Organisations with an HR team most at risk if their employment law breach has ‘aggravating features’
From 6 April 2014, an employment tribunal will be able to order an employer that has lost when defending a claim to pay a financial penalty to the Secretary of State (new section 12A, Employment Tribunals Act 1996). Tribunals will have this option where they conclude the employer has breached the worker's rights involved in the claim, and that the breach has “one or more aggravating features”.
‘Aggravating features’
The new legislation does not define what “aggravating features” are in this context. This is for the employment tribunal to decide, taking into account any factors which it considers relevant, including the circumstances of the case and the employer’s particular situation. The government’s explanatory notes suggest that some of factors which an employment tribunal may consider in deciding whether to impose a financial penalty could include:
- the size of the employer
- the duration of the breach of the employment right
- the behaviour of the employer and the employee.
The notes also suggest that a tribunal may be more likely to find 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 HR team
- 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:
- the organisation has only been in operation for a short period of time
- is a micro business
- has only a limited HR function
- the breach was a genuine mistake.
Caps
Tribunals must take account of the employer’s ability to pay when deciding whether or not to impose a financial penalty. If the tribunal makes a purely non-financial award (for example, an order for the employee to be reinstated) then the financial penalty must be at least £100, but cannot exceed £5,000. If compensation is awarded to the employee, then the financial penalty must be 50 per cent of the claimant’s financial award (again subject to a minimum of £100 and a cap of £5,000). If the employer pays no later than 21 days after the date the written notice of the decision is sent to it, the fine is reduced by 50 per cent.
Counting the cost
The government has justified a number of employment law reforms on the basis of reducing burdens on business and deterring costly tribunal claims. But it is clear that from 6 April, any employer that loses in a tribunal will face a potential additional cost to the three it already might incur. These are the actual costs, legal or otherwise, of fighting the claim; any award of compensation made by the tribunal; an order from the tribunal to reimburse the successful claimant for the fees paid to pursue the claim; and now a financial penalty for breaching the claimant’s employment rights.
Balancing act
The recent case launched by the trade union Unison, arguing that requiring claimants to pay tribunal fees was unlawful, was effectively pricing workers out of justice, and should be the subject of a judicial review, generated a lot of negative publicity for these reforms. (The case was unsuccessful in the High Court but is likely to be appealed.) Against this background, the introduction of financial penalties for employers could be viewed as an attempt to balance the scales. But if the core of the government’s employment relations strategy is to resolve disputes rather than resort to litigation, then facing an additional potential cost could be seen as placing extra pressures on employers to settle claims, regardless of the claim’s merit.
Within the context of ‘justice not only being done, but being seen to be done’ it may also be hard for wronged employees to understand why, if a tribunal has found their employment rights have been breached in a wilful or malicious way, the financial penalty is being paid to the government and does not form part of their overall award of compensation.
Makbool Javaid is a partner and head of employment law at Simons Muirhead and Burton
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