The abolition of the statutory dispute resolution procedures

This article looks at the practical implications of the repeal of the statutory dispute resolution procedures for employers.

The government's attempt to cut the number of employment tribunal applications by introducing the statutory dispute resolution procedures has been accepted by all as a failure, and the Employment Bill making its way through parliament will repeal the procedures, replacing them with a "lighter touch" regime based on a new Acas code of practice. In this article, we consider the practical implications of the repeal of the procedures for employers, looking particularly at how the repeal will affect contractual procedures that have "incorporated" elements of the statutory procedures and how employers' approach to dismissal and grievances will change.

The statutory procedures

The statutory dispute resolution procedures were introduced in October 2004 and are set out in the Employment Act 2002. The detail of their application is dealt with in the Employment Act 2002 (Dispute Resolution) Regulations 2004 (SI 2004/752). The dismissal and disciplinary procedures deal with situations where the employer is contemplating dismissing, or taking relevant disciplinary action against, an employee. The standard procedure requires the employer to send the employee a written invitation to a meeting, conduct the meeting to decide whether or not to take the action in question, and allow the employee to appeal. The modified procedure consists of a written letter of dismissal accompanied by the right to an appeal meeting. It applies only in exceptional cases of instant dismissal following obvious and unambiguous cases of gross misconduct.

A dismissal is automatically unfair if the employer fails to complete the appropriate dismissal procedure. A further consequence of non-completion is an adjustment of compensation by between 10% and 50%. This adjustment can be up or down, depending on whether it is the employer or the employee that is responsible for the non-completion.

The grievance procedures mirror the dismissal and disciplinary procedures to a large extent. An employee raises a grievance by putting a complaint in writing and sending it to the employer. Under the standard procedure, the employer must then invite the employee to a meeting, following which the employee has a right of appeal. If the employment has already ended - and if both sides agree - a modified procedure, under which the employee's complaint is dealt with by way of a written reply only, applies.

A failure to follow the grievance procedure does not, of itself, give rise to a cause of action, but can lead to an adjustment in compensation of between 10% and 50% if the employee wins a subsequent tribunal claim. The adjustment can be up or down, depending on which party is at fault.

The most controversial aspect of the grievance procedures is the provision in s.32 of the Employment Act 2002 barring employees from bringing any of a wide range of tribunal claims unless they have first complied with step one of the grievance procedure - by putting their complaint in writing and sending it to the employer - and then waited at least 28 days. Most of the case law relating to the dispute resolution procedures is concerned with whether or not the employee has complied with this step.

The Employment Bill

The operation of the dispute resolution procedures was criticised by both employers and employees, and a detailed review carried out by Michael Gibbons of the Better Regulation Executive and published in 2007 recommended that the procedures should be repealed in their entirety. That recommendation is implemented by the Employment Bill, which was introduced in the House of Lords in December 2007 and has now reached the committee stage in the House of Commons. It is on course to come into force in April 2009.

The Bill repeals the parts of the Employment Act 2002 that introduced the statutory procedures and completely repeals the 2004 Regulations. From April 2009, we can therefore expect the law on the procedure to be followed for a fair dismissal to return to the position prior to October 2004. In addition, there will no longer be an obligation on employees to raise a written grievance before pursuing an employment tribunal claim.

Breach of a code of practice

The only sense in which the Bill can be said to replace the statutory procedures with a new regime is through the provision in clause 3 allowing for an adjustment of awards where there is a failure to comply with a relevant code of practice.

Clause 3 inserts a new s.207A into the Trade Union and Labour Relations (Consolidation) Act 1992. This provides that, where a tribunal claim deals with a matter to which a "relevant code of practice" relates, an unreasonable failure on the part of either the employer or the employee to comply with the provisions of the code can lead to the tribunal increasing or decreasing any award that it makes by up to 25% - depending on which party is at fault. Such an adjustment will be made only if the tribunal considers that it is "just and equitable" in all the circumstances.

A "relevant code of practice" is one issued by either Acas or the secretary of state that relates "exclusively or primarily to procedure for the resolution of disputes". Although this can be seen as a rather clumsy phrase, at the Third Reading stage in the House of Lords, Lord Bach, speaking for the government, made it clear that this is intended to refer to the Acas code of practice on disciplinary and grievance procedures (Lords Hansard 19 May 2008, Column 1251 (on the Parliament website)). Of course, it could be argued that a code of practice dealing primarily with the way in which employers handle alleged misconduct or poor performance by employees is not a procedure for resolving disputes. Arguably, a dispute arises only when an employer has taken action against an employee and the employee is upset about this. However, bearing in mind the government's clear statement that the Acas code of practice on discipline and grievance is intended to be covered by this provision, we shall assume in this article that this is correct and that an unreasonable breach of the Acas code will result in a potential adjustment in the award made.

