The promise of increased flexibility and a reduced threat of claims by employees should be a welcome announcement for employers. However, is the government's intention to water down unfair dismissal rights all it's cracked up to be? Leah de Vries and Sarah March discuss.
With effect from 6 April 2012, employees will need continuous service of two years before they become entitled to claim unfair dismissal against their employer. This is double the current qualifying period. Put another way, an employer will have up to two years before the decision to dismiss an employee carries the risk of an unfair dismissal claim.
What is the reform designed to achieve?
This was announced as part of the strategy to generate growth in the UK economy. A popular cause. The rationale behind this change is to reduce risk and employment related costs for employers in the hope that this will lead to an increase in the number of people in employment because employers will have more confidence to take on new staff. The government predicts a 1% reduction in the overall number of tribunal claims being brought and a consequent cost saving of £6million.
It isn't clear whether these predictions take account of the fact that in closing the door to one avenue for disgruntled employees, the unfair dismissal claim, employees will likely pursue other claims instead.
Even if employers are incentivised to recruit, is this with a view to dismissing later (within the two year period)?. An unintended consequence could be the promotion of a culture of employee dispensability which will heighten fear and job insecurity in the workplace. This is unlikely to increase confidence. and generate economic growth. Rather, such insecurity may damage confidence, suppress consumer demand and damage or further delay economic growth.
A misconceived revival?
This change is one we have tried, tested and rejected before.
There is no evidence to suggest that the labour market suffered significantly as a result of the 1975 introduction of a six month qualifying period for unfair dismissal rights or indeed that there was any tangible benefit resulting from the subsequent increase to a two year qualifying period in the 1980s. In fact, there are strong arguments in favour of the current one year qualifying period striking the appropriate balance between allowing employers to make reasonable decisions on employee capability and 'fit' with the culture, and giving employees a much needed sense of job security so as to foster the mutual trust and respect necessary to constitute an effective working relationship between employee and their employer.
Leaving aside the arguments about whether the reform will achieve its stated aims, what of the unintended consequences?
An increase in employment law risk?
It is misleading to suggest that employees who are ineligible to claim unfair dismissal can be dismissed without risk to their employers. There are a number of claims that they could bring, many of which are potentially more costly to the businesses concerned. Firstly, there are discrimination or breach of contract claims which require no service qualification whatsoever. These claims can even be brought prior to an employee's start date, or in the case of discrimination claims, by unsuccessful applicants. In addition, there are an increasing number of exceptions to the '12 month rule' that enable an employee without the requisite service to bring an unfair dismissal claim in any event. There is no suggestion that this list will not remain intact in relation to the new 'two year rule'. The exceptions include allegations that a dismissal is connected with health and safety; pregnancy; statutory maternity/paternity/adoption, parental or dependant care leave; rights under the Working Time Regulations; taking part in protected industrial action; trade union membership or non-membership; participation in trade union activities; an application for flexible working; carrying out jury service; exercising the right to be accompanied to a disciplinary or grievance hearing; the national minimum wage and status as a part-time worker or fixed term employee.
Currently, employees with less than 12 months service who find themselves dismissed are attracted by the prospect of uncapped compensation and favourable burdens of proof that apply to some claims (e.g. complaints of discrimination or whistleblowing). Even if such claims turn out to be weak, an employer is still put to the cost and time of defending the claim. Most employers fear these sort of claims much more than a claim for unfair dismissal which is easier to defend, easier to quantify and for which the average award to a successful claimant is less than £5000.
Increasing the qualifying period from 12 months to two years will place more employees in the situation where they are tempted to explore such options. If they are disgruntled with the treatment from their employer and the 'normal' route of an unfair dismissal claim is unavailable then they will, as they do now, look to these alternatives for recompense.
ONS figures suggest that an extra 12% of employees will potentially be denied the chance to claim unfair dismissal due to length of service as a result of the change in the law. This is a significant number of employees who will present a greater risk to their employers as they try to bring alternative claims such as those referred to above.
Ongoing uncertainty?
Transitional measures set to deal with those employees who will have at least 12 months of service on 6 April 2012, have yet to be published. It is currently unknown what the position will be for those employees who will have more than one year but less than two years service when the new legislation comes into force.
If a simple 'cut-off' approach is taken, some will perceive this to be an unfair, almost retrospective, alteration of these employees' rights. They will essentially have their qualification for unfair dismissal rights taken away from them by the change.
Alternatively, the transitional arrangements will ensure that an employee's start date is the crucial factor (i.e. anyone who starts employment on or after 6 April 2012 will be subject to the new (two year) rule). This will delay the positive effect of the reform for employers which the Government is keenly promoting.
The other possible approach is a complex 'staggering' of the implementation of the change, much like last year's arrangements for implementing the changes to the rules on retirement which caused so much confusion. We shall have to wait and see which option is preferred. Hopefully, the Government will learn from previous experience the value of simplicity and certainty for employers.
A potentially discriminatory law open to challenge?
Challenges to the new qualification period may arise on the basis or sex or age discrimination.
The previous two year threshold was the subject of a challenge on the basis that it indirectly discriminated against women (i.e. a much larger proportion of women were falling foul of the two-year threshold due to their less conventional working practices, career breaks etc).
The House of Lords found that the two year threshold was in fact discriminatory. However, on the basis that it was in pursuit of a legitimate social policy aim, it was held to be justified.
If such a challenge was to be brought again, it remains to be seen whether the courts would find in the Government's favour this time. In a society markedly different from that of the 1980s with a more sophisticated 'flexible' labour market and many more rights for working parents, the court may be more reluctant to allow discriminatory impact on women in pursuit of the Government's rather vague social policy objective of 'generating economic growth'.
Alternatively, the changes in society since the previous challenge may make it harder to demonstrate the discriminatory impact of an increased qualification period on women. Increases in flexible working patterns and men increasingly taking up opportunities to share care of dependents means that the courts may not readily accept that such an increase does disadvantage women in any event.
A second area in which the potentially discriminatory character of the legislation could be challenged is that of age discrimination. At a time when youth unemployment has reached a record high, this further reform threatens to add insult to injury for young people. Arguably the most vulnerable group in the workforce and worst hit by joblessness, with less opportunity to accrue the requisite two years service than older workers, young people may make better 'test cases' for those keen to challenge the new law.
Whilst the government acknowledges this 'unsurprising' impact on younger employees, they perceive it to be just one of a number of insignificant and incidental impacts the legislation will have. Whether they will have sufficiently strong justification to rebut a legal challenge is uncertain. It will also be interesting to watch how the Government balances the calls for support for graduates and young people in the workforce, against this rather dismissive attitude to the potentially negative impact of this reform..