Beecroft Report: bonkers or blueprint for the future?

This article first appeared in Employment Law Journal, 1 July 2012

Despite the controversy surrounding Adrian Beecroft’s proposals to make it easier to sack under-performing employees, a number of his ideas may yet make it onto the statute books, report Richard Kenyon and Jennifer Platt.

Richard Kenyon is a partner and head of the employment and pensions group at Fieldfisher and Jennifer Platt is an Associate within the group.

The publication of the previously leaked Beecroft Report in May 2012 generated some dramatic headlines and polarised comment. Vince Cable, the business secretary, described some of the proposals as "bonkers" and Adrian Beecroft apparently retorted that Cable was a "socialist" who has done "little to support business". It is all too tempting to go for the man rather than just his ideas: Beecroft, the Aston Martin driving asset stripper and pantomime villain, pontificating about easy and cheap ways of sacking poorly performing staff. The Report itself might be summed up as little more than a pamphlet of pet hates, unencumbered by anything that might reasonably be described as evidence or research and lacking a good proof read – the reference to the "Employment Rights Act 1976" hardly inspires confidence in the quality of the product. Not all of these are cheap shots. The "Report" is no more than a collection of initial ideas rather than a set of conclusions derived from a thorough analysis.

Recommendations that will not be taken forward

The government has confirmed that it will not be taking forward a number of the proposals made by Beecroft including, in particular:

• exemptions for micro businesses from various employment laws including unfair dismissal, the right to request flexible working, flexible parental leave and equal pay audits;
• recommendations on simplifying immigration law;
• scrapping proposals for equal pay audits; and
• introduction of the concept of "compensated no-fault dismissals".

Compensated no-fault dismissals

During the second reading of the Employment and Regulatory Reform Bill on 13 June 2012, it was confirmed that the most controversial of Beecroft's proposals would not be adopted. Beecroft had recommended introducing compensated no-fault dismissals and expressed a view that unfair dismissal itself should be abolished. Acknowledging that this might be politically unacceptable, he watered down his recommendation so that where an employer was dissatisfied with an employee, for whatever reason, it could dismiss if it made an "enhanced leaving payment". This would be calculated on a similar basis to a redundancy payment, with any payment subject to a maximum of £12,000.

Beecroft states in his Report that it would be possible for an employee's contract to give an entitlement to a higher payment if an employer chooses to undertake a compensated no-fault dismissal. Other than permitting a longer notice period than the statutory minimum, however, it is difficult to imagine why an employer would ever want to negotiate a higher payment, given that it would defeat the object of the exercise. Perhaps senior executives or recognised unions might have the bargaining power to negotiate such a clause but it is unlikely that most ordinary employees would.

Beecroft comments that if the proposal was introduced, it would make constructive dismissals a "thing of the past" because employees would have to ask their employer if it would like them to leave. This seems to suggest that compensated no-fault dismissals could have been used not only to buy off any responsibility to address an employee's alleged failings but also to avoid full liability where the employer had repudiated the contract of employment. It is difficult to understand how compensated no-fault dismissals could have been used to this effect and it would certainly have made the "no-fault" label even more of a misnomer. 

The Report states that:

The result of this change would be that the onus would then be squarely on the employee to perform well enough for the employer to value them as an employee.

This sentence, more than any other, shows the ideological divide between Beecroft and the current legal framework, which aims to balance:

• the employee’s responsibility to perform to the required standard; and
• the employer’s responsibility to communicate that standard clearly and manage the employee's performance against that standard.

Is a system where the second of these requirements is bypassed and employers in effect have no legal responsibility for staff development more or less likely to make us competitive as a nation and lead to economic growth?  

Under Beecroft’s proposals, employees who were employed for a short period would only have been entitled to a small payment on dismissal. Such a change would have brought UK law closer to the US concept of employment at will. Most employers, in our experience, although often frustrated with the time it can take to resolve employment issues in the workplace, understand the value to employees of having a basic level of protection against losing employment suddenly and for no particular reason. From an economic perspective, it is unclear what the benefits of compensated no-fault dismissal would have been.

