3 Essential Employment Law Changes that Small Businesses Need to Know About

Over the last 18 months there have been some significant changes in employment law as a result of the Coalition government's 'Red Tape' scheme to enliven the economy by encouraging businesses to grow and employ new staff.  Three of these measures will serve to help protect businesses, especially small businesses, against claims of unfair dismissal.

Firstly, on 6 April 2012, the Unfair Dismissal and Statement of Reasonsfor Dismissal (Variation of Qualifying Period) Order 2012 (SI 2012/989) came into force and increased the qualifying period for bringing an unfair dismissal claim from one year to two years’ service. Thus, all staff that commenced their employment after 6 April 2012 will have to wait two years as opposed to one year in order to qualify to bring an unfair dismissal claim. This means that businesses are now free to terminate employees’ contracts within two years of them starting work without the worry of the said employee bringing an unfair dismissal claim against them.

Secondly, on 29 July 2013, section 14 of the Enterprise and Regulatory Reform Act 2013 came into force. This prevents pre-termination negotiations between employers and employees from being disclosed in Employment Tribunal proceedings for ordinary unfair dismissal claims, which was not the case previously. This enables employers to attempt to terminate a staff member’s employment through confidential negotiations rather than commence a disciplinary or redundancy process, which can often take a considerable amount of time to complete. This allows businesses to confidentially terminate employment without the risk of this evidence being used against them during Tribunal proceedings. This is especially useful for small businesses who may have limited funds and need to get rid of staff quickly in order to survive or flourish.

Thirdly, in July 2013, The Unfair Dismissal (Variation of theLimit of Compensatory Award) Order 2013 (SI2013/1949) was published. This Order came into force on 29 July 2013 and changes the upper ‘compensatory award’ limit for unfair dismissal to either 52 week's pay or £74,200, whichever is lower.

Ironically, this change has come into force at the same time as the EU officially emerges from the post-credit crunch recession, with industry sectors on the continent, especially in France and Germany, and the housing market in the UK, showing green shoots of recovery to mirror our long-awaited balmy English summer.

So what is the significance of this change? The main area of change relates to the option of 52 week's pay as the upper compensatory award limit, that is unless 52 week's pay is more than £74,200. Thus, for an employee on a yearly salary of less than £74,200, this yearly salary amount will be the maximum that they can be awarded at an Employment Tribunal for unfair dismissal (along with a possible ‘basic award’ of up to £13,500). Considering that the average 52 week salary in the UK is £26,000, this greatly limits what an employee can be awarded. This is significant for small businesses as most of their staff will be on salaries of less than £74,200 per annum. Thus, if they have to pay an award to an employee as a result of Tribunal proceedings, it is likely to be closer to the employee’s annual salary which would be easier to absorb than a much higher award of £70,000 or more.

Interestingly, from 29 July 2013, Employment Tribunals will now charge fees for each claimant. The combination of Tribunal fees and lower awards means that prospective claimants for unfair dismissal may be priced out of using lawyers to represent them at Tribunals. This is exacerbated by the fact that, traditionally, legal costs cannot be recovered in an Employment Tribunal. Such prospective claimants may be forced to act as litigants-in-person which may in turn affect their chances of success. This serves as another tactical advantage for businesses.

As businesses will now be aware of the maximum compensatory award an employee could be awarded, this could prompt employers to make lower offers in settlement negotiations. This in turn will help businesses reduce litigation costs and exposure.

These changes will also make claims harder for employees as they may need to find grounds for discrimination to add to their unfair dismissal claims in order to secure higher awards, or alternatively claim only for discrimination against their employers. Either way, this narrows their options for a solution through litigation, sometimes the only option available.

There is no doubt that these new changes should promote the growth of businesses by aiding the termination of employee’s contracts via confidential negotiations and controlling litigation risk and costs regarding unfair dismissal. This should certainly be a much needed shot in the arm for small businesses, many of which have struggled since the downturn to keep afloat in stormy seas.

