Dealing with dismissal and compensated no fault dismissal for micro businesses.

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1 Chris Dee The business people an extension to your team Dealing with dismissal and compensated no fault dismissal for micro businesses. Forum of Private Business response to BIS call for evidence June 2012

2 Compensated No Fault Dismissal in the wider employment context From speaking to our members on the specific proposal of Compensated No Fault Dismissal and based upon evidence collected from previous research, there is clearly an appetite among businesses for employment law changes that swing control of the dismissal process back towards the employer. We foresee both benefits and difficulties in introducing a policy of Compensated No Fault Dismissal but support action in the important area of dismissal. Members have told us with specific examples where a policy of Compensated No Fault Dismissal would help. It is clear that issues with employees that arise fairly quickly after employment can be dealt with over the more generous two year period before an employee can qualify for unfair dismissal. However, there will remain cases where an employer wishes to remove members of staff of longer service. No Fault Dismissal would help as an option in these cases. We believe this policy would have limited impact on employment growth. However, it would allow businesses to react quicker to market needs and improve productivity. Equally, as one of member s told us, it would allow employees to avoid the discouragement to their professional life that inevitably would result from a dismissal following a protracted disciplinary procedure. In other words, it prevents the unnecessary and bureaucratic processes currently involved with a member of staff when it is in the best interests of both to terminate employment immediately. We recognise the potential consequences of such a policy. Whilst speculative, we note the arguments that more employees might submit bogus claims of discrimination in order to take an employer to task. We also acknowledge that some poor employers will find it easier to dismiss staff for trivial issues, when in fact training or support might be more useful to the employee and the business. Thirdly, we are aware that businesses that used this option may be labelled as inferior employers. Indeed, micro businesses as a whole might suffer in recruiting the most able candidates. Coupled with this, there are much bigger wins the Government can make in the area of employment law. Firstly, it is proposed that the right to request flexible working should be extended to all employees. It should not be the job of a business owner to be forced to arbitrate between competing requests for flexible leave within their staff. In this area, a tight legislative framework has helped give certainty to employers as to which conditions merit consideration of flexible leave. This change would be a significant burden, introducing complexity to an area that operates well informally at present. Secondly, proposals shortly to be introduced to Parliament will make further and more generous changes to parental leave entitlements. Moreover, it will do so in a way that makes such leave more time consuming to administer, requiring businesses to liaise with each other over any shared family commitments. In conclusion, despite some reservations over the specific policy, we would support our members having the option of Compensated No Fault Dismissal. It would not in our view have a particularly positive impact on employment growth and further would only be an option in a limited albeit important number of cases. However, it sends a signal to businesses that the Government is reversing years of policy that have tipped the balance towards the employee, and we believe it would have a positive effect on productivity within a business, at a time when such productivity is vital for growth. More importantly, we enthusiastically welcome a debate over the current difficulties employers have in dismissing underperforming staff. We offer the particular policy of Compensated No Fault Dismissal a muted welcome but we fervently support the further exploration and introduction of policies currently under discussion, not least settlement agreements and protected conversations, which may prove a more palatable alternative in the area of dismissing staff.

3 Questions on the ACAS Code of Practice on Discipline and Grievance: Question One: Before this call for evidence, were you aware of the ACAS Code? Question Two: Before this call for evidence were you aware that the statutory ( three step ) dismissal procedures were abolished in April 2009? Question Three: Are you aware that the current version of the Code, reflecting this legal change, also came into effect in April 2009? Question Four: Has the new Code prompted you to review your organisational discipline and grievance policies and procedures? Not relevant to this response. Question Five: If answer to question 4 is yes, please describe what changes you have made and any impact of these changes? Not relevant to this response. Question Six: Do you find the language of the Code easy to understand? This will vary from member to member but in our opinion the language of the code is very accessible. Question Seven: Do you find the language of the Code appropriate for dealing with performance issues? Many of our members want to take a more informal approach to disciplinary or performance issues, an issue impacted upon by the presence of and need to adhere to the code, rather than the language of it. Question Eight: Have you used the Code when carrying out a disciplinary procedure? This will vary from business to business but certainly many of our members will have used this code. Question Nine: If answer to question 8 is yes, did you find that the Code helped you to deal with the disciplinary issue? We do not have evidence to support this one way or the other. Question Ten: Do you consider the disciplinary steps set out in the Code to be burdensome? Question Eleven: If the answer is yes, why? Some respondents to our February 2010 Employment Law Panel felt employment law in general hindered maintaining a good relationship with their staff as it comes between human to human relationships that should form the basis of team building in the work environment. Where the business owner may previously have dealt with a problem by talking the issues over with an employee over a coffee, employment law has replaced this with a far more formal approach. The disciplinary steps contained within the code allow a business to be subject to an employee claim if not followed to the letter of the law. This kind of fault by technicality is the complaint we hear most from our members, as a tribunal may ignore the wider issues in order to penalise an employer on such a technicality. Question 12: Do you consider that the Code provides sufficient flexibility in dealing with discipline and grievance issues?

