Mark Beatson, CIPD - The impact on employers of changes in UK employment law since 1997

The impact on employers of changes in UK employment law since 1997

Mark BeatsonChief Economist, CIPD

• Economy-wide legislation governing the contract of employment, employment rights, collective employment relations and dispute resolution– Generally introduced by BIS– Not sector-specific such as Agricultural Wage Board, SIA (though impact might

be concentrated in sectors)– What about other legislation with significant impacts on employers (checks on

illegal immigrants, data protection, auto-enrolment?)• Post-1997

– 2010 did not see the break in approach seen in 1997 (increase in unfair dismissal qualification and changes to dispute resolution but extension of the right to request flexible working and shared parental leave) – not everyone agrees, see Hepple (2013), Dickens (2014), Grimshaw (2014), Scott and Williams (2014)

– Pragmatically, it takes time to judge the impact of legislation (at least a cycle)

Which legislation?

Which evidence?

• UK surveys of employers (and employees)• Post-implementation evaluation studies• NOT cross-country studies utilising OECD or other measures of

EPL– CIPD has commissioned Work Foundation to carry out some

research in this area

The legislation at a glance

A lot to swallow!

Dispute resolution

Collective machinery

Individual rights

It’s not just the letter of the law that matters …

• Impact of legislation can be expected to vary depending upon:

• The extent of the changes the legislation requires (and the number of firms already acting in compliance with the new requirements)

• Individuals’ and employers’ awareness of the legislation– 2008 Fair Treatment at Work survey – 78% of respondents felt

very or fairly informed about their rights in general (65% in 2005)• The effectiveness of arrangements for checking compliance and

seeking redress– About half of successful Tribunal applicants get paid without

taking enforcement action (BIS (2013))– Impact of Tribunal fees?

How does it affect employers?

Cost of making changes to terms and conditions, practices etc.

Cost of keeping up with law, training, briefing etc.

Cost of options foreclosed

Risk of litigation, uncertainty etc. (Peck et al. (2012))

Regulation can be a ‘dynamic force’ for change in SMEs (Kitching, Hart and Wilson (2013)) – ‘constraining, enabling and motivating’ (Blackburn (2012))

Interacts with product and labour market strategies

Vehicle for knowledge dissemination?

External and internal reputation

Bur

den

on b

usin

ess

Dynam

ic force

How important as a ‘burden on business’?

• 2005 CIPD survey found new legislation cited by 36% of employers as most important driving practice in their organisation – top reason, exceeding need to improve business performance (25%) and changes to top management team (9%)

• Firms sometimes choose to go beyond statutory requirements – 2005 CIPD survey found that 57% of HR respondents said their organisations met the minimum standard and 41% said they went beyond it.

• To achieve minimum standard:– NMW (initially in some industries)– Working Time (annual leave)– Equal pay when equal pay for equal value claims successful (principally

engineered by trade unions (Conley (2014))– Auto-enrolment (if not already providing an occupational pension scheme)

• According to Open Europe analysis of Impact Assessments, cumulative cost estimate of employment legislation 1998-2009 = £38.9 billion (Gaskell and Persson (2010)) – probably an unknowable figure.

Main obstacles to SME growthASBS 200/07 ASBS 2007/08 SBS2010 SBS2012

The economy 10 16 33 38

Tax, VAT etc. 12 12 8 12

Cashflow 10 9 11 10

Competition 15 14 10 10

Obtaining finance 3 3 8 7

Regulation, of which: 14 12 7 8

H&S 37 32 35 24

Tax-related 15 17 20 17

Sector-specific 12 13 16 18

Employment 16 17 14 15

Environment 11 10 7 7

Planning 7 5 7 7

Employers still see the burden of legislation as the main threat to labour market competitiveness

2010 2011 2012 2013

81%77%

67% 68%68%62%

55%

62%

Now 5 years' time

Source: CBI Employment Trends surveys.

What lies behind these employer perceptions?

• Perception is too much legislation, too complicated, too quickly, often gold-plated

• Costs of keeping abreast with law, planning for legislative change, changing policies, training managers, informing staff etc. – in addition to any changes in terms or conditions required

• SMEs typically lack dedicated HR or payroll function, robust management systems etc.

• Business surveys suggest time costs greatest for smallest firms affected (Peck at al. (2012))

• Finite managerial resource in SMEs means effort can be diverted away from value creation to compliance (BERR (2008))

• 2005 CIPD survey – only a minority of HR respondents thought compliance with the law reduced disciplinary, grievance or Tribunal cases

What about benefits?

• Benefits to whom? Transfer payments? Welfare implications depend on competitive position in product and labour markets

• Savings in administrative requirements (where applicable) typically modest

• Counterfactual? Right to request flexible working – majority of respondents in CBI surveys in 2009, 2010 and 2011 say granting requests had positive impact on employee relations, recruitment and retention:– Would they have granted as many without legislation?– Would as many have been made without legislation? OR– Is this just formalising the previously informal

Has it changed the way people are managed?• Little evidence of fundamental changes in management practice• NMW did not generally lead to significant productivity-enhancing changes in management

practices in low-paying sectors (Metcalf (2008))• Working Time Regulations triggered some operational changes – average working hours of

senior doctors reduced by 8 hours per week (Dolton, Kidd and Fooken (2014)) - but in other organisations, main effect was more record-keeping (Neathey and Arrowsmith, (2001), Neathey (2003))

• With age discrimination, many employers had removed illegal provisions and practices, but had not taken the opportunity to challenge stereotypes and employment practices more fundamentally (Metcalf and Meadows (2010)) cf ‘empty shell’ hypothesis (Hoque and Noon (2004))

• Regulations had little impact – a ‘background influence’ – on collective employment relations (Hall et al. (2010)). Statutory recognition procedure may have prevented aggressive anti-unionism and encouraged pragmatic, pre-emptive approach to unions.

