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Employment Rights – New Employment Act becomes law
Monday, November 24th, 2008
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Summary: The Employment Act 2008 makes changes in the following areas of employment law:
- the repeal of the statutory dispute resolution procedures and, in their place, the introduction of a new statutory Acas Code of Practice
- changes to employment tribunal procedures, including decisions made without a hearing, changes to conciliation procedures, and additional compensation where deductions from pay are made unlawfully or where no statutory redundancy pay is paid
- a new method of calculating national minimum wage arrears to reflect increases in the NMW, and punitive new penalties for non-payment of the NMW
- stricter rules and penalties for breaches of the employment agency legislation.
The Employment Act 2008 (the Act) gained Royal Assent on 13 November 2008, nearly a year after it was introduced into the House of Lords on 6 December 2007. Its long anticipated measures are summarised below with, where known, the date from which they are expected to come into force. The references after some paragraphs provide the relevant Section number in the Act.
Resolving disputes
Repeal of statutory dispute resolution procedures
The mandatory “three step” statutory procedures, introduced by the Employment Act 2002 (EA2002), were found by the independent Gibbons Review to have tended to lead to disputes becoming formalised and to encourage the involvement of lawyers at an earlier stage than had previously been the case. Following public consultation, the Government decided to repeal the statutory procedures. The Act repeals sections 29 to 33 and Schedules 2 to 4 to EA2002, thus removing the statutory procedures in their entirety. (s.1 – coming into force on a day to be appointed, likely 6 April 2009)
Repeal of “procedural fairness” provisions:
Prior to 2004, the handling of breaches of procedure in unfair dismissal cases was based on case law. In particular, the 1988 House of Lords judgment in Polkey v A E Dayton Services Ltd provided that a dismissal could be unfair purely on procedural grounds but that, in such circumstances, the tribunal should reduce or eliminate the compensation payable (other than the basic award) to reflect the likelihood (if any) that the dismissal would have gone ahead anyway if the correct procedures had been followed.
At the same time as the statutory dispute resolution procedures were introduced in 2004, a new section 98A was inserted into the Employment Rights Act 1996 (ERA), providing that a dismissal is automatically unfair where an employer does not complete the statutory dispute resolution procedures. It also provided that a tribunal may disregard any failure by the employer to comply with other (e.g. workplace-based) procedures in respect of the dismissal if following them would have had no effect on the decision to dismiss.
Following public consultation, the Government decided to repeal section 98A of ERA in its entirety, thereby returning to the case law developed from the Polkey line of cases. (s.2 – coming into force on a day to be appointed, likely 6 April 2009)
Failure to comply with statutory codes of practice
The Act replaces the repealed statutory dispute resolution procedures and procedural fairness provisions with a simpler mechanism that is intended to promote prompt and less formal resolution of workplace problems. A new statutory Code of Practice on Disciplinary and Grievance Procedures has been developed by Acas following public consultation. The final seven-page Code was approved by the Secretary of State for Business, Enterprise and Regulatory Reform in October 2008 and is currently awaiting Parliamentary approval.
The statutory Code of Practice contains principles for handling disciplinary and grievance situations in the workplace, rather than actual procedures, and is divided into four main sections:
- a foreword, which does not form part of the statutory code
- an introduction, setting out the key principles that should be followed in order to handle disciplinary and grievance situations fairly
- a section on discipline and a section on grievances, explaining in each case how the key principles should be applied.
The Code is supported by a 74-page non-statutory guide to handling discipline and grievances in the workplace. This document, still in draft form, provides detailed information for employers on such aspects as:
- developing rules and procedures
- using outside mediation
- preparing for and holding a disciplinary meeting
- the right of the employee to be accompanied
- dismissal and other sanctions
- what is gross misconduct
- written reasons for dismissal
- informal resolution of grievances
- preparing for and holding a grievance meeting
- sample disciplinary and grievance procedures.
Chapter III of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) sets out the procedures by which a Code of Practice issued by Acas “for the purposes of promoting the improvement of industrial relations” comes to have a statutory basis and the effect that failure to comply with the Code has on proceedings before employment tribunals. Section 207 of TULRCA makes it clear that such a failure does not in itself render a person liable to legal proceedings but a statutory Code of Practice is admissible in evidence if any provision of the Code appears to be relevant to the court or tribunal.
