Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment) Order 2013

Lord Lea of Crondall Excerpts

Tuesday 12th March 2013 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)]

My Lords, this order amends the rules on collective redundancies. It makes three changes. First, it reduces the current 90-day minimum period for 100 or more redundancies to 45 days. Secondly, it makes an equivalent change to the requirement to notify the Secretary of State in advance of the first dismissal taking effect. This period will also be reduced from 90 to 45 days. Thirdly, the order removes fixed-term contracts that have reached their agreed termination point from the obligation to consult the individuals affected. These changes will be complemented by guidance on how to consult, which is being developed by ACAS.

I shall set out the changes in context by explaining the current rules. The rules are set out in the Trade Union and Labour Relations (Consolidation) Act 1992 and implement a European directive on collective redundancies. The directive aims to protect employees in large-scale redundancies but not to prevent employers from taking necessary steps to restructure. However, UK legislation builds on the provisions in the directive by introducing minimum periods before the first dismissals can take effect. Where the employer is proposing 20 or more redundancies at a single establishment within a period of 90 days or less, no redundancy can occur until at least 30 days after the start of consultation where between 20 and 99 redundancies are proposed, and no redundancy can occur until at least 90 days after the start of the consultation where 100 or more redundancies are proposed. This does not affect individual notice periods. These do not begin until redundancy notices have been issued, which cannot happen until consultation is genuinely complete.

The 90-day minimum period looks long by comparison with other countries. There is no minimum period in the US, Japan, Australia or New Zealand. In addition, the European directive governing collective redundancy law does not mandate a minimum period. As a consequence, the picture across Europe is varied. For example, there is no minimum period in France or Germany. It is 30 days in Spain, Belgium and Ireland, one month in the Netherlands, and 45 days in Italy and Poland.

Collective redundancy obligations have been in place for 40 years and there have been no changes to the 90-day minimum period in that time. However, I doubt that anyone who retired 40 years ago would recognise today’s working environment. Modern communications technology has made consultation easier and faster to carry out. People have easier access to details about employment opportunities, and CVs can be created and sent out in a matter of hours. Although it was once common for people to spend their career in a single firm, nowadays careers are made up of jobs in a variety of organisations.

In 2011, the Government carried out a call for evidence on the collective redundancy regime as part of a wider review of employment law. We then consulted from July to September 2012. The evidence from both exercises identified a number of issues. Employers were concerned that the rules delayed their ability to respond to challenges and opportunities. A business may need to restructure because it is involved in a merger or acquisition, or it may gain a new contract that requires a change of product or process. Of course, a business may also fail. Whatever the reason, the ability to adapt can create a stronger business from which it might expand in future, and that may include the creation of new jobs. Alternatively, restructuring might simply be about assuring survival and salvaging some jobs rather than losing them all.

For employees, a particular issue was the impact on morale and productivity caused by uncertainty about their future. This affected everyone, not just those being consulted. The evidence suggested that concerns about protecting the rights of those who are ultimately made redundant can crowd out the interests of those who are not.

Trade unions were opposed to any change because they believed that it would reduce job protection and make employers more likely to make employees redundant. However, they also wanted to see an improvement in the quality of consultation so that employees were genuinely engaged in the outcome.

As a result, we identified three objectives for reform: first, improving engagement and therefore the quality of consultation; secondly, ensuring that employers can restructure effectively to respond to changing conditions; and, thirdly, balancing the interests of the employees made redundant with those who remain.

On the minimum period and the treatment of fixed-term employees in the order, as I have said our consultation identified a number of problems with the current 90-day period. Employers considered that the 90 days prolonged consultation beyond the point at which it was constructive. Most told us that meaningful consultation usually lasts only 30 to 45 days. Genuinely viable alternatives to employer proposals were either hard to find or quickly identified.

A second major concern was the effect on staff. This was described by one leading trade association as leaving employees in a “state of paralysis” and,

“unmotivated on a day-to-day basis”.