Mediate or Meet the Cost?? Failing to Consider Mediation Could be a Costly Strategy

The dispute resolution landscape post the Jackson Reforms earlier this year has taken on a slightly more rugged if not treacherous appearance, and this is certainly the case concerning the widespread changes to the costs regime. Lord Woolf began the crafting of a more undulating and challenging dispute resolution landscape back in 1996 and now Lord Justice Jackson has added some lofty peaks for litigants and litigators alike to be aware of, or ignore at their peril. These measures have been taken to minimise abuses and streamline the court process by introducing sanctions with a touch more bite. Certainly some sturdy trekking gear and thorough map reading will be required to navigate these new ranges.

Case law is now filtering in which is providing a picture of how the courts intend to interpret some of the new costs measures that were introduced back in April 2013. One such key measure is that the costs of a case must be 'proportionate' to the amount in dispute. No longer will excessive legal costs be justifiable because they were merely 'necessary'. Thus, if the amount in dispute is £200,000, then legal costs to trial of £150,000 would most likely be disproportionate, regardless of how much work was involved.

A judge may even agree that the costs were necessary but be forced to reduce them under the new proportionality criteria. As such, prospective litigants and litigators must carefully budget before and during the litigation process and this will be closely monitored by the court, with deviation from budgets being punished. One solution to increasing and sometimes hard-to-predict litigation costs is early mediation.

Interestingly, Lord Justice Jackson published the ADR (Alternative Dispute Resolution) Handbook as part of his wide-ranging reforms to civil litigation in 2013. This report, among other matters, stipulated that if your opponent offers mediation then this must be considered with constructive engagement. To merely ignore such an offer would attract a costs sanction.

This advice regarding mediation has now been confirmed by the Court of Appeal in the recent case of PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288. In this case the defendant ignored an invitation by the claimant to consider mediation. Ordinarily, a party can justify refusing an offer for mediation by citing various factors that were laid out in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002. Such factors include the merits of the case and whether such mediation would have a reasonable prospect of success. If a party could justify to the court a refusal to mediate according to these 'Halsey Principles' then no costs sanction would generally follow.

However, in line with Jackson's ADR Handbook advice, the Court of Appeal held that to simply ignore an offer to mediate would attract a costs sanction automatically, regardless of whether it was justifiable under the Halsey Principles or not. As such it was held that the defendant would be liable for more of the claimant's costs than if they had simply engaged with the other side in relation to their mediation request. This is in line with the new 'proportionality' requirement as a successful mediation can, in principle at least, greatly reduce subsequent litigation costs and thus is an avenue which must be at least considered properly if suggested.

Some prospective litigants may view considering or undertaking mediation, especially at the outset, as a sign of weakness. However, with possible costs recovery implications now in place around the refusal to consider mediation, litigants should ask their legal advisers to lay out the mechanics, timings and costs of a possible mediation as this may prove more cost effective than litigation, from a commercial perspective.

The key point to take away for litigants and litigators is that consideration must be given to the possibility of mediation if the other side suggest mediation, whether suggested in conversation or in writing. A response must be given to a request and if mediation is not appropriate then you must carefully apply the Halsey principles to the facts to justify your refusal. It may be that the court will issue more 'Ungley orders' - these are orders of the court which require parties to consider ADR before trial and file reasons for any refusal. These objections can then be used by the court when considering costs, which could prove costly if ADR would have proven significantly cheaper than any subsequent yet forced litigation.

No doubt more case law will emerge in the coming months to further augment the new costs regime implemented by the Jackson Reforms. It is doubly important that one now steps the path towards contested litigation with a firm and carefully placed footing, so as to avoid any unpleasant pitfalls.

 

Check out my new article on Real Business Magazine - 'Bidding Farewell to Problem Employees: Legal Solutions in a Commercial World'.

