Draft Code of Practice on Dismissal and Re-Engagement
(7 months, 1 week ago)
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The Minister of State, Department for Business and Trade (Kevin Hollinrake)
I beg to move,
That the Committee has considered the draft Code of Practice on Dismissal and Re-Engagement.
It is a pleasure to serve with you in the Chair, Sir Graham. The code of practice, which I will refer to as “the code” for the remainder of the debate, will give legal force to accepted standards about how employers should act when seeking to change employees’ terms and conditions.
The Government have been clear that threats of dismissal and re-engagement should not be used as a negotiation tactic by employers. When the covid-19 pandemic led to cases of dismissal and re-engagement, the Government asked ACAS to conduct an evidence-gathering exercise to help us better understand the issue. Its report was published in June 2021. The Government then went further, asking ACAS to produce new guidance to ensure that employers are clear on their responsibilities when considering making changes to employment contracts. The guidance was published in November 2021. ACAS has also published guidance for employees.
The Government are now going even further to address the use of dismissal and re-engagement by introducing the code, with the aim of ensuring that the practice is only ever used as a last resort and that employees are properly consulted and treated fairly. The code seeks to ensure that where an employer wants to make changes to an employee’s terms and conditions, the employer engages in meaningful consultation with a view to reaching agreement with employees or their representatives in good faith. The code will apply to all employers, regardless of their size, and we expect all employers in relevant scenarios to adhere to what it sets out. Employment tribunals will have the power to apply an uplift of up to 25% of an employee’s compensation if an employer unreasonably fails to comply.
In accordance with the Trade Union and Labour Relations (Consolidation) Act 1992, the Secretary of State consulted with ACAS on a draft statutory code before publishing it. Between January and April 2023, the Government publicly consulted on a draft code, enabling trade unions, employers and other interested parties to contribute their views. Careful consideration was given to those views, and changes were made to the draft code as a result. The Government are grateful to all respondents to the consultation for their considered and helpful responses. An updated draft code was laid in Parliament on 19 February. The Government response to the consultation was also published on 19 February.
There are calls to ban the practice of dismissal and re-engagement, and suggestions that we should legislate to restrict its use in a manner that would amount to an effective ban. The Government believe, however, that we must preserve companies’ flexibility to manage their workforce in times of crisis. The UK’s flexible labour market is key to economic growth and helping businesses to thrive. Therefore, it is right that we have mechanisms to enable us to save as many jobs as possible.
The code is a proportionate response to dealing with controversial fire and rehire practices, balancing protections for employees with business flexibility. The vast majority of employers want to do the right thing by their employees. For most employers, decisions to change terms and conditions are not taken lightly, and nor is the choice to let members of their workforce go.
The UK is a great place to start and grow a business and has a strong labour market. Its success is underpinned by balancing labour market flexibility and worker protections. It is vital that we continue to strike the right balance while clamping down on poor practice. If the code is approved by the House, it will be issued and brought into effect by the Secretary of State in accordance with the procedure set out in section 204 of the 1992 Act. The Government’s intention is for the code to be in effect by summer. I hope that Members will support it.
Justin Madders (Ellesmere Port and Neston) (Lab)
It is a pleasure to see you in the Chair this afternoon, Sir Graham.
I thank the Minister for his introduction of the code of practice. It has taken more than two years, but we are finally here debating the action promised by the Government on dismissal and re-engagement. When the Government committed to introducing this code, there was a moment of consensus across the political spectrum that the situation we saw with P&O Ferries, which summarily sacked almost 800 workers over Zoom, could not happen again. The Business Secretary at the time, the right hon. Member for Welwyn Hatfield (Grant Shapps), said that
“we will not allow this to happen again…where new laws are needed, we will create them…where legal loopholes are cynically exploited, we will close them, and...where employment rights are too weak, we will strengthen them.”—[Official Report, 30 March 2022; Vol. 711, c. 840.]
Well, I am sorry to say that those legal loopholes remain as open today as they did two years ago, and there is absolutely nothing to stop the outrage of P&O happening again. Why do I say that? It is there in black and white in paragraph 12.3 of the explanatory memorandum to the code of practice, which says that
“the Code does not impose any new legal obligations and operates within the current legal framework”.
That, in the final analysis, is why this code of practice is such a let-down—another promise broken, another capitulation to the bad bosses and another reason why it is time for change.
It has taken two years to get to this point. In those two years, P&O has still been benefiting from Government contracts, and all the while, fire and rehire continues to pollute the country’s industrial relations landscape. While the P&O Ferries case was not wholly a fire and rehire situation, I will return to it later, because it bore many hallmarks of the practice and exposed the gaps in our laws designed to protect workers, where employers with deep enough pockets could use fire and rehire to disregard our laws.
In the wake of the pandemic, there has been a jump in the number of employers using fire and rehire. Research by the Chartered Institute of Personnel and Development found that between 2021 and 2023, the proportion of firms using fire and rehire had almost doubled. Many well-regarded household names attempted to do so, including Tesco, Clarks and British Airways. What was once a seldom-used device has become a mainstream practice and part of a wider pattern of growing insecurity at work. In short, it has become a first choice rather than a last resort.
