Enterprise and Regulatory Reform Bill

Memorandum submitted by Citizens Advice (ERR 15)

Summary

1. This memorandum sets out the views of Citizens Advice on Part 2 of the Enterprise & Regulatory Reform Bill.

2. Citizens Advice is the national body for the 400 independent advice centres that constitute the CAB service in England & Wales. In 2011/12, these Citizens Advice Bureaux dealt with some 6.9 million problems brought by some two million people, including 523,500 employment-related problems.

3. Citizens Advice broadly welcomes and supports the key provisions of Part 2 of the Bill, subject to some provisos which are described below.

Background and general comments

4. Part 2 of the Bill implements some of a package of reforms to the employment tribunal (ET) system on which the Government consulted in early 2011. Other elements of the package were implemented by Regulations that came into force in April 2012. Part 2 of the Bill must also be viewed in the context of the Government’s current proposals in respect of substantial fees for ET claimants. Citizens Advice strongly opposes those proposals, as we believe they would create a substantial barrier to justice and seriously damage alternative forms of dispute resolution (such as conciliation by Acas). We have proposed an alternative fees regime based on a nominal, flat-rate claimant fee.

5. In seeking to justify this package of reforms, the Government has stated, for example, that "[ET] claims rose to 236,000 [in 2009/10], a record figure and a rise of 56 per cent on [2008/09]", and that "there were 218,100 claims in 2010/11, a 44 per cent increase on 2008/09". In fact, the number of ET claims fell in 2010/11. Furthermore, the headline figure (e.g. of 236,000 claims in 2009/10) used by ministers and others gives a highly misleading impression of the actual workload of the ET system.

6. The headline figure includes both the number of claims by individual workers (‘single claims’), and the total number of worker claimants covered by ‘multiple claim’ cases, in which two or more workers claim against the same employer on the same (or very similar) grounds. Such multiple claim cases can and often do involve hundreds or even thousands of workers, each one counted as a multiple claim in the headline figure, but the ET system may need to determine only one ‘lead’ case.

7. In 2008/09, for example, the headline figure of 151,000 claims was made up of 63,000 single claims and 88,000 multiple claims, but those 88,000 multiple claims equated to just 7,400 multiple claim cases. Adding the latter figure to the number of single claims/cases gives a far more meaningful measure of the ET system’s workload: a total of 70,400. [1] (We note that Acas follows such an approach in its own casework statistics).

8. In 2009/10, when the headline figure rose by 56 per cent, from 151,000 to 236,000, the number of multiple claim cases was exactly the same as the year before: 7,400. There were just many more workers (164,800) covered by those 7,400 multiple claim cases than there were in 2008/09 (88,000). And the combined number of single claims and multiple claim cases rose by just 12 per cent, from 70,400 to 78,700. Such a relatively modest increase is hardly surprising, given the then state of the UK economy and the associated increase in business failures and redundancies.

9. In 2010/11, the combined number of single claims and multiple claim cases fell by 15 per cent, to 66,500 – lower than in each of the two preceding years and only marginally higher than in each of the two years before that. It was also significantly lower than a decade ago, and slightly lower than the average over the years since (69,040). In short, we see no reason to be alarmed by the ET statistics.

10. None of which is to say that more could not be done to help workers and employers resolve workplace disputes without recourse to the ET system. Nor is it to say that there are not cases of weak or legally misguided ET claims in which the interests of not only the respondent employer but also those of the claimant might well have been better served by resolution of the matter by other means. We therefore welcome, subject to adequate resourcing of Acas, the Bill’s provisions for a specified period for Acas to offer early conciliation before any claim fully enters the ET system.

11. We also welcome and strongly support the statements by the Secretary of State, Vince Cable MP, during the Bill’s second reading on 11 June, that the Bill is "not about removing individual employment rights", that he has "no truck with the idea of a free-for-all-and-fire culture", and that the Government "will most definitely not be proceeding in the way that [Beecroft] outlines".

