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The Beecroft Report: tough talk for tough times

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Very few areas of employment law escape the scrutiny of venture capitalist Adrian Beecroft, in his report to Government published on 21 May. The headline-grabbers as far as employment tribunal claims are concerned are the proposals for employers to be able to dismiss employees, regardless of fairness in exchange for fixed compensation or, in the case of small employers, without even that.

Beecroft acknowledges that this would mean that "some people would be dismissed simply because their employer did not like them" and refers to that as "sad" but "a price worth paying" to free businesses from the "terrible" impact of the current rules.

This is tough talk for what are certainly tough times, but what would the consequences be?

The current law means that, in addition to being given notice and subject to a qualifying period of employment, employees have the right to complain to an employment tribunal that their dismissal is "unfair" and, depending on age, service and loss, can be awarded up to £85,200.

Echoing the Thatcher government in the mid-80s, the Government has already increased the period for which someone has to be employed to claim unfair dismissal from one to two years for employees hired since 6 April. This means that employers will not face unfair dismissal claims from employees hired now for at least two years. For where we are, many employers do welcome this, but Beecroft wants to go further.

He proposes that employers should be able to elect to pay a fixed sum, the equivalent of statutory redundancy, to buy out this type of claim. This is radical stuff with real consequences.

A 40-year-old employee earning £50,000 and employed for 5 years could effectively have any entitlement to challenge the fairness of his or her dismissal bought out for £2,150. The same employee would have the right to at least five weeks' notice but, since he or she is unlikely to be able to adjust outgoings quickly, within a very short period the compensation would be exhausted.

It would also radically and quickly alter workplace dynamics. The danger is that the prospect of arbitrary dismissal would create a culture where even experienced employees were reluctant to express views that might be seen as challenging, however constructive they might be.

The report goes further in relation to small businesses – those with less than 10 employees – suggesting that they should be able to opt out of various employment laws, including unfair dismissal. Germany operates something similar, but the German welfare system offers a softer landing. Here, these businesses would have to address the danger of being seen as less attractive employers than bigger businesses in which protection would be better. Arguably, the incentive to grow would also be artificially constrained by the threshold.

It is not unfair dismissal cases that attract the highest awards and the most publicity. Among many other things, the report does try to tackle discrimination too, but acknowledges that the UK is constrained in capping ultimate payouts by EU law. Somewhat creatively, it suggests that an approach might be to limit the period of financial loss for which an award might be made – it suggests nine months if not the unfair dismissal limit – while leaving the injury to feelings limit uncapped, but subject to the recently revised Vento guidelines. The net effect of that would be that only in the most extreme cases would the award exceed nine months' pay and £18,000.

The other cases which can leave employers facing large tribunal awards, but in relation to which changes are constrained by EU obligations, are those based on the 2006 TUPE Regulations and collective redundancy.

As far as TUPE is concerned, the report criticises the gold plating of the EU directive by UK legislation in the form of service provision change elements which cover the outsourcing and insourcing of services, as well as changes in service provider. However, the inclusion of service provision changes in UK legislation to some extent served only to reflect what Tribunals and Courts had been finding was covered by the 1981 TUPE Regulations anyway. In fact, recent case law has provided a number of precedents for arguing that the 2006 TUPE regulations do not apply in marginal cases – where the service being provided becomes fragmented post-transfer, where employees are not clearly organised for the purposes of providing the service or there is a change in the procuring client.

In terms of collective consultation on multiple redundancies, the suggestion is that the admittedly arbitrary minimum time-scales which apply to redundancies of 100+ employees and apply, however much a business may be struggling, should be reduced from 90 to 30 days.

That is an example of where the report provokes a healthy debate on an area in which change is both possible and desirable. However, it remains to be seen whether the more radical and controversial aspects of the report will overshadow the areas where change can be both constructively and fairly be achieved.

Tim Clark is a partner in the employment team at solicitors Blandy & Blandy