Vince Cable announces employment law reforms: hot stuff, or hot air??

You may have heard the news today that the Government is planning to consult on further reforms to the employment law regime.  The aim of these proposals is to cut down on red tape and make it easier for employers to hire and fire staff with a view to promoting recruitment and growth in the economy.

Sounds great! But take a closer look at the proposed “changes”, and it’s highly doubtful whether they will, in practice, actually alter the current position at all. 

What’s the difference between a “settlement agreement” and a “compromise agreement”?

The answer is not clear.  On the one hand, settlement agreements are meant to assist employers to part company with employees on mutually agreed terms, without the risk of facing Employment Tribunal claims. On the other hand, compromise agreements are a means of parting company with employees on mutually agreed terms… 

There may be more to the reforms that simply a change of terminology.  One issue that is not clear is whether the current requirement under a compromise agreement for an employee to take independent legal advice will be carried through to settlement agreements.  If not, this could be good news for employers who will save the cost of paying for that independent advice – typically upwards of £250 plus VAT.  The downside, of course, is for those employees who might be unaware of their legal rights and feel pressured into signing a settlement agreement by unscrupulous bosses. 

Statistics show that the cap on unfair dismissal compensation is rarely reached

The current limit on unfair dismissal compensation (currently £72,300) may be lowered to a maximum of 12 months’ earnings.  Considering that the national average salary is £26,000 per year, this sounds like a drastic reduction, and in some cases, it will undoubtedly lower the potential compensation award that an employee can expect.    When you consider, however, that only 5% of unfair dismissal claims in 2010/2011 resulted in a compensation award of over £20,000 (with the average award being £8,924), the impact of this proposal is likely to be minimal.   The proposal also does not address the fact that there is no upper limit on compensation for discrimination, which means that an employee can get around the unfair dismissal cap by including a discrimination complaint in their claim.  If this becomes a trend then the outcome is likely to be that employers have to deal with more complex and more expensive claims, rather than cheaper ones.

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