The Employment Act 2008 adds a new Section 207A to TULRCA and a new Schedule A2. (s.3 – coming into force on a day to be appointed, likely 6 April 2009)
Section 207A defines the way in which an employment tribunal may adjust awards for failure to comply with a statutory Code of Practice. If the tribunal believes that either the employer or the employee has unreasonably failed to comply with the Code in any relevant way, it may increase or decrease, as appropriate, any award it makes to the employee by up to 25%.
As this adjustment is a percentage of the award, it is made before
- any two-week or four-week increase is made, if required, because the employee was not issued with a statement of employment particulars, and
- any adjustment to a compensatory award in respect of unfair dismissal or redundancy.
Schedule A2 lists the tribunal jurisdictions within which these award adjustments may be made. They include the following payment-related areas:
- equal pay disputes
- unauthorised deductions and payments
- detrimental treatment in respect of jury service; health and safety; Sunday working; working time; trustees of pension schemes; employee representatives; exercising a right to time off work; protected disclosures; tax credits; pregnancy, childbirth or maternity; maternity, adoption, paternity and parental leave; time off for emergencies involving dependants; flexible working
- unfair dismissal
- redundancy payments
- payment of the national minimum wage
- breaches of the Working Time Regulations.
Tribunal proceedings without a hearing
The existing employment tribunal legislation includes powers to authorise cases to be decided without a hearing. These powers have not been used and tribunal cases are currently decided at a hearing before a full tribunal panel or a chairman sitting alone.
A new fast-track procedure for settling monetary disputes in certain limited jurisdictions is to be introduced, although this does not in general require primary legislation. The procedures will permit cases to be decided without a hearing on the basis of documentation submitted to the tribunal. However, as a protection, the Act adjusts the tribunal legislation to ensure that proceedings without a hearing are only authorised if
- all parties to the proceedings consent in writing to the process, or
- the person against whom the proceedings are brought has presented no response to the proceedings or does not contest the case.
(s.4 – coming into force on a day to be appointed)
Conciliation before bringing proceedings
Where a person who might bring proceedings against the employer, or the employer who anticipates such proceedings requests conciliation, the Acas conciliation officer has a duty to attempt conciliation. The Act replaces this obligation with discretionary powers to conciliate without the Acas officer having to justify the reasons for deciding whether or not to offer conciliation. The intention of the amendment is to enable Acas to prioritise cases where demand for conciliation exceeds available resources and to relieve Acas of the obligation to offer conciliation in pre-tribunal disputes where there is no prospect of success.
The Act also amends the tribunal legislation so that the existing mandatory requirement to seek reinstatement or reengagement, or compensation in lieu, in pre-tribunal disputes is replaced with discretionary powers to do so. A conciliation officer “may” seek to promote reinstatement or re-engagement, or promote agreement by way of compensation. (s.5 – coming into force on a day to be appointed)
Conciliation after bringing proceedings
The duty of an Acas conciliation officer to promote a settlement without recourse to an employment tribunal is mandatory during any period for which tribunal hearings are postponed in order for conciliation to be attempted. However, when the period of postponement ends, the duty to conciliate becomes discretionary. In order to maintain pressure on the parties to conciliate, the Act repeals the conciliation officer’s discretionary powers and makes them mandatory throughout the proceedings until the tribunal delivers a judgment.
(s.6 – coming into force on a day to be appointed)
Compensation for financial loss
The Act amends sections 24 and 163 of the ERA to provide employment tribunals with the power to order employers to compensate workers for any financial loss sustained as a result of unlawful deductions from wages or non-payment of redundancy awards.
Where an employer has made an unlawful deduction or payment from wages, a tribunal can require the employer to pay, or repay, to the worker the amount of the deduction or payment. There is no provision, however, for the employer to compensate the worker for losses arising from the deduction or payment, e.g. additional bank charges or interest charges. The changes to the ERA empower tribunals to order the employer to make such a compensatory payment of an amount that the tribunal considers appropriate in all the circumstances, thereby removing the need for a worker whose employment has ended from seeking compensation by means of a separate county court claim.
