Unfair dismissal qualifying periods: a historical perspective

The government (along with its advisers such as the now-notorious Adrian Beecroft) claim that employment laws in general, and unfair dismissal laws in particular, are holding up the economy, by making employers afraid to take on new recruits. Many people (myself included) have argued that (a) this is inherently ridiculous, because if your business is lucky enough to have experienced an upturn in work, then it would be madness not to hire enough staff to do it; and (b) there is simply no evidence to back it up, or at least, none has yet been produced. Not only has no evidence been produced to back it up, there is considerable evidence against it.

I’m going to assume that Beecroft’s bonkers idea of scrapping unfair dismissal will not see the light of day. However, the unfair dismissal qualifying period will inevitably be raised to 2 years from its current 1 year. The Conservative party has form in this area, and I’ve been looking at some of the old Parliamentary debates. In 1985, Thatcher’s government successfully implemented regulations to raise the qualifying period to 2 years (the Unfair Dismissal (Variation of Qualifying Period) Order 1985), for exactly the same reason – to encourage recruitment. So where was the evidence then?

In introducing the measure in the House of Lords, government minister Lord Belstead said:

The Government cannot alone create jobs. Their key contribution is to create an economic climate in which enterprise can flourish. But they can and do also provide direct help for those worst affected by unemployment; and Government can help to improve the operation of the labour market by encouraging better training, more flexibility and fewer barriers of regulation and cost. The changes introduced by this order are part of this strategy. It is important that we should take all reasonable steps to remove the barriers that might be standing in the way of new jobs being created. In this case the barrier relates to employers who want to take on more people but are afraid to do so because of their fear of being taken to industrial tribunals.

We believe that the change will have an important psychological effect. Employers will be more ready to take a chance and employ people in the knowledge that they will have two years in which to see whether things work out as they wish them to, without the fear of being taken to an industrial tribunal.

Sounds like a familiar argument. The redoubtable Lord Wedderburn of Charlton replied:

… This is said to be done in the face of the need to cut unemployment. The need to cut unemployment could hardly divide any of your Lordships, one from another. But the method should be based rather more than upon a belief. I wanted to hear the evidence that the Minister would give that these changes in the unfair dismissal law would improve the employment prospects of workers, either those now not to be protected against unfair dismissal or, indeed, some others. There was none. Yet there is literature. What is the literature? There are three major surveys.

The first was a survey of 1978, perhaps the best survey of all, by Daniel and Stilgoe, which came to clear conclusions upon a survey of 301 firms, employing 50 employees or more. Their central finding on this matter, repeated many times, was: There was very little sign in our findings that employment protection legislation was inhibiting industrial recovery or contributing to the high level of unemployment by discouraging employers from taking on new people”. They added that they unequivocally rejected criticism of the employment protection laws and especially redundancy and unfair dismissal laws on that basis. In fact, only 2 per cent. of their sample—these figures are important when we come to the evidence that the Government have from this year’s survey—mentioned these problems of unfair dismissal and employment protection law as a reason for not recruiting or for recruiting in smaller numbers.

I quote again: Very few managers attributed a major impact to these pieces of legislation. And there was little difference in recruitment practice or expectations between those who felt the respective measures had had a modest impact and those that felt they had had none”. The second survey was an official Department of Employment survey a year later, in 1979—again a most scrupulous piece of work—by Clifton and Tatton Brown who came to conclusions which, it is generally agreed, were almost identical in the small firm area to those produced by the Daniel and Stilgoe survey. Very few firms mentioned the Employment Protection Act in respect of non-recruitment or, indeed, other labour difficulties. The figure was less than 9 per cent. Only a small number, they said, mentioned the Act or difficulties in reducing the labour force. I quote their central conclusion on the matter: Respondents were later asked specific questions about the two measures that are most likely to make it difficult to reduce their work force, the unfair dismissal provisions and the redundancy provisions”. They go on: Eight per cent. mentioned a reluctance to take on new staff. They develop this point to show that it is a very small number indeed.

The Government were faced with this evidence in 1980 and they had a response, and it became a sort of counterpoint, I noticed, in the speech of the noble Lord the Minister. That was to argue that maybe there is no real objective problem with the employment protection laws as surveys of comparable kind in other countries have suggested, but businessmen, especially small businessmen believe it; it is the psychological effect.

Lord Sainsbury also chipped in:

If a manager is unable to evaluate the suitability or performance of his staff within a year, there is little reason to suppose that he will be better able to do so within two years. The proposition becomes more ludicrous when talking of small businesses where the owner or manager is working in close daily contact with his small number of staff. As far as the large employer is concerned, he is likely to have a personnel department or officer whose function is to evaluate the suitability and performance of the firm’s employees. There is nothing to suggest that the extension of the qualifying period will improve industrial relations in general, and it is for these reasons that we on these Benches do not welcome this order.

