Employment Tribunals Act 1996 (Tribunal Composition) Order 2012
Lord De Mauley
That the Grand Committee do report to the House that it has considered the Employment Tribunals Act 1996 (Tribunal Composition) Order 2012.
Relevant document: 41st Report from the Joint Committee on Statutory Instruments
Lord De Mauley
My Lords, first, I apologise for not being here when your Lordships were gathered. Matters seem to have proceeded apace beforehand.
The effect of the Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 2012 is to extend the qualifying period for unfair dismissal from one to two years for individuals beginning work on or after the commencement date. It also extends in the same way the minimum period an employee must have been with their employer before they are entitled to request a written statement of reasons for dismissal.
Workers in the United Kingdom have been protected by unfair dismissal legislation since 1971. Since its introduction, unfair dismissal has always been subject to a minimum qualifying period. The concept of a qualifying period has been accepted by successive Governments, no matter their political persuasion, although the length of that period has been flexed by Governments according to economic circumstances, and today’s amendment is no exception.
We need to generate jobs and growth. Creating employer confidence is vitally important to underpinning the Government’s objective to get the British economy back on its feet. Extending the qualifying period for unfair dismissal is one of a range of measures that we are taking to encourage recruitment and to reduce the burden of employment law.
We have listened to businesses, which have told us that the one-year qualifying period is a barrier to hiring. Business and business representative group responses to last year’s Resolving Workplace Disputes consultation were firmly in favour of this extension. They were clear—a year is not always long enough to be certain that a new employee is right for their organisation. I know this to be true from my own experience. When I started my business in 1999, the one-year qualifying period was a source of concern. In highly skilled roles where training can take a considerable time, I needed longer to assess new staff, particularly given that the notice period is taken into account within the qualifying period. This can also be true when potential employees are young and inexperienced, or have been out of work for some time. The Government are thinking about ways in which we can stimulate employers to take on these groups of workers. Extending the qualifying period will give employers the confidence to invest in new members of staff. It will give them the opportunity to get the working relationship right.
It is important to note that our package of employment law measures strikes a fair balance between employee rights and employer needs. “Day one rights” are unaffected by this order. We believe that it is right and proper that an employer who behaves in a discriminatory way or who dismisses an employee for exercising his or her statutory rights will continue to be subject to employment tribunal claims at any time. So without undermining important employee protections, the Government are committed to improving employer perceptions of employment law and the level of burden that it places on them.
The likely improvements in business confidence are inevitably difficult to quantify. This is because a huge range of factors is affecting levels of employment. The effect of a single regulatory change cannot readily be isolated, but that does not mean that these benefits should be ignored. The majority of businesses say that unfair dismissal rules are an important factor in their recruitment decisions. We are therefore confident that this measure will make a positive impact.
This is about the employer who gives a chance to the school leaver who otherwise may not have been recruited. It is about the employer who might otherwise have let a member of staff go if they have not quite met the mark at a year rather than risk an unfair dismissal claim further down the line. A two-year qualifying period for unfair dismissal is the right policy. It strikes the right balance in the context of our fair and flexible labour market. It creates an environment where employers will have more time to assure themselves that working relationships are right and it will give them the confidence to take on new members of staff.
The Employment Tribunals Act 1996 (Tribunal Composition) Order 2012 will enable but not oblige employment judges to sit alone in employment tribunal proceedings relating to unfair dismissal. This order is about improving the effectiveness and efficiency of the employment tribunal system. It is about replacing prescription with flexibility, but it does so while maintaining essential safeguards to fairness—fairness to the parties and fairness to taxpayers. Of course, judges sitting alone is not a new idea in employment tribunals. The general rule is that panels consist of a legally qualified employment judge and two lay members. Those members respectively are intended to have experience from the employee and the employer sides of industry. Since the mid-1990s, categories of cases have been set out in primary legislation where an employment judge can, subject to judicial discretion, sit alone at final hearings.
Baroness Turner of Camden
My Lords, I will speak on the two orders dealing with employment rights. I say at the outset that I oppose both of them. The first provides for an increase in the time that an employee must be in employment before they can claim unfair dismissal. At present, the employee must be in position for one year. The order increases this to two. It is not at all clear why. Surely it is possible for an employer to assess within one year whether an employee is suitable. Increasing the time to two years could involve difficulties, particularly for young people. Many people younger than 24 have not spent as long as two years in one job because of the current employment situation. I see no reason for the increase—and the majority of consultees disagreed with the proposal.
The second order seeks to remove lay representatives from tribunals, so that they will take place with a judge sitting alone. The reason for this proposed change is also unclear. It is opposed by the TUC, the CBI, the Engineering Employers Federation and Citizens Advice. The Government’s own paper states that of the consultees—there appears to have been some consultation—only 33 per cent were in favour of the proposal and 66.5 per cent were against. Surely it is understood that job loss, particularly for older people—and many of those involved are over 45—is a disaster not only for the employee but for their family, as they will probably face a long period of declining living standards and perhaps a reliance on benefits. If the dismissal is felt to be unfair, the trauma is even greater.
When industrial tribunals were first established, it was felt that cases could be heard in a relatively informal way, with lay people involved who had a knowledge of workplaces, and with a judge in the chair. It was thought that employees might not need legal representation since the hearings were such that the employee could represent himself or herself. A judge sitting alone would create a much more legal atmosphere—and of course, under the legal aid Bill currently before the House, no legal aid will be provided. I believe that the Government believe that more cases are likely to be lost in the set-up that they propose. I believe that this is part of a long-term project to decrease employment rights that have been built up over the past century.
The intention is that eventually lay people should be removed from the EAT—the appeal court—which will remove from the system lay people who have a knowledge of both sides of industry and commerce. It should be noted that organisations with a knowledge of the system believe that lay people provide a very useful element, bringing to bear workplace knowledge and often knowledge of local labour conditions in a way that a judge sitting alone may not do. Again, the Government intend to make it as difficult as possible for an employee to utilise the rights that they have, for which previous generations strove. Moreover, the paper that was issued indicated that the intention was that people would have to pay for the right to have a hearing. That, too, I oppose.
We have a low-wage economy in this country, and the Government are aware of that. Because employment is often badly paid, the benefits system supports low wages. Taxpayers are supporting employers who pay badly. Therefore, employers do not need the extra help of having employment rights removed because they already have the assistance of low wages. Should employees simply put up and shut up? Are working people simply disposable? Should we go back to the conditions that existed at the start of the last century, when employment rights were almost non-existent? The orders are a step in that direction. They are not acceptable and I oppose both of them.
Baroness Donaghy
My Lords, these are two shabby little measures that will lead to the further juridification of employment tribunals and encourage lazy management. I speak as someone who was a member of what used to be called the industrial tribunals. It is amazing how long that brand word has lasted, because even now, years after that name ceased to exist, a lot of people still call them “industrial tribunals”. I was a member from 1974 to 1989, a period of 16 years, when the whole employment regime was simpler. I acknowledge that employment law has become a lot more complicated, particularly in the area of equal rights. Nevertheless, I do not believe that that is an excuse for further eroding the role of lay members. I honestly believe that there have been attempts to undermine their role for the past 25 years. Every time a new Government come into office, the filing cabinet is opened, the file is dragged out and the new Minister is asked, “Can we do something about these lay members? They are very expensive and untidy. We need three phone calls instead of one. It would be much neater and tidier if we could get rid of them altogether”. Time and time again the TUC and the CBI have acted in unison and tried to indicate that the world of work is different from the world of the judiciary, and have said again and again that this would be a backward measure. I hope that they will say the same thing again this time.
I also speak as a former chair of ACAS, from 2000 to 2007, so I do not have any romantic feelings about employment tribunals. I fully acknowledge that they represent a failure of employment relations and that there is not always a similarity between employment legislation and employment relations. Sometimes they are the same, but as often as not they are different. When a case has to go to a tribunal, it represents a failure of employment relations, which is why the role of ACAS is so important. In fact, it diverts the majority of cases away from the tribunal service by persuading the employer to negotiate or the applicant to withdraw, or by giving advice in private to both parties as to how they can settle their case. If ACAS was not so successful then the tribunal system would have been swamped years ago. So I think we that can talk from certain knowledge about how important cases must be if they do end up before a tribunal. It is not always unreasonable people who come before one. I have never met anyone who willingly took their case to tribunal; they would always look for a different way.
