Offences of failing to comply

I beg to move Amendment No. 148, in Clause 37, page 16, line 40, at end add—

‘(3) For the purposes of subsection (1), “wilfully” shall be subject to the same requirement of reasonableness as is generally applied in employment law.’.

The amendment was tabled in an attempt to get the Minister to comment on the use of the word “wilfully” in clause 37. We have heard about the need for the proportionate use of the big stick. We all know that small, medium-sized and large businesses often come under intense competitive pressures, and that employers might have genuinely neglected their duties regarding pension contributions purely because of the demands of the business, rather than because they have wilfully determined not to pay the contributions that they should by law. I would be grateful if the Minister could clarify how the word “wilfully” will be interpreted and give the reassurance, which I know that many in the business community seek, that there will be a graduated response to non-compliance, that the response will be tough only when it needs to be, and that minor inadvertent errors or omissions by employers will be dealt with in a light-touch way.

Let me see if I can be reasonable in explaining the use of the word “wilful”.

The Clause sets out the details of the new criminal offence for employers who fail to comply with their duties under clause 3(2) in respect of automatic enrolment, under clause 5(2) in terms of re-enrolment, and under clause 6(3) in terms of the jobholder’s right to opt in. The Amendment concerns the important issue of the criminal sanction for “wilful” failure to fulfil the employers’ duties.

It might help if I briefly outline the compliance strategy and how the sanction fits into that. The compliance policy has been developed as a three-stage strategy. The first stage is to educate and inform employers of their duties, and the second is to enable them to comply simply and easily with those duties. The third and final step is enforcement. The criminal sanction is therefore a backstop to the enforcement strategy. Our expectation is that it will almost certainly be rarely used. However, the requirements that we have outlined—automatic enrolment and establishing active membership of qualifying schemes of a specified standard—are designed to help jobholders to meet their aspirations in retirement. Failure to fulfil those duties jeopardises individuals’ prospects, so employers need to take their duties seriously.

It is right that an employer who “wilfully fails to comply” should ultimately face a criminal sanction. The manner in which we have designed the compliance and enforcement regime means that to reach that ultimate sanction, an employer would have had ample opportunity to fulfil their duties. Therefore, at that stage there is likely to be evidence of “wilful” failure to comply because they would have been given any number of reminders, encouragements and inducements. If they were still non-compliant, that would be considered “wilful” failure.

Turning to the amendment, there is no reason explicitly to mention reasonableness in the clause, because there is an underlying understanding that to act wilfully is unreasonable. The employer who does not comply because of genuine inadequacy or stupidity would be unlikely to be found guilty of wilfulness. The use of the term “wilful” ensures that if employers have failed to fulfil their duties through haphazard administration or forgetfulness, they will not be criminalised. The compliance regime will address those employers much earlier in the process and put them in a position that does not disadvantage them, but encourages them to comply.

That distinction underlines why “wilful” is there, and I hope that my explanation will be sufficient to enable the hon. Gentleman to withdraw the amendment.

That was another helpful reply. The Minister outlined the three-stage strategy and said very clearly that there will be ample opportunity for employers to fulfil their duties. That is the sort of language that I was hoping to hear, and I know that employers’ organisations will have been grateful to have heard it. I am interested in how the legal defence of stupidity would work. I am not quite sure how that could be applied, but the Minister has been reassuring, so I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 37 ordered to stand part of the Bill.

Clauses 38 and 39 ordered to stand part of the Bill.