Clause 136 - Financial penalty for failure to pay sums ordered by employment tribunal etc

Small Business, Enterprise and Employment Bill – in a Public Bill Committee at 2:45 pm on 4th November 2014.

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Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

With this it will be convenient to discuss the following:

Amendment 232, in clause 136, page 118, line 41, at end insert—

‘(12) The Secretary of State may make regulations to allow a penalty notice under this section to include a provision for the publication of the name and other particulars of those naming employers who do not pay the relevant sum as per the conditions of the notice.”

Amendment 233, in clause 136, page 118, line 41, at end insert—

‘(12) Any payments made under this section by the employer shall reduce the liability of the employer for the relevant sum prior to being allocated to any sums payable under the penalty notice.”

Amendment 234, in clause 136, page 119, line 25, after “penalty” insert “and relevant sum”.

Amendment 235, in clause 136, page 119, line 34, after “penalty” insert “and relevant sum”.

Amendment 236, in clause 136, page 119, line 42, after “penalty” insert “and relevant sum”.

Ian Murray rose—

Hon. Members:

Hear, hear!

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

I am grateful for the false encouragement of my colleagues on the Opposition Benches.

Clause 136 deals with financial penalties for failure to pay sums ordered by an employment tribunal, or settlement sums elsewhere. It is an incredibly important provision, and it is something that the Opposition have been looking to achieve for some time in this Parliament.

In the Enterprise and Regulatory Reform Bill, the Government pushed through a number of measures. In Committee on that Bill, the Minister’s predecessor, the right hon. Member for North Norfolk (Norman Lamb), looked upon some of the amendments we had tabled  sympathetically—as Ministers always seem to do in these Committees—and said that he would come back with measures that would better enforce payments ordered by employment tribunals. Although he did not accept our amendment on that occasion, he did in spirit—then he left his job and passed it on to someone else.

The amendment we tabled to the Enterprise and Regulatory Reform Bill provided that

“The Secretary of State may by order establish a mechanism for the enforcement of unpaid employment tribunal awards and ACAS settlements”.––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 3 July 2012; c. 362.]

The Minister at the time did not accept that amendment. As I recall, he gave a 15 or 20-minute speech on how it was dreadful and he would not accept it, and on how we were playing political games. It is nice to see that common sense has broken out and the proposal has returned to the House.

Amendment 231 would ensure that unpaid amounts include all payments. Proposed new section 37B(3)(b) of the Employment Tribunals Act 1996 does not include various items relating to the award that could be included when calculating a financial penalty. We suggest that everything should be included. Let us not forget that we are talking about a financial penalty levied on an employer for failure to pay. If an employer fails to pay, we should not exclude any of the related costs; it should be the sum total of them all.

Amendment 232 would give the Secretary of State the option of creating provisions for a naming and shaming scheme to sit alongside the financial penalty should he or she so wish. We have naming and shaming schemes for the national minimum wage and the groceries code adjudicator, so I do not know why we do not have a naming and shaming scheme for employers that refuse to pay compensatory awards when a tribunal, which is almost a court of law, has found that they must provide the redress sought by an employee through the appropriate channels.

Amendment 233 would ensure that any payments made by an employer go first to the relevant sum for the employee before the penalty fee is paid. Amendment 234 would give the same status to the compensatory award as the penalty fine. Amendments 235 and 236 would make consequential changes.

I am very interested in hearing the Minister explain Government amendments 28 and 29, which will change the venue for an appeal against a penalty from the county courts in England and Wales, or the sheriff court in Scotland, to an employment tribunal. That is an incredibly interesting change to Government policy, given that people have to pay a fee to enter the employment tribunal system. Will the Minister explain in detail why that change is being made?

As I said, it is good to see that the Government have finally come round to our way of thinking on unpaid awards for employees, which is why we support the clause, but we are concerned that it will only mitigate rather than remedy the problem of unpaid awards, which is why we tabled the amendments. Let us not forget that when someone has been wronged at work they have gone through the tribunal process, which is not easy to go through, given the provisions of the  Enterprise and Regulatory Reform Act 2013. People have to pass a number of hurdles. First, they must go to early conciliation at ACAS. If that breaks down, they are issued with a certificate to say that conciliation has been unsuccessful and must go into the employment tribunal system. An entry fee has to be paid to the employment tribunal system. If someone then wants to take it to a full hearing, there is an additional fee. As I said to a Conservative Member earlier, we do not believe it is fair for a pregnant woman who has been discriminated against at work to have to pay £1,250 to enter the employment tribunal system. That does not seem just and fair.

