managing human capital
DESCRIPTION
LONDON SCHOOL OF COMMERCETRANSCRIPT
MANAGING HUMAN CAPITAL
MBA ASSIGNMENT
SHEIKH SAEED
AUGUST 2009
LONDON SCHOOL OF COMMERCE
LONDON SCHOOL OF COMMERCE (UWIC) MBA 1 ASSIGMENT
MMMManaging anaging anaging anaging HHHHuman uman uman uman CCCCapitalapitalapitalapital MR. RAJENDRA KUMAR
Assignment Assignment Assignment Assignment
Due date: 19th August 2009
Value: 30%
Length: Approximately 4000 words
Instructions:
Please answer both parts (a) and (b). They are debate type questions and are of equal
value.
a. Do you think “management freedom of action in deciding relative pay rates
is constrained by the product market, the labour market, collective bargaining,
technology and the internal labour market ” Discuss and debate. What factors
should management consider in your opinion? Substantiate with many
examples
b. “It is important in our highly litigious society to manage dismissals properly.”
Explain why you agree or disagree with this statement. Discuss and debate.
Guidelines:
1. Thorough literature review must be evident.
2. Discussion on the factors that need to be considered when increasing
pay should be undertaken and how and on what grounds employees can
be dismissed should be explained
3. There must be sufficient linkage between theory and practice.
4. Harvard style of references should be used
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1
TABLE OF CO�TE�TS
I�TRODUCTIO� ......................................................................................................................................1
FACTORS I�FLUE�CI�G PAY RATE DECISIO�S ...........................................................................2
THE LABOUR MARKET....................................................................................................................... 2
Example 1: Regional affects pay rate ..........................................................................................................2
Example 2: Knowledge affects pay rate ......................................................................................................3
Example 3: Skills affects pay rate ...............................................................................................................3
Example 4: Gender affects pay rate.............................................................................................................3
COLLECTIVE BARGAINING............................................................................................................... 4
Definition of Collection Bargaining .................................................................................................... 4
Example 5: Summer of discontent in UK....................................................................................................5
Example 6: Why not to blame economic recession .....................................................................................5
Example 7: Shell tankers dried petrol stations.............................................................................................5
Example 8: Management forced to agree to demands .................................................................................5
Example 9: South Africa’s petroleum worker..............................................................................................5
Example 10: The “Crazy” train drivers ........................................................................................................6
Example 11: Cadbury’s Crunchie pay deal...................................................................................................6
TECHNOLOGY...................................................................................................................................... 7
Example 12: Online recruitment...................................................................................................................7
Example 13: Technology cost Vs Labour cost..............................................................................................7
Example 14: New technology, new challenges.............................................................................................8
Example 15: Using technology to control pay rates .....................................................................................8
Example 16: Suffice knowledge is Technology! An extract .........................................................................8
Adjusting technological changes ......................................................................................................... 8
Example 17: Effect in office or admin pay rates ..........................................................................................9
Example 18: Car park automation ................................................................................................................9
PRODUCT MARKET........................................................................................................................... 10
Example 19: Less freedom to increase pay rate..........................................................................................10
Example 20: Less freedom to reduce pay rates ..........................................................................................10
Characteristics of Product market...................................................................................................... 10
Example 21: Economic & product life cycle..............................................................................................11
Example 22: Inter-industry pay difference during current Recession.........................................................11
Example 23: External relativity of pay rates ..............................................................................................11
INTERNAL LABOUR MARKET......................................................................................................... 12
Advantages for the employers ........................................................................................................... 12
Advantages for the employees........................................................................................................... 12
Example 24: A socio-economic relationship ..............................................................................................13
Example 25: Civil Services and NHS.........................................................................................................13
Example 26: Train and Progress.................................................................................................................13
Example 27: Maintaining Organizational Culture ......................................................................................13
Example 28: Limited Ports of entry ...........................................................................................................14
2
HA�DLI�G DISMISSALS .....................................................................................................................15
DISMISSALS IN A HIGHLY LITIGIOUS SOCIETY ........................................................................................ 15
Types of Dismissals ........................................................................................................................... 15
Example 29: Terminating Employment Contracts......................................................................................15
Impact of Dismissals ......................................................................................................................... 16
Example 30: Last in, First Out ...................................................................................................................16
Example 31: Dismissal without Following Procedures ..............................................................................17