(HL Hansard debates 16 May 1985 columns 1296-306)

Lord Wedderburn (above) alluded to a point he had also raised some years earlier in 1979, when the Conservatives raised unfair dismissal qualifying periods for the first time, from 6 months to 1 year*:

Coming to the unfair dismissal investigation, the Daniel and Stilgoe survey ended by saying (on page 77): There was very little sign in our findings that employment legislation was inhibiting industrial recovery or contributing to the high level of unemployment by discouraging employers from taking on new people “. Later they said: We can reject unequivocally the crude form of that criticism with regard to the sectors of employment that we studied “. As far as small businesses are concerned with unfair dismissal, the Opinion Research Centre survey—with independent and severe standards of surveying—showed that only 4 per cent. of those approached mentioned unfair dismissal legislation as a Government measure that caused difficulties as against the 22 per cent. who suggested that their real difficulty lay with VAT. That was in 1978. If the Government want to help small businesses, then let them again look at VAT instead of introducing measures of this kind.

What has happened is that the Conservative Party and their associates have gone round the country saying to businessmen, ” Look at all those terrible laws! ” The noble Lord read out a list of them. ” Look at that long list! Is it not terrible? Are you not worried? ” Now, having stirred up the complaints and encouraged those complaints, they will not even discuss, it seems—although I hope the noble Earl in his reply will discuss—the statistics produced by independent surveys in 1978.

(Lord Wedderburn of Charlton, HL Hansard Debates 25 July 1979 columns 1970-84)

On both of these occasions, when it came down to it, the Conservative Government of the day has sought to justify its increase in the qualifying period not on any evidence that employment laws (or “red tape” as they are pejoritively now called) actually create a barrier to recruitment, but that employers (or at any rate some employers) believe them to be a barrier, and as a result, do not hire new recruits. As Lord Belstead happily admitted, “the vital point is what employers do believe”.

Lord Wedderburn, an eminent professor of law, is to this day revered by many in the employment law world as a leading thinker who has contributed enormously to the quality of debate on employment law matters in the House of Lords, and has been savage in his criticism of muddled thinking from both Tory and Labour governments (witness his lengthy contribution to the debates on the ill-fated statutory dispute resolution procedures in 2001/02). In 1979 he was unabashed in accusing the government themselves of fanning the flames of employers’ (in his view unjustified) fear of employment law, as well as being somewhat selective in their use of evidence, ignoring independent research suggesting very few employers were concerned about unfair dismissal law, in favour of CBI surveys filled with leading questions, and “anecdotal” letters from concerned employers, the contents of which the DTI declined to disclose.

Any of this sounding familiar?

As a final note – Lords Wedderburn and Sainsbury both still sit in the Lords. I wonder what they will make of it this time?

(*P.S. I think – although I’ve no evidence to back it up but that’s ok these days isn’t it because belief is what counts – that the reason most contracts of employment have a 6-month probationary period is down to the fact that unfair dismissal protection originally used to kick in at 6 months. When the qualifying period went up, did employers start introducing a 1 year or 2 year probationary period? Of course they didn’t. Six months is long enough to tell if someone’s up to the job, and the longstanding custom of 6-month probationary periods is testament to this.)

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About Mrs Markleham

Employment lawyer, discrimination lawyer, mildly peevish old woman.
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6 Responses to Unfair dismissal qualifying periods: a historical perspective

  1. Brilliant – amazing how the arguments stay the same over the years – as do the real reasons that motivate the change.

    One really picky point – When Unfair Dismissal was first introduced by the Industrial Relations Act 1971 the qualifying period was 104 weeks. I think it was Labour’s re-enactment of the right in the Trade Union and Labour Relations Act 1974 that first set the qualifying period at 26 weeks.

    I’m great fun at parties!

    • Well that shoots my theory out of the water. Told you I had no evidence.

      Now if everyone else who similarly has no evidence could just abandon their wild theories too we can all go home.

  2. Anya Palmer says:

    The 1980s “evidence” was demolished by the Divisional Court in the Seymour-Smith case, [1994] IRLR 448 at paragraphs 41-61 and 123-137. In particular McCullough J asked whether there was any evidence that since the qualifying period had been increased it had had the beneficial effects claimed for it. “If the changes of 1979 or those of 1985 had to any significant extent increased opportunities for employment I would have expected that by 1994 hard evidence of this would have been presented to the Court.”

    The Court of Appeal agreed, [1995] IRLR 464. At para.122: “we have found nothing in the evidence, either factual or opinion, which obliges or enables us to draw the inference that the increase in the threshold period has led to an increase in employment opportunities”.

    Unfortunately the House of Lords took a different view [2000] IRLR 263 and concluded that although at best these reports “indicated that various small percentages of employers considered that employment protection legislation in general, and the provisions relating to unfair dismissal in particular, might inhibit the recruitment of employees”, nevertheless it was reasonable on that evidence in 1985 for the Secretary of State to increase the qualifying period without carrying out further research or preparing an impact assessment (Lord Nicholls at paras.67-69).

    Lord Nicholls further concluded that where the provision gave rise to a disparate impact on women, there was a continuing obligation on the government to monitor the provision to see if it had had the benefits contended for, but that the government was “entitled to allow a reasonable period to elapse before deciding whether the Order had achieved its objective” and this could not reasonably be done in the 6 years to 1991 (when Seymour-Smith was dismissed), and accordingly the 1985 Order was still objectively justified in 1991 (paras.70-73).