• But for more specialised aspects (TUPE and collective redundancies), legislation did sometimes give employers a template

• Legislation may have given some legs to the ‘Regulator’ personnel role (Caldwell (2003)). Increased formalisation of policies and procedures may inhibit managers from adopting more flexible approaches to issues? (Jones and Sauntry (2011)) Process of coercive isomorphism? (Bartram (2011))

Is employment legislation a barrier to improved management practices?

UK USA France Germany

8% 8%15%

25%

27% 26%

38%

47%

Major constraint Minor constraint

Source: Bloom et al. (2011)

Employers are making more use of external advice

1980 1984 1990 1998 2004 2011 1998 2004 20110%

10%

20%

30%

40%

50%

60%

ACAS/Government Management consultantsExternal lawyers External accountants

Workplaces with 25+ employees Workplaces with 10+ employees

Source: WERS survey series.

Disciplinary and grievance procedures are almost universal

1980 1984 1990 1998 2004 2011 1998 2004 20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Disciplinary procedure Grievance procedure

Workplaces with 25+ employees Workplaces with 10+ employees

Source: WERS survey series.

More employers have formalised strategies as well as policies(% of workplaces with 5 or more employees)

Formal procedure for dealing with individual grievances

Formal procedure for dealing with individual discipline/dismissal

Procedures for handling collective disputes

Formal written policies on equal opportunities

Formal strategy on employee development

Formal strategy on employee job satisfaction

Formal strategy on employee diversity

Formal strategy on staffing requirements

83

86

41

67

54

37

29

42

88

89

35

76

55

38

32

47

2011 2004

Source: Workplace Employment Relations Study, 2004 and 2011.

Do we now have less very bad managers and employers?

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Job separations(% of employees)

Voluntary Involuntary

Impact on SMEs?

• Impact of legislation and reaction to it will vary according to type of SME (e.g. start up versus lifestyle versus growth SME) (Blackburn (2012))

• For many micro firms ‘strategic stickiness’ means change kept to minimum.. For small firms, legislation supported – but did not on its own prompt - an intended direction of travel towards higher value market segments (Edwards, Ram and Black (2003))

• Legislation may have sharpened and moved boundaries between legal and illicit sectors? (Dickens, Hall and Wood (2005))

• Non-compliance with NMW generally due to lack of knowledge of Regulations and how to apply them, or weaknesses in administrative capabilities, rather than deliberate non-compliance (BIS (2011))

• Many SMEs with informal, ‘family’ culture lack written and effective procedures and are at greater risk of Tribunal claims (and losing them) (Saridakis et al. (2008)). However, employees in these firms sometimes accept employer discretion rather than external regulatory requirements (Atkinson, Mallett and Wapshott (2014))

• May limit the capability to innovate in some SMEs? (Hewitt-Dundas (2006))

Does trust make a difference?

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

“Managers will always try to get the better of employees if it gets the chance”

Agree strongly Agree stronglyNeither agree nor disagree DisagreeDisagree strongly

Workplace disputes less likely to escalate where there is trust and perception of organisational justice (Daniel and Broughton (2011))BSA – managers very good or fairly good at keeping employees informed of their legal rights at work 65% (2004) 67% (2008) 63% (2009)

Source: British Social Attitudes survey series.

Mediating factors• Bargaining power of employers versus employees (Bewley and

Forth (2010)), depends inter alia on:– State of the economy– Product market competition– Employee productivity/alternative employment options

• Strategic orientation of the employer – ‘high road’ versus ‘low road’, ‘employer of choice’

• Organisational culture• Management and HR capability and ethos:

– Legislation sometimes cementing broader direction of travel for business/social purposes (e.g. flexible working, extension of anti-discrimination legislation (Colgan (2011))

• Presence of trade unions• Size, sector etc.

What if things were different?

• Is employment legislation holding back job creation? Would less employment protection (a la Beechcroft) generate more job opportunities (Haldenby at al. (2011))?

• Could more employment regulation be a modernisation tool to get UK organisations out of the productivity doldrums?– Track record even in areas of substantive change (e.g. NMW,

WTR) is that few employers choose to embrace (or can embrace) far-reaching change – path dependency is strong

– Employers are fearful of forced change (e.g. expected consequences if the UK lost the opt-out provisions to the 48 hour week)

Conclusions

• Pre-1997 changes in employment legislation might have assisted – even been essential for – transformational change in some industries. This has not been the case with the post-1997 legislation.

• Legislation has generally been a carefully crafted compromise between opposing positions – designed not to be too disruptive or costly – and it has tended to go with the grain of prevailing people management practices.

• But too much too quickly early in the period may have diverted management attention away from other priorities

• Businesses remain nervous about the future• Impact of more recent changes in awareness and enforcement may

change the game

Thank you