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Baroness Miller of Hendon: My Lords, I thank the Minister for his clear explanation of very complex regulations and for his department's very detailed Explanatory Memorandum. The regulations that we are considering today cover 10 pages, while the Explanatory Memorandum issued by the DTI is 30 pages long. No wonder the DTI, in its paper entitled Dispute Resolution Regulations: Government Response to Public Consultation admitted that they were "not simple, but necessary".
Indeed, that sentiment has been echoed by a senior partner in a leading firm of solicitors specialising in labour relations. She asked whether they were,
- "now too complex to fulfil their original purpose".
- "Only time will tell whether they will have any effect on reducing"—
- "employers would find the procedures very difficult to negotiate".
In the Explanatory Memorandum to which I have just referred, the Government report on the quantified and unquantified costs and benefits. They estimate the one-off implementation costs at between £37 million and £73 million. That gap of £36 million, just 100 per cent up on the lowest part of the range, is wide enough to suggest that they were not too sure and simply came up with a figure.
The annual recurring costs of using the statutory procedures are estimated by the department as being between £35 million and £48 million, without taking into account the time cost of what is described as a "companion" to accompany a claimant.
The Parliamentary Under-Secretary of State for Employment Relations certified in the Explanatory Memorandum that he was satisfied that the benefits justified the costs. The claimed benefits range from "better employment relations" and "lower recruitment costs" on the employers' side to allegedly "improved employment prospects" and "reduced stress" on the employees' side. Let us hope that that is the effect of them.
Ephemeral as the claimed benefits are, the Government claim that they will range from £697 to £922 million a year over the first 10 years. Included in that figure is the number of tribunal applications, which they put at between 74,000 and 75,000 a year—more than 1,400 a week. They arrive at those figures—and I very much hope that your Lordships will be able to follow this—by, in square brackets, multiplying 9.64 per cent by 76 per cent and then by 900,000, then adding 18.06 per cent multiplied by 5 per cent and again by 900,000. I invite those of your Lordships who are better at algebra than I am to review those footnotes on pages 22 and 23 of the Explanatory Memorandum. However, I am sure that someone was scraping the bottom of the barrel in dredging up those figures, because I found them very difficult to follow.
It will not surprise your Lordships to hear that, on the other hand, the costs estimated by the Government are more or less 45 per cent to 50 per cent of the benefits. I shall not comment any more on the figures relating to costs and benefits, except to invite your Lordships to draw on your own experience as to whether the Government's estimates of costs may be generally far too low. Their estimate of benefits may verge on the over-optimistic—but I hope that I am not right.
A major defect in the Employment Act 2000 was the refusal of the Government to accept an amendment that I proposed that an application to an employment tribunal should be accompanied by a deposit against possible costs. In one stroke, this would have deterred
the launching of frivolous claims without merit or speculative claims in which the employee hopes that the employer will pay out rather than fight.The Government's own consultation paper admits that the cost to employers of each claim is around £2,000—I note that the noble Lord, Lord Wedderburn, is smiling as he recalls the debates we had upstairs in Committee. Many employers put the figure considerably higher and that is without taking into account the distraction to management in having to find time to deal with the claim.
Then there is the fact, which is admitted on all sides, including by the Government, that the procedures in these regulations are extremely complex. They contain a number of traps which will lay the unwary employer open to severe penalties by an arbitrary increase in any compensation that the tribunal thinks fit to award of between 10 and 50 per cent. Conversely, an employee would possibly lose the same percentage of compensation for failure to comply with disciplinary or grievance procedures. Problems of precise compliance with the very detailed timetables and procedures will undoubtedly fall heaviest on small businesses whose needs are often ignored.
I quote what the CBI said in its brief on these regulations:
- "The aim should not be to require all employers to achieve the highest 'best practice' for handling disputes which exist in the more advanced firms. Such standards will not be achievable for all companies, particularly those with minimum resources".
The Government have made an optimistic forecast that their proposals will cut applications by a quarter. This forecast is presumably arrived at by the convoluted calculation that I mentioned to your Lordships a little while ago. Significant costs will undoubtedly fall on small employers. This is acknowledged in the regulatory assessment made in connection with the Employment Act.
This Government have extended employment rights to whole new categories of workers, have shortened qualifying periods before cases can be taken to employment tribunals and have increased the ceiling on compensation payments. At the same time, the newspapers frequently report tribunal decisions that can only be described as bizarre and awards of compensation that are out of all relationship to what is awarded, for example, by the Criminal Injuries Compensation Authority to persons who have suffered serious physical traumas as distinct from merely injured feelings.
