Clause 1 - Enforcement notices

National Minimum Wage (Enforcement Notices) Bill [Lords] – in a Public Bill Committee at 8:55 am on 27th February 2003.

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Question proposed, That the clause stand part of the Bill.

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

It is a pleasure to serve under your chairmanship for the first time, Miss Begg.

No amendments have been tabled to the Bill, apart from the amendment involving privilege that I shall deal with when we discuss clause 2. This small Bill was debated extensively on Second Reading, but I shall briefly explain the background.

We created a network throughout the United Kingdom of 12 enforcement teams operated by the Inland Revenue to investigate and identify non-compliance with the national minimum wage. For three years, the teams issued enforcement notices that required employers to pay the minimum wage in future, or make good arrears of the minimum wage, or both. In August 2002, the Employment Appeal Tribunal ruled in the case of Inland Revenue v. Bebb Travel plc that officers could only issue enforcement notices requiring the employer to pay the minimum wage in respect of current and future pay periods, or in respect of current, future and past pay periods.

That ruling means that enforcement officers cannot currently issue notices in respect of arrears for past periods alone, so we cannot cover arrears owed to former workers. The Government are determined to restore the position to what we believed it to be before the Bebb decision, hence the Bill. There was broad consensus throughout the House on Second Reading and I hope that that will continue today.

Clause 1 deals with the power of enforcement officers to serve enforcement notices on employers for the recovery of the national minimum wage. It inserts a new subsection (2A) after section 19(2) of the

National Minimum Wage Act 1998. That will allow an enforcement officer to serve an enforcement notice on an employer, imposing a requirement on him to pay a worker who has at any time qualified for the minimum wage arrears of pay in respect of one or more past pay reference periods. He will be able to serve such a notice whether or not he imposes, or might impose, a requirement on the employer to pay the worker the minimum wage in future.

It will not matter if the worker no longer qualifies to be paid the minimum wage by that employer—because, for example, he is no longer employed by that employer. The notice can relate to that worker alone, or, by virtue of section 19(3), to a number of workers. The same notice can therefore deal with a combination of past or future periods and past or current employees.

Enforcement officers will be able to issue notices by virtue of new subsection (2A) for pay reference periods that ended before the passage of the provision. However, workers are already entitled under the National Minimum Wage Act 1998 to bring claims in respect of such periods. The Bill will not give workers an entitlement to minimum wage arrears that they did not previously have.

The amendments made by the Bill to the 1998 Act will also have effect in the application of the Act to enforcement of the agricultural national minimum wage.

New subsection (2B) states that enforcement notices will only be able to extend back for a period of not more than six years, starting from the date of the service of the notice. The key issue is the fulfilment of the Government's policy of restoring the position to what we believed it to be before the Bebb decision. All sides desire clarity and consistency and this new subsection makes it clear that the Revenue has the right to go back for more than three years, but does not have the right to go back further than six years. That provision will give the Revenue greater flexibility and conserve and focus resources, but reassure the business sector that action by enforcement officers cannot extend back over an infinite period.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Trade and Industry)

It is a pleasure to serve under your chairmanship again, Miss Begg.

I am grateful to the Minister for the clear and concise way in which he has explained clause 1. The essence of the Bill is to restore the position to what the Government believed it to be and what Parliament believed it to be when the original legislation—the 1998 Act—was passed, but I should like to pursue one or two points that emerge from clause 1.

First, there is the six-year limitation. As we discussed on Second Reading, in the county courts there is a six-year statutory limitation period. Most of the cases go forward in the county courts, rather than in the employment tribunals, for the simple reason that a case in employment tribunals has to be launched within three months of the last underpayment. Can the Minister tell the Committee what percentage of the cases brought so far has been brought in employment tribunals? Is it a very small percentage? Are we talking

about 20 per cent., or 10 per cent.? It would be quite useful to know that.

On the six-year limitation, the Minister, Lord Sainsbury of Turville, brought to the attention of the other place the fact that companies only have to keep records going back three years. I made that point on Second Reading, and I hope that the Minister for Employment Relations, Industry and the Regions will elaborate on it today. Although he replied to most of the points made on Second Reading, I still want further clarification. If a company only has to keep records going back three years under company law, what happens if, for example, it has chucked out all its payroll records, but the employee who is claiming underpayment of the minimum wage has kept his pay slips and other relevant payroll information, and the case then goes to court? A company could be at an unfair disadvantage because the person who is taking the action will have information to hand, whereas the company will not. I want the Minister to comment on that.

The discussion in the other place resulted in an amendment being tabled to introduce the six-year limitation. As the Minister pointed out, before that, the period could have been infinite and the enforcement officers could have gone back more than six years, although it is very unlikely that they would have done so. The national minimum wage legislation only came in three years ago, so the discussion is academic. However, it is important for the future. Since Second Reading, I have been lobbied by one or two business organisations, which are concerned about the three-year rule for keeping records.

