Bosses told they can’t 'fire at will' - they'll have to pay off staff instead

Cable blocks Tory donor's plan to boost firms but backs new scheme for voluntary job cuts

Plans to make it easier for employers to dismiss under-performing workers were outlined by the Government today. But employees will not be forced out against their will.

Vince Cable, the Business Secretary, has vetoed controversial proposals for bosses to be able to fire staff “at will”, which were made to Downing Street by Adrian Beecroft, a venture capitalist and Conservative Party donor.

His plans won the backing of David Cameron, George Osborne and many Tory MPs, who are pressing for more measures to cut business costs to boost growth. But they provoked strong opposition from the Liberal Democrats and a split in the Coalition. “The Tories keep trying to keep this zombie alive but it is dead,” one Lib Dem source said today.

Instead, Mr Cable announced changes to the law to make it easier for companies to reach “settlement agreements” in which staff agree to leave voluntarily in return for a pay-off. The crucial difference with Mr Beecroft’s blueprint is that, under Mr Cable’s plans, a settlement would have to be mutually agreed by the firm and the worker. The offer of such a deal would not be admissible if a case eventually went to an employment tribunal. The Business Secretary hopes his Enterprise and Regulatory Reform Bill will result in fewer tribunal cases and encourage small firms to reach settlements, which are currently much more common at big companies.

Dismissing the Beecroft plan for “no-fault dismissal,” Mr Cable said: “Settlement agreements are smart, fair and pro-business reforms which deliver results for employees and employers. It empowers employers by enabling them to keep their workforce flexible and encouraging alternative ways of solving workplace problems rather than resorting to a tribunal. But crucially it does so in a way that keeps the necessary protections for employees in place.”

Mr Cable said: “Making this approach simple to use will encourage employers to take on staff in the knowledge this there is an effective mechanism for dealing with serious problems if they occur.”

Last month, Mr Beecroft branded the Lib Dem Business Secretary a “Socialist” for rejecting his idea. In return, Lib Dems accused him of wanting to dismantle workplace rights and return to “Victorian values.”

Other elements of Mr Beecroft’s original proposals that have been blocked include his controversial call to scrap plans to extend maternity and paternity rights. That would have undermined Mr Cameron’s pledge to make the UK the most family-friendly country in Europe.

The CBI welcomed today’s proposals. Neil Carberry, its director for employment and skills, said:“Simplified settlement agreements will give firms the confidence to have a frank conversation about ending employment on fair terms, without the fear of a drawn-out and costly tribunal claim.”

But Paul Kenny, general secretary of the GMB trade union, said: "This is no-fault dismissal by another name. Once again we see this Government finding a way to undermine existing employment rights by introducing measures which allow employers to force employees out the door if their face doesn't fit.”

The Prospect trade union criticised the Cable plans as “a new charter for bad employers.” Mike Clancy, its general secretary designate, said: "While less harsh than Beecroft's proposals for 'compensated no-fault dismissal', Cable's proposal has the same purpose - to make it harder for employees to take a case to an employment tribunal if they feel they have been unfairly dismissed.”

Agreed settlement: how it would work

An employer could write to a worker seen as under-performing to say what kind of payment they could expect if they leave the company.

If the employee rejected the offer, the company would need to follow a fair, legal process before dismissing him or her. By making settlement offers and discussions inadmissible in unfair dismissal claims, the Government believes businesses would be more confident that they will not be used against them at a later tribunal hearing.