Employment Law update: Key changes employers need to prepare for

Written by James Tait, employment lawyer and Partner at Chamberlain Hamnett

The pace of employment law reform continues to accelerate. Over the last few years, we have become accustomed to regular legislative change, but recent developments represent a clear shift towards increasing employee protections and placing greater obligations on organisations.

The changes introduced in October are not simply technical amendments. They require employers to take proactive action, review policies and training, and carefully consider workplace culture.

Looking ahead, further reforms are on the horizon, and businesses should be planning now rather than waiting for legislation to take effect.

The new duty to prevent sexual harassment

The most significant change which will be introduced at the end of October will be the new proactive duty on employers to take “all reasonable steps” to prevent sexual harassment in the workplace.

Historically, employers could defend harassment claims by demonstrating that they had taken reasonable steps to prevent harassment occurring. The position has now changed. Employers are under a positive obligation to anticipate risks and take preventative action before incidents arise.

This means that having an equality policy sitting on a shelf is unlikely to be sufficient.

Practical measures you should now be considering include:

• Reviewing anti-harassment and dignity at work policies.
• Delivering regular and meaningful training to managers and staff.
• Carrying out risk assessments identifying situations where harassment could occur.
• Implementing clear reporting procedures.
• Ensuring complaints are investigated promptly and appropriately.
• Considering risks posed by customers, clients, contractors and other third parties.

Where an employee succeeds in a sexual harassment claim, an Employment Tribunal can increase compensation by up to 25 per cent where the employer has failed to comply with this new preventative duty – and remember that discrimination claims are not subject to any maximum compensation cap.

In my experience, many employers have focused heavily on policies, but less on culture. Tribunals are increasingly scrutinising whether training is current, whether complaints are taken seriously and whether management behaviour reflects the policies being relied upon.

The key question is no longer "What happens if harassment occurs?" but "What did the organisation do to prevent it from occurring in the first place?"

What is coming up in January?

At present, most Employment Tribunal claims must be brought within three months less one day of the act complained of.

That short limitation period has traditionally provided employers with a degree of certainty. Whilst three months can pass quickly for employees, employers know that after a relatively short period many potential claims are no longer capable of being pursued.

The Government has confirmed its intention to extend the limitation period for most Employment Tribunal claims from three months to six months. The practical effect of this change should not be underestimated.

Many employees who currently miss the Tribunal deadline may remain able to bring claims. Matters that might previously have faded away following a difficult dismissal, disciplinary process or redundancy exercise may remain live for twice as long.

Employers are likely to see:

• More Tribunal claims being issued.
• More grievances being raised after employment has ended.
• Longer periods of uncertainty following dismissals.
• Greater pressure to retain documentation and witness evidence.
• Increased legal costs associated with defending historic allegations.

From a practical perspective, managers' memories fade and witnesses move on. Extending limitation periods inevitably makes defending claims more difficult because evidence often becomes less reliable over time. Businesses will therefore need to become more disciplined in their record keeping.

Contemporaneous notes, investigation reports, performance records and consultation documents are likely to become even more important than they already are.

The removal of the unfair dismissal compensation cap

The reform which is causing the greatest concern amongst many employers is the removal of the statutory cap on compensatory awards for unfair dismissal.

Currently, employees bringing ordinary unfair dismissal claims face a statutory cap on the compensatory award. Whilst discrimination and whistleblowing claims have long carried uncapped compensation, ordinary unfair dismissal claims have historically presented a more predictable financial risk with the maximum award in most cases being a year’s gross pay.

Without that cap, losses will be calculated by reference to actual financial loss in the same way as many discrimination claims are currently assessed.

The consequences could include:

• Significantly higher settlement values.
• Increased Tribunal awards.
• Greater legal spend.
• Increased use of settlement agreements.
• More robust challenges to dismissals by employees.

For businesses facing restructuring exercises, redundancy programmes or senior exits, this could have a profound impact on decision making.

The commercial reality is simple. If dismissal becomes substantially more expensive, employers will need to devote more time and resources to ensuring that procedures are fair and defensible.

Why this matters for senior employees

One of the areas where these reforms are likely to be felt most acutely is in disputes involving executives, partners and senior managers.

Many of my clients already find themselves balancing allegations of unfair dismissal alongside bonus disputes, share schemes, LTIPs, partnership arrangements and restrictive covenant issues.

Where an uncapped unfair dismissal regime exists, the negotiating dynamics change considerably. Employees will be less willing to reach early settlements, and employers will find themselves exposed to larger much claim, particularly where senior individuals are involved.

What you should be doing now

Even though not all reforms have yet taken effect, you really do need to start preparing now.

1 Review dismissal procedures

Ensure disciplinary, capability and redundancy procedures are legally compliant and are being followed consistently. Policies are of limited value if managers ignore them in practice.

2 Train managers properly

Most Tribunal claims arise not because the business intended to act unlawfully but because a manager made an avoidable mistake.

It’s not longer just “something for HR” – Tribunals expect managers to know what is going on because they are the eyes and ears of the organisation. Manager training remains one of the most effective forms of risk management available to employers.

3 Improve documentation

The quality of documentation often determines the outcome of Employment Tribunal litigation. Managers should be encouraged to create accurate contemporaneous records and retain them appropriately. This becomes even more critical when claims can be brought six months after the end of all of the relevant events.

4 Reassess settlement strategies

Where litigation risk increases, settlement strategies may need to evolve. Employers should consider whether earlier use of protected conversations and settlement agreements offers a more commercially sensible solution in appropriate cases.

5 Budget for increased risk

Employment disputes may become substantially more expensive over the next few years.

Businesses should ensure that boards and senior leadership teams understand the potential financial implications of these reforms.

Final thoughts

The employment law landscape is moving firmly in the direction of enhanced employee protection.

A doubling of limitation periods and the removal of the unfair dismissal compensation cap represents one of the most significant shifts in employment litigation risk for a generation.

For employers, the message is simple: now is the time to review procedures, train managers and ensure that employment decisions can withstand scrutiny. Those who prepare early are likely to be in a significantly stronger position than those who wait until the reforms arrive.

James Tait is Partner at Chamberlain Hamnett with 26 years’ experience advising employers, senior executives and business owners on all aspects of employment law and workplace disputes