Documentation & Investigation of Actions ....................................................................................... 17
Example 32: Investigation before Dismissal ..............................................................................................17
Example 33: Tribunal found real motive behind dismissal.........................................................................18
Example 34: Constructive dismissal upheld...............................................................................................18
Example 35: Fair grounds but without procedures .....................................................................................18
FAIRLY DISMISSING AN EMPLOYEES ....................................................................................................... 19
Conduct ............................................................................................................................................. 19
Example 36: Gate Gourmet workers ..........................................................................................................19
Capability .......................................................................................................................................... 19
Example 37: Setting targets for employees ................................................................................................19
Legality.............................................................................................................................................. 20
Example 38: Drivers losing License...........................................................................................................20
Redundancy ....................................................................................................................................... 20
Other Substantial Reasons ................................................................................................................. 20
Example 39: Whistle blowing ruling..........................................................................................................20
Example 40: Proselytizing in the workplace ..............................................................................................21
Employment Laws and ACAS Code of Practice ............................................................................... 21
Recent changes in Employment Laws ............................................................................................................21
ACAS code of Practice...................................................................................................................................21
CO�CLUSIO� .........................................................................................................................................23
REFERE�CES .........................................................................................................................................24
BIBLIOGRAPHY.....................................................................................................................................27
1
INTRODUCTION
Determination of pay rate for employees directly relates to the performance of
employees and productivity of the business. An organization can not retain the efficient
human resource without considering the factors influencing their pay rates. Similarly it
is highly likely that prevailing labour market will entice organization to acquire human
resource at relatively less cost. Moreover the employment of new human capital may
undermine the existing employees if they feel underpaid as compare to new employee
of same skills. (Pfeffer & Langton, 1993)
Factors discussed in his report illustrate the importance of understanding various types
of constraint faced by the management during pay rate decisions. In one organization
factors influencing its operations may put constrains on freedom to increase pay rate,
while in another organisations management could be forced to increased pay rate to
retain and attract the required labour.
Considering the numbers of lawsuits contested in courts of employment tribunals in
recent years, it is evident that we are living in a highly litigious society where any minor
mistake in our judgement can end up in a court of law. Modern societies, particularly
Great Britain and United States, have evolved stringent laws to protect human rights
and freedom of choice for their individuals. These laws are enacted by states to protect
and guarantee welfare and wellbeing of the people.
The first half of this academic research report illustrate the restrictions on
management’s freedom, with respect to pay rate decisions, due to factors like product
market, labour market, collective bargaining, internal labour market and technology.
The second half elaborates the importance of handling dismissals in today’s society,
which is governed by strict labour laws to protect exploitation of employees. The
examples provided in the text further illustrate each topic under discussion.
2
FACTORS INFLUENCING PAY RATE DECISIONS
The factors like product market, the labour market, collective bargaining, technology
and the internal labour market exist in every economy to challenge management’s free
will in deciding relative pay rates for the workforce needed to run the organization.
Existing forces in economy themselves provide means to overcome such constraints for
the pursuit of overall economic benefit.
THE LABOUR MARKET
In terms of economy, the term ‘labour’ is the sum of all people in employment and the
number of vacancies waiting to be filled. The demand for labour is determined by the
level of demand for the goods and service offered by the producers in the market. When
sales or production are rising, demand for labours increases. (Beardwell et al, 2005)
Relative pay rates of employing human resource in a firm depend on overall demand
and supply of the labour force required by the firm. The pay rate will increase for the
scarce labour resources and vice versa, as potential labour force will have less available
employment opportunities.
However, labour market is not the only factor that is affecting pay rate. In fact, pay rate
is affected by various characteristics of labour market like; age, skills, knowledge,
experience, demography, marital status and government regulation. Although pay rate is
relative to demand and supply of labour market, but decisions of management in
determining appropriate pay rate for their employees essentially needs considering
characteristics of labour market. (Dessler; 2007)
Example 1: Regional affects pay rate
In developing countries such as India and China, the pay rates of labour are
fraction of pay rates in UK. This is because more people are competing for
limited vacancies in developing countries like China, Pakistan etc. However, in
3
developed countries like UK, the labour demand is high pushing relative pay
rates up.
Example 2: Knowledge affects pay rate
Software Engineer in Google earns between 54 thousands dollars, and an
account strategist’s salary is about 38 thousands dollars. This is because of
scarcity of labour with skills like Software Engineering.
Example 3: Skills affects pay rate
In Prêt A Manger, one top manager of salary is £600 per week, and team
member of salary is £120 per week. This difference is because of less
availability of people with required qualification and skills.
Example 4: Gender affects pay rate
Women hold over 90% of part-time jobs and nearly half of all female employees
44% work part time compared with just 8% of men. Part-time working is
invariably low-paid and this is reflected in gender pay data that exists between
woman working part time and men working full time. (Hakim, 1998)
Labour market is not the only one condition which requires carefully considered by
human resource managers before the satisfied pay rate is achieved. Furthermore, the
arrangement of pay rate has to satisfy both employees and employers as both of them
will be benefited.