An article on how to fire employees who have exhausted your patience with persistent bad performance or unacceptable work attitudes.

http://realbusiness.co.uk/article/24397-bidding-farewell-to-problem-employees-legal-solutions-in-a-commercial-world

A win for businesses at the expense of employees as lower award for unfair dismissal comes into force

The Coalition government's 'Red Tape' scheme to enliven the economy by encouraging businesses to grow and employ new staff  has reached a controversial milestone this summer.  On 6 August 2013, The Unfair Dismissal (Variation of the Limit of Compensatory Award) Order 2013 (SI2013/1949) was published. This Order came into force on 29 July 2013 and changes the upper 'compensatory award' limit for unfair dismissal to either 52 week's pay or £74,200, whichever is lower.

Ironically, this change has come into force at the same time as the EU officially emerges from the post-credit crunch recession, with industry sectors on the continent, especially in France and Germany, and the housing market in the UK, showing green shoots of recovery to mirror our long-awaited balmy English summer.

So what is the significance of this change? The main area of change relates to the option of 52 week's pay as the upper compensatory award limit, that is unless 52 week's pay is more than £74,200. Thus, for an employee on a yearly salary of less than £74,200, this yearly salary amount will be the maximum that they can be awarded at an Employment Tribunal for unfair dismissal (along with a possible 'basic award' of up to £13,500). Considering that the average 52 week salary in the UK is £26,000, this greatly limits what an employee can be awarded and this will be especially marked in serious cases of unfair dismissal where such low awards could be deemed unjust. 

Interestingly, in February 2013, the upper compensatory award limit of £72,300 was increased to its current limit of £74,200. However, with the new rule in force to choose the lower of the new increased rate or 52 week's pay, such an increase to £74,200 is merely academic and those of a more sceptical nature may even assume that this small increase is to justify that most unfair dismissal claims will fall into the 52 week's pay award category. Indeed, such a meagre increase to the maximum compensatory award is no relief for those on a salary of less than £74,200.

This change adds to further recent 'Red Tape' policy measures such as the qualifying period for bringing an unfair dismissal claim to increase from one year to two year's employment for those starting employment post 6 April 2012. Moreover, from 29 July 2013 Employment Tribunals will now charge fees for each claimant. The combination of Tribunal fees and lower awards means that prospective claimants for unfair dismissal may be priced out of using lawyers to represent them at Tribunals. This is exacerbated by the fact that, traditionally, legal costs cannot be recovered in an Employment Tribunal. Such prospective claimants may be forced to act as litigants-in-person which may in turn affect their chances of success.

Businesses will also be aware of the maximum compensatory award an employee could be awarded at an Employment Tribunal for unfair dismissal if their yearly salary is less than £74,200. This could prompt employers to make lower offers in settlement negotiations. This in turn will help businesses reduce litigation costs and exposure.

For employees, they may need to find grounds for discrimination to add to their unfair dismissal claims in order to secure higher awards, or alternatively claim only for discrimination against their employers. Either way, this narrows their options for a solution through litigation, sometimes the only option available.

There is no doubt that these new changes should aid the growth of businesses by controlling litigation risk and costs regarding unfair dismissal. Whether justice for employees who have suffered unfair dismissal is affected for the worse is yet to be seen. Like our record-breaking English summer, it was much anticipated and hoped-for but was inevitably punctured with some unsettling downpours.

UPDATE: The European Commission sound a retreat on boardroom gender diversity

Following on from my blog ‘Women's Rights Storm the Rickety Workplace Citadel’, the European Commission have succumbed to pressure from Member States, most notably the United Kingdom, and altered initial plans to force a mandatory quota for gender balance in the boardroom.

 A draft Directive setting a quota for boardroom gender balance and rumoured to introduce Draconian penalties for non-compliant companies, was due to be published in October 2012 but after much furore the debate was extended into November 2012. The Commission have now published a much amended draft Directive, which proposes an objective for all EU listed companies to have 40% representation of the ‘under-represented sex’ on each board by non-executive directors (‘NEDs’), by 1 January 2020 or 1 January 2018 for companies predominantly owned or influenced by public bodies.

