The Enterprise and Regulatory Reform Bill

by Laurie Anstis on May 23, 2012

The government have today published the Enterprise and Regulatory Reform Bill (press release here).

Clauses 7 – 17, [update: and 57] and Schedule 2 are relevant to employment law. These are some initial observations from me:

Clauses 7 – 9, and schedule 2, are concerned with the new pre-claim conciliation procedures – compulsory reference to ACAS for conciliation prior to a claim being presented to an employment tribunal. There are detailled provisions for how this is going to work and, in schedule 2, how this will affect the normal three month time limit within which most employment law claims have to be presented to a tribunal.

This is all very well, but the fear of all employment lawyers is that this will end up being a successor to the “rebarbative” statutory dispute resolution procedures – well intentioned legislation that floundered by being far too technical and perhaps leading to as many disputes as it ever resolved. I haven’t been through the proposed procedures in detail, but the reference in schedule 2 to “Day A” and “Day B” gives some indication that the operation of the procedures will not be straightforward.

Clause 10 permits “legal officers” to determine some (to be specified) types of employment tribunal claim, or any employment tribunal claim if the parties consent. Although the nature of these claims is not set out anywhere, it seems that this is to be the basis of the “rapid resolution” procedure for small claims referred to in the press release.

Clause 11 provides for the expected reduction of the Employment Appeal Tribunal from a panel of three to a judge alone (subject to a discretionary power to order a hearing in front of a full panel).

Clause 12 is intriguing. It permits variation of the cap on the compensatory award to be either (1) a specified amount of between one and three times median annual earnings (which Daniel Barnett has identified as being between £26,000 and £78,000), or (2) a specified number of week’s pay (no lower than 52 weeks) for the individual concerned, or (3) the lower of the two. [Update: clause 12(3) contemplates that the specified amount under point (1) (but not (2)) may vary “in relation to employers of different descriptions”].

To some extent this echoes the original ideas of compensation from the Donovan report in 1968. It is not immediately clear to me whether the “week’s pay” would be subject to the statutory cap (currently £430/week).

Clause 13 provides for financial penalties to be paid by employers who are found to have breached a worker’s rights, where there are (unspecified) aggravating features. These penalties will be between £100 and £5,000, and (subject to those limits) will be an additional 50% of the amount of compensation awarded to the worker. The penalty will be reduced by 50% for prompt payment. The penalty will be paid to the government, not the worker.

Some will welcome the idea of these penalties as a counterbalance to the planned introduction of fees for an employee starting their claim, but this does have potential to be a contentious issue. The “aggravating features” that can be taken into account are not specified. No doubt most claimants will consider that their claim does have aggravating features, and there may be pressure on employers to settle claims at more than what they would otherwise pay for fear of a further penalty if they lose at tribunal.

Clause 14 limits the definition of “protected disclosures” (which are the basis of whistleblowing claims) by saying that the disclosure must, in the reasonable belief of the worker making it, be made in the public interest.

This is the attempt by the government to deal with the rule in Parkins v Sodexho that a disclosure alleging breach of an individual’s contract of employment is capable of amounting to a protected disclosure. Having said that, I wonder if it actually achieves that effect as currently drafted. It seems to me that many “whistleblowers” will believe that their disclosures that, for instance, they have not been correctly paid their bonus, or that they have been bullied by their manager in such a way as to breach the duty of trust and confidence, are in the public interest. This form of words also means that allegations about things other than a simple breach of a legal obligation must fall within the public interest – so a disclosure that a criminal offence has been committed would also have to satisfy the test of being made in the public interest. It seems to me that this form of words may change as the bill makes its way through Parliament.

Clause 15 deals with indexation of awards.

Clause 16 renames “compromise agreements” as “settlement agreements”. That seems to be all it does, and it does not interfere with some of the technical requirements for compromise agreements. There had been talk of simplification of some of the technical rules, or even standard-form settlement agreements, but I do not see that in this bill.

Clause 17 deals with some technical transitional arrangements.

[Update: Clause 57 removes from section 439 of the Companies Act 2006 (which provides for shareholder votes on the directors’ remuneration report in quoted companies) the provision that “No entitlement of a person to remuneration is made conditional on the resolution being passed by reason only of the provision made by this section.”

This change is described in the press release as “giving shareholders a binding vote on directors’ pay”. Section 439 is not a provision that I am particularly familiar with. My immediate reaction is that the change doesn’t necessarily mean a binding vote, but instead takes away a provision that the vote, by itself, does not affect remuneration. It looks to me that service contracts and other corporate arrangements will still have to expressly refer to the shareholder’s vote for it actually to affect remuneration, but I’d welcome comments on that from people who are more familiar with section 439 than I am.

The press release accompanying the bill says: “Following consideration of the consultation responses, the Government aims to bring forward further detail on how this will work later in the legislative process.“, so it seems there is more to come on this.]


None of this comes as much surprise given the endless series of announcements and consultations over the last year, with one exception. I can’t remember this power to reduce the compensatory award cap (clause 12) having previously been discussed. Does anyone remembers seeing it anywhere before, or has this been slipped in under the radar?

by Mark Tarran on 23 May 2012 at 5:53 pm. #

Rumours of the death of Beecroft proposals have been greatly exaggerated.

At first glance I agreed with Mark that the proposal to change the cap on compensation was a new development. However, I haven’t been able to look at the bill but if it’s a power to change the cap at will, and using secondary legislation, it would potentially (if a multiplier of 1 was enacted) take compensation for ordinary unfair dismissal down to pre-1999 levels. The government would be able to do that at a later date with as little debate as there was when they doubled the qualifying period six months ago. You could call it Beecroft mark 3. Mark 1 was compensated arbitrary (“no fault”) dismissal – with compensation capped at a suitably low level. Mark 2 was compensated arbitrary dismissal for those employed by micro businesses. Mark 3 is potentially another go at Mark 1 – slash compensation levels to a point where ordinary unfair dismissal claims are cheaper to settle than fight. The downside – that for many employees the maximum compensation they could get, however unfair the dismissal, would be nowhere near their loss – is no doubt what Beecroft would see as a “price worth paying”.

by @anyapalmer on 23 May 2012 at 6:25 pm. #

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