You could almost say that the increase from one year to two years is traditional Conservative policy, just as decreasing it from two years to one year is traditional Labour policy. It could be left at that, saying that it is a purely political measure. But when you look at the world of work and the journals of the Chartered Institute of Personnel and Development— I am a fellow of the CIPD—they say everywhere that you need to talk to your new employee on a regular basis; to use the probationary period wisely; and if there is any doubt at all about that employee—if they are not proving to be adequate—you have an outlet. You can extend the probationary period in discussion and agree on how the employee can improve themselves. There is absolutely no need to use the precipice of unfair dismissal eligibility for the promotion of employment relations. The two things are entirely different. To use it in this case is almost predictable.
The Minister spoke of generating jobs and growth by making it easier to sack people. In reply I would say: I don’t think so. He also said, “We value the role for lay members”. I am sorry, but that has a hollow ring to it. I do not think that they are valued, and I think that this is a way of further eroding their role. They are regarded as a bit of a nuisance and, slowly but surely, their role will be diminished over the years. Of course business wants the extension from one to two years. It is a bit like asking a child if they would like two bags of sweets instead of one. It is hardly surprising. Even the Government’s impact assessment says:
“We are unable to infer the causality between Unfair Dismissal (UD) claims and changes in the qualifying period. There are a wide range of variables other than unfair dismissal qualifying period that will impact on the number of unfair dismissal claims such as claimant count inflow. In periods of recession when more workers are dismissed, unfair dismissal claims rise”.
There is no objective justification. This is a purely political measure and we will live to regret both these measures.
Lord Cope of Berkeley
My Lords, perhaps I may start on something with which I agree. The underlying measures—the tribunals and the unfair dismissal legislation—were introduced by the Conservative Government in 1971 by our late, lamented colleagues Lord Carr of Hadley, who, sadly, died the other day. The basic set-up introduced at that time will remain. These are comparatively small changes to the way in which they operate. However, I am sure that we can all agree that job creation is extremely important at this time—as has been said from all sides, at different times—and that we will hear a lot more about that in the context of the Budget later this week, for example, regarding the growth strategy and all that sort of thing.
In my view this is also a small contribution in the same direction, particularly the qualifying period, which I am talking about at the moment, and which I welcome. I have had a lot to do with small businesses in my professional life, although that was quite a long time ago, and in my political life over the past few decades. The whole difficulty of running a small business by comparison with a large business is that the proprietor is on his own and has to think about a variety of things. A large business has a finance director to argue with the bank; a production director to deal with the mechanics of whatever you are producing and doing; a sales director who makes sure that customers are as happy as possible, and all that side of it; and a human resources director to look after the employment side and to make sure that even a small business does not trip up over some of the complicated employment law which we now have.
I am not complaining about the complexities overall. They have all been introduced for various good reasons over time. I have been involved in much of that in different ways and I understand why the various bits have been introduced. However, they add up to an awful lot of things for someone who is running a business to worry about. In that context, a proprietor has to worry about hiring new people, the difficulties of hiring new people and the problems that it may get him into. When he is uncertain about his markets, his finance and the state of his business, that is yet another thing to worry about. This qualifying period arrangement is a small movement to assist him to worry slightly less about that.
Lord Borrie
Does the noble Lord accept that after an employee has been engaged for some 18 months, it is right for that person to be arbitrarily dismissed with no legal remedy of any kind?
Lord Cope of Berkeley
It depends on what he has been dismissed for or what the argument is about. Let us not forget that he still has a lot of rights which can take him to a tribunal; for example, a whole lot of things can apply if the dismissal has anything to do with gender, sexual orientation or any of those things. But there is the question of whether an individual will fit into and is necessary to the firm. The Minister referred to training. Whether the individual concerned has worked out as both sides had hoped is also extremely relevant. All that is important. No one is taking away the ultimate right of unfair dismissal. All we are doing is shifting the one year to two years, as has been outlined.
On the composition, I entirely agree with the noble Baroness who said that originally the idea was that tribunals would be rather informal. Unfortunately, it has not quite worked out like that. This issue has become more complicated and more judicial. I disagree as regards whether having more people on the Bench, as it were, makes it more judicial or less judicial. One can look at that in different ways. However, the intention is to make it easier to arrange sittings, particularly when they have to be rearranged, as everybody knows happens from time to time. This measure will help speed up the process and in so doing reduce costs not only for the Government but for the businesses and trade unions that are involved, as they will know where they are. It is hedged about with safeguards, particularly the big safeguard that either side can request a full tribunal with appropriate lay members. That can be granted, and no doubt often will be granted when there is reason to do it. Some cases will be speeded up by this process. Therefore these two measures are small—I do not claim that they will change the world overnight—but useful improvements to the system, particularly in the interests of allowing small businesses to employ more people.
Lord Monks
My Lords, the UK has the third most flexible labour market among the OECD countries. I would like to explore what that means. Does it mean that we have the third best labour market in the OECD? I am afraid that it does not. Does it mean that we have the third most productive labour market in the OECD? It does not at all. Does it mean that we have the third best trained labour market in the OECD? It certainly does not. However, it does mean that we are in third place in terms of employers finding it easy to fire people unfairly and get away with it. It also means that we are in third place as regards employers being able to exploit the vulnerable and those most at risk, who often comprise young people, women and those who have the least hope of securing stable employment.
The changes that the Government are proposing in these two orders might just get us into second place in the OECD most flexible labour market league table. They will promote poor practice as opposed to good practice and encourage people to do things quickly and peremptorily rather than properly. There are a lot of myths about dismissal legislation. We should not forget that these measures are about unfair dismissal. Employers will win the cases that are taken against them if certain simple procedural rules are followed, particularly in the areas of competence and behaviour. Equality cases tend to be more complicated but if an employer warns a worker about a competence or behavioural matter, gives him a chance to improve and then takes the final decision, the employer wins. That is the reality of the case law that has developed since those provisions were introduced for the first time by Lord Carr, as the noble Lord, Lord Cope, has just reminded us. Irrespective of whether he has a small or a large firm, an employer should follow the basic procedures of giving people a warning and a chance to improve before taking a final decision. That seems to me eminently sensible good practice.
The effect of these measures will be to take thousands of workers out of scope—but for what? I simply cannot accept the argument that employers are sitting there thinking, “I am not taking on another worker because the qualifying period is too short”. I do not believe that it will lead to more recruitment and more jobs—although, as the noble Baroness, Lady Donaghy, rightly pointed out, if you are offering that to employers’ organisations they are bound to say, “Fine, it is a free gift, we will take it”.
I agree very much with what has been said on this side of the table about lay members, who have played a useful role in tempering the application of the law with some understanding of the realities of the workplace. I am glad that the employers’ organisations tend to agree with the trade unions on this. With due respect to judges, the realities of the workplace have not been their particular area of expertise, and they acknowledge that they have been helped. This order makes it a grace and favour provision for the legal chairman to choose whether he needs the lay representatives. That seems undignified and unfair, and it weakens the employment tribunal system in a way that will not be fatal but certainly will do it some harm in the eyes of many.
These measures are shabby, squalid and rather mean-spirited. They will not do anything for employment or for the British labour market, except to make it that much worse than it is at the moment.
Lord Scott of Foscote
I apologise to your Lordships, and to the Minister in particular, for not being here at the commencement at this debate. I intended to be, because I remember seeing this statutory instrument when it came in front of the Merits of Statutory Instruments Select Committee, of which I am a member. I made some remarks about it then and I had intended to make the same remarks here. I hope that what I am going to say has not already been said by somebody else.
The point I wanted to make does not relate to the reduction to one year for the bringing of an application for remedy for unfair dismissal. Unfair dismissal is a statutory remedy, and as the two-year period was fixed by statute it can be changed by statute—or, as here, by statutory instrument. However, I do not understand why it is thought necessary to put up to two years the right of a dismissed employee to obtain a written statement of the reasons for his dismissal.
