Hidden traps, new liabilities

Employment law continues to expand more rapidly than perhaps any other area of law. The Employment Act 2002 is the latest piece of legislation to roll off the statutory conveyor belt and brings with it the most far-reaching changes to the employment relationship since the Employment Relations Act 1999. The 2002 Act will affect all employers in the UK – regardless of their size or the industry in which they operate. The Act received Royal Assent in July and will be phased in by implementing regulations over the coming months.

When the legislation was first introduced in Parliament, the Government said that its aims were two-fold: (a) to deliver new rights for working parents and (b) to simplify regulation for business. Now that the legislation has received Royal Assent, it seems likely that the Act will be more successful in achieving the first of these aims than the second. Many of the measures that could have been of benefit to businesses were dropped during the Bill’s passage through Parliament. More importantly, the Act will introduce new procedural requirements that are likely to complicate, rather than simplify, employers’ disciplinary and dismissal processes.

The main provisions relate to:

• Maternity, Paternity and Adoption Rights – there will be new and enhanced rights for working parents
• Flexible Working – there will be a new right for working parents to request more flexible working arrangements from their employers
• Disciplinary and Grievance Procedures – the Act will require all employers to operate minimum procedural standards in their disciplinary, dismissal and grievance procedures
• Employment Tribunal Reform – the Act intends to speed up the progress of certain cases through the employment tribunal system

Maternity, Paternity and Adoption Rights

The provisions on maternity, paternity and adoption rights will come into force in April 2003. They apply to all employees (not just those with a year’s qualifying service) but do not extend to self-employed contractors.

Regulations to be made under the Act will provide for:

• Six months’ paid maternity leave for all working mothers. Those with 26 weeks service will be entitled to a further six months’ (unpaid) leave
• Six months’ leave for adoptive parents. Those with 26 weeks service will be entitled to a further six months’ (unpaid) leave. It is proposed that one adoptive parent will be entitled to take adoptive leave; the other will be entitled to take paternity leave
• Two weeks’ paid paternity leave for working fathers
• An increase in the statutory maternity pay from £75 per week to £100 per week
• Reimbursement of maternity, paternity and adoptive payments by employers from the Government. Most employers will be able to recover 92% of their payments. Small employers should receive 100% reimbursement plus a bonus payment on top.

Flexible Working

An employee with responsibility for a child under the age of six (or, if disabled, under 18) will have the right to apply to his or her employer for a ‘flexible working arrangement’. This may relate to changes to working hours, times of work or place of work.

Employers have a corresponding duty to give serious consideration to these requests.

Employers will only be able to refuse such requests for a good business reason, such as:

• The burden of additional costs
• Detrimental effect on ability to meet customer demand
• Inability to reorganise work among existing staff
• Inability to recruit additional staff
• Detrimental impact on quality
• Detrimental impact on performance
• Insufficiency of work during the periods the employee proposed to work
• Planned structural changes

While these new provisions have been controversial, it is unlikely that they will have a particularly dramatic impact in practice. There is a strong argument that these measures do little more than codify the rights which working parents already enjoy under existing discrimination laws.

The Government is currently consulting on draft regulations for the right to request flexible working arrangements. The consultation period ended on 10 October 2002. The final regulations are likely to come into force in April 2003.

Disciplinary and Grievance Procedures

The provisions on disciplinary, dismissal and grievance procedures are the centrepiece of the new Act. All employers, regardless of size, will be required to operate minimum standard compulsory disciplinary and grievance procedures. These procedures are less stringent than those contained in the existing ACAS Code of Practice. It is expected that these measures will come into force in summer 2003.

• There will be a new term, implied into every contract of employment, incorporating minimum standards for formal disciplinary, dismissal and grievance procedures. Failure to abide by the minimum standard will render a dismissal automatically unfair. If the employer does comply with the basic statutory procedure, minor procedural shortcomings may be disregarded in determining the fairness of the dismissal. However, the employer will still need to show that the dismissal was for a potentially fair reason and that he acted reasonably in treating the reason as sufficient for dismissal.   
• Employment Tribunals will have the power to adjust the size of their awards to take account of any failure to follow these minimum standards. In unfair dismissal claims, tribunals will have the power to increase or reduce the compensatory award by up to 50% depending on whether the statutory dismissal/disciplinary or grievance procedure was used. Presumably, this would be subject to the existing statutory cap on compensatory awards of £52,600.
• Time limits for presenting employment tribunal claims will be relaxed to facilitate the operation of the statutory disciplinary and grievance procedures.
• The exemption of small employers (i.e. those with less than 20 employees) from the statutory requirement to issue disciplinary and grievance procedures will be removed.

The introduction of new statutory disciplinary and dismissal procedures has important implications. Previously, employment lawyers have tended to advise employers to make their disciplinary procedures non-contractual. That advice may become redundant when the Act comes into force. The Act will make adherence to the statutory procedure a binding contractual term. Therefore, even where the employer does not dismiss, a failure to follow the minimum statutory procedures will be a breach of contract. A serious breach could allow an employee to resign and claim constructive dismissal.

Moreover, employers will need to be warned that a failure to carry out the statutory dismissal procedures could also render any post-termination restrictive covenant unenforceable (under the principle set out by the House of Lords in General Billposting Co Ltd v Atkinson 1909 AC 118).

Crucially, employers will also need to be advised that even where they do follow the statutory dismissal procedure, that will not necessarily make the dismissal a fair one. It will still be open to an employment tribunal to make a finding of unfair dismissal, even if the statutory procedure has been complied with.

Employment Tribunal Reform

The Act enables the Secretary of State to make regulations providing for:

• A questionnaire procedure to speed up the processing of equal pay claims
• A fast track system for some types of employment claims
• Greater powers for employment tribunals to dispose of weak cases at pre-hearing reviews
• A new formal power for the President of the Employment Tribunals to issue practice directions
• Extended powers for employment tribunals and the EAT to award costs

Miscellaneous Measures
Other measures introduced by the Act include:

• The establishment of “union learning representatives” (ULRs). These representatives will have a right to take paid time off work to ensure that they are adequately trained to carry out their duties
• Work-focused interviews for partners of people receiving working-age benefits
• Provisions to implement the EC Directive on Fixed Term Work.

The Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 came into force on 1 October 2002. The aim of these regulations is to implement the EC Directive and to eliminate pay and pensions discrimination against fixed-term employees.

Conclusions
Taken together, these measures amount to a substantial reform of employment law. It is clear that one of the major drivers behind this reform is the Government’s desire to stem the remorseless rise in employment tribunal claims. Over 130,000 claims were processed through the employment tribunal system last year and the Government is keen to counter fears of a ‘compensation culture’ growing in the UK workforce. Whether the Act will do anything to tackle this remains a very open question. Giving tribunals the power to increase the size of compensation awards is likely to encourage, rather than deter, potential claimants.

Although the Act does contain some potentially useful dispute resolution measures, it also makes the law regulating the termination of employment more confusing than it is just now. It also increases the scope of employers’ liability if mistakes are made.  

The practical solution for employers is to begin preparing for these changes now: to ensure that their managers are brought up to speed on the new measures and that they receive adequate training and support to implement them properly. Failure to devote managerial time to this now is likely to mean devoting more managerial time – and money – defending employment tribunal claims when the Act comes fully into force next year.