Drawn to the special attention of the House
Draft Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022
Date laid: 27 June
Parliamentary procedure: Affirmative
Liability of Trade Unions in Proceedings in Tort (Increase of Limits on Damages) Order 2022 (SI 2022/699)
Date laid: 24 June
Parliamentary procedure: Negative
These two instruments amend legislation on trade unions and industrial action. The purpose of the draft Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022 (“the draft Regulations”) is to permit employment businesses to supply agency workers to an employer to replace workers who are taking part in an official strike or other industrial action. This practice is currently a criminal offence. The purpose of SI 2022/699 is to raise the cap on damages that can be awarded against a trade union for organising unlawful strike action. This will be the first increase in the cap in 40 years.
We regret that the Department for Business, Energy and Industrial Strategy (BEIS) failed to provide an Impact Assessment (IA) when the draft Regulations were laid before Parliament, and only did so two weeks later, after we had written to the Secretary of State to raise concerns about this. As we have highlighted repeatedly, parliamentary scrutiny starts when legislation is laid before Parliament, and every time an instrument is laid without the supporting IA, this undermines our ability and the ability of Parliament more generally to scrutinise legislation effectively. The fact that in the IA the Department was unable to “robustly estimate the size” of the policy’s impact because of a lack of evidence raises questions as to the effectiveness of the change proposed by the draft Regulations.
We are concerned about the devolution aspect of the draft Regulations and the Government’s intention to repeal the Trade Union (Wales) Act 2017 (“the 2017 Act”). While commenting on whether the Government’s intention to repeal the 2017 Act would be in line with the devolution settlement would be outside our remit, we acknowledge that this question is constitutionally highly sensitive. We also acknowledge the Secretary of State’s explanation that the Government’s intention to repeal the 2017 Act was made clear when that Act was passed by the Welsh Senedd. We take the view, however, that given the constitutional sensitivity, there should have been an earlier and more comprehensive engagement with the Welsh Government and Senedd on the draft Regulations. We note that the Secretary of State has committed to further engage with the Welsh Government on the repeal of the 2017 Act.
The instruments are drawn to the special attention of the House on the ground that they are politically or legally important and give rise to issues of public policy likely to be of interest to the House.
1.The two instruments have been laid by the Department for Business, Energy and Industrial Strategy (BEIS), each accompanied by an Explanatory Memorandum (EM). The purpose of the draft Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022 (“the draft Regulations”) is to permit employment businesses to supply agency workers to an employer to replace workers who are taking part in an official strike or other industrial action. This practice is currently a criminal offence. The purpose of SI 2022/699 is to raise the cap on damages that can be awarded against a trade union for organising unlawful strike action. This will be the first increase in the cap in 40 years.
2.We wrote to the Secretary of State about the draft Regulations. Our letter and the Secretary of State’s response can be found in Appendix 1. We also received submissions from the Trades Union Congress (TUC) and the Recruitment and Employment Confederation (REC) which we have published on our website.1
Liability of Trade Unions in Proceedings in Tort (Increase of Limits on Damages) Order 2022 (SI 2022/699)
3.This instrument increases the upper limits on damages that may be awarded against trade unions for organising, endorsing or authorising unlawful industrial action. The Department says that the limits have not been reviewed since 1982 and are significantly out of date, so that “the prospect of a damages claim no longer acts as a deterrent to unlawful strike action in the way that Parliament intended”.
4.BEIS explains that industrial action is unlawful if a union and its members take strike action without having followed the statutory notification and balloting procedures as set out in trade union legislation, or if such action does not fit into the definition of a trade dispute with the workers’ direct employer. According to BEIS, the statutory notification and balloting procedures require the union to: notify the employer of intention to conduct a ballot; the ballot to be overseen by an independent scrutineer; the scrutineer’s report to set out that the ballot was for a “Yes” vote and that it met the Trade Union Act 2016 thresholds (of a minimum 50% turnout and also a 40% support threshold for important public services2); and the union to notify the employer of the ballot outcome, giving 14 days’ notice of the first date of industrial action.
