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Cable ditches 'fire at will', but considers capped dismissal payouts

Business secretary Vince Cable has announced new steps to improve workforce flexibility and reduce employment red tape, including opening a consultation to support settlement agreements and lower the cap on unfair dismissal compensation.

The consultation, named Ending the Employment Relationship, will include the option of a 12-month pay cap on unfair dismissal claims, instead of a £72,300 limit.

The announcement comes hot on the heels of government moves to slash red tape and marks a significant watering-down of recommendations made in the Beecroft report, which Mr Cable said would allow firms to “fire at will”.

Employment tribunals will be “streamlined” under Cable’s proposals, with judges having more power to dismiss weak cases, and the government will consult on a planned efficiency drive for TUPE rules regarding staff transfers to new employers.

The government will also look to improve guidance for small businesses on the ACAS code of practice on discipline and grievance.

However, the government will not be taking forward a proposal for compensated no-fault dismissal for micro-firms, on the grounds that it would harm business and employee morale.

The changes are aimed at making the system more flexible for smaller firms. Britain is currently ranked the third most flexible labour market in the OECD, behind the US and Canada.

Business secretary Vince Cable said the moves were intended to make it “easier for firms to hire staff while protecting basic labour rights”.

He added: “Our starting point is that Britain already has very flexible labour markets. That is why well over one million new private sector jobs have been created in the last two years, even when the economy has been flatlining. 

“But we acknowledge that more can be done to help small companies by reducing the burden of employment tribunals, which we are reforming, and moving to less confrontational dispute resolutions through settlement agreements.”

Mayer Brown employment partner Bernadette Daley said the change to unfair dismissal was “good news for employers” as the current cap gave employees unrealistc expectations. She added that dropping no-fault dismissals was unsurprising, given the lack of support.

CBI chief policy director Katja Hall said the government had identified the right issues, but “what really matters now is taking action to deliver real change on the ground”.

Union response:

The moves prompted condemnation from union figures, with TUC general secretary Brendan Barber saying that reducing unfair dismissal payouts would “let bad employers off lightly and deter victims from pursuing genuine cases”, which he said would represent “another slap in the face” after the government brought in fees for employment tribunals.

Mr Barber continued: “Making it easier for bad employers to get away with misconduct is not the way to kick-start our economy and will not create a single new job.”

Construction union UCATT echoed the sentiment, with general secretary Steve Murphy calling Cable’s announcement an “act of vengeance by the government against workers”.

He said Mr Cable needed “a serious reality check”, as the proposals risked allowing construction companies to “ride roughshod over existing employment rights.”

Previous steps the coalition has taken to reform employment law include extending the eligibility period for unfair dismissal from one to two years. The government says it has considered or is taking forward 80 per cent of Adrian Beecroft’s recent report on employment law.

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