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What are financial penalties for employers?

11 April 2014

Employment Tribunals now have discretion to award financial penalties against employers who lose claims if the Tribunal considers the claim has one or more 'aggravating features'. This applies to claims brought on or after 6 April 2014.

'Aggravating features' have not been defined in the legislation, so it remains to be seen how the Tribunal will interpret this. However, the Government has provided some guidance (see below).

Penalties are payable to the Secretary of State (not to the employee).

How much is the penalty?

The Tribunal must take into account the employer's ability to pay when deciding whether to award a penalty. If a penalty is imposed, it will be 50% of any financial compensation awarded to the employee, subject to minimum and maximum limits of £100 and £5,000 respectively.

If no compensation is awarded, the Tribunal will have discretion to determine the amount of any penalty subject to the minimum and maximum.

There will be a 50% discount if payment is made within 21 days.

What are 'aggravating features'?

The explanatory notes to the legislation provide a non-exhaustive list of what the Tribunal may wish to consider as aggravating features, which are:

  • the size of the employer
  • the duration of the breach of the employment right, and
  • the behaviour of the employer and the employee.

The explanatory notes go on to state that the Tribunal would be more likely to find that the employer's behaviour involved aggravating features where:

  • the action of the employer was deliberate or malicious
  • the employer had a dedicated human resources team, and/or
  • the employer had repeatedly breached the employment right concerned.

It also states that aggravating features are less likely where the employer:

  • has only been in operation for a short period of time
  • is a micro business
  • has only a limited human resources function, and/or
  • made a genuine mistake in committing the breach.

Will penalties make any real difference?

It will be for the Tribunal to consider any circumstances which it deems to be relevant when establishing whether to impose a financial penalty. It remains to be seen how Tribunals will interpret 'aggravating factors' in practice and, therefore, how frequently a financial penalty will be ordered.

If penalties become the norm, employees may seek to include the penalty in any settlement, even though they would not receive this personally if the matter went to a Tribunal.

Ultimately, if payment is made within 21 days, the penalty is capped at £2,500, so for large employers the direct financial impact of penalties is limited.

However, penalties may come to be something that employers are asked to disclose by stakeholders, for example when bidding for new contracts.

This article was written by Christopher Bushnell.

For more information please contact Christopher on +44 (0)20 7427 6427 or christopher.bushnell@crsblaw.com