Pre-claim conciliation by Acas (clauses 7-9, & Schedule 2)

12. Clauses 7-9 and Schedule 2 create a mandatory period for conciliation by Acas of all new ET claims. In effect, whilst both the claimant and the respondent employer will each retain the right to decline the offer of conciliation, Acas will become the ‘gateway’ to the ET system.

13. To our mind, an ET claim should always be an act of last resort. We therefore welcome and support the greater role for early conciliation of ET claims by Acas, subject to Acas being adequately resourced for the task. The ‘gateway’ must not become a log jam.

Rapid resolution of simple, fact-based ET claims (clause 10)

14. Clause 10 creates an enabling power for the Secretary of State to create a Rapid Resolution regime for the determination of simple, fact-based ET claims by ‘legal officers’ rather than employment judges.

15. This is an idea that Citizens Advice first proposed to Michael Gibbons during his major review of the ET system in 2006-07, and which was taken up by Mr Gibbons in his final report but not by the then Labour Government. [2]   We floated it again in our April 2011 report Give us a break, on denial of paid holiday and/or owed holiday pay, and also in our response to last year's BIS/Tribunals Service consultation on Resolving Workplace Disputes, submitted the same month. Announcing the outcome of that consultation in November, the Secretary of State, Vince Cable MP, indicated that Coalition Ministers were interested in the idea, and that BIS would do some 'more work' on it before issuing a consultation sometime this year.

16. As Michael Gibbons noted in his 2007 report, "There are several types of ET claims, i.e. those involving determinations of fact in monetary disputes, such as unlawful deductions of wages, holiday pay, breach of contract and redundancy pay, which could in most cases be settled quickly without the need for a tribunal hearing. What is required is a quick, expert view on the legal position, and on the appropriate next steps (e.g. payment of an amount due to the claimant, or the withdrawal of the claim), coupled if necessary with some kind of enforcement order".

17. Mr Gibbons concluded that "a new process of this sort would offer significant benefits. It would make it easier for employees to obtain monies legally due to them, and would be particularly helpful for vulnerable workers, especially those without access to advice or support, who currently find it difficult to enforce their rights. It would enable employers to defend unfounded claims quickly and inexpensively. It would allow the State to resolve these cases more quickly and at lower cost than at present, and to concentrate the resources of the employment tribunal system on more complex cases. The Review understands that at least 10 per cent of all ET claims are simple claims which could be handled without a hearing, so the saving to the taxpayer would be significant".

18. We therefore welcome and support clause 10 of the Bill, and look forward to working with BIS and the Ministry of Justice to develop the detail s of a workable Rapid Resolution regime. It is of course imperative that the proposed ‘legal officers’ are sufficiently qualified, resourced and empowered to be able to make a swift and sustainable determination of claims. Given the kind of (rogue) employer likely to be involved in many such cases, we are not convinced that it is either necessary or sensible to include, as clause 10 does, a requirement that both parties "consent in writing" to the claim being determined by a legal officer under the Rapid Resolution process, rather than by an employment judge. For rogue employers would simply exploit any such provision to delay and frustrate determination of the claim, to the detriment of both the claimant and the efficiency of the ET system.

19. We await with interest further information on the Government’s intended approach to enforcement in those cases where the respondent employer does not comply with the legal officer’s determination. Given the kind of (rogue) employer likely to be involved in many of the cases dealt with under the proposed Rapid Resolution regime, it is likely that a significant proportion of legal officers’ determinations will simply not be complied with. And, as described in paragraphs 30-36, below, we consider existing provision for the enforcement of unpaid ET awards to be grossly inadequate.

Capping unfair dismissal compensatory awards (clause 12)

20. Unfair dismissal awards include two elements: the basic award (equivalent to redundancy pay); and the compensatory award (based on actual loss of earnings). The latter is currently capped at £72,300, having been raised from £12,000 to £50,000 in 1999, and then index-linked. Clause 12(2) provides for the compensatory award to be capped at: "(a) a specified amount of between one and three times median annual earnings [i.e. between £26,000 and £78,000], or (b) a specified number of weeks’ pay (but not less than 52), or the lower of the two."