Will the Minister speak to his colleagues in the Department of Trade and Industry and the Treasury about the three-year rule? It probably makes sense that companies should not have to keep records going back more than three years, given the overall ambit of record keeping in the corporate sector, but perhaps they could keep payroll information for six years. That, at least, would obviate the set of circumstances that I have flagged up, in which a company is taken to court by an employee who has been unfairly treated and that employee had the information to hand. The court may say that the company got rid of its information legitimately under the law and therefore decide that, even though the evidence on the part of the employee was overwhelming, it could not make an award to him.

Will the Minister clarify another point? Am I right in saying that the six-year limitation applies only to Government enforcement officers, either from the Inland Revenue or from the Department for Environment, Food and Rural Affairs? Would it still be possible, in extreme circumstances that are hard to envisage, for an employee to bring a case on his own account? Does the six-year rule refer only to both kinds of Government enforcement officers? The Bill does not make that clear.

The Opposition are satisfied with the Bill and we supported it on Second Reading and in the other place. We feel strongly that when a problem arises like the one involving Bebb Travel, the Government are

right to act as quickly as possible to ensure that the position is restored to what it was before.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

We accepted on Second Reading that there was no fundamental dispute and we agreed with the spirit of the Bill. However, I asked on Second Reading whether the six-year limitation was necessary and I would like to pursue that in relation to new subsection (2B).

We are dealing with a small number of cases. Imagine if, 10 years hence, there were an extreme case of a company that had consistently underpaid for a decade. There might be an even more extreme case in which the employer lost all its records and the employee somehow managed to retain his. Why should there not be an open-ended commitment for an extreme case in which gross exploitation had occurred?

I do not fully understand the reason for the six-year limit. It seems unnecessary and would apply only to a small number of cases. By leaving things open, parties to the dispute would have a more open agenda. I cannot understand why the Government feel that it is necessary to introduce a cap.

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

Let me explain the six-year, three-year issue as best I can. The hon. Member for North-West Norfolk (Mr. Bellingham) asked whether we had statistics on how many cases went through sheriff courts in Scotland, compared with employment tribunals. I have to say that I am disappointed with the quality of the statistics that we are getting. However, of those enforcement cases that the Inland Revenue takes on behalf of employees, some 85 per cent. go through the county court and some 15 per cent. go to employment tribunals.

I am not sure how many cases are pursued individually, through trade unions or by people themselves, and what is the breakdown of the relevant figures. I am, however, clear that most cases go through the county courts for the reason that the hon. Gentleman mentioned, which is that people cannot go to an employment tribunal if it is more three months since the last underpayment. On Second Reading we briefly discussed the fact that people can get 8 per cent. interest on a claim through the county court, which they cannot get through an employment tribunal claim. That is as much as I can tell the hon. Gentleman.

I tried to find out from debates on the National Minimum Wage Bill in 1998 the rationale for requirement for records to be kept for three years. I think that it was intended that the provision tie in with other legislation requiring employers to keep records for that period. It was a question of consistency. Nevertheless, the hon. Gentleman is right to raise that issue. He said that that was academic, but it was not academic from April last year.

The national minimum wage was introduced in April 1999, so there was the possibility of claims going back three years from April 2002 onwards. An employee is entitled to claim arrears dating back six years if the claim is being enforced, but can claim arrears dating from however long ago if they do not go through enforcement officers and instead take their

claim to an employment tribunal. That already applies to county courts. Sheriff courts in Scotland have a five-year limitation, and county courts in the United Kingdom have a six-year limitation. What we are saying through the Bill is that, when enforcement is carried out through the Inland Revenue, there should be consistency, and a period of six years.

The hon. Gentleman asked about the disparity between employers having to keep records for only three years, but arrears going back six years being enforceable. On Second Reading, when he argued that we should limit arrears to three years, I said that there was a better case for employers keeping record for six years than for reducing the arrears period. None the less, I shall consider the issue. The Bill will be the acid test, because this is a new experience—there have not been any cases of arrears going back more than three years being pursued. The average arrears go back less than a year. Usually, employers find out about arrears within a reasonable time and the matter is pursued.

I do not want to make a big song and dance about the issue if it will be academic, but we will consider what difficulties Inland Revenue enforcement officers have with the absence of records going back more than three years. I suspect, as the hon. Gentleman said, that there will be evidence about pay: employees will have payslips, because most are meticulous—as they should be—about keeping them for many years. Although most employers dump other records after three years, they may well keep records of pay. If a problem occurs, we might need to consider the issue—under the regulations, not the Bill—with a view to extending the requirement to keep records to more than three years.

The hon. Member for Twickenham (Dr. Cable) talked about the amendment that we accepted in the other place. The Opposition argued—and we, in the end, accepted—that the rules on enforcement for Inland Revenue acting on behalf of other people should be consistent with those for county courts and tribunals, as long as that did not remove the right of a person to claim arrears going back however far. It was felt that that was a sensible amendment, and I hope that the Committee leaves it in place.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Trade and Industry)

On the rule relating to companies keeping records for three years, is that in company law statute, or is it based on case law? How easy would it be to change that requirement if it made sense to do so in future?

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

I shall write to the hon. Gentleman, because I am not sure about that. My understanding is that the requirement is part of the regulations, not the Bill, and that we could, therefore, change it without too many problems.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.