UK EMPLOYMENT LAWS CAUSE BIG BURDEN

In recent years, many of the employment-related laws implemented in the UK have originated from the EU legislature. The result is a great increase in the regulation of worker/employer relations with implications for all sizes of company, generally with the aim of enhancing and protecting workers' rights.

The downside is a vastly greater administrative burden for companies, estimated by the British Chambers of Commerce as costing business £15.1bn ($22bn) since the Labour government was elected in 1997.

This includes the likes of the National Minimum Wage Act 1998, the Working Time Regulations 1998, the Maternity and Parental leave Regulations 1999 and the Part-time Workers Regulations 2000.

The trend shows little sign of abating, and small to medium-sized firms are particularly affected. Since the UK general election, we have seen further additions to the list of legislation in the form of the Information and Consultation Directive, the Fixed Term Work Directive and Directives on Equal Treatment in Employment and Occupation and Race.

The first of these draft Directives was agreed in June and is due to go to the European parliament before it is finally adopted. The UK will then be required to introduce domestic legislation to put the Directive into effect.

An earlier Works Council Directive applying to companies with over 1,000 employees over at least two EU countries is already in force in the UK.

When implemented in the UK, employers will be required to consult with worker representatives on issues such as the company's performance and finances, its structure, and proposals which may affect working organisations and contracts - in effect, virtually every significant business decision.

Consultation must be "with a spirit of co-operation", implying that Works Councils will have some say over the eventual decision. Individual member states are required to implement their own penalty structure, but it is thought that failure to consult may render the decision invalid.

It has been suggested that this will significantly increase trade union powers. The UK representatives were able to negotiate phased implementation for smaller companies, so that (for example) companies with between 50 and 99 workers will have until 2008 to comply.

The Fixed Term Work Directive was due to be implemented on July 10 in the form of the Fixed Term Employees Regulations 2001, but the UK is taking advantage of the option to take up to a year longer because of "special difficulties" locally.

It requires employers to provide employees on fixed term contracts with the same benefits packages as permanent employees, and generally not to treat them "less favourably". Staff supplied by employment agencies as temps are excluded from the Regulations.

The draft Directives, which are aimed at preventing discrimination in the workplace on the grounds of age, religion or belief, disability, sexual orientation and racial or ethnic origin came into force on December 2 2000, for implementation in the UK by December 2003. The UK may request an extension until December 2006 in respect of the age and disability aspects.

Many will no doubt consider this to be too long to wait. Figures published during 2000 by Industrial Relations Services, an independent research organisation, showed that during the previous year compensation awarded by employment tribunals for race discrimination increased by almost two-thirds to an average of £9,948.

The average award for sex discrimination rose by 5% to £7,208, whilst for disability discrimination the average was £9,981, despite a slight drop overall. A total of £2.55m was awarded by the employment tribunals in respect of all forms of workplace discrimination.

These averages conceal wide variations in individual awards, however, and some particularly high figures have been paid to those in well-remunerated occupations. Even if a case does not proceed as far as the employment tribunal, significant sums may still be paid in settlement, and the media attention on such high-profile cases can do considerable damage to a company's reputation.

For example, in April this year investment bank Credit Suisse First Boston agreed to pay a junior trader £200,000 in an out-of-court settlement during an employment tribunal hearing into allegations of racial discrimination. Press reports on the dispute included many of the trader's derogatory comments about his erstwhile employers, no doubt to the great dismay of Credit Suisse's PR department.

Whilst multinational organisations can generally call upon their in-house human resources teams and engage top legal experts to assist in the defence of employment-related allegations, small or medium sized firms may not have ready access to such support.

Employment legal expenses insurance is particularly useful for these companies. Policies will provide an indemnity in respect of tribunal awards, not just the legal costs, and often include legal helplines which are open 24 hours a day.

Insurers generally require policyholders to consult such helplines before taking any potentially controversial employment related decisions, so that problems can be identified and eliminated before they progress as far as a claim.

Andreas Loucaides "Insurance Day" July 2001