21. The aim of this provision is not clear, and the impact (at least initially) could well be minimal: in 2010/11, the median unfair dismissal award was just £4,591, some 90 per cent of such awards were for less than £20,000, and all but two per cent were for less than £50,000. [3]

22. Clause 12(3) provides for the cap on the compensatory award to vary "in relation to employers of different descriptions". Again, the aim of this provision is not clear, but to our mind the amount of the compensatory award should be determined solely by the individual circumstances of the claim.

Financial penalties on losing respondent employers (clause 13)

23. Clause 13 provides for financial penalties of up to £5,000 to be imposed (in addition to an award) on losing respondent employers in cases where there are (yet to be defined) ‘aggravating features’. The penalty will be set at 50 per cent of the value of the award, up to the maximum of £5,000, and will be reduced by 50 per cent for prompt payment. Penalties will be paid to the State.

24. We welcome and strongly support clause 13. In last year’s Resolving Workplace Disputes consultation, it was initially proposed that a penalty would be applied in every case in which an employer is found to have breached the claimant’s rights. In our response to the consultation, we suggested that that would be unreasonable, and that the measure should instead be confined to e.g. cases involving ‘repeat offenders’ and/or rogue employers who fail to engage with the ET process. The Government appears to have accepted this suggestion.

25. We are therefore somewhat surprised by the opposition to clause 13 expressed recently by employers’ bodies such as the British Chambers of Commerce and Federation of Small Businesses. For the law-abiding members of such bodies have nothing to fear from these provisions, which will impact only on rogue and exploitative employers. Indeed, to our mind the employers’ bodies should be supporting clause 13, as its provisions will help ensure a level playing field for business by tackling those rogue employers who seek to gain an unfair competitive advantage by exploiting their workforce.

26. We await with interest further information on the Government’s intended approach to the enforcement of unpaid financial penalties. Given the nature of the (rogue) employers at which the penalties are aimed, it is sadly inevitable that a significant proportion of penalties – and quite possibly the great majority – will simply go unpaid.

Encouraging use of settlement agreements (new clause)

27. During the Bill’s Second Reading on 11 June, the Secretary of State, Vince Cable MP, announced the Government’s intention to introduce a new clause intended to "encourage greater use of settlement agreements and make it easier and quicker for employers – including [small businesses] – and employees to end the employment relationship by mutual agreement in a way that protects workers rights but helps businesses remain flexible".

28. The new clause, which inserts a new section 111A into the Employment Rights Act 1996, was tabled by the Government on 19 June. According to the accompanying Explanatory Notes, the purpose of the clause is to "provide a means for employers and employees to discuss settlement before any dispute has actually arisen, with certainty that the offer and any discussions about it cannot be used as evidence against them in a subsequent unfair dismissal [sic] claim". (Since 11 June, BIS officials have confirmed to Citizens Advice that the proposed limitation on citing a settlement offer in any subsequent tribunal claim will apply only to unfair dismissal claims – so it would remain possible, for example, for a worker to cite the settlement offer in a discrimination-based claim).

29. Subsection (3) of the new section 111A provides that "where the employer or employee behaved improperly in making or negotiating the offer the tribunal may consider this as evidence in an unfair dismissal claim. So, repeated settlement offers intended to harass an unwanted worker into signing an agreement, for example, would not be covered by the proposed limitation on citing the settlement offer in an unfair dismissal claim. This is reassuring, but still leaves open the possibility of the measure being abused by rogue employers against vulnerable workers unsure of their legal rights.