Whoever has been unfortunate enough to be dismissed, whether or not he has a remedy to make a claim for unfair dismissal—and after this becomes law he will not have a remedy—he will want to know why he was dismissed. He is going to have to go back into the labour market and try to make himself a better employee, not so subject to dismissal as he was with his previous employer. Common courtesy ought to entitle the employee to be given the reasons for dismissal. Why has he been sacked? He needs to be given a reason. There may be other courses of action he may have against his employer for which it would be relevant for him to know why he had been dismissed. I cannot understand the policy behind requiring two years’ employment, rather than one year as previously, for the entitlement to be told why he has been dismissed.
I asked that question when the instrument was in front of the Merits Committee. Nobody knew the answer. My recollection is that the secretary of the committee went back to the department but did not get anything like a satisfactory answer. Perhaps the Minister could help with this. Why is it thought necessary to reduce the right of a sacked employee to be told why he has been sacked? Why must he be employed for two years before he is entitled to that very basic right, which ought to be a matter of common courtesy anyway?
Baroness Prosser
My Lords, I would like to make a couple of points. When moving the proposition, the Minister talked about the responses from employers welcoming the possibility of extending the period during which a person would be on trial, so to speak. That is not exactly surprising, is it? The point has been made around the Room—my noble friend Lord Monks described it as a free gift.
I am reminded of when employers were being asked for their views on the introduction of a national minimum wage. Their response was that its introduction would bring about the end of life as we know it and there would be no jobs made for anybody. In fact, the absolute opposite occurred. The fact that employers are claiming that this will be of great benefit and will encourage them to hire more workers seems to fall pretty far short of producing any real evidence in that regard. I cannot see for one moment that introducing this change will increase the opportunities for people to find employment.
Secondly, should this be introduced, women workers are likely to be hit harder than other employees, because, generally speaking, women change their jobs more frequently than men because of the pressures of other responsibilities. Can the Minister tell us if there has been any equality assessment of the impact of these proposals? Thirdly on the question of unfair dismissal, I would like to support the point made by my noble friend Baroness Donaghy. There would be much more to gain if there were more concentration on the need for management to be trained in how to manage.
The Chartered Management Institute assesses that only 13 per cent of people who are in management positions have ever had any training as managers, which is shameful. That would lead to difficulties when your employee is not up to scratch if after 12 months you could not say that they have had all the training they need. If the manager has had proper training, that matter can be dealt with in a way which is beneficial to the company, the manager and the employee. The cack-handed fashion in which a lot of these issues are dealt with is what leads to people going to the tribunal with a case that maybe is not as good as it might be, or people being dismissed for reasons which are completely and utterly unfair. Any manager who does not know whether an employee is good enough after 12 months needs to look in the mirror and ask who has the problem.
On the question of tribunals, I sat as a member of the Employment Appeal Tribunal for 11 years. When I worked in a law centre before I worked in the trade union movement, I represented people at employment tribunal level for six or so years. So I can speak with some experience of the value of lay members, and I can give two examples.
First, on many occasions, the judge has spoken to the applicant in such language that it is quite easy to tell that the applicant has not the vaguest idea what the judge is trying to tell him or her. So many times I have had to intervene and explain in words of one syllable what it is the person is being asked to do or to give further information on. Who will do that if there are no lay members on the bench? We will have people—who are not stupid by any means—but who are just not familiar with those kinds of phrases, that sort of language, those kinds of rules and regulations.
Secondly, on many occasions I had to explain to a judge whether a workplace situation that was being presented to the tribunal was something that was likely to happen, that was tolerable, or that would in the opinion of most people have led to certain dismissal or a very different outcome—because judges in tribunals do not have the experience of working on the shop floor or dealing day-to-day with people who work there. Not giving that information, advice and expertise to the judge, who no doubt has expertise of their own, would seem to be going down a path that is deeply unhelpful and could lead to decisions being made that are less than fair and less than accurate, and which do not take into consideration all the relevant issues. I hope that the Government will think again on these issues, but I will not hold my breath.
Lord Jones of Birmingham
My Lords, as a Cross-Bench Peer I find myself, on this side of the Committee Room, looking across at the labour relations first XV. I feel like a full-back at Twickenham who has just shouted “Mine” with the sun in his eyes and the All Blacks coming towards him. Perhaps I may start by paying tribute to the noble Baroness, Lady Donaghy. When I was director-general of the CBI she was the chair of ACAS, and she did an incredibly good job. It is just a shame that we will probably disagree in the next five minutes.
The noble Baroness put it extremely well when she said that this was a political football. The Conservatives will vote for one year and Labour will vote for two years, as sure as the sun comes up in the morning. I am here to put neither case. I am not even here solely to put the business case, although I am sure that one or two noble Lords opposite will expect me to do so. However, if we in this country are to get ourselves out of the economic mess that was caused by so many contributory forces, we must trade our way out. We must generate jobs and wealth so that we make profits and pay tax, in order to reduce the deficit, build schools and hospitals and pay public sector workers what they deserve.
To do that, we must do two things more than anything else. We must be the acknowledged location of choice in the developed world for inward investment, and we must get smaller businesses in particular to take on one more person. Those two things on their own will generate a great deal of the wealth and the jobs that we need. For too long—I hope that the problems of the past two or three years have brought this into focus—successive Governments of both parties, as well as European legislation, have worked hard to help people in work keep their job, and have not concentrated enough on getting those who are out of work into it.
Whenever one talks to inward investors—Americans, Germans, Japanese; it matters not—they give one reason for coming here in greater numbers than anywhere else in Europe. We are number one by a mile—in the whole of the developed world we are number two only to America—because of what the noble Lord, Lord Monks, referred to as the flexible labour market. It does not mean that our workforce is the most productive, and certainly not that it is the best trained. In fact, those are both tragedies on which the noble Lord and I have often agreed. However, at the end of the day our reputation is that it is easier to deal here with mistakes of recruitment and the need to be mobile and light on our feet when it comes to maximising investment. It has to be easier on that basis to let people go.
Employers at that end of the game do not want to let people go because it costs a lot of money to recruit them. It costs even more money to train them. The noble Baroness, Lady Prosser, asked why managers in big companies are not well trained enough in the employment relations side of life. At the top end, especially with the overseas investors, you find that they are. They do not work on the basis of wanting to recruit people and thinking, “Well, I can get rid of them if it doesn’t work”. What they want is this aura, this feeling in the nation that we have a flexible labour market, of which only one little bit is this concept of an extension of more than one year. I do not want to get into the two years or one year because it smacks of tribalism. But these employers want the concept of being able to sort things out after a longer period than one year.
The noble and learned Lord, Lord Scott, has a point when he asks why someone who has been let go cannot at least receive written reasons as to why. That has nothing whatever to do with whether the period of time should be two years, 10 years or six months. A person is perfectly entitled to know why they have been dismissed both as a reference and as a reason for understanding. People do not like bad news but they prefer it to no news. In that respect, perhaps the Minister could go back and sharpen his pencil on that point.
One end of the labour market is about attracting inward investment; for example, Tata Motors is building a new engine plant in Wolverhampton, adding 1,000 jobs in a factory on a greenfield site. You will not see that in France, Germany or Italy. You would be lucky to see it in America. One of the reasons—although not the only reason by a mile—is the feeling that there is a flexible labour market, which includes being able to let people go.
Let me take the Committee to the other end of the labour market spectrum. Noble Lords who come from the Labour movement and the TUC will probably identify more with this and will find more fertile, efficient grounds on which to attack the proposition. The proposition is: can we get smaller businesses to employ just one more person and can we get smaller businesses to be this engine of employment growth in the nation? This proposal is dealing with making employers feel that they have the chance and the opportunity to make a mistake but will not fall foul of two or three issues that they are scared of every day.
One issue is of their own making. The noble Baroness, Lady Prosser, is absolutely right. The training qualification in management can be pretty poor. One of the reasons for that, as I heard here, is that on Monday, they are the finance director; on Tuesday, they are the sales director; on Wednesday, they are trying to clean the stairs; on Thursday, they clean the loos; and on Friday they go to see the kids. All that is seen as something that other people do until it lands on their desk because they have not gone through the right process and have not done it properly, and find that they have got a letter from the employment lawyer.
