Power of employment tribunal to impose financial penalty on employers etc

I beg to move amendment 18, in clause 13, page 11, line 13, at end insert—

‘(11) Any money paid by an employer purporting to meet a liability to pay a penalty under this section shall be treated instead as payment of any financial award on a claim against that employer to the extent that any such award has not been paid.’.

With this it will be convenient to discuss amendment 68, in clause 13, page 11, line 13, at end add—

‘(11) The Secretary of State may by order establish a mechanism for the enforcement of unpaid employment tribunal awards and ACAS settlements by HM Revenue and Customs.’.

The power of the Minister’s argument on the previous clause almost pushed me across to the dark side. I am glad that my colleagues, including the Whip, are close by to keep me in line.

Amendments 18 and 68 are important because they go right to the heart of natural justice and redress. Before I commence my remarks, I should tell the Minister that, as with the previous clause, I have prepared only two-and-a-half sheets of writing. I took so long to get through my previous contribution because of my generosity in taking interventions, rather than because of my deliberately trying to keep the Committee here any longer than required to discuss the issues.

Too often, employment tribunal awards are not enforced or paid to the very people who have sought and been successful in gaining redress, which is why we are asking the Minister to commit to a new and robust enforcement regime in the Bill.

Does the shadow Minister agree that the previous Government failed to enforce such tribunal decisions? Does he accept that that is a further example of the previous Government’s poor governance of employment law?

In my current mood, I might just agree. What is not surprising is that, although it took the hon. Gentleman three minutes to intervene on my previous contribution, it took him less than that this time. Either he has a Whip’s note in front of him or he is so completely and utterly obsessed with this issue that he cannot help himself from intervening before I even get to the substance of my argument. He is clearly not interested in discussing the real issues of the Bill, but he is interested in having a go at the previous Labour Government, whose employment regime created 1.75 million jobs. Indeed, he does not want to discuss the substantive issues of why people are unemployed in this country, which is because of the double-dip recession made in Downing street, as mentioned by my hon. Friend the Member for East Lothian.

Let us go to another body to develop the argument, given that the hon. Member for Skipton and Ripon does not agree with the trade union movement or the lawyers. Let us try Citizens Advice this time to see whether we can persuade Government Members to support the amendments. Citizens Advice states that every year some 15,000 employment tribunal claims conclude with a judgment in favour of the claimant and a monetary award of hundreds, thousands or even tens of thousands of pounds. However, in its report of late October 2008 entitled “Justice denied,” Citizens Advice found that, for as many as one in 10 claimants, apparent success in a tribunal soon proves to be a hollow victory when the employer simply fails to pay up.

I agree with the hon. Gentleman that perhaps the previous Labour Government should have done more, but there is now an opportunity for the Government he supports to do something to allow the employment tribunal system to deliver justice.

Citizens Advice states:

“Employment Tribunals have no powers to enforce their awards, which”— until April 2010—

“must be enforced through bewilderingly complex and costly legal action” by the claimant themselves, which could be time-consuming, adding further to the uncertainty of the employment tribunal system and the costs for both employees and employers. The Citizens Advice report demonstrated that rogue employers could easily drag out and obstruct such enforcement action, causing many claimants to give up in frustration, empty handed and without justice.

The Ministry of Justice undertook its own research, which showed the true situation to be even worse. A shocking one in four of all employment tribunal awards were, and, as far as anyone knows, are still, going unpaid by employers. As a result, in April 2010 the then Labour Government established the so-called employment tribunal and ACAS fast-track enforcement regime for employment tribunal awards and ACAS settlements—the hon. Member for Skipton and Ripon missed out that achievement of the Labour Government. Under the regime, workers can pay a small fee to have their unpaid  award or settlement enforced by one of the various firms of High Court enforcement officers. Figures recently released by the Ministry of Justice, however, show that all-too-rare policy win to be, like all too many employment tribunal awards and settlements, something of a hollow victory.

The figures are worth exploring. In the fast-track regime’s first year of operation, some 1,500 workers accessed the system. Of the 1,300 completed cases for which the information is available, the award or settlement was fully or partially enforced in just 41% of them. In the other 59% of cases, the award or settlement was deemed to be unenforceable, and the individual paid the then £50 fast-track fee to no end.

