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Mr. Tony Lloyd (Manchester, Central): I completely fail to understand the hon. Gentleman's logic. Had costs been a permanent deterrent and had the possibility of incurring them been known from the beginning, or had costs been a routine way of recovering expenditure by the state and others, it might have been argued that the provision should apply equally to everybody. However, the hon. Gentleman is suggesting rather arbitrarily that

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those who are super rich—either respondents of claimants—should be able to go to a tribunal knowing full well that they can absorb easily any costs incurred, but that those who are much less well off, because they come from a small firm or they are acting individually, should be penalised disproportionately. I do not see the sense of justice in that. Is not the balance about right?

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. The hon. Gentleman's intervention is rather long.

Mr. Hammond: The hon. Gentleman's old Labour credentials often come through impeccably. Such payments are a fact of life in our society—unless he advocates making every penalty and award proportionate to the income of the person forced to pay it. The hon. Gentleman nods in agreement, but we are straying from the amendment, which would not have any impact on the problem that he raised. He is right: with or without the amendment, a rich employer, determined to go head to head with an applicant with an unanswerable case, would be able to do so with impunity, knowing that he could absorb the award of costs. The point made by the hon. Gentleman is therefore not particularly relevant to our discussion of the amendment.

Earlier in our debate, an important general point was made about the inexorable rise in tribunal applications. The Government's underlying intention in introducing the legislation was not to deter people with well-founded claims from making them, but to ensure, first, that claims that do not need to go to a tribunal to be settled, do not do so, and secondly, that the tribunal does not become the subject of a growing number of vexatious and frivolous claims brought by people who believe that they can test the water. Who knows, perhaps they are in the fortunate position of working for someone like the anonymous employer whom I cited earlier, who will settle anyway to avoid hassle and expense. There is no doubt that a bit of that has been going on.

The Minister has accepted the underlying purpose of clause 22 is not to sweep claims under the carpet so that people do not have access to a settlement, but to achieve settlement in the workplace wherever possible. In our early consideration of the Bill, the Minister talked about reducing the number of tribunal applications, but in more recent exchanges, he has talked about arresting the rise in the number of tribunal applications. That is an important distinction—the Government's original, laudable objective in the provision has been abandoned before the Bill has even completed its parliamentary passage. I should be grateful if the Minister could give the House up-to-date figures on employment tribunal applications, together with the Government's revised target.

Are the Government expecting a reduction in the number of employment tribunal applications as a result of the passage of the Bill, or are they, as I believe is the case, projecting a rise in the number of employment tribunal applications? If so, how many applications are involved? I fear that many of my hon. Friends and many people outside the House will regard that as an acknowledgement of failure of the Government's objectives. Can the Minister confirm that if the trend continues to rise inexorably, he will review the evidence, particularly in relation to vexations and frivolous claims, and reconsider the Government's position if it becomes apparent that such claims are not being adequately prevented by the amendment?

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The second substantive point arising from this group of amendments is slightly different.

Mr. Lloyd: The hon. Gentleman touches on an important point concerning the philosophy of the tribunal. Does he believe that the rise in the number of people applying to tribunals is driven by either vexatious claimants or vexatious respondents? If that is the case, we would need to look into it. However, if the hon. Gentleman believes, as I do, that the rise in the number of tribunal cases may be arrested by more satisfactory procedures, which my hon. Friend the Minister has tried to introduce into the law, and reflects the nature of the modern world of employment, we are faced with a different situation. The hon. Gentleman is speaking about deterring legitimate claims from going to tribunals.

5 pm

Mr. Hammond: I very much hope that the hon. Gentleman is right and that the Bill achieves the original objective set out by the Government—to reduce the number of applications to tribunals by improving the procedures for dealing in the workplace with what might otherwise become employment tribunal applications.

I believe I am right in saying that the Minister has already acknowledged—he will clarify this when he speaks again—that we will not see a reduction, and that the best we can hope for is a diminution in the rate of growth. I do not have the figures. [Interruption.] The Minister is chuckling on the Bench; perhaps he has them now. I am not suggesting to the hon. Member for Manchester, Central (Mr. Lloyd) that the increase that we have witnessed is driven entirely by vexatious or frivolous claims, in the technical sense in which the employment legislation defines those. However, I do think, and I am not afraid to say this, that there has been an element of gold digging.

There is a perception in some quarters that some employers will buckle in the face of modest claims, because of the expense and disruption of defending themselves against claims. As I understand it, the Government recognise that phenomenon and, while wishing to protect the right of the genuinely aggrieved party to have access to the tribunal, do not wish to encourage frivolous or trivial use of the tribunal in the hope of making a quick buck. I should not have thought that the hon. Member for Manchester, Central wanted to encourage that either.

The second substantive point to which the present group of amendments gives rise relates to the ability to recover legal costs and own-preparation time. The Government are right in the original drafting of the Bill to remove any discrimination against parties who prepare and mount their own case, rather than using expensive external legal resources. That will benefit parties on both sides of the industrial equation, and we welcome it.

However, the Government in their wisdom have now decided that people can be awarded costs in respect of only one or the other form of expense—external third-party costs, typically of engaging a lawyer, or the person or firm's own costs in mounting a defence internally. Almost invariably, there will be both forms of cost. Even if an employer faced with a claim immediately engages a law firm to act for him, as many do, he will find that the law firm is unable to act without a great

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deal of information being collated internally in the firm, a considerable amount of time and energy being spent to produce basic information, and probably somebody from the firm attending the tribunal.

The proposal in the Government amendment is particularly disadvantageous to smaller businesses. In practice, a large firm will be used to receiving and dealing with employment tribunal applications, not because it is a bad firm or because it has particularly litigious employees, but by its nature as a large firm. It will have a procedure in place, and will probably have in-house lawyers who can deal with the matter. If not, it will have a retained external law firm to which it will immediately pass the matter. In either case, the large majority of its costs will fall under one of two headings—own costs or third-party legal costs—and it will therefore be able to cover them under the amendment.

Let us consider a typical small business such as a sole trader. On receiving an application from an employee in respect of an employment tribunal, the employer in such a business will probably seek first to deal with the issue himself. Small businesses are usually reluctant to incur external costs and especially to hire lawyers, because they know that lawyers typically do not come cheap. The employer will probably struggle with the case for some time on his own, but if it becomes apparent that it will be tested in a tribunal, he may well feel that he does not have the presentational and adversarial skills and so on that he requires to appear there in person as the principal representative for the respondent. When it becomes apparent that the matter is serious and will go to a tribunal, he will therefore be likely to engage a lawyer.

I suggest to the Minister that many smaller firms will find that they have costs under both the headings to which I referred, as they will have started by trying to deal with the matter themselves and to keep their legal costs down by doing as much of the work as they can, but will still have had to engage expensive legal support in the latter stages, bearing in mind that nobody knows in preparing a response to a tribunal application whether they will be awarded costs. The statistical evidence suggests that it is more than likely that they will not.

Mr. Kevan Jones (North Durham): Surely, if the employer thinks that the claim is frivolous and vexatious, the law allows them to ask for a pre-hearing assessment before the chairman of the tribunal. The chairman can determine that the claim is frivolous and vexatious, and direct that, if the case is taken forward, the other party will have to cover the costs if they lose.

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