How not to measure the ‘level of ET claims’. Oh, too late …

Last weekend, Giles Wilkes – who served four years as special adviser to then business secretary Vince Cable – responded to a fairly innocuous blog post of mine, in which I urge new Tory ministers to conduct their long-promised review of the employment tribunal fees regime introduced in July 2013, by tweeting back:

Was there definitely nothing wrong with [the] ex-ante level of claims?

Now, this is uncomfortably close to one of the standard responses to criticism used by political scoundrels throughout public policy history: ‘So, you would have done nothing, huh?’ To which the answer is almost always: ‘No, I just wouldn’t have done what you did’. And my tweeted retort to Giles was indeed that there was “very little” wrong with the level of claims in mid-2011, when Dr Cable and then justice secretary Ken Clarke agreed to introduce hefty claimant fees, not least because claim/case numbers were at that time going down.

However, as one of the good guys in life (and the Coalition government), Giles deserves a fuller response to his question than it is possible to give in one or two tweets. So I promised him this blog post. What a lucky chap he is.

So, what was the ex-ante level of ET claims (or cases) in 2011? Well, the answer to that question is slightly complicated by the fact that there are two different types of ET case: (a) single claims/cases brought by individual workers; and (b) multiple claimant cases involving tens, hundreds or even thousands of workers, each with an identical (or very similar) claim against the same employer. For example, in 2012-13 – the last year before fees – there were 54,704 single claims/cases, and 6,104 multiple claimant cases (involving a total 136,837 claimants), brought against a total 60,808 employers (give or take some single claims brought against the same few recidivist employers). And, as a result, there are two alternative ways of measuring the ‘level of ET claims’.

The first way is to add the number of single claims/cases to the total number of claimants in the relatively small number of multiple claimant cases. This produces the ‘headline’ measure used exclusively (and wrongly) by Coalition ministers in 2011, 2012 and 2013. Giles will know better than me why they chose to use this measure, but the number of claimants involved in a handful of unusually large multiple claimant cases (mostly equal pay claims brought against NHS trusts and local authorities) enabled ministers to make otherwise un-evidenced (and grossly misleading) statements such as:

“Workplace disputes are increasingly being settled through tribunals – over 200,000 claims last year. We are in danger of getting away from the principle that they should be the last resort, not the first option.”

The second – and far more meaningful – way to measure the ‘level of ET claims’ is to total the number of single claims/cases and the number of multiple claimant cases. This is the measure that Dr Cable and Giles Wilkes should have focused on in 2011 and 2012, for two simple reasons: (i) it’s a much more meaningful measure of the workload of the ET system (as, in most multiple claimant cases, the tribunal only has to resolve one or two lead claims, even if there are 50,000 claimants in the case); and (ii) it equates to the number of employers affected. And, if that was obvious to me – a lowly policy officer in an under-resourced charity – in late 2011 and early 2012, it should have been obvious to the business secretary, his SpAD, and the then employment relations minister, Ed Davey.

This measure of the ‘level of ET claims’ is set out in the following chart, from which we can see that, in 2008-9 and 2009-10, the number of ET cases did rise quite significantly. However, as economists, Dr Cable, Giles Wilkes and Ed Davey would have known that this was entirely to be expected, given a little local (and global) difficulty in the economy from late 2008, and the associated wave of job losses and outright business failures. Indeed, in early 2011 a regulatory impact assessment issued by Dr Cable’s department noted that there had been “a clear rise in [the number of ET claims for unfair dismissal] coinciding with the downturn in the economy and particularly the level of redundancies which peaked in the second quarter of 2009”.

annual for GW blog

We can also see that, in 2010-11 – the first financial year of the Coalition government – the number of ET cases fell by 13 per cent, from 78,700 to 68,500. These figures were published in the autumn of 2011 – several weeks before Dr Cable announced the plan to introduce ET fees on 23 November – but they would have been available to, say, a SpAD in the private office of the business secretary or the BIS employment relations minister several months before that.

So, when Dr Cable told that somewhat partisan audience at the EEF in November 2011 that “we are in danger of getting away from the principle that [ETs] should be the last resort, not the first option”, he knew – or should have known – that the level of claims was in fact falling sharply. And, later, he would (or should) have known that this downward trend continued in both 2011-12 and 2012-13, as he and Ken Clarke (later Chris Grayling) finalised the ET fees regime for implementation in July 2013 – by which time the ‘level of claims’ was pretty much back to its lowest level since the turn of the century. In short, Dr Cable and his ministerial colleagues at the Ministry of Injustice could have ‘achieved’ a record low level of ET claims without even going into the office.

Now, Giles might well say that, just because the level of claims was falling, it cannot be said that there was nothing wrong with the level of claims. I cannot actually recall Dr Cable, Ed Davey or Norman Lamb making any speeches along the lines of ‘the level of ET claims is falling to a record low, but that is still far too high so we must take radical action to reduce it by another 65 per cent, and sod access to justice’, but hey. Nor can I recall even the maddest of the employer lobby groups suggesting that two-thirds of all ET claims were vexatious.

So let’s look at that 2010-11 figure of 68,500 ET cases more closely. Only about two-thirds (i.e. 45,000) of the 68,500 employers affected were private sector businesses, as one-third of all cases (and the vast majority of multiple claimant cases) are brought against public or voluntary sector employers. And there are about 1.2 million private sector employers in the UK. Accordingly, at the time Dr Cable rose to his feet at the EEF in November 2011, the average private sector business employer risked facing an ET claim about once every 27 years. Yet, according to a series of speeches delivered by Dr Cable and other ministers, this marginal risk was enough to keep our valiant entrepreneurial classes awake at night as they fretted over whether to take on another employee.

None of which is to say that, in 2011, there was not scope to improve the speed, consistency and efficiency of the ET system (and, to that end, I was later to play a tiny but entirely supportive role in the Underhill review of the ET procedural rules, also announced by Dr Cable in November 2011). But introducing fees of up to £1,200 to bring a claim for unfair dismissal or pregnancy-related discrimination was never itself going to improve the speed, consistency or efficiency of the system. Nor is it to say there was no case for a genuinely fair and reasonable ET fees regime – I argued for such a fees regime in 2012, including in the response of Citizens Advice to the formal consultation on ET fees, and have continued to do so ever since. Was Giles even aware of such alternative proposals for raising the Ministry’s £9-10 million per year?

In short, Vince Cable appears, at best, to have consented to Tory ministers’ proposal for hefty claimant fees on the basis of an entirely false premise about the ‘level of ET claims’, and without any evident understanding of the predictable (and predicted) impact of such prohibitive fees on workers’ access to justice. But then why spend time searching out the (informed) views of lowly third sector policy wonks or employment lawyers when you can spend it hanging out in the grand offices of the Institute of Directors and British Chambers of Commerce?

Throughout the lifetime of the Coalition, the Liberal Democrat ministers at BIS – Vince Cable, Ed Davey, Norman Lamb, Jo Swinson and Jenny Willott – appeared entirely uninterested in what they might learn from those outside the powerful lobby groups with their vested interests. And now, having ignored us, our evidence and our (dire) warnings for five long years, during which they consented (seemingly without much of a fight) to the single most damaging reform ever made to Britain’s system of employment rights – far more destructive than anything proposed by Adrian Beecroft – they blithely assure us we will miss them.

When it comes to employment rights, what’s to miss?

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.