I just responded to a post on the “A Very British Dude” website, a conservative supporting blog. The post advocated removing employment protections in order to promote more hiring – the quite rational proposition being that employers are resistant to increasing their workforce when they can do, if they then face substantive obstacles to reducing the workface when they need to do so.
This is a very attractive argument, but in my view fails to deal with the reason we have the employment protections in the first place. Generally, most employment contracts have underpriced the financial settlement appropriate to termination of employment. As the negotiating position of an employer is much stronger than that of the employee in most cases (to employee: take or leave this contract on these standard terms), employers have not had to incorporate a sensible price for ending the contract into those standard terms.
As a consequence of this market failure, legislators have stepped in over the years to enhance protection of workers, offsetting this weakness in standard employment contracts by creating a mountain of red tape in the process. Unfortunately many of those protections have been designed to constrain employers’ flexibility in managing their workforce by keeping unproductive workers in employment, rather than address the underlying issue of an underpriced termination clause.
My comment deals with this issue and suggests that both sides have missed the underlying cause that has led to the need for such regulations – the lack of a standard financial settlement for termination of employment that makes sense to both employers and employees – and that, without implementing such a price, means that pressure for other forms of employment protection will be inevitable in a democracy where employees outnumber employers substantially within the electorate.
My comment (after amendment to fix some typos) was as follows:
For example a minimum standard payment of 5% of pay x length of service would both be acceptable to employees and gve certainty to employers about the cost of asking an employee to leave – five weeks pay for a two year employee, six months pay to a ten year employee, in addition to any normal notice period.
Such a system would eliminate the need for many of the current employment protections, because employees would not risk “destitution” after giving their all for their employer over many years.
And for employers there would be a clear benefit – the flexibility to hire when they need to, in the knowledge that they can reduce headcount as needed, with a sensible price that employers can price into their commercial decision making.
Absent such an offsetting reform I believe there will always be strong opposition to weakening employment protections and an unwillingness amongst politicians to pursue such policies. Hence Cameron rolling over to Cable today, he knows that this would be a gift to Labour politically, and so he will be constrained to “tweaking” employment laws rather than anything more radical.