Employers use pay and other reward methods to motivate workers to achieve success in
terms of operating excellence in order to achieve company’s goals and objectives.
Management steers to reduce costs but at the same time expect outstanding
performances from employees. Employers can not select whatever pay rate they prefer
unless carefully considering constrains.
4
COLLECTIVE BARGAINING
Generally considered theory of associating pay increase as the rewards for the
performance of the employees is not always effective especially in organization with
considerably large scale human resource. The formalized trade unions across the
industry have maintained a steady pressure on employer for negotiating pay rise and
other work related issues. One of the aspects of pay increase that needs to be carefully
considered before devising any such policy is dealing with trade unions in collective
bargaining.
DEFI�ITIO� OF COLLECTIO� BARGAI�I�G
Collective bargaining is defined as a negotiation used by employees, in the form of
worker’s unions, to work with management or their employers. In a typical collective
bargaining process, workers' representatives formally approach the employer and
negotiate a contract which both sides can agree with. (Kahn, 1998)
Generally issues negotiated in a labour contract are hours, wages, benefits, working
conditions, and the rules of the workplace. Once both sides have reached an agreement,
it is signed for a set period of time, usually three years. This final contract is called a
Collective Bargaining Agreement. In modern society employers accept the constraints
of collective bargain contract, albeit some grudgingly, upon their freedom decision
making. (Beardwell & Holden, Claydon; 2004)
Collective Bargaining can have both positive and negative influence while determining
pay increases of employees in organizations, depending on the prevailing labour market
characteristics. Strong union representation for demand of pay rise and threat of strikes,
in case of management’s resistance to agree to demands, can harm operational
efficiency, customer relationship and employee satisfaction. (Armstrong, 2006)
5
Example 5: Summer of discontent in UK
Britain has faced a string of strikes this summer; the RMT union brought the
capital to a halt with a 3-day strike on London Underground while more than
12,000 postal workers at the Royal Mail are set to begin another strike over job
cuts and pay today. (Tmesonline, July 17, 2009)
Example 6: Why not to blame economic recession
In Brantford, Canada: A group of unions representing more than 500 city
workers mounted a coalition to fight a strategy by city hall to clamp down on
wage and other demands as it tries to deliver a budget with no increase. Shortly
before contract talks opened, the labour coalition contended it as unfair to use
the ‘economic recession’ as a bargaining tool to reopen standing collective
agreements and silence the bargaining on contract renewals.
(brantfordexpositor.ca; 18th July 2009)
Example 7: Shell tankers dried petrol stations
Unions representing tanker drivers working for Shell reached a deal with
employers in their pay dispute in June 2008, averting further strikes. The two
days stoppage of oil supply led to hundreds of petrol stations across Britain
running out of fuel. Shell’s 284 (about 50%) petrol station were affected. Union
pushed management for a 13% pay rise. (BBC News online; 21st July 2009)
Example 8: Management forced to agree to demands
More than 5,000 African Americans and Latina immigrant workers at the
Smithfield Pork Processing Plant, New Carolina, USA, voted for the four-year
contract with management after a 4 year long struggle. The contract, guarantees
sick leave, time-and-a-half holiday pay, and a $1.50 pay raise to be phased in
starting with an immediate 40 cents. (Raleigh News & Observer, July 3)
Example 9: South Africa’s petroleum worker
Unions in the South Africa’s petroleum industry agreed to a two-year wage deal
on July 20th 2009, which will see workers, receive a 9.5% raise this year. The
6
new wage package was agreed following mediated talks between unions and
companies in the National Bargaining Council for the Chemical Industry. (Wall
Street Journal Online, 19th July 2009)
Example 10: The “Crazy” train drivers
Drivers working for East Midlands Trains are going on strike after rejecting the
firm's latest pay offer. Managers at the company have described the strikes as
"crazy" - saying some of the 400 drivers had been offered a pay increase of
around 6%. Aslef said 75% of drivers had voted for strike action. East Midlands
Trains said it had offered its drivers an above-inflation pay deal. The drivers on
the London services have been offered a 3% increase, taking their pay to around
£38,500 a year. (BBC Online’ 21st July 2009)
Example 11: Cadbury’s Crunchie pay deal
Cadbury’s, is facing a strike action as its workers begin a vote on industrial
action over pay that could affect Cadbury’s plants supply. The Unite union claim
that management dishonoured guaranteed 3 year pay deal in its final year, while
managers and shareholders carved up a 30 per cent in profits, made by the hard
work of the employees. (Times online; 21st July 2009)
7
TECHNOLOGY
Technological advancement in 21st century has created favourable opportunities as well
as challenges for management in deciding the relative pay rates for their employees.
