New legislation and what it means to small businesses

Some new legislation will benefit small businesses, says Gareth Matthews of Eversheds LLP.

Since coming to power in May 2010, the coalition Government has been on a mission to change existing employment laws; the aim being, it says, to give confidence back to business owners in the UK. The Government sought to achieve this through the cutting of red tape, which it hoped would encourage business owners to take on new employees without fear of expensive obligations and legal liabilities.

One of the most high-profile changes which has already been introduced is an increase in the length of service (from one to two years) required by an employee to be protected against unfair dismissal. This increase affects any employee who started employment after 6 April 2012. The Government hopes that this change will reduce the potential number of unfair dismissal claims. In turn, this should encourage employers to take on more new employees.

Subsequently, the Government has outlined a number of further changes it proposes to introduce. 

A long-established method of settling employment disputes outside of legal proceedings is under a 'compromise agreement'. Under such agreements, employees usually waive their right to take legal action against the employer in return for a payment. Provided these agreements meet certain requirements, they will be effective in settling the majority of legal claims that an employee may have. 

In light of their potential to save significant costs for employers and the tribunal system, by reducing the number of claims, the Government wants to encourage the wider use of these agreements and its first proposal to achieve this is to rebrand them as 'settlement agreements'. The change in name appears to simply be an attempt to make the agreements more appealing to employers or employees who may otherwise be discouraged by the idea of compromising. 

The second proposal is to give employers greater freedom to pursue settlements outside of legal proceedings, by ensuring that conversations about settlements cannot be used in evidence in any future claim brought by the employee. 

To assist employers in entering into these conversations, the Government proposes that ACAS (the independent conciliation service which deals with employment disputes) will publish template agreements, as well as guidance on how to financially value the claims the employee may have. 

The Government's proposals should increase employer confidence in the use of settlement agreements. However, the proposals will not offer blanket protection to employers as the protection will only apply in unfair dismissal disputes. This means that any conversations about discrimination complaints, for example, would not be protected. It is also proposed that there will be no protection where the employer behaves improperly during such conversations.

t is not clear what constitutes 'improper behaviour'. It is envisaged that the most likely allegation of improper behaviour that may arise will be that the employer has said something discriminatory during one of these conversations, such as suggesting that an older employee should retire. Employers should therefore be careful when dealing with situations in which 'protected characteristics' such as age, race, sex or disability are involved.

The Government plans to introduce these changes at some point during 2013, although a precise date is not yet known. 

Another proposal that has gained wide publicity is the Government's plan to implement a system of fees for bringing claims in the employment tribunal. At present, unlike in the county and high courts, it costs nothing for an individual to submit a claim in the employment tribunal. Not only does this place the burden of the costs of the tribunal system on the taxpayer, it also means that disgruntled individuals are able to submit their claims quickly and easily with little or no costs consequences, which can result in a large number of weak or purely speculative claims being brought. 

This situation is exacerbated by the fact that the tribunal only makes an order for a losing party to pay the costs of the successful party as an exception rather than as the rule. 

The proposal is for a system of fees to be introduced, calculated according to the type of claim brought. A fee would be payable by the individual when the claim is submitted and a further fee would be payable should the claim progress to a final hearing. If an individual were ultimately successful, the tribunal would have the power to order the employer to reimburse the fees to the individual. 

The aim is ultimately to discourage weak, speculative claims. In doing so, it is hoped that those considering bringing a claim will carry out a realistic assessment of the strengths and weaknesses and the potential value of their claim before they bring it. The employment tribunal will also be able to pass some of the costs of the tribunal system onto those who use it. 

When these proposals were first discussed, there was a concern that the fees would deny access to justice to those who were unable to afford it. In response, it is proposed that those who are unemployed or on low incomes will be exempt from the fees. It is likely that the introduction of fees will have only a minimal impact, as, of course, the majority of individuals bringing claims will be out of work and would therefore be exempt from the fees. As a result, the change may not have the significant impact that the Government is hoping for. Employers should beware.

The employment tribunal fee system is expected to be introduced some time towards the end of 2013.

Although employers in this difficult economic climate should welcome the Government's aims, it is unlikely that the changes will enable the Government to achieve its aims of reducing the number of tribunal claims and the burden on employers overnight. Further changes are likely to be needed. 

We will not know the full impact of the current proposals until the employment tribunal's annual statistics are published and, even then, it may be a number of years before the full effects are felt. 

That said, it is clear that the Government wants to remove some of the fear of employment law for small to medium-sized businesses and to increase their confidence in taking on new employees. The changes are unlikely to do enough to achieve those aims, at least not immediately. Further changes will be necessary.

One previously proposed change, which has since been abandoned, was the concept of a no-fault dismissal, which would have made it easier for employers to dismiss employees in certain circumstances. This would likely have had a more significant impact than those changes that are being introduced. It will be interesting to see whether the Government has any other proposals lined up as it continues on its mission to reform employment law.