5.The level of the cap and damages that can be awarded against a trade union depends on the number of members of that trade union. The increases to the cap made by this instrument range from an uplift from £10,000 to £50,000 for unions with fewer than 5,000 members, to an uplift from £250,000 to £1,000,000 for unions with 100,000 or more members. BEIS says that these increases will not affect the right to strike and are “broadly in line with inflation”, using the Retail Price Index (RPI).
6.Asked how common it is that damages are awarded against trade unions, the Department said that this was “very rare”, and that it was aware of three cases going to court between 1982 and 2003. According to BEIS, in the most recent case,3 the High Court held in November 2003 that the pre-ballot notice had not complied with the legislation because the union had got its numbers wrong and had served the revised notice with fewer than seven days to go. The union was fined more than £130,000 for missing delivery dates, the loss of eight working days and the loss of production. The Department concluded that:
“The reason why damages claims are rare is because employers tend to prefer to use an injunction at the High Court where they feel that a union has not complied with statutory balloting requirements. If the Court finds against the union, then the union will invariably re-ballot its members and not take the risk of proceeding with unlawful industrial action, as the penalties for the union and members in doing so are severe. (For example, the union will be in contempt of Court and will incur heavy fines as well as risk its funds being sequestered by the Court, whilst workers that take part in unlawful industrial action can be summarily dismissed by the employer with no recourse to an employment tribunal.)”
7.Asked why the Government thought that it needed to take action now after four decades, the Department told us that while it could not comment as to why previous governments had not legislated for an uplift in the past 40 years, the “priority since 2015 has been the passage and then implementation of the Trade Union Act 2016. Now that this Act has bedded down, Government Ministers are now considering the wider trade union legislative framework. In doing so, they have decided that now is the right time to legislate to uplift the limits on damages.”
Draft Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022
8.BEIS explains that the recruitment sector in Great Britain (GB) is regulated by the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“the Conduct Regulations”). Under this framework, employers facing industrial action can directly hire workers to provide cover during strikes or can contract out the work to a service provider, but under regulation 7 of the Conduct Regulations, it is currently prohibited for an employment business to knowingly provide temporary workers (agency workers) to an employer to replace workers taking part in an official strike or other industrial action. It is a criminal offence to do so. The draft Regulations propose to revoke the prohibition under regulation 7.
9.The EM to the draft Regulations states that the Government are committed to tackling the “disproportionate” and “unfair” impact of strikes, and that while it is “important to protect individuals’ right to strike”, this “must not come at the cost of unreasonable disruption to important services for members of the public or unreasonable cost to businesses at a time when both are struggling with the rising cost of living and doing business”. According to BEIS, allowing agency workers to be used to replace workers who are on strike would limit “the impact to society and the wider economy of strike action by ensuring that businesses can continue to operate to some extent”.
Devolution
10.The draft Regulations are to apply to GB (the policy is devolved in Northern Ireland); this means that employment businesses in England, Wales and Scotland would be permitted to supply workers to employers to cover strikes. While in England and Scotland all employers across the public and private sectors would be free to use temporary staff to cover strikes, in Wales, employment businesses “would be permitted to supply workers to employers (including devolved Welsh authorities)”, but the devolved Welsh authorities “would not be permitted to hire them”. According to BEIS, this is due to provisions in section 2(2) of the Trade Union (Wales) Act 2017 (“the 2017 Act”), which currently limit the effect in Wales. The EM states that “the UK Government intends to legislate to remove the Trade Union (Wales) Act 2017 through primary legislation when Parliamentary time allows, to ensure trade union legislation applies equally across [GB]”.
11.We asked whether, given the territorial extent of the changes, the Scottish and Welsh Governments had been consulted, and whether they had raised any concerns or objections. BEIS told us that the Minister for Small Business, Consumers and Labour Markets had written to Ministers in the devolved administrations, but that the Department had not formally consulted the devolved administrations on this policy as, with the exception of Northern Ireland, it is a reserved matter.
12.We asked the Secretary of State for further explanation of the Government’s intention to repeal the 2017 Act, when and how this intention had been communicated to the Welsh Government and Senedd, and whether there was any precedent for the repeal by the UK Government of legislation passed by a Parliament of a devolved nation. The Secretary of State responded that:
“[T]he Government was clear when the Trade Union (Wales) Act 2017 was passed that it would seek to reverse it once the Wales Act 2017 gained Royal Assent.