The Directive requires companies to put into place recruitment measures which give preference to female candidates, but only if they hold the same qualifications and credentials as male candidates. In addition, companies that are caught by the Directive must report to their relevant national authorities and print on their website details of the gender ratio on their boards. If they fail to meet the quota they must explain to the authorities why this is the case and also outline which measures they have adopted to remedy the situation.

Interestingly, the new Directive is relatively toothless as sanctions will only be enforced upon those companies that fail to introduce the necessary recruitment measures or fail to adhere to reporting requirements, which also include publishing quota gender targets for NEDs.

However, the measures only relate to companies which are incorporated in a Member State and have securities listed for trading on a regulated market in a Member State. The Directive does not apply to SME’s, which are those companies that employ less than 250 people and have an annual turnover of less than €50 million.

The Directive is currently passing through the EU legislative process after which time each Member State will have two years to implement the new legislation into national law.

There is no doubt that this is a step in the right direction regarding the long battle for boardroom gender equality, however, it serves as a mere pyrrhic victory with the final foray to be decided when companies are ‘forced’ to adopt the measures in 2020.

LinkedIn or Locked-Out? Employment Law Implications of LinkedIn

The recent decision of the Employment Tribunal in Flexman v BG Group (unreported) has once again placed the popular professional networking site LinkedIn in the spotlight in relation to employment law.

The case concerns John Flexman, an HR Manager on £68,000 a year who claimed constructive dismissal against his employer, the gas exploration company BG Group. BG Group had contacted Flexman while he was on holiday to order him to remove any mention of the company on his LinkedIn profile, apart from the dates that he had worked there.

The company claimed that Flexman had contravened their Social Media policies by uploading his CV onto LinkedIn. BG Group further claimed that by selecting the 'career opportunities' tick-box on his LinkedIn profile he had also breached their policies. Finally, the company accused Flexman of compromising their confidentiality by mentioning in his online CV that he was aiding the company in reducing their 'attrition rate'.

This fallout led to an internal disciplinary investigation and a subsequent hearing against Flexman in April 2011, where he was informed that he was at risk of dismissal. Relations degenerated so badly from this point onwards that Flexman resigned in June 2011, claiming constructive unfair dismissal against BG Group. This is the first instance in the UK of an employee being dismissed due to LinkedIn (although there have been a number of dismissals and subsequent court cases concerning employee use of Facebook).

The Employment Tribunal have recently held (after the case going part heard in February 2012) that Flexman was correct in resigning and claiming constructive unfair dismissal as BG Group were guilty of a 'serious breach' of contract. The company's breach was due to their unacceptable delay in dealing with the case and, secondly, their failure to address a grievance raised by Flexman that was linked to the incident (whereby Flexman demanded, among other things, to know the identity of the Judas who had alerted the company to his LinkedIn profile).

There is already precedent for legal action in the UK regarding LinkedIn and employment. In Hays Specialist Recruitment (Holdings) Ltd v Ions [2008] IRLR 904, an employer successfully secured an injunction to force an employee to give them his LinkedIn password so that they could remove confidential information that he has uploaded to his profile from a work database. Interestingly, contacts that the employee had made on LinkedIn while he worked at the company were held to be his property rather than the employers. This was despite these contacts being garnered 'in the course of employment', which is the usual legal test when considering who owns employee work that is created as part of their job.

Co-incidentally, a test case regarding an employees's use of LinkedIn is about to be heard in the US and its outcome may well influence future decisions in the UK. The case concerns an employee who operated a LinkedIn account, partly in her spare time and partly in the course of employment. When she left the company her employer blocked her LinkedIn account claiming that it was their property. Watch this space for an update when this case is decided, after which the legal landscape should be somewhat clearer regarding who owns an employee's LinkedIn content, when some of such content was created in a work capacity.

LinkedIn now has over 100 million users worldwide and claims to have two new joiners every second. It has a global reach that is vital for the marketing efforts of companies and equally important to the career progression of employees. Employees need to be mindful of any company Social Media policies that they may fall foul of during their employment when utilising the site. They must also guard against breaching gardening leave restrictive covenants in compromise agreements by prematurely announcing on LinkedIn that they have either, ceased working somewhere or, are about to work somewhere else.

