A case against no-fault dismissal

Mike Emmott is Employee Relations Adviser at the Chartered Institute for Personnel and Development

The Chartered Institute of Personnel and Development
(CIPD) does not support the recommendation by Adrian
Beecroft for a scheme of compensated no-fault
dismissal. We believe it is objectionable in principle
and unnecessary in practice. We also believe that it
would damage small businesses rather than help them.

We don’t accept that introducing compensated no-fault
dismissal would be beneficial for micro businesses.
Employers’ effective ability to make no-fault dismissals
would be constrained by employees’ continuing ability
to bring a complaint on the grounds of discrimination,
whether based on sex, race, age or disability. Unlike
unfair dismissal, such claims require no minimum
service threshold. The encouragement that this change
in the law would give to bad practice might suggest that
the typical micro-business was a “rogue employer” and so make it harder for them to recruit. Employee engagement in companies making use of no-fault dismissal would be undermined.

No-fault dismissal would be an obvious method for unscrupulous employers to remove redundant employees without consultation and without making statutory redundancy payments. Employers can of course already use compromise agreements to avoid the risk of legal challenge. Compromise agreements offer organisations of all sizes the option of securing the main objective of the “no-fault” proposal. This is to allow an employer to dismiss an employee where no fault is identified on the part of the employee and without going through a formal dismissal procedure. Agreed compensation is normally paid to the employee. The critical difference from the proposal for no fault dismissal is that in order to make use of a compromise agreement the employer is required to secure the employee’s assent and the agreement has to be signed off by an independent adviser. To allow an employer to proceed without these protections would drive a coach and horses through both redundancy consultation procedures and redundancy payments legislation.

Introducing no-fault dismissal would offer employers little effective protection against legal challenge since it would be bound to lead to an increase in other types of employment tribunal claims such as discrimination. The CIPD 2011 Conflict Management survey indicated that 61% of the 206 employers surveyed had experienced employees claiming unfair dismissal and “tagging on” a discrimination claim in the hope of getting more compensation. So, instead of reducing the burden on employers, no-fault dismissal might simply increase the burden on themdue to the time and expense involved in defending what may possibly be a totally unfounded discrimination claim, but which has enough merit in it to require attention being paid to it by the employer.

CIPD members suggest that if employers were to use a provision for no-fault dismissal, this could well lead to other employees feeling that their position is precarious. This could in principle lead either to people getting on with their job and doing it as well as they can; or it could result in a lowering of motivation and increased demoralisation. The performance benefits of the former response would, however, be likely to be short-lived, while disengagement would evidently tend to undermine longer-term performance. The MacLeod report on employee engagement offers compelling evidence of the association between engagement and business performance. If employers were to abuse the system it would have a negative impact on the attitude of other employees.

The reputational impact could also be significant for employers. This could cause problems for small businesses, which already tend to have some difficulty with recruiting good calibre staff through a perception that they offer inferior training, salary, career, benefits and job security.

The lessons from international experience of countries using similar legislation are not encouraging. No-fault dismissal would in practice resemble the doctrine of “employment-at-will” espoused by the United States (the only major industrial power to adopt the doctrine). Employment-at-will implies that the employment relationship can be terminated by either the employer or the employee for any reason whatsoever. The only significant difference between no fault dismissal and retirement-at-will would seem to be a requirement under the former to pay some form of compensation.

Although rules governing at-will employment remain largely intact, courts and legislatures in the US have crafted some exceptions to these rules. Some of these exceptions apply when the employer and the employee have entered into a contract. Other exceptions apply when the discharge violates a mandate of public policy or when an employer violates a duty to exercise good faith and fair dealing with the employee. Though these exceptions do not prohibit an employer from terminating an employee, they will allow the employee to recover damages. Individual states vary regarding the scale of protection offered to employees but the great majority recognise some form of public policy exception to the employment-at-will doctrine. Given the role played by UK courts in developing concepts of fair play and natural justice, it seems unlikely that they would interpret no fault dismissal as setting such principles entirely on one side.

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