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Employment Update: Employment law reform



United Kingdom

Employment Update: Employment law reform

Business Secretary Vince Cable has announced a package of employment law reforms. According to the Department for Business, Innovation and Skills, the proposals are intended to give firms more flexibility and confidence in managing their workforce and reduce employment law red tape. It has also stated that the package of reforms comes in response to calls from business to simplify and speed up the process of ending the employment relationship when it breaks down, for the benefit of both employers and employees.

The proposals are not entirely unexpected, given the Government's previous announcements, but the detail provided will be of interest to all employers. 

Ending the employment relationship

The Government has published a consultation paper "Ending the employment relationship". The consultation considers two key issues: settlement agreements (the proposed new name for compromise agreements) and unfair dismissal compensation. Both of these are contained in the Enterprise and Regulatory Reform Bill. The consultation seeks views on the following:

  • a new statutory ACAS Code of Practice on settlement agreements, outlining the broad principles covering their use;
  • a model settlement agreement, supporting guidance and template letters which employers can use to make an offer of settlement;
  • whether there is a need for a guideline tariff to provide guidance on what a fair and appropriate level of settlement should be; and
  • changing the level of compensatory awards in unfair dismissal claims. The Government considers that the current level of the cap (£72,300) may lead to unrealistic perceptions among both employees and employers about the level of tribunal awards. It is proposing a cap on individual awards of 12 months’ pay (where this is less than the overall cap) and also considering whether the current overall cap is appropriate. The Enterprise and Regulatory Reform Bill contains a power which would allow the cap to be varied between one and three times' full-time annual median earnings (currently £25,882 - £77,646).

Employment Tribunal

Following Mr Justice Underhill's review of the Employment Tribunal rules (highlighted in an earlier Employment Update), the Government has also published a consultation seeking views on the recommendations and issues arising from the proposed redrafted rules. These include:

  • Proposals for effective case management, including an initial "paper sift" stage carried out by a judge; combining pre-hearing reviews and case management discussions and a power to limit oral evidence and submissions;
  • Presidential guidance to manage parties' expectations and ensure that cases are managed consistently; and
  • Revised draft ET1 and ET3 forms.

Compensated no-fault dismissals

The Government has published its response to the call for evidence on the controversial proposal for compensated no-fault dismissals for micro-firms and has confirmed that this proposal will not be taken forward. However, it will work with ACAS to improve guidance for small businesses on the ACAS Code of Practice on Disciplinary and Grievance Procedures and develop an interactive tool. It has also asked ACAS to consider how performance and disciplinary procedures could be better distinguished and clarified.


The Government has also published its response to the call for evidence on the effectiveness of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). It has stated that there are several areas which should be examined further with a view to improving the operation of TUPE in practice, whether by amendments or improved guidance. The Government will consult on a number of areas before the end of the year, including whether the provisions relating to "service provision changes" should be retained or repealed.


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