Venture capitalist and Tory donor, Adrian Beecroft has written a report on employment law for the government which has received pretty much universal panning across the spectrum of opinion. Probably the most contentious aspect has been his proposal for the introduction of “Compensated No Fault Dismissal” (CNFD). Most of the other proposals are variations on policies which are already being put in place and are rather less interesting. The angle which Beecroft was meant to bring was one of how to reform employment law to make it fit with the need to promote economic growth generally (and with it, increased levels of employment).
What is Compensated No Fault Dismissal?
Beecroft’s proposal is for there to be an alternative to redundancy for employers who wish to get rid of underperforming workers without having to go through the detailed processes needed to terminate employment without being at risk of unfairly dismissing them. Obviously there is a bit of a logical conundrum here. If the processes he wants to avoid are there to prevent a dismissal being unfair, it would seem to be logical to conclude that what he is really proposing is making potentially unfair dismissals free from being challenged. Which doesn’t sound terribly fair.
While the whole report has been roundly criticised and condemned, particularly for its amateurish look and lack of underlying research or evidence, this criticism has also been a little superficial in that it has often conflated two distinct proposals under the CNFD heading. Beecroft separately proposed an exemption from the unfair dismissal rules along with a range of other employment law regulations like pensions auto-enrolment, flexible working and parental leave for businesses employing fewer than 10 people. There may be some merit in simplifying the regulatory burden for small businesses which, as Beecroft correctly points out, may find the costs of compliance high. Even if it isn’t the most pressing thing for small businesses, it might be something that would be of benefit in encouraging small businesses to grow their workforces.
The real focus of CNFD which has not been commented on much is, I think, on its application to the public sector. Much of the public sector already has very generous redundancy provisions in its employment contracts which provide substantially more than the statutory minimum levels of compensation and performance based dismissal is at least in some parts of the public sector (for example teaching where the unions’ line is that individual performance is so inextricably tied up with external factors that any form of performance assessment is wrong) exceptionally rare. If the government was really Macchiavellian and mischievous it could implement CNFD for public employees in return for an agreement to shelve all of the proposed pensions changes and other cuts and reforms. In practice, introducing CNFD into the public sector would result in a prolonged General Strike – the answer to a lack of commitment to performance management is not to do away with the need for it!
Would CNFD really help increase employment – a personal perspective?
Some added flexibility might in fact be helpful. I currently work for a law firm which sends me out on client engagements at short notice which can be terminated on a month’s notice. The firm has been successful in providing its clients with the ability to have the right number of people in its teams to cover the current workload without them needing to commit to keeping at that level of headcount indefinitely. In other industries, such as IT, a lot of people like going a stage further and working as completely independent contractors and employers are used to switching them in and out as needed without having the cost of redeploying them elsewhere when a particular project completes or is cancelled for any reason. At a time when permanent employees are generally sitting tight and keeping the benefit of their accrued rights rather than taking risks and moving around, it is a good way for companies to get new blood in and for the formerly unemployed, like I was before I started this role and had struggled to find traditional permanent employment, to have access to jobs. I’m not sure that CNFD would have a positive impact on my current employer as it would knock out a significant part of the value that it brings in providing staff to its clients.
So, to some extent, making employment a little less secure can have benefits for employers and workers. But, it is worth remembering that until an employee has been in a job for a year (being extended back to 2 years in separate legislation) they are already relatively easy to dismiss on capacity grounds. Hiring new staff is not really a big risk if they don’t turn out well straightaway. It is only if they develop this way later on in their employment. It is easy to become complacent about a particular job’s demands once you have been in it for a while and also to be resistant to pressure to do more. The proposal for CNFD would prevent anyone from relaxing too much once they had accrued the right to protection against unfair dismissal. For roles which were hard to recruit or retain staff for, or which involved a large investment in training by the employer, there would already be strong incentives for the employer to offer more than the basic CNFD terms (equivalent to statutory minimum payment for redundancy), just as they do for redundancy.
The one advantage that CNFD has for employees over the process for fair dismissal currently in place is that it would allow them to move into new employment with a “cleaner” employment history. If you have been through the full performance management process and failed to meet the required level it is going to be difficult to get another job, not least because when asked why you left, the answer will be uninspiring. A CNFD might have somewhat less stigma (I have been subject to an informal CNFD myself in leaving a job where my performance as a lawyer was regarded as excellent but where the commercial targets that the firm aspired to were moving upwards and away from what I thought was realistic – I had the option of being performance managed to those targets, in the mutual knowledge that they’d be very difficult to meet and that this would lead to uncompensated dismissal for poor performance, or negotiating a settlement to leave in a managed way, reputation intact).
However, what my personal experience really demonstrates, I think, is that where something like CNFD and flexibility in taking on and letting go of staff to move with current economic conditions is of value to business, business has already found ways to achieve these effects. Cutting the employment rights of all employees in this way isn’t deregulatory but is rather, ironically, an unnecessary interference in the market.