Increased dependence on technology has shifted the demand of labour from manual
workers to more skilled human resource. On the other hand it is creating unemployment
for technologically less advanced labour markets. (HR magazine, July 2009)
Technology advancement has both negative and positive impact on management’s
decision in deciding relative pay rates of the employees. Depending on the nature of it,
technology may increase managements freedom by shifting focus of the job from
human skills to technology used. On the other hand technology may impose hostility on
management because of its functionality requiring highly skilled labour. (Management
Today)
Attributes of technology like cost efficiency, accuracy and reliability; lures
organizations to confidently invest in acquiring technology and the skilled labour to use
it. Technology creates new skills in labour market, reduce cost and facilitate accuracy
and time saving reducing operating costs. (Management Today, June 2009)
Example 12: Online recruitment
Buckinghamshire county council planed to save £690,000 in the next year with a
new online recruitment system that goes live this month. (HR Magazine, 24
July)
The argument that new technology has relieved management from constrains of
controlling pay rates have become more complicated when considered with the skills
required for running technology deployed. (HR Magazine, August 2009)
Example 13: Technology cost Vs Labour cost
In 1983 the Upjohn Institute for Employment Research forecasted the existence
8
of 50,000 to 100,000 industrial robots in the United States by 1990, resulting in
a net loss of some 100,000 jobs. (International Management 38; July 1983)
Example 14: 6ew technology, new challenges
A number of studies predict that new technology generates new products, new
services and therefore new challenges for managements to decide relative pay
rates. Less skilled may be required in some production process where specific
tasks are taken over by technology. (The Times Online, 27th July 2009)
Example 15: Using technology to control pay rates
Use of ATM machines has change the way of customer services in banking
industry. This technology has reduced the work load on cashiers in banks
allowing management more freedom control pay rates of cashiers.
Example 16: Suffice knowledge is Technology! An extract
By; R. H. Mabry and A. D. Sharplin, A Policy Analysis Report: In everyday
language, "technological advancement" means some change allowing the
production of more goods and services. However, any better, faster, or more
efficient way of producing is a technological advancement; better knowledge
will suffice, even without a new tool or machine. (Mabry & Sharplin, 1986)
ADJUSTI�G TECH�OLOGICAL CHA�GES
Technological changes are directly effecting management decision with respect to pay
rate. It will make its maximum contribution in changing working conditions, facilitating
management processes and operational efficiency if appropriate public and private
policies are adopted to support the adjustment to new technology.
Technological change is an essential component of dynamic and expending economy. It
will not produce a massive unemployment rate, although individual has to face painful
and costly adjustments. Expending economy where international trade plays a rapidly
growing role, must adopt technological development in the manufacturing and non-
manufacturing sectors. (Wren, 1979)
9
Example 17: Effect in office or admin pay rates
Introduction of computers in office work space have diminished the use of
typist, stenographers and payroll clerks giving management the strength to offer
less pay for such jobs in organization.
Example 18: Car park automation
The car park attendant replaced by automatic ticket machines and barriers using
access control technology have increased managements freedom in deciding pay
rates for such jobs.
10
PRODUCT MARKET
Another restriction on management action in deciding relative pay rates is the nature of
the ‘product market’ in which it operates. The influence of the product market, in this
regard, depends on how important labour costs are in deciding product costs and how
important product cost are for customer of that particular product. (Torrington, 2004)
Example 19: Less freedom to increase pay rate
In a labour intensive and low-technology industry like catering, there will be
such pressure on labour costs that the pay administrator has little freedom to
increase pay rates in favour of labour. (Torrington, 2004)
Example 20: Less freedom to reduce pay rates
In an area like magazines printing, the need of the publisher to get the print on
time is important that labour costs, however high, maybe little concern. In this
situation the pay negotiations have much less freedom from managers
prospective. (Torrington, 2004)
The organizational management can not be ineffective to characteristics of the product
market. Globalisation and revolution in information technology has further opened new
avenues for organizations to face and navigate for success in their market.
CHARACTERISTICS OF PRODUCT MARKET
The understanding the characteristics of the products market provide a comprehensive
insight into the factor effecting the managements decision regarding relative pay rates of
the labour. Knowledge and technical expertise enables management to understand
characteristics of both the products and the market. The product market decisions
review current and potential product offerings in terms of suitability for the market or
segment. (Keegan & Green, 2005)
11
Example 21: Economic & product life cycle
Across the industries there is huge difference in managements’ ability to
influence the pay rates. Markets vary in nature and their characteristics during
economic cycles of the both the product and economy as a whole, ultimately
influencing the pay rates of the working to produce them. (Hildebrand, 1963, pp.
