Your Settlement Agreement Solicitor

Your Settlement Agreement Solicitor

Episode 20: New Sexual Harassment Uplifts and Why They Matter for Settlement Agreements

Hello, and welcome to Episode 20 of Your Settlement Agreement Solicitor, the podcast where we explore the latest in settlement agreements and employment law.

I’m your host, Geoffrey Caesar, and in this episode, we’re going deep into a recent, substantial shift in the law related to workplace sexual harassment. This change, which took effect on October 26, 2024, empowers employment tribunals to order a compensation uplift of up to 25% in cases where employers have failed to prevent sexual harassment.

This new law significantly shifts how employers must handle sexual harassment risks and potentially imposes financial consequences on workplaces that don’t take proactive measures to prevent harassment.

The change also has real implications for settlement agreements, impacting both the strategies and amounts that might be negotiated in cases of harassment.

So, let’s delve into why this change was introduced, how it operates in practice, and what it means for employees and employers involved in settlement discussions.

The Context: Why the New Uplift Law Was Introduced

This new law comes amid a strong push to hold employers accountable for workplace environments where harassment, particularly sexual harassment, occurs. Sexual harassment in the workplace has long been prohibited under the Equality Act 2010, specifically under Section 40, which sets out employer liability for harassment.

However, reports and research have consistently shown that harassment is still prevalent in many industries, and some employers take insufficient steps to prevent it.

This legal change, adding Section 40A to the Equality Act, was driven by the need for stronger preventative measures. Lawmakers wanted to create a financial incentive for employers to actively prevent harassment rather than merely address complaints after they arise.

Now, employers who ignore or fail to mitigate the risks of sexual harassment may face financial penalties, which could significantly increase the costs associated with harassment claims.

How the New Compensation Uplift Works

So, what exactly does this new law entail? Under the updated Equality Act, if a tribunal finds an employer liable for harassment involving sexual harassment, it is now required to consider whether the employer breached its duty to take “reasonable steps” to prevent such harassment.

This duty is codified under Section 40A of the Equality Act.

If the tribunal finds that the employer didn’t fulfil this duty, it can order an uplift to the employee’s compensation. This uplift is significant, allowing a potential increase of up to 25% in the total compensation awarded to the employee.

The tribunal will weigh how substantially the employer failed in its preventative duty when deciding the uplift percentage. For instance, an employer that made no effort to establish anti-harassment policies or provide training could see the maximum 25% uplift applied.

To be clear, this uplift doesn’t just apply to awards for sexual harassment alone. It can apply to any compensation awarded for discrimination. This raises the financial stakes for employers, who now must be proactive rather than reactive in preventing harassment.

How and When an Uplift Applies

One question that naturally arises is the scope of the new law, particularly when an uplift might apply and in what circumstances.

For a tribunal to order an uplift, there must first be a finding that sexual harassment occurred, in line with Section 26 of the Equality Act, which defines harassment broadly and sexual harassment specifically in Section 26(2). However, interestingly, the tribunal can order an uplift even if the sexual harassment isn’t the primary claim before it. Suppose an employee brings a claim of general harassment or discrimination, but the tribunal finds that sexual harassment occurred alongside other forms of discrimination. In such cases, an uplift could still be ordered if the employer didn’t meet the reasonable steps duty under Section 40A.

This raises questions for employers about cases that may involve a broader set of allegations or where sexual harassment makes up part of the overall context rather than the primary issue. If the tribunal finds some level of sexual harassment and a breach of the duty to prevent it, an uplift may be in play.

From What Date Can an Uplift Be Made?

The new Section 40A duty and Section 124A uplift came into force on 26 October 2024. This means that tribunals will only apply uplifts for failures to prevent harassment from occurring on or after this date. However, cases may involve behaviour spanning a period before and after 26 October, and it is currently unclear how tribunals will handle incidents where the alleged harassment occurred before 26 October, but the employer’s failure to take preventative steps continued afterwards. We’ll need to watch this uncertainty as more cases come before tribunals.

Implications for Settlement Agreements

So, what does all this mean for settlement agreements? In cases involving harassment or discrimination, settlement agreements often provide a way to resolve disputes outside of tribunal proceedings. But this new law changes the dynamics, particularly for harassment claims involving sexual harassment.

For Employees:

For employees, the law strengthens the bargaining position in settlement negotiations, as employers will be aware that the risk of a tribunal-ordered uplift exists. Knowing that an uplift could be applied to any compensation award if the tribunal finds the employer liable for harassment may encourage employees to negotiate for higher settlement figures. Employees might leverage this uplift risk to secure terms that better reflect their potential award in a tribunal, which could now be significantly higher than before this law was in place.

For Employers:

Employers, meanwhile, may face added motivation to settle harassment claims early and fairly to avoid the potential uplift in tribunal proceedings. Those who lack comprehensive harassment policies, training, or mechanisms for reporting and addressing complaints are particularly vulnerable under this new law.

This is especially true in industries with documented harassment issues, where employers who might not have previously prioritised anti-harassment measures may need to reassess their approach.

Moreover, employers may ensure that settlement agreements explicitly address any outstanding issues and complaints to avoid future tribunal claims, especially when sexual harassment concerns were raised but not adequately addressed. In some cases, employers might even consider offering enhanced settlement terms to avoid the risk of an uplift altogether.

What Legal Advisors Should Be Thinking About

This new law also highlights the role of legal advisors, particularly when advising employers or employees on settlement terms. If you are an employer’s advisor, you’ll want to help them evaluate whether their current policies meet the “reasonable steps” standards under Section 40A, which could help avoid the risk of an uplift entirely. For employees, advisers in settlement negotiations should now consider this new uplift factor, assessing how it could impact potential compensation if the case were to go to tribunal.

Key Takeaways for Navigating the New Uplift Law

1. For Employers: This law underscores the importance of a proactive approach. Updating anti-harassment policies, implementing training, and creating clear reporting structures are now essential for employee welfare and managing financial risk.

2. For Employees: If you’ve experienced sexual harassment, this law gives you leverage in settlement discussions. Knowing that a tribunal could order an uplift if your employer failed in their duty to prevent harassment can be used to negotiate better terms.

3. For Legal Advisors: For those advising on settlement agreements, this law should now inform both settlement negotiations and risk assessments. Legal advisors may need to reframe how they discuss settlement values now that the threat of an uplifted award is part of the equation.

Closing Thoughts

This change signals a significant shift in how the law addresses workplace harassment, placing clear responsibility on employers to prevent it and applying real financial consequences if they fail. Whether you’re an employer, an employee, or an advisor, understanding this change is crucial for navigating future harassment cases and settlement agreements.

Thank you for joining me, Geoffrey Caesar, Your Settlement Agreement Solicitor.

Please reach out if you have questions or need guidance navigating these changes. I’m here to help.

Until next time, take care, and remember that understanding the law is vital to protecting your employment interests.