Draft Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 and Draft Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (Amendment) Regulations 2002

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Mr. Hammond: Let us be absolutely clear about what is happening here. The regulations are being made under legislation that received Royal Assent only last Monday, and they are being introduced with indecent haste so that they can be implemented on 1 October. That may have something to do with the fact that the Prime Minister has to address the Trades Union Congress annual conference a couple of weeks before that date, and may be embarrassed if he appears to be dragging his heels.

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Those of us who had the privilege of serving on the Standing Committee on the Employment Bill will recall that the Bill did not originally refer to fixed-term workers. Only at a late stage in our consideration did the Government introduce the amendment that became clause 45 of the Bill that went from the House of Commons. Fairly transparently, that was done at the insistence of the TUC. Its brief for the Standing Committee that considered the then Bill clearly states:

    ''It was not originally anticipated that the Bill would concern fixed-term work, and the inclusion of pay and pensions in the proposals can be seen as a significant victory for the TUC and union position''.

We can get a measure of the muscle that those who hold that position have with the Government by considering how quickly the regulations have been introduced. I cannot remember any other regulations being introduced within a week of the primary legislation that gave rise to them receiving Royal Assent. It is clear that on this issue, the Government have had their marching orders in no uncertain terms.

You will be relieved to hear, Mr. Chidgey, that I do not intend to rehearse all the arguments that we heard during the Standing Committee. [Interruption.] From a sedentary position, my hon. Friend the Member for Wealden (Mr. Hendry) urges me not to deprive hon. Members of a recital of those important arguments, but I do not want to go into them in great detail.

There is a background to the issue, however, which I am glad that the Minister acknowledged. As a result of legislation, employers will increasingly need to find people on short fixed-term contracts to cover for statutory leave periods. I suspect that, apart from the normal requirements of a flexibly operating labour force, there will be specific additional demand for fixed-term workers as a result of some measures, including some provisions in the Employment Act 2002.

I also want to make it clear at the outset—I hope that the Minister will acknowledge this in due course—that we have said throughout the debate that we have no problem with legislation aimed against clear abuse of the fixed-term contract system. By that, I mean when people receive repeated contracts that purport to be short fixed-term contracts, but the nature of the relationship with the employer is clearly ongoing and the intention is simply to avoid some of the obligations of that permanent relationship. We are with the Government on eliminating abuse, but we fear that parts of the measures introduced under the 2002 Act go much further.

Indeed, it is not evident that there is a need for action in the relevant case. In the Standing Committee that considered the Employment Bill, the Minister responded to an intervention of mine by saying:

    ''5 per cent. of employers in the Department of Trade and Industry's 1998 review did not give the same pay to fixed-term contract staff as to permanent staff, and 10 per cent. did not give the same pension provisions''.—[Official Report, Standing Committee F, 22 January 2002; c. 543.]

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In some if not all the 10 per cent. of cases in which employers did not give the same pension provisions, that lack will have been compensated for in the payment rate negotiated between the employee and employer. In some cases, we are talking about people with very scarce skills who can negotiate effectively on their own behalf.

The fact that 5 per cent. of employers did not give the same pay does not add up to the major mischief that would justify such complicated legislation as this long set of regulations. The damage that will be done to flexibility in the workplace needs to be measured carefully against what apparently, from the Minister's own figures based on the Department of Trade and Industry survey, will be a relatively minor benefit.

Mr. Kevin Barron (Rother Valley): If the hon. Gentleman does not think that the regulations will deal with the abuse that he described earlier, whether it happens in 5 per cent. or 10 per cent. of cases, what type of legislation would handle the minority of people who do not treat their workers properly?

Mr. Hammond: I am happy to repeat for the right hon. Gentleman that the use of repeated bogus end-to-end fixed-term contracts to conceal effectively permanent employment is an abuse, and we are happy to support the Government's moves to stamp it out. That is properly dealt with in the 2002 Act.

I want to talk about the Government's gold plating of the European directive which, as the Minister said, does not include pay and pensions, whereas the Government have included provisions regarding pay and pensions. However, according to the Minister's figures, only 5 per cent. of employers who responded to the 1998 DTI survey were not paying fixed-term workers at the same rate as permanent workers. We have to distinguish between the abuse of fixed-term contracts and the regulation of pay and certain aspects of conditions. Many conditions of employment are already regulated, both for fixed-term workers and all other workers, by existing legislation. I am happy to assure the right hon. Member for Rother Valley (Mr. Barron) that we shall support the Government in dealing with abuse of fixed-term contracts, although in the overall context of the measure, it is not immediately apparent what the effect of outlawing fixed-term contracts with a cumulative length between contracts of more than two years will be. The Government are giving people on fixed-term contracts the same rights and conditions as people who are in permanent employment, and parity of pay and pension treatment, too, so the additional step of making those rolling fixed-term contracts illegal is an empty gesture. None the less, we understand that a gesture is being made.