The then Secretary of State for Wales (the Rt Hon Alun Cairns MP) wrote to the Chief Executive and Clerk of the National Assembly for Wales in August 2017 (in response to her letter informing him that the Bill had been passed) making this point.
Before the Wales Act 2017 there was some debate about the extent to which the Welsh Assembly was able to legislate in the area of employment and industrial relations practices in respect of public bodies in Wales. [ … ]
As the commitment to legislate to override the provisions in the Trade Union (Wales) Act 2017 is not new, we did not specifically discuss this with the Welsh Government in advance of this latest set of announcements. We did, however, write to the Minister for Economy (Vaughan Gething) on 24 June, in advance of these regulations being laid, to notify the Welsh Government and explain the rationale for our proposals on agency workers and unlawful damages.
When we identify a suitable primary legislative vehicle to amend the Trade Union (Wales) 2017 Act we will engage further with the Welsh Government. Consideration will be given at that point to whether their legislative consent is required.
I am not aware of any other direct precedent. As set out earlier in the letter this situation arose out of a particular ambiguity in the way devolution operated in Wales before the Wales Act 2017. The reserved powers model set out in this Act provided for a much clearer separation of powers. This model (reserved powers) already underpinned the devolution settlement in Scotland.”
13.We are concerned about the devolution aspect of the draft Regulations and the Government’s declared intention to repeal the 2017 Act. Similar concerns have been expressed strongly in the Welsh Senedd.4 We are not in a position to assess or comment on whether the Government’s intention to repeal the 2017 Act would be in line with the devolution settlement, as this would be outside our remit. We acknowledge, however, that this issue is constitutionally highly sensitive.
14.We also acknowledge the Secretary of State’s explanation that the Government’s intention to repeal the 2017 Act was made clear when that Act was passed by the Welsh Senedd. We understand that the 2017 Act received Royal Assent on 7 September 2017, after the Wales Act 2017 which set out the reserved powers model and which received Royal Assent on 31 January 2017. We take the view, however, that given the constitutional sensitivity of the issue, there should have been an earlier and more comprehensive engagement with the Welsh Government and Senedd on the draft Regulations. The Department only wrote to the Welsh Government on 24 June, which as we understand is after the date (23 June) on which the Department originally intended to lay the draft Regulations. We note that the Secretary of State has committed to further engage with the Welsh Government on the repeal of the 2017 Act.
Impact
15.The EM to the draft Regulations states that an Impact Assessment (IA) “will be published in good time before any parliamentary debates” on the draft Regulations. The initial lack of an IA was criticised in the submissions we received from both the TUC and the REC. Asked why the IA had not been published when the draft Regulations were laid, the Department told us that:
“We recognise the importance of Parliament having the Government’s assessment of impact when considering these regulations. An impact assessment has been produced but is currently going through final quality assurance checks. We will publish this as soon as it is ready. As a minimum we commit to doing so before any scheduled debates, although we would hope to have completed the necessary checks well before this.”
16.Final quality assurance checks are part of a department’s internal planning process, and parliamentary scrutiny starts on the day an instrument is laid. We therefore regret that because of poor planning, a department has again failed to comply with the requirement to provide an IA when an instrument is laid before Parliament, and only complied after we wrote to the Secretary of State. This is particularly disappointing, given that BEIS, through the Better Regulation Executive, has overall responsibility for IA policy and should therefore be leading by example. We have raised this issue repeatedly, most recently in our 5th report.5 Parliamentary scrutiny starts when legislation is laid before Parliament and every time an instrument is laid without the supporting IA, this undermines our ability and the ability of Parliament more generally to scrutinise legislation effectively.
17.In response to our concerns over the lack of an IA, the Secretary of State apologised and told us that:
“[T]his is a permissive change, employers will only hire agency workers when the net benefit is positive.
In order to estimate the impact of this measure, we would need to make a number of assumptions and do not have the evidence to do this. The IA therefore uses a simple model that looks at the impacts from businesses impacted from industrial action and carried out break even analysis. This shows that if agency workers were able to reduce annual average working days lost from industrial action by 2%, with around half the productivity of regular workers, then the impact of this policy would be neutral (break-even). This does not include non-monetized impacts, most notably the wider (significant) benefits on the rest of the economy if employers facing strike action can maintain some activity. Hence, we are confident that this policy change is likely to be net beneficial, however, we are unable to robustly estimate the size of this impact.”
