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Employment Bill [HL]


These notes refer to the Employment Bill [HL] as brought from the House of Lords on 3rd June 2008 [Bill 117]




1.     These explanatory notes relate to the Employment Bill as brought from the House of Lords on 3rd June 2008. They have been prepared by the Department for Business, Enterprise and Regulatory Reform in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

2.     The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.

Bill 117—EN     54/3


3.     The purposes of the Employment Bill are summarised in the following paragraphs. They are diverse, repealing and amending existing legislation in the field of employment and trade union law.

4.     In these notes the following abbreviations are used:

A1P1Article 1 of the First Protocol (of the European Convention on Human Rights)
AcasThe Advisory, Conciliation and Arbitration Service
AMWAgricultural Minimum Wage
CFAVsCadet Force Adult Volunteers
EA 2002The Employment Act 2002
EAA 1973The Employment Agencies Act 1973
ECHREuropean Convention on Human Rights
ERA 1996The Employment Rights Act 1996
ETA 1996The Employment Tribunals Act 1996
HMRCHM Revenue & Customs
NMWNational Minimum Wage
NMWA 1998The National Minimum Wage Act 1998
Statutory proceduresStatutory workplace dispute resolution procedures
TCEA 2007The Tribunals, Courts and Enforcement Act 2007
TULRCA 1992The Trade Union and Labour Relations (Consolidation) Act 1992

5.     The Bill comprises 22 clauses and is divided as follows:

  • Clauses 1-7 make certain changes to the law relating to dispute resolution in the workplace. In particular, they repeal the existing statutory dispute resolution procedures and related provisions about procedural unfairness in dismissal cases (clauses 1 and 2). They also: confer on employment tribunals discretionary powers to amend awards if parties have failed to comply with a relevant Code of Practice (clause 3); make changes to the law relating to conciliation by Acas (clauses 5 and 6); amend tribunals' powers by which they may reach a determination without a hearing (clause 4); and allow tribunals to award compensation for financial loss in certain types of monetary claim (clause 7).

  • Clauses 8-12 make changes to the enforcement of the national minimum wage by: introducing a new method of calculating arrears (clause 8); replacing the current enforcement and penalty notices with a single notice of underpayment which will include a civil penalty against employers who have not complied with NMW requirements (clause 9); increasing the civil enforcement powers available to officers enforcing the NMW (clause 10); making offences under NMWA 1998 each way offences (capable of being tried in a Crown court - with a potentially unlimited fine - or a Magistrates' court) (clause 11); and increasing the criminal investigative powers available to officers enforcing the NMW (clause 12).

  • Clause 13 clarifies that CFAVs do not qualify for the NMW.

  • Clause 14 amends section 44 of NMWA 1998 to broaden the type of expenses that can be reimbursed to voluntary workers without triggering eligibility for the NMW.

  • Clauses 15-16 amend the employment agency standards enforcement regime by making offences under EAA 1973 each way offences and conferring additional inspection powers on the Employment Agency Standards Inspectorate. Clause 17 enables partners to be prosecuted where offences have been committed by partnerships in Scotland and any of the partners are culpable.

  • Clause 18 amends trade union membership law to ensure UK compliance with the ruling of the European Court of Human Rights on Aslef v UK 1. The amendments enable trade unions to apply membership rules which prohibit individuals who belong or who have belonged to a particular political party from membership of the trade union provided certain conditions are satisfied.

1 (Application no: 11002/05)

  • Clauses 19-22 deal with general details of the Bill.


6.     The Employment Bill was included in the draft legislative programme announced by the Prime Minister on 11 July 2007.

7.     Several consultation documents were issued on the matters included in the Bill. These were:

  • Clauses 1-7: "Resolving Disputes in the Workplace" 2 (21st March - 20th June 2007);


  • Clauses 8-12 and 15-16: "National Minimum Wage and Employment Agency Standards Enforcement" 3 (16th May - 8th August 2007);


  • Clause 13-14: "National Minimum Wage and Voluntary Workers" 4 (12th June - 4th September 2007);


  • Clause 18: "European Court of Human Rights Judgment in Aslef v UK - Implications for Trade Union Law" 5 (16th May - 8th August 2007).


