“(6) The regulations may provide for an employment tribunal to have power, where a person fails to comply with an order to carry out an equal pay audit, to order that person to pay a penalty to the Secretary of State of not more than an amount specified in the regulations.
(6A) The regulations may provide for that power—
(a) to be exercisable in prescribed circumstances; (b) to be exercisable more than once, if the failure to comply continues.(6B) The first regulations made by virtue of subsection (6) must not specify an amount of more than £5,000.
(6C) Sums received by the Secretary of State under the regulations must be paid into the Consolidated Fund.”
Baroness Stowell of Beeston
In moving Amendment 58GA, I will speak also to Amendments 58GB and 58GC, which together clarify three elements of Clause 74.
Clause 74 inserts a new Section 139A into the Equality Act 2010. This will enable Ministers to make regulations that will require employment tribunals to order employers to undertake an equal pay audit where they have been found to have broken sex discrimination law relating to pay. Each of these amendments responds to the three recommendations made by the Delegated Powers and Regulatory Reform Committee in its 10th report published on 14 December 2012.
The first recommendation drew the attention of the House to the lack of clarity in subsection (6) about the intended means of enforcement of equal pay audit orders. The second recommendation asked the Government to address the scope of the duty in subsection (7), which provides an exemption for micro and start-up businesses in the first regulations made under this power. In practice, this means that they will not have to undertake equal pay audits in the event that they are found by an employment tribunal to have breached equal pay laws.
The third recommendation of the committee concerned the lack of an expressed requirement for the Minister bringing forward regulations to make them in concurrence, or in consultation, with the Minister with responsibility for employment tribunals at the time.
The Government are very grateful to the Delegated Powers and Regulatory Reform Committee for its recommendations. We have considered them carefully and accept them; I hope that in the amendments I am moving today, we are able to address all the points that they raised. I will take them in turn.
Amendment 58GA outlines the enforcement regime referred to in subsection (6). It explains that the regulations will give an employment tribunal the power to ask an employer who fails to comply with its order to undertake an equal pay audit to pay a civil penalty that initially must not exceed £5,000. This civil penalty can be repeated if the employer’s noncompliance continues. All fines collected by the Secretary of State from noncompliant employers must be paid into the Consolidated Fund.
Amendment 58GB replaces the reference to micro-businesses and start-up businesses in subsection (7) with a definition of the businesses to which the first regulations on equal pay audits must not apply. New subsections (7) and (8) outline what we mean by a micro-business and a start-up business. A micro-business must have fewer than 10 employees immediately before a period that will be set out in regulations. A start-up business, on the other hand, is a business that began during a period that will also be specified in regulations. This amendment also removes the phrase,
“unless further provision is made under this section”.
at the end of subsection (7), which the committee had criticised as lacking clarity.
Amendment 58GC inserts a requirement for the Minister of the Crown responsible for making regulations under the power in new Section 139A to first consult the,
“Minister of the Crown with responsibility for employment tribunals”.
This will ensure that any interdepartmental consultations do not exclude whichever government department has responsibility for employment tribunals whenever secondary legislation is made under this power.
We have found all the recommendations from the Delegated Powers and Regulatory Reform Committee helpful. We are grateful to it and are happy to propose and recommend the clarifying amendments we have made to this clause, which give effect to each of them. I beg to move.
Baroness Thornton
My Lords, I thank the Minister for that very clear explanation of these amendments; we welcome them. There is a general consensus that these amendments are welcome, but the Minister will not be surprised to hear that we believe that the substantive issues needed to go further. I have a few questions to ask the Minister about the substantive issue of these subsections.
As the Minister will be aware, the EHRC advocates that time limits be imposed; the TUC contends, because of the difficulties that employees are likely to face in accessing pay information, that all employers should be required to carry out these orders, not just those taken to a tribunal. As my honourable friend Kate Green MP said on Report in the Commons,
“While the Government have made one or two grudging steps forward in relation to improving equalities, the proposal on equal pay audits is a watering down of our commitment to have such audits across the board for larger businesses, not only when they have been unsuccessful at tribunal”.—[Official Report, Commons, 16/10/2012; col. 252.]
The reason why that is necessary is that recent evidence shows, as the Minister will be aware that gender pay gap continues to persist. The 2012 annual survey of hours and earnings found that the mean pay gap between men and women’s average hourly earnings, excluding overtime, was 14.9% for full-time workers and 7.9% for part-time workers. The Equality and Human Rights Commission’s 2010 triennial view found that pay gaps also affect disabled people and some ethnic groups, and I am going to return to that in a moment. In its response to the modern workplace consultation carried out by the Government, the EHRC noted that the power to impose pay audits needs to be as robust as possible in order to have maximum effect.
