Alicia Smith, joint 2014 University of Sussex Mason Hayes Essay Prizewinner discusses The Law of Unfair Dismissal as an Effective Control on Managerial Prerogative

“The law [of unfair dismissal] has been unsuccessful as an effective control upon managerial prerogative .. and far from acting as a constraint upon power, the law actually legitimises managerial control.”  Discuss:

The employment relationship is of central importance to individuals, businesses and society as a whole.  Whilst it has continuously been the “economic motor of …society”[1], the nature of the employment relationship has evolved.  Developing from the master-servant relationship of Victorian times, where the “master can terminate the contract with his servant at any time and for any reason or for none”[2], the relationship has become more sophisticated.  Now, “a worker can come to treat his job as a valuable possession … it can provide personal satisfaction, enhanced personality, and a source of companionship”[3], however a significant bureaucratic imbalance still exists.  The employer is undeniably in a stronger bargaining position than that of the employee, the latter almost always relying on their job to provide their livelihood.  Statutory regulation has been introduced to attempt to deny employers “the opportunity … to dominate other by means of contracts between parties of unequal bargaining power”[4] and thusly fetter managerial prerogative.  Unfair dismissal legislation was first introduced in 1971[5], and now takes the form of a right not to be unfairly dismissed[6].  The operation of the law in practice, however, has not gone far enough to constrain managerial power and has rather pitted employment rights and managerial prerogative against each other.  There seems an inherent postulation that employee interests conflict directly with employer interests, with the latter gaining superiority.  Business management is not automatically at odds with employee rights, conversely, a driven, loyal and valued workforce will undeniably benefit business.  This essay will consider the rationale behind the unfair dismissal legislation before analysing the impact the law has on managerial control.  It will be argued that substantively the legislation seems to legitimise managerial control rather than constraining it.  This cements rather than challenges bad practice.  However, it will also be seen that procedural limits have been placed on the operation of managerial command; regulation through the back door.  This encourages good management practices and appreciates that fair procedures benefit both parties.  Lastly, possibilities for reform will be considered, but it will be seen that the engrained judicial practice may only be challenged by Parliament in the future.

Employees as a burden on employers

It will be seen that the law in effect makes manifest a notion that employees are burdensome to employers and the operation of their business.  This coerces an “inflated idea of the risk of being taken to an [employment] tribunal” and a resulting “perception that all employment regulations are burdensome”[7].  In turn this makes the legitimisation of managerial control somewhat dangerous, for instance defensive practices may be adopted.  A divergence between employees and employers is created.  However, job security for the employee means confidence and loyalty in their employer.  Dismissing employees is not conducive of an efficient workforce, instead employers “must create the workplace cultures and relationships that elicit such behaviour from their employees”[8].  Employment provides economic support for workers, which relieves the burden on the state.  Security in employment ensures this continues, as well as forming a stable and reliable workforce, benefitting the economy as a whole.  Rather than having diverging interests, employers and employees have converging interests.  The notion of conflict could be dispelled in order to foster good practice and warrant the high level of managerial control that the legislation permits.  The Employment Rights Act 1996 (hereafter ERA 1996) provides the current law on unfair dismissal, by providing a right not to be unfairly dismissed coupled with provisions denoting when a dismissal is fair or unfair.  It is the mechanics of this legislation that will now be considered, before the rationale underpinning the requirements is addressed.

Structure of the Unfair Dismissal legislation

As seen above, employees[9] have the right not to be unfairly dismissed[10].  If an employer terminates employment in circumstances in which the employee considers unfair, it is for the employer to show the reason (or principal reason) for dismissal.  This reason must fall within one of the potentially fair reasons[11], or otherwise form some other substantial reason[12].  The overall determination of fairness then turns to whether the employer acted reasonably or unreasonably in treating this as a sufficient reason for dismissing the employee, which is to be determined in the light of the size and administrative resources of the employer’s undertaking and in accordance with equity and the substantial merits of the case[13].  The statute also denotes certain automatically unfair reasons, which include industrial action[14] and trade union activities[15], pregnancy[16], whistleblowing[17], transfer of undertakings[18], health and safety[19] and enforcing statutory rights[20].  This is politically sensitive area driven by policy, and recently the qualifying period required, which applies to all but the automatically unfair reasons, has been raised to two years[21], in an attempt to reduce the number of claims.  The motivation behind the introduction, and resulting development, of unfair dismissal law will now be considered.

