Who pays most over a sacking?

Sacking employees can be an unpleasant and frustrating business.

It is set to become potentially a much more expensive business for employers when a bill passing through parliament becomes law.

As a result, some employers have already received advice along the lines of: ‘If there are any employees you think you may not want to keep, it is better to get rid of them sooner rather than later.’

The Employment Relations Bill, which is expected to be on the statute book later this year, embodies the principles of the government’s White Paper ‘Fairness at Work’.

One of the bill’s key proposals is that the maximum compensation that can be awarded to unfairly dismissed employees will rise substantially.

On dismissal without notice or justification, employees have two potential claims, one contractual and the other statutory. The starting point for contractual damages is a sum equal to the net salary and fringe benefits the employee would have received during the notice period.

All employees are entitled to a statutory minimum period of notice which, during the first two years of employment, is limited to a week and thereafter to one week for each completed year of employment up to a maximum of 12 weeks. In addition, those employees who do not have a written contract of employment can argue for a ‘reasonable’ period of notice.

What is reasonable will depend on the employee’s particular circumstances and the norm in the organisation or industry in which they work.

Employees are under a duty to attempt to reduce their loss by taking up suitable alternative employment. Employees who are on short periods of notice are usually in a strong position to argue that it would not be realistic to expect them to find a similar job within their notice period.

But the issue becomes more contentious when employees are on longer periods of notice.

Those employees who have over two years’ continuous employment as at the date of dismissal also have a statutory right not to be unfairly dismissed.

Such claims must be submitted to the Employment Tribunal within three months of the date of dismissal. This two-year qualifying period has been challenged in the European Court of Justice as excessive and discriminatory.

The case has now just been referred back to the House of Lords.

The bill proposes reducing the qualifying period to one year, potentially expanding considerably the number of employees who may be able to claim unfair dismissal.

Compensation awarded to employees who establish that they have been unfairly dismissed is made up of two parts. There is the basic award which is currently subject to a maximum of #110 to #330 for each completed year of employment, depending on age, and then there is the compensatory award, which is currently a maximum of #12,000. One of the employers’ main concerns relates to the bill’s proposal to increase this to #50,000.

Because of the risk of a sizeable claim, many employers may find it expedient to dismiss unsatisfactory employees before this new legislation comes into force.

Once the revised maximum compensatory award arrives, employers will have to spend more time ensuring that dismissals are procedurally ‘fair’. There will need to be greater emphasis on ensuring, for example, that disciplinary procedures are followed, appropriate records of incompetence kept or adequate consultation carried out before dismissals are effected.

In the past, many senior employees have, on dismissal, shown only limited interest in the compensation offered by way of unfair dismissal. This is because such compensation has usually been dwarfed by their potential damages for breach of contract. This may be set to change as they see the chance of receiving substantial additional compensation.

It is relatively easy for an employee to commence an action for unfair dismissal. The original ideal behind the Employment Tribunals was that they should be informal and that applicants should be able to bring claims without professional advice. In practice, in many cases both parties do instruct solicitors.

However, some solicitors and consultants are prepared to take employees’ cases on a ‘no win, no fee’ basis. Employees can also get help from law centres, the Citizen’s Advice Bureau or trade unions.

Legal aid is not available to employees who bring claims, nor can the winning party normally recover its legal costs. This can deter some employees from bringing a claim rather than accepting a lesser offer, because of the fear that their ‘winnings’ will be gobbled up in legal fees.

The reduction in the qualifying period required, the relative ease with which a claim can be submitted and the allure of potentially greater compensation are likely to result in soaring claims. The difficulty for employers is that they will be left, in some cases, defending claims which have little merit. The major irritant for employers, in this situation, is that defending even the most flimsy of cases invariably involves incurring legal costs and wasting management time.

The alternative to defending cases is to settle with a disgruntled employee, although there is a risk that such a policy may encourage other employees to submit spurious claims in the hope of a payoff.

Some employers will have some tough choices to make, sooner rather than later.

Ian Hunter is a partner and employment law specialist with City law firm Bird & Bird. He is also the author of ‘Which? Guide to Employment’