In a speech delivered on 23 November 2011, the Business Secretary, Vince Cable, announced a wide range of proposals which will be open to consultation, designed to reduce "red tape" for employers. At the same time as announcing that the qualifying period for claims of unfair dismissal will be increased to two years, two of these proposals are aimed at addressing a perceived imbalance in the employment relationship which makes it too difficult for employers to dismiss underperforming staff.
The first proposal is to introduce "compensated no fault dismissals" as an option for "micro-firms" (employers with fewer than 10 employees). Such dismissals would prevent employees from bringing claims of unfair dismissal, so long as an as yet unspecified compensation payment (likely to be comparable with statutory redundancy payments?) is made for the dismissal. The second proposal is to allow employers to have "protected conversations" with employees who are at risk of dismissal.
Many questions remain unanswered as to the likely extent of these proposals. However, given the reason they have been mooted, it is appropriate to ask whether the right not to be unfairly dismissed really does put an unreasonable burden on employers.
Compensated no fault dismissals
As many commentators have noted, "unfair dismissal" is intended to do "exactly what it says on the tin". Employees have the right to be dismissed for a fair reason and for the dismissal to be reasonable in the circumstances. Taking performance dismissals as an example, most employers would accept that before dismissing an employee for underperformance it is reasonable to warn them of the need to improve and give them a reasonable opportunity to do so. A criticism of replacing unfair dismissal with compensated no fault dismissals is therefore that it would just encourage bad employee management, which can itself damage businesses.
It is also uncertain whether scrapping unfair dismissal really would limit the headaches for small businesses dismissing employees. Failing to follow a fair dismissal process not only exposes employers to claims of unfair dismissal, it can also make it difficult to defend whistleblowing and discrimination claims connected to a dismissal. An employer who opts for a compensated no fault dismissal may therefore just find that it is faced with a much more complicated and costly claim instead, which may be difficult to defend if the employer did not follow a "fair" dismissal process and therefore address and document the reason for its decision to dismiss.
Protected conversations offer a less dramatic "solution" to the difficulties of dismissing employees. During a protected conversation, Mr Cable suggests employers should be able to speak openly with an employee about such matters as performance concerns and retirement. The employee would then not be able to refer to the discussion in the Employment Tribunal. It remains unclear how protected conversations will differ from without prejudice privilege, which is often used to offer employees compensation packages as an alternative to protracted capability processes.
Protected conversations may also backfire against employers. An employer defending a claim of unfair capability dismissal will want to refer a Tribunal to the conversations it had with the employee, putting him on notice of his underperformance and steps he would need to take to improve. Potentially an employee could prevent an employer referring to such conversations in evidence if they took place under a “protected” cloak.
This perhaps highlights the main criticism of protected conversations. An employer who reasonably raises issues of capability and retirement should not be concerned about those conversations being used in evidence at a Tribunal – on the contrary, it would actively want to refer to such conversations. As such, protected conversations, like compensated no fault dismissals, may just encourage bad employee management rather than assist employers deal with the cause of expensive litigation.
Will these proposals work?
Litigation with employees can be difficult and costly and employers will welcome a debate on how to reduce Tribunal claims. However, legislation changes which on face value only appear to excuse bad employers from treating employees unreasonably is unlikely to be the answer. Mr Cable also announced proposals for reforming the Tribunal system to help prevent the progress of unmeritorious claims. This seems to be a much better point of focus to reducing the burden on employers of unreasonable litigation.
Angus Ackroyd, Associate in Fieldfisher’s Employment and Pensions practice.
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