Rationale

Addressing the imbalance between the dominant employer and the subservient employee is arguably the key justification for the regulation of the employment relationship.  This discourages autocratic management and fosters business operation where the interests of the business as a whole (including employee interests) are considered.  It has been argued that the right not to be unfairly dismissed is like a mandatory implied term [put] into every contract of employment which is “the sort of term that employees would like to have in their contracts, but cannot demand, because it is a buyer’s market for labour”[22].  The International Labour Organisation (ILO) provided the impetus to enact such legislation[23] with the aim of “limiting abuses of a dominant power position”[24].  Domestically, a strong and “inherent reluctance to intervene”[25] existed but eventually the Donovan Report conceded regulation “was a necessary constraint upon managerial prerogative”[26][27].  Some writers, such as Meyers, have gone further and suggested that employees have a “right to undisturbed possession of a job which cannot be taken away without due process of law”[28].  It is submitted, however, that this is too extreme a position to take, as English law does not confer an exclusive right to be kept in a job.  Collins established that the rationale lies in the “protection of autonomy and dignity against the potential abuse of bureaucratic power”[29].  Respect for these rights should feed into managerial decisions and, if interpreted correctly, employer and employee interests are not in conflict but in conflation.  However, the legislative provisions have not been interpreted in order to give full effect to the rationale behind them.  One only needs to look at the copious amount of unfair dismissal case-law to understand that queries over the fairness of managerial decisions are frequent[30].  Limits are thus necessary, and whether these exist in practise will now be addressed.  The substantive provisions, as will be seen, leave managerial prerogative almost untouched.  However, in the area of procedure, such as disciplinary process rules, the operation of the law has more bite, and, rather than legitimising managerial control, subjects it to significant scrutiny.

Substantive

There are two particular components of the substantive provisions that go a significant way in legitimising wide managerial control.  The first concerns the reason for dismissal; if not within one of the four potentially fair reasons then the employer can show “some other substantial reason of a kind such as to justify the dismissal”[31].  The second is the test of fairness in s.98(4) ERA 1996.  These will be dealt with in turn.

The ‘some other substantial reason’ provision provides an opening for employers operating their managerial prerogative, to show that although the law doesn’t allow their reason explicitly, it is nonetheless justified.  It has been said that this can “be described as providing an employer’s charter”[32] whereby a plethora of reasons could be progressed to the general test of fairness under the guise of “business efficacy”[33].  Interpreted widely, the courts have held that the “question is whether the reason falls within a category of reason that is not excluded by law as a ground for dismissal”[34] and not whether the reason itself substantial enough.  Rather than considering the substantiality of the reason, a low threshold or “broad, residual range of reasons”[35] is created.  This is exemplified by Griffiths L.J. who stated, obiter, that “if on the face of it the reason could justify the dismissal, then it passes as a substantial reason”[36].  This legitimises an expansive range of potential reasons for dismissal.  Although it should not be ignored that the employer must still satisfy the test of fairness, it is questionable whether the law ought to allow all but the most extremely “whimsical or capricious reasons”[37] as valid.  The open-door interpretation can be seen where Arnold J. states, it is “to a very large extent a matter for the employer”[38].  The ‘some other substantial reason’ provision is “examined from the management orientated perspective”[39] which in turn, it is submitted, may embolden unscrupulous employers to dismiss employees for an unanticipated conglomeration of reasons and legitimise such action.

