Business Law & Compliance

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How businesses can protect themselves from unfair dismissal claims

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Now this might not sound like a large amount for multi-million profit-making companies, but for the most SMEs, this could represent a significant outlay – especially if it could easily be avoided.

Her Majesty’s Courts and Tribunal Service – the agency that is responsible for the administration of the courts of England and Wales – also highlighted a 44 per cent rise in unfair dismissal claims before the new rules took effect, with some 15,300 claims made in the quarter to September 2012. This was compared to 10,600 in the three months leading up to June that year.

Therefore, with unfair dismissal claims seemingly on the up, and rule-changes occurring so frequently, I summarise the latest amendments and advise you on exactly what you need to be aware of to reduce the likelihood of a claim being made against your business.

Contract length

Employees can now only claim for unfair dismissal if they have worked for you for over two years. This gives employers more time to evaluate new employees’ performance levels and to make it easier to terminate employment if they aren’t up to scratch.

However, these changes will not affect employees’ entitlement to basic employment rights, many of which apply from day one of employment.

Tribunal fees

Employers should be aware that employees who now wish to issue a claim against their company will now be required to pay a fee. The amount of each fee will depend on the type of claim.

Simpler claims are allocated to the ‘Level 1’ category, referring to claims that require very little or no case management work, such as claims for unlawful deductions from wages and redundancy payments. All other claims fall in the ‘Level 2’ category and involve more complex issues, such as claims for unfair dismissal, discrimination, equal pay and whistleblowing.

Tribunal procedure

All cases are now subject to one ‘preliminary hearing’, as opposed to the previous system of case management discussions and pre-hearing reviews. A more rigorous paper sifting stage will take place to ensure that weaker cases do not proceed through the system, and tribunals will now encourage parties to go through the process of mediation.

Compensation

Payouts for successful claims will be capped at one year’s salary or £74,200 (whichever is lower) and does not include pension contributions, benefits in kind or discretionary bonuses.

Pre-termination negotiations

Employers are able to engage in ‘pre-termination negotiations’ with an employee, even where no formal dispute has yet arisen. Whilst the employer must still be extremely careful (especially where any allegations of discrimination could arise), under the new law, employers have the option of entering into termination discussions at any time with their staff without fear of the discussions being used against them.

Settlement agreements

‘Settlement agreements’, previously known as compromise agreements, are designed to make it easier for employers to agree departing terms with employees. It is a legally binding document, and once signed, an employee cannot bring a claim against their employer. The offers and discussions of a proposed settlement instigated by an employer also cannot be used to influence unfair dismissal claims at an employment tribunal.

Beware…

Now is a particularly important time for employers in order to ensure that they are up to speed with the ongoing changes to UK employment law, especially as more amendments are now taking place in areas such as employee-shareholders and the Equality Act. Nobody wants to get caught out by these changes, so watch this space! Employer protection schemes are available to safeguard against the impact of claims brought by current or former employees and indeed are well advised.

Hugh Hitchcock is Director at Douglas-Jones Mercer Solicitors.

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