UK Business Secretary unveils plans to cut employment law red tape

Proposals to limit compensation for unfair dismissal and to encourage settlement agreements to end employment relationships have been put forward by the UK government today.

Business Secretary Vince Cable has announced a range of reforms designed to simplify and speed up the process of ending the employment relationship when it breaks down. According to the Department for Business, Innovation and Skills the proposals, which are subject to consultation, are intended to benefit both employers and employees.

Controversial “fire at will” proposals have been abandoned but the law will be changed to ensure that businesses can pay off under-performing employees through a settlement agreement, without fear of future claims. This sort of arrangement between the employer and employee is intended to help resolve disputes and end an employment relationship in a fair and consensual way.

In cases that end up going to an employment tribunal, workers face a reduction in how much compensation they will be able to claim. The consultation proposes to limit payouts to a maximum of 12 months’ salary.

Vince Cable said that the UK already has very flexible labour markets, as evidenced by the fact that more than one million new private sector jobs have been created in the last two years, despite the lack of economic growth. However, he added that the state can do more to help small companies by reducing the burden of employment tribunals and moving to less confrontational dispute resolutions through settlement agreements.

Labour unions are unhappy about the announcement, fearing that it takes away employment rights of ordinary workers. Chris Keates, general secretary of teachers’ union the NASUWT, claimed that the reforms would allow employers to “exploit, bully and discriminate against their workforce”.

Shadow business secretary Chuka Umunna said that the government was “attacking the rights of every employee in this country” and added that ministers “should be making it easier to hire, not easier to fire people”.

A different view was taken by business organisation the British Chambers of Commerce (BCC), whose director of policy, Dr Adam Marshall, said that an unnecessarily antagonistic dismissal process and the possibility of facing malicious tribunal claims has a detrimental effect on employment. The proposals would boost business confidence when firms can see the changes in action, he added.