S.98(4) provides for a test of fairness, informed by the size and resources of the employer and determined in accordance with equity and the substantial merits of the case.  The question contained in the legislation is whether the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee[40].  In practice, this has been interpreted to become the ‘band or range of reasonable responses’ (hereafter RORR) test.  The current judicial approach is expounded in the Iceland[41] case where Browne-Wilkinson J. states the tribunal must determine “whether in the particular circumstance of each case the decision to dismiss the employee fell within the band of reasonable responses which a reasonable employer might have adopted.  If the dismissal falls within the band the dismissal is fair: if the dismissal falls outside the band it is unfair[42].  This test shifts the focus from the employer in question and places it on a hypothetical spectrum of excellent practice to harsh practice and “then anoints all of them as fair”[43].  It follows that the dismissal must be either reasonable or unreasonable.  There is no middle ground.  This important because this rests essentially on linguistics, as Freer highlights, “if the question the tribunal asks itself is ‘is the employer acting reasonably?’ the answer is likely to be in the negative and unfair.  If the question asked is ‘is the employer acting unreasonably?’ the answer is also likely to be negative and fair”[44].  Therefore, in effect the law upholds all but the most extremely reasonable and arbitrary management decisions.  Collins criticizes the test by saying “in practice it often degenerates into a test of perversity”[45] and thus legitimises dismissals that are “harsh but fair”[46].  This affirms bad practice instead of limiting it.  An attempt to move away from the ‘mantra’[47] of perversity was amounted, unsuccessfully[48], in the Haddon[49] case, illustrating that there is at least existence of judicial concern over the application of the RORR test, albeit futile.  There is acknowledgment by the courts, however, of “a body of informed opinion which is critical of this interpretation of the Act of 1996”[50] which could be analysed as an allusion that Parliament should amend the law.

Perhaps more significantly, the test assumes that dismissal is always a valid choice, despite the fact dismissal is the most severe option, because, although extreme, so long as one reasonable employer may have dismissed, it falls on the fairness spectrum.  From this, one can see that instead of setting standards of fair managerial practice, the courts instead bow to the current norms.  This risks employees becoming disillusioned with repeatedly unsuccessful dismissal claims.  From the case law one can observe that it is very difficult for a claimant to succeed in an unfair dismissal claim under the RORR test.  Only 8% of unfair dismissal claims were successful in 2011-2012[51].  This has led writers to call the test a ‘gloss on the statute’[52], it is a mere semblance of a legal right.

Further to this, the courts have been clear that “an industrial tribunal must not substitute its decision as to what was the right course to adopt for that of the employer”[53] and hence in most cases the dismissal decision of management is upheld.  Perhaps more worryingly, because tribunals decide fairness as a matter of fact, it is often difficult to appeal against such decisions; the court has said they shouldn’t disturb a decision when they have not erred in law unless “one can say in effect ‘my goodness, that was certainly wrong’”[54].  The Court of Appeal has further warned tribunals not to go through cases “with a toothcomb to see if some error can be found here or there – to see if one can find some little cryptic sentence”[55], which could dissuade wronged employees pursuing an appeal, as the risk of cost may far outweigh the chance of success.

It can be seen that the ‘band or range of reasonable responses’ test exposes a “phenomenon of judicial deference to managerial discretion”[56], substantively leaving the decision to dismiss to the prerogative of the employer and only finding the most arbitrary decision as outside of the imaginary spectrum of reasonable responses.  The courts have, however, had a more positive influence on the employee/employer relationship by subjecting managerial control to scrutiny when it comes to the process of dismissal (rather than the substance of the decision), the procedure preceding dismissal is highly relevant.

