Employment (Allocation of Tips) Bill - Second Reading

Part of the debate – in the House of Lords at 10:55 am on 3 March 2023.

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Photo of Lord Robathan Lord Robathan Conservative 10:55, 3 March 2023

My Lords, this is a Bill entirely about fairness. Indeed, a Member of the other House said to me only this morning, “What is there not to like?”. It was started in the other place by my honourable friend the Member for Watford, Dean Russell, and then continued—for reasons which I will not bore you with—by my honourable friend the Member for Ynys Môn, Virginia Crosbie. What the Bill does is quite simple: it creates a legal obligation on employers to pass on tips, gratuities, service charges—for ease of reference, I shall refer to all these as “tips”—to employees in full. The only deductions permitted are those required or permitted under other statutory provisions, specifically tax law.

Which of us has not wondered, or indeed asked, a waitress or waiter whether that person gets the extortionate service charges that often end up on the end of our Bills? We do not expect businesses to take a slice of anything we pay for service, so this Bill will create a level playing field for businesses that already pass on tips to workers in a fair and transparent way. At the core of the Bill is the creation of a legal obligation for employers to distribute all tips to workers without any deductions; this includes mandatory and discretionary service charges which are added automatically on to customers’ Bills by some hospitality venues. When customers pay service charges, they—we—expect them to go to workers in full, and they jolly well should.

Ensuring that tips are passed on to workers in full, with no deductions by employers, could make a real difference to workers’ incomes. We are talking typically about workers in hospitality such as restaurants, but it would also apply elsewhere; for instance, in taxi services such as Uber, croupiers in casinos or hairdressers. Where employers receive tips directly from customers or have control or significant influence over the distribution of tips which workers receive directly, the Bill will create that legal obligation for them to distribute those tips to workers in a fair and transparent manner. The obligation will attach to the total amount of the qualifying tips paid at, or otherwise attributable to, a place of business of the employer.

To clarify, the Bill does not cover tips which employers do not receive or have control or significant influence over. For example, if workers receive cash tips, perhaps put in a physical pot, and divide them between themselves without any control or significant influence from the employer, those tips are not affected by the Bill. It will not interfere with existing tipping arrangements where employers do not influence or make deductions from tip allocations.

It is important that we retain flexibility for employers to choose how to distribute tips so long as that distribution is fair. Some employers may choose to use a tronc system to distribute tips—I actually knew what a tronc system was, but, for clarity, it is an arrangement commonly used in the hospitality sector where an employer delegates the collection, allocation, and distribution of tips to a person or persons who are known as a “tronc master” or a “tronc operator”; that person is often, in a restaurant for instance, the head waiter. The Bill does not seek to regulate the operators of independent tronc systems, although the employer will need to be satisfied that it is fair overall to make arrangements for distribution through a tronc.

The Bill includes provisions for the Secretary of State to issue a statutory code of practice which will promote fairness and transparency in relation to the distribution of qualifying tips, gratuities and service charges, and help tribunals determine whether it is fair for an employer to make certain tronc arrangements. Employment tribunals must have regard to relevant provisions of the code when determining whether an allocation of tips, or making certain tronc arrangements, is fair, and the code of practice will consider some of the factors which may be relevant to fairness.

The reason for the code is to capture the nuances of fair tipping practices across and within sectors. We need to ensure that we put in place a framework that appreciates the differences from business to business and allows flexibility. However, to reassure noble Peers, there will be a full consultation on the code with subsequent approval by both Houses—or not, of course.

Transparency is a crucial part of the Bill and information plays a significant role. The Bill creates an obligation on employers to have a written policy on dealing with tips, which must be made available to all workers. In order for workers to understand whether their tips have been distributed fairly, the Bill also creates a new right for workers to make a request for information relating to their individual tipping record and the overall amount of tips that the business has received in a given time period. This does not add any onerous obligations or regulations on an employer or business—apart, one might say, from writing a policy—for most employers will already have a system in place for the fair distribution of tips.

The Bill will be enforced by workers through the employment tribunal system, and provides tribunals with remedies and situations where an employer has made deductions from tips or not allocated tips in a fair and transparent way. For general knowledge, I point out that the majority of employment disputes are settled before they reach an employment tribunal, and we expect referrals to such a tribunal under the Bill to be relatively rare or unusual.

If an employer does not allocate tips fairly between workers, the employment tribunal can order the employer to revise any allocation of tips that it has previously made, recommend that the employer deals with tips in a certain way or make a payment to a worker or a number of workers of the employer, so that they receive the tips that they should have received. It might also compensate workers for any related financial loss attributable to a breach of these provisions by up to £5,000.

I hope this gives an overview of the Bill and the provisions within it. As my honourable friend down the other end said, “What is there not to like?” Both parties opposite, Labour and the Liberal Democrats, raised no problems with the Bill during Committee in the Commons—they raised a few issues, but not real problems—and support the Bill.

I hope noble Lords from all sides of the House will join me in helping the Bill succeed. It is an opportunity to bring back change that will positively impact those businesses that are already doing the right thing and, especially, those workers who receive tips. I beg to move.