New Deal talking points: What are Labour’s plans for unfair dismissal?

What Labour has promised

Labour has promised “basic individual rights from day one for all workers”, ending the system that leaves workers waiting up to two years to access protection from unfair dismissal. But its “new deal for working people” goes on to reassure that this will not prevent fair dismissal for reasons of capability, conduct or redundancy or “probationary periods with fair and transparent rules and processes”. The party says it will ensure employers can operate probationary periods to assess new hires but that newly hired workers will not be fired without reason or cause.

The use of the word “worker” is significant here, in the context of Labour’s other promise to move towards a single status of worker, rather than having employees and workers with different levels of employment protection. When this happens, presumably both “workers” and employees will have unfair dismissal rights. This would be a significant development. But combining the two statuses will be a difficult and complex undertaking and is probably some way in the future.

Why change unfair dismissal law?

Labour claims that “the lengthy wait for basic rights means the risk of moving jobs falls too heavily on the worker” and the result is that “people are less inclined to move jobs, posing risks to productivity”. Labour believes that making employees less risk-averse about moving jobs will benefit them, as they can increase their salary by moving to better paid jobs, and benefit employers too, who are more likely to get the best candidate for the job. Greater job security may also boost the economy as workers who feel secure are more likely to spend. So, will it be a “win win”?

Could the proposal also have unintended consequences? Such as making employers play it safe when recruiting and not want to take a chance on someone different, reducing moves to improve diversity? Or, indeed, might employers defer any recruitment at all if adjusting headcount becomes potentially more costly? The devil will be in the detail of how the change is introduced in practice, which we go on to continue next. 

What could this change mean in practice?

There are a number of different approaches that Labour could take and they have yet to give an indication of their preferred route. We consider the three most likely options here.

Option 1 – simply remove the qualifying period

The simplest and quickest way for Labour to give employees “day one” rights to unfair dismissal is simply to pass a statutory instrument, using the existing powers in the Employment Rights Act 1996 (ERA), which removes the requirement to have any qualifying period. This would mean that there is no need for any primary legislation to be drafted and make its way through Parliament.

Without further changes to the ERA, this would mean that employers wishing to avoid successful unfair dismissal claims by employees would need to be able to establish one of the current “fair” reasons for the dismissal (capability or qualifications, conduct, redundancy, illegality or “some other substantial reason”). And the employer would also need to show that it had acted reasonably in the circumstances in treating that reason as sufficient reason for dismissal. Further, in situations where the employer wants to dismiss the employee for conduct or capability it would need 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’s amended, the employer would have to follow the full procedure recommended for any other employee.   

Requiring employers to go through the same process for employees with one day’s employment as those with 10 years, seems, arguably, unreasonably burdensome on business. It’s impossible to know how someone will perform in a job until they are doing it and it would seem fair for employers to be able to dismiss new joiners more easily than old hands if they consider that they are not up to the job. The converse argument is that employers should be required to see if a new hire can work out with support and training rather than making an overly hasty judgment with potentially major implications for the worker in question.

This approach, however, also seems incompatible with Labour’s reference to employer’s being permitted to use probationary periods under their plans.

Option 2 – any dismissal fair if done in probationary period

Another approach would be to remove the qualifying period and at the same time amend the ERA to provide that employees in their probationary period could not bring an unfair dismissal claim. This would be consistent with Labour’s promise that employers could use probationary periods but doesn’t really amount to giving employees “day one” rights to bring an unfair dismissal claim. It would merely be reintroducing a qualifying period, albeit probably a much shorter one than the current two-year qualifying period. Six months probationary periods are common and this would, in effect, revert to the shortest qualifying period historically (under the Labour government between 1974 and 1979). 

This approach would also seem inconsistent with the language being used by Labour about still needing a process and reason even where the new hire fails their probationary period.

Option 3 – failing probation becomes a new fair reason for dismissal

A third approach is for Labour to remove the qualifying period and also to amend the ERA to provide that failing a probationary period is a new fair reason for dismissal. This is likely to be coupled with asking ACAS to draft an amended (or new) statutory code of practice which deals explicitly with the appropriate process to follow in a probationary period. The advantage of a new code is that a more “cut down” process could be used during a probationary period. For example, this might be simply a requirement to have a meeting with the individual and give them the opportunity to make representations before making any final decision to dismiss. It would seem fair that employers are given a reasonable opportunity to assess if new employees are a good fit before being required to go through the more extensive series of warnings that is currently required to dismiss an employee with two years’ service for poor performance.   

This seems the most likely approach.

Other unanswered questions

Whichever approach Labour takes, there are several unanswered questions about the detail of the proposal. For example,

• Will employers be able to determine the length of any probationary period (possibly subject to a statutory cap)? Or will it be set by law?
• Will employers be able to extend probation, if the employee has not yet demonstrated sufficient aptitude to pass it?
• Will employers be able to dismiss fairly during a probationary period? Or only at the end?
• Could an employer dismiss an offeree before starting work if the employer’s need changes? Or would they have to go through a redundancy or other process? Even with day one rights, the current position would probably survive where the offeree would have no dismissal rights but could well have a breach of contract claim.
• What compensation would be available if an employee is dismissed in breach of the new provisions? Will it be determined in the same way as current unfair dismissal compensation? This is principally dependent on what loss of remuneration the individual has suffered and how long it may take them to find another job – with the result that a highly-paid individual who struggles to find another job could be entitled to hefty damages even if only employed for a few weeks. Alternatively, compensation could be limited for those dismissed very shortly after starting new jobs.
• If Labour is truly committed to providing proper job security to workers from day one, will it also look at the rules on minimum notice which an employer must give to terminate employment which goes up from one week after one month’s employment to 12 weeks after 12 years’ employment?

Conclusion

Labour has promised “a full and comprehensive consultation on the implementation of our New Deal [for working people]”. We can therefore assume that, now that Labour has won the election, we will get more details of how this change will work in practice and employers will be able to respond to a consultation. We will put in a response to any consultation, so do get in touch with your views when a consultation paper is published.

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

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

For more analysis of Labour’s plans and other articles in our talking points series, visit our Labour Policy Impact Hub.