Procedural

The method by which a dismissal is reached has tended to be scrutinized significantly.  Elias J. has stated “it is through the development of procedural standards, … that the courts can make their greatest contribution to improving management’s personnel practices.”[57]  The courts have been willing to impose standards of fairness in the procedure prior to a dismissal.  The advent of the ACAS Code of Practice[58] and accompanying guidance[59] has further underlined this approach by explicating good practice standards and discouraging the unfair use of power.  Indeed employers themselves have opted to enhance their procedures, with 97% of establishments recognising a union (and 83% of those who don’t) operating disciplinary procedures[60].  The employee has an interest in understanding the situation and contentions surrounding his potential dismissal whilst the employer has an interest in establishing the true facts and thus having the most accurate information to make a decision.  This shows “judicial fidelity to the aims of the legislation”[61], because support for the encouragement of good industrial practice is clearly a strong consideration in deciding the fairness of a dismissal (albeit not an automatic one[62]).  In the House of Lords decision of Polkey[63] Lord Bridge expounded that “an employer [who has] prima facie grounds to dismiss … will in the great majority of cases not act reasonably … unless and until he has taken the steps, conveniently classified in most of the authorities as “procedural”, which are necessary in the circumstances of the case”[64].  This is a clear implication that the courts are prepared to find a dismissal unfair when procedure is not followed, imposing an indirect limit on managerial discretion.  This is encapsulated in Viscount Dilhorne’s statement that “a failure to follow a procedure prescribed in the code may lead to the conclusion that a dismissal was unfair which, if that procedure had been followed, would have been held to have been fair”[65].

Furthermore, as the courts are bound to take the ACAS Code into account[66] (indeed it is an error in law not to have regard to them[67]), a curb on managerial prerogative is introduced, albeit through the back door.  Collins argues that this approach avoids “the introduction of more penetrating interventionist reviews of managerial discretion”[68] which seems to paint the courts’ approach in a somewhat cowardly light, insinuating that scrutiny into the substance of a dismissal decision is required.  Moreover, the criticisms of the RORR test also apply here because the test applies equally to assessing the procedures adopted as it does to whether the employer was right in treating the reason as sufficient for dismissal[69].

However, the impact of the procedural restrictions on managerial control should not be understated.  It cannot be ignored that the courts are “remarkably assertive in setting normative standards of conduct for employers”[70] and this is bound to have a positive impact on limiting arbitrary managerial activity and improving labour relations generally.  Far from legitimising managerial activity the courts have assessed whether the employer did what was necessary in the circumstances of the case, considering fair procedure.  For example, a dismissal was held unfair where the employer did not give the employee a “fair opportunity of explaining before dismissing him”[71].  Further to this, the Employment Appeal Tribunal has asserted that an employer should “[carry] out as much investigation into the matter as was reasonable in all the circumstances”[72], thus setting a bar that must be reached.  Employers cannot simply capriciously dismiss an employee; they should investigate, inform, hold meetings and allow an appeal[73].  Although avoiding substantive scrutiny, the procedure sphere of the law has limited managerial control, in turn preventing severely punitive managerial practices and encouraging employee-employer cooperation.  A consequence of this is that employers have been “induced” to ‘introduce formal disciplinary procedures into the workplace’[74] therefore self-imposing certain parameters on their own prerogative.  Although showing an appreciation of ‘natural justice’ and ‘due process’[75], this approach does not shut the door to managerial prerogative, so long as the manner in which they operate is fair, detracting somewhat from the protection it offers employees.

Reform

The activism within the procedural aspect unfair dismissal contrasts with the absenteeism in the substantive.  Such a variance means effective controls on managerial prerogative are deployed at the pre-dismissal stage, however employers are given a free rein regarding the reason for dismissal.  Decisions that result from a fair procedure are legitimised for the right reasons; investigation and explanation provides the employee with the full picture and ensures the employee is informed and given the opportunity to respond.  However a superfluity of reasons for dismissal are legitimised for the wrong reasons; because it fits on the far-reaching spectrum of reasonable responses.  Harsh dismissals are deemed fair by the law and the RORR test is the primary cause of this.  Instead of considering the interests of both employer and employee, the substance of unfair dismissal law favours the employer, innately assuming that the employee is a burden on business.  A more probing analysis is thus required into the substance of a decision.  The foregoing has shown this is desirable and could be achieved by adopting the principle of proportionality.

