The Guardian this morning cites union concerns that the Employment Rights Bill is being watered down. It mentions specifically the ban on ‘fire and rehire’ and the ‘financial difficulties’ exception that will apply to local authorities. As the Guardian puts it:

“Under the amendments, councils will gain the ability to sack and rehire workers on worse pay and conditions if they are in financial distress – an opt-out already secured by private-sector organisations.

The bill is due to gain royal assent in the next few weeks, though hundreds of amendments tabled in the House of Lords, mostly to delay or weaken the legislation, remain to be considered.”

First of all – and I hate to be picky – there are not hundreds of amendments that remain to be considered. There are about thirty. Almost half of those are consequential on the Lords proposing a six month qualifying period for unfair dismissal. There is no sign that the Government is going to give way on any of them and they have already been rejected by the Commons. The idea that there are hundreds of outstanding amendments that may dealy or weaken the legislation is nonsense. 

But my main point is that the financial difficulties exception for local government is not as wide as the report suggests. It is not an ‘opt-out’. The financial difficulties exception allows an employer to avoid a finding of automatically unfair dismissal if it forces through a ‘restricted variation’ to a contract that was necessary in order to avoid an imminent threat to its ability to carry on the business as a going concern. Describing it as an opt-out does not do justice to the seriousness of the situation that the employer – and its workforce – must be facing.

When the Bill was published many pointed out that it was difficult to see how the exception could apply to local authorities because while they may become insolvent, they will not cease to operate as a going concern.

So the Government introduced an amendment that specifically defined the circumstances in which a council could rely on the financial difficulties exception. But under that amendment it is not enough for a council to merely be in ‘financial distress’ as the Guardian says. The financial difficulties faced by the Council must be so severe that the Secretary of State has concluded that the council is no longer fulfilling its obligations as a best value authority and has therefore issued directions under S.15(5) or (6) of the Local Government Act 1999. This is a relatively rare occurrence, though we have seen recent examples in Birmingham, Liverpool, Warrington, Northamptonshire, Woking and Slough (apologies to any councils I’ve missed!). Depending on the circumstances these directions can involve the appointment of Commissioners to oversee council spending but can also include measures related to organisational structure or workforce management.

The Employment Rights Bill says that it will not be automatically unfair to dismiss an employee for refusing to agree to a ‘restricted variation’ of contract if the Direction specifies that one of the reasons for it is that the council is ‘undergoing financial difficulties’ and contains provisions that relate to the council’s financial management or governance.

Not every direction will meet that requirement – but many will. Certainly the question of financial sustainability seems to be a key feature of most if not all of the directions that I have read. 

The key point however is that the exception will only apply once the Direction has been made. It cannot apply to variations that are necessary to avoid such a Direction. The Direction must be in force on the date of the dismissal (New s.104I(8)(a) ERA 96). 

So a council cannot say ‘well, we need to make this contractual change because if we don’t we will effectively be insolvent and the Secretary of State will send in Commissioners to control our spending’. They cannot make a contractual change to avoid financial disaster. The disaster has to be allowed to happen, the Secretary of State must intervene – and only then can the council look at changing terms and conditions to address its financial difficulties. 

That does not strike me as much of a ‘watering down’ of the provision.

I’ve been arguing all year that the ban on fire and rehire is going to have unintended consequences because measures that most people would see as perfectly sensible will be deemed to be automatically unfair. The extension of the financial difficulties exception to local authorities does not alleviate that problem – it illustrates it.