Last reviewed 23 May 2018

In what some commentators regard as the most significant case in the last 20 years, the Supreme Court ruled in R (UNISON) v Lord Chancellor [2017] UKSC 51 in July 2017 that the introduction of fees was illegal — largely on the basis that it restricted access to justice. Stuart Chamberlain, author and senior employment law consultant at Croner-i, examines the implications of the Supreme Court’s decision on employers’ liabilities and other recent relevant developments. He also looks at a recent Government consultation paper on the enforcement of employment rights and its potential impact on employers.

Abolition of employment tribunal fees

The unanimous decision of the Supreme Court in R (UNISON) v Lord Chancellor was that the fees regime, introduced in July 2013, had made it unaffordable for people to exercise employment rights guaranteed to them by Parliament.

As a result of this decision, the Government abolished the fees regime and made arrangements for individuals and organisations to receive back-dated compensation. The number of claims to the employment tribunal immediately increased (by 80% in some areas) and this increase has been maintained. This has caused long delays before claims are brought to the tribunal and, of course, added administrative time and expense for employers in responding to the claims.

The Government has intimated that it will consider the re-introduction of fees but there is no sign yet that it intends to do this. In the meantime, the number of applications to employment tribunals continue to rise and the Government must provide funds to manage this increase.

Awards at the tribunal

The most obvious place to start is at the employment tribunal where the employer may face paying an award for losing a case. Awards can be divided into two main areas — unfair dismissal and discrimination.

Unfair dismissal

From April 2018 the cap on the compensation awarded is: £83,682 or 12 months’ pay — whichever is the lower. Few, however, will receive the upper figure; indeed, according to the employment tribunal statistics for 2012/13, the average award for unfair dismissal was only £10,127.

Compensation uplift for failure to follow Acas Code

In a case in which an employment tribunal makes an award of compensation, it has the power to increase compensation by up to 25% if it finds that there has been a failure to comply with the requirements of any relevant Acas Code of Practice (in the case of unfair dismissal the Acas Code of Practice on Dismissal and Grievance Procedures) on the part of the employer. It may also decrease compensation by the same percentage amount if it finds an unreasonable failure to comply with a relevant Code by an employee.

The Code specifically states that it does not apply to redundancies and the expiry and non-renewal of a fixed-term contract. It further states that it applies to "disciplinary and grievance situations" and that "disciplinary situations" include "misconduct and/or poor performance".

Discrimination

In discrimination cases, where there has been a breach of the Equality Act 2010 by the employer, the two most important categories are injury to feelings and loss of earnings. Unlike unfair dismissal, there is no limit on the amount of compensation that can be awarded in discrimination cases.

The so-called “Vento” bands, originally introduced in 2009 by the judgment in Vento v West Yorkshire Police, govern the amount that can be awarded for “injury to feelings”. The current and updated Vento financial guidelines (Guidance from the President from September 2017 and applying from April 2018) for an award of injury to feelings are:

  • a lower band of £900 to £8600 (for less serious cases)

  • a middle band of £8600 to £25,700 (for cases that do not merit an award in the upper band)

  • an upper band of £25,700 to £42,900 (the most serious cases — eg where there has been a lengthy campaign of harassment), with the most exceptional cases capable of exceeding £42,900.

These figures take into account the RPI index, which has to be considered in making an award.

In addition, the employee could receive aggravated or exemplary damages where the employer has acted in a high-handed, malicious, insulting or oppressive manner.

Other awards and fines

Three of these can be very expensive for the employer.

The first is protective awards. These are awarded by a tribunal when, in the context of collective consultation, the employer has failed to consult adequately or not at all with the representatives of the affected employees. The award is designed to be punitive rather than compensatory and is up to 90 days’ pay per employee, even if the employee has suffered no financial loss.

The second relates to fines under immigration law for employing illegal workers. Employers are required to check an individual’s right to work in the UK and to make sure that such documents are valid. An employer can be sent to jail for five years and pay an unlimited fine if found guilty of employing someone who it knew or had “reasonable cause to believe” didn’t have the right to work in the UK.

This includes, for example, if the employer had any reason to believe that:

  • they didn’t have leave (permission) to enter or remain in the UK

  • their leave had expired

  • they weren’t allowed to do certain types of work

  • their papers were incorrect or false.

Third, penalties for not paying National Minimum/Living Wage.

In a recent article in the Employer Bulletin, HM Revenue & Customs (HMRC) cited the common errors in not paying the National Minimum Wage (NMW).

