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Lord Wedderburn of Charlton: My Lords, I am grateful to my noble friend the Minister. Unhappily, what he says appears to be based on a complete misapprehension of the party's case to which the amendment is directed. He talked a number of times about a grievance arising further back in time before the disciplinary procedure and about a previous grievance. That is not what the amendment is about at all.

As I said, ACAS has said that a worker may sometimes raise a grievance about the behaviour of a manager during the course of a disciplinary case. Nothing could be clearer than that; that is what the amendment is about. If the worker raises a grievance during the course of a disciplinary case, surely he is entitled to have the grievance procedure completed. It is laid down in statute. Statute contains no exception of a grievance being raised in the middle of a disciplinary case; it is implied in the contract of employment. Why on earth should he not be able to rely upon that equally and even-handedly as he can rely upon a failure to complete the disciplinary procedure?

This is another case in which, with great respect, by not understanding the amendment, the Government are giving an advantage to the employer and shunting the matter off into what has been called in my noble friend's reply "part of a dialogue". If one has a right to something being done, one does not expect it to be remedied by part of a dialogue unless one is very lucky and the other party says, "I'll do it; I made a mistake". If the other party says that, then there would be no problem. However, if that does not happen, one is entitled to a remedy. That is all that the amendment says.

I hope that the Government will look at this matter again before Third Reading. I appreciate that my noble friend does not want to talk much about Schedule 2 any more because we have passed it. However, this provision is integral to the operation of Schedule 2. We showed the unfairness of that schedule in our previous debate. This is another example of the provision not being applied even-handedly. I hope that the Government will look again at the matter before Third Reading, and that they will tell the employers' organisation which is pressing them that they will not make any further concessions on Part 3. In fairness, this is something that they must look at again. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 92 not moved.]

Lord Wedderburn of Charlton moved Amendment No. 93:

Page 39, line 15, at end insert "other than a requirement or recommendation contained in a code issued by the Advisory, Conciliation and Arbitration Service,"

The noble Lord said: My Lords, we come now to the meat of the clause which attempts to reverse the principle laid down in Polkey v. Dayton Services, in

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1988, by your Lordships' Judicial Committee. This amendment is new; it was not moved in Grand Committee. However, it arises from the debate in Grand Committee, in an attempt to find a compromise on the very worst feature of Clause 34. According to the clause, failure by an employer to follow a procedure other than the statutory disciplinary procedures to which we have just adverted in the dismissal of an employee is no longer to be a reason that renders the employer's dismissal unreasonable, and is therefore no longer a basis for a claim of unfair dismissal.

Most people who work in this field have understood that to mean a reversal of the principle laid down in Polkey v. Dayton Services. The judgment in that case by the noble and learned Law Lords overturned the rule in previous mistaken judgments that the employer could rely on a dismissal even when he had failed to follow procedures if it would have made no difference to his decision to dismiss. That is why people interpret Clause 34 as overturning the judgment in Polkey. That is why people in the field find it very strange and wonder whether Ministers will adhere to what was said in the House of Commons three times by my honourable friend Alan Johnson, the Minister. My honourable friend said that this clause,

"should not be seen as reversing Polkey. It strengthens Polkey in respect of the basic minimum standards, and if those minimum standards are not kept, dismissal will automatically be unfair".

That of course is correct. He went on:

"The Polkey judgment made it likely that an employer who did not follow procedures would lose an unfair dismissal case. Our proposal makes it so important to follow minimum procedures that it will automatically be unfair to dismiss employees without doing so".

How on earth can Clause 34 strengthen the Polkey principle when it reverses it? It is very strange. My honourable friend even said that,

"In the great majority of such cases that we have looked at, the failure"—

by the employer—

"was in procedures that would have fallen within the new minimum standards and Clause 34 will be in line with the Polkey judgment".

I hope that my noble friend the Minister will do what no Minister has done so far—and this is very relevant to the thrust of the amendment—and tell us what constitutes that great majority of cases that will not be changed by Clause 34. It is almost impossible for most people to find one.

In another place, in the same discussion in Standing Committee, the Minister said:

"Only in cases in which employers have procedures over and above the minimum will restoration of the no-difference test apply. It is a partial and strictly defined restoration of the test".—[Official Report, Commons Standing Committee F, 18/12/01; cols. 210-11.]

Like other statements on the effect of Clause 34 and the new Section 98A(2), that gives the impression that the employer is allowed under the clause to ignore procedural matters that have been agreed

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contractually to apply at the place of work which go further than the minimum procedures in the standard or modified procedures of Schedule 2.

In Grand Committee in this House, my noble friend Lord Sainsbury of Turville characterised the problem in the same way. On the aim of Clause 34, he said that,

"many employers believe that introducing detailed in-house procedures is a losing game. Because they can never plead 'no difference', they fear being caught out by a tribunal if they are found to have made the slightest error in . . . their own procedures".—[Official Report 26/03/02; col. CWH 410.]

Other statements by Ministers have given the same impression; namely, that the change is only about failures by the employer to follow special procedures agreed in the procedures at that place of work. But of course that is not what the clause says at all.

