Will the next government put the ‘fair’ back into unfair dismissal law?

Last week, for some reason, my mind kept wandering back to 2011, the year in which every stakeholder meeting with BIS officials was dominated by a shouty policy wonk from the British Chambers of Commerce. The year in which BIS spent taxpayers’ money compiling a consultation response that – without so much as a ‘winking’ emoticon to let you in on the joke – stated:

In a survey of 1,100 of their nuttiest members, the Institute of Directors told us that large numbers of businesses had expressed concerns about dismissal and the risk of tribunal claims in relation to recruitment plans. Fifty-one per cent of respondents to the survey said that the one-year qualifying period for unfair dismissal was a ‘significant’ or ‘very significant’ factor in considering whether to take on an additional employee.

Yes, OK, I added ‘nuttiest’. But I don’t think it makes any difference. For the fact is business secretary Vince Cable opted to extend the unfair dismissal qualifying period to two years, on the basis that 561 (two per cent) of the 34,000 members of a Pall Mall-based organisation that’s had only two female heads in its 112-year history thought they could get a bit more deregulation of the labour market by ticking a box in a survey questionnaire. Perhaps, being a Liberal Democrat, Dr Cable just felt a natural affinity with the largely woman-free Institute.

To be fair to Dr Cable, the somewhat less nutty CBI did say that extending the unfair dismissal qualifying period would “have a positive impact on marginal hiring decisions, particularly in smaller firms.” But then that sort of depends on how you define ‘marginal’. Because what the November 2011 BIS consultation response failed to note is that, at that time, the UK’s 1.2 million employers faced an unfair dismissal claim just once every 27.5 years, on average. So, if business leaders really were hamstrung by anxiety over whether their next hiring decision would result in an unfair dismissal ET claim, then we know who to blame for the UK economy lagging behind so many of its competitors.

The BIS consultation response also overlooked the fact that, as shown by the following chart, the number of unfair dismissal claims had been declining steadily since early 2009 (when, of course, the economy was not exactly in best form). Faced with such statistical evidence, as distinct from the views of a self-selecting sliver of the membership of an exclusive Pall Mall club, most time-pressed ministers would probably have opted not to try and fix something not obviously broken. But poor Dr Cable had the abominable Adrian Beecroft and his pals in 10 and 11 Downing Street to deal with. So, with the economy struggling to get out of first gear, Dr Cable thought it best to make workers (aka consumers) a little bit more insecure, but not quite as insecure as Beecroft would have made them.

UDeras

And so it was that, in April 2012, the Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 2012 extended the unfair dismissal qualifying period from 12 months to two years, and what we might call the Blair-Brown era of unfair dismissal claims (the red columns in the chart) came to an end. Then, somewhat ironically, given that the BIS consultation response had predicted the extension would result in a 3.3 per cent fall in the number of unfair dismissal claims, the dawn of the Beecroft-Cable era (the blue columns in the chart) saw a not insignificant increase in the number of such claims. (That 3.3 per cent, incidentally, is what we policy nerds call ‘spurious precision’. BIS had absolutely no idea how much claim numbers would fall by, if at all, but cunningly concealed that fact by suggesting it had calculated the drop to a tenth of one per cent. MPs and especially journalists fall for this every day of the week.)

Yes, there might have been an even bigger rise, had Dr Cable not acted as indecisively as he did. There’s simply no way of knowing. Whatever, by early 2013, the number of unfair dismissal claims had slipped back pretty much to where it had been in late 2010. And then, of course, we entered the Grayling-Swinson era (the orange columns in the chart), during which the number of unfair dismissal claims has fallen to levels not seen since the Institute of Directors last had a female head, in 1926. With the result that UK employers now face an unfair dismissal ET claim just once every 87 years, on average.

In short, this was evidence-free policy making, based on nothing more than an ideological hunch that eroding legal protection against unfair dismissal would somehow boost job creation. Yet, amid ever greater casualisation of the labour market, the move has unquestionably shifted the imbalance of power between workers and employers a little bit more in favour of the latter. So, with the economy now doing somewhat better than it was in late 2011, there’s a good case for putting the qualifying period back to one year (or even lowering it all the way to six months).

Good employers would have nothing to fear from such a move, as the law on unfair dismissal does not prevent an employer from dismissing a qualifying employee for incompetence or even just for not working hard enough – it simply requires the employer to follow a fair process when doing so. And, as Simon Jones notes in this blog post, that isn’t hard to do. But a shorter qualifying period would create a bit more security in what is an increasingly insecure labour market.