8.     Government responses to these consultations were published on the following dates:

  • Dispute resolution - 19th May 2008

  • National Minimum Wage and Employment Agency Standards Enforcement - 6th December 2007

  • National Minimum Wage and Voluntary Workers - 27th November 2007

  • Trade union membership - 28th November 2007


9.     The Bill consists of textual amendments to existing Acts. On the whole, the Acts in question extend to England and Wales and Scotland. But NMWA 1998, which is amended in clauses 8 to 14, also extends to Northern Ireland.


10.     The Bill does not legislate in devolved matters. Therefore, no Legislative Consent Motion is being sought for Scotland. Because the Sewel Convention provides that Westminster will not normally legislate with regard to devolved matters in Scotland without the consent of the Scottish Parliament, if there are amendments which relate to such matters which trigger the Convention, the consent of the Scottish Parliament will be sought.


11.     The Bill does not legislate in relation to matters which are devolved in Wales. No provisions apply solely to Wales.

Northern Ireland

12.     The Bill does not legislate in transferred matters. Therefore, no Legislative Consent Motion is being sought for Northern Ireland. If there are amendments which relate to transferred matters, the consent of the Northern Ireland Assembly will be sought. Clauses 8 - 14, which amend NMWA 1998, extend to Northern Ireland.


Dispute resolution

Clause 1: Statutory dispute resolution procedures

13.     EA 2002 provides, in sections 29 to 33 and Schedules 2 to 4, for statutory workplace dispute resolution procedures (referred to in these notes as "the statutory procedures").

14.     The statutory procedures came into force in October 2004 and introduced mandatory "three step processes" to be followed in the workplace to handle disciplinary and dismissal matters raised by an employer, and grievances raised by an employee. These processes each require written notification of the issue to the other side, a meeting between the two sides and (if appropriate) an appeal. Additionally, where the employer or the employee respectively fails to use the minimum statutory procedures, section 31 of EA 2002 requires a tribunal to increase or decrease any award.

15.     When the procedures were introduced, the Government undertook to review their operation and impact after two years. The independent Gibbons Review ["A Review of Employment Dispute Resolution in Great Britain", DTI March 2007 URN 07/755] concluded that the statutory procedures, whilst right in principle, have as a result of their mandatory nature led to unforeseen consequences. In particular, they have tended to lead to disputes becoming formalised, and lawyers getting involved, at an earlier stage than had previously been the case. Following a full public consultation ["Resolving Disputes in the Workplace", DTI March 2007 URN 07/734], the Government has decided to repeal the statutory procedures.

16.     Clause 1 therefore repeals sections 29 to 33 and Schedules 2 to 4 to EA 2002, thus removing the statutory procedures in their entirety.

Clause 2: Procedural fairness

17.     Prior to 2004, the handling of breaches of procedure in unfair dismissal cases was based on case law, and in particular the House of Lords judgment in Polkey v A E Dayton Services Ltd [1988] AC 344, which provided that a dismissal could be unfair purely on procedural grounds, but that in those circumstances the tribunal should reduce or eliminate the compensation payable (other than the basic award) to reflect the likelihood (if any) that the dismissal would have gone ahead anyway if the correct procedures had been followed. At the same time as the statutory procedures were introduced in 2004, a new section 98A was inserted into ERA 1996. This section provides that a dismissal where an employer does not complete the statutory procedures is automatically unfair. It also provides that a tribunal may disregard any failure by the employer to comply with other (e.g. workplace based) procedures in respect of the dismissal, if following such other procedures would have had no effect on the decision to dismiss.

18.     Following the public consultation, the Government has decided to repeal section 98A of ERA 1996 in its entirety, so as to revert to the situation which applied previously based on the Polkey line of cases.

