Enterprise and Regulatory Reform Bill

Baroness Brinton Excerpts

Tuesday 26th February 2013 Lords Chamber

[Baroness Turner of Camden]

My Lords, I listened with interest to the Minister; I was very much opposed to Clause 11 at Second Reading and I am still not at all happy about it. I have always believed that the involvement in procedures of lay members is a matter of much interest to us all. The workers who appear before tribunals have always been concerned that they should include lay members with some knowledge of working practices, particularly at appeal stage. The value of the involvement of lay members with knowledge of workplace procedures and conditions is widely respected. The individual claimant knows that the appeals tribunal contains people with a knowledge of employment relations and this gives the claimant confidence in the proceedings.

I do not know why the Government are proceeding along these lines, except that there is apparently an estimated saving. However, the saving is only between £120,000 and £130,000 a year, which is not all that much if it results in a loss of confidence in the proceedings. The value of lay members has been specifically recognised by the Court of Appeal. I have been approached by lay members who are very concerned that their services may be dispensed with. They referred me to the case of Balfour Beatty and Wilcox, where the contribution made by lay people has been directly acknowledged and congratulated.

As it stands, Clause 11 should not be part of the Bill; there is no real good reason to depart from present practice. I accept that the Minister has already offered some modification, but I still believe it is necessary to involve lay people. They make a contribution to the procedures and are widely respected, by employees appearing before them and by employer organisations. I can see no reason for dispensing with them in the present procedures. I do not think that the savings involved are worth what may result in a total abandonment of the existing procedures which have served us well and which have the respect of the people who appear before them. We need more concessions from the Minister about what Clause 11 actually means and how it will operate.

[Baroness Brinton]

My Lords, I support many of the points made by the noble Baroness, Lady Turner. Indeed, I made some of them in Committee. One of my particular concerns was the issue of diversity and ensuring that lay members were able to inform a judge of their experience of employment practice and diversity than may be apparent to a judge sitting on his or her own.

I welcome the government amendments. In particular, it is extremely helpful to have spelt out the equality of employer and employee representatives, whether it is two or four. I am grateful for that.

I have a question based partly on the noble Viscount’s comments and on the concern of the noble Baroness, Lady Turner, about what the government guidelines will be for when a judge may not sit on their own. I reiterate my support for the government amendments—they go some way—but we still need some clarification.

[Lord Young of Norwood Green]

My Lords, I thank the Minister for addressing the specific concerns that we raised in Committee. I wish to put that on record. Obviously, I share some of the concerns of my noble friend Lady Turner, which were echoed in part by the noble Baroness, Lady Brinton, who, in her usual forensic way, rightly drew to our attention not only the question of diversity but the guidance that should be issued. I, too, will be interested to hear the Minister’s response on those aspects.

[Viscount Younger of Leckie]

I thank the noble Baroness, Lady Turner, supported by my noble friend Lady Brinton, for setting out some of her concerns about this clause. I have certainly listened very carefully to the noble Baroness, Lady Turner, who spoke so eloquently.

The Government have also listened to noble Lords’ concerns about the Lord Chancellor’s order-making powers. I have already spoken about the amendments that we have brought forward to address the points that noble Lords made in Grand Committee. In answer to the question raised by my noble friend Lady Brinton, we have no plans to steer the Lord Chancellor on the necessity to have a panel and to prescribe proceedings as such. However, we are working on that important point that she made and on the diversity point, which I also want to pick up on.

I should also make the point that there is no evidence to suggest that judges sitting alone—this is implicit in the noble Baroness’s question—will have a negative impact on the determination of discrimination appeals, which can be brought only on a point of law. This might address the question that was raised by the noble Lord, Lord Young. The Equality Act also covers a range of sectors, including service provision, property rights and education. Only one of these, work, is dealt with in the employment tribunal system. The remaining equality sectors are dealt with in the civil courts where judges sit, and have always sat, alone.

I hope that I have been able to reassure the noble Baroness, Lady Turner, to some extent—I am not sure that I have—and other noble Lords that this measure, which is a proposal that was supported by 60% of those responding to the Resolving Workplace Disputes consultation, is not intended to undermine the value that lay members bring to the tribunal system as a whole. Nor will it have the adverse consequences that they fear.

[Baroness Brinton]

My Lords, I wonder whether the noble Viscount might write to those who have spoken in this debate to give us some inkling of where a judge would be expected not to sit on their own. I am struggling to see where the dividing line is. I apologise for raising this again, as I raised it in Committee. It just feels too far in the future to be able to be confident on the issue.

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[Baroness Brinton]

I thank the noble Viscount for that response. It was helpful. I look forward to receiving the letter.

Amendment 18 agreed.

