Employment Bill

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Norman Lamb: The problem of the employee being on the premises is dealt with, as now, by suspending that employee. That is not a problem: the person is moved out of the way and a hearing is arranged. There is no need to move straight to a dismissal without going through the proper process. As I argued earlier, the employee's rights are reduced.

Alan Johnson: The ACAS code recommends precisely that an employee should be suspended. We have already been over the argument about setting basic minimum standards. Employment tribunals will still be considered, but as to insisting that the person stays in the workplace, I am pleased that the hon. Gentleman agrees that we need a modified code. His argument is similar to that expressed by some of my

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hon. Friends—why do we not implement the ACAS code. We have been round the course on that long enough. I hope that the Committee will accept that clause 34 stand part of the Bill.

Question put and agreed to.

Clause 34, as amended, ordered to stand part of the Bill.

Clause 35 ordered to stand part of the Bill.

Clause 36

Removal of exemption for small employers

Mr. Charles Hendry (Wealden): I beg to move amendment No. 68, in page 39, line 31, leave out from 'procedures,' to end of line 32 and insert

    'subsection (3) shall have effect so that the note need not comply with the specified provisions where the relevant number of employees was less than six'.

The amendment is straightforward. It is designed to take account of the pressures facing small businesses and reduce the impact of these measures on companies employing five people or fewer. At present, the position is that 20 people are enough to allow a company to be exempted. We have not pressed for that because our main concern is with the smallest companies, the micro-firms, which are most vulnerable to the bureaucracy entailed by the provisions.

The sort of companies that we are talking about, with five employees or fewer, find it most difficult to survive, even in good times. They face a welter of rules and regulations. We need to go back to how people start a business. They do so not because they want to be tax collectors for the Government or to fill in forms all day, but because they have an idea that they want to pursue. They may not have run a business before and it is quite a brave step. They are not ready for the volume of paperwork that comes their way.

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The most difficult time for that new business, as I know from experience, is taking on the first employee. It represents a significant act of faith. That person's salary will probably not yet be covered and so one assumes that one can bring in enough new business to cover it, other costs and make a profit. A range of other factors also come into play. One may be paying national insurance contributions for the first time and filling in pay-as-you-earn returns. It may push the business above a value added tax threshold. There may be additional insurance implications and one is taking on responsibility for that person and possibly his family.

Perhaps all that is best illustrated by a couple of brief examples. A plumber who has worked on his own and takes on a mate will often not just have to go through the elements that I have described, but may have to buy a new van. He has his mind on a whole range of different things. He may have to train that person and will be distracted from the job in hand while he does so. He then must work that much harder to find new business to ensure that the business survives and prospers. He may have left school at 16 and not be

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particularly well educated. The minefield of forms and requirements to fill in bits of paper will be alien to him. He is certainly not a lawyer and probably not even a great wordsmith. He is simply someone who wants to run his business as well as he can. Micro-businesses like that do not need an additional level of bureaucracy.

The second example is a small corner shop. The guy gets up at 4 am when the papers arrive and is still there late into the evening filling in his books. He will find that his whole life is taken over. When he takes on his first employee, he takes on those additional responsibilities and he does not want further legal requirements. There may also be language problems. While he may know how to run a business hugely successfully, English may not be his first language and he will be dealing with legislation. Although some small firms, particularly lawyers and accountants, may specialise in dealing with details, the overwhelming majority of companies that employ five people or fewer are not in that category. They are small businesses that are often struggling to survive. We should bear such people in mind and try to make their lives that much easier.

Norman Lamb: There seems to be an inconsistency here. Last week, the Opposition argued rightly that it was important for things to be in writing for small businesses. We talked about the corner shop at length and the fact that if things were not in writing, it left scope for ambiguity and uncertainty about what was intended. Yet today, the hon. Gentleman seems to argue that those things should not be in writing. Is there not an inconsistency between the arguments last week and this week?

Mr. Hendry: Not at all, last week we argued that the people who most need things in writing are small business people who are most vulnerable. Today we are saying that there is a category of companies that should be exempted completely.

Mr. George Osborne (Tatton): We pointed out that the measures should not apply to businesses under the five-employee threshold. The Minister conceded that many micro-businesses, which he defined as businesses employing between one and four people,

    ''will not use written communication to any great extent. Indeed, some may have limited clerical facilities.''—[Official Report, Standing Committee F, 13 December 2001; c. 160.]

We accept that argument, which is why we want to exclude micro-businesses from the procedures.

Mr. Hendry: I am grateful to my hon. Friend for that further clarification. I hope that the hon. Member for North Norfolk accepts that there is no inconsistency between the two positions.

I hope that the Minister will consider the issue carefully. I know that he has an interest, as we do, in ensuring that the welter of bureaucracy that small businesses must deal with is alleviated. The Federation of Small Businesses told us that the measure may be the last straw for small businesses. They say that they are also concerned that overly prescriptive regulations soon become outdated and damage relationships in

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small firms, where most proprietors do their utmost to help in times of emergency. They are profoundly concerned about the volume of legislation and regulations that already apply. I hope that the Minister will look favourably upon the amendment.

