There were some statistics that private equity pioneer Adrian Beecroft did not include in his highly controversial report on employment law published last year. The number of claims brought by employees in employment tribunals fell from 236,000 in 2009-10 to 186,000 in 2011-12. The number of claims for both sex and age discrimination has almost halved. And the median award for most types of claim remains low, at around £5,000 (two months’ average pay). Given that these figures relate to a period of acute economic turbulence, they are counterintuitive.
Instead, the narrative preferred by both government and Beecroft is that businesses are being throttled by over-regulation. They argue that economic growth is secured through a more flexible labour supply and the ability to ‘hire and fire’.
Many employment lawyers, by contrast, argue that the government’s reforms will create uncertainty and trigger satellite litigation, while increasing the burden on the tribunal system.
Foreshadowed by the government’s Red Tape Challenge and the recommendations of the Beecroft Report, the reforms include changing the rules on unfair dismissal, so that an employee must be employed for two years before gaining protection; and allowing cases to be heard by one judge sitting alone rather than with, in addition, two (lay) wing members.
The Department for Business, Innovation & Skills’ Enterprise and Regulatory Reform Bill (ERRB) is currently at the committee stage in the Lords. Also in the pipeline are: the introduction by George Osborne of employee-owner status under which workers sacrifice rights for shares in their employer; reforms of the Employment Tribunals Rules of Procedure known as the Underhill Reforms, which are expected to come in this April; reform of the transfer of undertakings rules (TUPE); flexible working reform; a new ACAS code of practice – and on it goes.
The UK is not alone in this regard. Changes to labour laws have formed a cornerstone of EU members’ responses to the eurozone crisis. Italy has changed its unfair dismissal laws so that employers do not have to reinstate ex-employees but can instead pay them compensation; it has also made it easier for workers to enter fixed-term contracts. Spain has cut compensation for sacked workers, while Greece has introduced a right for employers to employ people in rotation.
Franco Toffoletto, senior partner at Italian firm Toffoletto De Luca Tamajo e Soci, a member of the global human resources law firm alliance Ius Laboris, explains: ‘As unemployment hits record levels and there remain forecasts of a grim economic outlook for many months to come, European governments are more than ever compelled to reconsider and amend their employment legislation and policies.’ Under the EU’s Compact for Growth announced last June, member states are expected to adopt country-specific recommendations on both budgets and structural reforms such as employment policies.
The UK, of course, already has one of the weakest employment protection regimes in Europe, which limits the government’s room for manoeuvre in respect of EU treaty rights, including those which pertain to equality. Moreover, little work been done here to analyse the link between economic growth and employment laws, and thereby to deduce which laws in particular act as a barrier to business.
What does undoubtedly exist is a perception that regulation is a burden on business. The Business Perceptions Survey 2012, produced by IFF Research, found that 55% of businesses believe regulation is a barrier to success. Even so, compliance is not the greatest challenge – that is cited as attracting and retaining customers. Regulation is also considered less important than tax rates.
The Law Society’s response to the various consultations on employment law reform is summed up by president Lucy Scott-Moncrieff: ‘The government says that employers are not expanding because of fear of employment regulation... we question whether in reality this is the case. The Society’s concern is that there will be unintended consequences that arise from these changes.’
The chancellor’s plan for employee shareholder contracts is a case in point. Chancery Lane warned earlier this month that they will add to red tape for small businesses and create confusion.
The Employment Lawyers Association echoes such concerns. Stephen Levinson, a member of its legislative and policy committee and employment partner at RadcliffesLeBrasseur, says: ‘We all agree that the law should be workable and people should understand it so that it is useful. But we are not convinced that these reforms achieve that.’
Some of the most significant reforms concern the employment tribunal (ET) system. ETs were founded as an informal, fast and effective forum to solve industrial disputes. Hence, testimony was oral and there was very little paperwork. Over the years, however, ETs have become more like civil courts, with rules about evidence and disclosure, and involving piles of bundles and lengthy case management discussions.
This has come about partly because employment law itself has become increasingly complex, as Paul Quain, a partner at GQ Employment Law, a boutique employment practice, explains: ‘Cases are becoming just as complex as High Court litigation, so there is pressure on the ET to follow suit.’
Tribunals have in consequence become less accessible and more expensive for both the state and parties. Accessibility has been reduced for claimants because the process is much more complex, and for respondents because complexity means time and money. Tribunals are physically less accessible too. Years ago, tribunals were ad hoc and disputes were heard in cheap and convenient locations such as local libraries or other c ivic buildings; now they are in 26 fixed locations.
Few would dispute that the ETs need attention. But instead of moving away from the court process, the government is contributing to what academics call the ‘juridification’ of workplace disputes – that is, making them ever more legalistic. As Quain says: ‘Instead of doing something radical, they have kept to the judicial and evidential processes.’
A recent article in the Industrial Law Journal discusses the problem of juridification, arguing: ‘This does not sit easily with the coalition government’s stated objective of making employment regulation more business-friendly… [the reforms] may reduce government expenditure. They will not, however, necessarily make ETs more efficient for users.’
Another concern raised by practitioners and clients is that some of the legislative reforms contained in the ERRB and other bills will create more areas of contention – more areas to litigate over. Take, for example, the proposal relating to protected conversations. The idea is that employers and employees should be able to engage in straight-talking without having to worry about being sued.
Except employers do this already, using the without-prejudice rule. City firm Charles Russell surveyed its HR clients on the reforms and found that 70% already had useful off-the-record conversations. Mike Powner, head of employment and pensions at the firm, says: ‘Why make it more complicated? This reminds us of the statutory disciplinary procedures [which were repealed four years after they were introduced]. The rules are too rigid as to what protected conversations should be. They also set parameters and so you are just creating litigation about the conversations, rather than reducing litigation.’
