Don't believe the spin: workers will lose out, thanks to Beecroft
If you go by what some of the papers tell you, has saved the day and the Beecroft proposals on unfair dismissal have been quietly shelved. Don't believe everything you read in the papers.
The , published yesterday, contains a provision that would give the government a very broad power to slash compensation for unfair dismissal to a third of its present level at any time in the future, without further debate.
Don't be fooled by the Institute of Directors' that the bill is a missed opportunity to help business. If enacted, this clause would be a major victory for Adrian Beecroft, the Confederation of British Industry, the IoD and the British Chambers of Commerce, paving the way for a major reduction in employment rights. To understand the extent of the sell-out by the Lib Dems, you need to understand the existing remedies for unfair dismissal. You then need to look at what Beecroft was proposing in his report and what the bill actually contains.
Existing remedies for unfair dismissal
If you have two years' service and are dismissed you can bring a claim for (there is no service requirement if you can prove discriminatory dismissal, but I am talking about ordinary unfair dismissal). If you establish unfair dismissal, there are two elements to the award that you will get: a basic award and a compensatory award. The basic award is equivalent to a redundancy payment. It is not high: this year it is a week's pay capped at either £430 or £645 for each year of service, depending on your age. The number of years of service is capped at 20. The minimum award is £860 for two years' service, and the maximum possible award is £12,900.
Compare this to many countries in Europe where a redundancy or dismissal payment will be a month's pay, uncapped, for each year of service and you can see that Britain actually has one of the most flexible labour markets in the developed world.
The compensatory award is based on your actual loss of earnings as proved and is currently capped at £72,300 (the amount is index linked). Large awards are rare – the median award last year was only £4,600. But if you do suffer substantial loss (eg pension loss) and can prove it, your loss is capped at that amount. You (not your ex-employer) also have to pay tax on anything over £30,000, so no one actually gets £72,300.
It is obviously unfair that the award is capped at all. If you win a claim for discrimination your loss of earnings is not capped. If you win a claim for personal injury your losses are not capped. So why should your losses for unfair dismissal be capped? But capped they are. In a 1998 White Paper, , Labour proposed to remove the cap, but then the business secretary Peter Mandelson backtracked and compromised by raising the cap from £12,000 to £50,000 and index-linking it. That is the origin of the current figure of £72,300.
What Beecroft proposed
Beecroft what he calls "compensated no-fault dismissal" (and I would call "arbitrary dismissal") which in his words "would allow an employer to dismiss anyone without giving a reason provided they make an enhanced leaving payment". in fact the so-called "enhanced payment" he proposed was only equivalent to a the basic award in a claim for unfair dismissal - i.e. between £860 and £12,900 – so what he was actually proposing was to make the basic award automatic (no need to prove that the dismissal was unfair) and remove any right to claim the compensatory award of up to £72,300.
That proved politically unacceptable and instead Cable announced a "call for evidence" (still in theory continuing until June 8) on keeping the no-fault dismissal proposal, but only for those employed by micro businesses. In a released on Monday setting out the government's position on each of the Beecroft proposals, BIS said that it was not pursuing this proposal.
What is now proposed
Clauses 7 to 17 of the bill published yesterday make changes to employment law. Clause 12 is entitled "Power by order to increase or decrease limit of compensatory award" and provides that the secretary of state may by statutory instrument vary the limit of the compensatory award to be
(a) a specified amount of between 1 and 3 times median annual earnings, or
(b) a specified number of weeks' pay (but not less than 52)
or the lower of the two.
Median annual earnings are currently £26,000, so if you are on £26,000 your compensation would be capped at a year's pay. If you are on £52,000, it would still be capped at £26,000 - ie six months pay. If you are low paid and only earn £13,000, it would be capped at £13,000.
It's worth noting that this is in fact a much broader proposal than the micro-business proposal, because the variation can be applied across the board.
Clause 12(3) provides that the amount may vary in relation to different descriptions of employers. It may be that there will be a compromise for the life of this government: eg three times median earnings for large employers, two times for medium employers and a multiplier of one for small employers.
However, the point about legislation that can be done by orders in council is that this issue would never have to be debated. A similar provision existed to vary the qualifying period to bring a claim. This government wasted no time in using that provision to double the qualifying period from one year to two. The higher provision is already law. There was no debate. Therefore, while we may not see an immediate reduction to £26,000 for all employees, it's not unreasonable to suppose that if the Conservatives won the next election they would promptly reduce the limit across the board.
The government has not offered any explanation why it now proposes to slash compensation levels when even Beecroft said that existing compensation levels were "reasonable". The Lib Dems have not explained why they are agreeing to a major reduction in employment rights without any consultation or evidence on this proposal. Is this part of a dodgy deal that was done when Dave and Nick renewed their vows? And Labour, of course should say whether they oppose this proposal, and if so whether they will commit to repealing it if they win the next election.
This article was amended at 4.10pm on May 24 to change the figure for the maximum possible basic award for unfair dismissal to £12,900 rather than £12,000.