In the financial year 2011-12, some 1,600 workers paid the £60 fee to access the regime. Of the 1,022 completed cases for which the information is available, the award or settlement was fully or partially enforced in just 50% of them. In the other 50%, the award or settlement was deemed to be unenforceable. Those figures were backed up in a parliamentary question by my right hon. Friend the Member for Southampton, Itchen (Mr Denham) when he was shadow Secretary of State for Business, Innovation and Skills.

This Bill is an attempt to improve the employment tribunal system and we have said many times—13 if my maths is right—that we support the Government in this aim insofar as it does improve the system for both employees and employers. The purpose of amendment 68 is to strengthen the enforcement regime and come back with a consultation or firm proposals to make the system work more effectively. Although it is clear that the ACAS fast-track system was working, the fact that 50% of claims remain unpaid is still unacceptable and clause 13 gives the Government an opportunity to address that issue.

There is an inherent contradiction with the Government wanting to introduce financial penalties for employers as the intention behind this provision is to

“encourage employers to take appropriate steps to ensure that they meet their obligations in respect of their employees, and to reduce deliberate and repeated breaches of employment laws."

Employers should be encouraged to meet their obligations in respect of awards granted to their current or former employees as well as their responsibilities in a normal employer and employee relationship. The clause also suggests a parking ticket-type mentality to any potential fine and, while we encourage the payment of any penalties paid under this clause, it would be wrong to ensure that the Treasury is paid first at the expense of the wronged employee being paid at all.

The hon. Gentleman referred in rather derogatory terms to a parking ticket mentality. I assume that he is referring to the fact that if the penalty is paid earlier, there is a reduction. That approach is entirely modelled on the legislation on the national minimum wage, which was introduced by his party.

I appreciate that intervention. I am not arguing here that we should not be encouraging these fines to be paid quickly or the 50% reduction. What I am drawing a parallel with is the fact that the compensatory awards for employees in 50% of the cases that are taken through the fast-track system are not paid, but the  Government are putting in a system to encourage employers to pay the penalties to the Treasury. We should be doing all that we possibly can to put in place a system to encourage employers to pay the compensatory awards to employees. That is what these two amendments are attempting to achieve.

I do understand the Minister asking, “Should we be reducing the compensatory award?” That is not what we are saying. If the Government are putting in a system that ensures that the Treasury get paid as quickly as possible—and putting in the reward of a 50% reduction to do that—there is no reason why a similar system cannot be put in place to ensure that employees are paid. That goes to the heart of amendment 18. The Minister said that it is slightly unfair to call it a parking ticket-type mentality, but that is exactly what happens with a parking ticket. In Edinburgh, we get fined £60, and if we pay it within 21 days, it is reduced to £30, so the words “parking ticket-type mentality” seem appropriate to me.

As these fines are likely to be levied on employers for repeated breaches or aggravated circumstances, it would seem sensible to ensure that either the compensation is paid at the same time as any penalty to the Treasury, or that the fine that is paid goes to the employee as part of the award and any further payments that are made clear the compensatory award in the first instance and then the Treasury is paid. That would ensure that the weight of the Government is behind ensuring that penalties are paid as well as compensatory awards.

The reason we are proposing this amendment is that there could be a scenario whereby the Government use all their mechanisms and levers of power to ensure that the penalties that are levied are paid. Such penalties will only be levied in aggravated circumstances, so, in cases when the compensatory awards are granted by the judge to the former or current employee, the circumstances will be pretty severe. The employer may think, “To get the Government and the Treasury off my back, I will pay this quickly because not only do I save money but it just gets rid of that burden.” The compensatory award almost becomes a secondary element. Under amendment 18, if the employer came forward with such a proposal, the penalty paid to the Treasury would be part of the compensatory award. Any other moneys that come through would go to the compensatory award in the first instance, and the 21-day period would take effect from day one and would not be cleared until the penalty is paid in full.

I think that the amendment has some merit, but it overly complicates the matter. Why not suggest that the 50% reduction in the penalty, if charged, is allowed only if the compensatory award has already been paid to the employee? In that way we do not need to be transferring money between the Government and the employee.