In introducing via domestic legislation—the Employment Act 2002—provisions covering pay and pensions to add to the requirements of the EU directive, while maintaining that the directive does not require them to deal with pay and pensions, the Government are copping out of confronting the issue. The Minister and I had the pleasure of debating the temporary workers directive last week. In that regard also, the Government maintain the position that it is not within the competence of the EU, in making a

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directive dealing with such matters, to cover pay. In relation to the measure concerning fixed-term workers, the TUC is clearly of the view that pay and pensions are within the scope of the directive. It would have been interesting had the Government been prepared to stick to their position and said that pay and pensions were not within the competence of the directive—in court, if necessary. By introducing those provisions in the Employment Act 2002, the Government have avoided that confrontation with the TUC. So, while maintaining the position that the directive does not cover such matters, they have avoided testing the validity of that assertion by giving way in domestic legislation.

The inclusion of pensions raises certain issues. I was pleased to hear the Minister say that by giving guidance—I hope that it will be clear—he would recognise that it will often be difficult for employers to be sure that they comply with that aspect of the regulations. In many cases it will not be appropriate for either the employee or the employer to admit a fixed-term worker to a company pension scheme. Somebody who worked for, say, six months on a fixed-term contract and was forced to pay contributions to an employer's scheme, knowing that he would be leaving after six months, would find the situation greatly to his disadvantage; he would get little, if any, benefit—many schemes have a minimum qualification period—yet he would be compelled to contribute.

It is common sense to take the package as a whole, and to say that if the Government insist on including pay and pensions, at the very least those should be compared not on a benefit by benefit basis but on an overall package basis. As we all know, comparing apples with pears is difficult, so I wonder whether the Minister can say a little more in his winding-up speech about how the guidance on the comparable treatment rule will be framed. It is not immediately apparent that requiring an employer to incur the same cost that he incurs in relation to a permanent employee would be an equitable solution, given the short-term disbenefits of including a fixed-term employee in a pension scheme. If a fixed-term worker is in post only for six months or a year, the value to the employee will be substantially less than the cost to the employer. I hope that the Government's methodology for doing the comparability calculation will take account of that fact.

We understand that the Government are concerned about pensions, which are a topical issue, but if they are really worried about the pension entitlements of people in the work force, especially those in atypical forms of employment who might be expected to provide their own personal pensions, they would do better to think about the £5 billion a year that they are raiding from pension funds as a result of the Chancellor's 1997 smash and grab raid, creating a legacy for the future that the next generation of pensioners will bitterly resent.

As usual, we discover that the grossest offenders in relation to fixed-term work are the Government and the public sector. I understand that about 70 per cent. of fixed-term workers on contracts of longer than two years, whom the Government will now categorise as in

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bogus fixed-term employment, are in the public sector, particularly in the health service and higher education. As I have said before in debates in this Committee Room, if the Government are concerned that an abuse is taking place, they should deal with the abuse in their own house by cleaning up their act on public sector employment before reaching for the sledgehammer of legislation. They should ensure that fixed-term contracts in the public sector do not run for longer than the Government think is reasonable.

Hon. Members who enjoyed serving on the Standing Committee on the Employment Bill will have received correspondence from the Association of University Teachers. Many teachers in higher education are now routinely employed on fixed-term contracts, as are many senior staff in the NHS. The reason is clear; the employing authority or body knows that it has funding for one or two years—perhaps because it has bid for ring-fenced money in various pots held by Secretaries of State to finance favoured schemes—but it does not know whether it can finance those posts in the longer term. It would be irresponsible for a publicly accountable body to engage someone in a permanent position when it has secured funding for only two years—a common situation in higher education and the NHS.

I have one specific question for the Minister. Fixed-term contracts on terms different from those for comparable permanent employees, or fixed-term contracts that are rolled over for more than two years, are to be allowed only when justified on objective grounds. The Association of University Teachers—and, I suspect, many other bodies in the public sector—would like to know whether the non-availability of recurring finance will be objective grounds for using fixed-term contracts. In other words, are the Government, on behalf of themselves as an employer, preparing to drive a coach and horses through their own regulations? If not, will the Minister give us further clarification, and perhaps an example or two, of what will be deemed ''objective grounds''?

While we are talking about the public sector, I should mention that the professionals employed in it, especially those in higher education, have argued strongly that successive fixed terms should have a maximum duration of two years. I am sorry if I misled the Committee earlier—the Government are, of course, proposing to set the limit at four years. The Association of University Teachers and others have argued strongly for the threshold to be set at two years. Will the Minister tell the Committee something about the decision-making process that led the Government to decide that four years was the appropriate level? Perhaps it has something to do with their track record as an employer and the expectation that they will continue to employ fixed-term workers in higher education and the national health service.

Will the Minister also tell us something about the requirements, on the termination of a fixed-term employee's contract, for a black-out period before the hiring of another person in the same position? Again, the public sector professional associations have argued that there should be such a period—12 months

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has been suggested—during which it should not be possible for the employer to hire another person in a similar position or to carry out the same work. What thoughts have the Government had on that issue and how will it be dealt with? I assume that it will be dealt with in the course of any tribunal consideration of an application for unfair dismissal on the termination of a fixed contract, but it would be interesting to hear what the Minister has to say about that.