Collins proposes the application of proportionality which “investigates whether the decision-maker is pursuing a legitimate objective, and then … whether the means that were adopted were necessary and proportionate to achieving that objective”[76].  This principle would legitimise employer action where it is necessary to achieve the sincere aim of, for instance, efficient business operation, without disadvantaging the employee more than is absolutely required.  This is conducive to good industrial relations, conflating employer and employee interests effectively whilst providing controls against harsh managerial practice.  The courts are accustomed to this European doctrine and are competent to apply it.  This would bring UK law into line with other European jurisdictions, such as Germany, where dismissal is subject to the proportionality principle[77] and must be socially justified[78].  Although desirable in controlling managerial prerogative, fatally there is no support in the case-law and such a sharp alternation of approach would not arise in reality.  Such a change would have to come from Parliament itself.  Anderman explains “the need is to find a way … to convince tribunals that harsh decisions by employers can be viewed as unreasonable under the range test” as the current has “palpably failed”[79], a possible approach will now be considered.

A shift away from hypothetical spectrum could prevent ready acceptance of managerial prerogative and legitimisation of harsh practice.  An attempt to achieve a test like this can be seen in the Beedell[80] case, which drew an analogy to the “Bolam test”[81] where action is judged against the “standard of a reasonably competent medical practitioner in the field”[82].  This reasons that the employer’s reaction must not go below managerial practice that is generally accepted, expelling autocratic dismissals.  Another option, favouring judicial discretion, could be to “eliminate the focus on the reasonableness of the employer’s action and create a simple assessment of whether the dismissal was fair or unfair”[83].  However, this may not cure the judicial reluctance to scrutinize what is essentially a question of business management and judgment.   An extreme suggestion of ‘compensated no fault dismissal’, which allows for “unconstrained managerial prerogative to dismiss staff except for a statutory requirement to pay a set amount of compensation”[84] has been disfavoured by the Government[85], despite such a power existing in Belgium[86].  This is reassuring as “treat[ing] the employee as a commodity to be disposed of”[87] legitimises any use of managerial power.  The RORR test has “been elevated by judicial authority to the status of a statutory provision”[88] and, as such, a shift in approach could now only come from Parliament.

As the current approach is so engrained in the case-law, perhaps a solution lies in the stages preceding court.  The government has introduced a duty[89] on ACAS to provide an Early Conciliation Service whereby any employee pursuing a claim must first inform ACAS who will then “endeavour to promote a settlement”[90].  The government has said this will provide “more positive results in terms of continued employment and business productivity”[91] and it is auspicious that a forum for consideration of employer and employee interests is now compulsory, as this encourages cooperation.  Whilst conciliation does not have the bit that legislation has, and will not rectify the weaknesses in unfair dismissal law, it will offer a practical response to overbearing managerial control and keep employer discretion in check.

Conclusion

The government seeks to “maximise flexibility for both [employer and employee] while protecting fairness and providing the competitive environment required for enterprise to thrive”[92], however the current substantive law favours managerial flexibility and control, in turn cementing current practice rather than encouraging better ones.  The ‘other substantive reason’ provision is interpreted broadly such that a surfeit of reasons is validated as forming a lawful dismissal.  Additionally, the RORR test creates a hypothetical spectrum that excludes only the most despotic dismissals but allows those that are ‘merely’ harsh.  Risking a test of perversity entails the legitimisation of a wide range of unjust dismissals.  Although the courts have undertaken to guarantee fair procedures before and during a dismissal, constraining employer power as far as the process of dismissal is concerned, this too authorises managerial control, so long as the manner in which it is operated in is fair.  It is reassuring that the government has provided a compulsory Early Conciliation Service to encourage employers and employees to work together to seek the most beneficial outcome, as this fosters relations rather than pitting one against the other in the courtroom.  This may provide a much-needed practical resolution, however the deficiencies in the law remain (albeit palliated by arbitration as an alternative).  In place of the much criticised RORR test, a test of proportionality could limit managerial power whilst making concessions for legitimate business concerns.  However, no support for this is to be found in the case law and it can be taken from this that any alternatives are remote suggestions.  As the law stands, it does go some way to ensuring fair procedures such that managerial power is constrained in the process prior to dismissal, but fails substantively as a fully effective restraint upon managerial prerogative with the result of legitimising employer control.