18.We note the Secretary of State’s statement that it was not possible to “robustly estimate” the impact of the policy due to a lack of evidence. This appears to confirm the conclusion of the Regulatory Policy Committee (RPC) which rated a draft IA which was published when the policy change was consulted on in 2015 as “not fit for purpose”,6 because it did “not provide sufficient evidence of the likely impact of the proposals”. The RPC particularly criticised that the draft IA at the time lacked evidence to support many of the quoted figures, concluded that the case for the central assumption had not been made, and noted that the draft IA was not a robust basis for assessing the costs or, in particular, the benefits of the proposal. In its submission, the TUC criticised that the Department had belatedly published the IA to the draft Regulations, and that this included “vastly reduced costs and benefits” compared to the draft IA published in 2015. We also note that the final IA that has now been published is “De Minimis”, suggesting that any net benefit for businesses is expected to be below £5million per year. The lack of robust evidence and the expected limited net benefit raise questions as to the practical effectiveness and benefit of the proposed repeal of regulation 7. The House may wish to press the Minister further on this.
19.Given the importance of meaningful impact information for effective scrutiny of secondary legislation, we have taken evidence on the availability and quality of impact information more generally (not just in relation to these Regulations) and have raised our concerns with the Minister responsible for IAs at BEIS. We will report our findings and recommendations in due course.
Effectiveness
20.We asked the Department for further information on the expected impact of the draft Regulations in relation to concerns that were raised by both the REC and the TUC in their submissions.7 Given widely reported recruitment challenges in many sectors, we asked how realistic it was to assume that employers would find appropriately qualified agency staff, and how effective the proposed changes would be in practice in limiting the impact of strikes. BEIS told us that:
“We have considered this point carefully and agree it is likely that some agency workers will choose, particularly in a buoyant labour market, not to take up roles that involve covering industrial action. This change does not, of course, compel agency workers to take up roles that involve covering strikes. But it is seeking to give them the choice to do so if they want to, and it is right that workers have this freedom. Employers in a wide range of sectors, some of which are more affected by strike action, could work with the recruitment sector to develop agency services to enable them to deal more effectively with future strikes.”
Safety
21.We also asked the Department whether it would be safe to replace permanent staff with agency staff during periods of industrial action, given that many jobs, for example in nursing or in the railway sector, require specific skills and qualifications. BEIS responded that:
“[The instrument] does not change any requirements for businesses to comply with wider health and safety rules that keep both employees and the public safe. Employment businesses continue to be subject to the wider provisions of the Conduct Regulations, which require them to satisfy themselves that any agency worker they supply has the necessary experience, training, qualifications, and any authorisation which the hirer considers necessary or is required by law or any professional body to work in the position the hirer is seeking to fill.”
Impact on industrial disputes
22.We also asked the Department about concerns raised by both the REC and TUC that employing agency workers during a strike was likely to worsen tensions and prolong strikes, and that the employment of agency workers during strikes could put both employment businesses and agency workers in a difficult situation, with reputational risks for them and the sector more widely. The Department responded that:
“Resolving industrial disputes is a matter for the parties involved. The Government encourages parties involved to get around the negotiating table to settle their disputes. Strike action should be a last resort. But where strike action is deemed necessary, it is right to balance the interests of the workers on strike with the businesses’ need to manage their workforce and continue operating. Employers can, of course, already bring in extra staff to cover strikes if they hire them directly. This change simply provides them with another option for managing their workforce during a strike. But importantly it is an ‘enabling reform’ and does not in itself compel employment businesses to supply workers to cover strikes. It will still be up to businesses to decide whether to make use of the options available to them in law when managing their workforce while facing industrial action.”
