Sarah Chilton: Overhaul of employment law is a missed opportunity

Published on 17/09/2012 01:01

IN THE run-up to last week’s announcement by Business Secretary Vince Cable about streamlining employment law, debate on the subject tended to focus on small firms which, it was said, were most adversely affected by the structures of current legislation.

To a large extent that is true. However, those working for small firms tend to be paid less than those working for larger corporations and so one of the key tenets of the proposals – that the maximum award available for unfair dismissal should be reduced drastically from the current £72,500 – is unlikely to provide much relief for small businesses by leading to fewer claims.

Ironically, it is higher earners who will be most adversely affected. No-one is yet aware by how much the maximum will be reduced, but £25,000 has been widely bandied about. Should this be implemented then, clearly, there would be little incentive for employers to ensure that they fairly dismissed an employee earning £100,000 a year if the possible penalty was a mere quarter of that sum.

Such a scenario could also lead to a harder struggle for justice for employees fighting what they clearly believe to have been an unfair dismissal. With lower levels of compensation, they might be tempted to save money by conducting their own case at tribunal, to avoid an award being eaten up by legal fees.

Another potential problem for all employers, but especially owners of small firms, is that by reducing the maximum award for unfair dismissal, less scrupulous employees may try to rely on possible or perceived discrimination, where there is no financial limit on awards.

Perhaps the most positive proposal for small businesses is the one giving judges powers to sift through tribunal cases before they reach court to allow them to dismiss weak cases without a hearing.

Overall, this must be seen as an opportunity lost because under the proposals much the same system will remain in place. Perhaps simplifying the definition of what does, or does not, constitute an unfair dismissal or introducing a straightforward set of rules for employers – who have fair grounds to dismiss someone for poor performance, for example – would have been more helpful for employer and employee alike.

l Sarah Chilton is an associate with Murray Beith Employment