Employment Tribunals Act 1996 (Tribunal Composition) Order 2012

Lord Hodgson of Astley Abbotts Excerpts

Monday 19th March 2012 Grand Committee

[Baroness Gibson of Market Rasen]

My Lords, I do not have the expertise in this area that many of my colleagues on this side of the Committee have. However, I am a former trade union official, as many noble Lords know, and therefore I am very interested in employment legislation. I should declare an interest in that my husband is a member of an employment tribunal. Indeed, he serves on the central London tribunal. I know that the Minister was lucky enough to go to that tribunal and meet members of it last week.

I wish to make two small points. My husband has served on an employment tribunal for a number of years and I have heard about the cases in which he has been involved and have reached my own judgment on what we ought to be doing in the future. Some of what is being proposed is bothering me. I am well aware that when employment tribunals were first introduced there were industrial relations problems in this country. One of the reasons for bringing in employment tribunals was the hope that they would be a more informal way of sorting out the difficulties that arose in industrial relations issues on both sides of industry. By and large, I think they have worked very well over the years. Unfortunately, we may now be heading in the other direction, and that worries me. Two points worry me particularly. The first follows on from what the noble Lord, Lord Jones, said about job creation. Obviously, I am in favour of job creation, particularly given the position the country is in at the moment. The noble Lord talked about small businesses. My background is in small business. My father and both sets of grandparents had small businesses so I am well aware of the difficulties that can arise when taking on even one extra employee.

I am a little surprised about this measure because last October the Government produced their own statistics which showed that only 6 per cent of small and medium-sized enterprises said that employment legislation was a problem in relation to taking on staff. I understand that about 1,100 businesses were consulted. This means that 94 per cent did not say that employment legislation was high on their agenda in terms of difficulties. There were other problems higher up the agenda. I am rather surprised that this issue is being brought up five months later as something that is definitely stopping SMEs taking on even one extra employee. That is something which, as the noble Lord, Lord Jones, said, I would support.

My second point concerns the expertise of those serving on employment tribunals. We in this House have all come here because of our background and expertise in different areas. It is exactly the same with those who serve on tribunals. It is not just important that a judge sits with one lay person from each side of industry to discuss issues and listen to the evidence put before them; the expertise also comes out when they get together in chambers behind closed doors to discuss what they have heard. I have spoken to judges and I know that they value employment tribunal members from both sides of industry. They value the advice of the lay members and they pick up things which, if they sat alone—whether they are a man or a woman—they would not pick up. I cannot see how one person sitting alone would be better than three people in these circumstances. Perhaps the Minister will give a little more detail on why the Government think that one person alone would be better than three.

[Lord Hodgson of Astley Abbotts]

My Lords, I support the proposals, which I consider balanced and sensible. I will declare some interests that are on the Register. I am a director of various companies that employ people. Therefore, we will take some benefit from the proposals if they are accepted. I believe that this would increase the likelihood that we would recruit people.

I read the debate that took place in the other place on Tuesday 13 March, but did not find it very helpful. An attempt was made to characterise the orders as a throwback to an earlier age, which was both unhelpful and unfair. Employers are not red in tooth and claw, as was suggested in the other place. The noble Lord, Lord Monks, asked why an employer, if they felt that they had a good case, did not just go through to the tribunal. The answer was given in part by the noble Lord, Lord Jones: it is the enormous time that it takes to get to a tribunal.

In the case I shall refer to later, it took a year to reach a tribunal and a further three months to get the case determined with a written judgment. A small business simply cannot wait for 15 months, with all that that implies for having to pay someone who is clearly disaffected. That is why you are going to a tribunal. There would be a difficulty in the system even if it were maintained as it is now. I do not argue that all employers are saints; far from it. However, as my noble friend pointed out in his opening remarks, and various other noble Lords have said, the basic protections for employees are maintained, with day one rights particularly in cases of discrimination, which are of particular relevance in smaller companies.

Why do I support the case for the extension from one to two years? All the businesses that I am involved with are hungry for talent, and hungry to keep a stable workforce. Hiring people is extremely expensive—and letting them go is expensive, too. It is expensive because they have to be replaced, and expensive in morale terms, because when people are let go, particularly in circumstances that are not their fault, the effect on the morale of the rest of the workforce is very great. By talent, I do not just mean the talent to shoot the lights out. I mean talent at every level to put in the time to carry out his or her allotted task with care, integrity and professionalism, to be a good colleague and team member, and to provide flexibility at times of strain within the organisation. In the business in which I am involved, when we discover that sort of talent at any level, we wish to nurture, engage with and develop it. We do this through the annual performance appraisal cycle. This is an important part of the reason we should extend it from one to two years.

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[Baroness Prosser]

Is the noble Lord arguing that the best way to deal with “free riders”, as he described them—whom I don’t think anybody on either side of industry has time for—is through the extension of the period before protection comes along? Would he not agree that that is a really sensible argument for better management?

[Lord Hodgson of Astley Abbotts]

Clearly, it is an argument for good management. Identifying free riders is very important. Some people who promise quite a lot in the first few months are unable to sustain the work for various reasons. It is the performance appraisals cycle which sets deliverables and make it clear whether the person has delivered or whether the performance has, over time, drifted away and they have become a free rider. It is a sensitive interaction between what is practically laid down in the performance cycle and what management itself should be doing. There is no excuse for management not being prepared to grasp the nettle and make sure that any issue which clearly causes disaffection is tackled soon.

