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Financial Penalties for Employers who Lose at Tribunal

The Enterprise and Regulatory Reform Act 2013 included a prospective power for employment tribunals to order employers who lose claims to pay a financial penalty of up to £5,000 to the Secretary of State, in certain circumstances. Until this week, there was no indication as to when this new power will come into force, but the Government has now confirmed that it will do so in April next year.

The provisions will not apply to claims presented before 25 October 2013. Otherwise, a financial penalty may be ordered to be paid by an employer who loses a claim on or after 6 April 2014 where the employer's breach has "one or more aggravating features".

It is unclear what will amount to "aggravating features", as this is not explained or defined in the current legislation. In its response to consultation in respect of this change, the government suggested that tribunals would impose penalties where "the breach involves unreasonable behaviour, for example where there has been negligence or malice involved". The Government's March 2013 progress report suggests that genuine mistakes by the employer will not be penalised.

The explanatory notes to the Enterprise and Regulatory Reform Bill suggested that it would be for the employment tribunal in a given case to decide whether the conditions for imposing a penalty are met, taking into account any factors that it considers relevant, including the circumstances of the case and the employer's circumstances, which could include "the size of the employer; the duration of the breach of the employment right; or the behaviour of the employer and of the employee". It is clear from the legislation that Tribunals will, at least, have to take account of the employer's ability to pay.

The minimum penalty will be £100 and the maximum will be £5,000. A fine may be levied even were no compensation is ordered to be paid to a claimant. However, if a financial award is made, the penalty must – within the stated limits – be 50% of the amount of the award.

An employer will not have to pay the full penalty, however, if it pays 50% of it within 21 days.

The Government has stated that it is seeking to reduce burdens on business. This measure is in contrast to that. Given litigation risk and the prospect of a potentially heavy fine, employers may feel under undue pressure to settle claims – including unmeritous ones.

Employers can protect themselves against the cost of legal advice, settlements and awards associated with claims, however, with Lanyon Bowdler’s legal expenses cover. You are likely to be surprised at how little cover will cost and how comprehensive it is. No excess is payable under the policy if you act in accordance with our advice – and there is a safety net that, subject to an excess, the policy will still pay out even if you do not follow our advice.

For a no obligation premium indication, simply email the name of your business and its annual turnover figure to me at john.merry@lblaw.co.uk, or ring me on 01952 211010.