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In dispute – out of pocket?

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With new dispute resolution regulations due to come into force later this year, Nichola Upperton-Evans, partner at Rowe Cohen Solicitors warns employers to prepare for the new legislation.


The Employment Act 2002 (Dispute Resolution) Regulations 2004 are due to come into force this Autumn. The purpose of this legislation is to impose a minimum standard of dispute resolution practice, to which all employers should adhere, with a mandatory requirement for every business to have a disciplinary and grievance procedure in place.

Is this really necessary, I hear you ask? In 2004 doesn’t every business have basic procedures in place?

Apparently not, according to the Department of Trade and Industry. The DTI estimates that 800,000 firms have either ‘inadequate or non-existent’ procedures. Should all employers be compelled to review their procedures and implement a new regime?


Unnecessary escalation

Yes, absolutely! Just look at the statistics. Last year, there were 94,453 applications to the employment tribunal of which 41,611 (44%) were for unfair dismissal.

When the new proposals were announced Alan Johnson, the Employment Relations Minister said: “Over three-in-five of the applications to tribunals come from employees who have not attempted to resolve the problem with their employer in the first instance.” Many of these – minor disputes that escalated – could have been resolved before reaching the tribunal stage.

In addition, ACAS suggests that 77% of complaints to the employment tribunal went no further than the ACAS conciliation stage.


Unnecessary costs

And just look at the costs of getting involved in litigation. With legal expenses and management time the average tribunal costs the employer £2000. Where the claim has substance, it’s not unusual to find costs in excess of £5000.

A Regulatory Impact Assessment carried out on these proposed Regulations makes interesting reading, too. The objectives can be summarised as follows:

  • It is estimated that the Regulations will reduce the current 94,000 applications a year to the employment tribunal by 30,000-40,000 per year.

  • Allowing for a one-year lead-in, employers should save £60m-to-£80m in the second year.

  • The taxpayer can expect to save £11m-to-£15m in year two. However, provision has to be made for one-off set-up costs of £46m-to-£86m in the first year. Against this, it should be remembered that existing procedures cost business £42m-to-£90m annually in any event.


What’s new?

So what are the changes and when do they come into effect?

The dismissal and discipline regulations come into force on 1 October 2004. The standard dismissal procedure and disciplinary procedure applies ‘when an employer contemplates dismissing or taking relevant disciplinary action against an employee’ subject to the exceptions mentioned below.

But when should an employer ‘contemplate’ a dismissal or disciplinary action? Only after the following steps have been taken:

  • On receiving the initial complaint, the employer should investigate the matter further.
  • Statements should be taken from any relevant witnesses.
  • Evidence should be gathered.
  • In the initial stages of any meeting with the employee it should be emphasised that the meeting is for fact-finding purposes only.

If the employer decides to take the matter further, it must write to the employee setting out the grounds for considering disciplinary action and setting out the reasons. The employee should be given a reasonable amount of time to respond.

The next stage is for a meeting to be called. No decisions on the employee’s status should be made until after that meeting (with certain exemptions, mentioned below).

The employee has a duty to take all reasonable steps to attend that meeting. However, if the employee’s representative is not available and an alternative date is suggested – within a five-day period – then the hearing must be postponed.

At the meeting the employer should also refer to the employee’s right to appeal.


ACAS Code

Earlier this month ACAS released a draft a Code of Practice, which is open to consultation. Although, when finalised, it will not have legal clout, the employment tribunal will pay close regard to it. This suggests that:

  • The meeting should be held in a private location, if possible.
  • The employer should outline the complaint and run through the evidence.
  • The employee should be given a chance to respond, produce evidence and call witnesses, as appropriate.
  • The employee has the right to be accompanied to the meeting.
  • If the employee cannot attend the meeting due to unforeseen circumstances, a second meeting should be held.
  • Before reaching any conclusion, employers should review the evidence and take account of the employee’s previous record.
  • There are a range of responses, from ‘No action to be taken’, to ‘Verbal and written warning’ through to ‘Dismissal’ in the most severe of cases. Employers should ensure that the punishment fits the crime.


Appealing

ACAS also suggests that if an appeal is being lodged, usually this should be within five working days.

Although this can be tricky in small firms, the person who held the initial disciplinary hearing should not hear an appeal. Any appeal hearing should work in a similar way to the original hearing. The employee should be told the result as soon as possible.

Failure to comply with procedure means that any dismissal would automatically be deemed unfair. If a dismissal is deemed to be unfair then an employee will receive a minimum of four weeks’ pay (subject to a reduction if they’ve already left).

In unfair dismissal cases, the award must be increased by 10% (unless there are exceptional circumstances) and may, at the tribunal’s discretion, be increased by as much as 50%. If there is similar failure by the employee the same percentages apply to reduce the award.

This is only a minimum procedure. A dismissal is not fair merely because an employer has followed the correct procedures. It depends on all the circumstances of the case – a much larger subject.


Modified dismissal procedure

There is a modified dismissal procedure set out at Regulation 3. It states that this procedure will apply in the following circumstances:

  • Where an ’employer dismissed the employee by reason of his conduct without notice’
  • ‘the dismissal occurred at the time the employer became aware of the conduct or immediately after’
  • When ‘the employer was entitled, in the circumstances, to dismiss the employee by reason of his conduct without notice or any payment in lieu…’, and
  • ‘it was reasonable for the employer in the circumstances, to dismiss the employee before enquiring into the circumstances in which the conduct took place’.
  • Under Regulation 3 the employer should give the employee, in writing, a statement setting out the events that amount to misconduct and pointing out the right of appeal. The next step would be an appeal.

    I expect that tribunals will face a number of claims to clarify how certain issues should be dealt with. What constitutes a ‘reasonable time’ in which a meeting should be held? How much information should be given to employees in advance of the meeting? Does deducting compensation contravene European law?

    Brendan Barber of the TUC takes the view that ‘the system is working, so the Government should take great care not to destroy decent disciplinary procedures. Union members will not give up the high standards they have fought for and may have to test the confusing new law with a barrage of claims and appeals’.


    Grievance procedures

    The new grievance procedures mirror the disciplinary provisions and apply where there is a ‘grievance about action by the employer that could form the basis of a complaint by an employee to an employment tribunal’. Again, there are exceptions to the rule.

    Under s.32 of the Employment Act 2002, the employee must pursue his or her complaint through the grievance procedure before proceeding through the employment tribunal.

    Again, under the Employment Act, there will be a reduction to the compensation awarded in the event that the procedure is not followed wholly or mainly due to the act of the employee. This will range from 0-10% depending upon the circumstances of the case. Interestingly, Schedule 3 lists the type of claims that fall within the range of complaints and will include sex and race discrimination, disability discrimination and unauthorised deduction of wages.

    A like-for-like provision exists for where the fault lies with the employer.

    Naturally, the tribunals will be asked to adjudicate on a number of issues to clarify matters. How much information needs to be given about the initial grievance? Is there a breach of European law? What constitutes a grievance?

    Employers seeking guidance about the new regime should consult the Code of Practice issued by ACAS.


    Checklist

    Employers should take note of the following checklist:

    • Ensure that company handbooks are up-to-date and set out clearly the position on disciplinary and grievance procedure. Ensure that they comply with the new regime.

    • Read the Code of Practice issued by ACAS and make representations to them, if you are so inclined, by 14 April.

    • Check the updates on the DTI website and consider taking legal advice from an employment law expert – prevention may be cheaper than cure!
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    Thank you.