The same provision for compensation is made where an employer has failed to make a statutory redundancy payment to an employee. The tribunal may require the employer to compensate the worker by an amount appropriate to the financial loss sustained as a result of the non-payment of redundancy pay. (s.7 – coming into force on a day to be appointed)
National Minimum Wage arrears
When an employer pays a worker at a rate that is less than the relevant national minimum wage (NMW) rate, the employer may be required, by means of an enforcement notice issued by HMRC, to pay the worker the arrears.
The amount due is the difference between the amount paid in a particular reference period (i.e. the worker’s pay period) and the amount that would have been paid if the NMW rate in force at the time had been used. As a result, where the underpayment has continued for a long period of time, during which the NMW rate has increased several times, the arrears can be considerably less than they would be if they were calculated at the current NMW rate.
To prevent workers losing out in this way, the Act amends section 17 of the National Minimum Wage Act 1998 (NMWA) by introducing a new method of calculating the arrears. For any particular reference period, the arrears due are the higher of
- the arrears, calculated as described above, and
- the arrears, calculated by dividing the arrears at (a) by the NMW rate in force at the time (giving a notional period of unpaid time) and multiplying that by the NMW rate in force at the time the arrears are determined.
Under current NMW rates, the amount (b) will always be higher than the amount (a). However, the “higher of” comparison also accommodates the situation of the current NMW rate being lower than the rate at the time of the original payment, as could occur if regional NMW rates are introduced in future. However, the arrears amounts (a) and (b), based on the earlier NMW rate, have further significance. See Notices of underpayment, below.
The new calculation method applies retrospectively to arrears that arise before the Act comes into force.
The Act also makes equivalent changes to the Agricultural Wages Act 1948, so that agricultural workers in England and Wales also have the same entitlements. However, no changes are made to the equivalent agricultural wages legislation for Scotland and Northern Ireland as agricultural wages enforcement is a devolved matter for those countries. (s.8 – coming into force on a day to be appointed, likely 6 April 2009)
Notices of underpayment
The Act replaces the “enforcement notice” procedures in sections 19 to 22F of the NMWA with a new series of sections, numbered 19 to 19H, which introduce new “notices of underpayment”. The separate National Minimum Wage (Enforcement Notices) Act 2003 are repealed in full.
Currently, if an employer is served with an NMW enforcement notice and fails to respond within 28 days, HMRC may take further action through the courts or tribunals, and/or issue a penalty notice. The new notice of underpayment requires the employer to pay the NMW arrears to the worker(s) involved within 28 days and, unless Regulations provide otherwise, imposes a financial penalty. The Act includes appeal procedures and provisions for HMRC to withdraw an underpayment notice and, if necessary, to issue a replacement notice.
The notice of underpayment must specify both of the arrears figures (a) and (b), as explained in the section National Minimum Wage arrears above, and indicate which of them is the amount the employer must pay to the worker or workers concerned. The new notices can be issued with retrospective effect, but may not relate to a pay reference period that ends earlier than six years before the date of service of the notice. The new penalties, however, may only be applied in respect of pay reference periods that start after this section of the Act comes into force.
The financial penalty (if any) specified in the notice is set at 50% of the total of the arrears figures (a) due to all of the worker(s) specified in the notice. The minimum penalty is £100 and the maximum is £5,000. The penalty must be paid within 28 days of the notice being served but, if payment is made within 14 days, it is reduced by 50%.
If the employer fails to pay
- the arrears, an HMRC officer will make a complaint to employment tribunal as if the amount owed were an unlawful deduction from wages.
- the penalty, HMRC will take the appropriate court proceedings, e.g. in the county court in England and Wales.