Kevin Hollinrake
The hon. Gentleman raises P&O, which I must point out is specifically not a case of fire and rehire. What is the Labour party proposing to stop another P&O situation happening in future?
Justin Madders
I thank the Minister for his intervention, but we have been down this road before where he keeps asking what Labour’s policies are. My answer is, “Call a general election and we’ll have a debate about these things.”
Justin Madders
The Minister knows perfectly well where our policies can be found. The new deal for working people has been well advertised and well covered in the press. As he knows, there is a lot of support for our proposals to end fire and rehire.
As a TUC investigation recently found out, around 38,000 employers were using fire and rehire as a tactic. In that context, we need to scrutinise the draft code of practice and consider whether it will end the commonplace use of those tactics. I am afraid that, despite having had two years to get this right, we are no closer to ending the scourge of fire and rehire. The code of practice is vague, it is weak and in its final analysis, it will not prevent another case as egregious as P&O. On that basis, the Government have failed to keep the promise they made two years ago.
Let us take the element that many people found most offensive about P&O: the fact that at the outset, its management were able to look at the sanctions that they were potentially liable for and decide whether they wanted to break the law. The cost of breaking the law was considered as just another business overhead to be factored in when making decisions and, as we saw, P&O decided that the sanctions were not a strong enough deterrent to prevent rule breaking.
It is welcome that the code of practice gives an indication to unscrupulous employers that they cannot get away scot-free with breaking the law. However, we have concerns that the 25% uplift on awards at tribunals for employers who have been found to have unreasonably failed to comply with the code will not be strong enough to deter bad employers.
First, we have concerns about the inclusion of an award cap in the code of practice. As I have mentioned, it was particularly concerning that P&O was able to look at the options and perform a cost-benefit analysis of whether to conform with the law. It knew the maximum penalty it would face in compensation for each employee, which it then priced into its decision. In effect, it was able to treat the law on compensation—a law that is in place to protect workers’ jobs and their dignity—as optional. What the code of practice means, in effect, is that breaking the law remains an option, though it is now slightly more expensive than it used to be.
Laws are only as strong as their enforcement, so we believe that sanctions should reflect the egregiousness of the transgression. If an employer decides to break the law, their sanction should not be capped but should instead be decided on the basis of the facts. That way, any employer tempted to brazenly flout their legal requirements would no longer be able to calculate the costs of doing so, because in the most serious cases that cost would not be knowable and they would have to take their chances in court. Smaller transgressions would be treated by a tribunal. As it stands, the most egregious cases still have a ceiling, which means that those who act with ill intent can still price in the cost of acting unlawfully.
The code of practice therefore retains the status quo, whereby an employer can look at the maximum fixed penalty associated with breaking the law and, in effect, choose whether they will abide by it. It is workers who suffer the consequences. Some bad employers might see consultation requirements as burdensome, but there is a reason why the law requires consultation.
The consultation process is a vital opportunity for the voices of workers and their representatives to be heard, and for alternative proposals to be put forward to save jobs and protect conditions. When consultation works best and is meaningful, it can benefit employers and employees. There are, thankfully, many good employers who understand that and work collaboratively with trade unions. We commend those employers, and we know that they already go above and beyond their legal requirements. However, this code of practice needs to be set in a robust framework for bad employers, who sadly are out there. Frankly, there is no evidence that the 25% uplift will act as a deterrent.
I would like to hear what the Minister has to say about that, because I do not know how he can confidently assert that a 25% uplift will actually prove to be a deterrent. In response to my written question about the use of compensatory uplifts by employment tribunals, he said:
“Data on the use of compensatory uplifts by Employment Tribunals is not collected.”
That means that the Government do not know how much the compensatory uplift is used in other areas of employment law where there is a similar code of practice. That gives rise to the question: on what basis has it been decided that this measure is effective in preventing employers from failing to follow the code of practice? Does the Minister have evidence of its effectiveness that he can share with us today?
It is also worth reminding Members that this deterrent will not come into force straightaway. As the Minister indicated, secondary legislation is required to amend section 207A of the Trade Union and Labour Relations (Consolidation) Act 1992. He said that that will be introduced this summer. Will he confirm whether that means before the recess or at a later date over the summer? It would be useful to get a date for the introduction of that secondary legislation.
It must also be pointed out that under the current drafting of the code, the sanctions can be awarded only if an employee has been found to have been unfairly dismissed. We know how easy it is for an employer to dismiss a worker in the modern economy. Of course, generally speaking, those with less than two years of continuous service cannot be considered to be unfairly dismissed. Some may sign settlement agreements that offer them their statutory entitlement, but a hard-nosed employer may say, “Well, if you want to argue for an extra 25%, take your chances at a tribunal,” where the cost to the employee might be more than the potential sum to be gained.