260-99)
Organizations have to plan for these important strategic challenges in product market;
• What products will be offered (i.e., the breadth and depth of the product line)
• Who will be the target customers (i.e., the boundaries of the market segments to
be served)?
• How will the products reach those (i.e., the distribution channel)?
• How much the products should be priced at?
• How to introduce the products (i.e., the way to promote the products)?
Example 22: Inter-industry pay difference during current Recession
Private sector have seen pay increases differing between industrial sectors,
reflecting the uneven impact of the recession. The largest contrast is between the
engineering industry, where pay freezes have affected about 50 per cent of firms,
and the finance and banking sector, where increases of 3 and 4 per cent have
been seen. Indeed, the average increase among the big five banks this year is 3.9
per cent. (People Management magazine, 16 July 2009)
Example 23: External relativity of pay rates
Over 75 percent of the employers look to the external market when determining
pay rates for senior managers, but only 55 percent say they do so when setting
rates for the manual staff. (CIPD 2004, p 21)
Following factors needs consideration in setting up pay rate system;
• Involve all workers, full time and part time.
• Focus what objectives the company needs, e.g. increased productivity.
• Think about how workers might be able to earn increases to their basic pay,
through annual increases, bonuses, or other payments based on performance
assessment.
12
INTERNAL LABOUR MARKET
The internal labour market (ILM) is an administrative organization where the
remuneration for the labour and distribution of labour resources are regulated by a body
of administrative rules and procedures (Makovskay, 2008). Conceptually, internal
labour market means to promote the employees within the organization which
ultimately enhance the confidence and motivation of employees regarding job security
and wage raise. ILM is usually associated to large organizations with unique skills of
employees not readily available in the market.
ADVA�TAGES FOR THE EMPLOYERS
The advancement of the workforce inside the enterprise diminishes the costs of
employment and selection of the employees, and decreases the risk of making a mistake
when filling up vacant places (Makovskay, 2008). Grooming the ILM allows
management to invest more in internal labour’s pay rate instead of rely on external
labour market for vacancies.
ADVA�TAGES FOR THE EMPLOYEES
• employees get guarantees of employment and permanent income;
• possibility of promotion;
• the search for a new working place outside the enterprise takes much time and is
quite expensive;
• provision of social guarantees and social defense
The design of pay systems in ILM relates primarily to a socio economics relationship in
witch employee, getting above mentioned benefits, compromise with employer on wage
rate .In normal circumstances an enterprise level of wages can only be bullish, not
bearish, or it will cause dissatisfaction in employees; the last is an external equity, that
is, the pay structure of enterprises with compared to industry professionals with similar
consistency. (Berman et al, 2001)
13
Example 24: A socio-economic relationship
Does it mean that employees are happy even at relatively low pay arte? Internal
labour market exists in an environment of socio-labour relations. The
management in such organizations retain their employees, by providing them
training and progress within organization. Inter-firm competition between
employees is one of the most important processes in this regards. The incentive
for such competition can be either qualification (i.e. a higher skill-category) or
economic (i.e. a higher salary, or bonus), or career growth (i.e. quicker
promotion).
Example 25: Civil Services and 6HS
In UK civil service is an excellent example of the internal labour market. The
employees are trained and promoted in a pre-designed arrangement. Civil
service in UK overwhelmingly prepare employees for their organization through
a comprehensive training programme, starting from basic low skilled roles to
senior level post. The pay structure is well defined and kept in accordance with
employee’s capabilities.
Example 26: Train and Progress
NADRA (National Databases & Registration Authority, Pakistan) employ work
force for its distinct nature of services and then train and promote to achieve the
desired our put. In this case the employer do not have to rely heavily on external
labour market to search and recruit suitable candidates.
Example 27: Maintaining Organizational Culture
One of the advantages of retaining internal labour even at relatively high pay
rates is to reduce the cost of recruiting and maintaining organizational culture
intact. Entry into the contemporary large organisation may require intermittent
periods of employment as a temporary agency worker, rather than direct
recruitment on to a permanent contract subject to a pre-defined period of
probation.
14
Example 28: Limited Ports of entry
The classical model of an ILM refers to the pricing and allocation of employees
within the organization rather than through the labour market (Makovskay,
2008). This ideal type is characterised by limited ports of entry for recruitment,
regulated job ladders for each group of workers, internal training and rules
regarding job security.
