PART 2: TRIBUNAL REFORM

Costs and expenses

57.     The Employment Tribunals Act 1996 authorises employment tribunal procedure regulations to provide for the award of costs or expenses (costs are known in Scotland as expenses). The regulations provide that where in the opinion of the tribunal a party has in bringing the proceedings, or a party or his/her representative has in conducting the proceedings, acted vexatiously, abusively, disruptively or otherwise unreasonably, then the tribunal shall consider whether to award costs against that party and may do so. Similarly, costs may be awarded where the bringing or conducting of the proceedings by a party has been misconceived (which includes having no reasonable prospect of success). The regulations do not give tribunals a general power to award costs against the losing party, in the absence of these factors. There will be no change to the circumstances in which the tribunal may award costs against such a party.

58.     As far as the Employment Appeal Tribunal is concerned, the power in the Employment Tribunals Act 1996 to make rules dealing with costs and expenses is limited to cases where the proceedings were unnecessary, improper or vexatious or there has been unreasonable delay or other unreasonable conduct in bringing or conducting the proceedings.

59.     In its consultation document 'Routes to Resolution', the Government suggested "all concerned - users, their representatives and the tribunals - must play their part in ensuring that time wasting is minimised." Specifically, the document proposed giving the tribunals new powers to make orders for wasted costs against representatives are acting on a for profit basis; changing the presumption on costs; and allowing any costs awarded to include the time spent preparing the case. Currently employment tribunals cannot include in any award an amount to reflect time spent by a party preparing for the employment tribunal claim and there is no power to make an award directly against a representative, where his/her behaviour has been found inappropriate

Section 22: Awards of costs or expenses against representatives

60.     This section extends the scope for making employment tribunal procedure regulations set out in section 13 of the Employment Tribunals Act 1996 (costs and expenses). It does this by substituting subsection (1) of section 13 with four subsections.

61.     Specifically, the amendment gives the Secretary of State power by regulations to authorise tribunals to make awards of costs directly against a party's representative, because of the way the representative has conducted the proceedings. The award could mean that the representative may not recover his/her fees from the client, or that he/she has to pay costs incurred by the client, or costs incurred by the other party, as a result of his/her misconduct. It is intended that the regulations will include safeguards to allow the representative the opportunity to put his/her case on any proposed award. The regulations will also be able to define "representative" so as to exclude the not-for-profit sector from wasted costs orders.

Section 22: Payments in respect of preparation time

62.     This section also inserts a new section 13A into the Employment Tribunals Act 1996. It gives the Secretary of State power by regulations to authorise tribunals to order that one party make a payment to the other in respect of the time spent in preparing the other party's case. It is not intended that the parties should have to provide detailed evidence of the actual time they have spent preparing for a case, but that the tribunal should make an assessment based on guidelines to be set out in the Employment Tribunal Rules of Procedure. It is intended that the new awards could be made only in the circumstances in which a costs award may be made at present, that is, where the party's case is misconceived, or they or their representative have behaved vexatiously, abusively, disruptively or otherwise unreasonably.

63.     The new section 13A provides that the regulations on costs and preparation time must include a provision that the tribunal may not make an award of both costs and preparation time in favour of the same person in the same proceeding.

64.     The amendments made by section 22 also contain specific powers for the procedure regulations to allow tribunals to take into account a party's ability to pay when making a costs or preparation time award. This is because a recent Court of Appeal decision in Kovacs v Queen Mary & Westfield College and the Royal Hospitals NHS Trust ruled that a tribunal may not take into account a party's ability to pay when making a costs award. The Government believes that the tribunal should have the discretion to consider a party's means, where appropriate. This will be given effect in the regulations.