On top of that, the code of practice protects only “employees”, meaning that some of the most insecure workers in the labour market will not benefit one jot. To add icing to the cake, or salt to the wound, the Government intend to reintroduce employment tribunal fees, which we know from experience have a significant impact on people’s ability to enforce their rights. Will the Minister provide an assessment of how many people will benefit from this code of practice, and how many employers he believes will not use fire and rehire as a result of it?
Paragraph 14 of the code refers to a 25% reduction in compensation where the employee—not the employer —unreasonably fails to comply. Is it the Government’s intention to give tribunals the power to reduce employees’ compensation in fire and rehire cases, and if so, what element of the P&O case led the Minister to conclude that that was necessary? As the TUC pointed out, the uplift does not cover redundancy situations. As we know, P&O was in part a redundancy situation, where surely the same sanctions should apply. Will the code apply where workers are replaced with agency staff?
Turning to the substance of the guidance, I have made the general point that, as is clear from the explanatory memorandum, the code creates no new legal obligations. That is sadly reflected in the number of times that the code says that an employer “should” rather than “must” do something. I will not list every example—I appreciate that people have other places to be—but there are some important instances where “should” comes in, such as paragraph 16, which says that the employer “should” consult in good faith. Paragraph 23 says that
“the employer should consider what information could be provided about…the proposed changes”.
Paragraph 28 says that the employer
“should genuinely consider the points that are put forward”,
and paragraph 31 says that
“a threat of dismissal should not be used as a negotiating tactic”.
On the last of those, why not say that the threat of fire and rehire “must” not be used as a negotiating tactic? I am pretty clear that that is what Ministers had in mind when they made those promises two years ago. Why is it a requirement only that an employer “should” consult in good faith? Surely we want every employer to consult in good faith; there should be a legal requirement for them to do so.
Justin Madders
Employers should do, yes—and that should be enforced in law.
There is a similar issue with the guidance offered in the code on the provision of information and how to conduct consultation with workers. Instead of clearly and unambiguously stating what information employers ought to provide, the code relies on the phrase “as reasonably possible” on numerous occasions. Instead of providing concrete guidance on the timeline of providing information, paragraph 21, for example, simply states:
“Information should be provided as early as reasonably possible.”
Similarly, paragraph 22 states that
“employers should share as much information regarding the proposals as reasonably possible”
in order for employees and their representatives to understand the plans and ask questions. Section D on consultation states that an employer should
“genuinely consider any reasonable alternative proposals”
and should
“consult for as long as reasonably possible in good faith, with a view to reaching an agreed outcome”.
Those statements are not really anything other than restatements of the existing legal principles on consultation, and the repeated references to “should” rather than “must” mean that in reality, the code does not strengthen protection for workers at all.
Insomuch as there is concrete guidance about the provision of information, I suggest that it is insufficient. Paragraph 23 lists the information that could be provided, such as the proposed changes, who will be affected, the business reasons for the changes, the timeframe, any other options considered, and next steps, but those are not the only pieces of information that unions or other representatives will require to propose truly viable alternatives to fire and rehire. It is unclear why the Government have chosen not to be more prescriptive with the types of documentation that could be provided. The TUC recommended that the list be expanded to include information similar to that set out in paragraph 11 of the ACAS code of practice on the disclosure of information to trade unions for collective bargaining purposes. That would mean that unions and other representatives could get sight of more information about a number of elements relating to staff, including productivity and efficiency data.
Perhaps most importantly, financial information would also be available—cost structures, profits, assets, liabilities and forecasts—which would help to formulate a credible alternative plan. In particular, financial information would help those representing the workforce to determine whether the financial position of the company was such that some sort of action was justified, as opposed to the situation that we often see in fire and rehire, where the company is making a healthy profit on the face of it but refers to vague and sometimes intangible reasons for the proposed changes. It may even refer to something as vague as
“the strategic direction of the business”,
which is mentioned in the first paragraph of the code of practice.
Choosing not to include that level of prescription in the code will limit the ability of unions and other representatives to suggest ways to avoid fire and rehire. Indeed, what we are presented with in the code of practice is perhaps the exact opposite of what ought to be best practice.
In particular, paragraph 27 of the code gives employers the opportunity to withhold information should they believe it to be commercially sensitive. The employer alone decides what to disclose, so they can hide behind that catch-all paragraph to keep whatever they want private. Yet the sharing of confidential and commercially sensitive information is commonplace in good industrial relations, and it can be the basis of a shared conversation to find a solution, particularly in cases of fire and rehire, when access to documents such as financial forecasts is critical to unions being able to assess the firm’s position and suggest viable alternatives. Instead of encouraging employers to withhold such information, as the code of practice does, it should suggest ways to facilitate the sharing of sensitive information. The code could easily have talked about circumstances in which it would be appropriate to disclose such information to the appropriate reps, perhaps on the condition of confidentiality, but it chooses not to.
