Eighth Standing Committee on Delegated Legislation
Thursday 13 May 1999
[Mr. Jim Cunningham in the Chair]
Draft Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 1999
10.30 am
The Minister of State, Department of Trade and Industry (Mr. Ian McCartney): I beg to move,
That the Committee has considered the draft Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 1999.
I welcome you, Mr. Cunningham, to the Chair. A few years ago, we dealt with a serious employment relations issue similar to this subject, so I am pleased to move this order now. I hope that every member of the Committee will embrace it as being reasonable, as employers and employees have done.
The order is an important part of the Government's package of employment legislation and is fundamental to the concept of fairness at work. It will help to improve security for 2.8 million workers, while maintaining substantial flexibility for employers in their recruitment practices. It will encourage the introduction and use of proper disciplinary procedures by those employers who do not have them, and it will have wider benefits in terms of improved employee commitment and productivity.
The reduction in the qualifying period was proposed in the White Paper, ``Fairness at Work'' last year. It was overwhelmingly supported by all categories of respondent, including employers and their representatives. Many of the 168 responses in favour of the proposal were from employers, including the Conservative trade union group.
As stated in the regulatory impact assessment that accompanied the order, 90 per cent. of companies already have written procedures. Although they are not always a guarantee of fair treatment, we know that employers who lose before a tribunal are most likely to be those without such procedures. Therefore, those procedures significantly help good practice, and employers can discipline people when necessary.
When protection against unfair dismissal was introduced, one of the marked effects was a significant improvement in recruitment procedures. Employers took more care to recruit the right staff for the job, enabling them to benefit from better skilled and more suitable entrants.
Employers need some leeway to take a risk, perhaps to give the benefit of the doubt to someone re-entering the labour market, or to those who have other characteristics that may put them at a disadvantage against more conventional candidates. We want to encourage employers to take risks that can reduce social exclusion, and to give them a chance to recover if they make a genuine mistake in recruitment.
It is not unreasonable for employers to be left in a state of uncertainty about the security of their employment if they have been in the job for as long as two years. We believe that a year is a reasonable length of time for an employer to decide whether a recruit is suitable for the job. That view was widely shared by the respondents to our consultation, including the Confederation of British Industry, which has made a statement supporting our proposal today.
It is not a heavy burden for business to use proper recruitment and probation procedures. If employees subsequently fall short of the required standard, the employer will remain free to dismiss them, provided that the treatment is fair.
The order will reduce the length of service employees will need before they can request written reasons for dismissal. Employers must provide written statements within two weeks of such requests. That is an important complement to the unfair dismissal qualifying period. It is important that employees know why they have been dismissed; it enables them to decide whether to make a claim for unfair dismissal. Providing a written statement of those reasons on request is a simple matter of good practice, but it is useful to employees because it provides them with the basic information that can help resolve disputes and prevent unfounded tribunal claims.
The measure will continue the Government's programme of combining flexibility in the labour market with security and minimum standards for employees. As one employer said in the consultation, ``It will present no problems for us or other well managed organisations.'' I commend the order to the Committee.
10.4 am
Mr. Tim Boswell (Daventry): I too welcome you to the Chair, Mr. Cunningham. I have not previously had the privilege of serving under your chairmanship on a Committee, but I know that you have industrial experience and knowledge and that you will bring us to order if we misbehave—which we have no intention of doing. We are also pleased to see the Minister back in his place. It would be against nature for us not to be together in Room 10 on a Thursday morning debating industrial relations. I am glad to see that, even if he has been unwell for a while, his sense of humour has not deserted him.
We also welcome the opportunity of debating the issues. For the benefit of any member of the Committee who doubts it, we are strongly committed to good practice in the workplace. As the Minister conceded, it is a matter of finding the appropriate balance between the different interests. The Minister nods when I say that. In the revealing exchanges that we had on the Employment Relations Bill, which I will not rehearse now—[Interruption.] The Minister tempts me, but I suspect that the Chairman would not wish me to go into that legislation, although it is part of the same complex of measures.
The Minister was decent enough to agree that to have employment rights, one needs a job in the first place. One needs the right balance because if it is not in employers' interests to employ someone, they will inevitably not do so. One of our major concerns with the fairness at work package is not so much the question of extending rights to existing employees as the danger of creating a climate in which employees may not be employed at all. However, those are policy matters, to which I shall return in a few moments.
The Minister did not speak about the order's detail because there is not much to speak about. Not every text of an order or statutory instrument is as pellucidly obvious as this one; it effects the Minister's intentions clearly and concisely. When I had finished reading it, I found myself asking, ``Is that it?'', and then realised that it was.
Nevertheless, a number of technical points need explaining. The intention of the order is clearly to reduce the qualifying period of continuous employment before a tribunal can entertain a claim for unfair dismissal from two years' continuous service to one year and, in a concomitant and logical extension, similarly to reduce the period after which one has a right to receive a statement of reasons for dismissal.
