Vince Cable Employment Law Reforms

 BUSINESS Secretary Vince Cable announced a turnaround on part of his plans to radically reform the rights of employees.

Following calls to produce evidence that his rushed through proposals will boost growth and jobs, he has admitted there is scarce evidence to back his proposals. The result has been a turnaround on the ‘no fault dismissal.’ However, Cable is still intent on pushing forward proposals in the controversial Beecroft Report.

The coalition government’s on-going employment law reforms include amongst them new employment rules, caps on unfair dismissal awards and measures aimed at encouraging the use of settlement agreements.

The government has recently published the results of two recent calls for evidence, covering dismissal (including compensated no-fault dismissal) and the effectiveness of TUPE 2006. It will consider what policies to put forward for consultation on TUPE 2006 in due course.

The coalition government has been notable for its focus on reviewing employment rights legislation which they have frequently labelled as 'red tape', with the focus on encouraging more relaxed employment law in order to speed up economic recovery. The Enterprise and Regulatory Reform Bill 2012-13 ('ERRB') is currently before Parliament.

No-fault dismissal

Announcing its response to the call for evidence on 'compensated no fault dismissal' for micro-firms, one of the more controversial ideas raised in the Beecroft report, BIS has confirmed that, on the evidence presented by business, the proposal for no-fault dismissal will not be taken forward.

This has followed widespread condemnation to the proposal, not just from employees but business groups as well. The Federation of Small Businesses was wholly against the proposals for ‘no fault dismissal’ stating there is no evidence to suppose that it encourages employers to hire. The EEF, formerly the Engineering Employers’ Federation’ believed the benefits were limited, having no effect of recruitment plans and risking undermining good employee relations in some firms.

This measure could well have resulted in more problems for the employer with an influx of discrimination claims which are much more complex, time consuming and expensive to defend.

The government has instead decided to work with Acas to improve the Code of Practice on Disciplinary and Grievance procedures and to develop an "interactive tool" to help small businesses in using the Code. The government has also asked Acas to consider how procedures for poor performance could be better distinguished from procedures for misconduct, while also keeping the Code as concise as possible.

This can only be a step in the right direction. The problem is that business owners struggle under the barrage of employment legislation neither having the time nor the resources, to deal effectively with employee problems. Yet, the rules are already loaded in the employer’s favour: with the right policies in place and the right support from employment law specialists, they should be able to manage employee relations effectively under the existing legislation.

Unfair dismissal compensation

The ERRB gives the Secretary of State the power to vary by order the statutory limit on the compensatory award in unfair dismissal claims. Under current proposals, the government would have very wide powers to decide to lower the cap. It could be set at an amount of between one and three times' median annual earnings (currently £25,882 - £77,646), or a number of weeks' pay (not less than 52 weeks), or the lower of these two figures. The amount could differ for different types of employer.

The consultation paper 'Ending the employment relationship' seeks views on the proposed level of the cap and how it should be calculated. There is no proposal to change the basic award. The consultation closes on 23 November 2012.

This measure will have the result that employees, who have lost their jobs and spent a substantial period of time bringing a claim to tribunal, will be unable to recover all of their losses. And Cable wants to push through this proposal immediately, which will be a blow to employees rights.

Encouraging the use of settlement agreements

The government has also been keen to look at ways of encouraging employment disputes to be settled rather than litigated, encourage the greater use of compromise agreements, to enable an employment relationship to be ended on agreed terms. The ERRB includes provisions that would rename compromise agreements as 'settlement agreements' and give employers more freedom to have discussions with an employee about proposed terms of settlement outside the context of an existing dispute (in other words, where the without prejudice rule would not apply), and not have those conversations referred to in any future unfair dismissal claims.

In my experience, compromise agreements work and help both parties come to an amicable solution which satisfies them both. Cable’s vision of ‘settlement agreements’ is a different animal altogether. This could allow employers essentially to bribe their unfavoured employee with a secret pay off. If refused, the worker remains in position with all employee relations disintegrated and possible avenues opened to bring a tribunal claim on the grounds of discrimination.

The government is pressing ahead with these reforms on the basis of removing 'red tape', and promoting greater flexibility in employment and thereby encouraging economic recovery. Against this, they are facing increasing resistance in terms of individually and collectively reducing protection of employees from unscrupulous employers.

Vince Cable’s vision that deregulation of the UK employment laws will boost the economy is badly flawed. The UK is already one of the least regulated countries and some nations with higher regulation have been matching or outstripping the UK’s economic performance. How can firing at will create more jobs? This could lead to a fearful, disenchanted workforce concerned with job security and squirreling away their money rather than spending it: the only way to make our economy grow. And how can the rights of the worker depend on the size of the company! Small businesses will soon become an unattractive option for the employee searching for job security.

The recession has not been created by employees’ protection at work and the de-regulation process will not create more jobs. These pushed through reforms based on little evidence (due to lack of time says Cable) are reckless and worrying and could create innumerable problems for business owners and employees alike, not to mention the possibility of serious social unrest due to the erosion of hard-won workers rights. The Government need instead to focus its efforts on creating more support for businesses to manage the existing workplace rights.

The effect of Spain deregulating and watering down employees’ rights has not boosted their flailing economy: rather it has to concentrated the money in the chosen (and privileged) few. Is Cable doing the same and is this a return to the laissez faire liberalism of the 19th Century? A governmental attitude which was forced to be abandoned by the necessities of securing the loyalty of the workforce to fight the First World War and whose perceived injustice saw the Liberal party out of office for close to a century.

More detail on the individual elements of the proposed Employment Law Reforms can be found in the Employment Law Section. You can also gain more information by contacting Christina Reed on 01772 555 176 or email christinareed@vslaw.co.uk

Christina Reed
Head of Employment Advisory Services
Vincent's Solicitors