Employment Tribunals Act 1996 (Tribunal Composition) Order 2012

Lord De Mauley Excerpts

Monday 19th March 2012 Grand Committee

Moved By

[Lord De Mauley]

That the Grand Committee do report to the House that it has considered the Employment Tribunals Act 1996 (Tribunal Composition) Order 2012.

Relevant document: 41st Report from the Joint Committee on Statutory Instruments

[Lord De Mauley]

My Lords, first, I apologise for not being here when your Lordships were gathered. Matters seem to have proceeded apace beforehand.

The effect of the Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 2012 is to extend the qualifying period for unfair dismissal from one to two years for individuals beginning work on or after the commencement date. It also extends in the same way the minimum period an employee must have been with their employer before they are entitled to request a written statement of reasons for dismissal.

Workers in the United Kingdom have been protected by unfair dismissal legislation since 1971. Since its introduction, unfair dismissal has always been subject to a minimum qualifying period. The concept of a qualifying period has been accepted by successive Governments, no matter their political persuasion, although the length of that period has been flexed by Governments according to economic circumstances, and today’s amendment is no exception.

We need to generate jobs and growth. Creating employer confidence is vitally important to underpinning the Government’s objective to get the British economy back on its feet. Extending the qualifying period for unfair dismissal is one of a range of measures that we are taking to encourage recruitment and to reduce the burden of employment law.

We have listened to businesses, which have told us that the one-year qualifying period is a barrier to hiring. Business and business representative group responses to last year’s Resolving Workplace Disputes consultation were firmly in favour of this extension. They were clear—a year is not always long enough to be certain that a new employee is right for their organisation. I know this to be true from my own experience. When I started my business in 1999, the one-year qualifying period was a source of concern. In highly skilled roles where training can take a considerable time, I needed longer to assess new staff, particularly given that the notice period is taken into account within the qualifying period. This can also be true when potential employees are young and inexperienced, or have been out of work for some time. The Government are thinking about ways in which we can stimulate employers to take on these groups of workers. Extending the qualifying period will give employers the confidence to invest in new members of staff. It will give them the opportunity to get the working relationship right.

It is important to note that our package of employment law measures strikes a fair balance between employee rights and employer needs. “Day one rights” are unaffected by this order. We believe that it is right and proper that an employer who behaves in a discriminatory way or who dismisses an employee for exercising his or her statutory rights will continue to be subject to employment tribunal claims at any time. So without undermining important employee protections, the Government are committed to improving employer perceptions of employment law and the level of burden that it places on them.

The likely improvements in business confidence are inevitably difficult to quantify. This is because a huge range of factors is affecting levels of employment. The effect of a single regulatory change cannot readily be isolated, but that does not mean that these benefits should be ignored. The majority of businesses say that unfair dismissal rules are an important factor in their recruitment decisions. We are therefore confident that this measure will make a positive impact.

This is about the employer who gives a chance to the school leaver who otherwise may not have been recruited. It is about the employer who might otherwise have let a member of staff go if they have not quite met the mark at a year rather than risk an unfair dismissal claim further down the line. A two-year qualifying period for unfair dismissal is the right policy. It strikes the right balance in the context of our fair and flexible labour market. It creates an environment where employers will have more time to assure themselves that working relationships are right and it will give them the confidence to take on new members of staff.

The Employment Tribunals Act 1996 (Tribunal Composition) Order 2012 will enable but not oblige employment judges to sit alone in employment tribunal proceedings relating to unfair dismissal. This order is about improving the effectiveness and efficiency of the employment tribunal system. It is about replacing prescription with flexibility, but it does so while maintaining essential safeguards to fairness—fairness to the parties and fairness to taxpayers. Of course, judges sitting alone is not a new idea in employment tribunals. The general rule is that panels consist of a legally qualified employment judge and two lay members. Those members respectively are intended to have experience from the employee and the employer sides of industry. Since the mid-1990s, categories of cases have been set out in primary legislation where an employment judge can, subject to judicial discretion, sit alone at final hearings.

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The Minister went on to justify it by saying that highly skilled people need longer to assess. Again, I do not know where the evidence is for that assertion. I do not believe there is any. Whether an employee is highly skilled or less skilled, they need the same amount of attention if you want to create the right atmosphere among your workforce and you want to get the best from people. We believe that these proposals are ill founded, will not do what they set out to do, and indeed might have significant unintended consequences, which will do nothing to increase job creation but will unfortunately impact on employment rights in a very negative way.

