ERA Explained podcast: Unfair dismissal changes – High risk dismissals and settlement strategies

Katie Wooller. Professional Support Lawyer, Burges Salmon (00:53)

Hi, Katie. How are you doing?

Kate Redshaw (00:57)

And I’m very good. Thank you for asking. And I’m really very excited to be joined by Luke Bowery, who is our head of department. Hi, Luke. Good to have you with us.

Luke Bowery, Head of employment, Burges Salmon (01:05)

Hi, thank you for the invite.

Kate Redshaw (01:07)

Yeah, absolutely. Well, I know you’ve been clamouring to be on this podcast, Luke. So, you know, no mercy for you. I’m going to start the first question. So, we know from tribunal statistics that actually, although the cap is being removed, the average award, the average median award in a tribunal claim for unfair dismissal is £6,746. So in other words, way, way below the maximum that a tribunal could award now, which is 52 weeks’ pay or 123 and just about £123,500, or thereabouts, pounds, whichever is the lower. So already we’re looking at very, very few claims reaching that cap. So, at risk of quashing this podcast at the first blow, is the removal of the compensation cap actually going to make any difference on the ground?

Luke Bowery (02:05)

Not sure I’d have got the call up if it wasn’t, Kate.

Kate Redshaw (02:07)

Yeah, with this very brief episode.

Luke Bowery (02:11)

Indeed. But you do make a good point. I think it is important to put the cap into context. We’re not suddenly going to have all unfair dismissal claims being high value. As you say, the vast majority of claims for ordinary unfair dismissal will come well below the current cap and that will continue to be the case. And I think that is a point the Government have continued to stress throughout this on repeated occasions. However, before our viewers sort of turn off.

My view is that there will be a larger number of claims which will bust the cap. And I think perhaps more importantly, there are going to be various groups of people who will think now more seriously about bringing ordinary unfair dismissal claims than they would have done to date. And that’s because the of risk reward profile is going to change significantly with the removal of the cap.

Kate Redshaw (03:04)

Yeah. Okay. What sort of, I suppose, if we call those high-risk dismissals for the sake of argument, who do you think, what sort of types of employee claim would fall into that? Where should employers be on the lookout?

Luke Bowery (03:17)

In addition to Premier League footballers?

Kate Redshaw (03:19)

Yeah. There’s been a lot of obsession about that hasn’t there?

Katie Wooller (03:22)

World Cup fever.

Kate Redshaw (03:24)

That’s very true, I’d forgotten. Is it right to say I’d forgotten about the World Cup? Probably. That’s probably not me being in touch with what’s happening, is it? Anyway, Luke, to bring this back to some order?  Yeah. Apart from high, apart from Premier League footballers, who else do we think employers might need to be wary of?

Luke Bowery (03:40)

So obvious one, high earners, senior execs, those with remuneration packages, including sort of significant bonuses, other invest incentives, bonus, equity, deferred comp, etc. In some of those cases, real high earners could be busting the compensatory cap with a number of weeks or months salary. I think the ones to think about a bit more though, maybe slightly less obvious, are those with maybe lower base salary, but significant benefit packages. So, think public sector, final salary, pensions, if they get dismissed unfairly, it’s to be difficult to replicate those level of benefits, so ongoing losses. And the other group I think you really need to think about are those who could point to a sustained period of loss following unfair dismissal. So, you know, for example, someone dismissed for conduct in a regulated sector or

Kate Redshaw (04:32)

So is that- are you thinking like career long-

Luke Bowery (04:34)

Well, indeed, it’d be much harder for them to go and get commensurate employment because of that record. The other group for me would be your sort of older or perhaps disabled employees who can legitimately say, it may well take me longer to go and mitigate my loss. So, unlike now, in those circumstances, if the losses go well beyond a year, a tribunal will be able to make awards which truly reflect their losses. And I think just one other sting in the tail, don’t want to be too negative. That’s probably me.

Kate Redshaw (05:06)

Welcome to the podcast.

Luke Bowery (05:09)

Don’t forget the ACAS award uplift.

Kate Redshaw (05:12)

Yes, fair point.

Luke Bowery (05:12)

Failure to comply with the code in disciplinary and performance grievance cases. Award can be increased by up to 25%. If you’re talking uncapped compensation, those numbers can get quite big quite quickly. So those are the sorts of groups of people I think employers should be thinking about.

