The paperwork involved was jaw-dropping. Ringbinders, described in lawyer-speak as “bundles”, ran to hundreds of pages. It is referred to throughout: “Please look at the email which you sent to the applicant on July 12. You’ll find this on page 300. Have you got it?” 

Within moments I understood why, even for the most scrupulous employer, these cases must feel like a roll of the dice. The defendant was on the rack for delays in progressing the disciplinary procedure, though it took place midway through lockdown. The employee had broken “unwritten” rules; who could prove awareness of them if they were not in the staff handbook?

When tribunals were first introduced, the idea was that they would provide informal ways of resolving issues outside the traditional court system, and would bring in people with experience in the real world of work. Now, they are forums for Perry Mason-style interrogation of relatively junior managers and HR staff whose own culpability for any errors is often indirect and remote. 

Stress and the settlement cap

Are the dice loaded against the employer? It’s certainly the case that tribunals are no picnic for the claimants. James Davies, a partner at law firm Lewis Silkin, tells me it isn’t uncommon to wait more than a year for a case to be heard. It is also stressful and costly. Much as the government has tried to legislate against it, some staff are still poorly treated and genuinely wronged by their employer – and they need a mechanism through which to seek justice.

But, for some claimants, a speculative application is a one-way bet. It costs them nothing to put a claim in and there is a fair chance they will be made an offer by an employer who wants to avoid the costs of lawyers and possible damage to reputations. Many bosses will lose based on process rather than because they were fundamentally at fault. 

“Lawyers will very often seek to claim discrimination on some grounds or another,” says Neil Record, the founder of Record Currency Management. “This is logical behaviour, because to be found to have discriminated against an employee is not only potentially financially damaging, it is severely reputationally damaging, too. So, faced with such an allegation, however spurious or lacking in evidence, an employer will want to negotiate a settlement with the ex-employee above the cap of one-year’s salary, and sometimes way above.”

If a court or tribunal rules that discrimination is behind a firing decision, the compensation cap for unfair dismissal – currently one year’s salary or £115,000, whichever is lower – is removed. One former chairman of a public company warns that “teams of employment experts who know the law and will also be familiar with the behaviour of both employment tribunals and employers, will encourage a discrimination complaint to break the cap”. 

Their job may have been made easier by a tribunal ruling last November which concluded that Britons who suffer work-related stress can sue their employer for disability discrimination. As employers and doctors will know, stress is a phenomenon for which the medical basis is highly debatable: unlike visible disabilities, the symptoms are extraordinarily difficult for employers to recognise and evaluate. Of the 85,000 claims made in 2022/23, some 15,000 involved race, sex or disability discrimination (though some claimants will bring more than one claim). 

You know the situation is dire when Britain is being compared unfavourably with France, where there is no cross-examination of witnesses and hearings typically take a fraction of the time. “It’s much quicker and much easier there,” says Davies, who recently watched a harassment case complete in half a day.

Drowning in red tape

Employers in Britain are finding more and more of their time is being absorbed by adherence to ever-expanding labour market regulation, with small businesses in particular buckling under the burden. Human resources is becoming one of our fastest-growing industries: according to the Office for National Statistics’s (ONS) annual survey of hours and earnings, around a quarter of a million British workers have “personnel”, “industrial relations”, “training” or “HR” in their job title. How many could honestly say they are contributing to their company’s bottom line or the nation’s productivity? How many could deny they are stoking this issue by pushing for more rules in order to expand their own teams and budgets? 

Already, our minimum wage is the eighth highest in the Organisation for Economic Co-operation and Development (OECD) once adjustments are made for exchange rates and prices. The government closely regulates hiring and firing procedures, entry into pensions schemes, holiday allowance, sick pay, maternity pay, the number of hours that can be worked, the statutory minimum length of rest breaks – the list goes on. The benefits to all these laws are obvious, yet it doesn’t seem to be making us any happier. People complain as much as ever about stress, pay, dissatisfaction and poor management.

If regulation acts as a “stealth tax” on employment, then this cost will be passed on to workers in the form of lower wages. An inability to fire will disincentivise firms to hire, which, between red tape and HMRC, is unappealing enough already. Some groups will suffer more than others; firms will try to avoid the impact of regulation by, for instance, recruiting fewer staff likely to make significant use of mandated benefits such as parental leave. They will switch resources to areas that are not so highly regulated, for example by moving production abroad, or make greater use of self-employed contractors. 

Then there’s the correlation – not causation – between labour market regulation and our stagnating productivity rate. Output per worker increased just 0.1 per cent in the year to April. In the public sector, it has yet to reach pre-pandemic levels, a full three years after lockdown ended. Productivity is key to raising wages and living standards. But the more “rights” we hand employees, and the more requirements we place on businesses, the more growth is being held back. Economists have suggested that the sharp decline in London’s productivity (by 2.7 per cent between 2019 and 2022, according to the ONS) may be linked to the rise in working from home.  

Make it harder to dismiss the lazy, late and entitled, and two problems follow. First, employers – small businesses in particular – will be disincentivised from taking on new staff. And second, at a time when worklessness is soaring, hard work could begin to look like a mug’s game. How will staff who do give their all at work feel when they see apathy rewarded? Why put in the effort when others don’t and still pick up a paycheck at the end of every month? 

Ill feeling among staff is already an issue, Record warns. “Employees are not particularly concerned, in my opinion, with the details of unfair dismissal proceedings, but they do (and this is common) resent the leeway that is often given to legally privileged employees (generally women and ethnic minorities).” And they are legally privileged because any alleged mistreatment could trigger a discrimination claim, which Record describes as “truly frightening” for an employer.

White-Thomson insists that companies must be able to manage their workforce efficiently, and this includes hiring new talent while “letting go”, with “due process and care”, employees on performance, behavioural, restructuring and profitability grounds. Yet the process is “not easy, favours the employee and will sometimes throw up legal shenanigans with the aim of increasing redundancy terms”.

Things can only get worse

Now Labour wants to take all this further, with deputy leader Angela Rayner planning the biggest shake-up of employment rights in a generation. Under its proposals, there will be day-one rights to parental leave, sick pay and protection against unfair dismissal. Currently, employees can only usually claim unfair dismissal against an employer if they have a minimum of two years’ service. 

It is this change, Davies tells me, that worries some business owners the most (small and medium enterprises much more than bigger companies). How can they know within minutes whether remote working is feasible for a new employee? Also on the table is a ban on zero-hours contracts. The Left consider these “exploitative”, yet many of those using them are students, second-earners and those seeking extra work on top of their normal jobs.