The first point I query is on the method of altering the qualifying period, which has moved about over the years. Until 1979, it was a six-month period and was then extended by the then Conservative Government to a 12-month period.
Mr. McCartney: That takes us back to 1986.
Mr. Boswell: Indeed, I was going to say that it went up to a year and was then extended to two years, which is where it is now. My understanding of the Employment Rights Act 1996, which is signalled in the order, is that a Minister could move a variation order at any time; would the Minister confirm that? We have said much in various debates about the unintended consequences of proposals and the Minister should tell us whether, if a period turns out to be misguided, he can change it by order.
Mr. McCartney: The Government made it clear in the White Paper that the measure was a settlement for this Parliament. These proposals flow from the White Paper, through the Act to the order, which enacts the period of one year. It is a settlement for this Parliament and the Government will not be coming back to make reductions in the qualifying period, if that is the implication behind the hon. Gentleman's question.
Mr. Boswell: It is helpful to have that clarification. In fairness to the Minister, he said that ``Fairness at Work'' is a settled arrangement, although he knows that there are lots of details to fill in, of which this is one. Bearing in mind the fact that this is secondary legislation attaching to pre-existing legislation, rather than new stuff, my understanding is that there are powers of variation. If either he or a subsequent Minister deemed it necessary to change the period, he could simply do so with an order.
Mr. McCartney: Our Conservative predecessors were very helpful in allowing us to deal with the matter in this way. I repeat that this is a settlement for this Parliament.
Mr. Boswell: That is helpful and I assure the Minister that I am not trying to trap him into any degree of inconsistency.
Mr. McCartney: Many have tried.
Mr. Boswell: The Minister says that many have tried, but I understand that he wants to be consistent. The flexible order-making power that requires us to be here on a Thursday morning will have advantages if circumstances change. In other parts of the ``Fairness at Work'' package, I think that the Minister would have blessed the opportunity of having the flexibility to make changes.
The second technical point is always a bug bear. The Minister will know that it is something of a King Charles' head as well as a bug bear. I refer to the transitional provisions. It is important that we get them right for employers and others. I dare say, without betraying confidences, that the Minister will not be surprised that a senior, distinguished Conservative barrister, who has a background in employment law, consulted me about when the provisions would come into effect and what their implication on existing contracts would be. In my lay and—I hasten to say—unpaid way, I did my best to explain the position. It would be useful if the Minister would clarify how the system will work. [Interruption.] I may tell him afterwards who it was.
My understanding is that there are three instances in which the order might not apply, which are as follows: first, if the notice period has been worked out before the end of May when employment has come to an end; secondly, if payment has been made in lieu of a notice period that would have expired by the end of May; and, thirdly, if the fixed contract period had ended by the end of May. In that case, the employee who might be tempted to say that he had been unfairly dismissed would have the old rights, so only if he had been employed continuously for two years could he make a claim for unfair dismissal.
On the other hand, if the notice period had not been completed by the end of May, or if a contract were still in force, the employee could avail himself of the new order. If someone is in employment on 1 June, however long it has lasted, provided that it is more than one year of continuous employment, he would be able to claim his rights under this order. I should like the Minister to give us a short formulation, so that it will be on the record for practitioners.
There seem to be two levels of retroactivity. First, in any employment that was entered into by mutual consent, under the old rules, if it is has not been discharged by the end of May, the new rules will apply. There is a change in the old conditions of employment, in effect, which we must acknowledge.
There is a little more concern about the second level, which is what the transitional period conditions bite on. Even if notice had been given under the old rules because an employer felt that he had made a mistake and it was an unsatisfactory employment, the new rules would apply if the employment had not been terminated within the meaning of that schedule to the Employment Rights Act 1996 by the end of May. That clearly is retrospective and it could create some difficulties. However, those are comparatively straightforward, technical problems.
I now invite the Minister to comment on one or two matters of political and economic substance. We need to know the Government's motives for making the order. Is it part of the ``Fairness at Work'' agenda? The Minister referred to last year's White Paper. It is partly the result of proposals that otherwise turned up in the Employment Relations Bill. I have no quarrel with the Minister's intentions, but he stressed to employers, as if it were a benefit, the importance of good practice in labour relations. Indeed, the Minister will concede that the original unfair dismissal rights were conveyed by a Conservative Secretary of State in the 1970s, in legislation that was otherwise regarded as being quite controversial.
There is no argument between us that employers should enshrine good practice, or that it usually requires proper procedures—and, I hope, an understanding of the rights and dignity of workers. However, even in the White Paper, Ministers were unable to say whether there were specific incentives for employers. The Government prayed in aid that
``employees would be less inhibited about changing jobs and thereby losing their protection, which should help to promote a more flexible labour market''.
On the other hand, the White Paper says nothing about the potential inhibitions for employers in taking on employees and then finding they are saddled with them. Even if they turn out to be unsatisfactory, it is difficult to dismiss them after the qualifying period. Of course, there is no precise art in this, but it is nevertheless important.
