Employment tribunals can impose financial penalties on losing employers. Mayer Brown’s Chris Fisher and Katherine Fox look at what the fines mean in practice.
Since 6 April 2014, employment tribunals have a discretionary power to impose financial penalties on employers if they lose and their case has one or more “aggravating features”. Tribunals will be able to order a penalty of between £100 and £5,000. However, this power does not apply to any claim that was presented to the tribunal before 6 April 2014.
What amounts to an “aggravating feature” has not been defined in the legislation that introduced the power. Instead, this will be a question for the tribunal to decide, taking into account any factors it considers relevant – including the circumstances of the case and the employer’s circumstances. The tribunal should only take into account information of which it has become aware during its consideration of the claim. However, the response to the consultation that took place prior to the legislation coming into force, suggests that negligence or malice on the part of the employer would have to be involved for a penalty to be imposed and employers would not be penalised for unintentional or accidental breaches.
The explanatory notes for the legislation set out a number of factors that may be taken into account when a tribunal is tasked with deciding whether or not to impose a penalty in a particular case. The notes suggest that one of the factors more likely to lead to a penalty will be where an employer is a large organisation with dedicated HR support. Other factors that may also make a tribunal more likely to award a penalty are the duration or repetition of the breach of the employment right or deliberate, malicious or negligent behaviour on the part of the employer.
The ability of the employer to pay the penalty should also be considered by the tribunal when deciding whether to order a penalty at all and when deciding the amount of any such penalty.
The explanatory notes suggest that tribunals will be less likely to award a penalty where the employer is a small or newly established business with limited HR support, for short or one-off breaches or for honest mistakes.
It is not yet clear how tribunals will use their discretion and whether more weight will be given to one particular factor. If a single factor alone is sufficient to justify a penalty – for example, where the employer is a large well-established organisation with dedicated HR support – then it seems likely that penalties could become a regular feature in tribunal hearings involving larger employers.
A financial penalty can be ordered even if no compensation is awarded to the successful claimant – for example, in cases where a claimant wins their claim but suffers no loss or where a non-financial award is made such as reinstatement or re-engagement. However, where the tribunal has made a compensatory award any financial penalty ordered must be set at 50% of the award, subject to the £5,000 maximum and £100 minimum. In cases involving multiple claims in relation to the same facts, tribunals will only have the power to impose one penalty against the employer.
If an employer pays the penalty promptly and no later than 21 days after the tribunal decision, the penalty amount will be reduced by 50%. It is worth noting that the penalty is payable to the Secretary of State and into the Government’s consolidated fund rather than to the successful claimant.
Influencing settlement decisions
This is a discretionary system and the frequency with which penalties are imposed by tribunals and the basis for them doing so remains to be seen. It may be the case that the relatively limited amount of the maximum fine is unlikely to be enough on its own to persuade a large employer to settle a case. It is, however, another cost item to be borne in mind, coupled with the new tribunal fees, which they are also likely to have to pay if unsuccessful.
This article was originally published on 7 April 2014. It was updated on 18 September 2015 by Susan Dennehy, employment law editor.