Government proposals may persuade businesses to settle claims pre-tribunal, says Eversheds

International law firm Eversheds has canvassed the views of more than 600 employers about proposals being floated in the Government consultation paper for reforming employment tribunals. Whilst some of the proposals have been welcomed by businesses, others give more cause for concern.

Of particular concern for business is the Government’s proposal to introduce fines for employers found by an employment tribunal to have breached employment rights. In addition to any compensation awarded to the successful claimant an employer would have to pay a penalty to the Government of 50% of the value of the compensation. There would be a minimum penalty of £1,000 and a maximum of £5,000. Six in ten respondents believe that as a result their organisation would settle more claims before they reach a tribunal hearing.

Other key findings from the study include:
• 91% of employers support the proposal to introduce a “formal offer” system whereby any compensation awarded by a Tribunal may be increased or decreased if the other party declined to accept a reasonable offer of settlement. If no award of compensation were made, the Tribunal might make a costs award against the part who refused the offer.

• 83% of employers support the introduction of fees for lodging employment tribunal claims

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• 78% of employers believe that raising the unfair dismissal qualifying period from one year to two years would result in a drop in claims

Owen Warnock, partner at Eversheds comments:
“Many of the aims and sentiments contained in this consultation paper clearly strike a chord with employers. It is clear that the Government is keen to ensure that more employment cases are settled without a Tribunal hearing. Our study has however indicated that many employers considered that the proposal to fine employers found to have breached employment rights could improperly increase the pressure on them to settle claims rather than defend themselves.”

On the other hand, the “formal offers” idea is welcomed by employers. Owen Warnock says:“One of the most radical suggestions, which is intended to encourage parties to be realistic about their cases, is to introduce a “formal offers” system. This would put a party at real risk of an adverse adjustment to the compensation awarded, or a costs penalty, if that party had declined to accept a reasonable offer of settlement. An overwhelming 91% of respondents supported this proposal and an additional 2%, (93% in total) feel that their organisation would make use of it.”

Much of the publicity for the proposed reforms has focused on raising the unfair dismissal qualifying period from one to two years. Although only 35% of respondents felt that extending the period to two years would make their organisation more likely to offer employment, an overwhelming 78% thought that extending the period to two years would result in a drop in claims.