Unintended effects of UFD laws fall into three categories. The first of these are effects on recruitment and selection procedures which are discussed in section 8.1. The second category of unintended effects relates to adverse effects on management and supervision practices, and is discussed in section 8.2. The
9 I categorise these as intended effects as they are central to a legal remedy. Without formalism and documentation the legal remedy would be unworkable as it requires evidence.
third category of unintended effect arises where the UFD laws result in firms being less willing to dismiss workers whose performance is unsatisfactory. These effects are discussed in section 8.3.
8.1. Effect on recruitment and selection procedures and decision
Given that UFD laws have the effect of making it harder to dismiss an employee for poor performance it is natural for firms to react by changing their recruitment and selection procedures so as to reduce their chance of hiring someone who turns out to be a poor match or a poor performer. Some 47.9 per cent of businesses reported that the UFD laws influenced their recruitment and selection procedures (see Table 13)
Table 13: Whether, unfair dismissal laws influence recruitment and selection procedures
Q13.1 Appendix A Weighted
Describes very well 22.1
Describes somewhat well 25.8
Does not describe at all 21.6
Don’t know 0.2
Refused <0.05
Memo item: businesses not influenced by the law 30.2
Total 100.0
UFD laws have resulted in only a small increase in the use of fixed term contracts by small and medium sized businesses, this is probably because given the high failure rates of small business such contracts would provide more permanency to employees than is afforded by the standard employment contract and it would be difficult for small business to credibly commit to such contracts. A more popular choice was the use of casual workers. This strategy has the advantage, for small business, of extending the use of a form of employment with which they are very familiar. Increased employment of family and friends was also about equally popular response by small business (see Table 14). Again this is a form of employment with which small businesses are familiar.
Table 14: Nature of effect on recruitment and selection procedures Q14 Appendix A My business
puts more
Describes somewhat well 3.5 4.6 8.2 8.0 9.9
Does not describe at all 35.8 26.6 27.3 20.7 6.9 responded don’t know or prefer not to answer to screening question
0.2 0.2 0.2 0.2 0.2
Total 100.0 100.0 100.0 100.0 100.0
The most frequently reported responses were use of longer probationary periods and screening out of certain types of job applicants. The former strategy while understandable makes the probation period more difficult for both employees and employers. This strategy also has important equity effects on workers. To understand this consider a worker who is a marginal match when viewed from the perspective of their new employer. The UFD laws create an incentive for the employer to lift the criteria used to determine what is satisfactory in the probationary period. Thus one effect of the UFD laws is that more people will be dismissed in the probationary period. Such dismissals show up on the worker’s CV either as terminations or as changes in job for no apparent reason.
When asked about what categories of job applicants they would be less likely to hire 35.1 per cent of firms said that they would be less likely to hire someone who had changed jobs a lot for no apparent reason (see Table 15). Thus the selection strategies UFD laws cause businesses to adopt, are likely to disadvantage certain types of workers with consequent adverse effects on equity and on efficiency. The latter arises because the increased rate of dismissal in probationary periods can lead to the person having a reduced chance of getting a job. This adverse effect of unfair dismissal laws on the probability of getting a job is compounded for workers who become unemployed for more than one year as the UFD laws make it far less likely that businesses will select job applicants with these characteristics (see Table 15).
Table 15: Types of job applicant less likely to be hired because of unfair dismissal laws
Describes somewhat well 7.1 8.1 10.9 8.1
Does not describe at all 4.1 23.3 12.0 9.1
Don’t know 0.2 0.3 0.2 0.2
Refused 0.1 <0.05 <0.05 <0.05
Memo item 1: businesses not influenced by the law 30.2 30.2 30.2 30.2 Memo item 2: businesses whose performance
procedures are not influenced by the laws
21.6 21.6 21.6 21.6
Memo item 3: Business where unfair dismissal law has no effect on type of person hired
6.9 6.9 6.9 6.9
Memo item 3: businesses who responded don’t know or prefer not to answer to screening question
1.9 1.9 1.9 1.9
Total 100.0 100.0 100.0 100.0
8.2. Effect on supervision, management and performance of employees
Some 46.1 per cent of businesses reported that the UFD laws influenced the way in which their business supervised or managed employees. And, 44.3 per cent of businesses reported that the UFD laws made it more difficult to manage and supervise their workforce.
Table 16: Effect of unfair dismissal laws on management supervision and performance of employees
Q13.3 Appendix A Law has effect on way
Memo item: businesses not influenced by the law 30.2 30.2
Total 100.0 100.0
When asked about the nature of adverse effects some 38.9 per cent of businesses reported that the UFD laws reduced their authority over their workforce, 40.8 per cent reported that it now takes longer to resolve issues associated with poor performance, 37.9 per cent reported that poor performance by one worker is more likely to spill over and adversely influence the performance of other workers (see Table 17).
Table 17: Nature of effect of unfair dismissal laws on management and supervision
Describes somewhat well 15.0 11.2 11.0 11.8
Does not describe at all 5.2 3.1 6.1 5.8
Don’t know 0.2 0.4 0.3 0.1
Refused 0.2
Memo item 1: businesses not influenced by the law 30.2 30.2 30.2 30.2 Memo item 2: businesses whose performance
procedures are not influenced by the laws
25.2 25.2 25.2 25.2
Memo item 3: businesses who responded don’t know or prefer not to answer to screening question
0.3 0.3 0.3 0.3
Total 100.0 100.0 100.0 100.0
Earlier it was observed that legal remedies require more formal interaction between employees and employers, when asked about this some 38.3 per cent of businesses reported that the increased formality required by the UFD laws made communication with employees more difficult. This is likely to be a significant problem for small businesses where flexibility is part of their competitive advantage. Moreover, as discussed earlier, the increased difficulty in communication may well disadvantage certain types of employees with consequent adverse equity effects.
8.3. Effect on decisions to terminate a worker whose performance is unsatisfactory
The objectives of unfair dismissal laws are to improve the fairness with which employees are treated by encouraging employers to engage in fair and transparent human resource management practices. Ideally, such laws would not discourage employers from dismissing an employee whose performance is unsatisfactory. However, as reported in Table 18 for 37.5 per cent of firms the UFD laws made it less likely that they would dismiss a worker whose performance is unsatisfactory. This finding underscores the finding made above that businesses felt that the UFD laws reduced their authority over their workforce.
Table 18: Effect of unfair dismissal laws on decision to terminate a worker whose performance is unsatisfactory Q.13.6 Unfair dismissal laws make it less likely that my business would dismiss a workers
whose performance is unsatisfactory
Weighted
Describes very well 19.9
Describes somewhat well 17.6
Does not describe at all 30.9
Don’t know 1.2
Refused 0.1
Memo item: businesses not influenced by the law 30.2
Total 100.0