Employment law reform has been back in the headlines in recent months, with Government proffering their determination to “shake-up’ the laws in this area; supposedly to make it “easier for firms to hire staff while protecting basic labour rights.’

One of the headline proposals the government have put forward is the reduction of the current £72,300 compensation cap for unfair dismissal. The Government believe this currently deters employers from recruiting employees and as a result, plan to ‘cap’ the amount payable in compensation to £26,000 or a year’s wages, whichever is lowest.

Whilst on the surface this seems a fairly substantial change, in reality, unfair dismissal awards very rarely amount to anywhere near the current statutory cap. Statistics reveal the statutory cap is awarded in only 1% or 2% of cases a year, with average awards ranging from £6,000 to £30,000. As such, this proposal alone is unlikely to deliver any real benefit to employers or encourage any significant recruitment drives.

The other major change as outlined in the government’s proposals is the introduction of Employment Tribunal fees, due to come into action in September 2013. Bringing a claim to the Employment Tribunal is currently free of charge; through these proposals, the government’s aim is therefore to reduce the taxpayer subsidy of the employment tribunal by transferring some of the cost to those who use the service.

Under the plans, claims for unfair dismissal and discrimination will only be able to progress if the employee issues a claim and pays the issue fee of £250. A further fee of approx. £950 would also be payable for an Employment Tribunal hearing.

This reform like is likely to have a real impact on employers as it will prevent some employees, especially those that are ‘taking a punt’ at an employment claim, from proceeding. The fees will preclude employers from having to defend some employment claims, saving both the stress and cost of the Tribunal process, and hopefully resulting in improved efficiency at the over-burdened Employment Tribunals.

However, it is important employers are aware that many employees on low incomes may not be required to pay the full fees basis – as they will be assessed on a means tested basis. As such, the true effect of this major change is yet to be determined.

If you require on any of the above, or indeed any employment law matter, please contact us.

By Victoria Mitchell, Employment Lawyer in Lancashire