Compensation payouts in discrimination cases have been in the news again in the last week, this time as a result of the government’s “red tape challenge” (in other words, the idea of abolishing anything that might conceivably inhibit growth). I have previously argued that employers should stop worrying about discrimination claims and focus on other things, but with the CBI managing the political agenda, and the press champing at the bit, here’s the story…
“Jackpot tribunal payouts face axe”
Thus screamed the headline in the Daily Mail last Tuesday – in that organ’s trademark balanced and accurate way – closely mirrored in the Telegraph with “payouts cut in war on red tape“, (“Payouts”, for the uninitiated, are what “malicious” employees go to employment tribunals for).
The government minister hadn’t actually made a statement to Parliament on the subject, so this set keyboards a-twittering in speculation as to what could be on the cards. The supposed plans were on a range of topics – unfair dismissal, TUPE and collective redundancies – but alluded to the possible reform of the rules on discrimination compensation, which is currently not subject to any financial limit. I picked up on the story when Lewis Silkin posted the Mail article on their agediscriminination.info site, saying the government were “set to unveil plans to cap the amount of compensation that can be awarded in discrimination claims”. Pretty strong stuff.
It is an idea that the CBI have been pushing for a while – see Gearing up for growth, published last year, in which they argue that a cap based on 2 years average earnings would “discourage weak and vexatious claims”. Now I don’t know much about the mindset of the vexatious or unmeritorious litigant, but frankly this sounds preposterous, because (a) It doesn’t take much research to discover that most discrimination awards are for much less than this anyway, (b) even this sum of money could be worth a punt, and (c) the supposed tactic of the unmeritorious litigant is not to actually go to tribunal (where they would, of course, lose if their claim had no merit), but to force a nuisance settlement out of the employer.
Leaving aside whether a cap would actually be a good idea, it occurred to me that hadn’t the European Court of Justice ruled such caps unlawful in 1993? I vaguely remembered the case of Marshall v Southampton and South-West Hampshire Area Health Authority (No 2)  ICR 242, ECJ Case C-271/91 (more on that below).
I then saw a suggestion on twitter that made me think my memory of Marshall may not be correct. Paul Callaghan pointed out that in the Republic of Ireland, they cap damages in discrimination cases at 2 years’ financial loss. I have since had the chance to follow this up with a Dublin- based Irish employment lawyer, who confirmed to me that this is indeed the case. When I mentioned Marshall he had no idea about the case. (As a decision of the European Court of Justice, Marshall is binding in all EU countries.) A recent article in HR Magazine suggests even the head of employment in a top firm in the City of London may not have heard of it either. Had I dreamt it?
No, of course I hadn’t.
Why a cap is against EU law
Our heroine Mrs Marshall was something of a pioneer when it comes to sex discrimination litigation. She went all the way to the ECJ in 1986 to establish that EU directives could be enforced directly against UK public sector employers, and then went there again in 1993 to argue that the cap on sex discrimination damages in the tribunals – which was about £6,000 at the time, was unlawful. It’s worth reading the relevant passages from the second Marshall judgment in full (starting in paragraph 24):
[The Equal Treatment Directive's] objective is to arrive at real equality of opportunity and cannot therefore be attained in the absence of measures appropriate to restore such equality when it has not been observed…. [T]hose measures must be such as to guarantee real and effective judicial protection and have a real deterrent effect on the employer.
Such requirements necessarily entail that the particular circumstances of each breach of the principle of equal treatment should be taken into account. In the event of discriminatory dismissal contrary to Article 5(1) of the Directive, a situation of equality could not be restored without either reinstating the victim of discrimination or, in the alternative, granting financial compensation for the loss and damage sustained.
Where financial compensation is the measure adopted in order to achieve the objective indicated above, it must be adequate, in that it must enable the loss and damage actually sustained as a result of the discriminatory dismissal to be made good in full in accordance with the applicable national rules.
