Disputed penalty: should ETs have the power to impose financial penalties on employers?

Well, it had to happen eventually. After many years as the Tweedledum and Tweedledee of the employment policy (under)world – virtually indistinguishable in our views on any number of policy initiatives and legal reforms – Michael Reed, of the Free Representation Unit, and I have had a policy disagreement. And not just a slight difference of opinion, but a full-blown parting of the ways. To quote Michael – something I will be doing a lot less of from now on, obviously – we are “complete opposites” in our view.

What? Complete opposites, after all those years of “I agree with Michael” and “I agree with Richard” in meetings with BIS and Ministry of Justice officials? Has one of us lost our marbles? Or taken the Beecroft shilling?

Our story

All was hunky dory with Michael and me, until last week. But then Acas went and tweeted a news article of theirs about the coming into force, on 6 April, of the new power for employment tribunals to order any employer found to have made a breach of the rules with ‘aggravating features’ – whatever that means – to pay a financial penalty of up to £5,000 (section 16 of the Enterprise & Regulatory Reform Act 2013). And, somewhat unthinkingly, I retweeted it. I’m like that, you see. Impulsive.

Almost immediately, my universe began to crumble. “Leaving aside the implementation, do you think financial penalties are a good idea”, demanded a tweet from Michael.

Through a veil of tears, I tweeted my pathetic reply: “Yes, though I doubt ETs will ever have the information they need to use the power effectively. I can see it being used very little”. Because, whilst I would have much preferred to see the power more narrowly framed and targeted at, say, repeat offenders and those who have failed to pay a previous award, I do think it a good thing that life might become a little harder (or, at least, a little more expensive) for rogue employers. And, let’s face it, since 2010 rogue employers have done rather well out of all the Coalition’s other reforms of employment law and the ET system.

And then he – Michael – said it: “Interesting. We’re complete opposites. I think it’s wrong in principle. And I think it’ll be used reasonably often”. Yep, you don’t get much more completely opposite than that. But enough from me. Let’s hear what Michael has to say.

Michael says:

First of all, Tweedledum and Tweedledee? I protest! We are the Butch and Sundance of employment law. Or, at the very least, the Laurel and Hardy.

But, through a veil of tears, I turn to the substance of our tiff. Should employment tribunals impose financial penalties on employers, separately to awarding compensation to employees? I start from the position that there’s a name for imposing a financial punishment on people because they’ve acted unlawfully. That’s called a fine.

And a fine is properly the province of the criminal justice system. Basically, I don’t think that the State should be extracting money from people in this way without the full paraphernalia of the criminal law — including proper legal aid and proving things beyond reasonable doubt. I realise that, in all sorts of areas, we’ve slid into this sort of civil penalty charge, but I disapprove of all that too.

The State, whatever its protests, is a 1000-tonne gorilla. It has immense resources and a monopoly on the use of force as a means of coercion. It has to be self-denying and self-limiting — willing to shackle itself to the rule of law. Or we’ll all end up in unpleasantness.

Now, of course, introducing employer penalties does not inevitably lead to a totalitarian dystopia. It’s not even on the top 10 things this government has done which might lead to a totalitarian dystopia.

In fact, I think it’s very unlikely to have any real negative impact in the wider sense at all. But the nature of this sort of principle is that it’s important enough that you follow it, even when pragmatically the danger seems non-existent.

Even if all of this is wrong, I just think the employment tribunal is the wrong place to be dealing with this sort of fine. A criminal sanction should be applied consistently. Which is why the police and CPS have guidelines about when to take cases to court. Shackling the sanction to unconnected civil litigation means that who gets fined will depend on who gets sued (and who settles). It’s built-in inconsistency.

Furthermore, shoehorning a criminal sanction into a civil trial isn’t likely to do either of them any favours. Tribunals have challenges enough dealing with all the issues of party vs party litigation, without bolting on a bit of party vs State for them to address as well. Does no one think of the poor judges?

Finally (and this might not be a matter of principle at all), I simply can’t stomach a government that imposes a draconian cap on the compensation that claimants can receive, while attempting to trouser a wedge of cash for itself.