I am concerned. I nearly voted with the hon. Member for North West Leicestershire, and now he is agreeing with me. Although he says that my amendment is overly complicated and he wants to simplify  it, the principle is key. As I have said—this will be the 14th time I think, if my maths is correct—we agree with the Government on some of these clauses and we have not tried to vote against them. We must not, however, create a situation in which employers feel that they should first pay off the Government when a compensatory award could still be outstanding, and perhaps the Government will table an amendment on Report to resolve such possibilities. However, the Labour party is on the same page with regard to this matter, which is why amendment 18, tabled in the name of my hon. Friend, seeks to ensure that the balance is in favour of monies going to the wronged, and that the penalty enforcement is at the end of that process. The 21-day discount period should be calculated at the start of the process to encourage prompt payment of penalties and awards to employees. I do take the hon. Gentleman’s point, however, and I hope that the Minister will reflect on that.

In conclusion, the amendments are intended to ensure that enforcement of awards is robust, that any penalties are used as rewards until the full amount is paid, and that the full force of the Government is used to ensure the prompt payment of both penalties and compensatory awards that are paid for redress of unfair dismissal in what will be the most extreme of circumstances.

I am grateful to Opposition Members for the amendments that they have suggested. Although I sympathise with the sentiment behind them, which is to address concerns about awards that currently go unpaid and to ensure that the claimant receives at least part of their award when they might otherwise have received nothing, I am afraid that they are neither an appropriate way to achieve that objective, nor appropriate to the clause.

Amendment 18 seeks to use the financial penalty as part-payment of the award. Setting aside the fact that penalties will be awarded only in circumstances with aggravating features—which are likely to be fewer in number than cases where the award itself goes unpaid—introducing such a system would, as my hon. Friend pointed out, add significantly to the cost and complexity of the process, for both the claimant and the Exchequer.

Where a penalty is imposed by the tribunal, we intend the respondent to make the payment to HMRC. The amendment would require HMRC to contact the claimant to obtain written confirmation that the award had not been paid in full before the financial penalty could be transferred. There would be an obligation on the part of the claimant to notify HMRC if they received the full award from the respondent, and to reimburse HMRC. The measure would therefore impose a significant extra burden on the claimant, and an administrative cost on HMRC.

Amendment 68 seeks to provide for the enforcement of awards through HMRC, rather than requiring the individual to take responsibility for pursuing the non-payment. The non-payment of awards is a problem with which previous Governments have wrestled. As has been pointed out, the current “fast-track” system allows individuals to use High Court enforcement officers to pursue payment, rather than having to negotiate the county court process. In return for a £60 fee, the officer will obtain a High Court writ and seek to recover the  amount outstanding, but improving access to the enforcement process has not resolved the problem entirely, as was pointed out. What is not clear, however, is why that is the case.

The HCEO scheme was intended to simplify the procedure for enforcing awards, and Ministry of Justice colleagues are currently evaluating whether it has been successful in enabling more claimants to start enforcement proceedings. Until that assessment is complete, I do not want to write off Labour’s scheme as fast as Opposition Members appear to be willing to do. Let us get the evidence about how it is working and make a proper assessment of the problems.

Until the review is complete, I cannot take a view on whether, and what, further action may be needed. We may conclude that further action is needed, because we absolutely share the view of my hon. Friend the Member for Edinburgh South that it is abhorrent for companies and employers not to pay awards that have been properly made by the tribunal. For example, where the debtor is insolvent—as was the case in 171 of the cases passed to the HCEOs in 2011-2012—transferring responsibility for enforcement to HMRC would have no effect. That is self-evident.

I recognise the real concerns that Opposition Members have about the non-payment of tribunal awards. I recognise the failures so far, over many years, to get an effective system. I share their desire to look for ways to improve the situation, but I am afraid that this clause is not the right place for such a debate. This clause is about introducing a penalty for aggravated conduct by an employer. It introduces the power for a tribunal to impose a financial penalty on employers if the breach of the claimant’s rights has involved aggravating features. It sets out how the penalty is to be calculated, the minimum and maximum amounts to be levied and the circumstances in which the amount can be discounted. It does not deal with the issue of non-payment of tribunal awards, nor is it appropriate for it to do so. I am, however, clear that we need to look at ways of ensuring that claimants get the award that they are due.

Could the Minister clarify the appeal process for employers who feel that they have been badly treated by the tribunal?