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[Viscount Younger of Leckie]

My Lords, I shall speak also to Amendments 25 to 28. I turn to these amendments as the provision for the employment tribunals to impose financial penalties on employers. This is a response to points raised in Grand Committee. Much of the debate on this clause related to amendments tabled by noble Lords opposite in Grand Committee, which were intended to probe the practical application of the new regime, including the reasons for setting the level of penalty at 50% of the value of the award, and to seek that failure to follow grievance or disciplinary procedures be prescribed as an aggravating feature for the purpose of attracting a penalty. Further amendments sought to address concerns, which we share, about the non-payment of tribunal awards.

As my noble friend Lord Marland explained at the time, the decision to make the penalty 50% of the value of the award was informed by the national minimum wage penalty regime introduced by the previous Government, where the level of the penalty is also set at 50%. While we sympathise with the intent behind the amendment to specify that a failure to follow grievance and disciplinary procedures should constitute an aggravating feature, the Government are clear that it should be for the tribunal to determine what constitutes aggravating features, based on the facts of the case before it.

We are at one, however, with the desire to improve the position on the non-payment of tribunal awards. Proposals put forward by noble Lords opposite in Committee attempted to use the financial penalty regime to address non-payment. While the intent was clear, the effect would have been limited, in that penalties would be imposed in fewer cases than those in which awards go unpaid. While non-payment is not a matter for this Bill, I can reassure noble Lords that we are taking action to address this through research into the root causes of the problem and changes to employment tribunal process.

These government amendments are a further area where we share a common view. The noble Baroness, Lady Hayter, set out in Grand Committee her concerns about the unintended consequences that might arise in the event that a financial penalty was imposed on an insolvent business. She argued that for companies in insolvency the objective of the financial penalty regime, which is to encourage employers to have greater regard to their employment obligations, was not relevant and that there was a risk, without a specific exemption, that the tribunal may choose to levy a penalty. If that were the case, the Exchequer would then have a claim on the assets of the company, leaving less available for distribution to other creditors. The potential liability might also threaten a company rescue, as the penalty may rank as an expense of an administration.

As we have made clear, the Government do not want to fetter judicial discretion in the exercise of this power by tribunals. We agree with the noble Baroness that there may be no merit in imposing a penalty where the respondent is insolvent, but we do not believe that it is necessary to carve out an exemption in statute. Instead, Amendment 24 inserts a provision in the clause to require tribunals to have regard to the ability of the respondent to pay when deciding whether a penalty is appropriate.

Such a power, which already exists with regard to cost and deposit orders, will allow the tribunal to have regard to the circumstances of the business and the wider impacts of a decision to impose a penalty. It will also apply more widely than to just insolvent companies and so could be relevant to those on the brink of insolvency, for which the imposition of a penalty might well be the final straw.

My noble friend Lady Brinton also raised concerns in Grand Committee about the effect of the £100 floor where there is a multiple claim against a large employer, particularly in the event that the employer goes bust. We agree that there are real concerns here which the previous amendment does not wholly address in so far as it does not provide the flexibility for tribunals to impose any penalty when, in fact, one may be both appropriate and affordable. Amendment 25 therefore effectively removes the floor of £100 in respect of multiple cases only, and tribunals will be able to use their discretion both as to whether a penalty is appropriate and as to the level of that penalty, subject, of course, to the upper limit of £5,000. So, if a group of 400 employees brought a multiple equal pay claim against their employer and the tribunal found that there had been a breach, with aggravating features, the tribunal could decide impose a financial penalty. The change we are making through this amendment will mean that instead of the requirement to impose, in those circumstances, a penalty of at least £40,000, based on the original provision that set a minimum of £100 per claimant, the tribunal will have discretion to determine what level of penalty is appropriate. The upper limit of £5,000 per claimant will continue to apply.

Amendments 26, 27 and 28 make drafting and consequential changes to the clause, but they do not alter its effect. The principles of a minimum and maximum amount of financial penalty continue to apply, with penalties levied at 50% of the value of the award in single claims and up to 50% of the value of each award in multiple claims. I believe these amendments constitute a real improvement to the drafting and effect of the clause, and I beg to move Amendment 24.

[Baroness Brinton]

My Lords, I rise briefly to thank the noble Viscount for the amendments that he has laid before the House today. I think they go a considerable way to allaying the concerns and fears I had.

[Baroness Hayter of Kentish Town]

My Lords, if it will not embarrass the Minister too much, this side must also add our thanks for these amendments which, to a certain extent, take account of the issues I raised about companies in formal insolvency which risked a penalty being made by a tribunal, given that companies in insolvency clearly have financial difficulties. This is partially dealt with by Amendment 24, and we are grateful for that.

