Unfair Dismissal

Here’s last week’s column. Its fairly self explanatory. I might say that I’m pretty disappointed in the debate on IR so far. On the one side we have John Howard arguing that it will promote productivity, when its pretty clear it will do the reverse – but that’s because if it achieves its stated policy objectives it will bring lower paid workers into the workforce which will lower aggregate labour productivity – as similar reform did in NZ.

Defences of existing IR institutions that I’ve seen don’t seem to me to address the key issues.

1) Do they promote the interests of ‘insiders’ at the expense of ‘outsiders’ and if so how can this be justified?

2) How do they assist the least well off in the labour market? Now the effect of the basic wage is ambigous of course because it helps those who retain their jobs and hurts those whom it locks out of jobs. That’s a difficult discussion that hasn’t been really had in the current debate. It seems to me that most of the existing IR apparatus other than the basic wage assists those with a little existing industrial muscle, or skill. Why the state should lend a hand to assist people already doing a fair bit better than the basic wage beats me.

3) What are the justifications for preventing people from bargaining away minimimum standards and are they strong enough to justify governments making these decisions?

4) To what extent do more equal wages generate more equal household incomes? A lot of low wage incomes go to the wives and children of the wealthy. That means we incur heavy costs for not much benefit in terms of equity.

Anyway, here’s the column which was focused on unfair dismissal. As usual, I wasn’t able to convey all the qualifications I’d like to in the word limit.
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Unfair Dismissal

The next wave of Government propaganda is upon us. Super choice one day, industrial relations the next. The government is spending our money telling us about its great new plan to further deregulate the labour market. In brief it wants to provide less generous indexation of award wages and abolish rules against unfair dismissal for firms with fewer than 100 employees.

We can thank the Keating Government for the first really shameless Government funded party political advertising with its ads for its own job programs in the mid 1990s. I guess we can all be thankful that John Howard took such a principled stand against it when he was Opposition Leader.

It turns out that the principle he was affirming wasn’t against Government funding of party political ads. It was just against Government funding of the other party’s political ads. Silly me. Now the Government’s made things clear it makes perfect sense.

There’s no longer any pretence that the ads we are now seeing are not party political. They have been presented as an active response to the unions’ ads. And they’re not in support of any existing government program. Not only isn’t the plan legislated, there isn’t even any draft legislation.

It’s a new political low but there’s not a lot of genuine outrage about, because people’s outrage muscles are tired. They’ve just got used to lower standards. And so public behaviour and public expectations follow each other downward looking for new lows like this.

With views like this you’ll be expecting me to bag the Government’s new IR plan. But the more I think about it the less upset I am that we’re relaxing the rules of unfair dismissal.

First there are the practical problems. Most obviously prohibiting unfair dismissal creates lots of opportunities to ‘game’ the system. Once the lawyers get involved, and the affected parties begin to anticipate the lawyers, regulating against unfair dismissal becomes bogged down in bureaucracy and comes to reward opportunism.

I don’t know about you, but in all but the most egregious cases, if I were a judge deciding an unfair dismissal case I’d never be too sure what the real truth was. I’m often at a loss to work out who was the ‘real culprit’ when my kids fight over what tele program to watch. And how often does a football umpire get it wrong, rewarding the initial aggressor in some scrap on the field because he only sees the retaliation? Its no different in a courtroom.

Let me put the same point very differently. Outside of close family and friendship the employment relation is one of the closest relationships we have. Do we really do ourselves a favour by getting lawyers involved when one of the parties wants out?

Fault based divorce sought to prevent ‘unfair dismissal’ from a marriage. In the 1970s, we didn’t suddenly became blase about the suffering brought about by adultery and betrayal. But we did decide that legal fault finding created more pain than it healed. Perhaps more importantly still we couldn’t see much sense in forcing someone to stay in a marriage if they didn’t want to be there.

That’s how I feel about unfairly dismissed workers. The boss has treated them with contempt. They’ll be better off moving on.

But there’s an even better reason for consigning ‘unfair dismissal’ to the deregulatory dustbin along with tariffs, the two airline policy and the six o’clock swill.

Preventing unfair dismissals is invoked as much against workers as it’s invoked in their favour. In defending a worker’s right against unfair dismissal we’re undermining another worker’s opportunity to have the same job. Why take sides?

Lets look a little further. When someone’s dismissed, an employed person becomes unemployed at least for a while. Even if his job is taken by an employed person moving from another job, another job vacancy is created. So following the chain back far enough, someone who’s unemployed is ultimately drawn into a job.

Thus, as we wait while growth generates more jobs to reduce unemployment, ‘churning’ between jobs and unemployment is very valuable. It keeps the unemployed in touch with the labour market.

As the long term unemployed lose touch with the labour market, their self-esteem falls and their job skills atrophy. So does the network of contacts which could help them find another job. And they face rising discrimination from bosses wondering why they’ve been out of work so long.

It’s like the argument for tariffs. Tariffs look good at first glance. But not when you keep looking. Tariffs create jobs. But it turns out that they also destroy them and if you examine both sides of the ledger they usually do more harm than good.