4 No evidence to suggest either way. Question 13: Do you consider that the Code provides sufficient flexibility in dealing with discipline and grievance issues? Repeated question. Question 14: Should the requirements of the Code be different for micro and/or small businesses? Question 15: If answer to question 14 is yes, please explain how you think the requirements should differ for micro and/or small businesses. A code that would be suitable for micro businesses would take account of their often missing HR function and therefore be more adaptable to the more informal approach taken by those businesses. This type of code would prescribe approaches rather than actions. Questions 16: Does the Australian Small Business Fair Dismissal Code provide a useful model for the UK? Question 17: Please provide any further comments on the Australian Small Business Fair Dismissal Code. The code benefits from its brevity. Question 18: Do the requirements of your internal disciplinary processes differ from the requirements of the Code? No comment to make on this question. Question 19: If answer to question 18 is yes, why and in what way? No comment. Question 20: If you have any further suggestions to improve awareness and understanding of the Code, please describe them here. No comment. Question 21: If you have further comments on putting the Code into practice, please detail them here. No comment. Question 22: Any other general comments on the Code. No further comments. Evidence topics for the ACAS code Answers are laid out according to lettering in the call for evidence. A. Levels of awareness and understanding of unfair dismissal law and the ACAS Code ACAS is a professional body with significant experience in resolving large-scale disputes. As such it can come across as heavy-handed and should be treated with caution in an SME situation. If their speedy intervention can prevent a tribunal, it should be recommended. Employment Law Panel member

5 According to our estimates around 80-85% of workplace disputes are dealt internally without recourse to a third party. However, there is good awareness amongst our members of ACAS as a body though some concerns about their ability to deal with the needs of smaller employers. However, our members repeatedly tell us that the balance had tipped too far in favour of the employee. The majority of owners who feel this way qualified it by highlighting that it was often bad employees who benefitted whilst more valuable staff could potentially have their own jobs put in jeopardy. B. Access to relevant advice (including HR/ legal advice) for businesses, particularly SMEs and Micros, and whether such advice is accurate and helpful A lot of company time is spent on administrative procedures and HR in the case of disciplinary etc, we spend a lot of money on consultants and legal fees for advice to ensure we do not fall foul of the law. I am so fed up now that I intend to ensure that I do not have staff on payroll. Panel member response There is no doubt of the correlation between those that seek advice and the relative success of their businesses in that advice area...studies show this in finance, employment law and growth. Businesses tend to know where they can seek advice but cost and/or accessibility is often the factor that prevents them from doing so. Our Cost of Compliance survey from July 2011 demonstrated the average cost of complying with regulation for a small business was 14,200 a year, including 4,900 in external advice. C. Specific difficulties with the current dismissal system for employers and employees. What are the impacts of these difficulties? Some respondents to our February 2010 Employment Law Panel felt employment law hindered maintaining a good relationship with their staff as it comes between human to human relationships that should form the basis of team building in the work environment. Where the business owner may previously have dealt with a problem by talking the issues over with an employee over a coffee, employment law has replaced this with a far more formal approach. One business in particular felt that the number of grievance cases had increased significantly due to the preponderance of nuisance factor pay offs of employees who felt that they had nothing to lose. With so many laws on the statute book there is a real fear for business owners that they may be caught out on a technicality. A DBIS study from around the same time confirmed this view when it found that 20% of business owners feel that they understand their obligations but worry that they get it right. D. Any benefits of the current dismissal system for employers and employees. There is an argument that no change to the system is a positive step, allowing some element of certainty and stability to take root. Figure 1: Benefits of employment law (Employment Law Panel 2010) Guides us in dealing with infrequent occurrences such as recruiting or firing staff 61% Proof that we are compliant with the law in case we are sued 57% Helps us to deal with disputes in the office 43% Helps provide a framework for us to manage our staff according to best practice 39% Helps us formally maintain a good relationship with our staff 25% Improves our human resources processes 21% It does not bring any benefits 27% Do not know 4% 0% 10% 20% 30% 40% 50% 60% 70%

