The Forensic Lottery of Unfair Dismissal1
John Hendy QC
Old Square Chambers, Visiting Professor at King’s College London and University College
London
Unfair dismissal legislation was first implemented in Britain by the Industrial Relations Act
1971 introduced by the Conservative government of Edward Heath following the
recommendations of the Royal Commission on Trade Unions and Employers’ Associations
1968, Cmd 3623, the Donovan Report. The Labour Government of 1964 had adopted
International Labour Organisation Recommendation 119 of 1963 which endorsed protection
against unfair dismissal. The proposal appears to have been promoted within the
Commission by Sir Otto Kahn-Freund, supported by the Ministry of Labour, who stressed
that unfair dismissal law would be likely to reduce the number of strikes (the preoccupation
of the Commission and the real reason it was established) since many arose from disputes
over dismissals2 In addition to the potential reduction in the number of strikes, unfair
dismissal law was viewed as important because: “… people build much of their lives around
their jobs. Their incomes and prospects for the future are inevitably founded in the
expectation that their jobs will continue. For workers in many situations dismissal is a
disaster”.
Interpretation by the courts
The law on unfair dismissal,3 as construed by the Court of Appeal, does not currently appear
to measure up to either the Donovan Commission’s recommendation or ILO Convention 158
of 1982,4 both of which envisaged that the deciding body would apply its judgment to the
question as to whether the dismissal decision was fair or justified. However, in a line of
cases from British Home Stores v Burchell5, and recently reviewed and upheld in Turner v
East Midlands Trains Ltd,6 s.98 of the Employment Relations Act 1996 has been construed in
a particular way.
1
This is a summary of a longer paper, the full text of which is available at:
www.bristol.ac.uk/adviceagencyresearch. This paper builds on Ewing, K. D. and Hendy, J. (2012) ‘Unfair
Dismissal Changes – Unfair?’, Industrial Law Journal, 41: 122 and is updated with the latest figures.
2
See Renton, D. (2012) Struck Out, London: Pluto Press, and Dickens, L., Jones, M. Weekes, B and Hart, M.
(1985) Dismissed: A Study of Unfair Dismissal and the Industrial Tribunal System, Oxford: Blackwell
3
Now Part X, Trade Union and Labour Relations (Consolidation) Act 1992
4
The UK has never ratified the Convention but which gave effect to ILO Recommendation 119
5
[1980] ICR 303 at 304C-E onwards
6
[2012] EWCA Civ 1470
1
S.98(1) provides first that the employer bears the burden of showing what the reason for
the dismissal was and that it was one of a number of specified legitimate reasons or “some
other substantial reason of a kind such as to justify the dismissal of an employee holding the
position which the employee held”. The language of the legislation clearly permits the ET to
make up its own mind as to the reasonableness of the decision to dismiss and the notions of
equity and the merits of the case infer an impartial balance between the interests of the
parties.
But the authorities hold otherwise. Elias LJ in Turner cited Aikens LJ in Orr v Milton Keynes
Council7 as a summary of the law which cannot be bettered. Aikens LJ held that in deciding
the reasonableness of the decision to dismiss (in a misconduct case – but the principles
apply across the board), that the ET: “…must consider, by the objective standards of the
hypothetical reasonable employer, rather than by reference to its own subjective views”
and “…must not simply consider whether they think that the dismissal was fair and thereby
substitute their decision as to what was the right course to adopt for that of the employer”.
Indeed, his judgment establishes the following remarkable proposition: “An ET must focus
their attention on the fairness of the conduct of the employer at the time of the
investigation and dismissal (or any appeal process) and not on whether in fact the employee
has suffered an injustice”. The irrelevance of whether the employee has suffered an
injustice is, as we have seen, in marked contrast to the intentions of Lord Donovan and the
ILO.
In fact the restrictions on the tribunal’s role go yet further. It is precluded from even making
findings of fact in relation to the allegations on which the dismissal decision was based.8 It is
thus irrelevant that the evidence against the employee is insufficient to satisfy the tribunal
of his guilt, if by the standards of a reasonable employer, the investigation and conclusion
was reasonable.9 Elias LJ in Turner uncontroversially pointed out that the band of
reasonable responses (BoRR) test “does not simply apply to the question whether the
sanction of dismissal was permissible; it bears upon all aspects of the dismissal process”.