Section 23: Costs and expenses in the Employment Appeal Tribunal

65.     This section replaces the existing section 34 of the Employment Tribunals Act 1996, which deals with costs in the Employment Appeal Tribunal. The power is aligned with the power to make costs rules for employment tribunals. Thus the power to make rules for the EAT is no longer limited to certain types of case, there is provision for wasted costs orders against representatives and specific provision for taxation or detailed assessment of costs. The rules will set out the limited circumstances in which costs orders can currently be made in the Employment Appeal Tribunal (see paragraph 58 above). The new section 34 also provides for the Employment Appeal Tribunal rules to enable the EAT to take into account a party's ability to pay when making a costs award.

Miscellaneous

Conciliation

66.     The Advisory Conciliation and Arbitration Service's (ACAS) present role is, among other things, to provide an independent and impartial service to prevent and resolve disputes between employers and employees. ACAS conciliators currently have a statutory duty to promote settlements of a wide range of employment rights complaints, which have been made or could be made to an employment tribunal. Section 24 establishes a fixed period of conciliation for claims to the employment tribunal.

Section 24: Fixed period of conciliation

67.     At present, ACAS has a duty to continue to seek a conciliated settlement between the employer and employee for as long as the two parties to the dispute want to carry on. This can sometimes lead to an ACAS-brokered settlement being reached at the very last moment before the case comes before an employment tribunal. The Government believes that on occasions this is the result of the parties being unwilling to focus on the importance of agreement until the reality of the tribunal hearing is upon them. But delayed settlements cost time and resource to the parties involved, to ACAS and to the tribunal services. The objective, therefore, is to introduce a system that encourages earlier conciliated settlement where this is possible, without preventing last minute settlements if there is good reason for them.

68.     This section therefore provides a power for the employment tribunal procedure regulations to introduce a fixed period for conciliation. This is achieved by amending section 7 of the Employment Tribunals Act 1996 to allow for regulations to be made enabling the postponement of the fixing of a time and place for a hearing in order for the proceedings to be settled through conciliation. It is intended that the regulations will set out the length of the conciliation period and will provide for its extension only in cases where the conciliator considers that settlement within a short additional timeframe is very likely.

69.     The section provides that ACAS's duty to conciliate cases reverts to a power to conciliate after the conciliation period has ended. This preserves ACAS's conciliation role in all of the jurisdictions for which it currently has a duty to act, but means that once the conciliation period is over, this duty becomes a power. The effect will be that once the conciliation period is over, the conciliation officer can judge whether to continue to conciliate the case, or to pass it back to the Employment Tribunal Service (ETS) so that a time and place can be fixed for a hearing.

Section 25: Power to delegate prescription of forms etc.

70.     Section 7(2) of the Employment Tribunals Act 1996 provides that proceedings must be instituted in accordance with employment tribunal procedure regulations. Currently, the main Employment Tribunal Rules of Procedure stipulate that tribunal applications must be in writing and include the applicant's and respondent's details and the grounds on which relief is sought. A respondent's notice of appearance must be in writing and must give the respondent's details, state whether or not he intends to resist the application and if so, the grounds for doing so. The ETS produces two forms, one for use as an originating application (IT1) and one for use as a notice of appearance (IT3). However, the forms have no particular status under the rules.

71.     This section amends section 7 of the Employment Tribunals Act 1996 by inserting a new subsection (3ZA). It provides a power for the rules to delegate to the Secretary of State the authority to prescribe a form, which is required to be used to institute proceedings in a tribunal. Alternatively, the section enables the Secretary of State to include the requirements of the form partly in the rules and partly outside the rules. (Existing powers would enable a form to be prescribed in the rules themselves). The same powers apply in relation to the appearance to be entered by the respondent to the proceedings. It is anticipated that the mandatory form and notice will provide more information to the tribunal, and to the other side, at an earlier stage. This will help the tribunal in deciding whether the application would benefit from a pre-hearing review, preliminary consideration or case management hearing, and the length of time required for the hearing. An assessment of the strength of the other side's case could also be made, which could encourage settlement. The section also enables the rules to delegate to the Secretary of State the power to prescribe that certain documents (such as the written statement of particulars of employment) must accompany either form.

