Over the past 10 years there has been a dramatic increase in employment tribunals, with single and accepted employment claims increasing from approximately 135,000 in 2001 to approximately 220,000 in 2011 a rise of 63%.
Vince Cable, the business secretary, clearly thinks this is a major issue for employers saying that it deters employers from hiring staff, and he is currently calling for the maximum £72,300 award for unfair dismissal to be cut significantly.
Employment issues impact smaller businesses much harder as they often don’t have specialist in-house resources and the legal costs associated with a claim can run to thousands regardless of whether a claim is ultimately dismissed, of which over 50% are.
What’s often more important than any third party cost is the management time that is often swallowed up handling cases.
This article explores what actions smaller businesses need to take to ensure that dismissal, redundancy or any changes to an employees’ terms and conditions do not result in a huge legal bill, regardless of whether they win the case or not.
The six most frequent claims brought before an employment tribunal last year in order of numbers are working time directives 114,000; unauthorised deductions 71,000; unfair dismissals 48,000; breach of contracts 35,000; equal pay 35,000; and sex discrimination 18,000.
Employment law is a discipline in its own right so this article can only cover some of the main issues. Firstly, I would recommend that all businesses buy legal expenses insurance which, at a cost of around £300 for an SME, will cover potential legal costs of up to £100,000. There are many good providers and your insurance broker will be able to guide you.
First of all, as an employer, you need to make sure that you keep up to date with the basics of employment law, employees’ rights and any new regulations that are being brought in. The failure to adhere to them could result in a costly legal case being made against you.
Working Time regulations is a case in point. They came into force on 1 October 1998 to ensure that workers do not work excessive hours, get regular rests and have a minimum amount of holidays per year. As an employer you have an obligation to monitor staff and keep records to ensure that the weekly average of 48 hours over a seven day period (for example), is not exceeded.
Unlawful deduction from wages is another of the most popular claims accepted by Employment Tribunals (ETs). Under the Employment Rights Act 1996 no deduction from a workers wages can be made unless it is required by statute; permitted by the contract of employment; or the worker has given his prior written consent to the deduction. Although unauthorised deductions are unlawful, employers do have a simple mechanism to make deductions by introducing an appropriate clause in the contract of employment.
Well drafted employment contracts can safeguard you against employment tribunal claims being brought against you. Deductions from wages can be made if they are in the employment contract. An example would be to deduct for till discrepancies. In the retail sector, up to 10% of gross wages can be deducted for errors made by the employee.
However, if this isn’t in the employment contract, this would be an unlawful deduction.
Consider it to be an investment in your business to have these contracts and staff handbooks professionally drafted to suit the needs of the business as both time and money can be saved in the event of a dispute if the terms for deductions are clearly stated. Shop around for the best price to get these documents drafted. Some legal expenses insurers provide document drafting at a competitive rate.
Unfair dismissal is another of the top six claims. Basically, an employee who qualifies can challenge their dismissal in the ET. If the ET finds the dismissal was unfair then the employee is entitled to compensation. The maximum compensatory award for unfair dismissal is currently £72,300 – not an insignificant sum if you are a small business. In addition, the successful employee will be entitled to a payment equivalent to statutory redundancy pay which is currently capped at £12,900. It is therefore essential to ensure that when disciplining a member of staff, a fair and objective procedure is used and that records are kept. Remember that making someone redundant without using a proper process can also lead to an unfair dismissal claim.
Time spent in familiarising yourself with fair disciplinary and grievance procedures is time well spent. The ACAS Code of Practice for Conducting Disciplinary and Grievance Procedures lays down minimum guidelines for employers to follow. This information is freely available online. ACAS will also assist you in resolving disputes and providing guidance and if you have legal expenses insurance you could have 24 hour access to qualified lawyers for advice as part of your insurance cover.
During 2012 we have seen high levels of enquiries continue, with over 26,000 commercial telephone enquiries this year, up to and including August.
Enquiries regarding disciplinary matters vastly outweigh all other categories. With employers investigating possible claims, such as when they are considering dismissal as a disciplinary measure, clarification on what is acceptable conduct of employees and disciplinary measures that are appropriate for unacceptable contact, being consistently high throughout the year.