In response to complex configurations of changing conditions in the internal and
external labour markets, for low-skilled workers entering today’s ILM structures, the
transformation in career path and opportunities for skills development is dramatic.
15
HANDLING DISMISSALS
DISMISSALS IN A HIGHLY LITIGIOUS SOCIETY
Laws governing employment related issues are devised to protect people from means of
exploitation by public and private business organizations employing them. These laws
create a balance in society by providing set standards of procedures to be followed in
most critical issues, like hiring and dismissing employees. The employment relationship
is considered by management scientist and economist as process of socio-economic
exchange with open ended contractual relationship. In employment, unlike other
contacts, both parties intend to continue until one party indicates to terminate the
contract. (Beardwell, Holden, Calydon, 2004)
TYPES OF DISMISSALS
On the basis of the outcome of the dismissal we can categorise them as being fair,
unfair, constructive and wrongful dismissal. A fair or unfair dismissal depends on
‘reasons of dismissal’ and employer’s ‘procedural action’ during dismissal process. On
the other hand, Constructive dismissal occurs where an employee resigns as a result of
behaviour of employer organization, like; cutting wage, unlawfully demotion,
harassment, changing the location etc. Wrongful dismissal is where a contractual term is
broken in the dismissal process, e.g. dismissal without giving proper notice.
(Torrington, Hall & Taylor, 2004)
Example 29: Terminating Employment Contracts
Employment contracts can be terminated in variety of ways for example
resignations, death of employee, redundancy and by sacking an employee i.e. the
‘dismissal’. Dismissals could be categorised as fair, unfair, wrongful, and
constructive depending on the reasons laid down in terminations. It is the ‘unfair
dismissal’ that needs to be carefully examined to avoid any legal action against
16
the decision of management. Employment tribunal justifies the fairness or
unfairness of the dismissal of an employee(s) if management’s action is
challenged before tribunal judge.
IMPACT OF DISMISSALS
Dismissing an employee can be complicated and has to be done carefully with
consideration to prevailing rules. Organizations can not afford be inconsiderate to legal
implication of dismissal and unsure about the consequences. Handling dismissals
carefully is also important to minimize its impact on behaviours of the person who will
be leaving and rest of the employees of organization. A poorly managed dismissal can
break the trust and loyalty of employees. Just as any management task it needs to be
done well. Although it is an emotionally charged job a competent manager can carry out
this onerous duty whilst maintaining integrity and being seen as fair. The process must
be clear and legitimate to ensure that procedural justice is seen to be carried out.
(Storey, 2000)
Employers need to ensure that they have good reasons for using length of service in
redundancy situations and, to be on the safe side, that they only use it as part of any
selection criteria and not the sole criteria such as in the case of ‘last in, first out'.
Example 30: Last in, First Out
The Court of Appeal handed down its decision in the Rolls-Royce Plc v Unite
(Trade Union) case in which it was claimed that by taking length of service into
account in their redundancy criteria, Rolls Royce had acted in an age-
discriminatory manner against younger workers (who were less likely to have
accrued long service). It agreed with the High Court's decision that taking long
service into account is discriminatory, but that it can be a proportionate means of
achieving the legitimate aim of carrying out redundancies "peaceably". In other
words, it could be justified.
17
Example 31: Dismissal without Following Procedures
A sweeper in Edinburgh took employer to an employment tribunal complaining
against unfair dismissal, when made redundant without warning or notice. In
2006 January Sweeper Mr Whiteside was told the downturn in the economy
meant the firm had to dismiss him with immediate effect. Employment judge
concluded the dismissal was automatically unfairly as no procedure was
followed. The employment tribunal awarded Mr. Whiteside, a total of £40,075
as compensation for unfair dismissal, breach of contract, redundancy payment
and mishandling procedures. (The Herald; 21st July 2009)
DOCUME�TATIO� & I�VESTIGATIO� OF ACTIO�S
Management needs to prepare document trail just in case it end up in an unfair dismissal
process. The help of legal advisor in such cases is essential. A clear policy covering
expected conduct, rules, dismissal procedures and performance requirements are a must,
no matter how small the company is. (Beardwell, Holden, Calydon, 2004)
The following example illustrates that fact that the management leapt at the opportunity
to dismiss the employee, without carrying out a full and proper investigation. The
dismissal was held to be unfair, notwithstanding the false expense claim by the
employee.
