The employment maze

How can accountants who employ staff, and their SME business clients, trace a safe path through the maze? Martin Edwards reports

Scarcely a day goes by without a press report of a high profile employment tribunal case or a fresh proposal to expand the frontiers of employment law. Over 115,000 tribunal claims were made in 2003-04, and many more disputes are settled - often expensively - through compromise agreements. Small wonder that there is talk of a 'compensation culture'. Even organisations with large specialist human resources departments regularly find themselves hauled before employment tribunals, often at great cost. How can accountants who employ staff, and their SME business clients, trace a safe path through the maze?

Merely applying common sense when employment problems arise is not enough. Take, for instance, the new statutory disciplinary and dismissal procedures and grievance procedures that came into effect on 1 October 2004. Their purpose is to reduce the number of tribunal claims and to encourage the resolution of disputes in-house. The rules supposedly do little more than codify good practice. In reality, they represent the most significant development in dismissal law since the right to claim unfair dismissal was introduced in 1972.

The new procedures apply to all employers, however small. The standard disciplinary and dismissal procedure requires an employer who contemplates dismissing an employee, or taking other disciplinary action, to write to the employee setting out the relevant conduct or capability or other circumstances in question. The employer must invite the employee to a meeting, which the employee must take all reasonable steps to attend. After the meeting, the employer must inform the employee about any decision and of his right to appeal. If the employee wishes to appeal, the employer must invite the employee to a further meeting, to be heard by a more senior manager where possible. After the meeting, the employer must inform the employee of the final decision.

There is a simpler, 'modified' version of the procedure, but it will not often be safe to use it. An employee wishing to raise a grievance must comply with a standard procedure which roughly mirrors the steps in the standard disciplinary procedure. There is also a modified grievance procedure, e.g. for use where the employee has already left the job.

The devil of the new procedures is in the detail. They apply to a very wide range of dismissals - including, unexpectedly, individual redundancies and cases where a fixed term contract expires. An employee must be given 'reasonable' time to prepare for the meeting, but disputes about what is 'reasonable' are bound to arise. Employers are given no leeway for minor errors in applying the procedures. Yet the consequences of a breach of the rules are punitive. Failure to follow the statutory disciplinary and dismissal procedures will normally render a dismissal automatically unfair and will usually lead to increased compensation for the employee of between 10% and 50%. As well as leading to higher tribunal awards, these penalties will drive up the cost of compromising employment claims.

The scope of employment law keeps widening. 'Workplace stress' claims are on the increase and employers need to be mindful of recent Health & Safety Executive guidelines designed to ensure that workers' health is safeguarded. When recruiting staff or dealing with day-to-day issues in the workplace, employers also need to avoid falling foul of the law on equal opportunities. As well as discrimination on the grounds of race, sex and disability, discrimination on the grounds of sexual orientation or religion and belief is now prohibited. The first successful claim of religious discrimination saw a bus cleaner awarded £10,000 after he was sacked for taking extended leave to make a pilgrimage to Mecca. Meanwhile, many employers are having to get to grips with the often complicated rules associated with maternity rights, paternity rights, adoption leave, parental leave, dependant care leave and the right to request flexible working. Following the rules with care should improve employee morale, but is not cost-free.

As if all this were not enough, the Government is committed to implementing a European Directive on age discrimination by 2006. Although the DTI's current proposal is for there to be a default retirement age of 65, there will also be right for employees to request work beyond a compulsory retirement age, and employers will have a duty to consider such requests. The appropriateness of keeping a retirement age is also to be reviewed after five years.

Larger SMEs will be caught by the new rules on information and consultation. The new law applies to companies with more than 150 staff from April 2005, those with more than 100 employees from 2007 and those with 50 or more from 2008. The rules are again derived from a European Directive and require employers to consult staff on business changes or strategies that could impact on the workforce. Employers must set up arrangements to facilitate consultation with staff if more than 10% of the staff ask for these to be introduced.

Employers anxious to manage efficiently, yet within the law, need to take stock. There are no easy short-cuts. For example, insuring against the risk of employment tribunal claims involves complying with the small print of the policy, which sometimes constrains management unacceptably. A better strategy involves auditing employment contracts and procedures to make sure that they comply with the legislation but, crucially, give management a sensible degree of flexibility and discretion in complying with the statutory requirements. Care needs to be taken in using 'standard' documents. In many businesses, the terms and conditions of key employees need to be tailored to the job and individual in question. This is especially the case with confidentiality and 'garden leave' provisions and restrictive covenants designed to protect the employer from unfair competition after the employee leaves. If the covenants are unskilfully drafted they will be of no value. But skilfully drafted covenants can provide valuable safeguards against the 'poaching' of clients, colleagues and even target clients. Social change has led to a strengthening of employee rights unimaginable even 20 years ago. Well-advised employers will make sure that complying with the law enhances, rather than hinders, the day-to-day conduct of their business.

Martin Edwards is head of employment law at Mace & Jones, solicitors, Liverpool.