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Proposed employment changes

This page outlines proposed changes relating to the employment rules. One change which has just taken effect is fees for employment tribunal claims. The proposed changes do not necessarily apply to Northern Ireland.


There are two main groups of changes coming in. The less important changes are those to the Equality Act itself: see below Red Tape Challenge: employment repeals.

More fundamental are changes in how workplace disputes are resolved. These apply to other employment claims as well as Equality Act claims. Some of the most important changes:

There is an implementation timetable on my main Proposed changes page.

I also mention below some important changes to unfair dismissal (below). These do not affect Equality Act claims. However, people may be tempted to bring more Equality Act claims to get round the unfair dismissal restrictions.

Red Tape Challenge: employment repeals

The Government announced in October 2012 (following consultations) that three Equality Act provisions are being repealed:

The changes are part of the Red Tape Challenge: see Proposed Changes: Red Tape Challenge.

All claims will go first to ACAS

Now in force. See separate page All claims will go first to ACAS.

Financial penalties for employers

S.16 Enterprise and Regulatory Reform Act includes a power for employment tribunals to levy a financial penalty on an employer found to have breached employment rights, but only if the tribunal "is of the opinion that the breach has one or more aggravating features." The new provision takes effect for proceedings begun or or after 6th April 2014 (SI 2014/253).

The penalty is payable to the government, and is 50% of the compensation awarded to the claimant (subject to a minumum of £100 and maximum of £5,000). The penalty is reduced by half if the employer pays within 21 days. So if the employer pays promptly, it effectively has to pay an extra 25% to the government, over and above the compensation it pays to the claimant.

What will be 'aggravating features', so as to give the tribunal power to order a penalty? This is a key question. The Explanatory Notes to the Bill say that this is not prescribed and will be for the employment tribunal to decide.

75. ... A non-exhaustive list of factors which an employment tribunal may consider in deciding whether to impose a financial penalty under this section could include the size of the employer; the duration of the breach of the employment right; or the behaviour of the employer and of the employee. The concept of aggravating features in section 12A is not the same as the existing regime of aggravated damages in discrimination claims in England and Wales.

76. An employment tribunal may be more likely to find that the employer's behaviour in breaching the law had aggravating features where the action was deliberate or committed with malice, the employer was an organisation with a dedicated human resources team, or where the employer had repeatedly breached the employment right concerned. The employment tribunal may be less likely to find that the employer's behaviour in breaching the law had aggravating features where an employer has been in operation for only a short period of time, is a micro business, has only a limited human resources function, or the breach was a genuine mistake.

Explanatory Notes (pdf, link to parliament.uk) to the Enterprise and Regulatory Reform Bill.

A side effect of the financial penalty provisions - presumably unintended - is that there may be pressure on employers to settle claims out of court at more than they would otherwise have paid, for fear of a further penalty if they lose at tribunal.

More changes to resolution of workplace disputes

'Rapid resolution' scheme

The Enterprise and Regulatory Reform Act includes provisions to facilitate a 'Rapid Resolution Scheme', under which claims could be decided by a legal officer without a tribunal hearing. Regulations would set out what type of claims can be determined without a hearing, but also the parties would have to agree to this method of settling the dispute.

In its response to the 'Resolving workplace disputes' consultation, linked below, the Government said it was looking at a scheme to provide quicker, cheaper, determinations in low value, straightforward claims (such as holiday pay). The scheme could involve non-judicial determination based only on papers (ie no oral hearing). "Potential advantages may include claims being dealt with more quickly than the current system permits and, because of the potential for parties and witnesses avoiding having to attend a hearing, at less cost." Proposals would be subject to a full consultation in due course.

In a survey of employment lawyers, the rapid resolution scheme was the most popular of the reforms, supported by 78%: Most lawyers believe employment law reforms 'unworkable' (link to workplacelaw.net), 20/12/11.

Compromise agreements

'Compromise contracts' have been renamed 'settlement agreements', from 29th July 2013. See Resolving disputes: Reaching a settlement.

The legislation was amended by the Enterprise and Regulatory Reform Act. The Government believes this will help to avoid any party refusing to sign an agreement on the grounds that they do not want to be seen as 'compromising'. The Commencement Order is SI 2013/1648.

See also below Dismissal procedures: settlement agreements.

Unfair dismissal (not discrimination law)

These points are not on the Equality Act, but on unfair dismissal (a separate type of claim) and other employment rights.

Rights for shares - 'employee-shareholders' (previously called 'employee-owners')

An employer and employee are now able to agree that the employee gets shares in the employer (or its parent) but gives up some employment rights. The rules took effect on 1st September 2013 (SI 2013/1766).

The employee will have to get at least £2,000 worth of shares, but will no longer be able to claim unfair dismissal (except in certain cases) or statutory redundancy pay. He will also give up some other rights. Discrimination rights under the Equality Act are not affected.

The House of Lords rejected the rules twice, but finally accepted them on 24th April 2013 after concessions by the Govermnent (see links below). One concession is that the employee will need to have independent legal advice, paid for by the employer.

The employee-shareholder rules are in s.31 Growth and Infrastructure Act 2013 (link to legislation.gov.uk. The government issued a response to a consultation on the proposals in December 2012: Consultation on implementing employee owner status (link to bis.gov.uk).

Receipt of the minimum £2,000 worth of shares is to be free of income tax and national insurance contributions. Also gains on shares worth up to £50,000 will be free of capital gains tax. See More details published of tax treatment of 'employee shareholder' shares (link to outlaw.com), 20/3/13.

News and comment:

Unfair dismissal: reduction of compensation limit

The compensatory award for unfair dismissal has been reduced to 52 weeks' pay or, if lower, £74,200 (£76,574 from 6 April 2014). This does not affect the fact that there is no fixed upper limit for discrimination awards.

The new limit applies to all dismissals from 29th July 2013 (strictly where the 'effective date of termination' is on or after that date). The regulations reducing the limit are the Unfair Dismissal (Variation of the Limit of Compensatory Award) Order 2013 (link to legislation.gov.uk).

Judicial review claim

Compromise Agreements Ltd has started a judicial review claim arguing that it is unlawful to limit compensation to one year's pay. Due to lack of resources the claim has been based only on age discrimination, arguing that older people will find it harder to be re-employed within a year and so will be disproportionately affected by the cap on compensation. But a similar argument could be made for disabled people. In May 2014 permission to pursue the claim was denied, but Compromise Agreements were looking at whether to take matters further. www.settlementagreements.org/jr.

Unfair dismissal: settlement agreements

This new provision makes it easier for bosses to ask staff to leave with a cash payment. However, the employee will still be free to reject the offer. The key point of difference from the previous position is that the employee will not normally be able to use the settlement offer in a future unfair dismissal claim. If the employee rejects the offer, the employer still needs to follow a fair process before finally deciding to dismiss the employee.

There is an ACAS Code of Practice, supplemented by further guidance: www.acas.org.uk/settlementagreements

The new rule does not apply to Equality Act claims. So a settlement offer could still be taken into account in a discrimination claim.

The relevant provisions in the Enterprise and Regulatory Reform Act took effect from 29th July 2013 (Commencement Order SI 2013/1648). The Code of Practice was brought into force by SI 2013/1665..


On 17th January 2013 the Government issued its response to a consultation on the proposals: Ending the employment relationship (link to bis.gov.uk).

Links on the original 2011 consultation


The Equality and Human Rights Commision has working with businesses to develop an equalities standard. This launched in May 2013: National Equality Standard.


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Last part update 13th May 2014