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Enterprise and Regulatory Reform Act 2013 Update

New Year = New Fines in Employment Law
The Enterprise and Regulatory Reform Act 2013 (ERR ’13) was introduced as a Bill to the House of Commons on 23 May 2013, and received Royal Assent on 25 April 2013.
Section 16 of the act, which is due to come into force on 6 April 2014, gives employment tribunals the power to impose a fine of up to £5,000 on employers who lose their case at an employment tribunal in circumstances where there is at least one ‘aggravating feature’ to the case. The financial penalty is payable to the Secretary of State and not the victorious claimant in the case, who may have been awarded either compensation or a non-financial remedy.
This means that the tribunal will have the sole power to impose a financial penalty in addition to ordering the respondent to pay compensation to the claimant, provided there is an aggravating feature. The legislation, however, is vague in defining behaviour or circumstances which constitute an aggravating feature. It will be up to the tribunal, therefore, to look at the facts of the case and interpret them accordingly to decide if any behaviour on the part of the employer amounts to an aggravating feature. Such a feature is likely to incorporate circumstances where the breach complained of includes some form of unreasonable behaviour related to the breach of the employment right, for example negligence.
The introduction of this provision is to ensure that all employers fulfil their obligations in respect of their employee’s employment rights. The target is for the fines to act as a deterrent to reduce deliberate and repeated breaches of employment law on the part of employers, focussing on deliberate, malicious or negligent behaviour, and not honest mistakes.
If the financial penalty is imposed, the amount payable is linked to the award in compensation. More specifically, the financial penalty must be 50% of that compensatory award, subject to a minimum level of £100 and maximum level of £5,000. It must be noted that fines will also apply in circumstances where the tribunal has imposed a non-financial remedy i.e. reinstatement of the employee to their role. For example, the tribunal may decide to give an employee their job back and still ask an employer to pay a fine of between £100 and £5,000 to the treasury, on the basis that the employer lost the case and there was an aggravating feature to the circumstances. This makes it imperative for employers to ensure all matters, in particular employee disciplinary proceedings, are dealt with openly, fairly and appropriately and within the law at all times.
In multiple claims where there is more than one claimant, the tribunal will have discretion as to whether to impose a financial penalty at all, and will not be bound to impose a minimum of £100 per claimant/employee. If the tribunal does decide to impose a penalty, then the upper limit of £5,000 per claimant will apply.
There is also provision for a discount should the fine be paid early. The full amount is not payable in circumstances where the employer pays 50% of the penalty within 21 days.
As mentioned above, the sole decider of whether a penalty is imposed rests with the employment tribunal. Before making such a decision it must take account of a number of factors deemed to be relevant. In particular, it must consider the full circumstances of the case, which includes the employer’s size and ability to pay, the duration of the employment law breach founded upon at the tribunal in the instant case, and the behaviour of the employer, employee and any other party involved.
It is thought that the new provisions might encourage employers to settle matters prior to a full and final hearing, therefore avoiding arguably unnecessary expense being incurred. The risk and cost of a full hearing may put employers off, especially if there is a chance of a further £5,000 penalty. Employers might feel aggrieved at the introduction of this provision, arguing it is an exertion of undue pressure which forces them to settle an unmeritorious claim.
The new fines represent further financial implications for those involved in employment tribunal proceedings, following the introduction of employment tribunal fees in July 2013. Those defending claims must be clear on all the potential costs involved in defending proceedings.
The Government has not indicated why the penalty is payable to the Treasury and not the claimant subject to the aggravating factor. Enforcement of the penalty has also been called into question by the Citizens Advice Bureau, given the number of unenforced tribunal awards presently.
Should employers have concerns regarding whether their polices and procedures are up to date in terms of recent employment law changes please contact a member of our employment law team for a New Year employment law health check. The government has indicated that fines will not be imposed for honest mistakes. Employers may wish to consider taking legal advice in relation to their employment policies and procedures. Demonstrating that advice had been taken, could be a significant step in persuading a Tribunal not to impose a fine as it could be argued that by doing so an Employer was takings its obligations seriously and sought at all times to do the right thing. 
If you require any Employment Law advice please contact a member of the Employment team – Robert Holland or Sarah Shiels.