This proposal does not excuse in the slightest an effort that should be made by this Government, the CBI, the chambers of commerce, the Federation of Small Businesses and the local enterprise partnerships. Just like the CBI, the TUC finds it difficult but when it can it should reach into these places. There is no excuse for poor management of people at whatever level of employment or duration of employment. Small businesses fear that they are going to be caught up in something. Therefore, the default position comes in, which is that they will not employ someone. That is not always the case, but it is sometimes.
The second issue is the spectre hanging over the small business job market of constructive dismissal. So often the small businesses that these days I advise or champion tell the nightmare stories of people who handed in their notice; then, on the day before the three months or six months or whatever it was, the letter came in from the lawyer saying, “This person is going to say they were constructively dismissed. By the way, it is going to wrap you up in an employment tribunal. It is going to take your resource, time, effort and money. Tell you what, it could all go away now for a thousand quid”. I saw loads of letters like that, all without prejudice.
Lord Jones of Birmingham
“Not on my watch, guv’nor”. I was not at the CBI when that fight went on. That was the bailiwick of the noble Lord, Lord Turner, not mine. I always said, and I stand by this today, that it was a good thing to do, but the wage should never be set so high that people felt they could not afford it or it was inflationary. Because it has always been implemented very wisely, it has never had those two problems. We were fortunate that the economy had that Goldilocks aspect to it for many years after it was introduced. Many an alarmist employer would have said, “This will be the end of life as we know it”, but certainly not this one.
I am not saying that if this measure is not introduced, inward investors will not invest or small businesses will stop employing. We are not in that alarmist territory at all. All I am saying is that making it more flexible will create some jobs. We must start looking after those out of work and getting them into work, instead of only looking after those in work.
I am in favour of judges sitting alone, but only with the caveat that it is discretionary, that it will not always apply and that it will be left in the hands of the judge to decide every day. We have to get as much value for money as possible out of the system; we must not delay, obfuscate or obstruct. I would like to think that most cases will be heard with two lay people sitting with the judge. I think that will happen a lot and I am pleased that it will. But the judge should be given discretion. I will not fall for the argument that for some reason employment law is so special, specialised and expertise-driven that judges are not qualified to do this on their own. To my knowledge, most judges are not murderers, and yet they preside over murder trials without experts on either side. This is a special field, but so are many others.
Over the past 15 years we have lived through the continuing encroachment of employment legislation. I would love to know what the increase in employment tribunal hearings has been in the past 10 years. I do not know what it is, so I hope the Minister can provide me with that information. How many of those tribunals have involved people in the first or second year of their employment? I would love to know that. However, whatever those figures are, I know that a greater number of employment cases never get to a tribunal as the parties settle. The noble Lord, Lord Monks, said that good employers who have a good case will win at a tribunal. He is right, but the problem is the employer never gets there for anyone to find out. It is in a business’s interests to settle as that stops it committing further resources, time and money to the case. That smacks of blackmail and of saying, “We won’t let the system work no matter how well meaning it is because it is in the interests of wealth creation to get rid of a case”. You thereby create a compensation culture, which is surely what we have to avoid at a time when we need to get some wonderfully skilled people into the world of work for the first time in their lives. If this provision goes just a little way down the path of doing that, it may not be an answer to a maiden’s prayer but it will help us look after those who are out of work a bit better.
Baroness Gibson of Market Rasen
My Lords, I do not have the expertise in this area that many of my colleagues on this side of the Committee have. However, I am a former trade union official, as many noble Lords know, and therefore I am very interested in employment legislation. I should declare an interest in that my husband is a member of an employment tribunal. Indeed, he serves on the central London tribunal. I know that the Minister was lucky enough to go to that tribunal and meet members of it last week.
I wish to make two small points. My husband has served on an employment tribunal for a number of years and I have heard about the cases in which he has been involved and have reached my own judgment on what we ought to be doing in the future. Some of what is being proposed is bothering me. I am well aware that when employment tribunals were first introduced there were industrial relations problems in this country. One of the reasons for bringing in employment tribunals was the hope that they would be a more informal way of sorting out the difficulties that arose in industrial relations issues on both sides of industry. By and large, I think they have worked very well over the years. Unfortunately, we may now be heading in the other direction, and that worries me. Two points worry me particularly. The first follows on from what the noble Lord, Lord Jones, said about job creation. Obviously, I am in favour of job creation, particularly given the position the country is in at the moment. The noble Lord talked about small businesses. My background is in small business. My father and both sets of grandparents had small businesses so I am well aware of the difficulties that can arise when taking on even one extra employee.
I am a little surprised about this measure because last October the Government produced their own statistics which showed that only 6 per cent of small and medium-sized enterprises said that employment legislation was a problem in relation to taking on staff. I understand that about 1,100 businesses were consulted. This means that 94 per cent did not say that employment legislation was high on their agenda in terms of difficulties. There were other problems higher up the agenda. I am rather surprised that this issue is being brought up five months later as something that is definitely stopping SMEs taking on even one extra employee. That is something which, as the noble Lord, Lord Jones, said, I would support.
My second point concerns the expertise of those serving on employment tribunals. We in this House have all come here because of our background and expertise in different areas. It is exactly the same with those who serve on tribunals. It is not just important that a judge sits with one lay person from each side of industry to discuss issues and listen to the evidence put before them; the expertise also comes out when they get together in chambers behind closed doors to discuss what they have heard. I have spoken to judges and I know that they value employment tribunal members from both sides of industry. They value the advice of the lay members and they pick up things which, if they sat alone—whether they are a man or a woman—they would not pick up. I cannot see how one person sitting alone would be better than three people in these circumstances. Perhaps the Minister will give a little more detail on why the Government think that one person alone would be better than three.
Lord Hodgson of Astley Abbotts
My Lords, I support the proposals, which I consider balanced and sensible. I will declare some interests that are on the Register. I am a director of various companies that employ people. Therefore, we will take some benefit from the proposals if they are accepted. I believe that this would increase the likelihood that we would recruit people.
I read the debate that took place in the other place on Tuesday 13 March, but did not find it very helpful. An attempt was made to characterise the orders as a throwback to an earlier age, which was both unhelpful and unfair. Employers are not red in tooth and claw, as was suggested in the other place. The noble Lord, Lord Monks, asked why an employer, if they felt that they had a good case, did not just go through to the tribunal. The answer was given in part by the noble Lord, Lord Jones: it is the enormous time that it takes to get to a tribunal.
In the case I shall refer to later, it took a year to reach a tribunal and a further three months to get the case determined with a written judgment. A small business simply cannot wait for 15 months, with all that that implies for having to pay someone who is clearly disaffected. That is why you are going to a tribunal. There would be a difficulty in the system even if it were maintained as it is now. I do not argue that all employers are saints; far from it. However, as my noble friend pointed out in his opening remarks, and various other noble Lords have said, the basic protections for employees are maintained, with day one rights particularly in cases of discrimination, which are of particular relevance in smaller companies.
Why do I support the case for the extension from one to two years? All the businesses that I am involved with are hungry for talent, and hungry to keep a stable workforce. Hiring people is extremely expensive—and letting them go is expensive, too. It is expensive because they have to be replaced, and expensive in morale terms, because when people are let go, particularly in circumstances that are not their fault, the effect on the morale of the rest of the workforce is very great. By talent, I do not just mean the talent to shoot the lights out. I mean talent at every level to put in the time to carry out his or her allotted task with care, integrity and professionalism, to be a good colleague and team member, and to provide flexibility at times of strain within the organisation. In the business in which I am involved, when we discover that sort of talent at any level, we wish to nurture, engage with and develop it. We do this through the annual performance appraisal cycle. This is an important part of the reason we should extend it from one to two years.
Baroness Prosser
Is the noble Lord arguing that the best way to deal with “free riders”, as he described them—whom I don’t think anybody on either side of industry has time for—is through the extension of the period before protection comes along? Would he not agree that that is a really sensible argument for better management?
Lord Hodgson of Astley Abbotts
Clearly, it is an argument for good management. Identifying free riders is very important. Some people who promise quite a lot in the first few months are unable to sustain the work for various reasons. It is the performance appraisals cycle which sets deliverables and make it clear whether the person has delivered or whether the performance has, over time, drifted away and they have become a free rider. It is a sensitive interaction between what is practically laid down in the performance cycle and what management itself should be doing. There is no excuse for management not being prepared to grasp the nettle and make sure that any issue which clearly causes disaffection is tackled soon.
