Government clamps down on unfair dismissal claims

The Government’s aim to reduce employment regulations red tape will see the qualifying period for presenting unfair dismissal claims rise to two years. Claimants will also have to pay fees when attempting to bring cases to court. John Charlton assesses the impact of these proposed measures.

Raising the time threshold for lodging an unfair dismissal claim and charging claimants fees for making them will not win the Government universal popularity. The avowed logic behind the planned changes is questionable and they may have costly unintended consequences.

Chancellor of the Exchequer George Osborne provided details of the changes at last month’s Conservative Party conference. They are a manifestation of the Government’s stated intent to cut businesses’ red tape burden, a move that it hopes will make employers more likely to create jobs.

Osborne told the Party faithful that the qualifying period for an unfair dismissal claim will rise from one to two years from 1 April 2012. Fees will be introduced, although these will not be confirmed until after the Government responds to the Resolving Workplace Disputes consultation, which closed in April 2011.

He indicated that this will include an upfront fee of £250 when lodging an ET1, a further fee of £1,000 if the claim is accepted into the system, and possibly higher fees for claims of more than £30,000. Fees will be refunded if claimants win their cases.

Employers’ bodies welcome the proposals

John Cridland, CBI director-general, says: “Extending the qualifying period for unfair dismissal is a very positive step. We have been urging the Government to do everything it can to make it easier for firms to grow and create jobs, and this will give employers, especially smaller ones, more confidence to hire.”

Abigail Morris, British Chambers of Commerce (BCC) policy adviser, says: “The BCC strongly supports proposals to reduce the number of weak and vexatious claims in the tribunal system. Introducing fees will not put off genuine claimants but will free firms from dealing with unmeritorious claims. Firms are nervous about taking on extra staff members in an uncertain economic climate. Complex and burdensome dismissal rules increase the ‘fear factor’ that if it doesn’t work out with the employee – for whatever reason – the firm will either have to keep employing the individual or risk a tribunal.”

Vital statistics

Ministry of Justice (MoJ) figures for the year to 31 March 2011 show there were 47,900 unfair dismissal claims, compared with 57,400 in 2009/10. Of the former, 10,300 claims went before the tribunal and 4,200 were successful. The average award was £8,924 and the median was £4,591.

The MoJ says that it doesn’t know how many unfair dismissal claims were lodged by claimants who’d been employed by the respondent for one year or less in 2010/11. But the Department for Business, Innovation and Skills says that “circa 1,600 to 2,400 tribunal cases will be cut” as a result of the proposed changes to unfair dismissal claims Regulations.

She adds that the BCC would also like to see changes to redundancy rules, a new dismissal route “to fill the vacuum left by the removal of the default retirement age” and the abolition of the right to request flexible working.

Unions take a different view. Unite general secretary Len McCluskey says: “At a stroke of a pen, following a fraudulent consultation exercise whereby employers could ‘vote’ for their least-liked laws, a key defence against mistreatment is taken away from workers. And the Government does not even have the decency to announce this properly. How can this be in 2011?”

TUC general secretary Brendan Barber says: “Making it easier to sack people without any reason is simply a charter for bad bosses. This will do nothing to boost growth and will not create a single extra job.”

The TUC adds: “Fees will particularly affect low-paid workers. According to the “Survey of employment tribunal applicants 2008″, nearly 70% of tribunal claimants have average or below average earnings, and 35% earn less than £15,000.”

Impact on unfair dismissal claims

Anna Jeevanjee, senior associate at Hogan Lovells, says: “The proposed change will undoubtedly have some impact on the number of unfair dismissal claims but the impact is unlikely to be dramatic. The overall impact on the total number of claims submitted will probably be very small.”

More importantly, the changes may well have unintended consequences. Most probably they may see would-be claimants turning to anti-discrimination regulations as one basis for claims.