There is an appeal to the Employment Appeal Tribunal on a point of law. It reflects entirely the basis for appeal in any other decision of the employment tribunal.

I have asked my officials to consider the whole issue of non-payment of awards, including whether there is a role for naming and shaming those who do not comply with either the tribunal’s order or the terms of the ACAS agreement that they have signed. The public ought to be aware of any existing employer—not one that has gone out of business—that chooses not to pay an award properly made by the tribunal, so I want to look at all the options for addressing that.

Once the Ministry of Justice has completed the review to which I referred, we will consider what other action may be appropriate. On that basis, I hope that the hon. Gentleman will be prepared to withdraw amendments 18 and 68.

I am grateful to the Minister for his reassurances. He has said that non-payment is a problem. We would all agree with that. He has also said that non-payment is an unresolved problem. I know that the hon. Member for Skipton and Ripon will want to blame the Labour Government for that. We have tried a fast-track system, which is working to a certain extent, but not to the full extent that we would wish. There is nothing worse than someone going through the employment tribunal system, being granted an award and then being unable to enforce that award or get the compensation that they require. I appreciate all the difficulties and intricacies around companies that have gone into liquidation or no longer exist, but there must be a way of finding a mechanism.

I am pleased that the Minister said we will get evidence from the Ministry of Justice review before we take the matter forward. We will support anything that is evidence-based. The Minister has committed to looking at this in the round and I will take his word for that. On that basis, we will seek to withdraw the two amendments. Perhaps on Report the Minister could reflect on the idea suggested by the hon. Member for North West Leicestershire and see whether a simpler mechanism could be put in place to ensure that the Government do not get their cheque before the person who is deemed to have been unfairly dismissed on aggravated circumstances, which will be pretty extreme in a lot of cases, gets his compensation. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move amendment 19, in clause 13, page 11, line 13, at end insert—

‘(11) All monies in respect of financial penalties collected under this section shall be hypothecated directly to ACAS.’.

I commented earlier on your good nature, Mr Brady and I should like to congratulate you again that so close to the lunching hour you are still so good natured. It is much appreciated. I will not test it too far because this is a straightforward amendment and I do not think it will take me too long to explain it. Members on both sides have spoken about the importance of information for employers on their rights and also for employees. The Minister said that there is a lot of ignorance out there in the business community. That is indeed the case. Thank goodness we still live in one United Kingdom and have one set of employment regulations for both employees and employers to contend with. We can all agree on that.

Is my hon. Friend as surprised as I am that the Scottish Government have made no representations to the Minister about the Beecroft proposals?

I am not in the least bit surprised at that. The Scottish Government are busily trying to conflate arguments for other issues which my hon. Friend and I are both aware of. I do not want to test your patience too much, Mr Brady, but their record in standing up for working people, whether on the minimum wage or other attacks from the previous Conservative Government, is not one they can be proud of.

ACAS plays a vital role. I can remember hearing about ACAS when my age was still in single figures which is a considerable number of years ago. Much knowledge and expertise has been built in up ACAS  over that time as its role has expanded. It plays a vital role. Hon. Members on both sides of the Committee know from speaking to businesses in our constituencies that one of the barriers for them in employing people is being unclear about their responsibilities. ACAS plays a vital role in generating growth and jobs. Therefore it is disappointing, if not surprising, that as part of the Government’s drive to reduce the deficit its budget should have been cut by £8 million. Yet the Bill seeks to ask ACAS to take on further responsibilities.

I am offering the Minister a way to return income, which the Treasury really has no right to have in its coffers, to ACAS and create opportunities for that organisation to do even more to encourage growth. On its website there is a list of just short of 100 areas on which it offers advice and support to employees and employers. If the Government are beginning to realise  that to reduce the deficit there has to be growth, so that people are in work and businesses are making money and that there is demand in the economy, it is important for them to adequately resource that—sorry, I split my infinitive there. It is possible to go to a comprehensive school and still have a grasp of grammar. Incidentally, I always wondered why grammar schools are called that. That is a discussion for another time. It is one of those thoughts one has in the twilight hours in London when dreaming of home.

This is an opportunity for the Government. It is not an incentive but a way of acknowledging the role of ACAS and its part in the Bill and generally driving forward good practice.

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Four o’clock.