Major Change to Unfair Dismissal Law - Beecroft Report

27-Oct-2011 On 26th October 2011 the Daily Telegraph leaked a report commissioned by the Prime Minister which recommends a significant change to the current law of unfair dismissal. This is the second announcement of note relating to unfair dismissal, which is being targeted for reform because of its origins as a British law rather than European law which enables Parliament to amend it.

Presently employees with 12 months or more continuous service have the right not to be unfairly dismissed. The government has already announced plans to increase this qualifying period to two years but this latest report advocates going a step further. Currently, as well as identifying a fair reason for the dismissal, an employer must also follow a fair process which, in performance cases, involves giving the employee the opportunity to improve and ratcheting up the seriousness of the sanctions applied for poor performance until ultimately dismissal is the only sanction left. The process can typically take up to six months and if the employee lodges a Tribunal claim, the burden of proof falls to the employer to establish that the dismissal was fair both in terms of reason and process.

Proposals

The report has been drafted by Adrian Beecroft, venture capitalist and Conservative Party donor. In the current climate, Beecroft argues that a change in the law relating to poor performance dismissals would stimulate growth. He also contends that the current unfair dismissal law has created a situation where the public sector is too afraid of unfair dismissal claims to tackle performance issues thereby allowing under-performing employees to coast along unchallenged. In contrast, within the private sector Beecroft believes that the current regime discourages smaller businesses from taking on staff and risking employing unknown quantities.

A new approach is proposed, that of “compensated no fault dismissal” whereby the employee is dismissed with their notice payment, as well as a payment akin to a statutory redundancy payment. The employee would still have the opportunity to argue their case and request a period of improvement or the transfer to a less challenging role, but in the event that no agreement can be reached, the employee could be dismissed by way of compensated no fault dismissal and the employer would have the comfort of knowing that the fairness of the dismissal could not be challenged. The present ability to challenge dismissals which are in breach of contract or for a discriminatory reason will remain.

Analysis

As one would expect, this proposal has caused a stir from trade unions who have labelled it “profoundly unjust”. Political opposition has already come from the Labour Party and the Liberal Democrats are also likely to strongly resist the proposal and the reality is that it is unlikely to be brought into force. However, stripping away the political outcry, what impact would this proposal really have on employers?

Like those employees who currently do not meet the qualifying period for unfair dismissal, those dismissed by way of compensated no fault dismissal are likely to look for another claim to bring including for breach of contract, discrimination or whistleblowing. In the latter claims compensation is uncapped and can include injury to feelings awards which makes assessing financial risk even more difficult for employers. This was a concern identified when the increase in the qualifying period was announced and it is likely that if the current proposals were ever implemented the number of these claims would substantially increase.

Furthermore, once the government increases the qualifying period for unfair dismissal, employers will have significantly more breathing space in which to deal with performance issues in which case, will there be any need for compensated no fault dismissal?

 

For more information about this of any issue relating to employment law contact Sally Bird

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