Employment Bill [Lords]

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Mr. McFadden: I am grateful to my hon. Friend for raising that important and valid issue. It has been raised a number of times with me by Citizens Advice, which has campaigned long and hard on it, and is campaigning for proper enforcement of tribunal awards. This is about not an extension of the law, but its enforcement.
In July, I met representatives of Citizens Advice with the Under-Secretary of State for Justice, my hon. Friend the Member for Lewisham, East (Bridget Prentice), to discuss the matter. I put on record my thanks to my hon. Friend for taking the matter so seriously, particularly in recent months as we have been discussing it with Citizens Advice.
As the hon. Member for Huntingdon said, the new clause follows on from a similar one tabled in the other place during earlier stages of consideration of the Bill. It would allow the Secretary of State to provide by regulation for an organisation or organisations to enforce employment tribunal decisions that remained unpaid on the due date, which is normally 42 days after judgment on behalf of the claimant.
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As Lord Bach said in the other place, the Government recognise the need to do more. He laid out some steps that are being taken by the Ministry of Justice, which has responsibility for the issue. I will recap those briefly. First, there are measures in the Tribunals, Courts and Enforcement Act 2007 that, when implemented in the secondary legislation to which the hon. Member for Birmingham, Yardley referred, will allow unpaid awards and legally binding agreements brokered by ACAS to be automatically registered as country court orders so that the full range of enforcement options can be pursued.
Importantly, unpaid awards will be included on the register of judgments, orders and fines, which is often consulted by banks and credit companies when considering applications for credit. The Ministry of Justice is working to introduce those measures by April next year, which is the same date as the implementation date for the changes to the dispute resolution system which we have been discussing.
Secondly, the Ministry of Justice is undertaking research to explore the extent of non-payment. I appreciate that there has been research by Citizens Advice, which has been referred to, but the Government are carrying out research on the issue. The hon. Member for Huntingdon asked about the dates for that research. It started on 8 September and will report by 26 November. Citizens Advice has helpfully published its own research, which will contribute to that work. Taken together, the two studies will provide detailed evidence of the extent to which employment tribunal awards remain unpaid. That will give the Ministry of Justice a firm basis for considering what further steps are appropriate, bearing in mind the changes in the 2007 Act.
I have met Citizens Advice to discuss the issue and I understand the difficulty for vulnerable workers. It is important that the Committee is aware that there is an exemption from court fees for claimants in receipt of income support and the other key means-tested benefits, and for those whose annual income is below a certain threshold. That includes fees for enforcement directly through the county courts, but not for enforcement by High Court enforcement officers.
I am pleased to say that the Ministry of Justice is committed to continuing to work with Citizens Advice to review and approve where possible the process for the enforcement of awards. One option that will be discussed is the Citizens Advice proposal for High Court enforcement officers in this area. Ministry of Justice officials are already in touch with Citizens Advice on the matter.
In summary, I believe that this is a valid issue to raise. We all want people who win their case at tribunal to get the award to which they are entitled. I take this matter seriously. I assure the Committee that the Ministry of Justice also takes it seriously. We will maintain a dialogue with Citizens Advice on it. I do not think we can say at this stage whether the method proposed in the new clause is the right one. However, I accept the validity of the issue and guarantee that we will maintain a dialogue with Citizens Advice.
John Hemming: I understand from the Minister’s response that there is automatic registration of judgments for ACAS agreements but not for tribunal agreements. One would presume that the objective is to ensure the automatic registration of judgments from the tribunal in the county court. That could be done by the employment tribunal service itself.
Mr. McFadden: I think I am right in saying that that does include the automatic registration of tribunal judgments. When I mentioned ACAS-brokered agreements, I did not mean that only those were registered and not employment tribunal judgments.
John Hemming: On that basis, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.

New Clause 4

Fair Employment Commission
‘(1) The Secretary of State shall appoint a body, to be known as “the Fair Employment Commission”, to discharge the functions conferred or imposed on the Fair Employment Commission under this section.