Another glaring omission is the lack of clear and concrete guidance as to how to conduct an effective consultation process. There are comments that remind employers to conduct a meaningful negotiation and process, but no guidance on how to actually go about it. In its consultation response last year, the TUC suggested that the relevant section should include practical guidance about how to go about conducting an effective process. It recommended that there should be guidance on the exchange of written information, including responses to demonstrate that employers have actively considered alternative proposals. Those are the standards that we want to see in a good and effective consultation process. Of course, most employers want to do their best, so why shy away from providing that level of detail?
Instead of paying lip service to the idea of conducting a meaningful consultation, more practical guidance could drive up standards and ultimately improve the outcome of the consultation process. That is far beyond what is included in the code of practice. In fact, paragraph 25 states that the provision of information in writing is not even an obligation, but just “good practice”. Are the Government really saying that the information in consultation exercises does not have to be provided in writing? That sums up the failings evident in the section of the code of practice that deals with information and consultation. It is vague, it is weak and it does not encourage employers to make the most of the opportunities to avoid imposing changes on their workforce.
I want to say a few words about the advice in the code of practice that fire and rehire should be used only as a last resort. The code of practice is clear that it does not mean a last resort in the sense that there is no alternative to the action other than insolvency or redundancies, for example; rather, the suggestion is that it can be used as a last resort if negotiations are not successful. In practice, that means that employers can, as they do now, use the most spurious of reasons for proposing fire and rehire, but as long as they can show that they have attempted some consultation, they can still do it.
That brings me to the question of what an employer will be expected to produce to show that it considers its decision to fire and rehire as a last-resort measure when consulting unions and, indeed, when the matter is taken to a tribunal. Will that include anything to do with the disclosure of financial records, business forecasts or accountancy advice? In the absence of such information, how will unions be able to differentiate between employers considering dismissal and re-engagement as a genuine last resort and those that use it as a scare tactic? These fundamental points should have been addressed in the code of practice.
The original code of practice contained a whole paragraph that stated that, before making the decision to dismiss workers,
“the employer should take some time to reassess its analysis and consider carefully again”.
It listed conditions such as whether it was “truly necessary” to impose the new terms, whether any
“alternative options…could achieve those same objectives”,
and whether the changes would impact those with protected characteristics. In other words, it set out a much more thorough process than we have ended up with in the final version of the code of practice.
The removal of those requirements can be seen only as a capitulation to the interests of bad employers who disliked the idea of having to re-examine their business case to make sure that the imposition of changes was absolutely necessary. The consultation response notes:
“Some respondents indicated that re-examination would be overly burdensome for employers, suggesting a lighter-touch approach with employers reviewing only specific proposals, rather than their entire business strategy.”
I do not think that language sends out the message that fire and rehire is a last resort. It would be helpful if the Minister took the opportunity to explain why the decision was taken to water down the requirements in the original draft code of practice.
It seems clear to me that the changes reflect more of an intent to reduce concerns about the code being burdensome on business than an intent to protect workers from having new terms and conditions imposed on them. I suggest that those are not the actions of a Government intent on curbing the use of fire and rehire. We were clear that the original draft would fail to do so, but now that the draft has been further watered down it seems even more ill-equipped to deal with the scourge of fire and rehire.
Finally, the Minister will be aware that the P&O case led to a report and recommendations by the International Labour Organisation’s committee on freedom of association. That report came out at the end of last year. Can the Minister update us on what actions the Government have taken in response, and whether they intend to implement all the ILO’s recommendations?
What we have before us is a code of practice that fails to deal with the fundamental reason for its creation, which is to stop another case as egregious as that of P&O. It has taken two years to get to this point, yet we are no closer to the protections that workers in this country deserve. The code of practice represents a missed opportunity to right the very real wrongs that we have seen up and down this country for far too long.
Gavin Newlands (Paisley and Renfrewshire North) (SNP)
It is a pleasure to see you in the Chair, Sir Graham; I suspect that this Committee sitting is a lot more sedate than some others that you have chaired recently. It is also a pleasure to follow the Labour spokesperson, the hon. Member for Ellesmere Port and Neston, whose speech I agreed with in its entirety.
The Minister said that most employers want to do the right thing by their employees. I think most of us would probably agree, but too many employers do not. Sadly, that includes some of the UK’s biggest and best-known companies. The draft code is largely useless; it is a lamentable waste of parliamentary time, and I dread to think how many civil service hours were wasted on its drafting. Other than the possible—I stress “possible”—increase of up to 25% in any successful employment tribunal claim following an incident of fire and rehire, the 3,819 words in this document can be distilled to nine: “Please don’t fire and rehire…unless you have to.”
Further to the point that the Labour spokesperson made, paragraph 12 states:
“A failure to follow the Code does not, in itself, make a person or organisation liable to proceedings.”
All it does is potentially beef up the amount awarded to an employee when a tribunal finds that their employer acted outwith the law. That is no comfort whatever to someone who has just been brutally sacked, paid off and forced to claim the pittance of jobseeker’s allowance that the Government like to pretend is enough to live on.
