Lewis Silkin – New Deal Talking Points: What are Labour’s plans on unfair dismissal?

What Labour promised

Labour has promised “fundamental individual rights from day one for all workers”, ending the system that forces workers to wait up to two years to access protection against unfair dismissal. But its “new deal for workers” then ensures that this will not prevent fair dismissals on the grounds of competence, conduct or redundancy, nor “probationary periods with fair and transparent rules and processes”. The party says it will ensure that employers can apply probationary periods to assess new recruits, but that newly hired workers will not be dismissed without reason or cause.

The use of the term “worker” here is significant, in the context of Labour’s other promise to move towards a single worker status, rather than having employees and workers with different levels of employment protection. When that happens, it is likely that both “workers” and employees will have unfair dismissal rights. That would be an important step forward. But combining the two statuses will be a difficult and complex undertaking and is unlikely to happen for some time.

Why change the law on unfair dismissals?

According to Labour, “the long wait for basic rights means that the risk of changing jobs is too great for the worker” and that, as a result, “people are less likely to change jobs, which poses risks to productivity”. Labour believes that making employees less risk averse to changing jobs will benefit them, as they will be able to increase their pay by moving to higher-paid jobs, and it will also benefit employers, who will be more likely to find the best candidate for the job. Greater job security could also boost the economy, as workers who feel secure are more likely to spend. So, will it be a “win-win” situation?

Could the proposal also have unintended consequences? For example, could it encourage employers to play it safe when recruiting and not want to take risks with someone different, or reduce measures to improve diversity? Or could employers delay hiring altogether if adjusting workforces were potentially more costly? The devil will be in the details of how the change is implemented in practice, which we will explore further below.

What could this change mean in practice?

Labour could take several different approaches and has not yet indicated which path it would prefer. Here we look at the three most likely options.

Option 1 – simply remove the qualification period

The easiest and quickest way for Labour to give employees the right to walk away without a valid reason from day one is simply to pass a statutory instrument, using existing powers under the Employees’ Rights Act 1996 (ERA), which removes the requirement for a qualifying period. This means there is no need to draft primary legislation and get it through Parliament.

Without further changes to the ERA, this would mean that employers wishing to avoid successful unfair dismissal claims by employees would have to be able to establish one of the current ‘fair’ reasons for dismissal (fitness or qualifications, conduct, dismissal, unlawfulness or ‘any other substantial reason’). And the employer would also have to demonstrate that it acted reasonably in the circumstances in regarding this reason as a sufficient reason for dismissal. Furthermore, in situations where the employer wants to dismiss the employee for conduct or suitability, it would have to follow the ACAS Code of Practice on Disciplinary and Grievance Procedures. The Code of Practice does not refer to probationary periods, so unless it is amended, the employer would have to follow the full procedure recommended for any other employee.

It seems unreasonable for businesses to require employers to follow the same process for employees with just one day of service as they do for those with ten years of service. It is impossible to know how someone will perform in a job until they are in it and it would seem fair that employers should be more likely to dismiss new employees than existing ones if they feel they are not up to the task. The counter argument is that employers should be required to see whether a new employee can cope with support and training rather than making a hasty judgement that could have major consequences for the worker in question.

However, this approach also appears to be inconsistent with Labour’s reference that employers would be allowed to use probationary periods as part of their plans.

Option 2 – any dismissal is fair if it is carried out during the probationary period

Another approach would be to abolish the probationary period and at the same time amend the Employment Relations Act so that employees on probation cannot bring an unfair dismissal claim. This would be consistent with Labour’s promise that employers could use probationary periods, but it does not quite amount to giving employees the right to bring an unfair dismissal claim from day one. It would simply reintroduce a probationary period, albeit probably much shorter than the current two-year probationary period. Six-month probationary periods are common, and this would effectively be the shortest probationary period in history (under the Labour government between 1974 and 1979).

This approach also appears inconsistent with the language used by the Labour Party that a process and justification are still required even when the new employee fails their probationary period.

Option 3 – Failure of the trial period becomes a new valid reason for dismissal

A third approach would be for Labour to remove the qualifying period and amend the ERA to provide that failure to pass the probationary period constitutes a new valid reason for dismissal. This would probably be accompanied by a request to ACAS to draft an amended (or new) statutory code of practice that explicitly addresses the appropriate procedure to follow during a probationary period. The advantage of a new code is that a more ‘simplified’ process could be used during a probationary period. For example, it could simply be a requirement to meet with the person and give them an opportunity to make representations before making a final decision to dismiss. It would seem fair that employers should have a reasonable opportunity to assess the suitability of new employees before being forced to go through the longer series of warnings that is currently required to dismiss an employee with two years’ service for poor performance.

This seems to be the most likely approach.

Other unanswered questions

Whatever approach Labour takes, several questions remain unanswered about the details of the proposal. For example,

• Will employers be able to determine the length of the trial period (possibly subject to a legal ceiling)? Or will it be set by law?
• Will employers be able to extend the probationary period if the employee has not yet demonstrated sufficient aptitude to pass it?
• Will employers be able to fairly fire employees during a probationary period? Or only at the end?
• Can an employer dismiss a candidate before they even start work if their needs change? Or would they have to go through a redundancy procedure or some other procedure? Even with rights from day one, the current situation would likely survive, with the candidate having no right to dismissal but potentially facing a claim for breach of contract.
• What compensation would be paid if an employee was dismissed in breach of the new provisions? Would it be determined in the same way as current compensation for unfair dismissal? It depends mainly on the loss of earnings suffered by the employee and the time it takes for them to find another job. For example, a well-paid employee who has difficulty finding another job could be entitled to substantial damages even if they are only employed for a few weeks. Furthermore, compensation could be limited for people dismissed very soon after starting a new job.
• If Labour is serious about providing adequate job security for workers from day one, will it also review the rules on the minimum notice an employer must give to terminate employment, which increases from one week after one month of employment to 12 weeks after 12 years of employment?

Conclusion

Labour has promised “a full and thorough consultation on the implementation of our New Deal (for workers)”. So we can assume that now that Labour has won the election, we will have more details on how this change will work in practice and employers will be able to respond to a consultation. We will be drafting a response to any consultation, so please let us know your views when a consultation paper is published.

In the meantime, employers will likely want to consider tightening their recruitment processes to make better hiring decisions. Many employers will also review their employment contracts to consider probationary periods at all levels.

Labour’s plan to make work pay: delivering a new deal to workers – available here.