Kate Redshaw (05:30)

Yeah, no, all very valid points. Katie, time to bring you in here. think you’ve been sitting there ready and waiting. If I’m an employer trying to agree a settlement, and we’ll talk about the logistics of that in a little bit, or if an employee’s taken me to tribunal has brought a claim and I’m trying to settle that claim, what sort of things would an employer try to take into account when working out what actually might be a fair package.

Katie Wooller (06:02)

Yeah, I mean I think the first thing to say is all of these will be quite familiar principles that that our listeners and an audience will have come across before. What’s changing I guess is quite how significant some of these points will be. Essentially, because the stakes are going to be higher. So, as we’ve said at the outset, how a tribunal calculates loss of earnings isn’t going to change. They’re still going to be looking at the date of dismissal and then the loss of earnings from that point up until either the individual obtains commensurate employment, or ought to have done. But once they got to that figure, there may well be some different sort of mechanisms to reduce that amount. I suspect this term will be quite a familiar one, there’s probably one of the most common is called a Polkey Reduction, which is where a tribunal will look at the likelihood that the employee will have got to a fair dismissal anyway, if it had gone through the process fairly.

Kate Redshaw (07:03)

That’s, Polkey, that’s a case, isn’t it? Polkey v Dayton services?

Katie Wooller (07:06)

Oh, good knowledge, good knowledge. But yeah, that’s based on a case where and it’s it can come up quite often in a performance context and we’ve talked about performance, obviously in light of the unfair dismissal reforms quite a lot. So, the idea being that if an employer had gone through perhaps a performance process where they’d established that performance just wasn’t up to scratch, but they hadn’t gone through the full process, they perhaps hadn’t given sufficient time.

Kate Redshaw (07:08)

That’s quite a little…

Katie Wooller (07:34)

A tribunal may come in and say, well, we’re comfortable that that you establish that capability is the reason for dismissal, but really the process you should have given longer to improve.

Kate Redshaw (07:45)

So you’ve satisfied that fair reason for dismissal but your process is wanting.

Katie Wooller (07:50)

Yeah, and that’s the assessment the tribunal’s got to make. It’s got to say had you carried out a fair process, would you have got to the same outcome? If you would, what would the compensation be? So, the compensation in that case could be pay for say the two months that they you should have extended the performance process by. So, it’s quite a complicated fact specifics analysis, but it’s a useful one.

Another one to mention is only really relevant in misconduct cases typically but is contributory fault. So, if the individual is in some way sort of culpable or blameworthy, and that that has to link to the dismissal. So there has to be sort of related conduct and a tribunal could make a reduction in the compensatory award to reflect that of anything between zero and one-hundred percent. So that’ll be one that I think we’ll see coming up quite a lot more often.

And then the other one I was going to mention is in relation to things like bonuses. So that isn’t- that’s kind of quite a specific one, but I think there’s going to be a lot more argument around the employee saying, well, I would have earned this bonus. And then the employer saying, well, in the circumstances, we’d have exercised our discretion not to. Or we would rely on this term, or that term in our bonus policy to say that it’s not payable or it’s payable at this lower level. And like that really underlines the importance of making sure you’ve got your docs in a good place to be able to bring those arguments.

Luke Bowery (09:22)

I agree with all of that, but continuing my glass half empty theme, my take is, particularly with senior exits, they are inevitably going to become more complicated, more protracted because I think the balance of power that’s going to be in a shift. Employees can point to no compensatory cap and say that needs to be taken into account. So I think employers need to think about all those points, but I also think they need to be reconsidering their sort of open positions, how they’re going to get to exit points, how they’re going to be in a stronger position as possible to negotiate deals. And that may well be laying down some groundwork in terms of performance processes, management so they can actually rely on to say, if you don’t do the deal, there could be a fair dismissal.

Katie Wooller (10:10)

Yeah, because I guess the issue with the various of the points I’ve just mentioned is they all can be a bit complex and take a bit of time. So, in terms of that speedy negotiation, they are they’re going to be- there might be points you raise, but they’ll be more helpful further down the line, but in the short term it will make negotiations a bit harder.

Luke Bowery (10:29)

And/or points you’d be making at a Remedies Hearing later down the line, as opposed to in the midst of battle trying to negotiate some sort of deal.

Kate Redshaw (10:36)

Yeah, and I suppose if you don’t have those, I guess, those guardrails in place once that compensation cap has gone, I mean, the difficulty we’ve had, and particularly if you take into account that in some parts of the country, tribunal delays are pretty significant. If you’ve got one of your high-risk dismissal categories, Luke, so your senior, your chief exec or your older person who has not been able to mitigate their loss by getting another job.

