Legal Q&A: Employment Bill 2007

Q What are the main changes proposed?

A The Employment Bill received its first reading in the House of Lords on 6 December 2007. The Bill proposes to repeal the statutory dispute resolution procedures and make a number of other changes relating to dispute resolution. It also strengthens the national minimum wage (NMW) enforcement framework and the employment agency standards regime, and changes trade union membership law.

Q What will replace the statutory dispute procedures?

A The Bill repeals sections 29-33 of the Employment Act 2002 and schedules 2-4 of the Act, therefore removing all statutory procedures, including the automatic unfair dismissal provision (section 98A Employment Rights Act 1996). The way in which breaches of procedure will be dealt with in unfair dismissal cases will revert to the pre-2004 case law, and in particular Polkey v AE Dayton Services Ltd [1998] AC 344. Under the Polkey principle, if the tribunal finds that following the correct procedure would have made no difference to the outcome, the dismissal will usually be deemed unfair, but the tribunal should still reduce the compensation payable. In appropriate cases the reduction may be reduced to nil, according to the principle.

The Acas Code of Practice is also being substantially revised and will be re-issued when the Bill comes into force. The code is not legally binding, unlike the statutory procedures, but it can still be taken into account by the tribunal when considering if a fair procedure was followed by an employer in cases of dismissal.

A tribunal’s discretion to increase or decrease any award for failure to follow the statutory procedures will be repealed along with the procedures themselves. Instead, there will be a new discretion for the tribunal to increase or decrease any award of compensation by no more than 25% where an employer or employee fails unreasonably to follow the relevant statutory code.

Q Why are procedures being repealed just three years after they came into force?

A When the statutory dispute resolution procedures were introduced in October 2004, the government promised a review within two years. Following widespread criticism of their complexity, an independent review concluded that the procedures have, as a result of their mandatory nature, led to “unforeseen consequences”. In March 2007, the Department for Business, Enterprise and Regulatory Reform (BERR) accepted the review’s findings and undertook public consultation. Although BERR has not yet published its results, the Employment Bill, unsurprisingly, incorporates many of the recommendations set out in the department’s consultation paper, including repeal of the existing procedures.

Q What other proposals are there to improve dispute resolution in the workplace?

A The Bill gives the power to establish a new fast-track procedure to settle monetary disputes in certain limited cases. Acas officers are given wider discretion to conciliate in pre-tribunal disputes and fixed conciliation periods are removed. Finally, tribunals are given powers to award compensation for financial loss (for example, bank charges and interest) arising from any unlawful deduction of wages or non-payment of redundancy awards.

Q What other changes does the Bill propose?

A With regard to the NMW, the Bill will give workers added protection by making employers pay at higher rates for outstanding arrears, and introducing a new civil penalty for underpayment payable to the government. The criminal penalty is also increased for certain offences, making them triable for the first time in the Crown Court. Other changes are made to assist NMW officers in their enforcement duties.

The Bill will increase the penalty for criminal offences under the Employment Agencies Act 1973 (EAA) and strengthen the powers of inspection for inspectors appointed under the Act. Changes are also proposed to make partners in a Scottish partnership liable for offences under the EAA in the same way as partners in England and Wales already are.

Finally, the Bill amends trade union membership law to enable trade unions to apply membership rules that prohibit individuals who are, or who have been, members of a particular political party from union membership (in compliance with the Aslef v UK decision).

Q When will the Bill come into force?

A The aim is for the Bill to receive Royal Assent by this summer, but it will come into force in stages. The dispute resolution changes are unlikely to come into force before April 2009. The employment agency provisions will come into force on 1 October 2008 or, if the Bill is enacted after that date, 6 April 2009. The government will specify when the other changes come in.

Laurence Rees, employment partner, Reed Smith Richards Butler

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