According to the latest figures, it takes nearly a year from the employment tribunal receiving a claim to the first hearing. The 25% premium that breaching the code of practice might add to an award will be welcomed by a successful claimant, of course, but they will have had to wait longer than a year to get it. They will have been forced into alternative employment in the meantime, if they are lucky. It is toothless and a missed opportunity, to say the very least.
As the hon. Member for Ellesmere Port and Neston noted, paragraph 15 states:
“Where this Code states that a party ‘must’ or must not do something, this indicates that that party is subject to a legal requirement. Where this Code states that a party ‘should’ or should not do something, this indicates a recommendation”.
Other than in paragraph 15 itself, the word “must” is used 10 times in the code, of which nine uses reflect existing legal obligations; the only use of the word “must” in relation to the code itself is in the provision stating that tribunals must take the code into account in relevant proceedings. On the other hand, “should” is used another 38 times.
The truth is that the code is little more than a wish list—a tick-box exercise so that it can be said that something has been done about fire and rehire. Moreover, as has been alluded to, a code of practice will have little effect on the likes of P&O Ferries. It, and future employers, will simply factor in the 25% increase in employment tribunal awards into the costs of doing business.
I was at the joint meeting of the Select Committees on Transport and on Business, Energy and Industrial Strategy when we had the chief executive of P&O Ferries, Peter Hebblethwaite, in front of us. Many will remember his contemptible attitude to the law as it stood: he happily admitted that his company willingly and knowingly broke the law when it sacked 800 workers with no notice and no consultation. At the same time that P&O Ferries was evicting staff from ships and shoving their belongings into binbags on the quayside, its parent company DP World was forking over tens of millions to sponsor golf tournaments and was shoving $378 million into the pockets of shareholders, so the Minister will forgive me for being sceptical about the idea that a slightly beefed-up code of practice will make the next Peter Hebblethwaite think twice before dumping hundreds more workers in the skip to save the company a few bob.
When British Airways’ parent company, International Airlines Group, pulled the trigger on a fire and rehire action aimed at tens of thousands of staff in 2020, it could only do so in the UK. In Ireland and Spain, it was precluded from taking similar action because those countries have employee protections that stop employers treating their staff like chattels.
I welcome any action or progress that improves the lot of workers, particularly given the removal of so many of their bargaining rights over the past four and a half decades and the attempted defenestration of trades unions in this country—policies that have undoubtedly contributed to the UK falling further and further behind our European neighbours economically and socially—but the Government’s draft proposals are basically a sop to those of us across the House who have highlighted the egregious practices of fire and rehire and pushed for real action. This is not real action; it is a press release that will do nothing to stop the perpetrators carrying on as before.
Many of the provisions of the Trade Union and Labour Relations (Consolidation) Act 1992 that this draft code hangs on to provide for criminal offences where the Act is breached. Perhaps it is time to bring the actions of the likes of P&O Ferries and the issue detailed in the draft code under those kinds of auspices. After all, it seems only fair that employers should be subject to the same potential consequences as employees. Mr Hebblethwaite’s attitude a couple of years back may have been somewhat less arrogant and cocky if he knew that his actions would result in him facing some time at His Majesty’s pleasure in Belmarsh.
Kevin Hollinrake
I am aware that the hon. Gentleman has a private Member’s Bill that would ban fire and rehire—that is the position that he has adopted, and I respect it—but with P&O it was not fire and rehire; it was simply fire. What further measures is he suggesting that the Scottish Government or UK Government put in place to stop that happening in the future? P&O already broke the law. Is he proposing criminal sanctions connected to employment law?
Gavin Newlands
Of course I would suggest criminal sanctions to end such practices. The Minister is right to say that P&O did not use fire and rehire in the strictest sense, but there were elements relating to fire and rehire. In a sense, it was fire and replace. Those staff members were replaced by cheaper foreign workers. That is the truth: the jobs were not redundant. If I were to bring forward another law, I would ensure fire and replace were also made illegal in circumstances such as those at P&O. As it happens, fire and replace is not new; it was actually proposed back in 2002 by one Tony Blair during the firefighters’ pay dispute.
We have a real problem around employment rights in the UK. The balance has been tipped over the last four and a half decades far too far towards employers and away from ordinary women and men who need the protection of the law against what is thankfully the minority of unscrupulous employers. Forty-five years of continual assault on workers’ rights has left millions essentially at the mercy of bad bosses, or subject to the gig economy and classed as “contractors” by multinational corporations desperate to avoid taking any responsibility for them and their or anyone else’s welfare.
Those lost decades need to be reversed. Sooner or later, the UK parties have to realise that workers’ rights are a fundamental part of building a stronger economy. It is no coincidence that virtually every country in Europe has stronger workers’ rights and better protections for their workers, and also enjoys higher living standards and a more robust, more diverse economy and social infrastructure.