(2) The Secretary of State may refer the matters specified in subsection (3) to the Commission for their consideration.
(3) Those matters are—
(a) the operation of the National Minimum Wage Act 1998;
(b) the operation of the Employment Agencies Act 1973;
(c) the operation of the Health and Safety at Work Act 1974;
(d) the operation of the Gangmasters (Licensing) Act 2004; and
(e) such matters relating to this Act as the Secretary of State thinks fit.
(4) In considering the matters specified in subsection (3) the Commission may carry out such inspections of workplaces as it considers necessary.
(5) Where matters are referred to the Commission under subsection (3) above, the Commission shall, after considering those matters, make a report to the Secretary of State which shall contain the Commission’s recommendations about each of those matters.’.—[John Hemming.]
Brought up, and read the First time.
John Hemming: I beg to move, That the clause be read a Second time.
This is another probing provision, which looks at having a body where the various stakeholders—as is now the phrase—can argue their case so that the law can be kept in view. I am interested in hearing the Minister’s views on that.
Mr. Djanogly: The hon. Gentleman said that this was a probing provision. I have two concerns about it. First, the emphasis once again seems to be on a new body to deal with problems of enforcement, and I fear that that might create undue costs for not enough benefit. The Bill already contains provisions to strengthen the investigative powers of the employment agency standards inspectorate in enforcing the Employment Agencies Act 1973 and related regulations, including powers to allow EAS inspectors to demand and secure copies of financial information from an agency or suspect directly, or from their bank or building society. I suggest that we give some time at least for those provisions to bed in and take effect, and that we then review the effectiveness of what we have done in this Bill, rather than too quickly forming a new body with sweeping powers of investigation.
My second concern is that a balance must be maintained between the freedom of business to go unhindered by arbitrary state intervention and that of the individual to fully enjoy the rights afforded to him by law. I am concerned that such a balance is not achieved by the new clause, and that we would simply be creating another body and yet more red tape.
Mr. McFadden: The idea of a fair employment commission was suggested in a report published by the TUC earlier this year. It had established a body called the commission on vulnerable employment, which looked into this whole area, and that idea was one of its recommendations. The issue is what we mean by such a body, and whether we mean the combination of all the agencies covered by new clause 4. The issue of the closer co-ordination of the enforcement agencies has been raised with the Government. I am certainly committed to such co-ordination; it is in the interests of vulnerable workers, reputable business and the taxpayer. The question is whether we need to bring all the agencies together in one body. I am not sure that that would be the most effective way to proceed.
What the Government have agreed to do is to set up a board—the fair employment enforcement board—which will bring together all the agencies to ensure that they can co-ordinate their work and that we get the best value for money from the taxpayer, and also to deal with some of the silo issues that we have discussed. Representatives of the TUC, the CBI and the Federation of Small Businesses will also be on the board, because it is important that we hear the views of both employees and business as we discuss enforcement. My experience is that when it comes to proper enforcement, the CBI and the TUC often agree—they both have a great interest in strong and effective enforcement.
I appreciate where the hon. Member for Birmingham, Yardley is coming from, but closer co-ordination, better working together and better value for money are probably a better route than full merger or the creation of a single commission. We have gone some way towards achieving that and I hope that it will be effective.
John Hemming: I am slightly surprised by the hon. Member for Huntingdon wanting to maintain four quangos when we are suggesting having only one, but if the Conservatives now want to increase the number of quangos, that is their choice.
It is quite clear that the direction of travel is towards greater co-ordination and I would not be surprised, from what the Minister is saying, if that is the result after time. I see no merit in dividing the Committee on this. I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.

New Clause 5

Employment tribunals: costs
‘In the Employment Tribunals Act 1996 (c. 17) in section 13 (costs and expenses), after subsection (2) there is inserted—
“(3) The losing party in any proceedings before an employment tribunal shall bear the costs of the winning party.
(4) Up to 25 per cent. of any claim can be awarded to the defendant as a penalty on the claimant in the event that the claimant’s action is deemed vexatious.”.’.—[Mr. Djanogly.]