It seems to us that the tests for this legislation are, first: will it help employers? Carrying out an equal pay audit should be viewed as a positive means of enabling the employer concerned to eliminate pay inequality and minimise the likelihood of facing future equal pay tribunal court claims, rather than as a penalty. Secondly, will it avoid the possibility that, if equal pay audits are seen as a penalty, there is a risk that employers will settle equal pay cases outside court to avoid that penalty? This could be particularly true of those firms that can afford to settle and are anxious to avoid negative publicity.
Does the Minister acknowledge that conducting an equal pay audit will not in itself eliminate a gender pay gap? It will, however, bring to light and enable employers to address any equal pay issues that are uncovered. Employers will still need to draft an action plan to rectify any unjustifiable pay gaps they find, implement changes and regularly monitor the outcomes. It seems to us that implementing and monitoring the necessary changes are the most important aspect of any equal pay audit. Employers will need to be made aware that there will be an expectation on them to do this. Will the Minister assure the Committee that this is indeed the case? Employers will also need to be made aware of the time limits that will be placed on them to conduct and action their equal pay audits and of what sanctions will be taken if they are breached.
Finally, what are the Minister’s views on progress on pay gaps for other strands of discrimination; for example, religion or belief, age, race, disability, and sexual orientation? Do the Government intend to do any research or take any action on those matters too, and if so, when?
I welcome this part of the Bill and the amendments which will improve it significantly, but I do not believe that any of us can rest on our laurels on this matter. I am sure the Minister will agree.
Baroness Stowell of Beeston
My Lords, I am grateful to the noble Baroness for her support of our amendments. The Government very much believe in and are strongly committed to equal pay and the important laws that already exist. If there were enough time, and perhaps on another occasion, I might recount some of the stories that my mother used to tell me about when she first arrived in Nottingham as a teenager and was working in big factories and was very miffed to find that the men were paid a lot more than she was paid for doing the same job.
Businesses should be encouraged to make progress on complying with these important laws. Where it is not necessary, we should avoid a statutory approach in terms of making them comply. I recognise the point that the noble Baroness was making about progress in this area. There has been progress, but clearly more needs to be done. That is why this Government have introduced some measures to increase transparency on how pay is reflected in organisations. There seems to be quite a positive response to those voluntary measures.
We think that equal pay is so important, so we also believe that it is right to introduce these mandatory equal pay audits for businesses that have failed to comply with the law. When the law has been broken, they need to be forced to address that. That is why we believe that this is the right approach to take.
The noble Baroness raised some questions for me to respond to. She asked why equal pay audits are not available as an automatic right. We believe that carrying out a systematic pay audit of staff can be burdensome, and we do not want to place unnecessary burdens on employers who have done nothing wrong. We also feel that some employers are already carrying out these equal pay audits on a periodic basis and are using them in a constructive and good way. We do not want them to feel that they are being unnecessarily penalised when they are already doing the right thing.
The noble Baroness asked whether we thought that, once this measure is in force, the equal pay audits will simply push employers to settle equal pay claims. Our view on that is that if any employer were facing a continuing claim against it on equal pay grounds, it would soon find that it would not be cost effective to keep settling those claims. I do not accept that that would be a consequence of this.
The noble Baroness asked why the equal pay audit would not cover other protected characteristics. As she and I have acknowledged, equal pay legislation for men and women has been in place for some 40 years. We think it is right to focus the audit on sex-based pay differentials alone as only there is there a specific right to equal pay, and the appropriate route of redress for discrimination due to any protected characteristic other than sex in matters relating to pay, is through the discrimination provisions in the Equality Act.
The noble Baroness also asked how the timeframe for carrying out an audit would be decided. New Section 139A of the Equality Act allows employment tribunals to be given discretion in,
“deciding whether its order has been complied with”.
I think those are all the questions that the noble Baroness—
Baroness Thornton
Perhaps the noble Baroness could write to me about what the time limits are, as that is quite important. I do not want to delay the Grand Committee on that matter, so I will accept an answer in handwriting.
Baroness Stowell of Beeston
I will follow that up in writing. It is worth making the point that there will be a second consultation on the detail of how equal pay audits are carried out. It is possible that that might be reflected in it, but I do not know for sure, so I will not try to guess any more on that matter. I shall confirm this in writing to the noble Baroness. I hope that I have covered all the points that she has raised with me today.
“(7) The first regulations under this section must specify an exemption period during which the requirement to order an equal pay audit does not apply in the case of a business that—
(a) had fewer than 10 employees immediately before a specified time, or(b) was begun as a new business in a specified period.(8) For the purposes of subsection (7)—
(a) “specified” means specified in the regulations, and(b) the number of employees a business had or the time when a business was begun as a new business is to be determined in accordance with the regulations.”