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Mr. George Osborne: Although these individual points may be good ones, the Minister seems to be straying from the original point of the Bill, which is to deter people from bringing various cases to an employment tribunal. Indeed, the Government originally had the idea of charging people to bring a case which they dropped before the Bill was even introduced. Is the Minister aware that he is in danger of watering down the proposals so much that they will not have any effect on the number of cases brought to a tribunal?

Alan Johnson: I hope that when the hon. Gentleman has heard the case he will feel differently. As he said, these are laudable amendments. It was never our intention to deter people who have a grievance or a claim against their employer from going to a tribunal, nor was it the intention of anybody in the Standing Committee to frighten people so that they would not pursue their case. The whole ethos behind the Bill stems from the fact that many disputes that go to employment tribunals could be sorted out in the workplace. That was the main thrust of our argument. We felt that between 30,000 and 40,000 cases could be solved in the workplace.

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On this clause, we argued that in a system designed to discourage legal representation—the whole basis of the system is its informality—it would be ridiculous to award costs only to people who were legally represented, so that people whose time had been equally wasted but who represented themselves would receive no compensation. That is the basis of the amendment.

Judy Mallaber (Amber Valley): Will my hon. Friend confirm that, in Committee, those of us who were concerned about preparation costs were seeking to protect not those trying to make a vexatious claim but the most vulnerable people? They would easily be intimidated by somebody with a phalanx of people working for him whose time could be costed, and they would therefore be vulnerable to the argument that they could be landed with a bill for, say, £10,000 in costs.

Alan Johnson: My hon. Friend is absolutely right. She, along with other colleagues, raised those concerns in our debates. The amendment deals with them by providing that when the regulations on costs and preparation time are drawn up, they must include provision that a tribunal cannot award compensation for both costs and preparation time. We will consider many of the other points made about the limit on costs, particularly by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris), which will be dealt with in the regulations.

The amendment has been welcomed by the Law Society as being fairer than the existing provisions. It has also acknowledged that

We will consider how best to set that out in the regulations, and we will of course consult on those.

Mr. Hammond: As the Minister said, the amendments do two things. They introduce changes that empower tribunals to take account of a person's financial circumstances in setting awards of costs or of compensation for preparation time and, separately, they introduce a prohibition on awards being made for both costs and preparation time.

On the latter point, I understand the concerns, expressed by the hon. Member for Amber Valley (Judy Mallaber) in Committee and again today, that people should not be denied access to a tribunal by the threat of exceptionally high costs being sought against them. The Government have gone about it in the wrong way, and in a moment I shall suggest to the Minister another way in which it could have been done.

4.45 pm

First, I want to deal with the taking into account of a person's financial circumstances. On the face of it, the Minister's case for the amendment sounds reasonable—that in making an award of costs, the financial circumstances of the person against whom the costs are awarded should be taken into account. However, he did not underline the fact that costs are not routinely awarded in employment tribunal cases. We are talking only about cases where the applicant or defendant has acted frivolously or vexatiously: the ordinary applicant with a perfectly reasonable case who happens to lose it will not be clobbered for an enormous amount of costs. The

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Minister gave us the figures in Committee. In the most recent year for which figures were available, awards of costs were made in about 400 or 500 of the many tens of thousands of tribunal cases. In the vast majority of cases, the issue of costs will not arise, because it arises only where the applicant, defendant or respondent is judged to have behaved frivolously or vexatiously. It is not clear to me that in those circumstances the pecuniousness or otherwise of the applicant should be a principal consideration.

Another issue is involved. The ability to recover an award of costs is a protection for the innocent victim of such vexatious or frivolous behaviour. That could be an employer who is faced with a claim that is scandalously improper—I think that scandalous is one of the terms used, as well as vexatious and frivolous—but he still has to defend it. It could be an applicant with a rock-solid, cast-iron, open-and-shut case who is forced to argue their way through a completely implausible and vexatious defence mounted by the respondent. The ability to recover costs is an important protection for people who are involuntarily caught up in these matters as a result of having been on one end or the other of such behaviour. Employers in particular are forced to defend actions brought against them in the employment tribunal. In Committee, I quoted comments made to me by the chairman of a relatively large publicly quoted company, who would not want to be named for obvious reasons. He said that his company invariably settles any employment tribunal claim brought against it if it can settle it for less than £2,000. The company does that not on the merits of the case brought, but simply on a cold, hard analysis of the fact that it will cost it at least £2,000 to investigate the facts and to allow the employee time to prepare a case and mount a defence.

It is a pretty serious indictment of the employment tribunal system that for some people, at least, it is essentially a free ticket to small claims, because employers feel that they have to settle them. The Minister seems implicitly to have recognised that problem, in that the Bill tightens up on access to the tribunal and ensures that cases that are brought are proper cases. I suggest to him that this provision does not move in that direction by trying to discourage vexatious and frivolous cases.

Judy Mallaber: Will the hon. Gentleman give way?

Rob Marris: Will the hon. Gentleman give way?

Mr. Hammond: I first give way to the hon. Member for Amber Valley.

Judy Mallaber: Does the hon. Gentleman accept that the amendment would only authorise an employment tribunal to have regard to a person's ability to pay, rather than requiring them to take account of it, so cases such as those that he described would be taken account of by the tribunal in making its award of costs? There is an aspect of costs that is broader than simply what happens in the tribunal itself. It is involved in cases where someone in the workplace is intimidated by the idea that when they reach an employment tribunal they could be landed with

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a very high bill, regardless of whether that would be so. Such a person may not have access to advice telling them that they would not in fact be landed with such costs.

Mr. Hammond: The hon. Lady is right in that the amendment proposes that the rules should authorise tribunals to take into account the circumstances of the person against whom the award is made.

In the letter sent to my noble Friend Baroness Miller when the amendment was before the other place, Lord Sainsbury seemed to imply that there was no cause for concern because in the really bad cases the tribunal would still be able to award costs against someone without regard to their financial circumstances. The point that I was trying to make is that the question of an award of costs arises only in the really bad cases—only if the case is vexatious, frivolous or scandalous. In the vast majority of cases, win or lose, the issue of costs will not arise.

Rob Marris: My recollection of the debate in Committee is similar to the hon. Gentleman's, but I seem to remember the Minister citing figures suggesting that, in about one third of cases where costs were awarded, they were awarded against the respondent employer. That employer might be a badly advised small business, or there could have been a personality clash in a small company. Is the champion of small business now saying that we should not have regard for such businesses' ability to pay, and that those businesses might be put out of operation as a result?

Mr. Hammond: Although I am happy to be referred to on the record by the hon. Gentleman as the champion of small business, I also like to be thought of as the champion of fairness. We must think very carefully about the person who did not ask to become involved in a process but who must incur costs—either in time or in external costs—in responding. I am grateful to the hon. Gentleman for his intervention because I hope that it will be clear to those listening that I am not making a partisan point. This is not a point made exclusively on behalf of employers.

I can perfectly easily envisage an employer deciding to fight tooth and nail an application which he knows in his heart—and which it is perfectly apparent to everybody else—cannot be defended. It is wholly reasonable that the person making such an application should have the opportunity to recover the costs that they have properly incurred as a result of being put to all the trouble by the vexatious actions of the other party—be it the employer or the employee. In equity, the pecuniousness or otherwise of that other party is not the principal issue.

I am certainly not a blind champion of anybody. I recognise, and have recognised, that there are rotten apples in every barrel, and I would never pretend otherwise.

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