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The Government response to the consultation on dispute resolution shows that the responses were broadly supportive of the conclusions of the review. Some 76 per cent. of respondents favoured repeal of the 2004 procedures and only 20 per cent. opposed it. Clauses 1 and 2 provide for the repeal of the procedures and of linked provisions on procedural unfairness, but the review also made it clear that repeal of the statutory procedures
must be accompanied by a package of other measures to encourage good practice in the resolution of workplace disputes and to ensure that Government-funded services promote early resolution as effectively as possible. So, to accompany the repeal, ACAS is revising its statutory code on disciplinary and grievance procedures. The draft code, which is out for public consultation, is concise and principles-based, and it will be supported by fuller non-statutory guidance.
Mr. Heald: The draft code does not seem to make clear the final date by which people must return their consultation replies. Is the Minister able to help by telling us what that date is? A date has been given in respect of the guidance—the end of this month—but it would be useful to know what the position is on the draft code.
Mr. McFadden: If the hon. Gentleman will allow me, I may come back to him on the precise date.
Michael Gibbons also argued for an incentive for compliance with the ACAS code. Clause 3 gives tribunals the discretion to adjust awards upwards or downwards by a maximum of 25 per cent. where they find that parties have unreasonably failed to comply with the code. The provision is designed to encourage compliance, but I emphasise that it is a discretionary power for employment judges to apply in the circumstances of the case, without the rigidity of the previous automatic link to the statutory procedures. The Gibbons review concluded that better advice and guidance and greater availability of conciliation as early as possible in a dispute could enable there to be more resolutions without recourse to the tribunal.
Mr. Charles Walker (Broxbourne) (Con): The Minister has said that the award can be varied upwards or downwards by 25 per cent. Will he explain to the House the circumstances in which there would be a downwards move?
Mr. McFadden: One such example might be where an employee had been found to have a case, but they had not complied with the code. Although they still had a case, the tribunal might judge that the award to them should be lowered by up to 25 per cent.
The Government are making substantial further investment—up to £37 million over three years—to improve the accessibility of the advice services provided by ACAS and to provide additional ACAS conciliation services for disputes before they become the subject of an employment tribunal claim. That is important, because we are not only repealing the statutory procedures in place; we are providing additional funding for the conciliation that we think can help to resolve more disputes earlier. ACAS has a good reputation among both employers and employees, and expanding its work in this way should give more support to the earlier resolution of disputes. Before I move on from discussing the Gibbons review, I am happy to inform the hon. Member for North-East Hertfordshire (Mr. Heald) that the closing date for the code consultation is 24 July.
The Bill also contains two legislative changes intended to maximise the effectiveness of ACAS conciliation. Clause 5 changes ACAS’s existing duty to conciliate in cases that are not yet the subject of a tribunal claim, on
request of the parties, into a power. That will enable ACAS to prioritise its case load effectively within its statutory powers. Clause 6 removes the time restrictions on ACAS’s duty to offer conciliation to parties already involved in employment tribunal claims, thus ensuring that ACAS conciliation is open to parties right up until the tribunal hears the case. One of the effects of the current system has been that people’s minds are often not concentrated fully until the tribunal hearing is almost upon them, and that provision will enable ACAS to continue to offer its services right up until that moment.
Michael Gibbons recommended that some tribunal cases, which hinge on the determination of facts in monetary disputes, could be dealt with more quickly. That could largely be achieved by changes to employment tribunal practice, but, again, legislative changes in the Bill provide support.
Clause 4 creates additional safeguards, should the Government decide to activate as yet unused powers for employment judges to decide cases using written evidence without a hearing. Clause 7 simplifies the process for claimants who have suffered direct financial losses arising out of the employer’s non-payment of money due—such losses could arise as a result of bank charges for unauthorised overdrafts. In those circumstances, the tribunal would be able to make an additional award against the employer to provide compensation for such losses, rather than leaving the claimant to bring a separate action in the small claims court.
Mr. Heald: The Minister will know that tripartite decision making in the tribunals is strongly supported. The ability of laymen from the employers’ side and the employees’ side to be part of the decision making is very important. Will what he has just said affect that in any way? Will we see more cases dealt with just by the chairman—the lawyer—and fewer dealt with by the lay members, who bring their important knowledge to bear?
Mr. McFadden: I agree about the value of lay members to the tribunal process, but the hon. Gentleman will be aware that it is not unheard of for tribunal judges to sit alone in some limited jurisdiction cases. We are talking about the capacity not only for tribunal judges to sit alone, but for them to decide cases without a hearing, in limited circumstances that are set out in the clause to which I referred.
The national minimum wage has been one of this Government’s proudest achievements. It was opposed by many, including the Opposition, before it was established. I see that the hon. Member for Perth and North Perthshire (Pete Wishart) is in his place, but his party did not turn up for the vote on Third Reading. Despite that, it has become an important and widely supported foundation of fair treatment in the labour market. Some 1 million workers continue to benefit from the assistance of the minimum wage.