Clause 3: Non-compliance with statutory Codes of Practice

19.     As noted in paragraph 14, section 31 of EA 2002 requires a tribunal to increase or decrease any award where an employer or employee fails to follow the statutory procedures. Section 31 of EA 2002 is repealed by clause 1 of this Bill and clause 3 provides for an alternative mechanism to encourage compliance with a relevant Code of Practice which relates exclusively or primarily to procedure for the resolution of disputes issued under the power described below.

20.     Under Part IV, chapter 3 of TULRCA 1992, the Secretary of State and Acas may issue Codes of Practice subject to Parliamentary approval ("statutory codes"). Section 207 of TULRCA 1992 provides that a statutory code, although not legally binding, is admissible in evidence and can be taken into account by the employment tribunal.

21.     In order to provide an incentive to follow recommended practice, clause 3 contains provisions giving employment tribunals the discretion to vary awards for unreasonable failure to comply with any relevant Code of Practice relating to workplace dispute resolution, by introducing a new section 207A and Schedule A2 to TULRCA 1992. The relevant Code of Practice is one which relates exclusively or primarily to procedure for the resolution of disputes. Of the existing six codes issued under TULRCA, such a definition only applies to the Acas Code of Practice on disciplinary and grievance procedures, which Acas is substantially revising for reissue at the time the Bill comes into force.

22.     Subsection (2) of the new section 207A provides that the employment tribunal may, if it considers it just and equitable, increase any award to an employee by up to 25% if it appears to the tribunal that the employer has unreasonably failed to comply with the relevant Code of Practice.

23.     Subsection (3) of the new section 207A provides that the employment tribunal may, if it considers it just and equitable, decrease any award to an employee by no more than 25% if it appears to the tribunal that the employee has unreasonably failed to comply with the relevant Code of Practice.

24.     Subsection (5) of new section 207A provides that, where an award is adjusted under new section 207A and also under section 38 of EA 2002 (which provides that awards for claims under specified jurisdictions must be adjusted where it transpires during those proceedings that the employer has failed to give the statutory statement of employment particulars) the adjustment under new section 207A is to be made first.

25.     New Schedule A2 lists the jurisdictions covered by this clause. Together, the listed jurisdictions cover the overwhelming majority of tribunal claims. Subsection (6) of the new section 207A confers power on the Secretary of State to add or remove jurisdictions from the list.

Clause 4: Determination of proceedings without hearing

26.     Section 7(3A) of ETA 1996 provides that employment tribunals may be authorised to decide cases without any hearing. Although this wide power was inserted into ETA 1996 in 2002, it has not been used. All cases in the employment tribunal are currently decided at a hearing before a full tribunal panel or a chairman sitting alone.

27.     A process for settling monetary disputes on the basis of documentation submitted to the tribunal and without the need for tribunal hearings will be introduced into the employment tribunal system. The introduction of this process does not in general require primary legislation.

28.     Clause 4 inserts a new section 7(3AA) and 7(3AB) into the ETA 1996 to specify that employment tribunal procedure for determinations without hearing must ensure that all parties to the proceedings consent in writing to the process. The clause also ensures that tribunals may continue to issue default judgments without a hearing, and that the consent of parties is not required in these circumstances.

Clause 5: Conciliation before bringing of proceedings

29.     Clause 5 introduces amendments to section 18 of ETA 1996, which provides for the circumstances in which Acas is obliged, or has the power, to offer conciliation.

30.     Section 18(3) of ETA 1996 applies to conciliation in situations where a person claims he could bring tribunal proceedings, but has not yet done so. It provides that where either the person who might bring proceedings, or the employer against whom proceedings might be brought, has requested conciliation, the Acas conciliation officer has a duty to attempt to conciliate a solution to the dispute (where both parties have made the request), or (if only one party has made the request) to do so where he considers there is a reasonable prospect of success. Subsection (2) amends section 18(3) to replace this obligation with a discretionary power to conciliate in a pre-tribunal dispute without requiring the Acas officer to justify the reasons for his decision whether or not to offer conciliation. The intention of the amendment is to enable Acas to prioritise cases where demand for conciliation exceeds resources available for conciliation and to relieve Acas of the obligation to offer conciliation in pre-tribunal disputes where there is no prospect of success.

