An incentive to use settlement agreements?

A timely reminder that the government is expected to introduce employer penalties in Employment Tribunal cases this April.

The measures will allow Tribunals to levy penalties on employers who lose their case and are found to have breached employment law rights in a certain way

The penalties will be payable if the tribunal consider that the breach had ‘one or more aggravating feature.’

‘Aggravating features’ have not been defined but early indications point to malice or negligence on the part of the employer, taking into account the duration of the breach, the size of the employer and the circumstances of the case. Further guidance is expected shortly and will also no doubt be clarified in the case law developments.

The penalty will be a minimum of £100 and a maximum of £5,000, even when no financial award is made. If an award has been made, the penalty must be 50% of the award, subject to the minimum and maximum caps. If the employer pays within 21 days then only 50% of the penalty is payable. The penalty is not paid to the Claimant but to the Secretary of State.

Employers will therefore need to carefully consider whether their conduct may constitute such aggravating features when deciding whether to settle any case or to continue to litigate. Employers who have committed aggravating features and do not enter into some form of employer/employee settlement agreement will be at risk. If imposed, a further £5,000 penalty on top of any compensatory award and legal costs may be an incentive to advance settlement negotiations.

It will be interesting to see if these potential employer penalties are negotiated into future employment settlement agreements post April.

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