This month, the Government is calling for evidence on the concept of ‘compensated no-fault dismissal’ for micro businesses with fewer than 10 employees.  The Call for Evidence suggests that this would enable micro-businesses to dismiss employees without a formal procedure even where no fault was identified on their part, provided that the employee received a set amount of compensation, as yet undefined.

An equivalent concept, known as the Small Business Fair Dismissal Code, has been in operation in Australia since July 2009 and has so influenced the UK Government’s proposals that it is annexed to the Call for Evidence.  The Code sets out the requirements for a fair dismissal applicable to small businesses only (less than 15 employees). Compared with larger operations, small businesses in Australia benefit from:

  • a doubling of the minimum employment period from 6 to 12 months before employees can take a claim for unfair dismissal;
  • a short and simple Code which, if followed by the small business owner, will ensure  that a dismissal is fair; and
  • no requirement to provide redundancy pay on the termination of an employee’s employment for that reason.

The Code has been successful in minimising the paperwork and time associated with dismissals, streamlining the procedure into a simple checklist. If small business employers follow it, the dismissal will be deemed to be fair. If the employee makes an unfair dismissal claim to the equivalent of the UK Employment Tribunal, Fair Work Australia, the small employer will simply be required to provide evidence of compliance with the Code to go home with the laurels.  Simple, yes?

However, while the Code is impressive in theory, figures released by FWA in 2011 demonstrate its sad reality. In the first quarter of 2011 FWA received 609 applications for unfair dismissal from small business employees but only 2 were successfully defended.  Yes, two.  Out of over 600.   In the last quarter of 2011 there were 521 unfair dismissal claims brought by small business employees of which a truly spectacular none were knocked out.  Why so tiny a proportion?  Commentators Down Under appear divided – either the Code is impossible to follow, most micro-business managers cannot follow basic instructions or (much more probably) the hassle surrounding the whole exercise is still, even with the benefit of the Code, such that it is easier to settle. 

The thing about rights is that they are rarely absolute – the eligibility to exercise them must be established first, and if the cost of that step alone makes it preferable to settle, it is hardly a right at all.  The other thing about rights is that they are rarely unfettered – the carte blanche which the Code appears to give to small businesses does not allow terminations on discriminatory or whistleblowing grounds.  Australian experience suggests that sceptics here are right to anticipate a rush of such claims to side-step the “compensated no-fault dismissal” rules if they are ever implemented.