There are a number of hurdles. After going through an incredibly stressful, time-consuming and often expensive employment tribunal, someone might be given a compensatory award which says that they have been wronged at work and the employer must remedy that problem, but the employer might just decide not to pay. There are a number of hurdles that someone would have to get past to be paid. That is why we must try to find a way of remedying the problem, particularly in cases where an employment tribunal sitting in front of a judge has declared that an employee deserves to be compensated for whatever wrong must be righted.

This is a significant problem. In 2009, research by the Ministry of Justice—which, of course, administers the fee system in employment tribunals—found that 49%, or “almost half” as my notes say, of all employment tribunal awards went unpaid in the first instance, before any enforcement action is taken through the county court system. In Scotland, the situation is particularly bad, with 46% of successful tribunal claimants receiving no payment whatsoever and a further 13% not receiving the full amount of their award. Nearly half of all employees who are granted an award in an employment tribunal are not granted that award. Admittedly, some proportion of that 49% and 46% respectively will have gone through insolvency, which we just discussed under part 10, but there will also be a large number where the employer refuses to pay and it falls squarely on the employee to seek redress for that non-payment.

Photo of Toby Perkins Toby Perkins Shadow Minister (Business, Innovation and Skills)

My hon. Friend makes the important point that this Government see as a matter of success the fact that they have driven people away from employment tribunals. We have seen huge reductions in the number of people going to them. It is hardly surprising that we have enfeebled employees when we have an economy in which wage growth is very flat. We then have a very expensive employment tribunal system where even if people are given an award, they do not get it. We should hardly be surprised that so few people now pursue those awards. It should not be seen as a sign of the economy’s health.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

My hon. Friend is absolutely right. In some regions of England, the number of employment tribunals has dropped by 80%. That is surely an indication not that 80% of claims were vexatious—the fee structure was supposed to remedy that—but of people’s fear of going into an unaffordable employment tribunal system. We heard evidence from trade unions, which are normally the buffer between the employer and employee before they enter the employment tribunal system. The trade union has sometimes said to a member, “You have a  very strong case to take this to an employment tribunal,” but the person has decided not to pursue it on the basis that there would be a fee payable. In some cases, the trade union even pays that fee but someone decides not to go forward.

My hon. Friend the Member for Chesterfield is right to reflect on the fact that these issues are highlighted even more in a difficult employment economy. The Committee heard evidence from a citizens advice bureau in the east of Scotland—the area that I represent—about a client who resigned from his job after he was repeatedly not paid by his employer. He was not being paid for the work he was undertaking, so he resigned and took his case to an employment tribunal, which found in his favour, so in that sense, the wrong was righted. The tribunal ordered his ex-employer to pay him £889, but more than three months on his ex-employer has not paid him the award and the client believes that they may have wound up and started again in a different guise. These are all issues of insolvency.

Given the intervention from my hon. Friend the Member for Chesterfield, we can see that in some instances it is absolutely possible to envisage a situation—perhaps I could use the pregnancy example again—where someone is going through an upheaval in their personal life in any case, with all the financial strains that go with that; they are then faced with a set of hurdles before they can even enter the employment tribunal system, which costs them a significant amount of money; and the tribunal then decides that they are owed an award which in the end is never paid to them. We welcome the fact that the Government are trying to do something about this but, as can be seen from some of our amendments, we think that there should be other steps in place to ensure not only that the Government get paid a penalty, but ultimately that the compensation award is paid.

