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new-uk-law-requiring-firms-to-give-a-standard-reference-to-reduce-red-tape-for-smes

New UK law requiring firms to give a standard reference to reduce red tape for SME’s

New proposals for HR which will impact the day to day running for personnel & HR functions.

Why the secret? The hidden impact in last week’s budgets for UK’s HR teams.

Budget 2011

In the budget 23/03/11, a little reported statement was made as part of the general announcement to help increase employability and reduce the current unemployment numbers, as well as reduce the red tape burden on SME’s. It is reported that some people are not gaining work due to poor or weak references, to navigate around this and to improve employment the government is proposing to introduce a law making it mandatory that an employer provides a reference. This was briefly mentioned in the budget review by Morton Fraser Solicitors in their budget review (http://www.morton-fraser.com/blog/employment/1440_budget_2011_employment_implications)

Cutting Red Tape

The Chancellor George Osborne announced that 250,000 apprenticeships are to be created over the next four years, while corporation tax is to be cut by 2% to 23% (see http://www.recruiter.co.uk/budget-2011-government-%E2%80%98not-doing-enough-to-tackle-unemployment%E2%80%99/1009068.article ).

In the article Katerina Rudiger, CIPD skills adviser, believes the increased funding of work placements for young people is an efficient way to target youth unemployment, “helping to break the vicious circle of no experience/no job and give young people an opportunity to develop and demonstrate the skills and commitment employers need.

“The CIPD is already working with government to facilitate HR professionals playing an active role in making a reality of these ambitions.” This work included looking at the role HR professionals could and should play not only in encouraging employment of young people, but in reducing the red tape associated with SME’s.

The report in http://www.cityam.com/news-and-analysis/reforms-cut-%C2%A3350m-red-tape-firms – outlined some of the factors the government is addressing to help SMEs with reducing the cost of employing people, and making the recruitment process more robust. Part of the process in cutting red tape is to reduce the burden on employers in providing multiple references for employees for years to come. One solution to this is to provide a single reference, appropriately stamped and authorised at the point of leaving employment.

This approach appears to have been based out of research from the Lord Young review in unfair dismissal laws, introducingstandard, mandatory employee references was tucked away deep in one of the appendices. (See article http://www.co-operative.coop/legalservices/latest-news/Employment/Archived/Lord-Young-to-review-unfair-dismissal-laws/ ).

Why this has only come to light is hard to say. The SSRN report on “Evaluating the Employment Impact of Mandatory references” (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=394602) also seems to advocate this as a strategy.

Reasons for the new law proposal

In recent years there have been a number of Employment Tribunals (ET’s) which have centred on poor and inaccurate references which have resulted in people losing their newly acquired job, even though their performance in that role was not being questioned. This is an unnecessary burden on the ET system. Several ET’s have also reported a level of discriminatory language in some references which has also resulted in loss of employment.

In addition there are concerns under the Data Protection act, with respect to what employees have access to and what they do not. The concept of the employee having a mandatory and standard form means that they have the control over who does and does not see the data.

While the act states that an employer must provide the reference on the day of leaving, it is not yet clear whether a potential or future employer has an automatic right to expect to be given a copy.

Contents

The draft form that I have seen suggests that the form will contain a digital photograph to ensure the reference is for the named individual, along with attendance (for the last 3 years) and job performance information. Employers will be asked to list all on and off-the-job training undertaken by the individual. It is understood that salary data will be optional. One particularly controversial element is asking employers to say if the person held a management post and if they were deemed effective in it.

In a final note to ensure company directors are responsible, the data Protection Agency have agreed that as well as an HR signature, the company data protection controller or nominated director is required to counter sign.

Keeping it secure

Once provided, the Jobcentre plus centres or Post Offices will be able to certify each original document. It will initially be the employers liability to have this validation undertaken before the employees employment is terminated. It is understood that security firm McAfee are in talks with the government to provide a secure access site for reference storage and read only, limited time access. This is a potentially an exciting approach to personal data security. It is believed to be a new and pilot development of McAfee’s Identity protection system (http://www.mcafeeidprotection.com/AboutIdentityTheft.aspx). This has implications for qualification, work permit and other important documents that employers may require access to.

Aggressive Timescale

My sources inside the Cabinet Office and CIPD have hinted that a private members bill may be used just before the summer break to introduce this legislation. It is reported to be effective from 1 September 2011 to help the employment figures before next year’s reporting statistics. This is an unusually aggressive timeframe for such legislation that has wide implications for HR professionals.

The source leaked what is believed to be the final draft of the proposed Standardised Reference Form (shown below).

Implications for employers – penalties

The system is reported to be driven by HMRC and firms that do not comply (i.e. are reported to have declined provision) will be liable for an undetermined scale of penalties will be applied per reference declined. We do not yet understand the potential impact for the confidentiality surrounding compromise agreements. Firms will be held liable for the accuracy of the data supplied.

Much of this is listed on the Business Link site.