It has recently been announced that from April 2014, Tribunals will have the power to order employers who lose a tribunal claim to pay a financial penalty of up to £5,000.
This will not however be an automatic penalty for a losing employer. Instead, the Tribunal will have discretion to impose penalties where the employer’s breach of employment law has “one or more aggravating features”. Unhelpfully the meaning of this phrase has not been defined but the Government has suggested that it is likely to cover the situation where “the breach involves unreasonable behaviour, for example where there has been negligence or malice involved”.
If a penalty is imposed, rather than going to the individual(s) who brought the claim, the fine will go to the Secretary of State and the Consolidated Fund. If an employer pays the penalty within 21 days, it will get a 50% discount. Before imposing a penalty, the Tribunal will have to have regard to the employer’s ability to pay.
Whilst the introduction of penalties is likely to be seen by employers as another piece of pro-employee legislation, it redresses the balance somewhat following the introduction of tribunal claim fees which is likely to discourage some claims. There is some early evidence that the number of claims issued may be dropping.
This does mean though that once a claim has been issued by a Claimant the potential financial exposure to employers from the claim will be greater. From April 2014, employers could face not just the risk of losing and having to pay compensation to the winning party but they could also face a financial penalty of up to £5,000 plus being ordered to reimburse the Claimant for the (not inconsiderable) fees they have paid to the Tribunal to pursue the claim.
Even the best run organisations will sometimes receive a Tribunal claim and will occasionally lose such a claim despite the employer’s best efforts to comply with the law. Those employers, who have taken legal advice on difficult dismissal situations, should have nothing to fear from this change in the law. However, it seems that the Tribunals are being encouraged to take a zero tolerance approach to employers who flagrantly breach the law, either deliberately or negligently (where they have not taken the trouble to check the process they should be following). There is a real risk that this new law will hit small employers (who do not have HR departments) hardest. It may therefore pay for such organisations to invest in some professional advice at the outset to avoid paying the penalty further down the line.
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