Amendment 232 sets out the ability for the Secretary of State to name and shame employers who fail to pay employment tribunal awards on time. As I have already said, the policy of naming and shaming employers who do not pay the national minimum wage has been announced four times by the Minister, but until a few months ago had been used only twice. The Government have named and shamed the policy more than they have actually used it. I believe that this has now changed, and a few more employers have been named and shamed. However, this also needs to act as a deterrent. What we are saying here is very much like an amendment regarding whistleblowing: it may never need to be used, but we need to have a deterrent. We need to say to employers that if they have been found in a quasi court of law to be in breach of employment legislation, then they have to pay the compensatory award that has been determined on the basis of the seriousness of that breach, and if they do not pay that we will make sure that they are named and shamed.

We all know that businesses’ reputations are one of the most important things they want to protect. Any deterrent that would put companies into that particular naming and shaming environment would indeed be incredibly useful. I wonder if the Minister, in her response, would tell us whether she has given any consideration to a naming and shaming policy. Perhaps she can draw a parallel between the other naming and shaming issues, such as the national minimum wage and the groceries  code adjudicator, and all the other ways in which people could potentially be named and shamed. Why would that not be done in this particular instance?

Amendment 233 is probably our most important amendment in this section. It would ensure that, out of any payments made by an employer, the relevant sum of the compensatory award for the employee is taken out first, before the penalty fine is paid. We should reflect on that: people have entered the employment tribunal system and been awarded a payment which they have not received. They go through a system in which a penalty may be levied on the employer for not paying the award, but the employer could quite easily say, “Well, that’s fantastic. I’ll pay the penalty, but I’ll continue to not pay the award,” and the penalty would be paid in the first instance. When I pressed the Minister for Business and Enterprise in the Committee, he seemed to get himself into a bit of a bind. I asked him:

“Is there a danger the Government could be paid the fine and the compensatory award could remain outstanding, and what is the process in the Bill for continuing to pursue that?”

The Minister replied:

“Fines from the Government can, of course, be chased down by the Government. A whole series of measures already exists to allow the Government to ensure that fines are paid.”

He admitted quite clearly to the Committee that the Government have a host of potential remedies which they can use to have a fine paid. The Bill ensures that that applies in the case of employment tribunals, as well. The Minister said clearly that the Government can chase down the fines, but did not make any reference to the actual compensatory award itself.

I asked the Minister whether there was any danger that an employer would pay the fine to get the Treasury and the Government off their back, but would not pay the award. The Minister had said clearly that the Government have an array of ways to be able to claim back those fines. To this question, he replied:

“Then you would still not have paid the fine that was due”.

I am not quite sure what that means and whether or not we could then levy a second or a third or a fourth fine—a hundred fines—and the compensatory award might remain outstanding. It seems that the Treasury would build up an incredible array of fines which would come into the Consolidated Fund—and my goodness, the Chancellor needs that money after the deficit went up again last week, rather against everyone’s predictions—but the money is going into that fund and hardly touching the large deficit, which the Chancellor is unable to reduce, while the poor worker who has been wronged, has sought redress and has been granted an award is still sitting at home waiting for their few thousand pounds to land on the mat. That does not seem to me to be very equitable.

I pressed the Minister further, asking him what happens if

“You have paid the fine, but you have not paid the award.”

He replied:

“Then you still have not satisfied the tribunal.”

I pressed him and asked what happens then. He said:

“You continue not to have satisfied the tribunal, so they take action.”

I pressed even further, asking:

“What happens if you are fined again and then you pay the Government but do not pay the compensatory award?”

He said:

“This is pretty unlikely,”––[Official Report, Small Business, Enterprise and Employment Public Bill Committee, 16 October 2014; c. 126, Q295-299.]

It may be pretty unlikely, but it is still in the Bill. It is the case that the Treasury can continue to fine the employer and collect that fine without the individual having any recourse to claim back the compensatory award.