Therefore, it is right that employees will be required to use internal grievance to resolve disputes in the workplace before going to the tribunal. The
requirements of the new regulations have been significantly watered down from what the unions and Government Back-Benchers in both Houses were advocating when the Bill was first published and found its way through Parliament. We welcome the fact that in these regulations the Government have decided not to implement Section 30 of the Act, which would have required employers—large, medium and small—to make the new procedures part of the specific contractual terms.I shall take a moment or two to quote what the CBI said on that point:
- "By deciding not to implement Section 30 ensures that businesses have flexibility to change elements of their procedures, for example to keep pace with changes in the business structure, without having to issue contracts of employment every time, a process which would be a huge bureaucratic burden . . . and it prevents employees circumventing the one-year qualifying period for unfair dismissal claims by instead claiming 'breach of contract' for failure to follow one of these procedures. This would result in an increase in the number of employment tribunal claims, the exact opposite of the Government's intention".
The implication that the laws of the United Kingdom apply to all contracts should be sufficient for anyone. We are also pleased to note that the definition of "relevant disciplinary action" excludes warnings and suspensions on full pay. Otherwise we would find employers dragged through this complicated procedure merely for a severe reprimand on the shop floor or in the office.
The Government have also sensibly, in our opinion, excluded, in Regulation 3, dismissals where collective consultation is already required by redundancy regulations.
Despite the complexity of the regulations, which the Government admit, and the cost to business, which perhaps they do not, in the interests of giving effect to the Employment Act, we shall not oppose the regulations. Indeed, we believe that any measures that help to resolve more disputes in the workplace without the need to go to litigation are truly to be welcomed.
Lord Razzall: My Lords, I thank the Minister for giving a clear exposition of the background to these regulations. Listening to the noble Baroness, and seeing the noble Lord, Lord Wedderburn, in his place—welcomed, I am sure, by all of us—brought an awful sense of deja vu about the endless discussions we had on the Bill itself.
Before I make one or two comments, I wish to remind the Minister that, as he will remember, we on these Benches were fundamentally in support of the Government's proposals, which was not the case for the Conservative Opposition and not always the case for the noble Lord, Lord Wedderburn, who was normally coming from a slightly different perspective from that of the noble Baroness.
Having put in that slight admonition, on this occasion I agree with a good deal of what the noble Baroness has said, particularly with regard to the costs. Having studied the numbers in the regulatory assessment in some detail, I have doubts. It may significantly underestimate the costs to employers and significantly overestimate the savings to the taxpayer. As an aside, when we debated a
number of these issues in Committee, the noble Lord, Lord Wedderburn, endeavoured to persuade us, and I listened with interest, that the major motivation for the Government with regard to this legislation was to reduce the number of cases going to tribunals and to bring a saving to the taxpayer by fewer tribunal claims. I have no knowledge whether that was the Government's objective; in debate, the Minister denied that it was. I share the noble Baroness's scepticism. I do not think that they will succeed. For reasons that the noble Baroness has indicated, I suspect that the figures on savings from fewer tribunal claims, given in Table 2, on page 19 of the regulatory assessment, are significantly overstated.The most fundamental reason is set out in paragraph 50 on page 15 of the regulatory assessment—which the Minister has touched on—regarding the position of small businesses. A policy decision has been taken, which I support, that these regulations and the procedures they set out should apply to every company, from the Shell oil company down to the corner shop. I think that that is absolutely right. But I also think there is a danger that the Government will underestimate the impact that it will have on the myriad small businesses which, as indicated in paragraph 50, do not have a specialised personnel function. The type of situation covered by the regulations will often arise only when something peculiar arises in their business such as—the example given in paragraph 50—parental leave following an adoption.
Paragraph 51 states that the DTI,
- "recognises the need for user-friendly guidance and standard forms to reduce the implementation costs, particularly for small firms".
That is going to be a significant challenge for the department. This is really the first time that anything like this has been attempted in this country. I applaud the intent to do so because there is no reason why an employee in a small business should be treated any differently in terms of employment rights from an employee of the Shell oil company. However, it will be a serious challenge to explain business obligations and employee rights to the corner shop owner—I do not know why we are picking on the corner shop owner—or to any other very small business in a way which achieves the effect that the Government seek.
It may be difficult for the Minister to give a definitive answer to my final question. However, it would be useful if we could know what were the especially difficult areas on which there was significant disagreement among consultees in the consultation exercise. I absolutely accept that these regulations result form an extensive consultation exercise with employers' organisations, representatives of small business and so on. It would be helpful if the Government could indicate the difficult areas. On which issues was there no real agreement
among consultees? The Government had to take key decisions on matters such as Section 30, to which the noble Baroness referred. Clearly the consultation exercise led the Government to decide that they were not going to implement Section 30. It would be useful if the Minister could indicate those areas. I am perfectly happy for him to write. It would help if we could have the background to these areas of controversy by the time we reach the implementation phase of the regulations.
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