A new lower cap on the compensation in unfair dismissal claims, a two-year qualifying period for bringing such claims and the introduction of tribunal fees has tipped the balance in favour of employers. Employment lawyer Mark Shulman explains what you need to know about recent changes in unfair dismissal law.

Who can bring a claim?

To bring an ordinary unfair dismissal claim, an employee must have sufficient qualifying service. The unfair dismissal qualifying period is one year for those employees whose continuous employment commenced before 6 April 2012 and two years for those whose employment commenced on or after that date. This leaves you plenty of time to assess the performance of a new employee and their suitability for the job before deciding whether to continue their employment.

However, there are still a number of unfair dismissal claims where an employee does not need to have the requisite qualifying service; examples are unfair dismissal for whistleblowing, dismissal on health and safety grounds and cases of unfair dismissal for reasons connected with pregnancy or childbirth. It is therefore important to take advice before any dismissals where any of these grounds might apply.

Are employers required to give written reasons for dismissal?

Only if the employee concerned has the requisite qualifying period of service. This has increased from one year to two years where an employee’s continuous employment with the employer commenced on or after 6 April 2012 (it remains one year for employees who started before that date).

Qualifying employees are entitled, upon request, to a written statement setting out the reasons for their dismissal. The reasons must be provided within 14 days of the request, and may be used in evidence in any subsequent employment tribunal proceedings. There is no prescribed formula, and provided an employer gives sufficient details (which is fact-specific to each case), the duty to provide reasons will have been satisfied.

However, regardless of their length of service, employees who are dismissed while pregnant or during statutory maternity or adoption leave have the right to receive written reasons for their dismissal.

Settlement discussions – a new route?

Compromise agreements have been renamed “settlement agreements” in all relevant employment legislation. These agreements are where the employee agrees not to pursue certain statutory employment claims (and usually other types of claims) against their current or former employer. Settlement agreements have to meet certain statutory conditions in order to be legally binding.

However, legislation recently introduced provisions allowing employers to have exit discussions without fear that such discussions can be used against them in subsequent tribunal proceedings. This new regime is intended to deal with situations where the “without prejudice” rule may not apply because there is no dispute between the parties.

“Pre-termination negotiations” cannot be referred to in evidence in unfair dismissal cases. This is designed to allow employers more freedom to have discussions with employees about a proposed voluntary termination where no dispute has arisen. Such discussions will not be admissible in an unfair dismissal claim (except automatically unfair dismissals) unless there has been “anything said or done which in the tribunal’s opinion was improper, or was connected with improper behaviour”. If there has been such improper behaviour, the discussions will be inadmissible only to the extent that the tribunal considers just.

There is a statutory ACAS Code of Practice on Settlement Agreements which includes examples of what may amount to “improper behaviour”; examples include harassment, victimisation, discrimination (such as age, sex or race discrimination) and putting undue pressure on a party.

These new provisions only prevent what is stated in the settlement offer (or during discussions about it) from being admissible in “ordinary” unfair dismissal proceedings. This means that the fact and content of such offer or discussions may be referred to in other types of cases, such as discrimination claims and claims for breach of contract.

Because there are many types of circumstances where these types of exit discussions may arise, it is arguable that the new rules do not give employers the certainty that they need to use the new regime with confidence. In the light of these highly technical statutory rules, appropriate advice should always be sought as to whether the proposed discussions are likely to be protected from disclosure.

Bringing a claim – new fees

For the first time, there will be fees to pay for anyone wanting to bring an unfair dismissal claim.

Since 29 July 2013, all employment tribunal claimants have been required to pay a fee (or submit an application for remission of the applicable fee) before their claim will be accepted. The amount of the fee depends on the type of claim the claimant wishes to pursue. There are two types of fees for an unfair dismissal claim: an issue fee (currently £250) and a hearing fee (currently £950). Therefore, unless they are eligible for a remission of fees, a former employee would need to pay at least £1,200 to pursue an unfair dismissal claim. Other fees are payable for different types of claims and also when making certain procedural applications to the tribunal.

New cap on compensation

Compensation for ordinary unfair dismissal cases has two elements: a basic award and a compensatory award. The basic award is calculated in a similar way to a statutory redundancy payment. The compensatory award comprises “such amount as the Tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal insofar as that loss is attributable to action taken by the employer”.

However, unlike in discrimination cases, there is a statutory cap on compensatory awards in unfair dismissal cases. There is a new cap which is the lower of £74,200 (currently) or one year’s gross pay (i.e. 52 times one week’s actual gross pay). This new cap only applies where the employment ended on or after 29 July 2013. Figures published by the Government Department BIS in 2010 suggest that only 5% of all unfair dismissal claimants recovered compensation in excess of 12 months’ loss. However, these figures pre-date the recession and it might now be more common for individuals to be out of work for longer periods. Therefore, this lower ceiling is likely to benefit employers in terms of reducing potential liability for unfair dismissal compensation.

This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.