Last week, the House approved regulations increasing the hourly rate from £5.52 an hour to £5.73 from October this year. Historically, low-paid groups have benefited more than most, including part-time workers and low-paid women. Since the introduction of the minimum wage, the lowest paid have seen their pay increase more quickly than the pay of many other workers.
The vast majority of employers willingly comply with the legislation, but that is not always the case and there are exceptions. Most businesses want to obey the law and treat their staff fairly but there are those who are willing to break the law by denying their staff the minimum wage. That impacts on those workers who are underpaid, but also enables those dishonest employers who flout the law to undercut the vast majority of law-abiding businesses that comply. That is not only unfair, but uncompetitive, and through the measures in this Bill we are determined to take tougher action against it.
We will crack down on the minority of rogue employers who fail to comply with the minimum wage. Between 2003 and 2006, we completed some 15,000 investigations and identified underpayments totalling £9.6 million. In the past year, the Government have helped to restore more than £3 million in arrears to more than 14,000 workers.
Mr. Walker: In the Minister’s experience, which sectors of our economy are most prone to breaking the law relating to the payment of the minimum wage?
Mr. McFadden: It is the traditionally lowest paid sectors. For example, this year we have targeted minimum wage enforcement on the hospitality industry, which has a record of low pay. Most employers in that industry are happy to abide by the law, but we have seen some cases of underpayment. We consulted last year on proposals for a new penalty for underpayment of the minimum wage and a fairer way of calculating arrears. Our conclusion was that the enforcement regime should be strengthened in several respects.
Clause 8 amends the method of calculating arrears owed to those who have been underpaid. They are currently paid at the rate in force at the time when the underpayment took place, which means that when arrears are paid to cover underpayments that took place over several years, the worker loses out from the upratings that have taken place in the meantime. The Bill will change that so that all arrears owed are paid at the current rate, helping to compensate for the potential loss of purchasing power since the offence originally took place.
Clause 9 introduces an enhanced penalty regime, reflecting the serious view taken by the Government of employers who still do not comply with the National Minimum Wage Act 1998. Under the new regime, employers will be liable to a penalty if it is found that they have been making underpayments. The penalty will be based on the employer’s level of non-compliance—that is, the total amount of underpayment—subject to a minimum penalty of £100 and a maximum of £5,000. We want to encourage quick repayment, so the penalty will be reduced by one half if the employer repays all arrears to workers within 14 days.
Mr. Walker: One thing that concerns many people in the House, particularly in relation to the hospitality industry, is the handling of tips. Will the Minister take any action against those restaurants and establishments that include tips as part of the salary, as opposed to treating them as a gratuity paid by the customer to a member of staff for excellent service?
Mr. McFadden: We have had representations on the subject, including from my hon. Friend the Member for Paisley and Renfrewshire, North (Jim Sheridan), who has been very active on that matter. To clarify, everybody in an industry where tipping is common is entitled to the minimum wage, but when tips and gratuities are processed through the payroll of the employer it can, at the moment, count towards the minimum wage. That issue has been raised and my right hon. Friend the Secretary of State has said that he is looking into it.
Clause 10 ensures that officers enforcing the minimum wage can take records relating to it in order to make copies of them. Clauses 11 and 12 enhance the way in which we can deal with the most serious offenders by increasing criminal investigative powers and enabling offences to be tried in a Crown court with the prospect of an unlimited fine.
The Low Pay Commission said in its report last year:
“We welcome this determination to tackle recalcitrant employers, especially as evidence presented to us during our consultations over the last few years has highlighted the ongoing problem of non-compliance.”
Those changes will ensure that everyone who is caught not paying will pay a penalty, with a potentially unlimited fine for the most serious cases. They send a strong message that paying the minimum wage is not an option but a requirement that must be taken seriously. Coupled with an increase in the enforcement budget of £11.6 million over four years, the measures underline the Government’s commitment to securing the fairest outcome for all.
As I said, good employers have nothing to fear from the changes. In fact, it is in their interests that there should be a tough enforcement regime that stops illegal underpayment of the minimum wage.
Mr. Geoffrey Clifton-Brown (Cotswold) (Con): Will the Minister give the House an idea of the number of serious cases that the powers in the Bill are designed to deal with? We are giving considerable investigative powers and powers to deal with serious cases on indictment. Therefore, will he give us some idea of how many cases we are talking about?
Mr. McFadden: Most employers are happy to pay when the problem is pointed out. I can give the hon. Gentleman the figures for last year as an example. The total number of employers who were found to be non-compliant with the minimum wage was 1,649. The total number of workers involved was just over 19,000 and the average arrears per worker were £202. That gives some idea of the scope of non-compliance that we know about at the moment.
Lorely Burt (Solihull) (LD): Will the Minister say how many non-compliant employers have been prosecuted as a result of not paying the minimum wage?