Photo of Toby Perkins Toby Perkins Shadow Minister (Business, Innovation and Skills) 3:15 pm, 4th November 2014

I am glad that my hon. Friend is recounting the evidence session for the Committee. Those points are more interesting than might have immediately been considered. They expose that the Government have measures and initiatives in place to recoup their own fines, but that the poor wronged party in this has none of that support. A business may say, “Well, I will pay the Government fine.” It is unlikely that the Government will pursue the matter on a second, third or fourth occasion. They will have their fine. Their money is in their pocket but the person who was wronged at the start—46% or 49%, depending on where one is based—is left out of pocket. Surely there has to be a strategy for that.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

My hon. Friend has clearly been listening this afternoon. That is exactly the point that I have been making. The Government do need a strategy for dealing with that. It seems a little like déjà vu. Mr Brady, you may be feeling that yourself. Two years ago, when we considered the Enterprise and Regulatory Reform Bill, we had exactly the same debate about employment tribunal redress and the penalties for an aggravated breach. In that instance, an employer could be fined £5,000 for an aggravated breach. The issue is exactly the same. The fine could be paid first and the poor worker, whose compensatory award has not been paid, sits there waiting for that to happen. Amendment 233 says that, if an employer is fined by the Government for non-payment, any moneys that come in, in terms of satisfying that fine, go first to the compensatory award and then to the Government.

If the Government levy a fine of £5,000, the invoice comes in and a £2,000 payment is made on account—there is a way of reducing the fine if one pays on time—the money that comes in, perhaps the first £5,000, should clear off the compensatory award first. Then the Government can either have the fine cleared, or they can go after the fine, as they would in any circumstance where a final Government invoice has not been paid.

The full force of the Government machine is chasing fines. However, in the first instance, before they chase the fine, any money that is payable should go straight to the compensatory award. That would give employees a real sense that they can enforce the non-payment of awards. There would have to be some nuancing around the edges for insolvency. I am sure that the Minister’s officials would be able to deal with that issue when writing the legislation. However, it seems inequitable that someone could pay a massive fine to the Government  and decide that they are not going to go any further. That is why the compensatory award should be allocated first.

I use the analogy of a parking ticket. One could pay a parking ticket but leave the car in the same place and cause an obstruction. One could continue to get parking tickets but the car would still cause an obstruction to traffic, without the root of the problem being resolved. The root of the problem has to be resolved in the first instance.

Amendment 234 would give the compensatory award the same status as the penalty fine. The clause talks a lot about financial penalties but not about what is termed the “relevant sum”. Consequential amendments would provide exactly the same interest and recovery principles that are detailed in proposed new section 37H—they would apply not just to the penalty but to the award. The award could accumulate interest and be acted on within the other principles that the measure signifies for the penalty. There are pages and pages on how the financial penalty will be paid, on the interest and the interpretation of that, but nothing that says anything about how the compensatory awards, or the relevant sums in this case, would be paid.

Interestingly, on page 118 of the Bill, proposed new section 37F, on the penalty notice, inserts subsection (3), which says:

“A penalty notice must identify the relevant sum and state”— and there are nine qualifications, one of which is,

“the period within which the penalty must be paid”.

However, there is nothing that specifies the period within which the relevant sum must be paid. That could be part of this process as well as part of the enforcement issue.

I will be interested to hear what the Minister has to say about the penalties, about whether compensatory awards can be enforced on top of that and about why they have moved enforcement from the courts to the tribunal system. We do not oppose the penalties—in fact, they are a very good idea—but in this case, without paying the relevant sums, the penalties could be quite irrelevant.

Photo of Jo Swinson Jo Swinson Parliamentary Under-Secretary of State (Department for Education) (Women and Equalities) , The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I am delighted to be able to discuss clause 136 and the proposed Opposition amendments to it. When I took over this role from my right hon. Friend the Member for North Norfolk, who has been referred to, we were in the middle of the passage of the Enterprise and Regulatory Reform Bill, which is now an Act. I recall having a meeting about employment tribunals and the awards that were made. I vividly remember being absolutely astonished and appalled at the level of non-payment of employment tribunal awards. The research we looked at suggested that some 40% of awards remained unpaid six months after the employment tribunal had come to its conclusion.

For all the reasons that the hon. Member for Edinburgh South set out, if people go to the hassle of going to an employment tribunal, it is costly for everybody involved in terms of money, time and stress. That is partly why we are trying to encourage early conciliation and other measures that mediate and take people away from that process, but we recognise that sometimes there will be cases that have to go to an employment tribunal. When that happens, it is a pretty horrendous process for  everyone who goes through it, even if they end up winning their case. Small employers also find that the whole process is very draining, again, even if they win their case.