Bibliography

Journal Articles

J. Bowers and A. Clarke (1981) “Unfair Dismissal and Managerial Prerogative: A Study of Other Substantial Reason” ILJ 10 (1) 34-44

T. Brodtkorb (2010) “Employee misconduct and UK unfair dismissal law:  Does the range of reasonable responses test require reform?”  IJLMA (6) 429-450

H. Collins (1982) “Capitalist Discipline and Corporatist Law – Part I” ILJ 11(1) 78-93

H. Collins (2000) “Finding the Right Direction for the Industrial Jury” 29 ILJ 288-296

D. Denham (1990) “Unfair dismissal law and the legitimisation of managerial control” C&C 14(2) 83-101

P. Elias (1981) Fairness in Unfair Dismissal:  Trends and Tensions ILJ 10 (1) 201-217

J. Howe (2013) “Poles apart?  The contestation between the ideas of no fault dismissal and unfair dismissal for protecting job security” ILJ 42(2) 122-151

H. Jameson (2012) “The Beecroft Report:  Pandering to Popular Perceptions of Over-regulation” Pol Q 83(4) 838-843

J. MacMillan (1998) “Employment Tribunals:  Philosophies and Practicalities”  ILJ (1999) 28 (1) 33-56

G. Pitt (1993) “Justice in Dismissal: a Reply to Hugh Collins” ILJ 22(4) 251-268

P.J. White (1985) “Unfair dismissal legislation and property rights: some reflections” ILJ 16(4) 98-105

Books

S. Anderman “Termination of employment: whose property rights?”  In Barnard, C. Deakin, S. Morris, G. (2004) Future of Labour Law: Liber Amicorum Bob Hepple QC, Oregon, Hart Publishing

H. Collins (1993), Justice in Dismissal, Clarendon Press, Oxford

H. Collins, K. D. Ewing and A. McColgan (2012), Labour Law, Cambridge University Press, Cambridge

I. Smith and A. Baker Smith & Wood’s Employment Law (11^th ed.) Oxford University Press, Oxford

Other Resources

ACAS Code of Practice 1 Disciplinary and Grievance Procedures (2009)

Deloitte (2012) “Deloitte Legal Perspectives:  A comparative look at dismissal costs and issues across Europe” Available at

http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Legal/dttl-legal-dismissalreport-Jan2013.pdf

Discipline and Grievances at Work:  The ACAS Guide (2009)

ILO, Termination of Employment Recommendation (1963) (No. 119) Available at https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_INSTRUMENT_ID:312457

E. Jordan, A. P. Thomas, J. W. Kitching, R. A. Blackburn (March 2013) “Employment Regulation. Part A: Employer Perceptions and the Impact of Employment Regulation” BIS, Employment Relations Research Series No 123 Available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/128792/13-638-employer-perceptions-and-the-impact-of-employment-regulation.pdf

Ministry of Justice (2012) Employment Tribunals and EAT Statistics, 2011-12  Available at https://www.justice.gov.uk/downloads/statistics/tribs-stats/employment-trib-stats-april-march-2011-12.pdf

HM Government Department of Business, Innovation and Skills (2012) “Dealing with Dismissal and Compensated No Fault Dismissal for Micro Businesses: Government Response”  Available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31537/12-771-dismissal-for-micro-businesses-case-studies.pdf

HM Government Department of Business, Innovation and Skills (2014) “Early Conciliation: Final Impact Assessment”  Available at

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284042/bis-14-585-early-conciliation-impact-final.pdf

Report of the Royal Commission on Trade Unions and Employers’ Associations (1968) Cmnd 3623 (Donovan Report)