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David Cooper: The Government must not make employment tribunals more expensive for small businesses

Picture 2 David Cooper is a solicitor practising in employment law and a former executive member of South Staffordshire Conservative Association.

Employment tribunals, with due respect to their role in determining workplace disputes, have burdened small business for many years. The maximum unfair dismissal award was quadrupled soon after Labour took office and now stands at £65,300. The qualifying period was reduced to one year. The torrent of EU-inspired legislation via the Social Chapter provided yet more problems – relatively easy for a major organisation with a dedicated personnel department, a nightmare for a hard pressed small business owner. And the much despised statutory disciplinary procedures with their financial uplift provisions only added to the burden, until their grudging repeal.

What a relief, then, for those who make up an integral part of the UK’s economic well being and the fightback against Labour’s recession, to hear that the Department for Business, Innovation & Skills was consulting on Resolving Workplace Disputes and how to make the UK the best place to start and grow a business, as the consultation paper’s foreword asserted. No risk, then, of any underhand stealth tax on businesses who fell foul of tribunals, as might have appealed to a particularly vindictive Brownite minister.

Or so we thought.

On page 52 of the consultation paper, described as “an astonishing proposal” in the Daily Telegraph, is a section headed “Financial Penalties”. A few extracts: -

“The Government believes that employers should take appropriate steps to ensure that they meet their obligations in respect of their employees. We therefore propose to introduce the power for Employment Tribunals to impose financial penalties on those employers found to have breached an individual’s rights.”

“There are, however, no powers available to the tribunal to penalise an employer for the original breach. Introducing such powers would allow the tribunal to send a clear message to an employer, and employers more generally, that they must ensure that they comply with their employment law obligations.”

“We propose to introduce a provision for the tribunal to levy financial penalties on employers found to have breached the relevant rights, to encourage greater compliance. Penalties would be payable to the Exchequer, rather than the claimant, providing some element of recompense for the costs incurred to the system through the employer’s failure to comply with their obligations…”

The proposal goes on to indicate that the penalty should be half the amount of the total award, subject to a cap of £5,000, reducing by 50% for prompt payment within 21 days.

Let us not pretend that the last of these points anticipates a piece of trivia in theory and a storm in a teacup in practice. What might be a mere fleabite for a FTSE100 company or a public authority would be a potentially serious blow for a small business, especially when wondering if the lesser evil is to pay the greater Danegeld and settle a weak claim rather than stand firm on principle and run the risk of a tribunal falling for a convincing liar on the day, once the management time and associated costs have been borne.

But there is more to the issue. What is being held up as a means of ensuring that employers comply with their employment law obligations is accidentally – or possibly deliberately – overriding a personal relationship governed by contract and tort law, and pushing (nudging?) it into the realms of statutory duty such as health and safety law, where a breach of duty e.g. to safeguard dangerous machinery is deemed to be an offence against the state. Can this be reasonable?

Let us look more closely at the employment relationship. An employee trades his time, skill and expertise for the employer’s cash. A matter of contract, involving no duty to the state. The concept of unfair dismissal, qualifying the right to terminate on notice, came in comparatively recently to protect employment, because arbitrary loss of an employee’s livelihood was deemed serious. Then followed the anti-discrimination regime. And the tribunal system, a supposedly cost effective alternative to the courts. OK, however much the legislative tide has arguably gone too far, unduly burdening small business, few would argue that the whole system is flawed, so far as it protects employees via remedies focused on compensation and not punishment.

So how does this proposed penalty regime fit in? Let us be plain. It is nothing but an arbitrary tax. It would make no distinction between the result of an employer’s innocent but culpable mistake, and a wilful act in defiance of employment protection. No distinction between a single act and a series. No distinction between an employer who bought off a claim then continued to defy best practice, and one who felt it right to defend (albeit unsuccessfully) an allegation believed incorrect. And no distinction between losing to a genuinely wronged employee or a convincing liar.

A basic analysis of the proposed tax: “Because you lost a tribunal claim brought by your former employee, you must give money to the government.” Well, this certainly does not sit easily alongside the principle of yielding up a percentage of sums earned or gained, or conceding a cut to the government from voluntary expenditure. Indeed, its insult to injury nature arguably takes it a step beyond the moral iniquity of IHT and stamp duty. And what of the discount for prompt payment provisions? Shades of the pirate parking industry. Has deficit reduction really come to this?

Knowing that nothing of this kind could ever have featured in a Conservative manifesto, we might think that this has Uncle Vince’s fingerprints all over it. If so, it has been neatly concealed behind the names of its two ministerial proposers, namely Ed Davey (Lib Dem) and Jonathan Djanogly (Con). One can only wonder whether in the latter case, to borrow an observation from the late Alan Clark on the occasion when he was responsible for bringing a set of EU inspired employment regulations before the Commons, the proposer might be doing so “with a marked lack of enthusiasm”.

Let us not be deceived, finally, by the apparently small figures that might be involved case by case, nor the comparatively low estimates of between £5.5m (BIS) and £28.5m (ACAS) that might flow to the Exchequer. This proposal is anti-business, particularly small business. It is contrary to the nature of the employment relationship, profoundly un-Conservative and not justified in the slightest by the expediency of Coalition government, not even as a sop to those who those who will howl in protest at the pro-employer changes.

Mr Djanogly, please kick this quietly and permanently into the long grass.


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