Enforcement of unpaid ET awards & Acas settlements (not in Bill)

30. Every year, some 15,000 ET claims conclude with a judgment in favour of the claimant, and a monetary award of hundreds, thousands or even tens of thousands of pounds. But in our October 2008 report Justice denied , we suggested that, for as many as one in ten of these claimants, this apparent success in the tribunal soon proves to be a hollow victory, when the employer simply fails to pay up. For these workers, the ET system has delivered empty justice.

31. Employment tribunals have no power to enforce their own awards, which – until April 2010 – could only be enforced by means of bewilderingly complex, time consuming and costly legal action, by the claimant themselves, in the County Court system. However, Justice denied demonstrated that rogue employers could easily drag out and obstruct such enforcement action, causing many claimants to give up in frustration.

32. In response to Justice denied , in 2009 the Ministry of Justice undertook its own research on the issue, and this showed the true situation to be even worse: a shocking one in four of all ET awards were – and, as far as anyone knows, are still – going unpaid by employers. As a result, in April 2010 the then Labour Government established the so-called ET & Acas Fast Track enforcement regime for unpaid ET awards and Acas settlements. Under this regime, workers can pay a fee of £60 to have their unpaid award or settlement enforced by one of the various firms of High Court Enforcement Officers (HCEOs).

33. However, figures recently released by the Ministry of Justice show this all-too-rare 'policy win' to be, like all-too-many ET awards and settlements, something of a hollow victory. 

34. In the Fast Track regime’s first year of operation (i.e. financial year 2010/11), some 1,500 workers paid the then fee of £50 to access the regime. And, of the 1,295 completed cases for which the information is available, the award or settlement was fully or partially enforced in just 533 cases (41 per cent). In the other 762 cases (59 per cent), the award or settlement was deemed to be unenforceable, and the individual paid the then £50 Fast Track fee to no end. [4]  

35. In the Fast Track regime’s second year of operation (i.e. financial year 2011/12), some 1,620 workers paid the increased fee of £60 to access the regime. And, of the 1,022 completed cases for which the information is available, the award or settlement was fully or partially enforced in just 515 cases (50 per cent). In the other 507 cases (50 per cent), the award or settlement was deemed to be unenforceable, and the individual paid the £60 Fast Track fee to no end. [5]

   

36. Whilst , clearly, an effective enforcement rate of 50 per cent is somewhat better than 41 per cent, to our mind it is simply nowhere near good enough. The Government’s stated aim for Part 2 of the Bill is to "improve the employment tribunal system". We suggest that one very good way to improve the ET system, and enhance its credibility with both workers and employers, would be to close a loophole that allows some rogue employers to profit from exploitation with impunity. A loophole that is grossly unfair not only to those workers who do not receive the compensation due to them, and to the taxpayers whose taxes have paid for employment judges to determine the claim to no end, but also to the vast majority of law-abiding employers.

37. We therefore urge the addition to the Bill of provisions to ensure more effective enforcement of unpaid ET awards and Acas settlements. We suggest that the cost of any new enforcement measures could be covered by the new revenue stream generated by the Government’s proposed fees for ET claimants. Indeed, to our mind the introduction of (possibly substantial) claimant fees imposes an obligation on the Government to greatly improve employer compliance with ET awards and Acas settlements.

25 June 2012


[1] Source: Hansard , House of Commons, 29 February 2012, col. 369-70W.

[2] Paragraphs 3.22-3.24 of Better Dispute Resolution , BIS, March 2007.

[2]

[3] Table 5 in: Employment Tribunals and EAT statistics, 2010-11 , HM Courts & Tribunals Service, September 2011.

[3]

[4] Source: Hansard , House of Commons, 27 March, 2012, col. 1073W. As of 27 March, in 49 cases enforcement action was ongoing, and in a further 155 cases the Ministry of Justice and the HCEO Association were still validating the data.

[5] Source: Hansard , House of Commons, 11 June, 2012, col. 349W. As of 11 June, in 553 cases enforcement action was ongoing, and in 18 cases the Ministry of Justice and the HCEO Association were still validating the data.

Prepared 29th June 2012