I turn to the employment tribunals order and the issue of whether a judge has the right to sit alone or can call for lay members. Based on my experience of the employment tribunals I have been involved with, the position has been that a judge has been able for the most part to undertake the work perfectly satisfactorily. I do not argue that this is always the case, but what does happen if you have three people sitting as opposed to one is that the time taken on the case is lengthened enormously.
Last year I was involved in a tragic case concerning an extremely talented man who had set up a small business in the video conferencing sector. I was not a director of the company but I had invested in it because I thought he was a rather talented bloke. Success had eluded him over a period of years and he had become increasingly irrational, and eventually the workforce of 10 to 15 people said to the directors, “It is either him or us. We cannot put up with him any longer”. The company had an internal conciliation process and I, along with another investor, was asked to sit down and talk to the chap. We did so, although it took four or five months to organise that. It was clear that he could accept no criticism of his performance because as soon as we said that, yes, the company had made some mistakes in the process but he was majorly at fault, he said, “Fine, I am going to an employment tribunal”.
It took a year to set up the tribunal, which had three people on it. There was really no dispute about the facts or anything else. This chap, for better or worse, very sadly could not accept that anything was wrong at all. A case that might have taken one or two days took six days, and it took three months for the judgment to be concluded. The result was, frankly, a tragedy. He lost his investment and eight or nine years of his life, during which he had spent all his time working on the business. I lost my small investment, which was a pity, but that was nothing compared with the 15 people who lost their jobs. One felt that the situation should have been capable of being grasped faster, and could have been dealt with more quickly, if it had been handled by one person, not three.
I would say to my noble friend that whereas the consultation document states that the objective is to,
“ensure that where parties do need to come to an employment tribunal, the process is as swift, user friendly and effective as possible”,
I know that there is no doubt that this case and many others that I hear about show that we are not as swift as we should be. If we are to have confidence in the system, we need swift justice because small businesses in particular find it extremely debilitating to have senior management devoted to preparing the case, sitting in on hearings, and in the mean time obviously having a disaffected employee.
I conclude by saying that I support the orders for the reasons I explained. They reflect my view of the changes that have taken place in recent years in both commercial and industrial practice, and they do so without weakening the safeguards we need to ensure that a proper equality of arms between employer and employee is maintained.
Lord Risby
My Lords, first, I apologise for arriving a few minutes late. In supporting the orders before us, I agree strongly with my noble friend Lord Cope. These are not issues that will change the industrial, commercial or employment landscape of the country, but they will certainly make a difference. I will refer to two articles in the papers today. One is by Mr Xavier Rolet, the chief executive of the London Stock Exchange. He points out that there are 4.8 million SMEs in this country, and asks us to “consider the impact” of what would happen if they were given an additional incentive to employ people—particularly young people, where we have a very big problem.
I was interested in the observation of the noble Lord, Lord Monks. Compared with many industrialised countries, we have a flexible labour market, but the truth is that in the eurozone, unemployment is running at 10.7 per cent while here in our country it is 8.4 per cent, which is still far too high. What is happening is that in terms of the UK’s global competitiveness, the World Bank now rates our labour market 35th in the world—down from 17th in 2007. Of course it is absolutely right that we should have proper, civilised protection for people in the workforce. There is no question about that. However, there is a question of balance.
Perhaps I may draw your Lordships’ attention to some issues for SMEs. I declare an interest as deputy chairman of a small business bureau. In the past few days I have spoken to a number of bureau members, to get their views on what we are discussing. I should add that in a previous life I ran businesses, both large and small, and so I know about the associated difficulties, particularly for smaller family businesses that employ between 10 and 30 people.
For SMEs, going to a tribunal is very time-consuming and stressful for both employers and employees. There is no question about that. However, as we heard from a number of noble Lords, for employers it can be a particularly difficult time. There is great anxiety in SMEs about taking on and retaining staff; I know that from experience. It comes on top of all the other issues such as access to bank funding, planning and management. Based on my discussions of the past few days, I suggest that if we can provide something that will give them a small additional opportunity to take on employees, we should support it. Certainly the CBI, the IoD and the British Chambers of Commerce said that the current arrangements were something of an inhibition to taking on additional staff.
It is certainly true that the world we inhabit at every level has become more litigious. For those people in a difficult economic environment, particularly in family businesses, this is a difficult time. That is why I support the orders. I will add simply that the CBI noted that SMEs accounted for 65 per cent of all new jobs created. Its view is that the extension to two years will be particularly beneficial to those without labour market experience. We all know about the tragedy of youth unemployment. As the economy recovers, if these proposals in some way encourage SMEs to feel that there are fewer disincentives to taking on young people in particular, I will support them—and I believe that they will.
I will turn briefly to the issue of tribunal composition. We need to remind ourselves of the discretion under the proposed arrangements. A full panel can exist in appropriate cases. I am not sure that it is appropriate for us to prescribe that that should be the case all the time. In fact, it is not. A principle was established by the previous Government, who decided to extend the scope of judge-only cases. Various surveys have taken place. In 2007 Michael Gibbons was appointed to review the circumstances under which employment judges could sit alone and add value for money.
Under the proposals, parties can consent to a judge hearing the case alone. There is no change there from the long-standing situation. The measures will put in the hands of the judge something that will give more flexibility. Some degree of judicial discretion, with defined criteria, will give judges an opportunity to decide, in consultation with those affected, whether to proceed on that basis. The order does not mandate the exclusion of panel members; it changes the basis for having them and will simplify the process.
I come back to my original point that we want a high level of protection in a civilised country. However, as the noble Lord, Lord Jones, said, we have a problem of international competitiveness. If it is possible through these measures in a small way to begin to deal with the terrific problem, in our country and the rest of Europe, of how to employ more people, I will certainly support them.
Lord Jones of Birmingham
Perhaps I may make two points. I was reminded by what the noble Lord said that I had omitted to declare my interests. If noble Lords refer to the Register, they will see that I am a director of many companies that would benefit from this measure. I am sorry that I did not mention that at the beginning. Secondly, I apologise to the chairman and the Minister as I have a very long-standing private engagement at 6.15 pm quite a few miles from here and I am already very late. I am sorry that I will not be able to listen to the Minister’s reply, but I shall read Hansard tomorrow with great interest.
Baroness Drake
My Lords, the Register of Lords’ Interests will show my 25 years’ membership of either the employment tribunal or the Employment Appeal Tribunal, so I declare that interest. I particularly want to speak to the issue of employment tribunal judges sitting alone on unfair dismissal cases because this measure has nothing to do with debates about job creation. The arguments on job creation are around the qualifying period for when entitlement to protection against unfair dismissal kicks in.
The impact assessment shows that lay members were paid a total of £9.78 million in 2009-10, so the measure that we are discussing is hardly a huge cost-saving exercise, and nor can it be a driver of the employment practices of small to medium-sized enterprises. I worry about the implications of moving towards an industrial jury system whereby employment tribunal judges increasingly sit alone in the heavyweight area of unfair dismissal. The impact assessment states that employment judges are competent to deal with the more “fact heavy” unfair dismissal cases. I fully recognise the competence of employment tribunal judges—their competence is not the issue, and I do not think that it is up for debate.
The noble Lord, Lord Jones of Birmingham, said that an employment judge could sit alone at a hearing because judges do so in murder trials. However, these are not criminal law cases, and the standards of evidence are not those of criminal law cases. That is the point. Employment tribunals are industrial tribunals based on the concept of a reasonable balance of probabilities and on all sorts of other concepts that have grown out of a judicial system that is focused on industry, not crime. The concept of industrial juries should not lose that importance. If one looks at the Employment Appeal Tribunal, the view is taken that employment tribunals have heard the facts and seen the relevant people, and that the decision taken is that of an industrial jury. Those decisions are not overturned lightly. There should be a compelling reason for interfering with an industrial jury decision. However, if it increasingly becomes the practice for judges to sit alone, the decisions will not be those of an industrial jury. The concept of an industrial jury, with practitioners from industry hearing industrial cases on a certain premise, will start to bring its own problems which may not be beneficial to employers.