In addition, the prolonged uncertainty hampered the retention of skilled staff. Investors, suppliers, customers and lenders were also affected.

We considered these responses carefully and decided that, 40 years after it was first introduced, it was appropriate to reduce the 90-day minimum to 45 days. This is a statutory minimum, which means that companies are entirely able to extend the period.

I remind the House why employers need to consult. Consultation improves communication and engagement. It ensures that employees feel included in what is happening. It allows them to get used to the idea of change. It allows employees to identify alternative options that the employer might have overlooked. It allows them to ask questions and consider their own personal options. For all these reasons, good employers take employee consultation seriously.

We are not changing the requirement that employers consult on ways of avoiding, reducing or mitigating proposed redundancies, nor are we changing the need to demonstrate that the consultation has been meaningful. The consultation might have to last longer than the minimum period if the employer is to do this, or the employer might decide that a longer period is necessary because it makes sense for them and their workforce. We have also retained the level of punitive penalty that can be made to employees who have not been consulted appropriately. This can be up to 90 days’ pay per affected employee.

The 45-day period, though, will introduce increased flexibility for the employer, who can carry out meaningful consultation quickly. It will also have benefits for the employee. Individuals who have found a new job quickly will be able to accept a job offer and leave with a redundancy payment. Employees who are part of the consultation but who end up being retained get reassurance sooner, and individuals who lose their job can begin to plan for and get help with their future.

On the change relating to fixed-term employees, our consultation identified confusion over whether the ending of a fixed-term contract at the agreed point of expiry triggered an obligation to consult. For example, if an employer had more than 20 fixed-term contracts coming to an end within a 90-day period, employers were not clear whether they needed to consult. This has proved particularly difficult for the higher education sector, where the cycles of academic funding mean the routine use of fixed-term appointments related to the academic year. Universities can end up carrying out multiple consultations about appointments where no one is any doubt that they are limited.

As a result, we have decided to take advantage of the provision in the directive that allows member states to exclude fixed-term contracts that have reached their agreed point of expiry. This would mean that in my earlier example there would be no obligation to consult. Where, however, the employer seeks to terminate the contract early and on grounds of redundancy, consultation is still required if the thresholds are met.

Finally, we have asked the Advisory, Conciliation and Arbitration Service—ACAS—to produce guidance, and ACAS is working with employers and employee representatives to develop its content. When it is complete, it will represent the agreed approach between employers and unions.

I anticipate that noble Lords might want to be apprised of the guidance document. With this in mind, I have already prepared a letter to send out to all your Lordships. This guidance is an important part of the overall package of change. Consultation showed us that statutory solutions were neither desirable nor achievable for all the difficulties arising with the collective redundancy rules. The guidance emphasises the importance of looking after employees. What employers do and how they treat employees in difficult circumstances is crucial to the future success of their businesses. Good practice suggests: first, maintaining a constructive ongoing relationship with employee representatives; secondly, having a plan for restructuring; and, finally, having recognised procedures for handling redundancies.

In the last 40 years we have seen a revolution in the working environment, and as a result our labour market has changed significantly. Modern communications mean that things happen faster and more easily. Individuals move more regularly from one job to another and, to remain competitive in global markets, businesses must respond effectively to commercial pressures.

The changes this order will make—

[Lord Lea of Crondall]

My Lords, I think the Minister said that this is his final point and that he is about to sit down. Is he really going to sit down before telling us what is clearly in the impact assessment: that policy option 2—the 45 days—means a reduction in output, and costs for employers, through making employees redundant more quickly, of £230 million per annum? For employees, there is,

“the reduction in the amount of time paid by their current employer, and therefore in the pay received. We expect this reduction in pay to total £252m per annum across all affected employees”.

Are the Government trying to get this measure through while hiding that information, or does the Minister think that I have somehow misunderstood that information? Does he not think that that loss of pay of £252 million is mere chicken feed?