[Lord De Mauley]

My Lords, I am very grateful for all the comments from all around the Committee. I will attempt to answer all the questions. I hope your Lordships have some time available because it might take a while. If I do not manage to answer all the questions, I will, of course, write with a considered response.

The Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order is especially necessary for businesses employing people who need to possess a high level of skill. The noble Lord, Lord Young, picked me up on that a moment ago, so let me say a few words about that. Given the importance to the nation’s future growth—which my noble friend Lord Cope spoke about—of value-added products, services and exports in areas such as clean technology, biomedical science, high-tech manufacturing and ICT, as well as many seemingly quite mundane businesses which nevertheless rely on some complicated technology, the quality and depth of skills are vital to an ever increasing number of firms.

I am speaking from personal experience of running an IT business. For those employees who have yet to gain the full skill set necessary, frequently a lot of time has to go into training and assessing whether they have the aptitude to learn the skills and carry out all aspects of the job. For employees who arrive with that training, it can still take quite a long time to assess whether they really do have the skills they claimed on their CV, particularly, as is often the case, when the employer or manager’s own field of expertise is different from the employee’s.

There are two further important factors. First, most employers would want to give someone the chance of continued employment for as long as reasonably possible. However, it is a fact that, under the current regime, some employers decide that it is not worth the risk of retaining someone beyond the end of the first year if there is an element of doubt that they will make the grade. Secondly, as the noble Lord, Lord Jones, said, it is important to have in mind the expense and time involved in recruiting a new employee. It was one of the things that took up most of my time as my business expanded. No one in his right mind would dismiss such a skilled employee if he did not feel he had to, so giving the employer a further year to make up his mind is certain to save some people’s jobs.

The noble Baroness, Lady Turner, asked how we justify the change when the evidence is that it will disproportionately affect young people at a time of high youth unemployment levels. Our top priority is to boost business confidence to take on staff. Young people out of work will benefit from increased employer confidence to recruit. We are serious about tackling youth unemployment. On 15 December 2011, we set out our strategy for helping young people to access education, training and work, and this strategy includes measures to offer more and higher quality apprenticeships, and a youth contract to help get young people learning or earning.

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[Lord Lea of Crondall]

I am grateful to the Minister for giving way, but he has changed the ball park completely now. Instead of saying that we have evidence, he is saying that we have a problem of perception. If there is a problem of perception, it is the Government’s job to change the perception, unless it is evidence.

[Lord De Mauley]

Exactly, and that is what we are trying to do.

The noble Lord, Lord Young, referred to the Government’s focus for growth on small and medium-size enterprises, for which the impact of a tribunal case is often greatest. This measure is intended to deliver a decrease in the number of cases being lodged against small and medium businesses. A two-year period will also give them enough time fully to assess new members of staff and to benefit from skills retention in cases where they might otherwise have dismissed an employee in borderline cases because they do not have the access to sophisticated HR and legal resources.

The noble Lord, Lord Young, also suggested that this could lead to an increase in the number of discrimination cases. I do not buy that assertion. Already, discrimination actions are frequently brought simultaneously with unfair dismissal claims. That suggests to me that, if a discrimination claim has a reasonable chance of success, it is already being made. Indeed, because there is a time limit on making such a claim, it is already now important that, if a discrimination claim is to have a chance of succeeding, it is made simultaneously, so we cannot see that reducing the availability of unfair dismissal as a route will lead to a significant increase in discrimination claims.

The noble and learned Lord, Lord Scott, asked about the changes to the written statement of reasons. The statement of reasons is linked to the qualifying period and the specified fair reasons for dismissal, which are set down in law. The objective of the qualifying period is to provide both parties with time to get the working relationship right. If it does not work out, this will not necessarily correspond to one of the specified fair reasons for dismissal. Of course, the employee can ask for a written explanation and I cannot see any reason why an employer would not provide it.

[Lord Scott of Foscote]

Would not a reasonable solution be to say that the period of notice to which the dismissed employee was entitled would not begin to run until he had been provided with a statement of the reasons for his dismissal?

[Lord De Mauley]

Perhaps I may take that back to the department. I cannot give the noble and learned Lord an answer immediately, but I will write to him, if I may, on that. I am grateful to him for the suggestion.