However, there are two other issues on which I would like the Minister to respond because the amendment does not prevent a tribunal levying a penalty on a company in formal insolvency. One is that in formal insolvency, the old management is no longer there. It is not in charge; it is a new, quite separate, professional insolvency practitioner, who has been brought in to sort things out. Therefore, any penalty would not be levied on the people who had done wrong, if you like, and had caused the tribunal’s award. Nor could it act as a deterrent to repeating the breach because the company would now be in someone else’s hands. The only effect would be to deplete the assets available for the creditors, including the employees, as suggested by the Minister.

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[Lord Monks]

My Lords, I rise to support the amendment moved by my noble friend Lord Lea. The amendment concerns the information and consultation arrangements with which I have long been associated, first at the TUC and then at the European TUC. Its origins lie in some unexpected and sudden plant closures in the early 1990s, in particular a Renault plant over in Brussels. As a result, the European TUC pressed the European authorities to introduce a directive requiring advance information to be provided about imminent changes to representatives of the workforce, and then for consultation to take place with a view to reaching agreement. A directive was drafted to that effect.

It was a battle to persuade the then Labour Government to agree to this directive, but they did so in 2001 and the directive was enacted at European level. It is fair to say that they remained unenthusiastic about it. The TUC and the CBI were asked to come up with an agreement, and from the start it was clear that both the Government and the CBI wanted to qualify the universal right to information and consultation by introducing this minimum threshold of support. I acknowledge that it was also clear that some union leaders were apprehensive that the directive might be used to undermine the collective bargaining process, either by groups of workers using the consultation channel competitively with the negotiated channel, or by employers wishing to withdraw or to marginalise trade union recognition. This influenced the TUC to accede to the 10% threshold which is now UK law in these regulations. In view of the subsequent history, this agreement was a mistake. The law has had little effect—my noble friend referred to the recent book by Professors Purcell and Hall of Warwick Business School.

Since the law was introduced, we have had the crash of 2007-08, and of course the economy remains very fragile. Not only have the banks experienced corporate governance failures on a very large scale, but there have been more general failures too. The most spectacular has been the way that executive pay and bonuses have continued to surge upwards at double-digit rates every year. All this has been occurring at a time when recession has been very marked for nearly everybody else; real pay levels generally have been in decline; and British performance levels on nearly all measures have been poor.

I acknowledge that Ministers in the Government have struggled to find a way to stop top executives helping themselves, and to break this culture of conspicuous excess. They have not succeeded. The Business Secretary has said that the regulations could be used to influence executive pay and bonuses. However, here lies the reason behind this amendment. Most of the companies in the UK, large and small, do not have any arrangements comparable to a German works council or a French comité d’entreprise: bodies which can hold top executives to account. Many UK companies have hidden behind the 10% threshold which, as has been explained, is a number very hard to achieve for worker representatives. It is true that unions, too, with conspicuous exceptions, have not been very active in this area, finding the 10% threshold just too arduous to jump over.

It is therefore time to revisit these provisions. The noble Lord, Lord Heseltine, has made a persuasive case to this House for the UK economy to become more like Germany’s. A hallmark of the German model is the system of works councils and collective bargaining, widely used to keep managements and workforces in close step, and to keep companies on the path of long-term, sustainable success, not simply focusing on short-term shareholder value and lavish, self-rewarding systems. The amendment aims to help the UK on to a better path than is currently the case. It is time to make this law work, to align ourselves with the most successful European economies and to change our law—and for all concerned to make that change effective.

[Baroness Brinton]

My Lords, I rise briefly to say that the noble Lord, Lord Lea of Crondall, has exposed a problem with the practical arrangements that have come up through the 10% trigger. I, too, studied the Warwick Business School research, which makes a valuable point—which perhaps the CBI missed—about the combination of having documentation available and also having pre-meetings so that employees can get together to discuss issues and to be well informed. This is a particular problem for very large companies on split sites. I would be grateful if the Minister would explain the response that there might be in order to overcome this problem. Even if it is not helpful to enact it in legislation, perhaps the Government might encourage the members of the CBI to relax the trigger or make the facility such that it is not such a barrier, because clearly this is an issue.

[Lord Young of Norwood Green]

My Lords, I will be brief because my noble friends Lord Lea and Lord Monks covered the territory very well. I was glad to see that they received some support from the noble Baroness, Lady Brinton. I doubt that the Minister will rush to fully embrace the suggestion that the 10% trigger should be changed. However, one thing that the previous Government did and that this Government have maintained is employee engagement. Many statistics demonstrate that the more companies engage with their employees, the more they will improve their productivity. That was demonstrated in 2007-08 when companies were in serious trouble and there was a very positive response from trade unions. Therefore, there is a justification for the proposal made by my noble friend Lord Lea and supported by my noble friend Lord Monks, and I await with interest the Minister’s response.