I should like to raise the question of the interaction, or lack thereof, between the regulations and the proposed temporary workers directive. A significant number of fixed-term workers will be temporary workers placed by an agency that actually employs them. The Minister will correct me if I am wrong, but when we discussed the temporary workers directive last week I gained the distinct impression that the Government's view was that the appropriate comparator for equivalence of pay and conditions, or equivalence of conditions—the Government dispute that pay is within the scope of the temporary workers directive—was a fellow employee of the agency for which the employee works.

In these regulations, the Government, or the EU, have determined that the appropriate comparator is a fixed, permanent employee in the same workplace as the fixed-term worker. I favour the Minister's proposal of last week in respect of temporary workers. However, it would seem odd if there were two types of fixed-term worker in the same workplace, some hired directly by the employer and thus covered by this legislation, who had to have pay and conditions equivalent to those of the permanent employees, alongside others employed by an agency, whose appropriate comparator—for conditions only, not for pay—would be the fellow worker in that agency, following the Government's preferred outcome for the negotiations on the draft European temporary workers' directive.

Does the Minister not think that that would create a fairly serious distortion in employment practice? It is pretty obvious that employers who want to get round the fixed-term workers legislation will do so by employing fixed-term agency workers, thus driving a coach and horses through the intentions of the legislation. That may be a significant unintended outcome of how the two pieces of legislation interact. If the Minister does not agree, perhaps he will explain where the failure in logic lies.

I have discussed pensions, and I am glad that the Minister has said that he will deal with the issue. The Confederation of British Industry, in particular, has referred to the difficulty of analysing the monetary value of a given pension benefit.

The measure specifically prevents any contracting out of arrangements. The Minister will talk about the potential for abuse at the bottom end of the pay scale, but I hope that he acknowledges that many fixed-term workers operate at the top end. Many of those with scarce skills can command substantial premiums and they enter into fixed-term contracts because it is to their advantage to test the market every three or six

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months. I am thinking particularly of specialists in the IT sector, where many employers would give their eye-teeth to tie people down as permanent employees.

In negotiations with employers, such employees can choose whether to take a particular benefit or a cash alternative, and they may choose more cash remuneration over some benefits and protections of a permanent employee. The regulations will make that impossible by requiring people to forgo the cash alternatives that they could have negotiated and by applying to them the full panoply of employment protections and benefits that are made available to equivalent permanent employees in the same workplace. That is a regressive step, which reduces, rather than improves, labour market flexibility.

My next point relates to the serious implications of weakening the ability to dismiss a fixed-term worker at the end of his fixed term. It will come as something of a shock to some people to find that one cannot automatically fairly dismiss a fixed-term employee at the end of his fixed term. One might reasonably think that the contract of someone employed for a fixed term—let us say for the duration of a building contract or of a computer-commissioning project—ceases at the end of that period and that there is no question of an unfair dismissal having occurred. Surely the purpose of employing someone on a fixed-term contract is that the employer can openly and transparently say, ''I want you to work for me on this project, but I cannot offer you permanent employment.'' Implicit in that statement is the employer's recognition that he is likely to have to pay people a premium for working on a short-term basis and for forgoing the benefits—if they see them as such—of permanent employment.

However, an unfair dismissal can occur in the case of a dismissal at the end of a fixed-term contract, and the regulations will make it even more likely that a case will be brought against an employer for unfair dismissal when a fixed-term contract, knowingly entered into as such by both parties, comes to an end. It is not immediately obvious that that would be an equitable outcome, and I am curious as to why the Government feel that they need to move in that direction.

The Minister mentioned access to training. In the abstract, securing greater access to training might seem to be a positive thing, but I suggest that employers are unlikely to afford fixed-term workers on relatively short contracts substantial access to training. It is not in their interest to train such people—except in short-term, immediate-needs training and general skills development—because that is not in their commercial interest.

Is it not equally likely that, in workplaces with a significant number of fixed-term workers, the regulations will, perversely, have the opposite of the hoped-for intention and lead to fewer training opportunities for permanent employees? Employers will be anxious not to train people whom they expect to stay with them for only a few months—they will receive no obvious long-term benefit from such training, despite spending considerable sums.

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The Minister told us that regulatory impact assessment provided by the Department of Trade and Industry states that employees will benefit by between £75 million and £172 million as a result of the removal of discrimination against them, and by between £39 million and £73 million through increased trading opportunities. It also says that that will cost the taxpayer only £5 million. As we all know, however, someone has to pay, and the answer to that question is business. According to the regulatory impact assessment, and if my arithmetic is correct, it will pay to the tune of between £170 million and £368 million.

The regulatory impact assessment goes on to say—with, I suspect, the author's tongue stuck firmly in his or her cheek—that we will benefit from between £23 million and £146 million of increased productivity. I wish to probe the Minister on the rigorous analysis that has been undertaken to arrive at those rather sloppy figures. I do not often pay the Chancellor a compliment, but I suspect that anyone in the Treasury who said to him, ''Well, it will cost between £23 million and £146 million. We have done a rigorous analysis, but we cannot tell you any more precisely than that,'' would receive fairly short shrift and be sent packing.

Why are we being asked to rely on such a woolly figure? Where will the benefit arise? Who does the regulatory impact assessments?

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