The noble Lord, Lord Jones, spoke about SMEs taking on employees. He is absolutely right to focus on the benefits that this measure might bring. If every small business took on just one more person, there would be 4 million more people in employment.

The noble Baroness, Lady Gibson, and the noble Lord, Lord Young, pointed to BIS’s survey, which shows that 6 per cent of business view regulation as a barrier to recruitment. In fact, the SME Business Barometer asked small businesses what their main barrier to growth was. The survey does not show that businesses are not concerned about regulation, but business responses to consultation and employer representative surveys on the matters that we are discussing today clearly show that dismissal rules are a concern when recruiting staff.

On the draft Employment Tribunals Act 1996 (Tribunal Composition) Order 2012, calls for reform of the employment tribunal and the wider employment law landscape are not new. In so far as the role of lay members is concerned, Michael Gibbons recommended to the last Government in 2007 that they should review the circumstances in which employment judges can sit alone in order to ensure that, as my noble friend Lord Cope said, value is maximised. The British Chambers of Commerce recommended in 2010 that lay members should be abolished. Since then, survey evidence suggests further support for reform in relation to unfair dismissal hearings. For example, 87 per cent of clients responding to Pinsent Masons’s 2011 employment tribunal survey supported the Government’s then proposal to allow judges to sit alone in simple unfair dismissal proceedings. Academic research from Greenwich and Swansea includes some interesting data. For example, despite perceptions from judges—the noble Lord, Lord Monks, specifically referred to this—and members that members add value in unfair dismissal cases, the number of instances where panel decisions were anything other than unanimous was very small. Across a sample of 191 judges who all hear cases on multiple occasions, there were only 77 majority decisions, of which 60 had one or other of the lay members as the dissenting voice. Given the safeguards built in, with judges retaining the option to determine whether lay members are required in order to deal with the case justly and with judicial decisions made against statutory criteria, including an assessment of the wishes of the parties, the additional flexibility would allow the tribunals to obtain best value for money when deploying lay member resources.

Employment judges are already permitted to sit alone in a range of proceedings, including claims for breach of contract, unauthorised deduction of wages, certain redundancy and national minimum wage complaints, and “holiday pay” cases. While the range of such cases will increase under this order to include unfair dismissal cases, the use of lay members will continue. There is no plan to remove the role of lay members in employment tribunals entirely. The Government recognise and value the expertise which they bring to the system. This order is about replacing prescription with flexibility. It costs the taxpayer more than £80 million a year to fund the employment tribunal system. Lay members account for about £10 million of that sum. It is right to look at how the system deploys and utilises the expertise lay members bring so that they are deployed where they are most needed.

The noble Baronesses, Lady Turner and Lady Donaghy, referred to the fact that the Trades Union Congress believes that the proposal to remove lay members from unfair dismissal cases is a step too far. The TUC asserts that the Government want to remove lay members from unfair dismissal cases, but that is not the effect of the order being debated. As I have said, this order gives judges discretion. Lay members can and will be deployed if they add value, but judges will be able to sit alone wherever that would be better. Where lay members would not add value, it is not right that inflexible legislation should mandate their deployment anyway.

The noble Baronesses also referred to the fact that 63 per cent of those responding to the consultation opposed it, which I acknowledged in my opening remarks. Our consultation was not a referendum, nor should government consultations ever simply turn on weight of numbers alone. We set out proposals and looked to find evidence on the substance. Nothing that consultees said persuaded us that employment judges are not best placed to determine how an unfair dismissal case should be determined, particularly when it is the judge who has the circumstances of the individual case to hand, and not your Lordships when considering framework legislation. We acknowledge that there are some unfair dismissal cases, such as those where there is a significant dispute around the facts of the case, which might be more appropriate for a full panel to hear. Indeed, this was accepted in the consultation paper and our response document. But there will equally be claims which an employment judge sitting alone will be perfectly well qualified and able to determine.

The noble Baroness, Lady Prosser, suggested that there was a risk that employment judges are insufficiently in touch or in tune with industrial good practice. Employment judges come from a wide variety of backgrounds and many have practical experience of managing staff. The fact that a judge might not be in tune with industrial good practice does not necessarily make them less likely to be able to assess evidence. What is critical, irrespective of the nature of the proceedings, is that the person making the determination is able to assess the evidence presented to him or her. Employment judges are trained specifically for this purpose and they carry out their functions to the highest of standards. In fact, the academic research from Greenwich and Swansea suggests that lay members may not always have relevant and recent experience in industry themselves. Indeed, it reported that there was a broad perception that they had less direct workplace experience than previously may have been the case.