The Minister will have heard me say this before, but it is worth saying again: the biggest change that a small business can make is not to initiate training, but to move from zero employees—true self-employment—to take on an employee. That is the big test. I declare my own interest in the matter, as the employer of one full-time employee. That is when one comes into contact with employment rights. One runs the risk of falling foul of an employment tribunal, and one seeks, I hope, to behave in a sensible way and to avoid it, but one nevertheless exposes oneself to the risk.
If employers feel unable to discharge someone who has proved unsatisfactory for whatever reason, they will be more reluctant to take employees on. That element of motivation is underplayed by the Government. However—I realise, Mr. Cunningham, that this is not the time or place to debate it—they should not underestimate the cumulative impact of the various changes that they are making under the banner of ``Fairness at Work'' that affect the motivation and happiness of employees.
The Minister was happy to cite the CBI's giving a fair wind to the proposals, but it is interesting to note that, on this very day, a report emanates from the CBI, which I have not studied in detail, saying that 43 per cent. of large companies believe that the laws such as those limiting working hours are likely to hit their performance significantly, and that only 9 per cent. of companies said that the legislation would help them. That would suggest that, for some of the reasons that I have stated, they are not fully signed up to all aspects of the ``Fairness at Work'' agenda.
Employers will not want to march into the saloon bar, shout their mouths off and say that they are sacking or laying off the whole of the work force. I would not condone that, but there may be a slower and more insidious effect in demotivating employers, which will stop them creating employment, particularly smaller employers who are on the whole the major creators of new employment.
To put it simply, there will be not a big bang in the labour market that suddenly reduces unemployment, but the continuous destruction of jobs, which will have the same effect over a longer period. I hope that the Minister of State will bear that in mind. I can see his motive in not wanting to destroy jobs, but if he persists with the order, as he no doubt will, he should give some thought to the unrolling consequences of it and his other proposals, and whether they end up doing just that. That is our major worry.
Will the Minister say a little more about his calculation of the costs, their impact on business and the number of employees likely to be captured by the move from two years to one? He must also consider the implications of the order for employers seeking to escape from its effects by prescribing fixed-term contracts of less than one year. The Minister will remember that we debated the matter before, but going below one year to avoid the unfair dismissal provision could mean that employment churns faster and is not improved.
I am surprised that the Minister did not mention gender discrimination, but it is worth the Committee thinking about it. I understand that employment law practitioners believe that the Government are coming under some pressure as a result of European legislation on gender discrimination. If more females had short-term contracts than males, the two-year qualifying period might have resulted in fewer of them having employment rights. It could then be argued that they were being discriminated against compared with males.
I make no value judgment on the matter, except to say that I do not regard myself as being hostile to women's employment rights. Some members of the Committee will know that I have a household which at full complement is 80 per cent. female. It is now subject to people going out into the labour market as they grow up, but I have one wife and three daughters and I am committed to their being able to play their full part in the labour market on an absolutely equal basis with men.
The Minister of State will also know that however good the intentions of legislation, such as the Equal Pay Act 1970, it is difficult to change a culture. He will know from recent studies that even though we legislated on equal pay as long ago as 1970, there are still some considerable disparities. The point remains, however, and it would help if the Minister would tell the Committee if rebutting challenges on the European front was an underlying motive for the order. I suspect that my hon. Friend the Member for East Yorkshire (Mr. Townend), who may seek to catch your eye, Mr. Cunningham, has robust views on the matter.
I warn the Minister that at least one acquaintance of mine is a practitioner in employment law. He points out that his gender arguments may go either way. I did not speak at length when the Committee was considering the closely related new £50,000 limit on claims for unfair dismissal. My acquaintance's professional view is that, as more males are more highly paid than females, the limit is itself discriminatory vis-a-vis males, and could probably be attacked for that reason. I note that my hon. Friend the Member for East Yorkshire is chuntering, reasonably enough, about the difficulties of Europe's intervening in such matters. That should be part of a gender agenda, and the Minister should acknowledge that.
In conclusion, the Minister will know—as we have debated employment law in different ways—that we have reservations about prescribing what he thinks is good employment practice in law. We can see some of the difficulties for employers—especially small firms—who feel themselves constrained by the law and may be frightened about the implications of taking on employees. More generally, we are concerned about the implications of unintended consequences, whatever the Minister's motive, and the overall costs for industry. By itself, the order will not amount to a huge threat to British industry, and I do not want to overstate that case to the Committee. Nevertheless, it is one of a package of measures that will impose on businesses some costs, and certainly some fears of costs. That should not be lightly brushed aside by a Minister whose Secretary of State is beginning to say in public that he may not have the right balance with regard to deregulation. The head of his better regulation task force has also said that.
We will not finalise the balance in Committee, but we invite the Minister to think twice about it. I strongly advise him against selling the proposals on the basis of the imminent arrival of the new Jerusalem, although in fairness his tone was not in that mode. I strongly advise him to consider the debate and the potential difficulties that we have explored, and to be mindful of the potential pitfalls in his continuing analysis of the situation in the Labour party.
10.26 am
| 