72.     Finally, the section enables the rules to include provision to ensure the publication of any requirements prescribed by the Secretary of State by virtue of this section.

Section 26: Determination without a hearing

73.     This section provides for employment tribunal procedure regulations to authorise cases to be determined without a hearing in the circumstances prescribed by the regulations. It is intended that the circumstances in which a case may be determined in this way would be where both parties have given their consent, by signing a form waiving their rights to an oral public hearing, following independent advice. This would be subject to the tribunal deciding that there should be an oral public hearing notwithstanding the parties' agreement to the contrary. This is achieved by substituting a new subsection (3A) for the existing subsection (3A) in section 7 of the Employment Tribunals Act 1996.

Section 27: Practice directions

74.     Unlike the President of the Employment Appeal Tribunal (EAT), the Employment Tribunal Presidents do not have the power to issue practice directions. That was confirmed by the EAT in the case of Eurobell Holdings Plc v Barker. However, the EAT noted that it was undesirable that employment tribunals should adopt different practices and procedures in different regions and that, if need be, the President should be given statutory power to make practice directions which apply countrywide. It was noted in the 1994 Green Paper 'Resolving Employment Disputes - Options for Reform' that some tribunal chairmen favoured the issuing of formal practice directions by Tribunal Presidents, to guide them on how discretions ought to be exercised. Examples of such discretions include rule 4 of the main Employment Tribunal Rules of Procedure, which says that a tribunal may issue directions, or rule 17 where it may extend certain time limits.

75.     By providing Tribunal Presidents with the power to issue practice directions, the Government's objective is to ensure that tribunals adopt a consistent approach to procedural issues and to the interpretation of their powers under the Employment Tribunal Rules of Procedure. It is believed that such consistency will lead to an increase in confidence among users of the tribunal system that cases are being dealt with in a uniform way regardless of where they are heard.

76.     This section inserts a new section 7A into the Employment Tribunals Act 1996, giving a power to amend the employment tribunal procedure regulations so that Tribunal Presidents can issue practice directions. There are currently two Presidents in Great Britain - one for England and Wales and one for Scotland. The Presidents will be able to issue these directions in respect of Employment Tribunal Rules of Procedure and the exercise by tribunals of powers under them. In addition, the procedure regulations may contain provisions about securing compliance with practice directions and their publication. The procedure regulations may also refer to provision made or to be made by practice directions, instead of making such provision themselves.

Section 28: Pre-hearing reviews

77.     Employment tribunals may currently carry out preliminary considerations (pre-hearing reviews) and if it is found at the review that the party's case has no reasonable prospect of success, a deposit of up to £500 can be required as a condition of proceeding to a full hearing. Only on refusal to pay the deposit can the case be struck out. Although rule 4 and 15 of the main Employment Tribunal Rules of Procedure permits the strike out of proceedings in certain circumstances, it is arguable that these do not apply to the pre-hearing review stage.

78.     At present the power to strike out is limited and rarely used. This section therefore clarifies that rules may permit tribunals to strike out a case at the pre-hearing review on grounds which do not go beyond those applicable to other stages of proceedings. Such grounds include when the originating application or notice of appearance (or anything in it) is scandalous, misconceived or vexatious. The objective is to limit the number of such cases reaching a full hearing by confirming the tribunals' power to strike cases out at this stage in the process. The aim is to improve the efficiency of case handling and restrict the amount of time that tribunals spend on considering cases which are obviously misconceived etc. However, the power to demand a deposit remains and is likely to continue to be the main sanction used against weak cases at pre-hearing reviews.

79.     Examples of cases where it could be appropriate to exercise the strike out power include:

• Cases in which the facts have already been litigated and the applicant has no fresh or different evidence but insists on pursuing the case;

• Cases where the facts are not in dispute, but the interpretation placed on those facts by one party is clearly wrong;

• Cases in which a party's application is not itself sufficient to lead to a successful outcome for him, and the party has stated at the pre-hearing review that no further evidence or witnesses would be called.