I was flabbergasted that 40% of claimants who have gone through all that and won their case are not then paid their award within six months. One might not expect it to be 100%, the world being the way it is—there will always be circumstances where a company goes bust and difficulties arise—but I thought that that figure seemed far too high and that that needed to change. It is something that I have been keen to make progress on and work on. That is why I am delighted to see the penalty regime in clause 136 that we hope to put in place.

Research undertaken at the end of last year by IFF Research for the Department for Business, Innovation and Skills found that at that stage around 35% of employment tribunal awards remained unpaid six months after judgment and a further 16% had only been partially paid. That is still a shocking figure.

It is important to recognise that high levels of non-compliance threaten the whole credibility of the tribunal system. People who have paid to access a tribunal rightly expect that their award will be paid if the judge rules in their favour. People who try to avoid their responsibilities should not be allowed to get away with it; they have to face the consequences. This issue is about fairness for claimants and for employees, but it is also about fairness for companies that are doing the right thing, complying with the law and treating their employees properly. Rogue employers that exploit or abuse their staff and breach their employment rights should not get off scot-free.

We recognise that the reasons why awards do not get paid are complex, so no single solution will fully address the problem. I will come on to some of the activities that we are undertaking to address other elements of the problem a little later, but part of the solution is to introduce the penalty on employers for the non-payment of employment tribunal awards—including any costs awarded to cover the employee’s employment tribunal fees—and ACAS-conciliated settlements.

As well as establishing the penalty, the clause will allow the Secretary of State to appoint and authorise enforcement officers to operate the financial penalty regime. The amount of the penalty due will be linked to the size of the unpaid award, so it will vary from case to case. It will be the equivalent of half the unpaid award, including interest accrued on the award. There will be a minimum penalty of £100 and a maximum of £5,000.

The enforcement officers will decide whether a penalty should be paid. The employer will first receive a warning notice and have the opportunity to make representations—particularly in case there has been an error, for whatever reason—and to appeal if a penalty is still applied. We hope that the measure will reassure claimants that, if they are successful at a tribunal, they will receive the award decided by the tribunal judge. It should also reassure those employers that comply and do the right thing that, when their competitors do not act in the same way, that will be addressed. That will restore confidence in the whole system.

There is a question over whether people will be able to avoid paying the whole award by paying only the penalty. We heard the analogy of parking fines: will the  process be like racking up lots of parking tickets, but not moving the car? It is important to recognise that, if the penalty is paid but the award remains unpaid, more penalties can and will be applied. In such a situation, the employer will not be able to benefit from the reduction of the penalty for prompt payment within 14 days if both the award and the penalty are not paid.

We want to ensure that penalties will be applied in extreme cases, but part of the thinking behind the policy is that it will encourage payment. It will have a deterrent effect on those who think that they can just not pay, or who try to pay next month or at some point that feels a little easier for them. The policy is about saying that they owe something, that it is important that the claimant is paid what they are due as decided by the employment tribunal, that they make it a priority, and that there is a significant consequence if they do not comply. The penalty is about trying to encourage swift payment, which is why it is payable to the Secretary of State rather than the claimant, with the sums going into the Consolidated Fund.

We do not intend penalties to apply if the employer is insolvent, because in such scenarios the state would become a creditor, thereby reducing the funding that would otherwise go to the employees of the business or other creditors, which is not the outcome that we want. In such cases, the penalty will ultimately become recoverable through the courts once the time to pay has run out.

I want to set out the other action we are taking to deal with these issues. We are doing more research into the situation. We have undertaken research into the amount of unpaid awards, but we are now trying to understand better the barriers to effective enforcement and we want to work with enforcement officers to address them. Hopefully, some of the measures in earlier parts of the Bill will help to improve the situation. If an insolvency has been engineered to avoid paying an employment tribunal award, or other creditors, the disqualification regime will be helpful, because the Insolvency Service will be able take that into account when considering whether someone is still fit to serve as a director. That will help with that element of unpaid awards.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

Insolvency is incredibly complex—I refer the Committee to the Register of Members’ Financial Interests, which includes my involvement in taking Heart of Midlothian out of administration. A company that is already insolvent will not be fined, but if a fine tips a company into insolvency, where does that fine rate in terms of preferred creditor status, or otherwise, in comparison with their compensatory award?