Example 32: Investigation before Dismissal
Brick Services Limited accused their employee, namely Thomson, of submitting
a false expenses claim, following which he was dismissed. It was established at
the Employment Tribunal that for sometime the Company had been putting
pressure on the employee to agree to a change to less favourable terms and
conditions of employment. The employee steadfastly refused to agree to the
change. The Tribunal concluded that they could not have dismissed him fairly
on the grounds that he refused to agree to the new terms but that this was the real
motivation for the dismissal. (Thomas Eggar LLP; 21st July 2009)
18
It is important for employers who find themselves in a situation where they unsure of
the circumstances surrounding work life to ensure that a thorough investigation is
carried out and they are proceeding with consistency and in a fair and proper manner
when they wish to dismiss their employees. The legal actions illustrate that Employment
Tribunals also look behind the apparent reasons for dismissals and probe deeper to
establish the real reasons. Employers who find themselves in such situations must
ensure that a thorough investigation is carried out, that they are seen to be acting
consistently in a fair and proper manner when they wish to dismiss.
Example 33: Tribunal found real motive behind dismissal
East Lancashire Coach Builders dismissed Mr. Hilton. The Employment Appeal
Tribunal concluded that the real reason for Mr Hilton's dismissal was not
misconduct, but, rather was the management buy-out situation and his
relationship with the other Directors. (Winston Solicitors, 19th July 2009)
Example 34: Constructive dismissal upheld
R F Hill Ltd v. Mooney 191, the employment appeals tribunal upheld a claim of
constructive dismissal where the employers unilaterally altered the pay structure
in an organization and cut the wages of the employees without consulting them.
(Winston Solicitors, 19th July 2009)
Wrongful dismissal is different from unfair and constructive dismissal. The
reasonableness or otherwise of the employer’s actions in a case of wrongful dismissal is
immaterial. All that court has to consider is whether the employment contract has been
breached. If it has, and dismissal is the result, then it is wrongful although it is not
necessarily unfair. (Kelvin & Cheatle; 2001)
Example 35: Fair grounds but without procedures
In Gunton vs. Richmond-upon-Thames, London Borough Council 1980, G was
employed under a contract which included a provision for one month’s notice
and also prescribed a procedure for the dismissal of employees on disciplinary
19
grounds. The employer’s dismissed him for disciplinary reasons with one
month’s notice but did not follow the right procedure. The Court of Appeal held
that G had been wrongfully dismissed. G was awarded damages for the amount
of notice he was not provided with. (Winston Solicitors, 19th July 2009)
FAIRLY DISMISSING AN EMPLOYEES
After careful examination of the situation surrounding dismissals, an employer can
fairly dismiss an employee on several grounds. To understand the ability of
management with respect to dismissal a brief insight into the managerial prerogative is
described. A dismissal could be carried out on the basis of following reason.
CO�DUCT
Conduct of the employee with customers, colleagues, management or any person even
in private life of the employee could be considered as basis of dismissal.
Example 36: Gate Gourmet workers
Six Gate Gourmet workers, sacked after taking part in a 2005 dispute at
Heathrow airport, lost their appeals against unfair dismissal. The Employment
Appeal Tribunal (EAT), in its ruling clarified that employer's rights to dismiss
unofficial strikers was justifiable as six appellant acted in misconduct by staging
a wild cat industrial action at Heathrow. (Personnel Today; 20th July 2009)
CAPABILITY
Insufficient qualification to perform a job although this must be carefully managed clear
guidelines must be set out in a draft policy.
Example 37: Setting targets for employees
In a typical sales environment it is often best practice to set out performance
criteria right at the start of the employment. Monitoring the progress of the
20
employee against such criteria and discussions to improve will reduce friction as
a resulting from decision to terminate employment.
LEGALITY
An employee can be dismissed if the one of the legal requirement of performing a job is
breached or not anymore producible from employee. This could be the result of
employee’s personal action or due to new government regulations imposed on the
business.
Example 38: Drivers losing License
In case of losing a driving licence due to some traffic law violation, the drivers
working in delivery or any such company where driving is a substantial element
of the job will not be able to perform their jobs as required. Similarly, security
guards who could not obtain SIA licence will not be able to continue
employment.
REDU�DA�CY
Redundancy occurs when the work for which the person was employed has dried up or
has been outsourced. It could also be the result of significant change in the nature of
job.
OTHER SUBSTA�TIAL REASO�S
Any other reason not covered by the above could be considered as the lawful reasons
for dismissal, like retirement, strikes. It is also a minefield as it has to be grounded in
some substantive issue related to the job.