Rob Marris: I seek clarification. If I read the amendment correctly, it would set a trap for small employers. Let us take the example of the plumber who employs his mate. The mate is the only employee; therefore, because there are fewer than six employees, the plumber does not have to give his mate a note of the statutory minimum procedure under schedule 2, on which the Committee has agreed. They fall out, the mate goes to the citizens advice bureau and finds out about the minimum procedure, of which the plumber was not aware. The mate then wins an employment tribunal case under section 98A(1), as inserted by clause 34, because the plumber did not comply with the statutory minimum procedure in schedule 2.

The amendment would make the cure worse than the disease. When someone becomes an employer, whether a plumber or an accountant, they should get it right and learn good habits from day one. That way, they would not be subject to traps such as the one that the amendment would set.

Mr. Mark Prisk (Hertford and Stortford): I apologise for not being with the Committee earlier this afternoon, Mr. Benton.

I support the amendment because I believe that it would restore the principle of exempting the smallest enterprises from the burden of prescriptive disciplinary procedures. That may relate to the argument of the hon. Member for Wolverhampton, South-West.

The Bill attempts to change existing procedure under the Employment Rights Act 1996. I do not think that anyone in the Committee doubts the need for good management practice, especially in personnel matters. As a former small business man, I know that an organisation is only as good as its staff. I understand that some firms merely pay lip service to treating their staff appropriately. However, in my experience, the vast majority of businesses, large and small, recognise that only good personnel management will enable them to prosper.

Is it right, therefore, to impose on small businesses a prescriptive solution for what may be a sensitive issue? I refer to an excellent submission on the Bill by the Industrial Society. It raised several questions about the balance between the efficacy of legislation and good management practice. It states:

    ''The best means of ensuring management improves its performance is to promote awareness of the cost benefits of good management and to provide guidance on good practice, especially among small employers. It is very relevant in considering the numbers of tribunal claims involving small firms to remember''—

my hon. Friend the Member for Wealden made this point earlier—

    that many of them do not have expert employment relations or HR''—

human resources—

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    advice to hand. Consequently, they can react without knowledge or rashly. Saying that a procedure must be followed is of itself no guarantee of quality.''

That is an important point, because the quality of the measures that clause 36 would impose has been called into question. We have heard how the three-step procedure in some ways falls short of the existing ACAS code and might, in some ways, conflict with it. To reinforce my hon. Friend's point about the perception of the changes from the point of view of the small employer—whether a business or a charity—we should remember what would be involved.

First, the small employer would be asked to draft a new written statement for each member of staff. Then, not having expertise in the matters in question, he would be required to take legal advice to ensure that the statement that had been drafted complied with the Bill. The employer would then be required to establish whether he had been able to comply in every respect with the ACAS code or the three-step procedure. We debated earlier whether employers would have to bear in mind the nature of the ACAS code and not just the statutory procedures. There was some uncertainty on that point. The worry arises before all the procedures are required, and even before a case comes to fruition or a dispute takes place, when the three-step procedure comes into force.

For all the reasons that I have given, amendment No. 68 provides protection for the smallest of employers. The Federation of Small Businesses has, in recent correspondence, stated:

    ''The Federation of Small Businesses is concerned that the Bill proposes the end to exemptions for small businesses with one single stroke. Our view is that this will have a devastating effect on the ability of Small Businesses to create jobs.''

All members of the Committee would want to bear that in mind. I understand why people sometimes want to know why there is constant concern about how measures will affect small business. There is a danger that hon. Members who have not worked in a small business—a one or two-man operation—will ask, ''What is the problem? Why is it so difficult?''

First, it has been proved that new regulations place a disproportionate burden on the smallest firms, particularly with respect to staffing and payroll. As an example, the administrative costs of the working families tax credit fall on businesses, as we have heard. The firms that the amendment is intended to protect, which employ from one to five members of staff, face yearly costs of about £25 million to administer the working families tax credit. Yet nine out of 10 of those micro-businesses do not employ and have never employed anyone to whom the tax credit is relevant. That type of regulation has a disproportionate effect and the use of clause 36 to remove the exemption would lead to similar problems.

Secondly, as a simple matter of practicality, such regulation seems right and proper in a large organisation of perhaps 50 or 100 people, where there may be a gap between the employee and the manager. One can understand the need for a clear procedure there to avoid confusion. However, in a place where up

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to five people are employed, that seems an unnecessary intrusion. Also, there is a danger that the Government base their proposals on shaky foundations. I point to the recent survey by the Forum of Private Businesses, which states:

    ''Only 60 per cent. of small firms have a written statement of employment, so this is a shaky foundation on which to build formal dispute resolution procedures''.

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The amendment is essential because the clause is bad for jobs. Sole traders need to be encouraged to employ more people. We must do whatever we can in politics and in government to ensure that hurdles to the creation of employment are reduced wherever possible. By not amending the clause and allowing the burden to fall again on micro-businesses, we will affect the most vulnerable on the labour market—those who are on its edge and might need a job the most.

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