Rules against unfair dismissal help some people stay in jobs where (rightly or no) the boss wants them gone. But their protection comes ultimately from excluding others from the same job who need the job at least as much.

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John Quiggin
John Quiggin
2022 years ago

The divorce analogy is one that has occurred to me. But it doesn’t seem as if no-fault divorce has been one of the great success stories of reform: certainly it hasn’t put the lawyers out of business.

The frequency of dismissal for cause isn’t really high enough for it to have a big impact on churning: the issues here are things like the ease with which firms can undertake large-scale layoffs and the rate of firm entry and exit.

mARK pOLLOCK
mARK pOLLOCK
2022 years ago

The divorce analogy is not pertinent. That area of law deals with a much more binding, complicated and long lasting contract. We can be intimately involved with our employers or staff but only rarely does this involvement produce children or real property in common.

Theoretically, in an employment relationship the employee has to contribute to the success of the venture and the employer has to reward the employee for the effort he or she has contributed.

It is entirely concievable that an employer may, for whatever strange reason, want to dismiss an employee who is making a succesful contribution to his or her business. In such a case, it is probably in the employee’s best interest to go quickly and find somewhere more rewarding.

Stephen Bounds
Stephen Bounds
2022 years ago

“…we couldn’t see much sense in forcing someone to stay in a marriage if they didn’t want to be there.

That’s how I feel about unfairly dismissed workers. The boss has treated them with contempt. They’ll be better off moving on.”

Correct, but surely there is a social imperative to ensure that bosses are punished for this bad behavior? After all, compensation paid through unfair dismissal rulings act as a disincentive for companies to continue firing people for sexist or racist reasons.

Maybe a fine rather than compensation (beyond perhaps a statutory additional 4- or 6-week payout) would be more effective? It would remove most of the financial incentives while allowing those with true grievances to get some form of redress.

cs
cs
2022 years ago

That’s how I feel about unfairly dismissed workers. The boss has treated them with contempt. They’ll be better off moving on.

Perhaps in a genuine small business (although even here it is arguable), but this strikes me as naive in the context of firms with 100 employees, and especially in the context of larger firms structured into 100 employee units (small biusiness is very often large business in disguise). In the US, for example, there is now massive evidence of rampant dismissals being used for union busting (which I suspect is Howard’s real objective here).

Ken Parish
Ken Parish
2022 years ago

John Quiggin mentions an important point when he refers to “the rate of firm entry and exit”. Something like 2/3 of all small businesses go broke in their first 2 years of trading. I suppose a small number of bosses sack workers just because they’re ornery arseholes or power mad psychopaths, but the great majority sack workers for cause where the boss thinks the worker is unproductive and a drain on the enterprise. The boss might conceivably be wrong, but is in a much better position to make that judgment than any judge or IR Commissioner sitting in a courtroom after the event. It’s far better in that context to cut the boss a lot of slack than to impose onerous procedural protections for the small number of unfairly sacked workers, because the effect of those protections in the great majority of cases where sacking is necessary is to make it that much harder to achieve, and therefore to increase the probability that the whole enterprise will eventually go broke and everyone will lose their jobs.

OTO cs also has a good point in highlighting the potential for abolition of unfair dismissal laws to facilitate union-busting by unscrupulous bosses. Along with the other proposed provisions making it much harder for union reps to get access to the workplace etc, this tilts the balance very much in favour of bosses and against workers having the protection of collective bargaining. That is clearly inimical to fundamental rights of freedom of association etc.

Whether you think it’s a good or bad thing in a purely utilitarian sense depends on your judgment of the utility of trade unions, and your view about the importance of containing/inhibiting gross inequalities of wealth and income in a society. As babyboomers retire in increasing numbers, more and more workers will find themselves in positions of labour shortage where they have strong bargaining positions qua their employer, but there will still be many occupations and areas where a worker’s particular skills won’t be in great demand or will be readily replaceable by someone else. Those are the positions where undermining collective bargaining rights will drive down incomes and terms and conditions over time. Inequality will certainly increase significantly. Arguably that isn’t catastrophic as long as a reasonable basic living wage and basic terms and conditions are preserved/guaranteed, and we still have a good social security safety net. And that’s where we’ll only be able to judge the desirability of Howard’s “reforms” when we see the details. Conditions like annual, sick and long service leave and the right to weekends off especially are critical to maintenance of families, communities and social stability. Even if social conservatives aren’t worried about increasing inequality (and within the limits discussed above I’m not), we should all be worried about undermining families etc.

grumpymatt
grumpymatt
2022 years ago

Don’t underestimate the number of ornery arseholes and power-mad psychopaths among the cohort of small business owners. The job essentially selects precisely this category of person–people who are incapable of working in teams or under direction.

Among close friends, I’ve known one sacked for not putting out sufficiently and another sacked for raising workplace safety concerns too stridently. The period of bullying and harassment that preceded the sacking in both cases was not particularly pleasant either. The bosses know that the employees involved will not have the resources to retaliate or seek redress.