Leaked government report calls for ‘no-fault’ dismissal

In October 2011, a report commissioned by the UK government was leaked to a national newspaper, revealing proposals for the abolition of employees’ rights to claim unfair dismissal in certain circumstances. As an alternative, the report proposed introducing a ‘no-fault’ scheme, whereby employers could dismiss employees without giving them a reason and make only basic redundancy and notice payments. The proposals have prompted strong criticism from social partners.

Employment law review

The UK’s Conservative-Liberal Democrat coalition government launched a review of employment law when it took office in May 2010 (UK1005019I). The aim was to ‘maximise flexibility for both parties while protecting fairness and providing the competitive environment required for enterprise to thrive’, as stated in the coalition agreement (475Kb PDF).

The review has continued since (UK1102019I, UK1105019I and UK1107039I) and in October 2011 the government launched a public consultation on employment law, seeking views on whether current rules are still necessary, and whether they can be simplified or better implemented.

The concrete outcomes of the review have so far been quite limited, with the main results including:

  • A repeal of the planned extension of the right to request flexible working to parents of children aged 17 (UK1104049I);
  • a decision not to extend the right of employees to request time off for training to companies with fewer than 250 staff (UK1104049I);
  • the announcement of an extension of the qualifying period of employment required before an employee can claim unfair dismissal, from one to two years, and of the introduction of fees for employees bringing employment tribunal cases (UK1110019I).

Beecroft report

There has been considerable speculation as to whether the employment law review will lead to more radical changes than have so far been announced. The speculation was further fuelled in October 2011 when it emerged that Prime Minister David Cameron had commissioned Adrian Beecroft, a venture capitalist, to draw up a report on employment law reform.

Part of the confidential report, dealing with unfair dismissal, was leaked to the Daily Telegraph newspaper. According to the newspaper, the report states that current unfair dismissal rules and the ‘lengthy and complex’ procedures involved, make it very difficult for employers to terminate the employment of underperforming employees, and deter small employers in particular from recruiting staff. The current system makes it ‘too easy for employees to claim they have been unfairly treated and to gain significant compensation’, it says. The report goes on to say the current system has a ‘terrible impact’ on the efficiency and competiveness of businesses.

The report therefore suggests an innovative system of ‘compensated no-fault dismissal’. Employers could dismiss employees without giving a particular reason, as long as they give the same notice and termination payment as would apply in the case of redundancy. Such dismissals could not be deemed unfair, unless unlawful discrimination was involved. This would ‘give certainty to the employer that an employee can be dismissed in a relatively short period at a known cost and with no fear of a referral to a tribunal’.

Reactions and prospects

The leaked proposals on unfair dismissal were strongly criticised by trade unions. Brendan Barber, General Secretary of the Trades Union Congress (TUC), said:

Scrapping protection against unfair dismissal, even for people who have given years of loyal service, will do absolutely nothing to boost the economy. Indeed, if people are constantly in fear of losing their jobs it will lead consumers to spend even less. But while this proposal does nothing for growth, it does show the kind of economy those close to the Prime Minister want to create – one in which nasty bosses are given full licence to undermine those trying to maintain decent standards.

Mike Emmott is employee relations policy adviser at the Chartered Institute of Personnel and Development (CIPD), which represents human resources professionals. He said ‘the argument that the way to get Britain back to work is … to make it easier to dismiss workers without good cause, is highly questionable’ and would not ‘make any meaningful difference to unemployment’.

By contrast, some business organisations welcomed the proposals. Simon Walker, director general of the Institute of Directors (IoD), said:

The IoD strongly supports radical change to employee dismissal processes and fully backs ‘compensated no-fault dismissal’ as part of a solution. Ministers would do well to act upon Mr Beecroft’s suggestions, freeing up wasted time and money from litigation and ensuring it is instead channelled into job creation and business growth.

Since the document was leaked, there have been media reports of deep divisions within the governing coalition over the idea of compensated no-fault dismissal. At the time of writing, the latest reports suggest the government will not go as far on changing dismissal rules as proposed by Beecroft. However, there may be more movement on a number of other proposals in unleaked sections of his document, which reportedly include a targeted lightening of the employment law ‘burden’ on small companies.

Mark Carley, IRRU/SPIRE Associates

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