Unfair Dismissal (Variation of the Limit of Compensatory Award) Order 2013

Lord Young of Norwood Green Excerpts

Monday 15th July 2013 Grand Committee

[Lord Young of Norwood Green]

My Lords, we have had a fair amount of consensus this afternoon on previous statutory instruments but I think that this is the one where we part company, as we have signalled in previous debates on this issue under the Enterprise and Regulatory Reform Act. If there was one move that the Government made that we firmly endorsed, it was to encourage the mediation process through ACAS. We supported that; we thought that it was constructive and sensible. If only the Government had pressed the pause button after having done that and had waited for a period of time to see its effect, that would have been profoundly important. However, the Government were not satisfied with that. As my noble friends have commented, they have gone on to introduce a number of other significant changes. One change was increasing the period of service required before a claim for unfair dismissal could be entered from one year to two years, and my noble friend Lord Monks has referred to that. That is a profound change in itself.

The consultation process that the Government went through was, as someone somewhere else said, “a damn close run thing, Carruthers”. The figures are really quite marginal. In some cases, they swing the other way on whether or not there should be caps. As my noble friend Lord Monks said, the Secondary Legislation Scrutiny Committee itself pointed out in paragraph 20 of its report:

“It is of course for Government to decide on policy-formulation in the light of consultation responses. We note, however, that there was a lack of consensus on both the key issues relating to compensation for unfair dismissal canvassed in the 2012 consultation process. In the case of the overall cap, the Government saw this as reason to make no change. By contrast, an even division of opinion among respondents has not held the Government back from implementing its proposal to introduce a pay-based cap. It is hard to see these outcomes as demonstrating consistency in the Government’s response to consultation”.

We welcome the Government’s response on that point. However, we cannot help feeling that the lower paid will again face the consequences of this and that it will have an impact on older workers, who may have longer service with an employer.

We do not believe that this will address the real issue. Unfortunately—my noble friend Lady Donaghy is right—this is based on perception, as the Government have admitted, and on the wide publicity that has been given, not only in the tabloids but in the broadsheets, to the one or two cases which return significantly large figures. This is an ill-conceived proposal and we would like the Government to think again. However, in any event, I welcome the Minister’s response.

[Lord Popat]

My Lords, I thank noble Lords for their valuable and detailed comments during this short debate.

The order focuses on giving adequate recompense to those who have been unfairly dismissed while also providing certainty for business on its potential liability. It will bring expectations more in line with the likely amount of award that can be expected in an unfair dismissal claim at tribunal. Secondly, it will enable employers to hire with more confidence, as this individualised cap will reassure them about potential liabilities.

A number of points were raised which I should like to address in my remaining time. The noble Lord, Lord Monks, referred to reducing the cost to employers. We estimate conservatively that, as I said earlier, only 0.25% of unfair dismissal claimants might be affected by the cap. This is about allowing employers and employees to take informed decisions on how to resolve disputes. If they know in advance the likely outcome of a tribunal, it will help the two parties to settle in advance.

The noble Lord, Lord Monks, also said that the Government were inconsistent in their approach to considering the consultation response. As I said in my opening remarks, although there was not unanimous support for any single option, when considering the totality of the evidence and not only the bald figures that we received from this information, the Government were convinced by the response argument for a salary-based cap. The cap applies to many different circumstances. A pay-based cap is a more individualised yet clear method of ensuring that parties know the potential level of award while still fairly compensating claimants.

The large gap between the expectation and the reality is a problem for both employees and employers. It is unfair to allow a situation where the mis-sold promise of big pay awards means that individuals make decisions based on flawed assumptions. We want to ensure that individuals can make informed and intelligent decisions based on more realistic information and an assessment of likely awards. This is not about pushing the parties down any particular route; it is there to help them.

A number of other issues were raised on the same subject. The order will give business clarity about the potential cost to employers in cases where they have to fire employees. Certainty is very important for employers when they employ people. It is also important that we do not give unrealistic hope or expectation to employees who are unfairly dismissed. The order clarifies the position for both parties.

We are competing in the global world and it is important that our employment legislation is clear-cut. This order is clear-cut for both employees and employers. I hope that I have covered all the points raised. If I have not, I shall be happy to write to noble Lords.

[Lord Young of Norwood Green]

My Lords, the Minister said that a pay-based cap will make the system more consistent. It may make it more consistent, but is it fair? The impact for someone on lower pay of losing their job can be far higher than on someone on a significantly higher pay rate. It is not just consistency that you look for when making this kind of legislation, it is whether it treats people fairly. The Minister did not address that issue and I would welcome his views on it.

[Lord Popat]

My Lords, as I said earlier, 0.25% of cases at the tribunal for unfair dismissal have resulted in compensation of £74,200, but 90% of the cases that have gone to the tribunal have resulted in compensation of just under £5,000. Therefore, even somebody on the minimum wage will probably be able to get the right level of compensation. All parties recognise the need for a cap. As I said earlier, the median award is £4,560, which is below the median salary. Therefore, for 99.75% it is quite reasonable for low-paid people to have this cap or the maximum of £74,200.