Where there are problems with employees, they should be dealt with as soon as they occur. Issues with performance should be discussed, minuted, reasonable targets set and time frames implemented for improvement. Any training needs should be addressed. If no improvement is made after this process, the disciplinary procedure can be invoked and after going through the various stages a fair dismissal can be made. Employers often become frustrated when they have ‘put up’ with poor performance and find that they cannot simply dismiss when they have had enough. The performance management process need not be overly time consuming and compared with the time they would need to spend in defending an unfair dismissal claim, it is certainly worth going through the appropriate procedures.
Similarly, misconduct should not be overlooked. Issues of misconduct can be rectified and conduct improved if the employee knows that the disciplinary process will be used if they do not comply with relevant standards of conduct. In the event that poor conduct persists, a fair dismissal can be obtained by utilising the various disciplinary stages which will lead ultimately to a dismissal.
Gross misconduct must still be subject to a disciplinary process that is fair and reasonable. Gone are the days where employees could be sacked on the spot. Employers should endeavour to be as objective as possible and unless there is an admission of guilt, there should be a thorough investigation with sound evidence that evidences the severity of the misconduct. It is advisable for employers to take legal advice whenever there is the possibility of a decision to dismiss being made.
ETs do however take into account the size and resources available to small and medium sized employers when the businesses are conducting disciplinaries or grievances with their staff. What is important is that you ensure that you are as diligent, fair and reasonable as you can be with the resources available to you.
Meanwhile, the Equality Act 2010 which drew together numerous pieces of anti-discrimination legislation received royal assent in April 2010 and was implemented in October 2010. Discrimination claims unlike most others, can be brought against individuals in the Employment Tribunal rather than solely against the employer. However, this does not necessarily mean that the employer is exempt from liability.
For larger employers, overall responsibility for implementing the Company’s Equal Opportunities Policy generally will probably rest with the Personnel Manager responsible for coordinating equal opportunity activities on a day to day basis. However, failure to comply with the equal opportunities policy by any member of staff should normally be considered to be a disciplinary matter and should be dealt with in accordance with the Company’s Disciplinary Procedure as contained in their Staff Handbook.
Similarly, complaints of discrimination or harassment (as well as other complaints raised by employees) should, if possible, be dealt with in accordance with the Company’s Grievance Procedure as detailed in their Staff Handbook.
Discrimination legislation (Age, Disability, Gender Reassignment, Pregnancy and Maternity, Marriage and Civil Partnership, Race, Religion and Belief, Sex and Sexual Orientation) aims to protect not only employees (regardless of length of service), but also prospective employees; casual workers; and self-employed contractors. It is important to bear this in mind when recruiting.
Employers should note that unlike unfair dismissal where there is a cap to the maximum compensatory award made at tribunal, for successful discrimination claims there is no upper limit to the amount of compensation that can be awarded.
Claims of disability discrimination for example can be easily avoided if the employer understands what is expected from them in law when faced with an employee with health problems. A disability in employment law can be quite different to what a lay person envisages what a disability may mean. For example, depression and dyslexia can be disabilities.
Employers should make reasonable adjustments to take into account the employee’s disability. Often, this is less onerous than anticipated. This does not mean that employers should create a new role or make adjustments that would be a serious financial disadvantage to the business. It is always advisable to obtain medical reports and to ask the medical professional what type of reasonable adjustments are necessary.
If such adjustments cannot be made or implemented and there are good reasons for not doing so, it may mean that the employee can be dismissed on the grounds of capability but it is advisable to keep paper records that evidence cogent reasons for being unable to meet the employee’s needs, dismissal in these circumstances should be a last resort.
ETs will not accept ignorance on the part of any employer as a defence whether you are part of a large corporation or a small family run business. A staff handbook that complies with current employment legislation will greatly assist you.
Any financial director of a small business should always seek comprehensive legal advice when dealing with any areas of human resource and personnel management, and this need not always be expensive and can save a lot of money in the long term.