A false economy?

The government has stepped up its game in trying to tackle legislative burdens for enterprise. But, long term, could the recent employment law reforms cause more problems than they solve?

A false economy?

The government has made no bones about its attitudes toward employment regulations. Laying out its position on the cabinet website Red Tape Challenge, the current administration adroitly described the ideology behind the last three years of tape trimming: “Over the years, regulations… have piled up and up. This has hurt business, doing real damage to our economy.” However, regulation isn’t only there to protect individuals and sometimes when legislators get a little snip-happy with the scissors, it can have unforeseen detrimental consequences.

On paper, the decisions made in the latest raft of employment law provisions look set to benefit enterprises no end. “Obviously, the government is looking to try and reduce the burden on employers,” comments David Evans, head of employment at law firm Cripps Harries Hall. “Previously, employers had been seen as being fair game for spurious claims.” Given the revisions are intended to sway things further back in the benefit of employers, on paper it seems hard to argue that the changes shouldn’t be celebrated by enterprise. “From an employer’s point of view I think they are to be welcomed because presumably only when people feel genuinely aggrieved will they be willing to put money behind those claims.”

Which is perhaps the most appreciable change made to employment law: any claim brought will require the payment of an upfront fee. Claims around unpaid wages, payment in lieu of notice and redundancy payments will be met by an issue fee of £160 at the lodging of a claim and £230 hearing fee when said claim is brought to tribunal. For more complex claims, involving issues such as unfair dismissal, discrimination, equal pay and whistleblowing, these levies can jump to as high as £950.

This change has two justifications. Firstly, one reason given is that the cost of the system should be borne by those who use it, with that cost being footed by employers in the cases where they are shown to have acted in contravention of regulations. Secondly, it is intended to discourage frivolous claims. “If you look at the fee structure of an unfair dismissal, the combined fee is £1,200,” says Evans. “The median award for an unfair dismissal claim last year was about £4,500 so it is going to act as a fairly significant disincentive.”

Another sizeable change is how much unfair dismissal claims stand to be awarded if the decision finds for the claimant. Rather than a fixed payment of £74,200, maximum payouts are now set at whichever is lowest between that figure or 52 weeks’ salary. “That in itself will encourage a lot of people to settle,” Evans comments. “It’ll also work against people having unrealistic expectations that they’re automatically going to get £70,000 if they’re putting in an unfair dismissal claim.”

Lastly, under older employment laws, it was possible to discuss settlements with employees to allow employers to terminate contracts on a ‘without prejudice’ basis, meaning that the discussions couldn’t be raised in later tribunals. However, this was only possible if a formal dispute had been raised, with all of the commitments this entails, whereas the new legislation means these conversations can be engaged in at any time, without a need for a dispute to be raised. “Before, employers felt it was difficult to try and have those conversations because of fear that those conversations would be repeated back to them in a prejudicial way in a tribunal hearing,” comments Evans.

But disregarding whether these changes are fair to employees, where’s the downside for employers? The negatives may be subtle but they are definitely there and the government’s failure to address these issues means they may be setting companies up for a fall. “While we can understand the purpose behind all this is to try and remove the burdens on business, there has to be a risk,” explains Evans.

While a tribunal is the last thing any employer wants to be drawn into, they do serve a valuable purpose: bringing negative or damaging behaviours to light. Knowing it is unlikely a junior employee will pursue a claim may give the feeling within an organisation that there is little for individuals to fear by way of ramifications for their actions. Evans says: “Some people may feel they have the freedom to behave in a way that perhaps they wouldn’t do if they were scrutinised.” Obviously, if this develops into an endemic problem, it can ruin an enterprise.

Another way in which these changes to employment law can be a false economy is that they may simply shift the focus of protecting employees away from central government and back to trade unions. “If people are looking around for funding options, one of the more obvious places where they may go is a trade union,” says Evans. Rather than focusing on responsibility within organisations to support and protect their employees, this may simply encourage a more aggressive landscape. “Actually, one of the impacts of this is that we may actually see an increased membership in unions and unions taking a more interventionist role.”

Perhaps the most troubling element, however, is the shift of focus away from dispute management and toward making dismissal easier. “It goes against the grain of ACAS guidance, which is all about informal resolution first of all then following prescribed processes, with a view not to punish but to reform,” comments Evans. Given how expensive recruitment can be, the financial cost of letting someone go is often much higher than resolving conflicts; discouraging employers from using dispute proceedings may actually lead to increased costs, simply because termination seems an easier option than resolution.

Ultimately, in the majority of cases, the employment reforms shouldn’t make too much of a difference to the majority of employers, as many will still insist on putting in effective practices to prevent legal conflicts arising in the first place. But in cases where enterprises perhaps lack insight into the state of their business, it’s still easy to imagine ways in which removing the impetus of firm regulations can simply help business owners hide away from the issues taking place within their own organisation. 

Josh Russell
Josh Russell

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