The concept of an industrial jury is very important for another reason—fairness. Many claimants see a panel of three people when they appear before the employment tribunal—somebody from the employer’s side, somebody from the employee side and the judge. If the tribunal finds against the claimant, the impact of that decision is very powerful because everybody on that tribunal has found against him or her: but if the tribunal judge is sitting alone, the claimant is less likely to feel satisfied with the decision. I suggest that the claimant is more likely to want to argue with the judge and to pursue an appeal. The claimant will not receive the same powerful message as when an industrial jury makes its finding.
I turn to the concept of swift justice—what employers and particularly SMEs want. I will put the alternative proposition, which is that if you interfere with the integrity of the industrial jury concept in unfair dismissals, the number of appeals that will flow from that might well increase. The impact assessment states—on the basis of anecdotal rather than hard evidence—that when it comes to appeals made against the findings of a judge sitting alone as against those of a full panel,
“there is no significant difference between lodgement or success rates”.
However, we are moving to unfair dismissal cases with judges sitting alone, not the narrower issues that are weighted heavily towards payment disputes where judges currently sit alone. We are moving to the heart of activity in industry—disputes over whether a dismissal was fair or not—and taking away the industrial jury concept. There may well be a significant increase in the number of appeals. I must say, as a former trade union official, that if an industrial jury goes against you, you pause. I suspect that if an employment tribunal chairman sitting alone makes a decision, the disposition to go to appeal will be much greater. That is because you would be much more confident about disputing the findings of fact by an employment tribunal chairman sitting alone.
Unfair dismissal is a much more contested and emotional territory. The sense of getting a fair hearing in court is very important in terms of influencing the behaviour of claimants. The Government are unquestionably going to reduce employment rights through increasing the period before there is protection against dismissal to two years, and probably through more changes to employment rights that will come in the area of redundancy compensation. They are also looking to promote further the flexible labour market. It strikes me as unwise and counter-productive to seriously tamper at this point with the industrial jury concept. At the same time as people are getting anxious about the quality and availability of employment rights, the Government are taking away from the key area of unfair dismissal the guaranteed right of access to a tripartite industrial jury. That is a big risk for the sake of saving £9.78 million. I would not take it.
It says in the impact assessment—although I cannot find exactly where—that if claimants are not happy about a judge sitting alone hearing their case, they can put their reasoning to the judge as to why there should be a full panel. Some claimants who come before a tribunal are barely capable of prosecuting their own case, particularly if they are lowly paid or if English is not their first language. The idea that they can mobilise a set of arguments in support of why they should have a full panel as opposed to a judge is laughable. Equally, claimants who are unrepresented and put their own case, even if they are not in low-paid jobs and English is their first language, will be anxious and will not feel confident about legal procedures. They probably will have no idea of how to mobilise a set of criteria on whether their case should be heard by a judge alone or a jury sitting as a panel of three.
On the argument that there will still be judicial discretion as to whether a tribunal judge should sit alone or with lay members, the tribunal judges will be under their own pressures. They will be under pressure to keep costs down and to get the throughput of cases. I suspect that a tribunal judge who allows too many full-panel sittings will be called by the regional chairman and asked why his productivity statistics are lower than other people’s.
I worry seriously that at the same time as employment rights are being reduced—we may well see them further reduced—the concept of the industrial jury is under attack. One cannot have a concept of an industrial jury unless two lay members representing the two participating sides of industry are also representatives on those tribunals. Anybody with experience of dealing with unfair dismissal cases knows how, in the majority of cases, they can be very fact heavy, very contested, very emotional and very influenced by what is reasonable or normal practice in that industrial context. An intellectually brilliant employment tribunal judge may not have an understanding of what is ongoing or normal industrial practice in a particular industry.
Lord Whitty
My Lords, I have left most of the detailed points to my front row. But the essential point that the Government need to address, which they have not done convincingly, is the point of evidence—evidence not anecdote. The noble Lord, Lord Jones of Birmingham, is undoubtedly right that when two or three businessmen are gathered together, the evening rarely ends without some complaint about employment legislation. But does that seriously change their behaviour? There ought to be that evidence because, as the Minister said at the beginning, we have changed the qualification period several times, both in general and in relation to the size of firm it applies to, from 1971 to 2012. We are therefore talking about 40 years of potential evidence that the qualification period made a significant difference to the way in which employers approached staff recruitment.
My colleagues have referred to huge problems concerning fairness, justice and the behaviour of management towards employees. There are also issues in terms of the behaviour of individuals towards employers. But the central economic point which would justify such a change in the regulation is whether that leads to fewer people being employed. In general parlance, it would seem a very strange move by the Government to suggest that we increase employment by making it easier to sack people.
However, there is no evidence to the contrary. No change is identifiable. We have a whole impact assessment of God knows how many pages here, which not only says that we are unable to establish whether the number of cases changes as a result of a change in the qualifying period, but there is not one word about whether recruitment or a decrease in employment follows a change in the qualification period. Unless it does, the central broad argument that the noble Lords, Lord Jones and Lord Cope, the Minister and others have put to us—that this will have a significant effect on the propensity of employers to take on new labour to help solve the youth unemployment problem—must fall. At best, it is unproven. There is a lot of anecdotal evidence, but no statistical evidence.
A lot of other issues affect employers’ behaviour. But, over that 40 years, with very clear break points in the qualification period, one would have hoped that the statisticians available to the department would have been able to exclude or at least minimise the effect of those other considerations and have been able to identify that a clear change took place in the propensity, particularly of small businesses, to take on more employees once the qualification period had changed.
Lord Lea of Crondall
My Lords, following the same line of thought as my noble friend Lord Whitty, the section of the document beginning on page 25, which is headed:
“Resolving Workplace Disputes Government Response: Overarching IA Evidence Base”,
kicks off by saying that the “Problem under consideration” is that “Employers are worried”—employers this, employers that and employers the other. That is what you might call the Mandy Rice-Davies approach to evidence—it may be good or it may be bad but it is not what most of us would be looking for when we think about evidence.
On page 28, after it says:
“The Government will therefore commission an independently chaired fundamental review of the relevant procedural rules, and will ask the judiciary and other stakeholders to play a full part in that review process”,
paragraph 18, which is what I would like the Minister to comment on, says:
“There is therefore little to be gained by introducing major rule amendments now that may shortly be undone or altered as a result of the fundamental review. Further, reform at this stage should seek to avoid any risk of introducing more inflexibility and prescription when that is what the fundamental review is designed to strip away”.
Then there is a sentence that I think can be translated slightly differently from what is on the page:
“However, after an assessment of the evidence submitted in response to the consultation, the Government believes that a more limited set of reforms can be implemented without awaiting the review’s recommendations”.
In other words, as I read it, “We have got a political doctrine that is fundamental to the nature of what you might call the evidence”. Whether or not that is what a judge would normally consider to be the sort of evidence on which a jury should take a decision is rather problematical.
The other point I wish to make relates to that. The anecdotal nature of what is being said is not the way in which you would expect the two sides, if I can call them that, to relate to each other. One anecdote is worth as much as another. That is why the system of Explanatory Notes introduced some years ago is vital to getting good legislation and why we should be very careful about the nature of evidence.
Finally, on a slightly different plane, the noble Lord, Lord Jones of Birmingham, and other noble Lords on the other side have made very general remarks about the monstrous flow of legislation that is making life difficult in this country. If one looks at employment and unemployment in Germany, where the mittelstand offers much more in the way of management training and so on than we do, one wonders why the Government’s kneejerk reaction to almost any problem is to listen to employer’s anecdotes and to accept them as the main base of evidence. The Prime Minister now says that it is a good idea to take a look at Germany. If the Germans saw the basis on which we take our decisions about employment and what generates employment, I do not think that they would see other than a caricature about what you might call a “top-end” and the “well mannered dog business”. We have a vast number of mittelstand-type businesses in this country and many of them are undertrained. It is a long process, but this kneejerk recourse to the worst sorts of politicking with the British industrial system is not a creative solution.
Lord Razzall
My Lords, it looks as though I have to declare those interests and companies that I have set out in the Register of Members’ Interests, although whether they will benefit from the passing of these orders will depend on whose arguments are correct. I have some sympathy with the points that have been made from both sides of the Committee—although having read particularly the debate in the other place, one would have thought that, from the Labour side, these proposals were going to take the country back to the days of the Tolpuddle Martyrs and, from the government side, that all the problems of unemployment in this country will be solved by passing this order.