Unfortunately, I do not hold out much hope for an improvement after the next general election. I know that there are many, many good people in the Labour party—including in this room—but the Leader of the Opposition has shown little interest in workers’ rights. I am still waiting for a response to my letter asking for his support of my Bill to ban fire and rehire, and the slew of shadow Ministers proclaiming their admiration for Margaret Thatcher do not inspire much confidence that they will roll back her and her descendants’ attacks on workers’ rights.
Gavin Newlands
Of course. I thought the hon. Gentleman might want to intervene.
The Chair
Order. Before the hon. Gentleman takes the intervention, let me say that we are here to debate the draft code, rather than what may or may not happen after the general election or what happened 45 years ago.
Justin Madders
I understand what you say, Sir Graham, but I cannot let those comments go without a response. I just want to point out to the hon. Gentleman that the leader of the Labour party has promised that legislation on employment law will be introduced within 100 days of a Labour Government taking power. If his party is so keen on employment law, why did less than half of his colleagues vote for the private Member’s Bill to devolve employment law to Scotland?
Gavin Newlands
I thank the shadow Minister for that intervention, which did not surprise me. Nor did your point, Sir Graham—God forbid a lot of the politics enters the fray. It is a bit rich for the Labour party to talk about devolving employment rights when, as members of the Smith Commission, it was the Labour party that vetoed the devolution of employment law to Scotland. It would be devolved to Scotland if it were not for the Labour party, so it is unbelievable that that would be cast up in this way.
I say this in all sincerity: I genuinely hope that I am wrong about the lack of enthusiasm from Labour and the Leader of the Opposition for radical change of the status quo if they come to power. But I do know that I am right about the lack of ambition shown by the current Government and this code. Support is far too strong a word, as perhaps the Committee can gather from my remarks, but we will not oppose the code on the basis that it is slightly better than nothing. It would be nice to come to one of these Committees one day and be pleasantly surprised by the Government’s ambition, rather than despairing over their lack of it.
I was going to conclude with questions for the Minister, but the shadow Minister, the hon. Member for Ellesmere Port and Neston, asked all my questions and more. For the benefit of Committee members I will not repeat them, but I look forward to the Minister’s response.
Kevin Hollinrake
I thank the hon. Members for Ellesmere Port and Neston and for Paisley and Renfrewshire North for their contributions. I will start with P&O because that has dominated most of the debate, despite the fact that it was not a case of fire and rehire. It was a disgraceful case and it broke the law. I am interested to understand what Members are proposing when we already have a law against this. The SNP spokesperson, the hon. Member for Paisley and Renfrewshire North, said that he would criminalise employment law. His proposal to criminalise some of this stuff might send a shiver up the spine of many employers in this country.
P&O Ferries broke the law, dismissing its workers without warning, which is completely inappropriate, and brought in agency staff to replace them. We have taken action in response, including legislating through the Seafarers Wages Act 2023, and there is an ongoing live investigation by the Insolvency Service into P&O’s conduct.
Gavin Newlands
The Minister talks about criminalising employment law or being aghast at the potential for criminalising employment law. I think there are certainly aspects that perhaps should be. How would he describe a business leader who knowingly and willingly broke the law to sack 800 workers and said he would do so again? Does the Minister not think that that person should face a criminal sanction?
Kevin Hollinrake
What that business leader did was disgraceful. We impose criminal sanctions on employers very cautiously because we want people to invest in our economy. That is hugely important. We make changes in employment law at our peril. It needs to be balanced between the needs of employers and employees.
Kevin Hollinrake
Perhaps the shadow Minister will answer this question as part of his intervention. In The Telegraph, Archie Norman, one of the foremost business people in this country, who has done tremendous work in making sure that people have good employment opportunities, described Labour’s potential package in the area of employment law and the changes the party intends to make. He said that the changes would reduce flexibility, make it more costly to hire people, deter people from entering the workplace and deter investment. Perhaps the shadow Minister will address Archie Norman’s criticisms when he intervenes.
Justin Madders
I could, but I fear that Sir Graham might say I am out of order. It comes as no surprise that a former Conservative MP would want to prevent the extension and strengthening of workers’ rights. The Minister said that there is no room for criminal law, but is it not the case that his Government referred the matter of P&O Ferries to the Insolvency Service for potential criminal proceedings?
Kevin Hollinrake
Yes, corporate criminal proceedings, not individual criminal proceedings. I think that what the hon. Member for Paisley and Renfrewshire North refers to is individual criminal sanctions, which would be disproportionate. If the hon. Member for Ellesmere Port and Neston thinks that a Conservative politician is only on the side of the employer, I do not think he has met Archie Norman. Perhaps he might benefit from a meeting with him. He is a very considerate employer who understands the need to treat employees right as well as make sure the framework is right for business in this country.
The hon. Member for Ellesmere Port and Neston asked why the 25% uplift would prove a sufficient deterrent. Clearly, it is a deterrent, because it is more than an employer would have to pay if they go through the simple process of consulting their workforce. I might describe it as bleeding obvious. The actual impact remains to be seen, but we certainly think it is a significant deterrent. The hon. Gentleman asked whether it will be implemented before, within or after the summer recess; we are intending to do so before the summer recess.
