Coalition government proposals to introduce a ‘compensated no fault dismissal’ system for micro-businesses have met with a mixed response.
The proposals, which were first put forward in Adrian Beecroft’s controversial report, form part of a wider ‘call for evidence’ around existing dismissal processes for organisations of all sizes.
They would result in employers with less than 10 staff being able to dismiss workers, where no fault has been identified on their part, by paying them a set amount of compensation and notice pay. There have been suggestions that the sum could be equivalent to statutory redundancy pay.
Business secretary Vince Cable said on launching the call for evidence that the government recognised some jobs simply did not work out.
“For micros in particular, who often don’t have legal or HR teams, the process to let a staff member go can be a daunting and complicated process,” he said. “We want to give businesses the confidence to hire new staff and make sure when a dismissal needs to be made, they aren’t tied up in red tape.”
The consultation, therefore, was an attempt to see how widespread the problem was and to establish how big the appetite for change might be, Cable added.
The CBI welcomed the move, describing it as a “step in the right direction” that would help cut unemployment in the long-term and should, therefore, be extended to “high-growth” firms too.
The economic case
John Cridland, director general of the employer’s lobby group, said: “Introducing compensated no fault dismissal would give firms confidence to hire, as employer and employee can part ways with no fault on either side, and workers would have sufficient money to allow them time to find a new job.”
But Mike Emmott, employee relations public policy adviser at the Chartered Institute of Personnel and Development, completely disagreed, attesting that the proposals risked creating a perverse barrier to economic growth by discouraging small businesses from hiring a tenth worker.
He also believed that they could end up struggling to recruit high calibre employees because they would be seen as second class, “low-road employers”.
“There is no economic case to be made for the watering down of employment rights for businesses of any size,” Emmott said. “Businesses have far more to lose in lost productivity from a de-motivated and disengaged workforce than they stand to gain from the ability to hire and fire at will.”
Richard Smith, Croner’s expert in employer law, was equally downbeat. The proposals around compensated no fault dismissal were predicated on the belief that employers were more likely to hire staff if they could simply pay them off after two years, he said.
But “employers hire employees to do work and insofar as they worry about employment law, despite what the survey says, they don’t make employment decisions on this ground alone,” Smith pointed out.
Another problem was that the proposals were “incredibly complex (what about the small firm that becomes large or vice versa; what about firms fluctuating in size or that deliberately reduce size to get rid of one person) and that the compensation figure will be very hard to set – too low and it’s unfair to the employee, too high and there is no point”, he continued.
As a result, a better solution would be to change the way in which unfair dismissal compensation was calculated in order to limit it to a sum based on annual wages or salary, with a maximum set at two year’s gross pay. This situation would indirectly lead to litigation costs that would be more in line with likely awards, Smith said.