What would this mean for the government?
Marshall means that any law which gives the victims of discrimination anything other than full compensation for losses actually sustained would leave the government open to challenge on judicial review – probably in a case brought by the Equality and Human Rights Commission, if it has any money or indeed any remit to do so by the time the Government have finished with it.
What would this mean for litigants?
Thanks to another recent ECJ decision, the not-so-easily-pronounceable Kukukdevici v Swedex  IRLR 346, employees themselves can now ask tribunals to completely ignore UK laws that breach an EU discrimination directive (see the PLC report here – subscription required) because non-discrimination is a fundamental principle of EU law. This means that, even if Parliament did legislate to cap discrimination awards, an employment tribunal would be legally obliged to disregard the cap and award the employee their full financial loss, because that’s what the Equal Treatment Directive requires. Arguably, someone may have to take a trip to Luxembourg to get confirmation that Marshall is not just limited to sex discrimination. But the result is inevitable, and the history of both EU and UK discrimination case law shows that the courts always take a coherent approach to different strands of discrimination law wherever possible.
What the government has actually said…
It turned out, as is often the case with press stories about government plans before they are announced in Parliament, that the announcement itself bore very little resemblance to the story in the papers. As far as discrimination damages are concerned, the government’s press release says:
“There need to be remedies for discrimination, but employers have expressed concern about the high levels of compensation sometimes awarded by Employment Tribunals in cases of discrimination – and the lack of certainty they have about the level of award they may be required to pay. Compensation levels for cases of discrimination are unlimited and employers worry that high awards may encourage people to take weak, speculative or vexatious cases in the hope of a large payout. This can lead to employers settling such cases before they reach a Tribunal.” (My emphasis).
The press release basically sets out the concerns already out by the CBI in Gearing up for Growth (above) but does not promise to do anything about it, just that the government will be “looking carefully at the case for reform”. It also says further down that “legislation will not necessarily be the route to implement any change if there is a case for reform”.
In other words, despite all the bluster in the newspapers, the government haven’t even decided that there is a good case for reform, let alone decided what that reform might consist of, or even whether reform necessarily involves a change in the law. All they have done is said that they understand that businesses are concerned and that they want to look into the matter.
And if the problem is really about deterring those vexatious litigants, I’ve already argued above that this is hardly a sensible way to deal with it. Other plans have been put forward in the consultation on employment tribunal reform and my prediction is that these (or some of them, at least) are far more likely to have the desired effect.
So what’s going on?
Why did the government tell the press (or at least, let the press believe) that it was going to do certain things and then issue a press release committing it to do precisely none of those things? It looks like weasel words to me. It looks like the government has encouraged the newpapers to report its commitment to reducing discrimination damages, but actually it will (I predict) decide in due course to do nothing and be able to point to the press release as proof that it hasn’t broken any promises, and just say the newspapers got carried away.
This may be part of a larger government media strategy of giving (false) confidence to businesses and (false) comfort to the CBI – who are arguably the originators of this idea of capping discrimination damages. The government have to be seen to be doing something. Indeed, being seen to be doing something (even something futile) may itself be part of their plan to stimulate growth – I don’t pretend to be an expert in Osbornomics. If nothing else, it looks good and helps win votes. And when this all falls flat, the Tories will get the credit for trying and the Lib Dems will get the blame for failure.
The government already have form in this area. Anyone remember last year’s review of the Agency Workers Regulations? A lot of noise was made about how the government was going to look at employers’ concerns about the regulations, before then announcing quietly that nothing could be done, because the legislation – indeed the very wording of the Directive – was based on an agreement between the CBI and TUC that, funnily enough, the TUC did not want to back out of. Obviously this was all the fault of the previous government, who “brokered” the deal. Anyone who knew the background could have predicted this outcome (indeed, the EEF more or less said it was doomed in July 2010), but it was important for the government to make a good show of it. My view is, they are doing the same here.