The average UK salary is £27,000 (and therefore so is the unfair dismissal cap for the average employee). The maximum penalty is £5,000. The government position is that the cap is needed so people don’t have false perceptions of their likely award. This cannot be reconciled with trying to grab up to 18% of the value of the maximum award for the State. The government’s position on this is contemptible. Sufficiently so that my emotions run high and I couldn’t bring myself to support the financial penalty, even if I could put aside my virtuous principles.

To which Richard says:

Yes but no but yes but … darn it, you’ve convinced me. The section 16 penalties are wrong in principle, and employment tribunals the wrong arena. Can we be friends again?

However, I still think the power to impose a penalty will be rarely used, not least because the often low-value claims brought against the kind of exploitative employer at which the power is supposedly aimed, are precisely those claims that have been barred from the tribunal system by the outrageous fees introduced last July. Vulnerable workers subjected to ‘wage theft’ of a few hundred pounds are simply not going to gamble £390 on trying to extract the unpaid wages from a rogue employer.

Even where such claims do make it as far as the tribunal, I suspect the average employment judge will be no more minded to impose a penalty than they have been to date to impose a costs order. And, whilst the number of costs orders – and especially orders against claimants – has crept up in recent years, it is still very small.

Time will tell. As would the quarterly and annual tribunal statistics, were the good people at HMCTS to take the necessary steps to record use of the power. Unfortunately, it seems they have no plans to do so.

To which Michael says:

Darn it, I was hoping you’d turn me around. Then I could urge tribunals to award large penalties against my opponents with a merry heart (although one of the many minor issues with the scheme will be what, if anything, claimants and their lawyers should say about all this). But at least we’re friends again.

I’m much less dogmatic on the issue of how much the new power will be used. It’s really about our gut feelings on how judges will react. And, as anyone will tell you, judges are an unpredictable lot. But, from a judicial perspective, I see the financial penalties as looking more like an uplift for breach of the Acas Code than a costs order.

I think judges regularly get a sense of whether they think an employer is a proper wrong’un who has acted maliciously or just a bit of a ninny who made a mess of things. And the principled argument against the whole idea we’ve discussed above don’t bear on sitting judges. They may think the law shouldn’t be there but, since it is, they’ll have to consider it.

My guess is that, if they peg someone as a wrong’un and can point to something to describe as an aggravating feature, they’ll be willing to impose a financial penalty. In part, I think this is because it won’t require a lot of additional reasoning or fact finding for the tribunal. One of the reasons that costs are rarely awarded is that they often require everyone to embark on a new set of evidence and submissions right at the end of the case, when everyone just wants to go home (or already has).

In the case of financial penalties, things are much easier. All the evidence will be in as part of the liability trial. If, at the end of submissions, a judge thinks a penalty might be appropriate they can flag it with the parties and hear what they have to say. Which probably won’t be much, beyond the respondent arguing that, even if they lose, they haven’t gone as far as aggravated breach. Then the tribunal can cover it in a paragraph or two in their judgment. No muss, no fuss.

Of course, you’re right that the reduced number of claims will hold down the number of these penalties (which, come to think of it, is yet another reason why the tribunal is the wrong venue for this sort of thing). But I think, proportionally, we’ll see a reasonable number of these awards.

As you say, time will tell (particularly if we get the stats). Shall we schedule a follow-up post for about a year’s time?

One of us can crow and the other can explain why they weren’t really as wrong as it looks.

Please feel free to endanger the conscious recoupling of Michael and me by taking sides – leave a comment.


4 thoughts on “Disputed penalty: should ETs have the power to impose financial penalties on employers?

  1. I have heard, from a fairly impeccable source, that the MOJ has already appointed a firm of debt collectors to pursue employers for unpaid financial penalties.

    So the employee will be sitting there whistling for his/her unpaid tribunal award, not having access to an effective enforcement mechanism, whilst the government barges in and gets its cash first.

    • My objection is that the respondent is incentivised to pay the penalty first to qualify for the “traffic fine” early payment discount but there is no link to paying the claimant’s compensation first in order to qualify for the discount.

  2. The financial penalties will test the resolve of the many employers who know they are likely to lose but who persist to defend claims until very close to trial in the hope that the claimant’s cash will run out or they will lose their nerve. I suspect the number of ‘financial penalties’ will be low, not because ETs are unwilling to award them, but rather because the worst offenders will settle the claims before they ever reach tribunal.

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