There is a similar problem with the proposal for pre-claim conciliation through ACAS. On its face this is a positive step to avoid the kind of juridification that is happening by using non-lawyers trained in resolution to resolve disputes. But there are rules about what happens to the strict time limits for bringing claims while conciliation is ongoing. Lawyers fear a flood of satellite litigation on whether claims are out of time. Moreover, there is concern over to what extent ACAS will be able to deliver an effective service unless serious funding shortfalls are rectified.
One reform that may well have an instant and dramatic effect in terms of the number of claims being brought is the introduction of fees for issuing a claim in the ET (and the Employment Appeal Tribunal), and for the hearing itself. The proposal is that fees start at £160 and escalate upwards depending on the number of claimants; and that the civil court’s remissions scheme is adopted for those who cannot afford the fee. This may well deliver on the promise to reduce claims – some say by as much as 25%.
The problem with introducing fees is that it undermines access to justice. As Michael Burd, joint head of employment law at Lewis Silkin, says: ‘This is certainly the biggest of all the reforms. But there is this tension between the government’s desire to increase access to justice and there is not the slightest doubt that this will decrease [it]’.
John Wiggins (pictured), a solicitor at the Mary Ward Legal Centre in London’s Lincoln’s Inn, is well placed to comment: ‘Fees for bringing a claim in a tribunal will definitely put people off bringing claims – those who can least afford it. We act for people who are low-paid, who are not seeking a big payout. These are people who have not been paid their wages, who have been sacked when they are pregnant, who have suffered horrific levels of sexual and other harassment. Many are from immigrant backgrounds who make up the workforce on which the economy of London rests.’
The government is undeterred. A spokesperson at BIS says: ‘The introduction of fees... will be an important change to ET cases, with people having a financial stake in bringing a claim. This is likely to deter people from bringing cases which have little chance of success. It is not fair on the taxpayer to foot the entire £84m bill for people to escalate workplace disputes to a tribunal. We want people who can afford it to pay a contribution. Those who can’t will not have to pay.’
Access to justice will also be compromised by the removal of funding for legal help, it is argued. This is a form of state-funded legal advice (but not representation) currently available for employment law cases but which, as of April, will no longer exist except for discrimination cases.
Wiggins says this will have a greater impact than all the other reforms put together: ‘People won’t get proper advice and this will negatively impact on tribunals, which will have to deal with badly prepared cases from litigants in person, taking up more tribunal time. These will not have been legally assessed and some [cases] may be without merit. Fewer cases are also likely to settle without prior specialist advice.’
The government, however, believes that by removing the ability to obtain legal advice, ETs will return to what they once were, according to BIS: ‘Being able to represent yourself at tribunal is a key element of the process – ETs were designed as a less costly way of resolving disputes. It’s in everyone’s interest to avoid drawn-out disputes which emotionally damage workers and financially damage businesses. That’s why we are encouraging quicker, simpler and cheaper alternatives like mediation.’ Employment lawyers would not disagree with that. But it is one side only that will not be able to get legal advice.
So what is commonly held to be positive about the reforms? It appears that the government will abolish discrimination questionnaires which are submitted pre-claim on behalf of claimants and are considered an unnecessary burden on employers. Burd says: ‘In theory they were all very well, but in reality they have been used as instruments of oppression.’
There has been broad agreement on the government’s proposal to reduce the length of collective consultation, where 100 or more people are being made redundant, from 90 days to 45. And many practitioners welcome consultation on reform to TUPE rules. Many practitioners also support ACAS pre-claim conciliation, though with the caveat that it needs to be properly resourced.
To an extent the government has listened to stakeholders during consultation. A proposal to introduce so-called ‘tariffs’ (guideline figures) for settlement discussions has been abandoned, it was announced last week. As Powner says: ‘A tariff will set minimums. If we are concerned about spurious nuisance claims, a minimum will just encourage them’.
Employment lawyers recognise that there is room for improvement in the existing regulatory and legislative structure. But the direction of travel is clear, and the government is not to be knocked off course, regardless of those unintended consequences to which employment lawyers frequently allude. Levinson says of the changes to rules on unfair dismissal which came in last year: ‘It was done to make people think that it is easier to hire people and less risky. The reality is that it makes hardly any difference, particularly since it doesn’t apply to discrimination law. All it may do is encourage employers to manage their staff poorly, and that’s not good for business. We just don’t believe people don’t hire people because of fear of unfair dismissal claims alone.’
Polly Botsford is a freelance journalist
Employee-owners on the agenda
At the Conservative Party Conference last year, George Osborne set out his shares-for-rights scheme. Under the scheme, employees would give up their rights to unfair dismissal and some flexible working rights in return for shares in their employer’s business. The shares would be worth between £2,000 and £50,000 and exempt from capital gains.
It is hard to see how creating a completely new category of employee is going to simplify regulation, yet the scheme has drawn support from odd bedfellows. Banks believe it may be useful because they need to focus more on equity to satisfy their own regulatory regimes. At the same time, some social enterprises, which are often based on employee ownership, have expressed enthusiasm for the scheme.
But shares-for-rights has also been widely criticised not least by Sainsbury’s chief executive, Justin King, who was quoted in the press as saying that for a business it would be a PR disaster as it would worsen the level of trust between the public (that is, consumers) and the business.
Perhaps it was the way that Osborne delivered it with his catchphrase that didn’t catch on: ‘owners, workers, and the taxman, all in it together.’ It all sounds a bit fantastical.