Consultation
23.The policy was consulted on between July and September 2015.8 The TUC made clear in its submission that changes of this nature require consultation under the Employment Agencies Act 1973.9 We asked BEIS whether it was appropriate to take forward a policy seven years later without further consultation, in an environment that has changed considerably since the consultation took place, for example in relation to pressures on the costs of living. The Department told us that:
“The Government’s view is that there is no need for a further consultation. As the EM sets out, the consultation itself was thorough and elicited a large number of responses (167 in total) and from a wide range of different types of stakeholders. While we accept that circumstances have altered in some ways, we do not think these are particularly relevant to the changes we are proposing to make. As such there is no reason to think any new groups of stakeholders would respond or that they would raise new points. The forthcoming parliamentary debates will, of course, provide MPs and Peers the opportunity to provide further feedback for government to consider.”
24.During consultation, 70% of respondents took the view that the changes would impact negatively on employees. Asked about this high level of concern, the Department said that:
“We have carefully considered all of the points raised in the consultation in 2015. It is a question of balance. We think this policy balances the interests of individuals by protecting their right to engage in industrial action with the interests of the general public (most of whom are not members of a Trade Union) to go about their lives and for businesses not to suffer disproportionate disruption during periods of industrial action. This is obviously something which can be considered by Parliamentarians in the forthcoming debates.”
25.We also asked more specifically about the fact that the REC, representing businesses in the sector, was critical of the policy. BEIS explained that:
“The REC is a trade body that forms its own view on public policy interventions. It is right that they communicate their members’ views to government, but we are not obliged to agree or implement their suggestions. We are aiming to remove a blanket restriction that is no longer fit for purpose, so that individuals and businesses have greater choice. Employment Businesses will not [ … ] be compelled to provide staff to cover industrial action. We also believe the repeal is the right course of action as it strikes a balance between maintaining individuals’ right to strike and the rights of third parties (including businesses and the public) not to suffer disproportionate disruption.”
Conclusion
26.The changes made by these two instruments will affect industrial disputes and the relationship between employers and trade unions. We regret that the Department failed to provide an IA when the draft Regulations were laid before Parliament, and only did so two weeks later, after we had written to the Secretary of State to raise concerns about the lack of an IA. The fact that in the IA the Department was unable to “robustly estimate” the size of the impact of the policy because of a lack of evidence raises questions as to the practical effectiveness and benefits of the change proposed by the draft Regulations.
27.We are concerned about the devolution aspect of the draft Regulations, in particular the Government’s intention to repeal the 2017 Act to ensure that the draft Regulations apply equally across GB. Given that this raises highly sensitive constitutional questions, there should have been an earlier and more comprehensive engagement with the Welsh Government and Senedd on the draft Regulations. We note that the Secretary of State has committed to further engage with the Welsh Government on the repeal of the 2017 Act.
1 Secondary Legislation Scrutiny Committee, ‘Scrutiny Evidence’: https://committees.parliament.uk/committee/255/secondary-legislation-scrutiny-committee/publications/8/scrutiny-evidence/ [accessed 12 July 2022].
2 This includes services in the fire, health, education, transport, border security and nuclear decommissioning sectors.
3 Willerby Holiday Homes Ltd v Union of Construction, Allied Trades and Technicians [2003] EWHC 2608 (QB).
4 Senedd Cymru Welsh Parliament, ‘Plenary’, https://record.assembly.wales/Plenary/12880#A73101 (see paragraph 41) [accessed 12 July 2022] and Senedd Cymru Welsh Parliament, ‘Plenary’, https://record.assembly.wales/Plenary/12881#A73144 (see from paragraph 144) [accessed 12 July 2022].
5 Secondary Legislation Scrutiny Committee, 5th Report (Session 2022–23, HL 28).
6 Regulatory Policy Committee, Hiring agency staff during striker action: reforming regulation (1 October 2015): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/454856/RPC15-BIS-2403__3009__-Hiring_agency_staff_during_strike_action_-_IA_c__-_opinion.pdf [accessed 12 July 2022].
7 Secondary Legislation Scrutiny Committee, ‘Scrutiny Evidence’: https://committees.parliament.uk/committee/255/secondary-legislation-scrutiny-committee/publications/8/scrutiny-evidence/ [accessed 12 July 2022].
8 Department for Business, Energy and Industrial Strategy, ‘ Consultation outcome: Hiring agency staff during strike action: reforming regulation’: https://www.gov.uk/government/consultations/hiring-agency-staff-during-strike-action-reforming-regulation [accessed 12 July 2022].
9 Employment Agencies Act 1973, Section 12(2).