Procedural fairness

One controversial element of the statutory dispute resolution procedures regime is the way in which the Employment Rights Act 1996 was amended to deal with procedurally unfair dismissals. Section 98A(2) currently provides that, as long as an employer has completed the appropriate statutory procedure, any other procedural failing will not result in a finding of unfair dismissal if the employer can show that the employee would have been dismissed had it complied with the procedure.

In initial consultations, the government had suggested that the Employment Bill might contain provisions dealing specifically with procedurally unfair dismissals. However, it decided not to follow that path, and the Employment Bill repeals s.98A completely. The position will therefore revert to the law as it was under the rule in Polkey v AE Dayton Services Ltd (formerly Edmund Walker (Holdings) Ltd [1987] IRLR 503: that a procedural failing can lead to a finding of unfair dismissal with any "no difference" element being reflected in the assessment of compensation rather than in determining liability.

Contractual procedures

Most employers will have their own procedures for dealing with discipline and dismissal and employee grievances. Depending on how they are phrased and how they have been adopted, such procedures may form part of the contract of employment. Indeed, it is usually safer to assume that such procedures are contractual, unless they clearly and expressly state otherwise.

Employers that amended their pre-October-2004 procedures to bring them in line with the statutory requirements may want to make a corresponding amendment when the statutory procedures are repealed. Provided that the procedures are not contractual, there is no legal bar to their doing so. Contractual procedures can be amended only with the agreement of the employees (or trade union representatives where they are contained in a collective agreement).

Employers may, however, wish to reflect on just how much would be gained from such a move. The abolition of the statutory procedures in no way diminishes the importance of following a fair procedure before dismissing an employee, and the key elements of the statutory procedures - particularly giving the employee a fair hearing and a right of appeal - will remain at the heart of the employment tribunals' approach to fairness. An employer that does not at least follow the essential elements of the statutory dismissal procedures will risk a finding of unfair dismissal. Indeed, the draft Acas code contains many elements found in the statutory procedures. The code recommends that, if an employer decides to initiate formal disciplinary proceedings, it should notify the employee of this in writing, giving sufficient information to let the employee know what the alleged problem is and the possible consequences. The code requires that, before holding a meeting, the employer should notify the employee of the basis of the allegations against him or her. The employee should also be given the right to appeal and, wherever possible, the appeal should be conducted by a manager senior to the one who conducted the initial hearing. Failure to observe these elements of a fair procedure will be likely to render any dismissal unfair and lead to an uplift in compensation.

It would not, therefore, be wise for employers to cut back significantly on their disciplinary procedures as a response to the repeal of the statutory procedures.

Misconduct dismissals

If anything, the repeal of the statutory procedures will make following a fair disciplinary procedure before a decision to dismiss an employee is taken even more important. This is because, as discussed above, the repeal of s.98A(2) of the Employment Rights Act 1996 will mean that any procedural shortcoming will be relevant to the question of liability for unfair dismissal, irrespective of whether or not the failing made any difference to the outcome.

For example, if an employer holds a disciplinary hearing, but does not disclose all of the evidence on which it is relying, as the law stands, that will not amount to a failure to complete the statutory procedure. The tribunal may regard the failure to disclose relevant information as unreasonable, but it will not make the dismissal unfair if the tribunal finds that there is a more than 50% chance that the dismissal would have occurred in any event.

However, when the Employment Bill comes into force, the employer's failure to disclose evidence may well be sufficient to persuade the tribunal that the dismissal is unfair. Compensation will be reduced to reflect the "no difference" element, but the tribunal could find that there was, for example, a 60% chance that the dismissal would have occurred in any event, in which case the employee could recover 40% of his or her losses as compensation.

The employer will also have to ensure that any dismissal is in accordance with the Acas code of practice. However, as it is currently drafted, this is unlikely to prove difficult. An employer whose procedures would have complied with the statutory procedures is unlikely to find itself in breach of the Acas code, as there are very few elements of the code that go beyond the requirements of the statutory procedures.

Redundancy dismissals

One of the many problems with the standard statutory dismissal procedure is that it applies to individual redundancy dismissals as well as cases of misconduct. While the structure of the statutory procedure closely matches normal practice so far as disciplinary issues are concerned, the same cannot be said in relation to redundancy. As a result, this is one area where employers might choose to review their practices in light of the abolition of the procedures. How easily they are able to do so will, of course, depend on whether or not they have incorporated the statutory procedures into their contracts of employment (see above).

Employers will no longer have to focus the redundancy procedure on a single meeting at which the decision to dismiss is taken, from which the employee has the right of appeal. Prior to the statutory procedures coming into force, it was common practice for employers to hold a number of discussions and consultation meetings with employees, but it was not unusual for none of these to be so decisive as to amount to a "step-two" meeting under the dismissal procedure. The difficulty was highlighted by Alexander and another v Brigden Enterprises Ltd [2006] IRLR 422, in which the EAT held that employees selected for redundancy had to be informed of the basis on which they had been selected before the step-two meeting could take place. This has caused a problem for those employers used to giving this sort of detail at the meeting itself. The consequence is that, in addition to the various consultation meetings, a further formal meeting has to be held at which the final decision is discussed.