Jeevanjee says: “A disgruntled employee who lacks the requisite service to bring an unfair dismissal claim might well decide to bring a claim based on their ‘day one’ employment rights instead, such as a claim for discrimination on the grounds of race, sex, sexual orientation, religion or belief, age or disability, or a whistleblowing claim.

“Since discrimination and whistleblowing claims are more complex, more costly to defend and attract higher compensation on average, this could well undermine the Government’s objective of encouraging employers to recruit.”

Eilidh Wiseman, partner, and David Palmer, solicitor, in the employment team at national law firm Dundas & Wilson, add: “Claimants with less than one year’s service already try to get a claim into the tribunal system by tagging on other complaints which do not require the claimant to have the qualifying period of employment.

“These ‘tag-on claims’ include discrimination complaints and the automatically unfair dismissal complaints, which include allegations that the employee has been dismissed for whistleblowing or for raising concerns over health and safety. Employees will continue to use this tactic regardless of the qualifying period. We do not foresee an increase in the number of such tag-on claims.”

Jeevanjee says: “The requirement for two years’ service may also indirectly discriminate against employees with a disability if statistically they tend to have shorter continuous service.” She adds that, “if challenged”, the Government will need to show its aims in raising the threshold are legitimate and “that there is no less discriminatory method of achieving this aim”.

Nick Jew, partner, DLA Piper, comments: “Inventive lawyers advising those employees who do not have the necessary service will seek to frame their claims in a way which avoids the need for a qualifying period of service, for example, some form of discrimination claim.”

He says that the commonest types of claims alleging discrimination are:

  • unfair dismissal for a health and safety reason;
  • unfair dismissal for making a protected disclosure (whistleblowing); and
  • unfair dismissal in connection with an application for flexible working.

These tend to be costlier to conduct than unfair dismissal claims and there is no cap on awards, so, ironically, employer costs in dealing with claims may rise.

Is the qualifying period discriminatory?

Although the two-year qualifying period may be interpreted as indirectly discriminatory against women and young people, who tend to be in post for shorter periods than adult males, case law on this is not clear.

Employment link

It is a moot point whether or not there is a clear correlation between employment law and job creation. When the qualifying period for lodging unfair dismissal claims rose from one to two years in 1999, the number of jobs in the UK was rising and continued to do so until the banking crash.

Also, Germany, subject to EU-inspired employment-related law, has been far more successful than the US at creating jobs in recent years. Admittedly, it has reformed some employment law and introduced schemes, such as subsidising short-time working. But the root cause of its relative success is producing high-quality goods that markets desire.

In 1999/2000, when the qualifying period was two years, the Seymour-Smith case went before the House of Lords and European Court of Justice. They were asked to judge whether or not that period was indirectly discriminatory against women.

Wiseman and Palmer comment: “Whilst the qualifying period was found to be indirectly discriminatory, as more women were adversely impacted by it than men, it was held to be objectively justifiable on social policy grounds. However, that judgment was specific to the time in which the case took place.

“If the two-year qualification period was challenged again, which we expect it will be, it may be that the courts of today would find that a two-year qualifying period is no longer objectively justifiable. Furthermore, the impact on young people is a new and potentially fruitful ground to challenge the two-year qualifying period, under the age discrimination laws.”

However, Jew points out that the protection for unfair dismissal is a statutory right and if an employee does not have two years’ service then the protection is unavailable.

“Case law does not change this and EU legislation does not alter this position,” he adds.

Funding claims

The introduction of fees will probably deter many would-be claimants from pursuing claims and may give trade unions, which fund many unfair dismissal claims, pause for thought about taking on weaker ones. It also remains to be seen what regime the Government will introduce for claimants who have little or no money to pay lodgement and legal fees, especially as it is cutting the legal aid budget. Clearly, many dismissed staff will have little money.

Wiseman adds: “Once a claimant has lodged their hearing fee, the claimant is going to expect the employer to cover that additional cost in any settlement figure which is agreed between them. So we do not think that the employers will necessarily be happy about the introduction of the fees when it comes to settling claims.”

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