This includes whether the procedures adopted by the employer were adequate and
whether the pre-dismissal investigation was fair and appropriate.
Rate of success in unfair dismissal cases10
7
[2011] 4 All ER 1256
London Ambulance etc v Small [2009] IRLR 563 CA see paras.3, 5, 11, 17, 22, 30, 31, 40-46
9
HSBC Bank v Madden [2000] ICR 1283 at 1287C-1288A, 1295D-H, 1296C-D, CA (CA); Sainsbury Supermarkets
plc v Hitt [2003] ICR 111 at 119H-120H, CA
10
Much of what follows is taken from Ewing, K. D. and Hendy, J. (2012) ‘Unfair Dismissal Changes – Unfair?’,
Industrial Law Journal, 41: 122
8
2
There can be no doubt that the BoRR test is a principal cause for the depressing inequality
of outcomes between workers and employers in unfair dismissal claims.
The statistics11 show that between 2009-10 and 2010-11 the number of unfair dismissal
claims fell from 57,400 to 47,900, a drop of 9,500 (16.6%), and between 2010-11 and 201112 dropped again by a further 1,300 to 46,300 (i.e. 19.4% in two years).12
Of the 46,100 unfair dismissal claims disposed of in the last year,13 11,300 were withdrawn
by the claimant,14 4,000 were struck out by the tribunals without a hearing and a further
1,300 dismissed at a preliminary hearing. A further 19,500 reached a conciliated settlement.
There were 1,200 judgments by default. That left 8,700 cases which went to a full hearing.
There, the tribunals dismissed 4,800 cases and 3,900 were successful.
In round terms, the tribunals dismissed 10,100 claims and upheld 3,900 which means that,
amongst those cases which are not settled or withdrawn, employers have a 72% chance of
winning and workers a 28% chance of winning. Overall, of the 46,100 unfair dismissal claims
disposed of, only 8.4% were upheld by tribunals.
The low proportion of cases which survive to and then succeed at final hearing is not
entirely explained by the employers’ BoRR test. There are other factors: firstly, the
effectiveness of the ACAS conciliation process; secondly a significant number of strong cases
withdrawn on settlement without ACAS intervention; and thirdly, the effectiveness of the
procedures for eliminating weak cases.
Remedies
It seems at first sight remarkable that of the 3,900 successful cases plus the 1,200
judgments by default, compensation was awarded in only 2,300 of them. The remedy is
recorded as having been left to the parties in 120 cases but in 2,600 cases it is stated that no
award was made. It may still be the case that compensation was determined by agreement
in some of those successful cases. But the stark statistic means that compensation was
ordered in only 63% of successful claims, 20.5% of claims which reached final hearing and a
mere 5% of all unfair dismissal claims disposed of.
11
Ministry of Justice (2010) Employment and EAT Statistics, 2009-2010; Ministry of Justice (2011) Employment
and EAT Statistics, 2010-11; and Ministry of Justice (2012) Employment and EAT Statistics,2010-2011
12
Instead and contrary to the evidence, the media insist on promoting the myth of employers beset by rising
numbers of claims, e.g. Louisa Peacock, the Daily Telegraph, 27th October 2011.
13
Most of the claims dealt with were, of course, lodged in the previous year – so the figure is distinct from the
number of claims lodged in the latest year.
14
Statistics do not reveal how many of these were by reason of a settlement reached with the former
employer nor how many were withdrawn by claimants feeling that their case had become hopeless or too
expensive or who just felt bogged down by the lengthy and complex procedures.
3
The level of compensation is particularly striking. The MoJ statistics show that the median
award of unfair dismissal compensation (that is both the basic and the compensatory
elements combined) fell slightly from £4,591 in 2010-2011 to £4,560 in 2011-12 (average
award: £9,133). Another way to view this is to note that approximately compensation was
less than £2,000 in approximately 30% of awards and in excess of £50,000 in 1%. Yet now
the government is determined, in the light of the Beecroft Report, to reduce awards still
further.