6 E. Whether businesses internal processes disciplinary processes differ from those set out in the ACAS Code and the reasons for this No comment. F. Differences in practices amongst employers, particularly SMEs and Micros, and whether the impact of employment disputes is greater on smaller businesses The differences in practices are not necessarily between SMEs and Micros, but between businesses with an HR function and business without an HR function. In practice, we can broadly fit the two sizes of business into each camp of those camps. The micro businesses will tend to lack the function and this places them at a disadvantage when it comes to handling disciplinary matters. It takes up more of the business owners time in handling disputes, which could be better spent looking at opportunities for the business. In SMEs with the HR function such issues will tend to be kept away from the business owner. Questions on Compensated No Fault Dismissal: Question 23: Under a system of Compensated No Fault dismissal, individuals would retain their existing rights not to be discriminated against or to be dismissed for an automatically unfair reason. Taking these constraints into account, do you believe that introducing compensated no fault dismissal would be beneficial for micro businesses? Question 24: If answer to question 23 is yes, who would benefit and why? Panel members would like greater protection against malicious prosecution by individuals who stand nothing to lose from taking a business to a tribunal. While they accept that employees should be protected, they feel that more balance is needed with awards against no win no fee lawyers being introduced in extreme cases. In order to achieve growth businesses must ensure they are as productive as possible. There will be cases where employees within companies are no longer productive for a number of reasons. When appropriate to do so, employers could use CNFD as a means to ensure those employees that are no longer contributing, or which are are providing a disruptive element within a business, could be dismissed, without the employer fearing prosecution for what is - in essence - a business decision. Question 25: Would it be necessary to set out a process for no fault dismissal in: a) legislation b) the ACAS Code c) both d) neither? Both. Question 26: Any comments on process requirements. What would need to be considered when developing the process? As with the case at present, evidence from the employer would need to be presented to support the process. Question 27: What type of compensation would be appropriate for a no fault dismissal? a) a flat rate b) a multiple of a week s or a month s wages c) other d) I don t agree with no fault dismissal Certainty would be provided by a set formula that comprised the relevant entitlements (holiday pay, wages) together with a defined amount of compensation, which would be proportionate to length of service, but with a cap at both the bottom and top ends. An option should also be available for businesses to pay more money in compensation in lieu of the employee working a notice period.

7 Questions 28: Further comments on the above, including any comments on possible impacts on redundancy and redundancy payments. We would like to see an option for small businesses to pay additional monies in lieu of notice period. Question 29: Any comments on the relationship between compromise agreements and the topics set out in this call for evidence. We support the change of terminology from compromise agreements to settlement agreements. However, there are clear risks that employees will seek disproportionate payouts in the knowledge of the costs to an employer in taking a matter to tribunal. CNFD should therefore remain an option. More importantly, we feel the area of protected conversations merits further, and speedier discussion, as an option for employers to engage safely and early with their staff to address under-performance issues. Evidence topics for Compensated No Fault Dismissal F. (letter duplicated to match mistake in the BIS document) Whether or not no fault dismissal would lead to a reduced burden on micro-businesses and an increase in the demand for new employees. Reducing the burden Our employment law burden barometer has continued to increase report on report over the past two years. Many of the complaints we receive relate to the recruitment, discipline and removal of staff. It is therefore logical to suggest that making the removal process less onerous for our members will reduce the burden they face. At the very least it will decrease the fear of being taken to tribunal. Evidence suggests the fear of being taken to a tribunal both hinders the removal and recruitment of staff. Figure 2 outlines the impact of employment law on business practice and clearly shows the biggest area of detriment is in the area of disciplining staff. Figure 2: The impact of employment law on business practice Equality and diversity -13% 3% Staff retention -13% 6% Recruitment -25% 1% Pay levels -26% 6% Holiday -35% 7% Grievance / bullying -21% 7% Disciplining staff -48% 11% Dealing with job losses -30% 6% Flexible working -32% 8% Maternity / paternity -46% 8% -60% -50% -40% -30% -20% -10% 0% 10% 20% Improved Hindered Source Employment law guide feedback 2009