Mr. McFadden: According to the figures from last year, 59 enforcement notices were issued and 25 penalty notices. The emphasis has been on compliance. It is partly because we think that that needs to be strengthened that we are proposing the changes. Prosecution will still take place only in the most serious cases, but we think it right that there be a penalty for employers caught not paying the minimum wage.
Jim Sheridan (Paisley and Renfrewshire, North) (Lab): My hon. Friend will be aware that there is a national minimum wage for agricultural workers in Scotland, although it is under threat from the SNP Administration, who will scrap the Scottish Agricultural Wages Board. Is there anything that my hon. Friend’s Department can do in that event?
Mr. McFadden: My hon. Friend raises an important point. If anyone wants to know about the attitude of the SNP to the minimum wage, they should look not just at events a decade ago, when SNP Members did not even bother to turn up to vote for the minimum wage, but at their current proposals which, as he says, place a question mark over the Agricultural Wages Board for Scotland. I am sure that people in Scotland will have taken note of that question mark and are asking why such a thing should be the case.
Emily Thornberry (Islington, South and Finsbury) (Lab): Will my hon. Friend help us by giving some examples of non-compliance, so that people have a clearer idea why we need enforcement?
Mr. McFadden: I have already given the House some figures on non-compliance. As I said, 1,649 employers were found to be non-compliant last year and the average arrears per worker are £202. For someone earning £5.52 an hour on the minimum wage, £202 is a lot of money, which is precisely why we want to strengthen the enforcement regime to send a clear signal that arrears should not be regarded as an interest-free loan from employers to employees but should attract a penalty when discovered.
Sarah Teather (Brent, East) (LD): Has the Minister considered representations made by the unions and by my hon. Friend the Member for Twickenham (Dr. Cable) to the effect that employers should pay interest on arrears so that they do not have an interest-free loan at the expense of their employees?
Mr. McFadden: The payment of interest has been raised with us, but it would take us into complicated areas with regard to the tax treatment of the interest. I am sure that the hon. Lady would not want workers on the minimum wage to have to fill out a separate tax return simply because they had received a small amount of interest. Unfairness was developing in the way in which arrears were being paid because, as I said, upratings were not being taken into account. By taking upratings into account and paying all arrears at the current rate, even if the underpayment goes back several years, we shall deal with the issue of what could, in effect, have been an interest-free loan.
On cadet force adult volunteers, when the minimum wage was introduced, it was designed to enable the voluntary sector to continue to operate successfully and with certainty within the law, while minimising the chance of sub-minimum wage jobs emerging which could be unfairly badged as volunteering. Last year’s consultation showed that the rules were working well on the whole, but it also indicated that there was a need to clarify the position for cadet force adult volunteers, who occupy a unique role, as they are linked to the armed forces and undergo special training and security clearance.
Cadet force adult volunteers devote a large amount of time and energy to engaging 130,000 young people in the cadet forces. I think the whole House will agree that we should be grateful for their dedication to making a positive difference to the lives of so many young people. Any confusion that may arise about eligibility for the minimum wage could seriously damage the ability of the cadet forces to continue to provide their services. For that reason, clause 13 amends the National Minimum Wage Act 1998 to make it clear that cadet force adult volunteers do not qualify for the minimum wage. I stress the fact that the provision does not change the current situation, but puts it beyond doubt in law. It will enable cadet force adult volunteers to operate exactly as they do currently and it will not affect any entitlement to the minimum wage that they may have outside cadet force activity.
In addition to clarifying the position of cadet force adult volunteers, we have taken the opportunity to extend the range of expenses that voluntary workers can receive without triggering eligibility for the national minimum wage. That issue has been raised with us a number of times by voluntary organisations. Again, I am sure that hon. Members on both sides of the House want the voluntary sector to thrive and unnecessary barriers to volunteering to be removed.
Currently, voluntary workers can be reimbursed for expenses incurred only in the actual performance of their duties. That was designed to ensure that extra expenses were not used as a method to avoid paying the minimum wage. However, voluntary workers clearly necessarily incur expenses to perform their duties, such as those involving child care, travel or the cost of specialist clothing or equipment. We recognise that voluntary workers should not be financially burdened as a result of their activities. Clause 14 will therefore enable voluntary organisations to reimburse such expenses where they are legitimate. That will enable voluntary workers to continue to make their highly valuable contributions to society, while ensuring that they are not out of pocket in doing so.
Lorely Burt: I wonder whether the Minister can explain to the House the reasoning for excluding accommodation costs.
Mr. McFadden: Accommodation can be directly provided, as part of a voluntary activity, but we were not keen to have what could be large amounts of rent changing hands. Large sums could be involved, and that could take us into a grey area in deciding what was expenses and what was not. So we have widened the definition, and accommodation can be directly provided. That is the judgment that we reached on the issue.
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