Photo of Jo Swinson Jo Swinson Parliamentary Under-Secretary of State (Department for Education) (Women and Equalities) , The Parliamentary Under-Secretary of State for Business, Innovation and Skills 3:30 pm, 4th November 2014

I will ensure that I respond to the hon. Gentleman’s question before I conclude my remarks, but I want to give it an accurate place in the pecking order. There will be some circumstances where it is not intentional that an award cannot be paid. It might be very difficult to enable a claimant to get their award if the company literally does not have the funds to do so. If there is any intent—if the directors want to avoid paying and have therefore taken their company into insolvency—that can be considered as part of the director disqualification regime and the new powers to order  compensatory awards. I will certainly get back to the hon. Gentleman, perhaps in writing, about that specific question on creditors. I will copy that letter to other Committee members, who I am sure will be interested to have the answer.

The amendments look at a whole range of different elements of the penalty. They seek to include cost or preparation time orders awarded by the original judgment in the calculation of the penalty. They also seek to provide for “naming and shaming” and that any payment made goes to the claimant first rather than the consolidated funds. Amendment 231 is about including costs for the purpose of calculating the penalty, and I understand the spirit and intention of that. However, it would not be a particular additional incentive to pay the original award. The maximum penalty, in any event, is set at £5,000 and costs or preparation time orders are awarded in very few cases—less than 1%. When they are made, they tend to be for relatively low amounts. In the grand scheme of things, that would not make a significant difference in terms of what we aim to do with this policy.

Amendment 232 is about publicising the names of employers that do not pay tribunal awards. I have some good news for the hon. Gentleman: the Government are already seriously considering that as part of a suite of measures to improve this situation. We are looking at ways to implement and run a non-statutory scheme that can better deliver the cultural change that the amendment seeks. It does not therefore need to be placed in legislation.

The hon. Gentleman mentioned the scheme that we have up and running for the national minimum wage. With a small amount of indulgence, I will update him on the latest figures. This is a good example of how transparency can help to drive good behaviour. The new scheme rules came into place on 1 October and, so far, 30 employers have been named and shamed. It is important to get across that the new rules came into place for any investigations begun on or after 1 October. It can often take several months for investigations to work through the system. Many of the cases in which notices of underpayment are currently being issued actually began being investigated before 1 October, so they do not come under the criteria for the new scheme. That is perhaps why the numbers are not quite as extensive as some might have thought. I can confirm that the vast majority of employers in these circumstances are being named, and another tranche will be coming into the public domain in the not-too-distant future. That is important.

There are some circumstances where genuine mistakes mean that the national minimum wage is not properly paid. Those employers will want to set out clearly to their stakeholders and customers why they let that happen, perhaps in the local media. In some cases, the company’s management may have changed; previous managers may not have taken the care that they should have over record keeping and payroll processes. Under new management, that company might then be able to turn over a new leaf. Those points can all be fairly put forward, but having that level of transparency is very helpful and provides an additional incentive to firms to get it right the first time. We are talking about people’s livelihood. Of course, one other way of not falling foul  of national minimum wage rules, which I would always encourage firms to be aware of, is paying above the national minimum wage. Then, even a tiny mistake in pence per hour and so on would not lead to their falling foul of the legislation in any event.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

The Minister highlights a key issue. If employers pay well above the minimum wage—if, indeed, they pay a living wage—they will never fall foul of the legislation. She will be as disappointed as me that, while the Finance Secretary in Scotland is promoting the living wage, he voted against putting it into Government contracts in the Scottish Parliament.

Photo of Jo Swinson Jo Swinson Parliamentary Under-Secretary of State (Department for Education) (Women and Equalities) , The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The hon. Gentleman makes his point perfectly.

We want to ensure that people are paid higher amounts when possible, because that helps with the standard of living. It helps individuals and their spending supports local economies. We should be slightly wary of legislating at a higher level when that could have a negative impact on unemployment, which is why we pay careful attention to the recommendations of the Low Pay Commission.