Brought up, and read the First time.
Mr. Djanogly: I beg to move, That the clause be read a Second time.
We now go back to the first part of this Bill, dealing with employment tribunals. At the start we discussed the procedure of employment tribunals and penalties for non-compliance. I said at the time that it was difficult to have that debate without discussing vexatious claims, not least because we did not have the facts and statistics to make a decision in relation to the procedural aspects, but also because vexatious claims are of most concern to employers. Now we can have that debate in an area where there are more statistics on vexatious claims.
The new clause has two proposed subsections, the first stating that
“The losing party in any proceedings before an employment tribunal should bear the costs of the winning party.”
Since 1999, on average 111,754 claims have been accepted every year by employment tribunals, of which only 15 per cent. are successful; 66 per cent. are withdrawn or settled; and 19 per cent.—some 21,233—are dismissed or unsuccessful. Given that the estimated average cost to employers of defending a tribunal case is about £9,000 and almost 10 days of lost time, it is unsurprising that the CBI reports that a quarter of cases are settled by employers, despite receiving advice that they are likely to win. This pattern is especially true for small and medium-sized companies that are less likely to have internal resources or legal advisers to fight claims on their behalf.
There is another recurring pattern with small businesses, in that tribunal applications are disproportionately high in small employers, particularly those employing between 50 and 249 employees—215 applicants came from a group of employees that employ only 4 per cent. of the work force. Taken together, those businesses that employ fewer than 250 people are respondents in 62 per cent. of cases but employ only 37 per cent. of the labour force.
Business organisations report that there is a culture of settling cases to get rid of them, which is encouraged by the fact that costs are rarely awarded against litigants, and complainants may have relatively few costs of their own. Employers believe that cases are pursued using no-win, no-fee lawyers in the expectation that businesses will settle a claim at a level below what they believe it would cost to defend it at hearing.
Take, for instance, the case of the Law Society in 2001, when it ran up costs of more than £1 million defending itself against claims of race and sex discrimination made by its former vice-president, who had previously been forced to resign after allegations that she herself had bullied and harassed staff. Despite finding that the claimant had indeed created an atmosphere of “fear and dread”, and that she had also lied under oath, a tribunal found in her favour after a six-week trial.
The Employment Tribunal Service reported in 2003-04 that 976 awards of costs had been made—34 per cent. to claimants and 66 per cent. to respondents—out of 30,107 claims that went to a hearing, the average order being £1,859. By 2006-07, that figure had shifted with 509 cost orders being made: 32 per cent. to claimants and 68 per cent. to respondents. The average award was £2,078, but the maximum was £65,000. That means that costs were awarded to employers in fewer than 0.3 per cent. of all cases, with the majority getting less than £1,000. To compound this, the number of cases accepted by employment tribunals has gone up since 2004-05 from 86,000 to 132,000 in 2006-07, an increase of 53 per cent.
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The Employment Tribunals (Constitution and Rules of Procedure) Regulations 2001 introduced changes to the employment tribunals rules, including an increase in the maximum amount of unassessed costs that tribunals could award from £500 to £10,000, and the power to make an order for costs in cases where a claim had been misconceived. Rules 39 and 40 set out when an award of costs must and may be made respectively. Employment tribunals must make an award only where a hearing is postponed because a business fails to adduce reasonable evidence as to the availability of the job, or a comparable one, from which the claimant was dismissed or, alternatively, if the claimant informs the respondent business at least seven days before the hearing that they seek re-engagement. This is a provision that will hardly set the mind of small businesses at ease when they consider the cost of defending themselves.
Rule 40 allows employment tribunals to make cost awards where claimants have brought proceedings and have
“acted vexatiously, abusively, disruptively, or otherwise unreasonably, or that the bringing or conducting of proceedings has been misconceived.”
If that is the case, the employment tribunal must then consider whether it should exercise its discretion to make a costs order. Employment tribunals have been held to have acted erroneously in three cases, because after finding that the case fell in to one of the headings in rule 40(2) they did not then separately consider whether they should exercise their discretion to make a costs award.