An underpayment notice will be suspended if criminal proceedings may be or are instituted against the employer. If the proceedings are withdrawn, the underpayment notice is reinstated; if the employer is convicted, the financial penalty is cancelled. (s.9 – coming into force on a day to be appointed, likely 6 April 2009)
Other enforcement measures
Copies of NMW-related documents: The Act amends the NMWA in order to give HMRC officers powers to remove an employer’s pay records in order to copy them and to take copies of all documents without first having to determine whether they are relevant. All such documents must be returned to the employer as soon as is reasonably practicable. (s.10 – coming into force on 13 January 2009)
Mode of trial for NMW offences: NMW offences, e,g. refusal to pay the NMW, keeping or producing false records, or obstructing an officer, are currently triable only as summary offences in magistrates’ courts. The Act amends the NMWA to make them alternatively triable on indictment before a jury. On conviction, the penalty is a fine, not imprisonment. (s.11 – coming into force on a day to be appointed, likely 6 April 2009)
Powers to investigate NMW offences: The Act gives HMRC officers powers to investigate NMW offences as criminal offences, e.g. to apply for production orders and search warrants or to arrest a person suspected of committing an offence. (s.12 – coming into force on a day to be appointed, likely 6 April 2009)
NMW exemption for Cadet Force Adult Volunteers
The Cadet Forces are national youth organisations, supported by their own charities and attached to each of the armed forces. The Act adds a new exemption to the NMWA in order to exempt from the NMW members of the Cadet Forces who are assisting in the delivery of the Ministry of Defence sponsored cadet force programme. (s.13 – coming into force on 13 January 2009)
Voluntary workers
Workers employed by charities, voluntary organisations, etc., do not qualify for the NMW if the only monetary payments they receive are expenses actually incurred in the performance of their duties. The Act amends the NMWA in order to clarify that expenses are regarded as “actually incurred in the performance” of the duties if they
- are incurred in order to enable the worker to perform his duties,
- are reasonably so incurred, and
- are not accommodation expenses.
(s.14 – coming into force on 13 January 2009)
Employment agency offences
Mode of trial: Offences under the Employment Agencies Act 1973 (EAA), i.e. failure to comply with a prohibition order, failure to comply with measures contained in the Conduct of Employment Agencies and Employment Businesses Regulations 2003, and requesting or receiving a fee for providing work-finding services (except where permitted), are currently only triable as summary offences in magistrates’ courts. The Act amends the EAA so as to allow them to be tried on indictment in the County Court. (s.15 – coming into force on 6 April 2009)
Inspection power of the Employment Agency Standards Inspectorate: The EAA is amended to give Inspectors of the Employment Agency Standards Inspectorate (EASI) extended powers to request financial records and documents and a new power to require in writing the provision of records and documents at a specified time and place. Records may be taken away to be copied and returned as soon as is reasonably practicable. (s.16 – coming into force on 6 April 2009)
EAA offences by partnerships in Scotland: The Act amends the EAA so that, where an offence under the EAA is committed by a partnership in Scotland with the consent or connivance of a partner, or attributable to the neglect of a partner, that partner may also be prosecuted. English law does not treat partners as a separate legal entity to the partnership, so this provision is not required in English law. (s.17 – coming into force on 6 April 2009)
Employment agencies and NMW information
Section 15 of the NMWA allows the Secretary of State to supply NMW-related information, obtained lawfully from employers by HMRC officers, to other government departments in limited circumstances. The Act extends these provisions so that NMW-related information may be supplied to officers of the EASI for purposes relating to the EAA. An equivalent provision is also added to the EAA, allowing employment agency information to be supplied to HMRC officers for NMW purposes. (s.18 – coming into force on a day to be appointed)
Exclusion or expulsion from trade union membership
In the 2007 case Aslef v UK, the European Court of Human Rights decided that the expulsion of a union member because he was a member of a particular political party infringed his right of association. The Act amends section 174 of the TULRCA so that it is not unlawful for a trade union to expel or exclude a person on the grounds of membership or former membership of a political party, but only in specified circumstances. This provision comes into force two months after Royal Assent. (s.19 – coming into force on a day to be appointed)
Further information:
Employment Act 2008
Explanatory Notes on the Employment Act 2008
Acas Code of Practice 1 – Disciplinary and Grievance Procedures
Discipline and grievances at work: Draft Acas guide
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