It seems safe to assume this is not a direction of travel in which Conservative ministers would go after 7 May, and the Liberal Democrats’ pre-manifesto, published last September, is entirely silent on the matter. The July 2014 report of Labour’s National Policy Forum, which is supposed to form the basis of the party’s general election manifesto, does include the extension of the qualifying period among a list of Coalition policies that have “fundamentally undermined employment rights”, but there’s no clear commitment to reverse the extension. Similarly, Labour’s better economic plan for prosperity, published yesterday, states:

The [Coalition] Government has actively encouraged a race to the bottom [in wages and skills] by weakening the UK’s enforcement regime and promoting a hire-and-fire culture: doubling the qualification period for unfair dismissal; introducing fees for employment tribunals; and setting up a controversial scheme whereby employees trade their employment rights in return for a share in the company.

Despite this highlighting of the issue, there’s still no place in the plan for a pledge to reverse the doubling of the qualifying period for unfair dismissal (or, indeed, to do anything at all about the equally controversial employment tribunal fees). But then there was no mention in the National Policy Forum report of increasing paternity leave and pay, and that omission – together with a price tag of some £150m per year – hasn’t prevented Ed Miliband from pledging to do exactly that if Labour win in May.

If they genuinely believe in supporting businesses to win the race to the top, not get dragged into a race to the bottom, senior figures in both Labour and the Liberal Democrats should ensure their election manifesto includes a commitment to promptly lower the unfair dismissal qualifying period to 12 months. British bosses should not need more than 12 months to decide whether or not they’ve hired the right person. And the Institute of Directors should be told to go fish.

2 thoughts on “Will the next government put the ‘fair’ back into unfair dismissal law?

  1. I couldn’t agree more with your view on the IoD and the arguments that led to the extension of the qualifying period. However realistically none of the parties are going to mention unfair dismissal in their manifestos. If anything manifestos are less detailed now than they used to be, but the extension of the qualifying period to two years was not mentioned in the 1983 Conservative manifesto and the cutting of the qualifying period back to one year was not mentioned in the 1997 Labour manifesto.

    What we can say is that after the next election we will either have a labour led or conservative led Government. Whatever the manifestos say, that will be of crucial importance to unfair dismissal law. This time, however, what is at stake is whether we have an unfair dismissal law worthy of the name or not. If the Conservatives are in we need to brace ourselves for the return of Beecroft.

  2. Compared to other countries the UK has, I believe, just about the ‘fairest’ set of employment regulation in the world due to its light and even approach. The regulatory equivalent of optimal tax policy.

    [This is largely a historical accident. It is due mostly to the fact that the UK has tended to rely on the individual law of contract and the fact that both employers and labour have until relatively recently avoided legislation of terms and conditions of employment. They believed they were better placed to achieve positive outcomes without state intervention (apart from policing the law of contract)].

    The ‘even’ approach generally treats all forms of employment are treated equally before the law – the regulatory . So, compared to other countries there are not the equivalent of (say) ‘mini’ jobs in Germany or the sort of favoured standard or typical workers that you find in many other countries.

    And the ‘lightness’ of the regime is largely for the favour of outsiders so that ‘outsiders’ are not excluded from taking up jobs. And this is one of the reason why – compared to other countries there is a ‘fairer’ and more even distribution of employment in the UK with employment rates of women, younger and older people as well as other groups higher than in many/most other countries and much closer to the employment rates of so-called ‘prime age’ men which tend to be high and much more similar across countries.

    Some of this is discussed in the link below which I contributed to before I lef the Civil Service and is partly based on research that I carried out or was associated with in the UK, the EU and the OECD. [For example, the OECD index of the strictness of employment regulation was originally based on a paper by Grubb and Wells.]

    https://www.gov.uk/government/publications/employment-regulation-employment-and-growth-consideration-of-international-evidence

    In terms of the avoidance of exploitation in the labour market – equality across the means of exchange – in the UK this has largely been determined through a Beveridgean welfare state and competitive product markets. So, if the terms and conditions prove too much for the worker they can vote with their feet and either find another better job or get income from benefits. That is, I believe, why levels of satisfaction tend to be higher in the UK than elsewhere and – according to the latest Workplace Employment Relations Survey – saw levels of satisfaction and well-being growing between 2004 and 2011 – despite the fact that the latter survey was very close to the great recession.

    Of course there is more to do. European legislation is literally alien to both the principles and the practice of the UK legislative tradition and so – because subsidiarity has not been practiced – it has been necessary to smash two ill-fitting systems together which has led to awkwardnesses and unfairness and ucertainty. My view is that the attention should be on modernising the law of contract and then have the ’employment rights’ hanging off of it.

    Bill Wells

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