The discretion to make such awards in favour of businesses is hampered by this dual procedural hurdle. Can the Minister tell the Committee how often cost orders are made under this provision? The scope of these powers when combined with statistics that I outlined earlier makes me deeply suspicious that employment tribunals are ruling against awarding costs to companies in a disproportionately high number of cases. While I accept that a few small businesses may employ sharp practice and deserve to be brought to book, it is the widespread belief of business in the UK that the tribunals have a predisposition towards claimants and that in any event the system is such that companies are being forced to settle because of the costs of the system.
The Bill seems to be saying that dealing with the procedural issues will solve the problem, which is not at all the case. To that end, my amendment seeks to redress the balance and ensure that businesses are not penalised disproportionately by employment tribunals into paying the costs of claimants. The second part of new clause 5 suggests that up to 25 per cent. of any claim can be awarded to the defendant as a penalty on the claimant in the event that the claimant’s action is deemed vexatious.
The rise in employment claims since 2000 has been almost unstoppable on the back a compensation culture that is spiralling out of control, according to the CBI deputy director-general. He said:
“I visited a company where they had a security camera showing an employee leaving his shift, getting on his bike and falling off outside the factory gates. What he did then was to get up, get on his bike, come back into the company’s gates and fall off again.”
In 2004 the CBI employers association said that 69 per cent. of firms thought more employees were bringing weak and vexatious claims. The CBI now reports that 44 per cent. of respondents to its CBI/Pertemps employment trends survey 2008 felt that weak and vexatious claims have increased over the past year. It goes on to point out that employers believe that far too many weak claims proceed through to tribunal as some tribunal offices are reluctant to use the powers available to them. It is felt that this is an issue of resources, as the existing powers could be used more effectively and consistently with better filtering of claims during the stage at which they are issued to tribunal.
The Department of Trade and Industry’s “Survey of Employment Tribunal Applications” in 2003 estimated the cost of employment tribunal proceedings to business as £4,362 per business. That does not include the main cost: that of time. On average, about 9.8 days were spent on a claim, 7.7 days of which were the time of directors or senior managers. Further figures for 2005-06 estimated that the average cost to the Exchequer of each claim was £606. Given those figures, the cost for the 19 per cent. of dismissed or unsuccessful cases is about £93 million for employers and £12 million for the Exchequer. Can the Minister give us the preliminary figures for this year?
While I accept that not all dismissed cases are vexatious, a considerable proportion are. An example is the employee who was caught dealing cannabis at work and admitted that he had been doing so for some time. He was dismissed, but claimed unfair dismissal and his notice money. The case went to a hearing but he did not turn up. Nevertheless, the company’s representatives were made to go through the evidence to get the case rejected. Another example is the case of an accountant who claimed under disability discrimination law for a disability of acute anxiety about her work performance, which prevented her from working to deadlines or submitting herself to appraisal. She argued that her employer had not sufficiently adjusted her working conditions to take account of that. At lunch time during the tribunal hearing she disappeared. The case was abandoned, leaving the employer with substantial, irrecoverable legal costs.
Rule 18(8) of the employment tribunal rules, which are set out in schedule 1 to the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, enables an employment tribunal to strike out a claim. There are provisions for deposits to be paid and for restriction of proceedings orders to be made against vexatious claimants. It seems strange that the Government have been looking to amend employment tribunal powers when the current rules are so clearly underused. Should they not instead insist that tribunals use those powers more effectively? Many businesses, along with my party, believe that this issue must be dealt with. How does the Minister intend to get tribunals to work more fairly against vexatious claimants and prevent more from trying it on in the future?
The new clause is designed to ensure that vexatious claimants are penalised for wasting the time of the employment tribunal and, more importantly, the employer. I have already noted that the cost to business is in excess of £93 million each year and to the Exchequer, £12 million. Is it not about time that those who cause that out-of-pocket expense start helping towards its repayment?
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