[Viscount Younger of Leckie]

I thank the noble Lord for his intervention. I was just about to finish my opening speech, and there would have been the opportunity for replies. I am, however, very happy indeed to address that concern. The figure that we have is actually higher. It is £300 million, which is the saving that would be made in the reduction to 45 days. Let me try to address and explain where we get that figure from. It is based upon the number of people being made redundant as a result of collective redundancies involving 100 or more people. It is based on UK-specific European Restructuring Monitor data, and 96,000 people were involved. I will not go into the specific details. I am delighted to furnish the noble Lord with the specifics, but if we take the median weekly pay and multiply it up it comes, if I can reassure him, to £300 million. It is purely based upon the amount that is not paid out to employees because of the reduction to 45 days.

The changes—

[Lord Lea of Crondall]

The clarification is not complete. The Minister is using the figure of £290 million or £300 million. That is classed as a benefit, if you wish. I gave the figures under the section of costs. Under benefits, the benefit to employers is the,

“reduction in wage costs by allowing large scale redundancies to take place more quickly. We currently estimate this to be in the region of £290m per annum”.

I repeat my question: if this is a benefit and the only benefit to employees is a reduction in periods of uncertainty and a possible reduction in stress, is that not rather like saying that if you are on death row for capital punishment it is more motivating to make it quick?

[Viscount Younger of Leckie]

I would not take that track at all. I was merely making the point that if the consultation period is reduced from 90 to 45 days, there is obviously a reduction in costs in terms of the salaries that are paid out to employees who are made redundant more quickly if that is the case. Equally, another figure could be included, because employees might move on more quickly anyway. The answer is that I am more than happy to give the noble Lord, who clearly understands this exercise by this issue, a full answer in writing and to give the figure in more depth, but the £300 million figure is the one that we have.

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[Lord Lea of Crondall]

My Lords, there is one very good thing I can thank the Minister for: making a party political broadcast on behalf of the Labour Party. There will be many hundreds of thousands of workers who, when this is explained to them, will be determined to make sure that in two years’ time this will be reversed by a Labour Government.

The Minister’s speech raised my blood pressure, probably noticeably so, by hiding, sweeping under the carpet, the huge costs to workers in this change. There is a basic fallacy in saying that we stand in good stead in comparison with Germany and France on this front. Germany and France, and, indeed, Scandinavia, have one thing in common. They all have permanent machinery for consultation with workers through information and consultation bodies, bodies called works councils. We created the whole philosophy and structure of the modern industrial economy in Germany in the British High Commission zone, under Ernest Bevin, in the scheme signed by Field Marshal Montgomery and Marshall Rokossovsky, one of the most interesting footnotes to that period of history. That means that there is no doubt that there is access to the top decision-makers in the company.

Where does the Minister think that those decisions are made? I will try to answer my own question and see whether he has any logical disagreement with it. They are made at top level by the board, or at least by the CEO. As the research done for ACAS by the Warwick Business School demonstrated, the local managers generally know as little about what is going on as do the shop floor. To say that the shop floor representatives can talk to the local managers is a waste of space. Indeed, our system is so second-order to those in the countries I mentioned that redundancy is almost always a fait accompli by the time that it gets announced, whether it is over 90 days or 45. Why is it always a fait accompli? Because there has been no history of knowledge about what are the company's problems.

I have made this point once before. If you have a structure of involvement of the workforce, it cuts out this “us versus them”—much derided in the 1970s. Instead of having the machinery to say, “We are all in this together”, we simply mouth the words and drive the two sides further apart. The workers’ representatives are put together literally overnight with no background knowledge about these matters. Is that a sensible way to run a railroad in the year 2013? Of course not.

This is such a dialogue of the deaf. There is no one on the Conservative Benches, so I could speak all night and it would not make any difference. There are no brains there, there is nothing there. I think that I had better conclude by saying that the development of our alternative thinking on this has been given a big boost tonight. It has given us absolute clarity of the target area where we need to create machinery at board level, workers’ representatives on remuneration committees and throughout the enterprise.