The hon. Member for Ellesmere Port and Neston also asked about these provisions applying only to employees with two years’ service. He is right to say that generally, unfair dismissal rights are around only after the first two years, unless there is something like discrimination, for example. I know the Opposition are seeking to change this in their proposals, which we think is disproportionate and wrong. In a collective situation, however, there are circumstances where people who have been in the workplace for less than two years are covered.
On the point about “should” and “must”, we are dealing here with provisions that will be heard before a court. A court can make the judgment, of course, on whether somebody has done the right thing. I think “should” is the right kind of phrase to use in that situation, because a judgment is made and the tribunal can award up to 25% on top of the normal financial requirements if an employer unreasonably fails to comply with the code. That joins the circle, in terms of making sure that this code is effective when people go before a tribunal.
The hon. Gentleman asked about the ILO. We are carefully considering the committee on freedom of association’s recommendations, and will provide information to the ILO in due course.
The hon. Gentleman also asked about some of the changes and said that they have been watered down, but that is not the case at all. We did make changes following consultation, and did some reordering to make it more straightforward, which was based on feedback we received. We also made changes suggested by trade unions, including saying that employers have to speak to ACAS before raising fire and rehire, and adding the award to claims that can attract 25% uplift for non-compliance.
Justin Madders
In the Government response to the consultation, there are some lovely pie charts showing the responses.
Justin Madders
I am glad the Minister has been looking at the artwork. A large proportion of responses —sometimes as high as 40%—to the question, “Do you agree?” are categorised as “unspecified”. Is the Minister able to explain what that covers?
Kevin Hollinrake
Not off the top of my head, but I am happy to confirm it via separate means.
The hon. Gentleman also said that the code should be more detailed in specifying exactly how a consultation might take place. We think that would be the wrong approach, and that the employer is the right person to determine that, in terms of how he or she consults members of their team. We did not want to get a very lengthy code that would naturally result in being too specific about exactly how that consultation should take place. I think I have covered all the points raised by the hon. Gentleman; he can intervene on me if I have missed anything.
Justin Madders
I have just one small point. The code of practice referred to compensation being reduced by 25% for employees not compliant with the code. Is the Minister able to confirm whether it is the intention for that to apply in this case?
Kevin Hollinrake
I do not quite understand the hon. Gentleman’s question. Perhaps we can have a discussion about that afterwards.
To conclude, we are taking robust and appropriate action in this area. We believe that a statutory code of practice is a proportionate response to dealing with controversial fire and rehire practices. The code will address the practice of fire and rehire, aiming to ensure it is only ever used as a last resort, and that employees are properly consulted and treated fairly. It clarifies and gives legal force to accepted standards about how employers should behave when seeking to change employees’ terms and conditions. Employment tribunals will have the power to apply an uplift of up to 25% of an employee’s compensation if an employer unreasonably fails to comply with the code where it applies. Subject to approval by this House, the code will be in force later this summer, prior to recess, and I hope Members will support it.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Code of Practice on Dismissal and Re-Engagement.
Draft Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024
(7 months, 1 week ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024.
The regulations form part of the Government’s programme to deliver a smarter regulatory framework for financial services, using an approach to regulation that is tailored to the needs of the United Kingdom. Under this programme, the Government are delivering a regulatory framework that is logical, consistent and conducive to economic growth—rather like the Government as a whole—while preserving the robust regulatory standards that are the cornerstone of the attractiveness of UK markets.
The ability of a regulator to flex the application of its rules for individual firms is a useful regulatory tool that can enable a regulator to take into account a firm’s specific circumstances to ensure that rules are applied in ways that achieve the best regulatory outcome. That flexibility is not new; it has long been a feature of the UK’s regulatory regime and is supported by our regulators and the financial services industry as a whole.
Since it was introduced over 20 years ago, the Financial Services and Markets Act 2000, known as FSMA, has included such a tool. However, as part of our work to adapt our regulatory regime for the UK’s new position outside the European Union, the existing tool for flexing the application of rules was reviewed, and it was concluded that, while useful, it was not as effective as it could be.
The existing tool is provided by section 138A of FSMA, which provides that the Prudential Regulation Authority and the Financial Conduct Authority can disapply or modify a rule made under FSMA if a firm has requested it or if the regulator has the consent of the firm. However, section 138A contains a test that must be met before a regulator can do that. The regulator must be satisfied that the rules in question
“would be unduly burdensome or would not achieve the purpose for which the rules were made”.
That requirement in section 138A does not always allow for rules to be flexed, even where appropriate disapplication or modification of such rules would provide a better regulatory outcome.
The Government addressed that issue by introducing a new tool for regulators to flex their rules in a wider range of circumstances, which was legislated for through the Financial Services and Markets Act 2023 and is now set out in section 138BA of FSMA. Under section 138BA, the Treasury may specify regulatory rules that the relevant regulator can then permit a firm to disapply or indeed modify in some way. Section 138BA retains the approach by which a regulator can permit a firm to disapply or modify rules only if the firm requests it or the firm consents.