Recovery of compensation
As if the chances of an award of compensation and the size of the likely award were not bad
enough, MoJ research shows that even when compensation is ordered to be paid (not just
in unfair dismissal cases) there are extreme difficulties associated with recovery of it.15 More
than 42 days after judgment had been given, only 53% of claimants had been paid in full.
And 12 months after judgment 31% of claimants still had not been paid at all.16 Amongst the
reasons for non-payment, 39% were not paid because the employing company was no
longer in existence and 29% because the employer refused to pay.17
The so-called primary remedy for unfair dismissal is an order for reinstatement or reengagement. The frequency with which they are achieved is staggeringly low. In 2011-12
there were but five.
The statistics do not reveal how many such orders were in fact complied with since the
statute provides that the employer cannot be compelled to comply with a reinstatement or
re-engagement order.18 It is likely that a significant proportion of this tiny number of orders
are not complied with.
These figures make a mockery of fair access to justice in the employment tribunal.
Restricting eligibility
15
Adams, L., Moore, A., Gore, K. and Brown, J. (2009) Research into the Enforcement of Employment Tribunal
Awards in England and Wales, Ministry of Justice Research Series 9/09
16
Adams, L., Moore, A., Gore, K. and Brown, J. (2009) Research into the Enforcement of Employment Tribunal
Awards in England and Wales, Ministry of Justice Research Series 9/09, pp30-31
17
Adams, L., Moore, A., Gore, K. and Brown, J. (2009) Research into the Enforcement of Employment Tribunal
Awards in England and Wales, Ministry of Justice Research Series 9/09, p40
18
Though increased compensation may be payable in those circumstances: s.117 Employment Rights Act 1996.
4
In the light of the statistics it might seem illogical to restrict access to unfair dismissal
protection still further. Yet, as others describe in this book, the attack has been extensive.
On 3rd October 2011 George Osborne announced at the Conservative Party Conference that
from April 2012 workers will have to be employed for two years instead of one year to
qualify for unfair dismissal protection.19 Vince Cable explained that these changes are
needed because “businesses tell us that unfair dismissal rules are a major barrier to taking
on more people.”20 It turns out that the principal evidence for this was a survey of the
members of the Institute of Directors in which 51% of an unknown number of respondents
said that a reduction of qualifying period to one year would be a significant or very
significant factor in considering whether to take on an additional employee. 21 As the BIS
Final Impact Assessment admits “this nature of data has its limitations.”22
It might be thought curious that extending the right of employers to sack workers unfairly
would create jobs and a detailed report by the OECD, “Employment Protection and Labour
Market Performance” in Employment Outlook 2004 concluded that “[c]onsistent with prior
studies, there appears to be little or no association between employment protection
legislation strictness and overall unemployment”.
The government claims that the change to the law will prevent 2,100-3,200 unfair dismissal
claims (which those dismissed amongst these 2.5 - 3 million workers would otherwise have
lodged).23 This, it is said, will save employers £6 million.24 Yet unfair dismissal trends from
2009 to 2012 show, as we have seen above, that without the change to eligibility the
number of unfair dismissal claims fell in two years by 11,100, nearly six times the number of
claims which will be prevented by depriving 2.5 – 3 million workers of unfair dismissal
protection.
If the estimate of unfair dismissal cases which the government claim will be avoided by the
extension of the qualifying period is assumed to be 2,700 and that those claims would have
been disposed of in the same proportions as the unfair dismissal claims in last year’s
statistics, we can calculate that employers nationally will be spared some 130 claims in
19
http://www.conservatives.com/News/Speeches/2011/10/Osborne_together_we_will_ride_out_the_storm.as
px.
