to simplify and streamline the regulation of the recruitment sector. Employment businesses and employment agencies are regulated by the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003. The Government considers that these complex rules should be replaced by “the simplest regulatory framework possible” which reduces the regulatory burden on employment agencies and employment businesses, but still protects work-seekers and hirers.

The proposals are:

The consultation closes on 11 April 2013; the Government will then publish a summary of the responses to the consultation and the next steps to be taken within 12 weeks.

Tackling sickness absence

The Government has announced plans to tackle long-term workplace sickness absence with a new independent assessment and advisory service to ensure employers receive bespoke, independent advice where sickness absence lasts more than four weeks.

This announcement is in response to the 2011 report, Health at work: an independent review of sickness absence, in which Dame Carol Black and David Frost CBE made a number of recommendations to reduce workplace sickness absence and the cost of ill health on individuals, employers and the taxpayer.

The Government has accepted virtually all the recommendations contained in the report and will proceed with the report’s main recommendation, the introduction of a health and work assessment and advisory service from 2014.

The service will provide:

In addition, the Government will (amongst other things):

The response is available here.

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