Last month, a report commissioned by the Prime Minister and prepared by venture capitalist Adrian Beecroft was leaked to the Daily Telegraph. Mr Beecroft was asked to consider a number of different areas in employment law and make recommendations for change to them in order to encourage growth and employment.

Mr Beecroft identified the rules regarding unfair dismissal to be one of the stand-out issues stifling business growth, and that they have a “terrible impact” on efficiency and competition. He states that these rules “both make it difficult to prove that someone deserves to be dismissed, and demand a process for doing so which is so lengthy and complex that it is hard to implement.” This results in businesses being unable or unwilling to dismiss underperforming staff, resulting in inefficiency being tolerated and employees “coasting along”. It also discourages smaller businesses from taking on employees who are “unknown quantities”.

Unions have been quick to criticise the report and have called on the government not to make any of the changes that it recommends, or even to ignore it completely. However, small businesses and managers in the public sector have welcomed the report. The timing of the report has not gone unnoticed, coming shortly after the government has announced that the qualification period for claiming unfair dismissal is to increase from one year to two years from April 2012.

The law as it stands gives employers five potentially fair reasons for dismissal: conduct, capability (or qualifications), redundancy, statutory restriction, or “some other substantial reason”. Dismissal for any other reason would be unfair. In addition, employers must follow a fair procedure in deciding whether to dismiss an employee for one of the potentially fair reasons. Retirement was removed from the list of potentially fair reasons in April 2011, but may still apply in certain circumstances.

So is it really too difficult to dismiss employees under the current rules?

Certain potentially fair reasons are quite straightforward – if you fail to hold or obtain a qualification required for the job, or by law you are not permitted to perform that job (for example due to immigration restrictions), you will be dismissed.  Others, such as conduct, capability or redundancy, require the employer to undertake a fair procedure to allow the employee to know they are at risk of dismissal, and argue their case.

In respect of underperforming staff, the obvious potentially fair reason for dismissal is capability, but in certain cases the poor performance could amount to misconduct. This will depend on the facts in each case, but either way a similar procedure would be followed. The employer would need to invite the employee to a meeting to discuss the issues, and identify appropriate performance targets for the employee to achieve. As the procedure must be fair, the targets and the time in which they are to be achieved must be reasonable. This means that dismissal for failing to adhere to short-term improvement plans could be deemed unfair.

Mr Beecroft’s report suggests that he would like to see the rules change to become more akin to our European or even American counterparts, with dismissal being possible for any reason provided that no discrimination is involved. The change to the qualification period for unfair dismissal has already created rumblings that there will be an increase in the number of discrimination claims made to employment tribunals, as there is no qualification period for such claims. Removing the right not to be unfairly dismissed may only serve to further increase these types of claims as employees desperately exercise the only protections they have.

Mr Beecroft believes that the uncertainty that may come with employers being able to dismiss at will, regardless of performance and without any procedure, is “a price worth paying for all the benefits that would result from the change”. He believes it would not result in increased unemployment, as dismissed employees would be replaced with stronger, more competent employees.

The report recognises that some of the proposed changes would be fair to employees or politically acceptable, and any changes are unlikely to be this strong, but certainly the voices of employers trying to get rid of underperforming staff without fear of being taken to an employment tribunal are being heard. 

This article was first published as part of our Employment Law Update - November 2011. To subscribe, please email updates@solts.co.uk.