Employment law reforms – a price worth paying?

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Overview

On 23 November 2011, Vince Cable announced what have been touted as the biggest changes in decades to employment law. The measures proposed include increasing the qualifying period for unfair dismissal from one to two years, introducing a scheme to facilitate the rapid resolution of workplace disputes, providing small businesses with greater ability to dismiss staff through ‘compensated no-fault dismissals’ and modernising the clogged-up employment tribunal system.

The overriding intention of the proposals is, in the words of Mr Cable, to ‘remove the perverse incentives in … [the] … current employment framework that can dissuade responsible employers from hiring new staff for fear of the costs … incurred if it doesn’t work out’. However, the proposals have been attacked by Labour and the trades union. TUC general secretary Brendan Barber argues that ‘reducing protection for people at work will not save or create a single job. It’s not employment laws holding firms back, it’s the tough economic climate and the problems many companies are having getting the banks to lend to them that’s to blame’. These two quotes capture the key battle ground between those in favour and those against the reforms which, once all the hyperbole is removed, centre around the following - can the proposed reforms can create economic growth and if so, is the dilution of employment rights they encompass a fair price to pay for this growth? Based on my experience, the answer to both these questions is ‘Yes’.

Any employment lawyer who meets the owner of a small business is inevitably subjected to a barrage of criticism about the disconnect between employment laws, employment tribunals and the real world. The view from small businesses is that the law contains too much red tape that hinders hiring and that the costs and delays of the tribunal system are too easily exploited by unscrupulous employees. Interestingly, when pushed, there is near universal acceptance that there should be protection against discrimination: the predominant gripe is unfair dismissal protection and the ease with which someone who everyone knows is not up to the job, can conjure up a claim even when treated fairly. Tellingly, these are both areas where the reforms hit the bulls eye: the only substantive law that they seek to change is unfair dismissal; and their intent is to make the tribunal system quicker, cheaper and more user friendly.

This anecdotal evidence is consistent with evidence gathered by the CBI that small businesses would be incentivised to hire more people if it becomes easier to dismiss people and simpler to deal with workplace litigation.

This evidence is also supported by comparing the UK with other European jurisdictions, where it is often even more costly and cumbersome to dismiss poorly-performing employees. The employment legislation in these jurisdictions is undoubtedly a negative factor when overseas businesses consider where to open new operations.

However, even if the reforms can stimulate economic growth, is the price that employees pay too high?

My view is that it is not – especially when one looks at the substance of the proposals. Despite the shouting, the changes to substantive employment rights are mere tinkering. For example (and quite rightly), there are no proposals relating to discrimination law or laws protecting part-time or temporary workers and there is already a qualifying period in place for unfair dismissal.

As to many of the other reforms, what’s not to like?

• It’s universally accepted that the tribunal system is not working.
• A mediation system to resolve workplace disputes must be welcome to all - provided it is implemented properly and learns from the mistakes of the shambolic statutory disciplinary and grievance procedures.
• A compensated no-fault dismissal system gives both employers and employees certainty as to the costs of a dismissal.
• The wording currently needed for compromise agreements is over the top.
• The scope for employers and employees to have honest and open conversations without the fear of them being exploited in litigation will benefit the dignified and early resolution of workplace disputes.

In addition, in my experience, it is simply not the case that employers want to treat their staff badly. Rather, the interests of employers and employees are frequently aligned. Absent the economic need to do so, no sensible employer wants to get rid of good employees. Quite simply, employers will not be looking to harness the proposals to exploit employees.

Moreover, and very importantly, perception is often just as important as the reality. Therefore if the current laws are perceived as a hindrance to economic growth and the reforms are perceived as a means of removing that obstacle, implementing the changes will shift perceptions in a way that encourages businesses to hire more staff. In these difficult economic times of rising unemployment, anything that can stimulate more hiring must be welcomed.