  • Not paying the right rate, perhaps missing an employee's birthday.

  • Making deductions from wages which reduce the employee's pay below the NMW/NLW rate.

  • Including top ups to pay that do not qualify for NMW/NLW.

  • Failure to classify workers correctly, so treating them as interns, volunteers or self-employed.

  • Failure to include all the time a worker is working — for example time spent shutting up shop or waiting to clear security.

The penalties imposed on employers that are in breach of the minimum wage legislation are 200% of arrears owed to the worker. The maximum penalty is now £20,000 per worker. The penalty is reduced by 50% if the unpaid wages and the penalty are paid within 14 days. HMRC also “names and shames” employers who are penalised.

Enforcement of awards: Government consultation

A significant problem in employment law is that employers who lose at the employment tribunal often simply refuse to pay the award. It appears that bankruptcy — or the resulting threat of it — is the factor that is given as the reason for the non-payment of fines and awards by small to medium-sized businesses. Legislation introduced in April 2016 introduced a penalty for not paying an award set by the employment tribunal or an amount agreed by the Acas conciliated settlement.

Nevertheless, despite a number of options open to claimants, the civil courts presently cannot guarantee to obtain the payment of a judgment or order, particularly where the respondent goes to considerable lengths to evade payment — or simply does not have the means to pay. The Government recognised that further action is needed.

In October 2016 the Prime Minister commissioned Matthew Taylor (Chief Executive of the Royal Society of the Arts) to conduct an independent review into modern working practices, focused on assessing how employment practices might need to change in order to keep pace with modern business models. In July 2017 the Review of Modern Working Practices (the Review) was published, which included 53 recommendations. The review considered a range of issues, including the implications of new forms of work, the rise of digital platforms and the impact of new working methods on employee rights, responsibilities, freedoms and obligations.

The Government sought views on the recommendations in the Good Work: The Taylor Revive of Modern Working Practices: The Enforcement of Employment Rights consultation document. This document recognised the problems caused and the impact if people are not able to enforce their rights in law when things go wrong.

The enforcement of rights in the UK is split between individual enforcement and state-led enforcement. The consultation document recognises this division in its recommendations.

In respect of such enforcement the consultation:

  • sets out the Government’s intention to enforce a wider range of basic employment rights on behalf of vulnerable workers

  • seeks evidence on the extent of the problem faced by low-paid workers in accessing sick pay and holiday pay to help target enforcement efforts

  • sets out the Government’s plans to simplify the enforcement process for employment tribunal awards

  • outlines the Government’s intention to introduce a naming scheme for unpaid employment tribunal awards

  • takes forward the Review’s recommendations that employment tribunal judges should be obliged to consider stronger punishments for employers who ignore previous tribunal judgments

  • seeks views on how best to implement these measures.

This consultation ended on 16 May 2018. The Government is expected to come forward with concrete proposals — Brexit permitting — in the late autumn of 2018.

New PILON tax rules

Where an employee’s employment terminates after 5 April 2018 and he or she receives a payment after that date, new tax rules mean that the basic salary that the employee would have received for any period of unworked notice is subject to income tax and National Insurance contributions (NICs) in full. This is irrespective of whether there is a payment in lieu of notice (PILON) clause in the contract. This is a major change from the previous regime and could have significant financial implications for employers.

Under these new rules, if an employee is paid in lieu of some or all of his or her notice period, the employer must deduct income tax and employee NICs from, and pay employer NICs on, the employee’s “post-employment notice pay” (PENP).

HMRC has published guidance on the new rules that require income tax and NICs to be paid on all PILONs with effect from 6 April 2018. Not making a payment or getting the payment wrong could prove expensive to the employer.

Conclusions

It remains to be seen whether the Government has the inclination — or, indeed, the parliamentary time — to implement fully the recommendations outlined in the consultation paper (see above).

In a separate development, the Director for Labour Market Enforcement, Sir David Metcalf, has called for higher financial penalties for employers who exploit workers and flout employment law. His report asks the Government to strictly enforce holiday pay regulations for all employees, and to make it mandatory to provide a payslip for all workers. The Government is committed to making a response to this report later this year.

In the meantime, the other topics highlighted in this article show that employers need to put in considerable time and effort (and more than a basic knowledge of employment law) if they are to avoid considerable financial penalties for getting something wrong). And it looks like it will be increasingly bad news for those employers who seek to avoid their responsibilities.