    Politically the government may get away with the same non-evidence again, but legally if there is a fresh indirect discrimination challenge (as seems likely in view of the disparate impact on younger people) I would expect the following points to be made:

    (a) on this occasion it is known in advance that there is a significant adverse impact on young people as that was identified in the government’s own equality impact assessment published in January [http://bit.ly/gskYOv at p.168]; that should immediately prompt the government to consider what evidence there is of the alleged benefits, because that will be their defence of objective justification, and

    (b) on this occasion it is not necessary to wait several years to see whether the alleged benefits materialise, because we already have the experience of a two year qualifying period over the 14 years from 1985 to 1999, followed by 12 years of a one year qualifying period from 1999 to the present, so if there is any correlation at all between the qualifying period and unemployment figures, it should be possible to demonstrate that by reference to existing statistics. So far as I am aware the government has made no attempt whatsoever to look into this. I have looked at the statistics and I am confident that if they were to look into it they would find there is no correlation whatsoever.

  3. Stephen Levinson says:

    I do not know if there is good evidence of the perception by employers that employment laws are a burden. I do not think surveys carried out thirty years ago are much help now. I have clients who tell me they are. I have others who tell me they are not. I have clients who have closed businesses because they find dealing with their staff too onerous. I have clients who delay taking people on as a first employee because they have concerns about technicalities involved. I doubt that will not be the main reason to decide but it could easily have delayed the decision. How easy is it to get good evidence of a perception?

    As a matter of politics it seems quite clear that BIS with a Liberal Democrat (sorry Coalition) Secretary of State have been convinced by the business lobby that such perceptions are real. It also seems obvious that Government does not really believe that this measure will have any significant impact on the number of cases brought to tribunal (look at how they slashed their own estimate in a matter of months). Accordingly the only reason to introduce the measure is to deal with perceptions. I am not sure why a government should not legislate with the objective of altering perceptions paticularly if the real impact is relatively small. The real disincentive to bringing claims and reducing access to justice is likely to be fees and that, to my mind is a much more serious issue than the two year qualification period for UD.

    Stephen Levinson

    • Stephen,

      All excellent points. I agree – as I think is probably apparent from my post – that perception is largely what’s driving this. One problem, as Anya points out in her comment above, is that the government may be required in due course to objectively justify the policy if someone persuades the High Court in a judicial review case that the change disproportionally disadvantages young people. They got away with relying on perception last time largely because there was nothing much else to go on, and the court allowed them that “margin of appreciation”. Whether a court would now close off that margin because the lessons of the past have not been learnt is difficult to predict.

      Assuming perception is a good enough basis on which to act (politically, if not legally) it is still difficult to get good evidence of what that perception is. If one asks employers outright, “would you be more willing to hire if unfair dismissal protection was delayed by another year?” I expect most employers would probably say “yes”, or at least, “it certainly wouldn’t do any harm”. However, asked a more open question about what it is that is inhibiting recruitment, many would probably list a multitude of factors, including various employment laws, but with unfair dismissal qualifying period very much lower down the list. There are other laws (according to MY perception) that cause employers much more worry, such as discrimination and maternity rights which are complex even for lawyers to understand, but of course not much can be done about them under EU legislation.

      If (as the government clearly believe) the ship of our economy is sinking under the weight of employment legislation (or even just employers’ perception of the weight), then changing the unfair dismissal qualifying period is very much a rearrangement of deckchairs.

  4. Will Winch says:

    While the Government’s response to the consultation about qualifying periods has not yet been released – it’s due ‘this autumn’, apparently – many organisations have published their responses online. The Administrative Justice and Tribunals Council has described the proposals as being ‘based on limited evidence and [which] will bring little benefit to employers or to the tribunal system while having a disproportionate and chilling effect on employees’. The Unions, law firms and the EHRC are all generally against it. No surprises there, perhaps: a cynic would say that they all have vested interests. However, Pannone conducted a survey of employers which indicated that just 17% of respondents might take on further staff as a result of the change. Most interestingly, the Institute of Directors’ response cites a survey which indicates that less than half (46%) of respondents said that they would be more inclined or strongly more inclined to take on another employee if the period is extended. The majority of employers’ federations all recognise that if you start messing around with the qualifying period for unfair dismissal, potential litigants won’t necessarily go away: they will start exploring more complicated and costly claims which don’t require the qualifying period.

    So not exactly an overwhelming endorsement of the idea that this will enable the economy to grow its way out of problems, and probably not enough to provide objective justification for any discrimination arguments that could be raised. The Government appears to be labouring under the misapprehension that the plural of “anecdote” is “data”.

    One other point: the Government is taking away protection from employees at a point of great economic uncertainty. Many people will be worried about losing their jobs. To remove the protection of unfair dismissal will increase this uncertainty. The lack of certainty could have a profound effect on people’s willingness to spend and grow the economy. For instance, employees may think twice before entering into a major financial commitment such as a mortgage. Any marginal increase in the confidence of employers should be set against this decrease in the confidence of consumers. I haven’t seen any data on this, though, so probably shouldn’t speculate further.

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