Employment Rights Bill – proposed amendments
The Government has published some proposed changes to the Employment Rights Bill which are important, but not necessarily that surprising.
Time Limits
It is proposed to amend the bill to extend time limits for all claims in the Employment Tribunal from 3 to 6 months after the alleged act.
The Labour Party had already indicated a desire to increase employment tribunal limitation periods from 3 to 6 months and it was a little surprising that this was not in the original version of the Employment Rights Bill. There has been concern over the years that the 3 month time limit is too strict, particularly in discrimination claims where it can take time for issues to be raised and for internal grievance processes to conclude. It is of note that the proposed amendment increases the time limit for all Employment Tribunal claims to 6 months and not just discrimination claims.
Probationary period length
The amendments also offer a little more guidance on what an appropriate probationary period might look like in the new world of Day One unfair dismissal rights. The “Initial Period of Employment”, is a period during which the full “Day One” protection against unfair dismissal will not apply. The Government had said that its preference was for 9 months, but that this issue would be the subject of consultation. A Liberal Democrat MP has proposed an amendment to the bill to state that this Initial Period will be between 3 and 9 months.
A further amendment is proposed by the Government to clarify that the Bill will enable the Secretary of State to specify the maximum unfair dismissal award for someone dismissed during this Initial Period of Employment. The original bill was very quiet on what exact protection would be available to employees during the Initial Period of Employment and this amendment crystallises the option of the Government introducing a lower maximum award for those unfairly dismissed during this Initial Period. At the moment, the maximum award for unfair dismissal is a year’s pay (up to £115,115).
Whilst “Day One” unfair dismissal rights were one of the main headlines from the Employment Rights Bill when it was first published, there remained a lot of uncertainty. Whilst not offering clarity, these two amendments show that the legislation could have a significantly different impact on the approach of employers and the impact on the job market depending on the approaches to these two issues of the length of the Initial Period and the compensation available: for example, a 9 month Initial Period with a maximum award of 25% of a year’s pay looks relatively employer friendly, whereas a 3 month Initial Period with a maximum award of 75% of a year’s pay would be much more employee friendly.
Equality Action Plans
Another proposed amendment that has received attention relates to Equality Action Plans that will be required to be published by large employers (those with more than 250 employees). The original bill stated that these would have to include addressing actions being taken by the employer to address the gender pay gap and support employees going through the menopause. There is now a proposal to extend this to what the employer is doing to support employees with menstrual problems and menstrual disorders. This is an issue already on the agenda of some employers and these proposed amendments may result in more employers considering these issues even before any formal changes to the law under the Employment Rights Bill.
Taxation of settled discrimination claim
The decision of the First Tier tax Tribunal in L v HMRC is a useful reminder of the complexity of the rules in relation to tax treatment of settlement payments.
L raised Employment Tribunal claims for unfair dismissal, discrimination and equal pay. The matter was settled and a payment made to the Claimant in which the first £30,000 was paid free of tax and the remainder was subject to tax deductions. The agreement did permit the Claimant to make representations to HMRC for different tax treatment in her tax return.
The First Tier Tax Tribunal overruled HMRCs original determination and found that:
Amounts in respect of deferred consideration under a bonus scheme were income and fully taxable as they related to rewards that had been earned for past service.
Amounts attributable to an equal pay claim were deferred compensation for lost earnings and were fully taxable.
Amounts attributable to unfair dismissal were compensation for termination of employment and up to £30,000 could be paid free of tax deductions.
Amounts attributable to injury to feelings for discrimination were not earnings and were not therefore taxable.
Amounts attributable to the consequences of discrimination during employment were not earnings and therefore not taxable in this case. What had happened here was that due to discrimination, the individual had missed out on the opportunity to generate business and to increase her earnings. HMRC had considered this to be “earnings-related compensation” and therefore taxable. The First Tier Tax Tribunal disagreed. They said that the mere fact that the measure of the damage caused to the Claimant was the financial loss did not of itself mean that the amount was a payment for services and therefore earnings. The Claimant missed out on future financial opportunities as a result of discrimination and this should not be treated as earnings for tax purposes.