Many firms will be able to pay more, and I would argue that they should; but a significant hike in the minimum wage would mean that some would have to make people redundant or lose staff. There is a balance to be struck, because we all want more employment as well as more well-paid employment. Naming and shaming can be a useful tool, because reputation is important. I hope that the hon. Gentleman will recognise that there is some agreement about that, even if it is not in the Bill.

On amendment 233, the Government recognise that the introduction of a penalty should not reduce the likelihood of individuals getting their award, and priority should be given to the claimant, so that the state would not benefit from their not receiving payment. I understand those arguments, which is why clause 136 already incentivises the employer to pay the employee before paying the penalty to the state.

When the warning notice is issued, the employer will have 28 days in which to pay the award and avoid the penalty completely. The provision is designed to encourage employers to do that, and is a pretty clear incentive. An employer who paid only the late payment penalty and not the award could of course be subject to the multiple penalties, and it would rapidly not be worthwhile for them to continue in that vein.

Amendments 234 to 236 would provide for enforcement of both the original award and the penalty by the enforcement officer, and for interest to be added to the unpaid awards; but interest is already applicable to unpaid awards. Claimants can pursue unpaid awards through the county court, or the sheriff court in Scotland, and we consider that still to be the correct route; it makes for more robust and swifter action in the recovery of non-Government-imposed financial penalties.

We want people to be aware of the routes available to them already. There is a fast-track enforcement scheme in England and Wales, under which claimants can apply to send a High Court enforcement officer, similar to a bailiff, to demand payment from the employer. It costs £60, but that is repayable by the employer. Alternatively, for a cost of £40, they can ask the local county court to  send an enforcement officer to get the money. For claimants who cannot afford the cost, remission of the fast-track fee is available.

Some people use those already available enforcement options with some success. They are perhaps not known about as much as we would like, which is why we think that the penalty will be an incentive to employers to pay.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Some of the civil law remedies that people have for bad debts of all kinds have, indeed, always been available, but they are particularly difficult for lay people to use. Sometimes— particularly, perhaps, where the sum involved many not be very large—people choose not to enforce. That is highly regrettable, so there must be a clear way for people to get their compensation.

Photo of Jo Swinson Jo Swinson Parliamentary Under-Secretary of State (Department for Education) (Women and Equalities) , The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The hon. Lady makes a good point. That is exactly why we are introducing clause 136. We recognise that there are existing routes, and we would still encourage people to be aware of them. People may choose to use them, but many, for whatever reason, will not—the success rate is not 100% for those routes either. We therefore have this penalty, which means that the employer will have to pay the award. If they do not, they will get a penalty, and if they continue not to pay, they will get another one. The costs will mount up, to the extent that it is not worth the employer not paying. Indeed, wilfully disregarding an employment tribunal judgment to the extent that the company faced penalty after penalty would start to call into question the judgment of those running it. That would be of great interest to those involved in assessing whether people were fit to serve in a responsible position, such as the director of a company.

Photo of Toby Perkins Toby Perkins Shadow Minister (Business, Innovation and Skills)

What would the Minister say to people who say that, if the Government are effective in pursuing this money, and we recognise that they are, why do they not provide that the first £7,000 or whatever they bring in should go to the victim, with payments after that point going to the Government in lieu of fines?

Photo of Jo Swinson Jo Swinson Parliamentary Under-Secretary of State (Department for Education) (Women and Equalities) , The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I suppose it is about the model on which enforcement is based. Currently, employment rights are generally enforced through the individual taking their claims to an employment tribunal. The onus is on the individual to enforce that. We make an exception for the national minimum wage. As we have discussed, we have not only the naming and shaming, but Her Majesty’s Revenue and Customs, which enforces the national minimum wage. It will take employers through the employment tribunal system, and it may end up issuing a notice of underpayment, which is complied with in most cases at that point. We therefore recognise that it is sensible in some cases for the state to do the enforcement.

That is the system as it is set up. We are looking to improve the situation by bringing in the penalties in the clause. The Department is undertaking further work on how rights more generally can be enforced. My right hon. Friend the Business Secretary said he was keen to look at whether there was scope for the Government to look at workers’ rights more generally. That is not at a developed stage, and it will not provide any support in the short term, so it is right that we move ahead with these penalties. However, I understand the arguments being made. We want a system that is efficient and works well. If we can introduce these proposals and  find that the system works well, that is great, but it is fair to recognise that the wider issue needs to remain under consideration.