And let’s face it, for somebody like a chief exec, if they’ve been dismissed for poor performance, it’s going to be pretty difficult for that person to replace their income. Or, you know, they can show that they’ve made reasonable attempts to mitigate their losses by getting another job. It’s going to be quite, difficult to do that. I mean, I suppose, what are your kind of thoughts on how you might bring down those settlement negotiations there?

Luke Bowery (11:29)

Well, I think there’s lots of pre-emptive steps you should be taking. Let’s not forget, put it into context that it’s only a small number or specific groups of people, the point we made at the start that it’s not going to apply in every unfair dismissal scenario. But when you’re looking at senior execs, there’s some obvious points. And I know you’ve covered some of these in previous episodes without me.

Obviously-

Kate Redshaw (11:54)

They weren’t as good, Luke.

Luke Bowery (11:57)

Recruitment is an obvious one, it sounds trite, but I do see much more onus being placed on your due diligence of hires, particularly senior hires more so than maybe today. Again, another obvious point, relevant manager training and consistency of approach across your business. Inconsistency is one you constantly see people trip up on. Thirdly, just honing in a bit more on sort of senior execs would be a review of your sort of service agreements and remuneration packages to make sure that they’ve got as much contractual protection as you can afford. Appreciating it’s going to be a commercial balance between wanting to get the right people and incentivising them to join.

Alongside that, just thinking about your governance and sort of authorisation trails for the granting of awards, who’s doing it, when they’re doing it. I think, probably hasn’t happened as much as it should to date, but really thinking and documenting what a role looks like and what successful performance of a role looks like. So clearer, more objective performance metrics, going again in offer letters, contracts, but throughout conversations and employment. Aligned to that, the obvious one, which I think will be fascinating to see how it plays out, is how you are actually going to effectively performance manage or assess performance for senior hires, who’s going to do it, what’s it going to look like. But those first six months, as we’ve discussed, are going to be key in assessing whether you’ve got the right hire, is it the right cultural fit, etc.

But even beyond that, as I’ve mentioned, more detailed paper trails, more thorough performance processes, if that’s appropriate, to try and give yourself a better open position to potentially justify dismissal or alternatively they’d be able to go into those settlement discussions with a stronger foothold.

And I guess final point, just thinking it through would be a bit of upskilling of your teams as to how tribunals assess awards. You know, you’ve got just that headline, no cap. You’ve got AI telling you, no cap, go for glory, get everything. Unexpected, maybe, expectations from employees as to what they might get. So if you can talk cogently about how tribunals assess compensatory awards, how they bring them down as Katie was discussing, I think that would be a useful investment of time to put you in a much better place to have those conversations with employees to try and frame deals or offers in a stronger way.

Kate Redshaw (14:37)

Yeah, I think that’s a really interesting point, that point around what will we see in terms of senior exec performance, you know, because at the moment, a lot of people will be saying, ⁓ I’m, you know, don’t want to, we’ve brought them in that top, top level. We shouldn’t have to do that in a way. It’d be really interesting to see how the trend goes on that, whether actually people continue with that and accept that every so often they may have to make pretty sizable payouts or whether actually that changes and people start to expect that performance management just more as a matter of course.

Katie, I just want to touch on employment tribunals. And if you get to tribunal, where do you think you’re going to land in terms of, I’m just thinking again with those high-risk dismissals where you could be looking at really long future losses, we might already have had a delay. So we’ve already had, I mean, where do you think we’ll go in terms of evidence and sort of proving what the loss might be with a bit more accuracy.

Katie Wooller (15:37)

Yeah, that’s I mean, I think that’s going to be a really important and  interesting area because I think it’s probably fair to say that to date there hasn’t been as much focus on mitigation evidence  in some tribunal claims as there might have been from the sort of parties’ perspective, certainly sort of earlier in the process. But I think that focus on having the evidence to show what roles were out there, what roles are that out there and potentially even sort of expert evidence in terms of sort of sector specific sort of labour market expert evidence on what kind of roles would have been appropriate and someone could have gone for.  I absolutely don’t think that’s going to be relevant in every case, but I think in these high value cases it is going to be something that A, you’re going to need to think about that expert evidence perhaps sort of further into the claim. And B right at the outset, you want to be really on it with your mitigation evidence.

