Tribunal payouts could soar in employment disputes

Staff in the UK who plan to sue their employer face daunting new procedures. But they will benefit if they can show that employers have failed to follow the new rules, says employment lawyer Clive Howard of the solicitors firm Russell Jones & Walker.

New legislation will dramatically raise the stakes in dismissals and other employment disputes.

Employers who fail to follow new compulsory procedures may be penalised by a big increase in Employment Tribunal payments, whereas employees who slip up may suffer decreased

tribunal compensation.

Financial institutions commonly disregard the existing need for disciplinary hearings

and fair procedure, often opting to pay compensation to "take care" of any

potential legal claims. (Currently the maximum compensatory award is limited to 55,000).

From 1 October this year, the price of "buying out" those claims will be significantly increased.

As a result of the Employment Act of 2002, the relationship between employer

and employee will be subject to two major changes: compulsory discipline

procedures and compulsory grievance procedures.

The new legislation aims to reduce the number of claims which go to tribunals. It might in fact have the opposite effect. It is crucial for both employees and employers to be aware of the changes in order to avoid being penalised later.

The compulsory dismissal and discipline procedures apply when an employer is

"contemplating" dismissing an individual. The procedure must, at the very

least, involve three steps. First, a written statement must be provided to

the employee setting out the concerns of the employer.

Second, a disciplinary meeting must occur and third, if there is an appeal against

a disciplinary decision, this must be followed by a further meeting. Failure

to follow procedures can result in a change in compensation if the case

finally reaches a tribunal; if the failure to follow the procedure is the employer's fault, the compensation ordered by the tribunal can be increased by up to 50%.

If it is the employee's fault (e.g. failure to attend the meetings) then the compensation can be halved.

The new law also effects the relationship with the Financial Services

Authority (FSA). Banks who believe an FSA-approved fund manager, for

example, has performed inadequately may decide to terminate the

individual's employment and pay some compensation.

The procedural requirements under the new law may lead to a report to the FSA having to be submitted in "qualified terms" if the individual is dismissed, or resigns, while under investigation by the institution. The report impacts that individual's ability to obtain approved status for future employment, and may be required even if a termination settlement is reached before the

end of the investigation.

The second half of the new rules covers compulsory grievance procedures,

regarding any complaint by an employee about action which the employer has

taken or is contemplating taking in relation to that employee.

The three-step compulsory procedure parallels that for discipline: here, the

employee must provide a written statement setting out the grievance, and

then there must be an initial review meeting followed by an appeal meeting

if requested.

The consequences of not following these three steps are worse than failing

to follow the compulsory disciplinary procedure: an individual could be

prevented from bringing a claim in the Employment Tribunal altogether. Even

if the claim is allowed to go forward, the successful litigant's

compensation may be halved for failing to follow the procedure.

If it is the employer who is to blame for the absence of procedure, then,

once again, final tribunal compensation can be increased by up to 50%.

There are some circumstances where the grievance procedure does not have to

be followed, for example where a party has been subjected to harassment and

has "reasonable grounds" to believe the procedure would result in further

harassment.

There are two types of claims brought by employees in investment banks and

other financial institutions that are most likely to be affected by the new

laws.

1. If an individual is concerned that their duties, the markets in which

they are allowed to work, or their potential bonus might suffer from

organisational changes, one option could be to walk out and then claim

constructive dismissal. From 1 October, such an individual will first have

to go through the formal grievance procedure, including attending the

meetings. If they do not, they could be prevented from bringing a claim

in the tribunal.

2. Unlawful discrimination; e.g., a trader believes she is being

subjected to sex discrimination because her bonus is very low compared to

that of her male colleagues. Such a concern on the part of the trader falls

precisely within the definition of grievance covered by the compulsory

procedures. She will not be able to argue that there should be no

application of the procedures because she has not suffered harassment (even

though she feels there is sex discrimination).

Employees need to be ready from 1 October to protect their legal

position and potential legal claims. By the same token, if employers are

not ready, or continue to disregard the need to follow fair procedures, the

very same claims that the individuals have previously enjoyed suddenly

become much more valuable.

Both employees and employers stand to suffer significantly should they

ignore the new law.