Compensated no-fault dismissals ‘unnecessary’, say business groups

Business groups have questioned controversial plans to introduce compensated no-fault dismissals for micro-businesses, arguing that they will do little to encourage employers to hire staff.

Compensated no-fault dismissals would allow micro-firms – businesses with fewer than 10 employees – to dismiss a member of staff where no fault is identified on the worker’s part, by paying a set amount of compensation.

The Government believes that the proposal will give micro-businesses the confidence to hire new staff. However, the Chartered Institute of Personnel and Development (CIPD) and manufacturers’ organisation the EEF have claimed that the proposal has little support from industry and will fail to achieve the intended result.

The comments came in response to the Government’s consultation on compensated no-fault dismissals, which is due to close on Friday.

Mike Emmott, employee relations adviser at the CIPD, argued: “Adrian Beecroft’s proposal for a system of compensated no-fault dismissal is objectionable and unnecessary.

“There is no evidence that no-fault dismissal would make a positive contribution to economic growth in the UK by encouraging the smallest firms to recruit more employees. Indeed, by increasing job insecurity and reducing employee engagement it would be more likely to damage growth.”

In addition, Emmott pointed out that unfair dismissal did not feature on a list, from the Government’s own research, of the top 10 regulations deterring businesses from taking on staff, as reported by Personnel Today in April.

The EEF has also hit out at the proposal, calling on the Government to refocus its efforts on areas of employment law reform “that will deliver genuine benefit for business”.

EEF chief executive Terry Sculorer said: “The Government is right to focus on making our labour market more flexible but the case for no-fault dismissal is far from proven. We’ve found little support from industry for introducing no-fault dismissal, its benefits look pretty limited and we’ve seen no evidence that it would increase recruitment.”

He added that the Government needs to review whether there are real benefits to the introduction of compensated no-fault dismissals or whether this would instead risk damaging employment relations in the UK.

Additional resources on compensated no-fault dismissals

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