Another problem affecting large employers is that the redundancy process often has two very distinct stages. At the first stage, the employee is selected for redundancy, but there then follows a lengthy process during which redeployment is considered. In some organisations this can take up to six months. It has never been entirely clear at what stage in the process it is appropriate to hold the step-two meeting. If it is held during the initial redundancy selection, the employee will not have the opportunity to discuss whether or not he or she was fairly considered for redeployment. If the meeting is held after the redeployment process has been completed, any complaints about the initial selection will be likely to be meaningless as any new structure will already have been implemented. The abolition of the statutory procedure will remove this difficulty. What will matter is whether or not the overall selection process is fair and whether or not the employee has been properly consulted.

The abolition of the statutory dismissal procedures will remove the right for employees to appeal against their selection for redundancy. Prior to the statutory procedures coming into force, there was no specific legal requirement for an employee selected for redundancy to be given a right of appeal. If the employer could show a fair basis for selection and an appropriate level of consultation with the employee, this was sufficient.

Employers should, however, be cautious about abandoning this aspect of their redundancy procedures. For the past four years a right to challenge redundancy selection through an appeal to a higher level of management has been a feature of a fair redundancy (at least in cases where the collective consultation provisions do not apply). An employer that removes this aspect of the process could be held to be acting unfairly. We will have to wait for the first cases to come through to see how the tribunals approach this issue. Until some clear case law develops, it might be wise for employers to continue to offer individual appeals. In any event, an appeal can be a useful way of making sure that the correct decision has been reached, and employees offered a clearly fair appeal process are likely to be less inclined to take the matter further.

Grievances

The most dramatic consequence of the repeal of the statutory procedures is that there will no longer be a requirement on employees to send a written complaint to their employer and then wait 28 days before bringing an employment tribunal claim.

This means that employees will no longer run the risk of having their claim dismissed by the tribunal without being heard because they have not initiated the grievance procedure. In addition, as the current draft of the Acas code on discipline and grievance stands, it does not appear that they will be penalised by the tribunals for failing to pursue an internal grievance before making their claim. The Acas code stops short of saying that employees must initiate a grievance before pursuing a tribunal claim, so it seems that there will be no basis on which a tribunal can reduce an award of compensation if it feels that the employee could have done more to resolve the dispute internally before taking legal action.

In practice, the tribunals and the EAT have given a very wide interpretation to what constitutes a written complaint. For example, they have emphasised that there is no need for the employee to follow the employer's own procedure for raising a grievance, or indeed to mention the word "grievance" anywhere in the complaint. This wide approach has consequences beyond the immediate question of whether or not the claimant can proceed with his or her claim. If step one of the procedure has been engaged, this places an obligation on the employer to invite the employee to a grievance meeting. A serious consequence of the wide approach taken by the tribunals and the EAT in this area has been the confusion among employers as to when they are obliged to invite employees to a grievance meeting. Fear of being found in breach has led many employers to organise meetings in relation to quite trivial matters that have been raised in an oblique or highly informal way by the employee, for example where an email expresses dissatisfaction with a decision that has been taken. This, in turn, has had the effect of escalating disputes rather than resolving them, one of the key reasons why Gibbons recommended that the procedures should be repealed.

The abolition of the procedures will free employers from this concern. While they will have to provide an appropriate method of addressing grievances, they will be free to require employees to raise a grievance in a particular way - for example by filling in a standard form or approaching an appropriate manager. Provided that the method of raising a grievance is clearly set out and understood, an employer will not have to worry about organising a grievance meeting if the employee does not initiate the procedure properly.

Neither will there be any need for the grievance procedure to continue after the employment has come to an end. If an employee makes a complaint in a resignation letter or during an exit interview, the employer will be under no obligation to take it further - although, of course, a sensible employer will seek to investigate any potential areas of dispute when an employee is leaving.

Apart from these changes, it is expected that the broad structure of the standard statutory grievance procedure - that the employee makes a written complaint, is entitled to a meeting to discuss it and is given a chance to appeal against the decision - will still be followed by employers. It was established in WA Goold (Pearmak) Ltd v McConnell and another [1995] IRLR 516 that it is an implied term of a contract of employment that the employer will address grievances raised by the employee, and a process whereby the employee can request a grievance hearing and have a right of appeal against the outcome would seem to be the minimum effective way of complying with that requirement.

Further, the draft Acas code of practice recommends that this structure is followed, so an employer that does not comply with this and then loses a tribunal claim based on the employee's grievance will be likely to face a compensation uplift of up to 25%. In any event, such a procedure, if not a specific legal requirement, is nevertheless an appropriate way for employers to ensure that complaints are investigated, mistakes corrected and unnecessary tribunal claims avoided.