Employers to face new penalties

23 Apr

Reforms to employment law under the Coalition government have, for the most part, been kinder to employers than employees. However, a recent change affecting Employment Tribunal claims brought from 6 April 2014 threatens respondents with new financial penalties.

Read More

Cash money jar and judges hammer blog image

 

Reforms to employment law under the Coalition government have, for the most part, been kinder to employers than employees. However, a recent change affecting Employment Tribunal claims brought from 6 April 2014 threatens respondents with new financial penalties.

Alongside introducing compulsory pre-claim ACAS conciliation and abolishing the statutory discrimination questionnaire from 6 April (N.B. transitional provisions apply), the Enterprise and Regulatory Reform Act 2013 (ERRA 2013) has inserted a new section 12A into the Employment Rights Act 1996 which, in short, could cost employers up to an extra £5,000 if they lose in the Employment Tribunal.

Under the amendment, Employment Tribunals now have a discretionary power to impose a financial penalty on respondent employers found to be in breach of a claimant worker’s rights. This penalty is distinct from any award to the claimant, and will be payable to the Secretary of State.

The condition for applying such a penalty is that the breach had, in the opinion of the Employment Tribunal, one or more “aggravating features”. The new section doesn’t set out any criteria for making this finding, but some guidance can be found in the Explanatory Notes to ERRA 2013. These indicate that a breach of employment rights may be more likely to have aggravating features “where the action was deliberate or committed with malice, the employer was an organisation with a dedicated human resources team, or where the employer had repeatedly breached the employment right concerned.” In other words, if you’re a larger organisation or a repeat offender, watch out.

The Tribunal will take the employer’s ability to pay into consideration both when deciding whether to impose a penalty and how large it should be. This is within the confines of a minimum penalty of £100 and a maximum of £5,000. Where the Tribunal has made a financial award, the penalty is fixed at 50% of the value of that award, subject to the limits already mentioned. Where no financial award is made (for example, because the only remedy is reinstatement or a declaration) the penalty imposed can be anywhere between £100 and £5,000.

It is far too early to predict whether financial penalties will become the exception, the rule, or somewhere in between. Nevertheless, employers will need to start factoring in this additional financial and reputational risk when calculating the cost of fighting a new claim and assessing its settlement value.

There is, however, one way of reducing the financial “hit” even after a Tribunal exercises this new power: employers who pay up within 21 days will only have to pay half the penalty. This provision, while helpful for businesses with good cash flow, does seem at odds with the requirement for Tribunals to consider an employer’s ability to pay. Will Tribunals impose larger penalties against solvent companies, only to see the award slashed in half by prompt payment? Time will tell.

Adrian Peck

For more information on Employment Law, click here.