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Employment Law

Legal guidance - compliance - software

20 MAY 2014

Discretion to order financial penalties for losing employers

Daniel  Clarke

Barrister

Discretion to order financial penalties for losing employers

From 6 April 2014 Employment Tribunals have had a discretion, when an employer loses a case, to impose a financial penalty when the employer’s breach of employment rights has “one or more aggravating features”.

This new power is introduced by section 16 Enterprise and Regulatory Reform Act 2013 (which introduces a new section 12A Employment Tribunals Act 1996). The original proposal (in the Consultation on Resolving Workplaces Disputes) was for a system of automatic penalties. This was not enacted. The power is discretionary.

Unlike an uplift for failure to comply with the ACAS Code of Practice, or aggravated damages in a discrimination claim, the financial penalties are truly fines, rather than compensation. Payment is made directly to the Secretary of State and into the Consolidated Fund. Like other fines, the employer is only required to pay 50% of the financial penalty if payment is made within 21 days.

An Employment Tribunal has the power to impose a financial penalty even if it makes no financial award in the claimant's favour, such as compensation for unfair dismissal.

The key issue is likely to be what constitutes an aggravating feature. This is not defined in the Act. It is to be left to the Employment Tribunal, taking into account any factors it considers relevant, to determine whether such features exist in any particular case. Some guidance can be gleaned from the Explanatory Notes to the Act. These indicate that:

i) Employment Tribunals should only take into account information of which they have become aware during consideration of the claim.

ii) Non-exhaustive factors which may be considered are the employer's size, the duration of the breach and the behaviour of the employer and employee.

iii) Employment Tribunals may be more likely to find aggravating features where actions were deliberate or committed with malice, the employer has a dedicated Human Resources team or it repeatedly breached the right concerned.

iv) Employment Tribunals may be less likely to find aggravating features where the employer has only been in operation for a short period, has a limited Human Resources function, is a micro-business or the breach was a genuine mistake.

As to the quantum of the financial penalties, these are subject to minimum and maximum limits of £100 and £5,000. In deciding whether to impose a financial penalty (and its amount) Employment Tribunals must have regard to the employer's ability to pay. However, where a financial award has been made, the penalty imposed must be 50% of the amount of that award (subject to the limits and certain exceptions). Where no financial award has been made the penalty is at the Employment Tribunal's discretion (subject to the limits). Importantly (and doubtless to the relief of employers) where claimant brings multiple claims in respect of the same act, this may attract a single penalty only.

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