08 May 2013

Employment law reform: latest developments

Christina Morton
Professional support lawyer | UK

After much wrangling in Parliament over the last few weeks, two pieces of legislation, the Enterprise and Regulatory Reform Act and the Growth and Infrastructure Act received Royal Assent on 25 April 2013.

They introduce some major changes to employment law, the effects of which will only become clear with time. The Enterprise and Regulatory Reform Bill introduces a number of measures, including a new concept of confidential pre-termination negotiations, a new cap on the unfair dismissal compensatory award of the lower of one year’s salary and the current cap of £74,200 (both of which are expected in the summer of 2013); compulsory Acas early conciliation and financial penalties for employers (both of which are expected some time in 2014) and various changes to the Equality Act (abolition of the statutory questionnaire procedure and repeal of the provisions on third party harassment), for which dates have not been announced.

ACAS has recently closed a consultation on a Code of Practice on Settlement Agreements, which incorporates the proposals on pre-termination negotiations. The object is to allow employers (and employees) to initiate a conversation about terminating the employment relationship were there is no background of dispute, without fearing that the discussion will become known in future employment tribunal proceedings. ACAS has also put forward a model compromise agreements and standard letters aimed at facilitating and reducing the cost of resolving employment disputes.

The government intends that the summer 2013 reforms will accompany changes to the procedural rules in employment tribunal and the introduction of employment tribunal fees, although it is unclear whether the Government will be ready to implement either of those proposals by the summer.

Meanwhile the Growth and Infrastructure Bill introduces the concept of an ‘employee shareholder’ who relinquishes certain key employment rights (including the right to claim unfair dismissal, seek a redundancy payment or request flexible working) in exchange for shares in the employer. The shares then receive favourable tax treatment. The measure was highly contentious and was passed by the House of Lords only after a series of amendments aimed at protecting employees. In particular an employee shareholder contract will be invalid and unenforceable unless the employee receives independent legal advice on it beforehand, which must be paid for by the employer.

Furthermore a company wanting to use the scheme must give the prospective employee a written statement of the particulars of the status of employee shareholder, setting out the employment rights he or she will be giving up and the rights, restrictions and other conditions attached to the shares. This will include a statement as to whether the shares have any voting or dividend rights; whether the shares can be bought back or redeemed; whether the shares can be freely sold; and whether any other rights or restrictions are attached to them. This written statement will be in addition to the statement of employment particulars already required by S.1 of the Employment Rights Act 1996.

These last minute changes may make the proposal unattractive to all but a small number of employers. Some commentators suggest that it will really only be of interest to highly paid individuals who would find the tax concessions highly attractive but are less concerned about basic employment rights.

The measure is expected to come into force on 1 September 2013.

Christina Morton Professional support lawyer | London

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