I turn to the employment tribunals order and the issue of whether a judge has the right to sit alone or can call for lay members. Based on my experience of the employment tribunals I have been involved with, the position has been that a judge has been able for the most part to undertake the work perfectly satisfactorily. I do not argue that this is always the case, but what does happen if you have three people sitting as opposed to one is that the time taken on the case is lengthened enormously.

Last year I was involved in a tragic case concerning an extremely talented man who had set up a small business in the video conferencing sector. I was not a director of the company but I had invested in it because I thought he was a rather talented bloke. Success had eluded him over a period of years and he had become increasingly irrational, and eventually the workforce of 10 to 15 people said to the directors, “It is either him or us. We cannot put up with him any longer”. The company had an internal conciliation process and I, along with another investor, was asked to sit down and talk to the chap. We did so, although it took four or five months to organise that. It was clear that he could accept no criticism of his performance because as soon as we said that, yes, the company had made some mistakes in the process but he was majorly at fault, he said, “Fine, I am going to an employment tribunal”.

It took a year to set up the tribunal, which had three people on it. There was really no dispute about the facts or anything else. This chap, for better or worse, very sadly could not accept that anything was wrong at all. A case that might have taken one or two days took six days, and it took three months for the judgment to be concluded. The result was, frankly, a tragedy. He lost his investment and eight or nine years of his life, during which he had spent all his time working on the business. I lost my small investment, which was a pity, but that was nothing compared with the 15 people who lost their jobs. One felt that the situation should have been capable of being grasped faster, and could have been dealt with more quickly, if it had been handled by one person, not three.

I would say to my noble friend that whereas the consultation document states that the objective is to,

“ensure that where parties do need to come to an employment tribunal, the process is as swift, user friendly and effective as possible”,

I know that there is no doubt that this case and many others that I hear about show that we are not as swift as we should be. If we are to have confidence in the system, we need swift justice because small businesses in particular find it extremely debilitating to have senior management devoted to preparing the case, sitting in on hearings, and in the mean time obviously having a disaffected employee.

I conclude by saying that I support the orders for the reasons I explained. They reflect my view of the changes that have taken place in recent years in both commercial and industrial practice, and they do so without weakening the safeguards we need to ensure that a proper equality of arms between employer and employee is maintained.

[Lord Risby]

My Lords, first, I apologise for arriving a few minutes late. In supporting the orders before us, I agree strongly with my noble friend Lord Cope. These are not issues that will change the industrial, commercial or employment landscape of the country, but they will certainly make a difference. I will refer to two articles in the papers today. One is by Mr Xavier Rolet, the chief executive of the London Stock Exchange. He points out that there are 4.8 million SMEs in this country, and asks us to “consider the impact” of what would happen if they were given an additional incentive to employ people—particularly young people, where we have a very big problem.

I was interested in the observation of the noble Lord, Lord Monks. Compared with many industrialised countries, we have a flexible labour market, but the truth is that in the eurozone, unemployment is running at 10.7 per cent while here in our country it is 8.4 per cent, which is still far too high. What is happening is that in terms of the UK’s global competitiveness, the World Bank now rates our labour market 35th in the world—down from 17th in 2007. Of course it is absolutely right that we should have proper, civilised protection for people in the workforce. There is no question about that. However, there is a question of balance.

Perhaps I may draw your Lordships’ attention to some issues for SMEs. I declare an interest as deputy chairman of a small business bureau. In the past few days I have spoken to a number of bureau members, to get their views on what we are discussing. I should add that in a previous life I ran businesses, both large and small, and so I know about the associated difficulties, particularly for smaller family businesses that employ between 10 and 30 people.

For SMEs, going to a tribunal is very time-consuming and stressful for both employers and employees. There is no question about that. However, as we heard from a number of noble Lords, for employers it can be a particularly difficult time. There is great anxiety in SMEs about taking on and retaining staff; I know that from experience. It comes on top of all the other issues such as access to bank funding, planning and management. Based on my discussions of the past few days, I suggest that if we can provide something that will give them a small additional opportunity to take on employees, we should support it. Certainly the CBI, the IoD and the British Chambers of Commerce said that the current arrangements were something of an inhibition to taking on additional staff.

It is certainly true that the world we inhabit at every level has become more litigious. For those people in a difficult economic environment, particularly in family businesses, this is a difficult time. That is why I support the orders. I will add simply that the CBI noted that SMEs accounted for 65 per cent of all new jobs created. Its view is that the extension to two years will be particularly beneficial to those without labour market experience. We all know about the tragedy of youth unemployment. As the economy recovers, if these proposals in some way encourage SMEs to feel that there are fewer disincentives to taking on young people in particular, I will support them—and I believe that they will.

I will turn briefly to the issue of tribunal composition. We need to remind ourselves of the discretion under the proposed arrangements. A full panel can exist in appropriate cases. I am not sure that it is appropriate for us to prescribe that that should be the case all the time. In fact, it is not. A principle was established by the previous Government, who decided to extend the scope of judge-only cases. Various surveys have taken place. In 2007 Michael Gibbons was appointed to review the circumstances under which employment judges could sit alone and add value for money.

Under the proposals, parties can consent to a judge hearing the case alone. There is no change there from the long-standing situation. The measures will put in the hands of the judge something that will give more flexibility. Some degree of judicial discretion, with defined criteria, will give judges an opportunity to decide, in consultation with those affected, whether to proceed on that basis. The order does not mandate the exclusion of panel members; it changes the basis for having them and will simplify the process.

I come back to my original point that we want a high level of protection in a civilised country. However, as the noble Lord, Lord Jones, said, we have a problem of international competitiveness. If it is possible through these measures in a small way to begin to deal with the terrific problem, in our country and the rest of Europe, of how to employ more people, I will certainly support them.

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[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.