This decision not only highlights the complexity of the tax treatment of settlement payments, but also the importance of allocating settlement payments to various heads of claim. Where there is a Tribunal judgement, a judge will be clear as to what compensation relates to which claim. In a settlement agreement, this is not always the case, but there are good reasons for splitting out the sums although that should always be a genuine assessment of the damages (i.e. an employer cannot unrealistically apportion the whole of a settlement to a non-taxable element (eg injury to feelings) if no Tribunal would award that high a sum for that element).
Protected conversations and improper behaviour
Protected conversations” about the termination of employment are not disclosable as part of ordinary unfair dismissal proceedings. The intention behind this is to enable employers and employees to have off-the-record discussions about agreed terminations without those conversations then being used against them if a settlement is not reached and there is a claim for unfair dismissal.
There is an exception where either party’s behaviour during a negotiation is considered “improper” and in those circumstances, evidence about the discussions can be used in the Employment Tribunal.
In Gallagher v McKinnon's Auto and Tyres Ltd the Employment Appeal Tribunal dealt with an allegation of improper behaviour by the employer.
Mr Gallagher had sought to use evidence of the pre-termination negotiations in his claim for Unfair Dismissal, arguing that the employer had behaved improperly. The Tribunal did not agree with him and neither did the Employment Appeal Tribunal.
Whilst the legislation does not define improper behaviour, the Acas Code of Practice on settlement agreements gives a non-exhaustive list, which includes behaviour such as:
· Harassment, bullying and intimidation
· Physical assault
· Victimisation
· Discrimination
· Putting undue pressure on a party, for example:
o Not giving reasonable time for consideration
o Telling an employee that if they reject the offer, they will be dismissed
o An employee threatening to undermine the employer’s public reputation
In this case, the EAT decided not to overrule the Tribunal’s finding that the following behaviour by the employer did not amount to “improper behaviour”:
· Telling the employee that his role was redundant. This was not improper behaviour because there remained in the Tribunal’s view, scope for exploring suitable alternative employment. Telling him his role was redundant was not therefore the same as telling him that he would be dismissed if he did not agree to the settlement agreement. The EAT also contrasted an employer telling an employee facing disciplinary proceedings that if they did not agreement, they would be dismissed (which is a clear pre-judgement of the disciplinary process and therefore “improper”) with an employer legitimately commencing a discussion with an employee by saying that their role had been identified as redundant
· Having a protected conversation in what the Claimant understood was a meeting about his return to work. The EAT accepted that meeting about one matter can legitimately shift to something else. Importantly, the EAT was operating on the basis that the Tribunal did not uphold the Claimant's contention that his employer had lied about the purpose of the meeting. The decision may have been different if the employer had deliberately lied about the purpose of a meeting. The Tribunal judge was not particularly comfortable with the employer’s approach of having a protected conversation in a meeting with the employee understood to be a return to work meeting, but found that it fell short of improper behaviour.
· Giving the Claimant only 48 hours to accept the settlement offer. Whilst the ACAS Code refers to a recommended period of 10 days, this related to the acceptance of a written offer. In this case, where a verbal offer only had been made, it was not improper to seek an acceptance in principle within 48 hours. The EAT found that whilst another Judge might legitimately have come to a different conclusion, the Judge’s decision in this instance was not so perverse as to be overturned on appeal.
Whilst in this case, the Claimant was not able to use his account of the protected conversation in his unfair dismissal claim, the case is a useful reminder to employers and employees that if their behaviour does overstep the line, then protected conversations can be referred to in unfair dismissal claims.
For more information on how Freeths can help you, get in touch with Laura Tracey, Employment Partner laura.tracey@freeths.co.uk