80.     As the sanctions of imposing a deposit or making a costs order are also available, the power to strike out will only be used where it is appropriate. Since evidence is not considered at the pre-hearing review, the strike-out option will only be appropriate in cases where the tribunal is satisfied that there is no need to consider the evidence, or where there is no conflict of evidence.

81.     This section amends section 9 of the Employment Tribunals Act 1996. It works by removing from section 9(1)(a) the implication that pre-hearing reviews are "preliminary" hearings, and therefore necessarily followed by a full hearing. It makes it clear that a pre-hearing review will not necessarily be preliminary, so that the powers which the tribunal can exercise in connection with the pre-hearing review may include a power to strike out the claim. It also provides that a tribunal may not strike out at a pre-hearing review on grounds which do not apply outside such a review

PART 3: DISPUTE RESOLUTION ETC.

Statutory Procedures

82.     Around 90% of larger employers have disciplinary and grievance procedures in place. Most are written and included directly or indirectly in employees' contracts. Under a disciplinary procedure, an employer can complain to an employee about his conduct or performance. Sometimes, such procedures are termed "dismissal procedures" where they deal with complaints or issues that can lead to the dismissal of an employee. Grievance procedures operate in the opposite direction and deal with formal complaints initiated by an employee against his employer.

83.     Under current law, employment tribunals consider the existence and use of disciplinary procedures in unfair dismissal cases. A failure by an employer to use procedures appropriately can result in a determination by a tribunal that a dismissal was unfair. Tribunals must also take account of the ACAS Code of Practice on Discipline and Grievance Procedures and any internal procedures the employer may have, when determining the reasonableness or otherwise of the employer's decision to dismiss. The use of procedures can also affect the size of an award an employee may receive when unfairly dismissed. Under section 127A of the Employment Rights Act 1996, if a dismissal is found to be unfair a tribunal has the power to make a supplementary award of up to two weeks' pay where the employer prevented the employee from appealing against dismissal under the employer's procedure. Conversely, where an employee does not utilise the employer's appeal procedure the tribunal has the power to reduce any award by up to two weeks' pay.

84.     Grievance procedures have no equivalent role under current law and employment tribunals do not generally take their use into account in determining complaints under their various jurisdictions. However, under section 10 of the Employment Relations Act 1999, a worker is entitled to be accompanied by a fellow worker or a trade union official at hearings held under a grievance procedure, provided the grievance is non-trivial in nature. Section 10 also provides for a similar right to be accompanied at hearings during disciplinary procedures.

85.     Section 29-34 will bring in:

• Provisions setting out statutory dismissal and disciplinary procedures (DDPs) and statutory grievance procedures (GPs).

• Powers to make these statutory procedures an implied term of all contracts of employment.

• Provisions to enable tribunals to vary compensatory awards by up to 50% where the employer or the applicant has failed to use the minimum statutory procedures. The provisions contain powers enabling the Secretary of State to specify by regulation how the statutory procedures will apply for these purposes. These provisions will in effect replace section 127A of the 1996 Act, which will be repealed.

• Provisions preventing certain categories of complaint from being presented to tribunals until Step 1 of the grievance procedures has been completed and at least 28 days have elapsed thereafter.

• Powers to extend, and to enable employment tribunals to extend, the time limits within which claims need to be made, to allow the relevant statutory procedures to be completed.

• Provisions which will make it unfair for employers to dismiss an employee without meeting their obligations under the relevant DDP. They will also ensure that tribunals disregard any failures by an employer to take other procedural actions outside the framework of the statutory procedure, if taking such additional procedural actions would have had no effect on the decision to dismiss.

• The affirmative resolution procedure applies to the making of all regulations under these sections.