The clause says that the employer will not commit an unfair dismissal if there is a,

"failure to follow . . . a procedure in relation to the dismissal",

and if the employer "would have decided to dismiss" anyway. The failure makes "no difference" under the new rule introduced by the clause, not only in following domestic/internal procedures agreed specially at that place of work, but in any procedure that the employer fails to follow in relation to the dismissal. The Bill's Explanatory Notes gave the same wrong impression. They state that the matter refers to,

"controversial case law around the question of whether or not the employer has to follow internal disciplinary procedures in order to establish reasonableness".

The notes also state that Polkey,

"removed the 'no difference' test".

In the other place, the Minister even said that the Government's intention was to encourage people,

"to look to the ACAS code, which still holds the field".—[Official Report, Commons Standing Committee F 18/12/01; col. 211.]

That is the point of this amendment. In 1982, in the basic case of Williams v. Compare Maxim, Mr. Justice Browne-Wilkinson, as he then was, called the failure to satisfy procedures in codes such as the ACAS code a,

"blatant contravention of the standards of fair treatment generally accepted by fair employers".

The Polkey case and rule—which said that employers should not have the advantage of a "no difference" rule, and that they could not say, "even if we operated fair procedures, the result of our decision would have been the same"—overturned the "no difference" approach. In the words of the noble and learned Lord, Lord Bridge of Harwich, in 1988 Industrial Cases Report, page 163, the no-difference rule,

"tends to distort the operation of the employment protection legislation in two important ways".

That is why your Lordships' Judicial Committee reversed the mistaken judgments. The noble and learned Lord said that, first, the no-difference rule allowed the tribunal to pose the hypothetical question of whether the result would have made any difference if the employer had followed the proper procedure, whereas what had to be considered—and up to now has had to be considered—was whether the employer's reason for the dismissal was sufficient and reasonable, not whether the employee had suffered an injustice on

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some hypothetical basis. Secondly, the no-difference rule allowed the tribunal to avoid the question of whether the employee should be granted an order for reinstatement or re-engagement. That is quite clear in the judgments. Yet the Government are now going to reintroduce a "no difference" test on the basis that he—the employer—

"would have decided to dismiss . . . [anyway] if he had followed the procedure".

Our amendment says—this is by way of compromise because we do not like the reversal of Polkey—that if the Government are going to reverse Polkey in regard to the matters they have mainly discussed; namely, internal special agreed disciplinary procedures, they really must not reverse Polkey in regard to basic fundamental principles of fairness in procedure which, we say, can best be judged by looking at the ACAS code. If the Government have some other way of preserving the basic procedures, we should be happy to see it.

Of course, we acknowledge that we cannot tell exactly what will be in the ACAS code because the Government have made it clear that after the Bill is put on the statute book the code will have to be rewritten. However, we have complete confidence that the code will contain all the main recommendations and requirements of fundamentally fair procedures at the place of work, for example, that employers should have regard in disciplinary procedures to principles of natural justice (paragraph 9); that workers should be made aware of the likely consequences of breaking disciplinary works rules (paragraph 7); that procedures should have no hidden discrimination grounds (paragraph 17); that a worker should not normally be dismissed for poor performance without adequate warnings and the opportunity to improve (paragraph 25); and that disciplinary action against a shop steward should always be discussed first and foremost with senior union representatives and full-time officials (paragraph 26).

Those are basic rules of fairness in the ACAS code. They do not depend upon special procedures agreed by an internal code of the employer. Those, we say, should not be included in the no-difference test. That is why we would exclude them and ask the Government to exclude them from the clause as it stands. Of course, we understand that each case must be decided on its own merits. But all that this amendment would do is to preserve such principles of the ACAS code as things on which the tribunal would be allowed to ground an unfair dismissal in itself if it were sufficiently serious. That would not affect the impact of the clause on specially agreed internal procedures to which the no-difference rule would, if this amendment were introduced, still apply.

In that sense the amendment is an offer of a new compromise which would take the sting out of the very deep criticism which has been levelled at introducing a new privilege for employers to dismiss without implementing basic principles of fairness simply on their say-so that they would have dismissed anyway even if they had approached the matter with fair procedures. I trust that the Government will not throw

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away this opportunity to escape from the darkest corners of the pit which has been dug by this part of Clause 34 and that they will accept the spirit of the new amendment. I hope that if they dislike its wording they will at least come back at Third Reading with something along these lines. I beg to move.

3.30 p.m.

Lord Lea of Crondall: My Lords, there is much merit in the amendment moved by my noble friend Lord Wedderburn of Charlton. We have to look at the architecture of the Bill if it goes through in its present form and that of the 1996 Act. One of the great difficulties is that it is hard to see how the "fairness" clauses in the 1996 Act relate both to the ACAS questions which have been highlighted by my noble friend and to the rather convoluted words of subsection (2) of new Section 98A with regard to the employer,

"if he shows that he would have decided to dismiss the employee if he had followed the procedure".

I have a question for the Minister as regards subsection (2) of new Section 98A. Do the Government intend to make it very clear, as it will affect people when they have to deal with it, that those words have to be read as subordinate to the fairness principle set out in the 1996 Act? Is not the guiding principle of all these procedures the fairness principle set out in Section 10 of the 1996 Act? That is a minimum area of clarification, as it were, in relation to the whole of subsection (2).

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