20
Press release, 3rd October 2011
21
Department for Business Innovation and Skills (2011) Resolving Workplace Disputes: Final Impact
Assessment, paragraph 302
22
Department for Business Innovation and Skills (2011) Resolving Workplace Disputes: Final Impact
Assessment
23
Mr Cable’s press release (above) estimated 2,000 but the basis of the assertion is unclear. The figure is
significantly less than the equally unsupported original estimate of 3,700-4,700: initial Impact Assessment, op
cit., at 35 and 153. The final Impact Assessment¸op cit., at 84 puts the figure at 2,100-3,200. See further Anya
Palmer, “Opinion: Unfair Dismissal Claims”, The Lawyer, 4 October 2011.
24
Financial Times, 4th October 2011. The Department for Business Innovation and Skills (2011) Resolving
Workplace Disputes: Final Impact Assessment, puts it at between £5.8m and £8.9m.
5
which workers would be found to have been unfairly dismissed and would have been
awarded modest compensation.25
Costs
Costs or the threat of them have become a significant disincentive for employees. Costs
were ordered in 1,411 cases (not just unfair dismissal claims), in favour of the employer in
1,295 cases and in favour of the employee in 116 cases. The proportion of costs orders is
therefore 91.8% in favour of the employer and 8.2% in favour of the worker.
The unacceptable burden
The burden on employers is apparently the cost of defending against hopeless claims.26
However, the rate of strike-out and dismissal of claims at an early stage (11.5%) is obviously
significant. Furthermore the frequency of costs orders is rising dramatically and their threat
becoming more frequent. These factors may well play an important part in the voluntary
withdrawal of 24.5% of unfair dismissal claims. The fact of the matter is that employers are
only obliged to defend themselves in a full hearing in 21.5% of cases (ie 9,900 cases), of
which they win 5,100 and lose 4,800, a statistic which suggests a significant proportion of
meritorious cases.
The argument, stripped down to its essentials, is that because the law is so unbalanced that
the vast majority of unfair dismissal claims fail to achieve a worthwhile remedy, employers
should be spared the expense of all claims, good, bad or indifferent from those in their
second year of employment. The proposition is preposterous in terms of legal logic and,
anyway, does not reflect the reality that lies behind the statistics.
It is against this background that the inhibition of further unfair dismissal claims by the new
fees regime must be seen, to say nothing of the proposal to permit employers to buy out
the right to unfair dismissal and other rights for £2,000 of shares (a proposal which will likely
become a mandatory condition for success in a job application).
Fees
25
The level of compensation in these hypothetical cases may confidently be assumed to be lower than last
year’s median because employees in their second year of employment will not have acquired sufficient service
for any but a modest ‘basic’ award. The equivalent saving is to be enjoyed by employers who, by definition,
have acted so unfairly that no reasonable employer would have dismissed the workers concerned.
26
The employers’ estimate is that the average claim costs £8,500 to defend. Mr Cable (speech to EEF, 23 rd
November 2011, note 5) puts the average at £4,000). There appears no empirical evidence for either figure.
6
Notwithstanding the statistics, Mr Osborne claims that introducing tribunal fees would end
“the one way bet against small businesses.”27 In fact, the introduction of fees for the often
low paid and usually unemployed workers who use the unfair dismissal regime will surely
suppress practically all bets by claimants.
It will take a claimant with nerves of steel, unquenchable optimism and an insatiable desire
for vengeance at any cost to pursue these odds. Any experienced gambler would walk away.
It is hard to see that any more than a trickle of unfair dismissal claims will, after the
introduction of this fees regime, reach the tribunals. If so, thousands of claimants will feel
forced to under-settle good claims, give up or not submit a claim in the first place.
Conclusion
As Professor Ewing and I wrote in 2011,28 the truth is that unfair dismissal law does not
impose undue burdens on business. Rather, it offers minimal protection for workers: too
many are excluded from the legislation; it is too easy for an employer to justify a dismissal
as not being ‘unreasonable’; and the remedies for those who are dismissed remain wholly
inadequate. This is the legal regime that needs reform.
27
28
Financial Times, 3rd October 2011
Ewing, K. D. and Hendy, J. (2012) ‘Unfair Dismissal Changes – Unfair?’, Industrial Law Journal, 41: 122
7