I do not share either of those views. This is not part of an agenda designed to take us back to the dark days of poor trade union relations or poor employment relations. I have every confidence in the Secretary of State, who happens to be a member of my party, to ensure that that will not happen. As the noble Lord, Lord Whitty, and one or two other Members on that side have indicated, there is a danger that one can overstate the opportunity for passing this order to extend the period of unfair dismissal from one year to two years. One can overstate the argument. Indeed, as the noble Lord said, most of the evidence in the survey saying that this will have an effect is anecdotal. He put it rather well when he said that if you get three employers having a drink in a pub—I do not know why he picked Hertfordshire—that is what they will complain about.
However, as someone who has been involved for a number of years in the SME sector, I believe that there is a marginal case here for saying that employers are nervous of taking on new employees in small businesses because of the impact of the unfair dismissal rules. There is a case for saying that if they were marginally relieved from one year to two years, people would be taken on.
One point that has not been made is that there is very little evidence that under the current one-year rule many unfair dismissal cases are brought by people who have worked between one and two years. There are very few such cases, which leads me to think that what happens is that people take advantage of the one-year rule to lay people off before they get into the unfair dismissal bracket. If we extend that to two years, action will not be taken until they approach the end of the second year, which will add employment of a further year for people who have been taken on. It will also mean that if somebody knows that they can get rid of somebody who turns out not to be very good before the end of two years rather than one, in some cases they may be more prepared to give that person appropriate training that will keep them in employment for longer.
I will make a point about the context in which the orders were put forward. One does not have to be privy to the inner secrets of government—one just has to read the newspapers or watch television—to realise that a huge battle is going on over how our employment legislation should be framed. Mr Adrian Beecroft has been commissioned to look at the laws. He starts from the proposition that almost all employment regulation and restriction should be swept away. On the other hand, a number of people in both governing parties want to see a significant improvement in family-friendly policies such as paternity leave and maternity leave.
While the battles rage, I very much hope that noble Lords will come out on the right side of the arguments. There is no doubt where I stand on them, and I suspect that there is no doubt where the Secretary of State stands on them. If the proposals come to your Lordships' House, I hope that they will be resisted. In the mean time, this is a modest proposal, and if it is the price we pay for averting something that might be a lot worse, I urge noble Lords to accept it.
Lord Young of Norwood Green
My Lords, I thank the Minister for his introduction, even if I did not agree with most of it. It will be no surprise that we oppose the proposals both on unfair dismissal and on lay members. I could not help smiling when the noble Lord, Lord Razzall, suggested that there was some overegging of the pudding. It is true that I could not find the transportation clause in the impact assessment. However, that is not to say that the measure will not have a profound effect.
My premise for being so opposed to it is that if one wants to give small employers—the measure is focused on them—some help and assistance, is this really what one wants to focus on, rather than the quality of management? I could not help reflecting on that. The noble Lord, Lord Hodgson, spoke about waiting for the annual appraisal. With a new recruit, would that be the first time one gave any assessment? As a small employer, it would be one’s first problem if one waited until the end of the year. One would need to look at a new recruit a lot earlier than that.
My noble friend Lady Donaghy pointed out that a probation period can be extended and that therefore this is not the best bit of advice one could give a small or medium-sized employer. Where they make mistakes is in the quality of management. That is why so many employment tribunals are seen as almost a fait accompli because they know that they do not have a proper set of procedures. I have seen that on many occasions. We have even seen things like the failure to issue a contract of employment. I encountered many people who have complained about the terms of their employment, but when I asked them, “Where is your contract of employment?”, they said that they did not have one. When we have management failure on that basic level, saying that extending unfair dismissal will encourage them to hire more people means, to me, that the Government really cannot see the wood for the trees.
Lord De Mauley
My Lords, I am very grateful for all the comments from all around the Committee. I will attempt to answer all the questions. I hope your Lordships have some time available because it might take a while. If I do not manage to answer all the questions, I will, of course, write with a considered response.
The Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order is especially necessary for businesses employing people who need to possess a high level of skill. The noble Lord, Lord Young, picked me up on that a moment ago, so let me say a few words about that. Given the importance to the nation’s future growth—which my noble friend Lord Cope spoke about—of value-added products, services and exports in areas such as clean technology, biomedical science, high-tech manufacturing and ICT, as well as many seemingly quite mundane businesses which nevertheless rely on some complicated technology, the quality and depth of skills are vital to an ever increasing number of firms.
I am speaking from personal experience of running an IT business. For those employees who have yet to gain the full skill set necessary, frequently a lot of time has to go into training and assessing whether they have the aptitude to learn the skills and carry out all aspects of the job. For employees who arrive with that training, it can still take quite a long time to assess whether they really do have the skills they claimed on their CV, particularly, as is often the case, when the employer or manager’s own field of expertise is different from the employee’s.
There are two further important factors. First, most employers would want to give someone the chance of continued employment for as long as reasonably possible. However, it is a fact that, under the current regime, some employers decide that it is not worth the risk of retaining someone beyond the end of the first year if there is an element of doubt that they will make the grade. Secondly, as the noble Lord, Lord Jones, said, it is important to have in mind the expense and time involved in recruiting a new employee. It was one of the things that took up most of my time as my business expanded. No one in his right mind would dismiss such a skilled employee if he did not feel he had to, so giving the employer a further year to make up his mind is certain to save some people’s jobs.
The noble Baroness, Lady Turner, asked how we justify the change when the evidence is that it will disproportionately affect young people at a time of high youth unemployment levels. Our top priority is to boost business confidence to take on staff. Young people out of work will benefit from increased employer confidence to recruit. We are serious about tackling youth unemployment. On 15 December 2011, we set out our strategy for helping young people to access education, training and work, and this strategy includes measures to offer more and higher quality apprenticeships, and a youth contract to help get young people learning or earning.
Lord Lea of Crondall
I am grateful to the Minister for giving way, but he has changed the ball park completely now. Instead of saying that we have evidence, he is saying that we have a problem of perception. If there is a problem of perception, it is the Government’s job to change the perception, unless it is evidence.
Lord De Mauley
Exactly, and that is what we are trying to do.
The noble Lord, Lord Young, referred to the Government’s focus for growth on small and medium-size enterprises, for which the impact of a tribunal case is often greatest. This measure is intended to deliver a decrease in the number of cases being lodged against small and medium businesses. A two-year period will also give them enough time fully to assess new members of staff and to benefit from skills retention in cases where they might otherwise have dismissed an employee in borderline cases because they do not have the access to sophisticated HR and legal resources.
The noble Lord, Lord Young, also suggested that this could lead to an increase in the number of discrimination cases. I do not buy that assertion. Already, discrimination actions are frequently brought simultaneously with unfair dismissal claims. That suggests to me that, if a discrimination claim has a reasonable chance of success, it is already being made. Indeed, because there is a time limit on making such a claim, it is already now important that, if a discrimination claim is to have a chance of succeeding, it is made simultaneously, so we cannot see that reducing the availability of unfair dismissal as a route will lead to a significant increase in discrimination claims.
The noble and learned Lord, Lord Scott, asked about the changes to the written statement of reasons. The statement of reasons is linked to the qualifying period and the specified fair reasons for dismissal, which are set down in law. The objective of the qualifying period is to provide both parties with time to get the working relationship right. If it does not work out, this will not necessarily correspond to one of the specified fair reasons for dismissal. Of course, the employee can ask for a written explanation and I cannot see any reason why an employer would not provide it.
Lord Scott of Foscote
Would not a reasonable solution be to say that the period of notice to which the dismissed employee was entitled would not begin to run until he had been provided with a statement of the reasons for his dismissal?
Lord De Mauley
Perhaps I may take that back to the department. I cannot give the noble and learned Lord an answer immediately, but I will write to him, if I may, on that. I am grateful to him for the suggestion.
The noble Lord, Lord Jones, spoke about SMEs taking on employees. He is absolutely right to focus on the benefits that this measure might bring. If every small business took on just one more person, there would be 4 million more people in employment.