My noble friend Lord Hodgson asked whether it was the Government’s view that judges sitting alone will speed the process up. We certainly intend that it will. We will be monitoring that closely. The noble Baroness, Lady Gibson of Market Rasen, asked how one person can be better than three.

[Lord Hodgson of Astley Abbotts]

My Lords, the point about speeding up refers to speeding up the process as a whole. I agree with that point but if the Minister’s department can spend some time trying to make the wheels of justice grind faster, it would be very helpful. Small firms find this long elapse period very debilitating.

[Lord De Mauley]

I am most grateful to my noble friend for that point and we will certainly bear it in mind. As regards the point made by the noble Baroness, Lady Gibson, about one person being better than three, her noble friend Lady Donaghy said that the Government’s support for lay members rings hollow. But I assure noble Lords that we value lay members, as do employment judges, as the noble Baroness, Lady Gibson, and others have said. Judges will sit with lay members where they add value. Judges are expert in employment law and they see cases every day. But, as the noble Lord, Lord Jones, said, value for money is important.

The noble Baroness, Lady Drake, said that the industrial jury concept should not be disturbed and suggested that the tripartite panels give confidence, legitimacy and authority to the tribunals. In common with all other types of complaint that might be heard by an employment judge sitting alone, the judge will have, as I have said several times, discretion where he or she thinks it necessary to choose to sit with lay members. Despite the scepticism of the noble Baroness, this discretion, alongside the professionalism and expertise of employment judges, which stakeholders from all perspectives have recognised, should mean that all users maintain the same high levels of competence in the system as now. Civil courts up and down the land have lone judges making decisions and that is not just in criminal cases, as the noble Lord, Lord Jones, mentioned.

The noble Baroness, Lady Drake, also suggested that the potential benefit may not be worth it. Predicting what savings will be made across the 10,000-plus unfair dismissal complaints heard each year is difficult, given the need for judges to exercise discretion and assess what cases might require full panels. The savings, which were conservatively estimated in our impact assessment, might not be considered significant but as a Government we must take all measures to ensure that taxpayers’ money is used to best effect.

The noble Lord, Lord Lea of Crondall, who quoted the impact assessment, asked why we are legislating now rather than waiting for the Underhill recommendations. The terms of reference for the Underhill review relate clearly to procedural rules. The constitution and composition of the tribunals, as distinct from the procedural rules, particularly given the resource implications associated with judicial and member sitting, is a matter properly for Ministers and for Parliament. Furthermore, there is no reason to await the outcome of the Underhill review when the Government have concluded that there is a case for change.

The noble Baroness, Lady Turner, asked about fee charging in an employment tribunal. Although this is not one of the matters we are principally discussing today, let me say that most people will never use an employment tribunal in their lives; yet the taxpayer funds the system at a cost of £85 million. The objective is to transfer the cost burden from taxpayers to the users of the system.

I appreciate the points that have been raised. I will go away and reflect on them carefully. Certainly, if there is anything on which I have not responded, I will write to noble Lords.

[Baroness Gibson of Market Rasen]

The Minister’s response has shown how controversial these issues are. It has always been the practice that we have discussed in the Moses Room things that are not controversial. Usually when I am in the Moses Room I am in the chair, so I am able to listen to everything that is going on. Will there be a possibility of these orders being discussed in the Chamber? I do not know who took the decision to have them in the Moses Room. I think that this discussion should have been held in the Chamber.

[Lord De Mauley]

The noble Baroness makes a fair point. Under the process we are going through today, we are asked to consider. We are not asked to come to a final conclusion. As the noble Baroness knows, these orders will come to the Chamber. I believe that there is the chance that the Opposition may lay a Motion.

[Lord Young of Norwood Green]

I do not know whether the usual channels have yet exchanged views on this but I think that they will soon—I think on that we can rest assured.

Earlier, someone paid a short tribute to Lord Wedderburn.

[Lord De Mauley]

I did.

[Lord Young of Norwood Green]

I should like to echo that. The debate would have gone on considerably longer but, nevertheless, he made a massive contribution to employment law and is sadly missed today.

[Lord De Mauley]

I entirely support that comment by the noble Lord, Lord Young. I commend the order to the Committee.

Motion agreed.