Conversely, employers must ensure they have Social Media policies to cover LinkedIn and protect their reputations as well as stop possible leaks of unwanted news concerning new and departing employees. Regarding compromise agreements when employees leave, the current thinking in employment law circles is that non-compete clauses are vital as non-solicit clauses will be almost impossible to police and enforce when it comes to LinkedIn. After all, work friendships are also formed and maintained via LinkedIn and what information is disclosed at little Jonny's first birthday party over a glass of Champers between former workmates cannot be guarded against, nor should it.

What is certain is that LinkedIn along with other Social Media sites, through their ubiquitous reach and ability to forge or flounder reputations, have ironically penetrated even the private contractual relationships between employer and employee. Employers fail to now have a Social Media policy at their own peril!

Women's Rights Storm the Rickety Workplace Citadel

The long fight for equality in the workplace has taken a significant step forward with a recent Supreme Court judgment extending the time-limit for equal pay claims and the European Union's announcement of an increased mandatory quota for the number of women directors who must sit on company boards, to be debated in November 2012.

The Supreme Court judgment relates to 174 former Birmingham City Council female workers who were employed in traditionally female roles such as cleaners, care staff and cooks. Their equal pay claim arose as men in equivalent roles, such as road workers, street cleaners and refuse collectors were given consistent bonuses of up to £15,000, despite them being on the same salary as their lady counter-parts.

Birmingham City Council appealed all the way up to the Supreme Court, arguing that the former employees should have lodged their claims with an Employment Tribunal within 6 months of the termination of their employment, as is the current legal standing under section 129(3) of the Equality Act 2010.

The Supreme Court rejected their rationale and has opened the door for all equal pay claims to be heard in the civil courts, which have a 6 year time-limit in which to bring a claim. This is a substantial increase on the previous 6 month time-limit in the Employment Tribunal. Fortuitously, it also offers the remedy of higher damages which are uncapped in the High Court, unlike in their Tribunal cousin.

While this is clearly a decision in the interests of justice and gender equality, it poses possible problems for employers. For example, if a former employee with a valid claim makes a late claim 5 or 6 years down the line, it may be difficult for employers to obtain the relevant records, which are often destroyed after a few years. This could in turn affect any negotiating power they may have and cost them more in settlement or damages. It will also effect forward planning in terms of having a company budget for prospective litigation, as well as the extra costs of retaining and storing staff records for 6 years. The worst case scenario for employers could be a tsunami of retrospective claims which could seriously de-rail smaller companies' finances and even lead to staff lay-offs, which would certainly be darkly ironic.

In a related development, following on from Lord Davies report 'Women on Boards' published in February 2012, which recommended that FTSE companies should aim to have 25% of their boards composed of women by 2015, the rightful furore has reached the hallowed halls of the European Union.

The EU has proposed a Directive that would make it mandatory for Members States to ensure that 40% of all boardrooms are composed of female directors, with eye-watering sanctions for those who do not comply. This has been inspired in part by similar national laws in various Scandinavian countries, such as Norway, who have gallantly led the troops in the battle for all-encompassing gender equality in western society.

However, there has been substantial resistance, including from the UK, with many arguing that the measure will be too expensive and difficult to enforce for some less sophisticated Member States. Moreover, some female commentators have pointed out that the quotas do not address the real issue, which is often loss of female talent due to glass ceilings or family commitments. Thus, the real challenge may lie in employers removing barriers or offering more flexible working alternatives.

This resistance has led to the EU announcing that it is to postpone the vote on the Directive, which was mooted to take place in October 2012, and has extended the time for the enlivened debate to be heard in November 2012. Either way, this small delay does not represent a fatal re-routing of the path to the New World that awaits.

The Suffragettes would certainly be proud of the recent progress in equality of the sexes in the workplace, however, as with all movements for justified change, the cultures of old will need to be shaken and new thought given by employers to how this changed landscape will flourish for all, as it surely should.