The noble Baroness, Lady Gibson, and the noble Lord, Lord Young, pointed to BIS’s survey, which shows that 6 per cent of business view regulation as a barrier to recruitment. In fact, the SME Business Barometer asked small businesses what their main barrier to growth was. The survey does not show that businesses are not concerned about regulation, but business responses to consultation and employer representative surveys on the matters that we are discussing today clearly show that dismissal rules are a concern when recruiting staff.
On the draft Employment Tribunals Act 1996 (Tribunal Composition) Order 2012, calls for reform of the employment tribunal and the wider employment law landscape are not new. In so far as the role of lay members is concerned, Michael Gibbons recommended to the last Government in 2007 that they should review the circumstances in which employment judges can sit alone in order to ensure that, as my noble friend Lord Cope said, value is maximised. The British Chambers of Commerce recommended in 2010 that lay members should be abolished. Since then, survey evidence suggests further support for reform in relation to unfair dismissal hearings. For example, 87 per cent of clients responding to Pinsent Masons’s 2011 employment tribunal survey supported the Government’s then proposal to allow judges to sit alone in simple unfair dismissal proceedings. Academic research from Greenwich and Swansea includes some interesting data. For example, despite perceptions from judges—the noble Lord, Lord Monks, specifically referred to this—and members that members add value in unfair dismissal cases, the number of instances where panel decisions were anything other than unanimous was very small. Across a sample of 191 judges who all hear cases on multiple occasions, there were only 77 majority decisions, of which 60 had one or other of the lay members as the dissenting voice. Given the safeguards built in, with judges retaining the option to determine whether lay members are required in order to deal with the case justly and with judicial decisions made against statutory criteria, including an assessment of the wishes of the parties, the additional flexibility would allow the tribunals to obtain best value for money when deploying lay member resources.
Employment judges are already permitted to sit alone in a range of proceedings, including claims for breach of contract, unauthorised deduction of wages, certain redundancy and national minimum wage complaints, and “holiday pay” cases. While the range of such cases will increase under this order to include unfair dismissal cases, the use of lay members will continue. There is no plan to remove the role of lay members in employment tribunals entirely. The Government recognise and value the expertise which they bring to the system. This order is about replacing prescription with flexibility. It costs the taxpayer more than £80 million a year to fund the employment tribunal system. Lay members account for about £10 million of that sum. It is right to look at how the system deploys and utilises the expertise lay members bring so that they are deployed where they are most needed.
The noble Baronesses, Lady Turner and Lady Donaghy, referred to the fact that the Trades Union Congress believes that the proposal to remove lay members from unfair dismissal cases is a step too far. The TUC asserts that the Government want to remove lay members from unfair dismissal cases, but that is not the effect of the order being debated. As I have said, this order gives judges discretion. Lay members can and will be deployed if they add value, but judges will be able to sit alone wherever that would be better. Where lay members would not add value, it is not right that inflexible legislation should mandate their deployment anyway.
The noble Baronesses also referred to the fact that 63 per cent of those responding to the consultation opposed it, which I acknowledged in my opening remarks. Our consultation was not a referendum, nor should government consultations ever simply turn on weight of numbers alone. We set out proposals and looked to find evidence on the substance. Nothing that consultees said persuaded us that employment judges are not best placed to determine how an unfair dismissal case should be determined, particularly when it is the judge who has the circumstances of the individual case to hand, and not your Lordships when considering framework legislation. We acknowledge that there are some unfair dismissal cases, such as those where there is a significant dispute around the facts of the case, which might be more appropriate for a full panel to hear. Indeed, this was accepted in the consultation paper and our response document. But there will equally be claims which an employment judge sitting alone will be perfectly well qualified and able to determine.
The noble Baroness, Lady Prosser, suggested that there was a risk that employment judges are insufficiently in touch or in tune with industrial good practice. Employment judges come from a wide variety of backgrounds and many have practical experience of managing staff. The fact that a judge might not be in tune with industrial good practice does not necessarily make them less likely to be able to assess evidence. What is critical, irrespective of the nature of the proceedings, is that the person making the determination is able to assess the evidence presented to him or her. Employment judges are trained specifically for this purpose and they carry out their functions to the highest of standards. In fact, the academic research from Greenwich and Swansea suggests that lay members may not always have relevant and recent experience in industry themselves. Indeed, it reported that there was a broad perception that they had less direct workplace experience than previously may have been the case.
My noble friend Lord Hodgson asked whether it was the Government’s view that judges sitting alone will speed the process up. We certainly intend that it will. We will be monitoring that closely. The noble Baroness, Lady Gibson of Market Rasen, asked how one person can be better than three.
Lord Hodgson of Astley Abbotts
My Lords, the point about speeding up refers to speeding up the process as a whole. I agree with that point but if the Minister’s department can spend some time trying to make the wheels of justice grind faster, it would be very helpful. Small firms find this long elapse period very debilitating.
Lord De Mauley
I am most grateful to my noble friend for that point and we will certainly bear it in mind. As regards the point made by the noble Baroness, Lady Gibson, about one person being better than three, her noble friend Lady Donaghy said that the Government’s support for lay members rings hollow. But I assure noble Lords that we value lay members, as do employment judges, as the noble Baroness, Lady Gibson, and others have said. Judges will sit with lay members where they add value. Judges are expert in employment law and they see cases every day. But, as the noble Lord, Lord Jones, said, value for money is important.
The noble Baroness, Lady Drake, said that the industrial jury concept should not be disturbed and suggested that the tripartite panels give confidence, legitimacy and authority to the tribunals. In common with all other types of complaint that might be heard by an employment judge sitting alone, the judge will have, as I have said several times, discretion where he or she thinks it necessary to choose to sit with lay members. Despite the scepticism of the noble Baroness, this discretion, alongside the professionalism and expertise of employment judges, which stakeholders from all perspectives have recognised, should mean that all users maintain the same high levels of competence in the system as now. Civil courts up and down the land have lone judges making decisions and that is not just in criminal cases, as the noble Lord, Lord Jones, mentioned.
The noble Baroness, Lady Drake, also suggested that the potential benefit may not be worth it. Predicting what savings will be made across the 10,000-plus unfair dismissal complaints heard each year is difficult, given the need for judges to exercise discretion and assess what cases might require full panels. The savings, which were conservatively estimated in our impact assessment, might not be considered significant but as a Government we must take all measures to ensure that taxpayers’ money is used to best effect.
The noble Lord, Lord Lea of Crondall, who quoted the impact assessment, asked why we are legislating now rather than waiting for the Underhill recommendations. The terms of reference for the Underhill review relate clearly to procedural rules. The constitution and composition of the tribunals, as distinct from the procedural rules, particularly given the resource implications associated with judicial and member sitting, is a matter properly for Ministers and for Parliament. Furthermore, there is no reason to await the outcome of the Underhill review when the Government have concluded that there is a case for change.
The noble Baroness, Lady Turner, asked about fee charging in an employment tribunal. Although this is not one of the matters we are principally discussing today, let me say that most people will never use an employment tribunal in their lives; yet the taxpayer funds the system at a cost of £85 million. The objective is to transfer the cost burden from taxpayers to the users of the system.
I appreciate the points that have been raised. I will go away and reflect on them carefully. Certainly, if there is anything on which I have not responded, I will write to noble Lords.
Baroness Gibson of Market Rasen
The Minister’s response has shown how controversial these issues are. It has always been the practice that we have discussed in the Moses Room things that are not controversial. Usually when I am in the Moses Room I am in the chair, so I am able to listen to everything that is going on. Will there be a possibility of these orders being discussed in the Chamber? I do not know who took the decision to have them in the Moses Room. I think that this discussion should have been held in the Chamber.
Lord De Mauley
The noble Baroness makes a fair point. Under the process we are going through today, we are asked to consider. We are not asked to come to a final conclusion. As the noble Baroness knows, these orders will come to the Chamber. I believe that there is the chance that the Opposition may lay a Motion.
Lord Young of Norwood Green
I do not know whether the usual channels have yet exchanged views on this but I think that they will soon—I think on that we can rest assured.
Earlier, someone paid a short tribute to Lord Wedderburn.
Lord Young of Norwood Green
I should like to echo that. The debate would have gone on considerably longer but, nevertheless, he made a massive contribution to employment law and is sadly missed today.
Lord De Mauley
I entirely support that comment by the noble Lord, Lord Young. I commend the order to the Committee.