Growth hasn’t flatlined because of the UK’s unfair dismissal regime

With unemployment at record levels, there is a pressing need for the Government to take urgent steps to get people off the dole and into jobs.  However, the Government’s proposals for weakening the right to claim unfair dismissal will only make it easier to fire, rather than hire extra employees.  On Tuesday, MPs will debate the government’s Statutory Instrument to extend the qualification period for unfair dismissal from one to two years.

The qualifying period for unfair dismissal has fluctuated over many decades.  Indeed, it was the last Labour government which reduced the period to one year in 1999, which was done on the basis that it struck a better balance between competitiveness and fairness.  There is absolutely no evidence that this reduced employment levels or that a shorter qualifying period has led to a loss of jobs or constrained employers’ recruitment decisions.

Let us be clear – taking away the employment rights of low paid and vulnerable employees is not a replacement for a proper strategy for economic growth.

Even the Government’s own research has shown that most employers do not perceive the current level of regulation as a major constraint on growth.  The Department for Business, Innovation and Skills’ October 2011 Small Business Barometer report found that only 6% of small business owners cited regulation as their main obstacle to growth.  Recruitment decisions are complicated but are more likely to be influenced by operational needs, market conditions, levels of demand and access to finance than the qualification period for unfair dismissal.

The Business Secretary himself declared that “the UK has a reasonable balance between rights and flexibility” and the Chartered Institute of Personal Development commented on the proposal that “there is no evidence whatsoever that this will support the labour market”.  Gillian Guy, Chief Executive at Citizens Advice called the change “nothing short of a charter for rogue employers”. So, why does the Government insist on pursuing it?

What Ministers have failed to recognise is that the change it likely to have to the reverse effect to what they wish to achieve.  What will the impact be on the confidence, productivity and morale of employees?.  Making employees less secure in their jobs will affect their ability to plan for the future and could dent consumer confidence, which is already at a generational low.

Most worryingly, the proposals are likely to have a detrimental impact on young workers who tend to have a shorter tenure at work.  59.2% of all employees aged 24 and under have less than two years’ service with their current employer.  This change, coupled with the record levels of youth unemployment in the UK, is something MPs across the country should be concerned about.  The disproportionate impact on part-time, women and black and ethnic minority employees, all of whom tend to have shorter employment tenure, must also be considered.

The unintended consequence of this change may be that the number of discrimination cases – which are more expensive and complicated for employers – increases.  I can see the scenario unfolding:  an employee who has worked for less than two years feels that she has been unfairly dismissed.  She calls a lawyer for assistance and is informed that she has no rights as she has not worked for long enough.  The lawyer then examines whether a discrimination claim can be commenced – unlike unfair dismissal, there is no qualifying period here. In this scenario, the potential compensation levels are uncapped, the cases are far more complicated and the potential reputational damage to the employer is incalculable.

Ministers say that the change will reduce the number of employment tribunals by 2,000 per year but have not fully considered the potential impact of an increase in discrimination cases.  I would argue that the removal of the rights for millions of workers is disproportionate to the very small impact on unfair dismissal cases.  I can’t see how this will improve the perception of fear that employers will end up in a tribunal situation.

And business recognises the importance of the rights of their employees too.  As Fiona Dawson, Managing Director at Mars UK said on Newsnight recently, “I would like to see something that makes it easier for the workforce but it’s got to be fair.  So I would not support employees rights being removed.  I think we’ve got to make sure that it is fair, not just for businesses but for employees as well.”

Labour recognises that reform is needed in employment law and we will work with businesses, charities and trade unions to take forward change that will benefit both employees and employers.   The reasons that growth has flatlined is not because of the UK’s unfair dismissal regime, it is down  to the failed economic policy of this Tory-led government which is cutting spending and raising taxes too far and too fast and who are locked in to the narrow mindset of old orthodoxies which don’t serve the interests of business or employees.

Ian Murray is MP for Edinburgh South and Shadow Minister for Employment Relations, Consumer and Postal Affairs.