More ado about employment law reform

As part of the Government’s programme of reforms to grow business BIS has called for evidence on the controversial compensated ‘no fault dismissal’ for small (10 employees or fewer) businesses. BIS noted that small businesses have the highest rate of turnover and that minimal employee protection tends to result in more hiring and firing. It is this phenomenon that the Government fervently hopes will kickstart some economic growth at the smaller end of business. At the same time, the Enterprise and Regulatory Reform Bill has been published, proposing a mandatory conciliation process before claims are brought and a power to vary (upwards or downwards) the maximum compensatory award for unfair dismissal.

Adrian Beecroft’s report (prepared last year but recently publicly released and covered in our last blog) emphatically endorsed the approach of no fault dismissal and the BIS research studied relevant procedures introduced in Germany, Australia and Spain, each of which exempt small businesses from certain aspects of unfair dismissal regulation.

It is, we think, fair to say that the surveys are neither conclusive nor are they easily referable to our legal system in the UK. Germany and Australia have tinkered with reforms that have left them with exemptions for small employers with fewer than 10 and 15 employees respectively and Spain’s employee dismissal exemption is not targeted just at small businesses but all employers.

The rationale behind the reforms in Spain was to rebalance power towards employers and reduce the numbers of temporary workers. Spanish employers can dismiss and pay statutory dismissal compensation (for a dismissal based on ‘economic’ reasons) within 48 hours of a dismissal letter. The result has been a significant increase in the number of compensated dismissals.

It seems to us that therein lies the rub. There appears to be no persuasive data that indicates that economic growth results from the introduction of compensated no fault dismissals. What has happened is that the new option becomes the habitual means of dismissing staff. As the BIS research itself notes, in Spain ‘unfair dismissal [became] the norm rather than the exception’. Further, the BIS report was unable to identify growth in employment and productivity in Germany and Australia.

Is this the kind of work culture that we would welcome for the UK? A combination of a lack of employee confidence and no guarantees for growth seems to be a dangerous path to follow. The existing system in the UK for unfair dismissal may be imperfect but a system that encourages the ‘buying off’ of employees’ rights seems a commoditisation too far. Together with the ability of the Secretary of State (subject to the ERR Bill being passed) to order a downward variation of the unfair dismissal compensatory award cap, it would appear that job insecurity and a lack of employee confidence will be the most likely outcomes should these proposals come to fruition.

Susan

Some Random Thoughts Upon the Beecroft Report on Employment Law

I write this as one who for most of her career has acted for employers – small, medium and large – and has often admired BIS (and before that, DTI) reports for their thorough review of existing employment law and reasoned, evidenced recommendations. So I was interested to read this. I won’t pretend this is a comprehensive review of the 24-odd pages of the report, let alone the vast swathe of law it considers. But here are a few quotes, with some of my thoughts – imagine them scribbled on the back of an envelope.

“The rules (sic) both make it more difficult to prove someone deserves to be dismissed, and demand a process for doing so which is so lengthy that it is hard to implement”

I think what must be meant by “the rules” is the part of the ERA which says that an employer has a right not to be unfairly dismissed by his employer. What is fair or unfair, depends on whether the reason for dismissal is for one of a number of specified reasons (including conduct and capability) plus any other substantial reason for dismissal (so, any good reason, then…) and further depends on whether “in the circumstances (including the size and administrative resources of the employer’s undertaking) (my emphasis) the employer acted reasonably or unreasonably in treating it (the reason) as a sufficient reason for dismissing the employee”.

This is what makes this country one of the top 3 easiest countries in the world to sack someone. A dismissal can be for pretty much any reason (apart from unlawful discrimination and a strictly defined list of other reasons including being pregnant, or a trade union member, or having asserted your right to be paid minimum wage), and will be fair if the employer goes about the dismissal in a reasonable way, taking into account whether the employer is a small employer or a large one, and what administrative resources he has. All the rest is just guidance, advice,  HR practice and mythology.

The essential parts of these various sources of guidance is that employers should not dismiss employees  without first talking to them about the reason they are considering dismissal, and listening to what the employees have to say. The report doesn’t really seem to argue with that: “The employee should be given a chance to argue his or her case” (a bit like a disciplinary hearing, really), and “A brief consultation period seems reasonable”.

One area where I think help could be given to small businesses is to make it clear in the ACAS code of practice how they can comply with the ERA given their small size and lack of administrative resources – for example practical guidance on how to conduct a reasonable dismissal in a one manager business (employers often worry about how to be impartial, and how to handle appeals) – a bit like the section of the report on TUPE, where it calls for some authoritative guidance on what amounts to a potentially fair TUPE dismissal. There is help out there, but it does tend to get a bit buried in a lot of technical discussion.

After proposing a system whereby an employer can dismiss an employee without giving a reason, (subject to the points above about listening to the employee and consulting with him or her) the report goes on to say:

“The downside of the proposal is that some people would be dismissed simply because their employer did not like them. Whilst this is sad I believe it is a price worth paying….”

The section on third party harassment is curious. Firstly it looks as if harassment of one employee by another is regarded as a form of third party harassment, ignoring well established principles applying the law of vicarious liability to harassment cases. I’d strongly suggest the author of the report have a look at the facts of some of the well- known cases, before deciding that employers should bear no responsibility for what goes on under their management.  The report also seems to ignore the fact that that good management – such as making it clear that you will discipline anyone caught racially or sexually harassing a fellow worker – is a perfectly good defence for an employer. I’d grant that third party discrimination cases are more problematic – but there the employer is only liable if they know about the harassment and do nothing to stop it being repeated. And I really wonder where the evidence is for this statement:

“The legislation clearly creates a temptation for employees to conspire with each other or with customers to create a harassment situation which might result in substantial financial compensation”

I’ve seen a few weak cases in my time, but generally the problem is an exaggerated view of the pot of gold to be had from a tribunal, (which  is encouraged by press reporting of cases  where compensation is based on breach of contract and not  unfair dismissal ) rather there being no foundation whatsoever for the claim. I don’t think I’ve ever run across a conspiracy to extract compensation from an employer either in practice or in years of reading and writing case reports …

One of the areas where the lack of reference to evidence undermines the credibility of the report is in relation to the charging of fees for tribunals and levels of compensation. I’d be much more convinced by the suggestion that the estimated remission of fees charged could come down to 10% of cases if claimants’ “wealth” is taken into account if some evidence were quoted. If an employee is dismissed unfairly, he or she loses his or income, and under current rules gets no benefits to help with paying the mortgage for at least 13 weeks. The form of “wealth” most people have is their house, and by the time they get to a tribunal hearing they are likely to have been without an income for several months and will be behind on their mortgage. Okay, I’m not citing evidence, but I’d interested into know where the 10% figure comes from.

Likewise on levels of compensation, there is a wealth of evidence available , including details of the levels of “Polkey “ deductions “(reductions in compensation to reflect the possibility that a dismissal would have taken place anyway, had a fair procedure been followed). So why not quote it, if it supports the proposition put forward?

There‘s a lot more I could say about the holes in the arguments put forward – but a birthday tea beckons, so I’ll just round off with a last quotation:

“Quantifying the loss of jobs from the burden of regulation, and the economic values of those jobs, is an impossible task.”

So why not stick a finger in the air and try a few things to see if they help? I was recently reminded that the whole concept of unfair dismissal was introduced in the ‘60’s  to reduce the number of strikes over dismissals. And it worked, too, which may be one of the reasons that the legislation has survived through many changes of government.  Perhaps some reflection on the law of unintended consequences is called for.

Jo