Legal Briefing

Employment law in Scotland: a different path?

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Human resources | 01 April 2015

The Scottish independence referendum and the general election campaign have both thrown a spotlight on employment law, with change looking inevitable. Following the Smith Commission which published its report in November 2014 there is a real possibility that the administration of the Employment Tribunal system will be different in England and Scotland. A new government in May and the potential for more radical reform of the system could result in further divergence over time.


VEHICLE FOR CHANGE

The Smith Commission recommended a number of additional devolved powers for the Scottish parliament, and was followed up in January 2015 by a Command Paper, published by the UK government, which sets out in an annex draft clauses for a proposed Scotland Act 2015. The Commission discussed devolving tribunals, and recommended that all powers over: ‘the management and operation of all reserved tribunals… will be devolved to the Scottish parliament’. This has been translated into draft clause 25. The wording is not entirely clear and the specific powers will be identified later in orders in council which will have to be approved by both the Scottish and UK parliaments.

The Command Paper reflects the direction of travel:

‘The underlying substantive law which creates rights of access to tribunals will continue to be reserved. Matters critical to the delivery of reserved policy will continue to be reserved to Westminster to the extent that the relevant Order in Council so provides… It will provide that functions relevant to the delivery of reserved policies continue to be reserved. It will ensure that procedures across Great Britain do not harm the delivery of policy in reserved areas.”

Evidently, there is concern to ensure that the broad policy in the regulation of employment is not interfered with. We can therefore expect that the balance of power in Westminster post-election will influence the extent of the powers transferred in the medium to longer term.

WHAT MIGHT CHANGE IN THE SHORT TERM?

If the powers are devolved as envisaged, however, what might change immediately? The administration of the employment tribunal system is likely to be absorbed within the Scottish Court Administration. Most commentators believe that the proposed changes would then allow the Scottish Government to set the level of employment tribunal fees, or even to abolish them altogether. Tribunal fees were introduced on 29 July 2013. Employees must pay £250 to raise an unfair dismissal or discrimination claim, along with a further hearing fee of £950. In contrast, pursuers pay a one-off fee of £73 to lodge a small claim in the Sheriff Court. We know from government statistics that there has been a marked reduction in the number of employment tribunal claims presented since the introduction of fees – by as much as 70%. Arguments about access to justice and the alleged discriminatory impact of the fee regime have been canvassed in judicial review, but while recognising the issues, the courts have declined to denounce the regime. It is, of course, a highly political issue.

Unsurprisingly, Labour and the SNP in Scotland are opposed to the fee regime. In his response to the Smith Commission report, Neil Findlay MSP stated that he would, under a Scottish Labour government, ‘use existing and new powers to… abolish employment tribunal fees’. The SNP set out its vision to engage in a ‘direct and constructive dialogue on access to employment tribunals’ in its White Paper on independence, and had referred to independence delivering a ‘fairer’ system.

Some commentators have expressed concern that a potentially lower fee regime could encourage English claimants to present claims in Scotland. Claims can currently be brought in the jurisdiction in which an employer: ‘resides or carries on business’ so, in theory, this could affect all employers with a place of business north of the border. It is possible that some thought will be given to ways of preventing that, but practitioners don’t believe that it will be a serious concern.

There are also some changes affecting employers that are already on the statute book as a result of devolution. The Scotland Act 2012 gave Holyrood the power to control income tax rates and bands (for non-savings and non-dividend income). The new Scottish rate of income tax has been scheduled to come into force since before the referendum, and its application is planned for April 2016.

The changes will apply to Scottish taxpayers – regardless of where their employer is based. The definition of a ‘Scottish taxpayer’ is set out in the Scotland Act 2012 as a person who is a UK resident for tax purposes during a tax year, and whose main place of residence is Scotland for the majority of that year. Employers are taking steps to identify who will be a Scottish taxpayer. There are more obvious concerns here about ‘residence’ shopping – a fact of life for businesses operating between Northern Ireland and the Republic of Ireland.

AND IN THE LONGER TERM?

There has been little appetite for a change in the way that substantive employment law develops in Scotland. The Scottish Trades Union Congress (STUC) was keen for this to be devolved (as in Northern Ireland). The Law Society of Scotland felt that the Commission should consider whether Scotland should take a different path on discrimination law – perhaps also with an eye to the way in which it has been approached in Northern Ireland. However, the current position is that the majority of equality law will not be devolved.

The Scottish parliament will, however, have the power to legislate on equalities in respect of the Scottish functions of public bodies in Scotland generally. The Command Paper states that:

‘… this power will enable the Scottish parliament, by imposing new requirements on public bodies in Scotland, to introduce new protections for employees and customers of those bodies with regards to their devolved functions’.

This is consistent with the policy approach of the Scottish Government to the use of ‘contract compliance’ and the protection of public sector employees.

MEANWHILE IN WESTMINSTER…

The political parties operating in the centre and left at Westminster are largely opposed to employment tribunal fees. The current government proposed to review the position after their introduction but failed to do so. The Liberal Democrats want to see reform, and Chuka Umunna MP, himself a former employment lawyer, told the TUC Congress last year that a future Labour government would abolish the current system, reform the employment tribunals and ‘put in place a new system which ensures all workers have proper access to justice’. There has been no indication of what that would actually mean in practice – but Michael Rubenstein (general editor of the Equal Opportunities Review) has suggested this is where David Latham’s vision could fit in.

As David Latham was standing down as the president of the employment tribunals in England and Wales, he chose to set out a vision for a labour and equalities court that would be used to handle all forms of dispute related to employment and discrimination – including cases involving contract disputes, personal injury and litigation on post-termination restrictions. It would feature simple and speedy procedures for routine disputes, and extended use of forms of alternative dispute resolution such as ‘early neutral evaluation’. The Law Society of England and Wales is currently carrying out a consultation on the tribunal system and how it should operate in future. The Latham ideas have received a positive response from many employment lawyers, who can see a number of benefits. A new system may allow for the appointment of judges and ‘assessors’ with a balance of both professional legal experience and industry experience – thus ensuring that employment cases will always be heard before judges who understand the context of the employment relationship and also have the experience to resolve complex legal disputes. There is a suggestion that cases involving discrimination in the provision of services could also be handled before this court – thus potentially creating a relatively new specialism. Latham’s ideas and the outcome of the Law Society consultation may well be influential when the Westminster government decides where to go from here.

But where would this leave Scotland? When advocating devolution of matters relating to the ‘process and procedure of the employment tribunal system in Scotland’ in its response to the Smith Commission consultation, the Law Society of Scotland referred to the ‘distinctive approach of the Scottish civil law system’. Although it is likely that the Scottish Government would see the attraction in these ideas for reform, they would have to be constituted in a different way in Scotland. The rules governing civil litigation in Scotland are different to those in England. CPR does not operate and the rules of evidence have always differed to a significant extent. This affects the way that Scottish Tribunal judges deal with eg case management. It would be difficult to take a Latham-type model for England and Wales and create a mirror image in Scotland. The introduction of such a model could, therefore, provide another reason for Scotland to choose a different path.

CONCLUSION

When Donald Dewar, the late first minister, made his inaugural speech to the Holyrood parliament he said of the creation of the Scottish parliament that it was a ‘fundamental, radical change’.

The changes that have been proposed to date would not represent ‘fundamental, radical change‘ in the employment law sphere, but the introduction of a different fee regime in Scotland may be the first in a series of developments that could further distinguish our system of resolving workplace disputes from the rest of the UK. In the longer term, the separation of the administration could result in more debate about the merits of substantive change, and the underlying differences in the constitution and legal system as well as the political climate will influence the outcome.