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Enterprise and Reform Bill receives its second reading

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On 11 June, the Enterprise and Reform Bill received its second reading in the House of Commons. As expected the bill has undergone significant changes since it was first introduced. The bill will now move to the committee stage of the legislative process and, if the lively debates in the House of Commons are any indicator, is unlikely to remain in its present state. Nevertheless the second reading has given us further insight into the priorities of the government.

The most hotly debated issue has been the introduction of ‘Settlement Agreements’. This element of the act appears to be proposed in lieu of the no-fault dismissal mechanism recommended in the Beecroft Report. As currently drafted the Settlement Agreement is not discernibly different from the current system of Compromise Agreements in that it allows employers and employees to come to a contractual arrangement that allows the employer to dismiss the employee without the employee subsequently bringing a claim against them in the Employment Tribunal. In a significant watering down of the no-fault dismissal plans, employees are free to reject these offers and bring a claim in the Employment Tribunal upon rejection of the Settlement Agreement.

If the employment dispute moves to litigation, Settlement Agreements diverge from Compromise Agreements and Beecroft’s protected conversations appear in a new guise. It has been indicated that the Settlement Agreement offer may not be brought up in any subsequent Employment Tribunal claim, where agreement has not been reached. It is yet to be seen what guidance will be issued on this element of Settlement Agreements but fears that protected conversations would amount to a bullies charter have been somewhat allayed.

The second reading does bring forward the proposal to enforce a mandatory period of ACAS mediation for all employment disputes. Under the present system ACAS become involved at the point that an employment claim is submitted to the Employment Tribunal. The aim of this proposal is to ensure that fewer claims make their way to the Employment Tribunal and there is a potential that this proposal will lead to employees, without legal advice, accepting settlements of far less value than their claim is worth.

Commentators, including Barrister Anya Palmer and Employment Law Consultant Darren Newman, have been particularly scathing of this proposal as it is seen to replicate the failed mandatory Disciplinary and Dismissal Procedures which resulted in increased costs for all parties in employment litigation while providing minimal deterrent to those wishing to have their claim heard before the Employment Tribunal. On the other hand, others see this as a welcome development which will allow the parties opportunity of resolving their disputes without the expense of litigation and parties will still be able to make an informed decision about whether to proceed to litigation or otherwise following any such discussions.

One of the least heralded, but most controversial, proposals has the aim of capping the amount of the compensatory award that employees can claim in unfair dismissal cases. Clause 12 of the Bill allows the Secretary of State to impose a limit as low as £26,000, a significant reduction given that the current maximum is £72,300. This proposal does significantly limit the Tribunal’s ability to make awards of compensation that they feel are just and equitable and it is to be expected that significant challenges will be mounted to this proposal.

The second reading is a mixed bag with employees gaining from the failure to advance the no-fault dismissal proposals and employers no doubt happy with the potential for damages to be curtailed in unfair dismissal cases. It will be interesting to see how the bill evolves through the committee stage and whether the correct balance is eventually stuck between the interests of businesses and employees rights.

By employment law specialist, Ryan Bradshaw