31.     Section 18(5) of ETA 1996 provides that, where a person claims that an unfair dismissal complaint under section 111 of ERA 1996 could be, but has not yet been, made, the Acas officer must act as if that claim had been made and, as provided for in section 18(4) of ERA 1996, as part of the conciliation exercise, attempt to secure reinstatement or reengagement (or additional compensation in lieu of such) for the dismissed employee. Subsection (3) repeals that duty and substitutes a discretionary power to seek such reinstatement or reengagement in pre-tribunal disputes.

Clause 6: Conciliation after bringing of proceedings

32.     Section 18(2A) of ETA 1996 requires that, where employment tribunal rules provide for the postponement of employment tribunal hearings for a fixed period, to allow an opportunity for conciliation and settlement, Acas's duty to conciliate continues during that postponement but then becomes a discretionary power.

33.     Section 19(2) of ETA 1996 requires additionally that, where employment tribunal rules provide as set out in section 18(2A), those rules must also provide that the parties be notified of the possibility that conciliation services may be withdrawn after expiry of the postponement.

34.     The Gibbons Review of the statutory procedures, confirmed by the responses to the government consultation, concluded that disputes were not generally being settled earlier, despite the parties' knowledge that after the expiry of the fixed conciliation period Acas would not be required to offer assistance in reaching a settlement.

35.     Clause 6 repeals section 18(2A) and 19(2) of ETA 1996, with the effect that Acas's duty to conciliate in employment tribunal cases subsists throughout the proceedings until the tribunal delivers a judgment.

Clause 7: Compensation for financial loss

36.     Clause 7 amends ERA 1996 so as to give employment tribunals the power to order employers to compensate workers for any financial loss sustained as a result of unlawful deduction from wages or payments made to the employer in contravention of sections 15 and 21(1) of ERA 1996, or non-payment of redundancy awards.

Unlawful deduction from or unauthorised payment of wages

37.     Sections 13(1) and 15(1) of ERA 1996 provide that an employer may not make unauthorised deductions from a worker's wages and sections 18(1) and 21(1) of ERA 1996 provide for limits to authorised deductions. Where any of these provisions are contravened, a worker has a right to remedy by way of complaint to an employment tribunal under section 23(1) of ERA 1996.

38.     Section 24 of ERA 1996 provides that, where an employment tribunal finds a complaint made under section 23(1) to be well founded, it will make a declaration to that effect and order the employer to pay or as the case may be repay the worker the amount of the deduction or payment.

39.     The remedies available in sections 23 and 24 of ERA 1996 do not, however, extend to compensation for losses arising out of the non-payment or unauthorised deduction or payment, for example additional bank charges or interest charges. It is possible for a separate claim for such losses to be made by workers who are no longer employed by the defaulting employer, but only in the county court as part of an action for breach of contract by means of the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994 6 or its equivalent in Scotland 7.

6 (SI 1994/1623)

7 (SI 1994/1624)

40.     Clause 7 inserts a new provision into ERA 1996 (new section 24(2)) so as to empower employment tribunals to order an employer to make, in addition to the payment (or repayment) of the amount of the unauthorised deduction or payment, a compensatory payment to reflect any financial loss suffered by the worker as a result of the employer's default. The tribunal would calculate any such amount so as to be appropriate in all the circumstances. This is intended to enable workers to be fully compensated for their losses, and simplify the process of recovery for those whose employment relationship has ended by removing the need to make a separate county court claim.

Non-payment of redundancy payments

41.     ERA 1996 section 163 provides that any questions relating to the right of an employee to a redundancy payment or the amount of the redundancy payment shall be referred to and determined by an employment tribunal.

