Changes to Unfair Dismissal Rules

October 5 2011 - The announcement by Business Secretary Vince Cable and Chancellor George Osborne that the qualification period for the right to claim unfair dismissal will be extended from one year to two years has attracted mixed responses.

The coalition government argues that the changes could save nearly £6 million a year for British business after they come into force on 6 April 2012 and will increase business confidence to take on more employees.

The changes follow the ‘Resolving Workplace Disputes’ consultation published in January 2011. Additional proposals included measures to:

• encourage early resolution of disputes
• speed up of the tribunal process, and
• tackle weak and vexatious claims

The government believes that the combined proposals will produce a drop of around 2000 unfair dismissal claims a year.

According to Business Secretary Vince Cable:

"The priority of this government is to increase growth in our economy. We have one of the most flexible labour markets in the world but there is more we can do to give British business the confidence it needs to create more jobs and support the wider economy to grow.

"Businesses tell us that unfair dismissal rules are a major barrier to taking on more people. So today we have announced that only after working for the same employer for two years can an employee bring an unfair dismissal claim."

However, the Chartered Institute of Personnel and Development (CIPD) consider that there is questionable merit in watering down unfair dismissals rights. Dr John Philpott, CIPD Chief Economic Adviser commented:

"While watering down unfair dismissal rights is seen as a way to boost recruitment and improve job prospects for young people and the long-term unemployed, the short-run impact will be limited by the overall weak state of the labour market while in the long-term any positive effect on hiring is likely to be offset by a corresponding increase in the rate of dismissals.

"The vast weight of evidence on the effects of employment protection legislation suggests that while less job protection encourages increased hiring during economic recoveries it also results in increased firing during downturns. The overall effect is thus simply to make employment less stable over the economic cycle, with little significant impact one way or the other on structural rates of employment or unemployment.

"There is no evidence that UK employment suffered significantly in the 1970s as a result of the introduction in 1975 of a six month qualifying period for rights against unfair dismissal or that there was any substantial benefit when the qualifying period was subsequently raised to two years in the 1980s before being lowered to one year in 1999.

"Moreover, while there is no available evidence of the effect of these changes in unfair dismissal rights on workplace productivity, there are prima facie reasons for expecting that the current one year qualifying period strikes an appropriate balance between enabling employers to make reasonable decisions on employee potential and giving employees a sufficient sense of job security to actively engage with the organisation they work for.

"Increasing the qualifying period for obtaining unfair dismissal rights thus runs the risk of reinforcing a hire and fire culture in UK workplaces which would be detrimental to fostering a culture of genuine engagement and trust between employers and their staff and potentially harmful to the long-run performance of the UK economy. Although the policy change will undoubtedly be welcomed by the de-regulation lobby, it isn’t the way to boost growth and jobs.

"In addition, it is unlikely that raising the threshold from one to two years will have its intended effect of reducing the number of employment tribunal claims because employees are increasingly bringing claims linking unfair dismissal with discrimination claims which can be made from day one of employment. ONS figures suggest that an extra 12% of employees would potentially be denied the chance to claim unfair dismissal due to length of service as a result of the change - hardly likely to make much of a dent in overall tribunal numbers given that only a small proportion of these would make any claim."

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