Beecroft makes some interesting remarks about what he considers to be a significant problem for the UK economy: employees performing poorly. He comments that employees are often allowed to "coast along" and can behave in a way that is damaging to an enterprise but not bad enough to warrant taking action to dismiss. Unfair dismissal law does, however, allow employers to take action against poorly performing employees. In fact, employment tribunals have a fairly high threshold to cross before they can determine that a decision to dismiss an employee is unfair. Employers should have the confidence to manage employees proactively and make the decisions required to move their businesses forward.

Recommendations that will receive further consideration

There are a number of recommendations that the coalition government will take forward. Beecroft highlights issues around third-party harassment under the Equality Act 2010 and around the abolition of the default retirement age. He considers that the provisions on third-party harassment (making an employer liable where an employee has been harassed by a third party for example, a bank clerk harassed by an abusive customer) create a temptation for employees to "conspire with each other" to create a harassment situation.

Beecroft seems to have made his comments without any supporting evidence, however. The government's own consultation paper seeks to tackle this issue under its red-tape challenge on the basis of a lack of cases issued rather than because of a glut of fraudulent claims. Beecroft also considers it naïve that an employer can be expected to control the actions of employees and customers. This suggests only a passing consideration of the wording of s40 of the Equality Act 2010, which requires no more than that the employer take such steps as are reasonably practicable to prevent the harassment, having been made aware that it was a problem on two previous occasions.

Beecroft recommends that the impact of the abolition of the default retirement age be kept under review and the government has committed to reviewing this in 2016. Currently, the impact of the abolition is difficult to assess given how recent it is and considering that many employees were already working beyond retirement age. However, it does seem important to keep the position under review.

The Report also makes a number of recommendations about the employment tribunal process which are all currently being taken forward. The Fundamental Review of the Rules of Procedure is being conducted by Underhill J and consultation on the proposed changes will take place in Autumn 2012. Similarly, the Department for Business, Innovation and Skills (BIS) is considering whether to introduce a system of fees and it seems highly likely that in the near future it will not be possible to file a claim in the employment tribunal without payment of a fee (see ELJ 129 p2). The government will issue its response on this issue in due course. It remains to be seen whether the introduction of a system of fees will have the effect of weeding out unmeritorious claims. Many fear it will deter genuine claimants from enforcing their rights and argue that more robust case management by tribunal judges would be a better way of dealing with unmeritorious claims.

TUPE

Hidden towards the back of the Report, away from attention-grabbing headlines, are proposals on the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). A fundamental issue on many transfers is that the transferee will not require all of the transferring employees post-transfer. As things stand, dismissing employees pre-transfer in anticipation of the transferee’s requirements post-transfer will result in automatically unfair dismissals without the availability of the "economic, technical or organisational reason" (ETO) defence. The ETO reason must be the transferee’s and therefore redundancies cannot safely be made until after the transfer has taken place (Hynd v Armstrong [2007]). Beecroft recommends that the transferor should be able to take action based on the transferee's reason so that employees are not immediately made redundant on transfer.

There may be some merit in this argument depending on the facts. Take, for example, a service-provision change between a service provider based in Exeter (the transferor) and one based in Lancaster (the transferee). Following the transfer most staff will probably not want to relocate but will have nowhere to work in Exeter and will simply be waiting at home to be made redundant. Those employees may feel abandoned by the transferor and resentful of the transferee. Under the proposals, employees would still be protected against unfair dismissal – for example, where those in scope to transfer should have been included in any pool for redundancy selection along with the transferee's employees. However, the pre-transfer redundancies would not be automatically unfair simply because the ETO reason was that of the transferee not the transferor.

It is an inconvenient reality that, as a result of a transfer, employers often end up with employees on different sets of terms and conditions. Beecroft identifies that under the EU Acquired Rights Directive member states can limit the period for observing terms and conditions under a collective agreement to one year after the transfer. He also identifies that contracts can be changed and employees dismissed for ETO reasons entailing changes in the workforce. In the UK, it has never been the case that we have sought to limit the period that terms and conditions under a collective agreement are protected to one year. The obvious reason for this is that collective agreements are not used in the UK in the way that they are in other EU member states. Beecroft suggests that as the term "collective agreement" is not defined, it can be adapted to suit the needs of UK law so that it accommodates the types of agreements that are relevant in a UK context. He comments that BIS has considered this but is "not hopeful" that it is a viable option. Beecroft's alternative solution is to lobby the EU so that in the UK employers can harmonise terms and conditions one year after a transfer has taken place.