Example 39: Whistle blowing ruling
An IT teacher, Mr. Evans, resigned and claimed constructive dismissal
following a formal warning issued after he had used a pupil's PC to disable
21
school accounts and demonstrate flaws in the school's computer network
security. The Court of Appeal rejected Mr. Evans's argument that the
circumstances should be viewed as part of whistle blowing. (Thomas Eggar
LLP, 17th July 2009)
Example 40: Proselytizing in the workplace
In the case of Chondol v Liverpool City Council, the Employment Appeal
Tribunal decided that dismissing someone on grounds of inappropriate
proselytisation did not amount to unlawful discrimination on grounds of religion
or belief. Mr Chondol, a committed Christian, was dismissed following proper
disciplinary proceedings, on grounds of promoted his religious beliefs at work
place. (Thomas Eggar LLP, 17th July 2009)
EMPLOYME�T LAWS A�D ACAS CODE OF PRACTICE
Recent changes in Employment Laws
In deciding whether the employer acted reasonably in dismissing the employee the
tribunal will take account, amongst other factors, of whether he or she followed
appropriate disciplinary procedures. From October 2004 statutory dismissal and
disciplinary procedures came in to force to further formalize the procedures adopted by
management in terminating the employment contract (Winston Solicitors, 19th July
2009).
ACAS code of Practice
On April 2009, the legislation on dismissals and grievance procedure are replaced by
new ACAS Code of practice. Here are some features of the ACAS code of practice.
Issues be dealt with promptly and consistently,
• Employers carry out necessary investigation,
• Employers inform employees of the basis of the problem and given them an
opportunity to put their case in response,
• Employers inform employees of their right to be accompanied at disciplinary and
22
grievance meetings,
• Employees are given the opportunity to appeal against any formal decision made.
23
CONCLUSION
Highly competitive markets have strained the organizational management to evolve
their strategies focusing reduced operational costs while maintaining production
efficiency at the same time. Decisions of management in determining pay rates and
reward systems for employing human resources have evolved underlying issues to be
addressed for overall triumph of the organizations. This has increased the importance of
considering all those factors which can effects the profitability of the organization and
performance of its human resource.
Internal labour market factor appears to be leaning towards the freedom of management,
as far as pay rate decisions are concerned. Labour market, technology, product market
and collective bargaining can influence management’s freedom of action according to
their characteristics and relativity to industry. Effects of these factors can help
management in overcoming the constraints as well as severely restricting the managerial
prerogative. Foe example, technology provide opportunity to control labour cost but at
the time it requires scarcely available labour with particular skills.
Dismissing an employee is a task a manager will have to do at some time in his/her
career, although it is a difficult and emotional decision, it can be managed as long as a
clear process is in place. It is very likely to fall trap of “macho management” but it can
potentially hold organisation liable for huge financial loses and negative publicity.
Besides letting people go in a nonthreatening and honourable way, enabling them to
leave with dignity, and allowing them to rationalize the process is good management
style and a sign of stewardship for the people who work for you.
24
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27
BIBLIOGRAPHY
• Collective Bargaining and the Inter-industry Wage Structure. International
Evidence’; Kahn, Lawrence M., 1998; ‘Economica, New Series, Vol. 65, No. 260
(Nov., 1998), Published by: Blackwell Publishing on behalf of The London
School of Economics and Political Science and The Suntory and Toyota
International Centres for Economics and Related Disciplines.
• Handbook of Human Resource Management Armstrong, Michael 2006Practice
10th Ed, London: Kogan Page.
• The Evolution of Management Thought, 2nd ed. Wren, Daniel A.; 1979, John
Wiley & Sons, New York.
• Global Marketing, 4th edition, Keegan W. J. & Green M.C, 2005, Pearson,
Prentice Hall, pp 247-249.
• UK Businesses feel the pinch as sterling hits 26-year high, Allen .K, &
Balakrishnan A; 2007,
• Human Resource Management in Public Service: Paradoxes, Processes and
Problems. Berman, Evan M., James S. Bowman, Jonathan P. West and
Montgomery Van Wart. 2001. Thousand Oaks, Sage Publications, Inc.
• The Internal Labour Market & Development’ Makovskay, Natasha. 2008,
‘Publisher; Facta Universitatis, Economics and Organization, Vol. 5, No 2, pp.
151 – 160.
• Going privately: partnership and outsourcing in UK public services, Grimshaw
D., Vincent, S., Willmot, H., 2002, Wiley
• Strategic Marketing Management – Planning, Implementation & Control, third
edition, Wilson. R and Gilligan. C, 2005, Elsevier Butterworth-Heninemann, UK
• Reward management, A survey of policy and practice, CIPD 2004, London, CIPD
• Work Incentives and the Efficiency of Internal Labour Markets, Thompson, A.G.,
1986; Journal of Industrial Relations, Vol. 28, No. 1, pp 40-56
• Resource Management: A Critical Text, Storey, John; Human 3rd Edition (2000);
Thomson Learning
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