Adam Bernstein hosts a monthly look at one of the legislative aspects that most affect your business, how it is run and how it can be more profitable. This month, Eversheds Gareth Edwards and Clive Day look at changes to employment law.

The latest round of employment law legislation came into force on 1 October 2004. Employers need to be up to speed in order to avoid increased penalties.

The Employment Act 2002 (Dispute Resolution) Regulations 2004 impose statutory minimum procedures for resolving workplace disputes which employers and employees must go through before employment tribunal proceedings begin. Employers will face increased penalties in employment tribunals for mistakes.

The regulations introduce procedural steps which employers must follow when disciplining employees, dismissing them or handling a grievance. Also, for the first time, the statutory requirement to provide a statement of specific employment terms and conditions has been given teeth, with financial penalties for non-compliance.

The new statutory procedures

Employers will be expected to go through a minimum set of standard procedures in the following cases:

• before dismissing an employee in most circumstances;

• before taking disciplinary action short of dismissal in conduct and capability cases;

• in response to employees’ grievances.

The standard disciplinary/dismissal procedure consists of three stages:

• sending a statement in writing to the employee setting out the grounds for the proposed action;

• a meeting with the employee followed by notification of a decision and right of appeal;

• if the employee chooses to appeal, holding an appeal meeting and notifying the employee of the outcome.

The eye-catching part of these provisions isn’t so much their content as their unexpected scope. For example, the disciplinary and dismissal procedure will apply beyond many employers’ common sense understanding of a dismissal to include the end of a fixed-term contract, enforced retirement and small-scale redundancies.

Many employers will be caught out and will face increased compensation claims. Although the disciplinary/dismissal procedure doesn’t technically apply to action against an employee on conduct or capability grounds, where only an oral/written warning is given, it does apply where there is any possibility of other action as a result.

The statutory grievance procedure is similarly problematic. It is stated to apply to “a complaint by an employee about action which his employer has taken or is contemplating taking in relation to him”. Broadly, it applies to grievances which could lead to a tribunal complaint.

Penalties and non-compliance

The ambiguities and technicalities of the new procedures are likely to prove tricky for employers given the potentially large financial consequences. It is important to understand that there is not a free-standing right by an employee to bring a claim where the employer fails to observe the statutory procedures. The impact will instead be on compensation in the most common types of existing tribunal claims such as unfair dismissal. Where the subject matter of the claim involves one of the statutory procedures and one of the parties was at fault for a failure to complete the procedure, an adjustment will be made to compensation.

That adjustment must be a minimum of 10 per cent but can be up to 50 per cent. Employers who may choose to avoid following the procedures in favour of entering into a compromise agreement may well find that they will have to pay more to settle claims.

There are more consequences for non-compliance in respect of unfair dismissal complaints and grievances.

In the case of a dismissal, an employer’s failure to follow the relevant procedure will make that dismissal automatically unfair regardless of the substance of the case.

In the case of a grievance, employees will not normally be able to register an employment tribunal complaint until they have submitted the appropriate grievance in writing to their employer and allowed 28 days for its resolution. Where the employee lodges a tribunal claim without lodging a grievance, the usual time limit for bringing a claim after that point will be extended by three months.

Employment terms and conditions

There is a further nasty sting in the tail for many employers in respect to their employees’ terms and conditions. For many years the law has required employers to provide employees with a prescribed written list of terms. To date, however, there has been no sanction for a failure to comply.

A provision in the new Employment Act provides that where an employer loses the tribunal claim, the tribunal will award between 2-4 weeks’ additional pay for a failure to give the employee accurate a terms and conditions.

This provision, as with the statutory procedures, does not provide a freestanding claim. An award can only be made where the employee has succeeded at tribunal on a different matter. It is also important that, at present, the legislation limits the amount that can be awarded to a fixed cap. The maximum that can be awarded in respect of a week’s pay is £270 making the maximum additional award for inaccurate or incomplete terms and conditions £1,080.