Adam Afriyie (Windsor) (Con)
On a point of clarity, I chair the all-party parliamentary group on financial technology, and I am conscious that many firms have been very firmly nudged to request the removal of licences, particularly around payments and onboarding of new customers. Just to be clear, are these regulations needed retrospectively to cover a lot of those voluntary submissions of licences, or is this purely a tidying-up exercise for the future?
Bim Afolami
I thank my hon. Friend for that point, and I will respond to him in two ways. First, this is typically about looking prospectively forward, so it is not envisaged that this power will be used retrospectively. However, I will write to him if the position is in any way more nuanced than I have just described. Secondly—I was going to come to this point later in my speech, but I may as well answer it now—it is very important that firms have appropriate dispute resolution mechanisms. Those are set out to make sure that no firm, under any circumstances, will be forced—or nudged—to do anything that it does not think is in its interest.
The regulations do two key things. First, they enable the PRA to permit a firm to disapply or modify any PRA rule. After careful consideration, the Government have concluded that the PRA should have the ability to permit a firm to disapply or modify any rule under section 138BA. That is because flexibility in the application of these rules is particularly important for banks, large investment firms and insurers that are regulated by the PRA. These complex institutions, with highly specialised business models, often require a highly tailored approach to ensure that they are appropriately regulated.
Secondly, the regulations apply certain procedural safeguards to PRA decisions under section 138BA, and this may address my hon. Friend’s point to some extent. When the PRA refuses a firm’s application or imposes conditions on a firm’s permission to disapply or modify rules, the PRA must issue a notice explaining its decision. When a permission to disapply or modify rules is given, the decision notice that the PRA publishes must be clear so that it is public knowledge that a particular firm is subject to tailored regulatory requirements. If an affected firm is aggrieved or somehow disagrees with a PRA decision, the firm may appeal by referring the decision to the upper tribunal, which is part of His Majesty’s Courts and Tribunals Service responsible for hearing appeals against decisions made by various public sector bodies, including the PRA.
In closing, these regulations make use of an important regulatory tool approved by Parliament in FSMA 2023. They provide the PRA with the flexibility needed to ensure that the application of prudential rules to banks, investment firms and insurers can be flexed only where appropriate to ensure that regulation of these large and complex firms is effective. They also ensure that the PRA is appropriately accountable and transparent. I hope the Committee will join me in supporting the regulations, and I commend them to the House.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve with you in the Chair, Mrs Cummins. The Opposition are supportive of the proposed changes, which would enact section 138BA to enable the PRA to more easily adapt, disapply or modify its rules for individual firms.
The greater flexibility the Minister outlined is welcome, but could a similar approach be used to clear the logjam of mid-tier banks wanting to use the internal ratings-based approach? The PRA has helpfully provided some flexibility in relation to IRB model approvals, which could narrow the capital requirements gap between mid-tier and large banks, therefore improving competition in UK banking markets. However, as the Minister may have seen in the Financial Times last August, UK challenger banks have faced multi-year delays to regulatory approvals, which has undermined the potential boost to competition in the market. Has the Treasury given any thought to whether section 138BA could be used to speed up the IRB model approval process for mid-tier banks currently on the standardised approach? I believe—and the Minister may agree—that that could dramatically improve competition in the banking market.
Bim Afolami
I thank the hon. Lady for her points. In essence, the regulations give the PRA much more flexibility around the entire rulebook to apply to any specific firm. If the question is whether they will give the PRA the ability to change rules in relation to a particular subset of firms, the answer, of course, is yes. However, if the question—she also mentioned this in her remarks—is whether they will somehow speed up or change the pace at which the rules will be made or applied, that is not what they are meant for. So, yes, the regulations will give much more flexibility—and it is a policy question as to whether that is desirable in any particular circumstance—but they do not necessarily increase or decrease the speed at which such rules change.
Tulip Siddiq
I thank the Minister for that answer, and I understand what he is trying to say, but I would like to push this point. If we could speed up the IRB model approvals process for mid-tier banks currently on the standardised approach, that would help our country and the banking market generally, and both sides of the House obviously want to boost competition. I understand that that is not what this particular legislation will do, but have the Minister or the Treasury given any thought to the issue? In the long run, such a change would benefit the financial services sector.
Bim Afolami
In terms of where I agree with the hon. Lady, I did not just read about this in the Financial Times last year; I have met mid-tier banks, and I understand their challenges. Their concerns are valid, and we need to do everything we can to support that part of the sector. The regulations allow the banks to apply to the FCA in the way that the hon. Lady outlines. That is something that, if appropriate, I would be very happy to support. Yes, it is important that we have competition, but it is also important that we enable every type of business and every type of individual to be appropriately served by our financial services industry, and more firms offering more services in a way that is prudentially safe is positive to that.
Question put and agreed to.