86.     A large proportion of complaints to employment tribunals involve employers without any internal disputes procedures. Many occur where employers or applicants have failed to use whatever procedures exist. Litigation to resolve employment disputes is costly and can often weaken employment relations and the employability of applicant workers. These provisions aim to encourage parties to avoid litigation by resolving differences through the proper use of internal procedures. They will, in effect, require all employers to have minimum procedures and give incentives to both employers and employees to use them.

• Section 29 and Schedule 2 - Schedule 2 specifies the statutory DDP and GP procedures. Under both types of procedures, there is a 3 step standard procedure involving meetings to consider complaints and appeal processes. The Schedule also specifies a short modified version of the DDP and the GP involving just two written steps. Section 29 introduces the Schedule and contains provisions enabling the Secretary of State to amend these statutory procedures by order, following consultations with ACAS.

• Section 30 makes it an implied term of every contract of employment between an employer and an employee that a statutory procedure is to apply in circumstances specified by the Secretary of State in regulations. The section prevents employers and employees from contracting out of this implied term.

• Section 31 and Schedule 3 - Section 31 contains provisions requiring employment tribunals to vary compensatory awards for failures to use the statutory procedures before applications are made to employment tribunals. Unless there are exceptional circumstances, the variation must range between 10% and 50% of the award. However, in exceptional circumstances where a variation on that scale would be unjust or inequitable, tribunals may vary the award by less than 10% or they may decide to make no variation at all. Where an award falls to be adjusted under this section and section 38 the adjustment under this section is to made first. Schedule 3 lists the jurisdictions covered by the section. Together, the listed jurisdictions cover the overwhelming majority of tribunal claims. Section 31 also gives powers to the Secretary of State to add or remove jurisdictions from the list. The section also gives the Secretary of State powers to make provision as to how the statutory procedures will apply for these purposes. These powers enable the Secretary of State in particular to specify circumstances where an employee or an employer is to be treated as having complied with a statutory procedure, even though none or only some of the required actions have been taken. In other words, the regulations could provide for exemptions from some of the requirements of the statutory procedures in particular circumstances.

• Section 32 contains provisions preventing certain categories of complaint from being presented to tribunals until Step 1 of the grievance procedures has been completed and at least 28 days have elapsed thereafter. The section also gives the Secretary of State powers to make provision about the application of the grievance procedure and what constitutes compliance.

• Section 33 gives the Secretary of State the power to make regulations about the time limits for beginning certain proceedings in an employment tribunal. In particular, regulations may cover extending the time for beginning proceedings, the exercising of discretion to extend the time for the beginning of proceedings and treating proceedings begun out of time as having been begun within time. The purpose of the powers is to allow time for the relevant statutory procedure to be completed before a complaint has to be presented to a tribunal.

• Section 34 - Currently, if an ex-employee complains to a tribunal that he has been unfairly dismissed, then the former employer needs to meet two tests in order to show that the dismissal was fair. First, he must show that the reason for the dismissal was one of the five reasons, which count as potentially fair reasons for dismissal (as set out in sections 98(1) and (2) of the Employment Rights Act 1996). Second, the dismissal itself must be reasonable in the circumstances. This second point has given rise to a large amount of complex and sometimes controversial case law around the question of whether or not the employer has to have followed internal disciplinary procedures in order to establish reasonableness. This culminated in a House of Lords decision (Polkey vs A E Dayton Services Ltd, 1988) reversing earlier case law which said, in effect, that if an employer failed to follow appropriate disciplinary procedures before dismissal, then he generally cannot justify this on the basis that it would have made no difference to his decision to dismiss if that procedure had been followed. It has been argued that this judgment, by removing the so-called 'no difference' test, forces tribunals to put undue weight on questions of disciplinary procedure, rather than on the actual reasons for the dismissal.