I strongly take the point made by my noble friend Lord Monks that we cannot be the victims of deliberate gerrymandering of constituencies in the company, whereby company X says, “This is the decision-maker”, when we know that the structure of the capitalist company—obviously I am teaching everybody to suck eggs, but please tell me where I am wrong—means that it is at the level of the enterprise as a whole where strategic decisions are taken. It is at that level that we need machinery, as well as, side-by-side with that, a substructure. You do not need to be Einstein to understand, and we are certainly not advocating, that there should be machinery only at the top level with nothing underneath or machinery at local level with nothing on top. There has to be a strategic change in the British economy so that we can look at the real problems why our world export market share is diminishing. As my noble friend Lady Turner pointed out, if you are talking at least about 100 employees, you are not talking generally about SMEs, where I think the cut-off point is 250 in the BIS rules. We are talking about companies here that all need permanent machinery. As has already been stated, that is supposed to be consultation with a view to reaching agreement. That is a joke. We know that that is the way that the world is working at the moment. I strongly support my noble friend. We will get a majority on this because there is no one there to vote against it.

[Viscount Younger of Leckie]

My Lords, this has been an interesting debate and I thank noble Lords for their contributions. I will start on a point of definition. The noble Lord, Lord Monks, raised the issue of whether “an undertaking” should be exchanged for “establishment”. The test of establishment is used in the European directive, which this legislation stems from. The test of undertaking is not used. Also, the case law dealing with the definition of establishment is still being developed and it would be very difficult and risky to try to define the term in legislation.

The Government believe that the changes in this order are needed to ensure that the legislation remains fit for purpose in today’s commercial environment. I want to start by echoing the words of the noble Lord, Lord Young of Norwood Green, and the noble Baroness, Lady Dean. I, too, acknowledge that job loss is a very serious matter and that every individual who loses their job deserves our sympathy. However, we need to balance the important right of the individual to be consulted with the need for employers to implement change efficiently and quickly to meet market pressures. We need also to address the needs of those employees who do not, in the end, lose their job but have had to live with the possibility that they will. Ultimately, the right of the employee to be consulted is not intended to prevent the employer from making necessary changes. For businesses to remain competitive in the global economy they must be able to respond swiftly to commercial pressures. The 90-day minimum period has been in place for some 40 years and it is right that we now make some changes.

A number of specific points have been raised and I will attempt to answer as many as I can. The noble Lord, Lord Young of Norwood Green, asked, “What about the workers?”. He said that they need a fair deal. I certainly agree with the latter point. Collective redundancy consultation affects a wide pool of employees, many of whom may remain secure in their jobs at the end of the process. The government consultation on the collective redundancy rules showed that concerns about those employees who ended up being made redundant could crowd out the interests of the remaining workforce. The changes to the collective redundancy rules are therefore focused on providing better flexibility so that where consultation can be concluded within 45 days employees gain certainty sooner. I would like to remind the noble Lord, Lord Monks, that, as I mentioned earlier, research shows that the vast majority of decisions between the employee and the employer have been made at between 30 and 45 days. We are not proposing 30 days; we are actually proposing 45 days, which is at the other end of that scale.

Change is also focused on improving the quality of consultation so that during consultation both the employer and employee representatives will be free to concentrate on important issues. These are also issues that have been raised by many noble Lords today and they are valid points.

For employers concerned about losing skilled staff due to uncertainty a shorter minimum period is likely to mean that it will be easier for employees to wait and see if they are personally affected and if so, how. The Government do not believe that the changes will affect how long those made redundant are out of work, or that employers will make different decisions about how many employees to make redundant. Employers do not take lightly the decision to make employees redundant. It has an impact on the morale and productivity of the workforce and means a loss of skills and capability.