And have a think about is that something that you within the employer business are best place to be keeping a track on? Or is it something that you want perhaps your recruiters, if you work with recruiters, are they going to be able to say, well, we can help with this and give you a good track on these types of vacancies? So it’s just having to think about who’s going to be best placed to think about and sort of do those searches.

Kate Redshaw (16:53)

Yeah, because it’s very different, isn’t it? Just your normal, do a sort of a repeat run on what’s coming up on Indeed for your, you know, less senior people, which you might do ordinarily at the moment.

Katie Wooller (17:03)

Yeah, exactly. They’re just they’re much more complex, aren’t they? What roles might be out there, they might not be on the-

Kate Redshaw (17:08)

They don’t tend to be just advertised.

Katie Wooller (17:11)

So yeah, it’s just having to think about who is best placed to find that information and where it’s going to be.

Kate Redshaw (17:17)

And also think about that right from the start. So, if you don’t think you’re to be able to do a deal, getting that evidence trail lined up right from the start is going to be really difficult. It’s going hard to retrofit it, isn’t it?

Katie Wooller (17:27)

Exactly. And I think that’s where we’re going to see a real change that when you- we probably have that now retrospectively. Yeah. whereas I think actually being really on it as soon as you’re into the territory of a sort of messy dispute, I think that’s going to be really different. Yeah.

Kate Redshaw (17:43)

So Katie, we’re about to wrap up now and I don’t want to leave people too sad about everything we’ve talked about. So I just think we’ve talked about tribunal delays, we’ve talked about AI, sort of raising people’s expectations, but I think there is a point which is worth bearing in mind, which is to a degree, the tribunal delays I think could work in people’s favour, which is if you are offered a fair, you know, a fair settlement, actually, there’s going to be a whole raft of people who will say, I’d rather take that money now, it’s no money I can have now and I can move on with the rest of my life rather than, you know, waiting to see what their chances are in tribunal in two, three, four years time, who knows,  and you know, the expense and actually the stress, let’s not forget the stress that goes with that. So, I think a little chink, which is that the tribunal delays may help actually with those negotiations if you’re offering a fair price. I think the other point which we’ve certainly seen is claimant lawyers are very much on it in terms of the impact of these changes and what they might mean and the potential there to push awards up. it is going to be interesting to see how this develops. So, thank you both. Luke, very, very good to have had you as a guest. Katie, I hope you didn’t feel you didn’t get your time in the sun. Never.

Katie Wooller (19:05)

Always happy to share it.

Kate Redshaw (19:05)

Never, absolutely. So, I’m just going to end with some sort of top tips to bring this all together. So, I think the first one, and I’m pretty sure if we haven’t said it for every one of these episodes, Katie, we certainly said it for at least one, which is get your recruitment right. Really spend the time investing. It’s that whole, you know, put the time in then and it will save you time, you know, later on down the line if you get your recruitment right across all levels.

Kate Redshaw (19:30)

Sharpen up your dismissal processes and your documentation so that actually you have a process to stand behind if the six months is passed and you’re having to dismiss somebody after that six-month period, including have a think about your senior executives and how you’re going to manage the dismissal process alongside that. Luke, to your point, review contractual documentation, so your service agreements and your renumeration packages, just to see if there’s anything you can do to reduce the possible heads of loss, any sort of tweaks you can make to the drafting, should a claim be brought or threatened. Be strategic, I think, about your senior exec exit. So, if you think you’re going to have to let somebody go, more planning around that exit strategy, you know, assess the risk and how do you think that person is going to react, advise the best path to follow.

Which might include, as you said, Luke, adhering to a more formal disciplinary process, something you might not have done in the past. And I think within reason, because I do appreciate that not everybody wants to be a mini lawyer in the making, take some time to understand how a tribunal would calculate loss and compensation so that if somebody comes to you, if they’ve looked everything up in AI and say, look, I’ve got a claim here that’s worth hundreds of thousands of pounds, you can actually say, no, hang on a minute. That’s not how a tribunal would approach these things, regardless of the removal of the cap. So, you know, to just bear all of that in mind. So, unless you had any other top tips to add, no, shaking your heads, shaking your heads.

That is it for this series. Thank you so much for joining us to see our previous two episodes do have a look at the Burges Salmon YouTube channel, or you can also find them via our Employment Rights Act hub, which is on our website. Meantime, thank you so much for joining.

Katie Wooller (21:23)

Thank you.

Luke Bowery (21:24)

Thank you.