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.
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.
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.)