Enterprise Bill proposes radically reduced compensation awards and binding shareholder votes on pay

Out-Law News | 24 May 2012 | 4:16 pm | 3 min. read

A draft Bill designed to reform certain aspects of employment law and encourage "strong, sustainable" economic growth contains a provision which would allow the Government to radically reduce compensation awards for unfair dismissal.

Clause 12 of the new Enterprise and Regulatory Reform Bill (224-page / 825KB PDF) gives the Government the power to limit compensation to a figure between the national median annual earnings, or one year's earnings if lower, and three times the national median. The Department for Business, Innovation and Skills (BIS) is currently working from an average earnings figure of £26,000, giving a range of £26,000 to £78,000, according to an emailed newsletter from employment law blogger Daniel Barnett.

Unfair dismissal compensatory awards are currently capped at £72,000. However, this cap does not apply if the employee was dismissed or selected for redundancy for carrying out health and safety activities or for making a 'protected disclosure' under whistleblowing laws. The Bill also limits protection for disclosures to those made "in the public interest".

The Bill, which will now be debated by Parliament, contains measures aimed at improving the employment tribunal system and will pave the way for giving company shareholders binding votes on executive pay. It will also establish a new Competition and Markets Authority, which will combine the current market-related functions of the Office of Fair Trading with those of the Competition Commission, and set the purpose of the UK Green Investment Bank (GIB).

Business Secretary Vince Cable said that the measures in the Bill would help make the UK "one of the most enterprise-friendly countries in the world".

"It will improve our employment tribunals, reform and strengthen competition enforcement, scrap unnecessary red tape and help ensure that people who work hard and do the right thing are rewarded," he said.

Plans to reduce regulatory burdens on businesses include the introduction of "sunset clauses" into new regulations. Departments will have to review the effectiveness of regulations within or after a specified period, and those that are no longer needed will be scrapped. The Bill also reduces some statutory inspection burdens and repeals some "unnecessary regulations", the Government said.

The Bill will expand the role of Government employment relations service Acas in providing an early conciliation service, with the aim of preventing workplace disputes from having to go to an employment tribunal in the first place. Anyone intending to make an employment tribunal claim will need to notify Acas in the first instance rather than the Tribunals Service. Acas will then have a specified time to provide conciliation, where appropriate, before the claim continues to a tribunal. Statutory time limits will be amended so that parties to a dispute will still be able to bring the claim to a tribunal if conciliation fails.

Less complex disputes will become quicker and cheaper to resolve through a new Rapid Resolution scheme, while the Government will also encourage the greater use of Settlement Agreements (currently Compromise Agreements).

Following a consultation process, the Government announced earlier this year that it would give shareholders binding votes on executive pay. Further detail on how this will work will be published "later in the legislative process", but the Bill will repeal the provision in the Companies Act 2006 that prevents a person's entitlement to remuneration being "conditional" on the shareholder's approval of a company's directors' remuneration report.

However some business groups expressed their "disappointment" with the Bill, with the Institute of Directors (IoD) saying that it offered "little to satisfy those in search of worthwhile deregulation".

"The changes to Employment Tribunals are the closest that the Government gets to the red meat of the issue," said Alexander Ehmann, IoD Head of Regulation and Employment Policy. "Disappointingly, the Bill signals another missed opportunity for the Government. In a week where Adrian Beecroft's report has dominated the news agenda, the gap between government rhetoric and actual deregulation is all too obvious."

Venture capitalist Adrian Beecroft made various recommendations for the simplification of employment regulations in a report published by the Government earlier this week, including the introduction of 'no fault' dismissals for companies with 10 staff or fewer and giving smaller companies the right to opt out of flexible working requests and auto-enrolling their employees into a workplace pension scheme. However employment law expert Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com, said that it was unlikely some of the report's more radical suggestions would be followed through.