• The Government consulted in the 'Routes to Resolution' document and in its reply to the consultation, the Government confirmed that in the light of representations it had received, it intended 'to act to ensure that tribunals disregard procedural mistakes, beyond the statutory minimum procedures, in unfair dismissal cases, if following full procedures would have made no difference to the outcome.'

• Section 34 achieves this by inserting a new Section 98A into the Employment Rights Act 1996. The new section contains provisions that oblige tribunals to disregard failures by employers to take procedural actions outside the framework of the relevant DDP, provided that following such additional procedural actions would have had no effect on the decision to dismiss. The new section would, however, make it unfair for an employer to dismiss an employee without meeting their obligations under the relevant DDP, and provides that an employee will generally receive a minimum of four weeks pay as compensation where they are found to have been unfairly dismissed and the DDP has not been complied with.

Employment Particulars

Sections 35-38: Changes to written statements of terms and conditions

87.     Currently, an employer is obliged to provide a new employee with details of their main terms and conditions not later than two months after the employee starts work with the employer. The details, which are set out in sections 1 to 7 of the Employment Rights Act 1996, must cover a number of specified areas such as the name of the employer, the date the employment began and details of disciplinary and grievance procedures applicable to the employee. A further statement must be served if the details change. On the question of disciplinary and grievance procedures, employers with fewer than twenty employees need currently only say to whom the employee can apply for redress of any grievance relating to his employment and the manner in which such an application should be made. Where employees are not issued with a statement of initial employment particulars, or a subsequent change, they can apply to an employment tribunal to determine which particulars ought to have been included or referred to. There is currently no other sanction for failure to provide the required statement.

88.     The Government explained in the 'Routes to Resolution' consultation document that it considers the written particulars of the terms and conditions of employment ("the written statement") to be a record of the basis of the employment relationship, and the first point of reference when disputes arise. As such, it has a key role to play in better dispute resolution. A number of changes are therefore to be made to the legislation relating to the written statement, with the object of:

• ensuring that all employers recognise the value of the statement to both themselves and their employees;

• making the content of the statement consistent across employers of all sizes;

• ensuring the statement reflects the Act's requirements for minimum statutory internal discipline and grievance procedures;

• creating a more effective penalty for failing to supply a statement; and

• providing more flexibility to employers in how they go about providing the required statement.

89.     To achieve these objectives, sections 35 to 38 make the following changes:

• Section 35 provides for the part of the written statement dealing with disciplinary and grievance matters to cover the procedure which applies when an employee is dismissed or disciplined, whereas at present it must only describe what he must do if he is dissatisfied with disciplinary action taken against him. This ensures that all stages of the new minimum disciplinary and dismissal procedures must be set out in the written statement.

• Section 36 removes the current exemption, relating to the need for details of disciplinary rules and procedures, for employers with less than 20 employees. This means that all employers of whatever size will have to mention their disciplinary rules and the new minimum procedures in the written statement.

• Section 37 provides flexibility for employers by allowing particulars included in a copy of the contract of employment or letter of engagement given to the employee to form, or to form part of the written statement; this reduces the need for employers to duplicate existing documents. It also enables such documents to be given to the employee before his employment begins.

• Section 38 provides for employment tribunals to award compensation to an employee where the lack, incompleteness or inaccuracy of the written statement becomes evident upon a claim being made under specified tribunal jurisdictions (which cover the main areas such as unfair dismissal, and all types of discrimination - see Schedule 5). This is done by requiring the tribunal to increase any award made against the employer in respect of the complaint under the other jurisdiction by 2 or 4 weeks pay, or to award 2 or 4 weeks pay where compensation is not a remedy available for the particular complaint or where it is not the remedy that the tribunal chooses. Whether to award 2 or 4 weeks pay is a matter for the tribunal's discretion. No award need be made or increased if the tribunal considers that to do so would be unjust or inequitable.

90.     For the most part these changes are brought about by means of amendments to the current provisions relating to written statements.