42.     Clause 7 introduces a new subsection (5) to section 163 of ERA 1996 which provides that, where an employment tribunal determines that an employee has a right to a redundancy payment, the tribunal can order that an additional payment be made to compensate the worker for any financial loss attributable to the non-payment of the redundancy payment.

National Minimum Wage

43.     Under NMWA 1998, all qualifying workers are entitled to be paid at least the rate of the NMW, as set by regulations made by the Secretary of State. Section 13 allows the Secretary of State to appoint officers for the purposes of NMWA 1998, including its enforcement provisions. The Secretary of State has appointed HMRC to enforce the NMW.

44.     Over and above the NMW, there are minimum wage rates for agricultural workers. The relevant legislation is: for England and Wales, the Agricultural Wages Act 1948; for Scotland, the Agricultural Wages (Scotland) Act 1949; and for Northern Ireland, the Agricultural Wages (Regulation) (Northern Ireland) Order 1977. This legislation provides that the enforcement mechanisms in NMWA 1998 apply to the enforcement of the AMW under the respective statutes listed. Agricultural wages are devolved matters in respect of Scotland and Northern Ireland.

Clause 8: Arrears payable in cases of non-compliance

45.     Clause 8 amends section 17 of NMWA 1998. The aim of this clause is to provide for increased remuneration, above that currently provided for, where arrears of the NMW have been outstanding over a period of time, to take account of the length of time that arrears have been owing.

46.     Subsections (1) to (5) together amend section 17 NMWA 1998 so that the arrears to which a worker is entitled under that section are the higher of either: the arrears calculated in accordance with section 17(2); or the arrears calculated in accordance with the methodology set out in section 17(4). The formula in section 17(4) divides the amount of the underpayment (A) by the NMW rate applicable at the time of the underpayment (R1). The amount of the underpayment is thereby converted into a notional period of unpaid time. This notional period is then multiplied by the NMW rate applicable at the time the arrears are determined (R2). If the NMW rate at the time the arrears are determined is higher than the NMW rate in force at the time the worker was underpaid, the worker is entitled to a greater amount which takes account of the length of time he remained unremunerated.

47.     Section 17(5) provides that where a worker is paid the full arrears he is entitled to in relation to a pay reference period, he has no further entitlement to arrears in relation to that pay reference period. Section 17(6) provides that where a worker is paid part of the arrears owed under section 17, his entitlement to arrears calculated under either section 17(2) or 17(4) (whichever is greater) shall be reduced by that sum.

48.     Subsection (6) consequentially amends the formula above for the purposes of its application to the Agricultural Wages Act 1948 to give effect to the provisions as regards that Act.

49.     Subsection (7) provides that none of the amendments to section 17 shall have effect in respect of the Agricultural Wages (Regulations) (Northern Ireland) Order 1977 and the Agricultural Wages (Scotland) Act 1949. This is because, as noted above, agricultural wages are not matters which are reserved by the respective devolution settlements.

50.     Subsection (8) provides that the new section 17 and its method of calculating arrears shall have effect notwithstanding that the worker's entitlement arose before the commencement date, where a worker has not received full additional remuneration before clause 8 comes into force.

Clause 9: Notices of underpayment

51.     Sections 19 to 22F of NMWA 1998 contain provisions concerning the issuing of enforcement notices and penalty notices. At present, if an officer believes that a worker or workers have not been paid the national minimum wage by an employer, the officer may issue an enforcement notice requiring that the arrears be paid. If the employer fails to comply in full with the enforcement notice within 28 days of its service, the officer has the power to take further action by bringing a case against the employer through the courts or tribunals and/or issuing a penalty notice. A penalty notice imposes a financial penalty on the employer, related to the period of his failure to comply with the enforcement notice. An employer can appeal an enforcement notice and/or a penalty notice to an employment tribunal (in Northern Ireland, to an industrial tribunal).

52.     Subsection (1) of clause 9 inserts new sections 19 to 19H into NMWA 1998 to replace the existing enforcement and penalty notices with a new single notice of underpayment.

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