There is some value in the idea that after a certain period of time employers should be able to harmonise terms and conditions – remembering of course, that employee consent is also required for any change. Perhaps if employees have been consulted at the time of the transfer about the intention for this to happen after one year, this may be acceptable. Again, however, Beecroft's comments demonstrate the ideological separation between the Report and the current legal framework. His comments link the reduction in the "level of pay of the transferred workers" with "greater efficiency." Yet the whole point of TUPE is to prevent detrimental changes to terms and conditions and arbitrary transfer-related dismissals, forcing employers to achieve greater efficiency in other ways, for example by managing up service standards rather than by managing down employment benefits.

Confusion abounds over the use of the ETO reason, given that it must involve changes in the workforce, which is regarded as meaning changes to the numbers or functions of the workforce(Berriman v Delabole Slate Co Ltd [1985]). This restrictive interpretation means that it is difficult to change terms and conditions without making redundancies, which is often not what an employer actually wants to achieve. Beecroft recommends that more guidance should be available to employers on the meaning of an ETO reason. This is a sensible proposal.

Beecroft also recommends that TUPE should not apply to employees of a business that is in administration. He argues that applying TUPE to businesses in administration but not to those in liquidation encourages businesses to be liquidated when in fact they could be saved.

In addition, Beecroft claims that the test for a service-provision change in TUPE goes too far and should be replaced by a better way of identifying whether a transfer is subject to TUPE. There was broad support for this "gold plating" of the directive when the test was introduced in 2006, not because it extended employment rights but because it improved certainty. The uncertainty arising from EU case law was causing particular problems around first and subsequent generation outsourcing contracts where unnecessary costs were being incurred arguing about the application (or not) of TUPE (compare for example Schmidt v Spar- und Leihkasse der Früheren Ämter Bordesholm, Keil und Cronshagen [1995] and Süzen v Zehnacker Gebäudereinigung GmbH Krankenhausservice [1997]). Changing the test now could be counter-productive and likely to increase rather than reduce the burden on businesses by reintroducing uncertainty. In particular, outgoing suppliers could be left with the unforeseen cost of making employees redundant who might otherwise have transferred to the replacement supplier. Arguably, the Employment Appeal Tribunal’s increasingly restrictive interpretation of the service-provision-change test is already creating this problem, suggesting a need to broaden the test rather than repeal it (see for example Eddie Stobart Ltd v Moreman [2012] and ELJ 130, p22).

The government will decide on its response when it has established, through a recent call for evidence, whether there is demand for TUPE to be changed.

Collective redundancy

One of Adrian Beecroft’s recommendations that the government is considering further is that the consultation period for all collective redundancies should be 30 days, rather than 30 days for between 20 and 99 employees and 90 days for over 100 redundancies. Beecroft argues that if a solution cannot be found within a 30-day period, it is unlikely that that one will be found in the additional 60 days. This may well be true. A longer period provides more time for discussion and for employees to adjust to the possibility of redundancy but it is the sufficiency of the consultation rather than the period of time over which it is undertaken which should really be at issue. At this stage the law is sufficiently uncertain that it is unclear whether consultation should be on the business decision which would result in redundancies (such as whether to relocate a business), as well as the consequences for employees of that business decision, or just the latter (see United States of America v Nolan [2011]). Perhaps once that is decided, the time required to conduct consultation could be reconsidered. The government is consulting on reducing the 90-day period, with responses needed by 19 September 2012.

What next?

The Beecroft Report has been successful in attracting attention, sounding right wing and maintaining pressure on Vince Cable. A cynic might suggest its purpose has been achieved. It has, however, added little analysis of or insight into whether the current legal framework provides the best balance of employment rights and responsibilities against the background need for economic growth. The headline- grabbing idea of compensated no-fault dismissals has been scrapped but the government is already taking forward the more practical recommendations. While Adrian Beecroft may now be heading off into the sunset in his Aston Martin DBR1, some of the ideas that he espouses may yet fundamentally alter the employment law landscape.