8 Increasing Employment For too long employment legislation has been overbalanced in favour of employees, taking important controls away from employers. It is they, after all, who provide the work and often put their livelihood at risk in so doing. They must be able to call the shots - within reason. Panel member response Our members repeatedly tell us of the worries associated with the dismissal of an employee to the extent that many reconsider employment in the first instance. For example, in the area of youth unemployment, a particular focus for the current Government, research from our Training and Skills Panel (August 2011) showed the majority of members (78%) felt making it easier to let any recruit go if they did not fit with the organisation would encourage them to take on a young person (see Figure 2). Figure 3: Encouraging employment Comments from businesses in this area concerned the potential legal repercussions involved with removing underperforming members of staff. Even when a code is correctly adhered to there is both the issue of the time it takes to go through that process (which can be to the detriment of the business) as well as the fear of getting an element of that removal process wrong and leaving open an opportunity to be legal pursued on a technicality. Overall, smaller firms do not have the ability to move people easily so there is a greater risk as to whether a person, however well qualified, will fit with the company. Given the comments we have received, we believe that a policy of CNFD would give reassurances to businesses in this area, persuading some to take on additional staff. Increasing productivity There is another factor that shouldn t be overlooked. Even for businesses that would not employ further if CNFD was introduced, they will be afforded a better opportunity to increase productivity within their business. An employer will in most cases be looking to remove a member of staff based on performance or behavioural issues. Both are key difficulties in a business that employs few members of staff, e.g. the underperformance of one member of a team of four has a great impact that one member in a team of 250. Likewise, an awkward or rogue employee can be incredibly disruptive in a small office. Removing and replacing such an employee in a short space of time would be of immense value to some of our members, allowing them to quickly tackle unproductive members of staff without fear of reprisal. Ensuring a good cultural fit within a small team can be crucial and CNFD will allow employers to remove members of staff that do not provide that fit. There is no doubt that policy changes already in track will help in handling these kinds of issues in newer employees, i.e. the increase to two years before an employee can claim unfair dismissal. CNFD will provide an avenue to cover employees who have served longer than the 2 year period.

9 Member Case Study: We have offices around Europe (France, Germany & Belgium) and as I understand it compensated no-fault dismissal is an acceptable procedure within the law in those countries. Therefore why should we be different? People change and employer needs change but with current legislation it is both difficult and time consuming to make changes. Even if the employer suspected that the employee would be willing to accept compensation to leave the company the employer dare not make such an offer (what we used to call a compromise agreement) for fear of a constructive dismissal claim. To make a change with current employment law the company would ether need to go down the redundancy route, if indeed it was a true redundancy, if not then it would need to follow the disciplinary route which the employee may find quite stressful and may prefer to simply reach an agreement with the employer. Whilst I doubt such a change in employment law would stimulate many new job opportunities it would at least allow both the company to react quicker to market needs and employees to avoid the discouragement to their professional life that inevitably would result from a dismissal following a protracted disciplinary procedure. G. Whether or not no fault dismissal would lead to an increase in other types of employment tribunal claim e.g. discrimination We have reason to believe that no fault dismissal may lead to an increase in vexatious discrimination claims. However, in the context of further changes being made to the unfair dismissal and tribunal processes, any erroneous claim should be quickly dismissed before reaching a full tribunal stage. H. The potential impact of no fault dismissal on the behaviour of employers and employees, and levels of productivity, including on a) levels of recruitment b) job-matching ( right person, right job ) c) employee motivation, commitment and engagement d) investment in skills and training e) management, including effective performance management a) Levels of recruitment We believe levels of recruitment would remain broadly similar to current levels. The primary reason for dismissing a member of staff relates to their performance, not a lack of need for the position. It may be the case that a business reviews the level of work being undertaken by an unproductive employee post removal and takes the decision that the workload can be shared among existing staff without further recruitment, but in the main we believe the dismissed employee would be replaced. b) Job-matching We see no reason why the process of job-matching should change with the introduction of CNFD. It is everyone s interests that the most suitable employees are given jobs at a given business, but where this does not work it is in the interests of both parties to find a replacement position. c) Employee motivation, commitment and engagement Immediate reaction to proposals in the media and in some political circles suggests there will be a detrimental impact on the motivation, commitment and engagement of some employees, who may feel their jobs are less secure as a result of this proposal. However, it is equally true to say that disruptive members of staff can have a detrimental effect on other members of staff. As one business owner told us, From experience staff do not improve having been given verbal warnings, etc. The whole process is time consuming so it would help the remaining staff morale to just offer a pay-off to the offending member of staff to leave without threats of unfair dismissals. Employment Law Panel member response d) Investment in skills and training

10 There may be decreased investment in skills and training for employees that are subject to the CNFD process but there would be no reason for employers to invest less in other members of staff. Our members recognise and value the investment in skills and training for their members of staff. e) Management, including effective performance management As above. I. The impact on consumer confidence and credit provision. No comment. J. Any other potential consequences of introducing no fault dismissal for micro businesses No further comments to add. K. International dismissal systems, their costs and benefits, and any lessons that can be learned by the UK No comments to make.