We hope the new penalties will act as a deterrent to unscrupulous employers who do not wish to pay claims. We really are talking about pretty unscrupulous employers here. It is feasible, as we see in some national minimum wage cases, that an employer has broken the law by not properly paying the national minimum wage, but that they have not done so in dreadfully bad faith—they have made a mistake. Mistakes sometimes happen, and they can have significant consequences for employees, so it is right that there should be a consequence for the employer, such as naming and shaming or paying a penalty, as happens with the national minimum wage.

We all recognise, therefore, that mistakes occasionally happen and that employers sometimes end up falling foul of an employment tribunal judgment, without necessarily being dreadfully unscrupulous. That said, if they fall foul of an employment tribunal judgment and then still do not pay the award, we are getting into a slightly different category. Clearly, they have not only broken the law, but not respected the body that made a finding in the case. The measure is designed to target that group of unscrupulous employers who refuse to deal properly with the rights of claimants who have been wronged, have won their case and deserve to be paid their money. Introducing the penalties in clause 136 is absolutely the right thing for the Government to do. I accept the genuine intention and spirit behind many of the amendments, but I hope that I have outlined why they are not necessary for the Bill to proceed. I urge the hon. Gentleman to withdraw his amendments.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills) 3:45 pm, 4th November 2014

I am grateful to the Minister for that explanation, and I will gratefully receive a letter on the preferred creditor status about whether the fines would take precedence over a compensatory award. Perhaps when considering it later—I appreciate that it may be a Treasury function—she might indicate whether the Government would assess, in insolvency situations, whether preferred creditor status could go to somebody due a compensatory award, particularly if there is evidence that the company has been dissolved on that basis. That would be a useful explanation.

I am still worried, though, about individuals’ ability to receive a compensatory award. Yes, there is consensus across the House that we all want the issue resolved as quickly as possible and we want 100% of awards, where possible, to be paid to 100% of people 100% of the time, without the need to go through any of these processes, and I appreciate that the Bill makes provision for a warning notice to be issued that the compensatory notice must be paid, and therefore for the penalty not to be imposed, but what we want to know is what will happen at the opposite extreme. One would hope that if a warning notice were given to an employer for non-payment, they would pay the award instead of receiving the penalty; that is the carrot-and-stick approach that we would all want, but there are still a number of steps that an employer might take not to pay that award. The Government have made no analysis of the numbers involved in such cases, or what steps they would be encouraged to consider.

The warning notice would be issued. The employer would then be able to make representations. If they continued not to pay, they would be given a penalty, and a period of time within which the penalty would be reduced if paid early. They could appeal the penalty notice, go through the appeal and have it rejected. A fine could then be levied through the process, and they could then pay the fine but not the compensatory award. My hon. Friend the Member for Hartlepool, the former Minister, has reminded me that today is the 40th birthday of the contemporary singer Louise Redknapp. In the words of her No. 10 chart-topping hit, “Let’s go round again”; the process could then start again. He is a big fan of her, and of the Stone Roses. They are at the top of the chart, along with the Average White Band.

Photo of Oliver Colvile Oliver Colvile Conservative, Plymouth, Sutton and Devonport

Is the hon. Gentleman confirming that he is, as the Scottish Labour party indicates, a dinosaur?

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

Well, with a contemporary music reference like Louise Redknapp, we are certainly not dinosaurs. Perhaps before this Committee concludes at the rise of the House on Thursday we will get a contemporary music reference from the hon. Gentleman, but somehow I doubt it. The point is that there is a constant process for the employer involving appeals, warnings, penalties and reviews, but the poor employee is still sitting there waiting to be paid. With that, I will press amendment 233 to a vote.

The Minister has said that she likes amendment 232, and might even consider implementing naming and shaming. Given that our amendment asks only for the Secretary of State to make regulations, she will have no problem voting for it, so I will press amendment 232 to the vote as well. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 232, in clause 136, page 118, line 41, at end insert—

‘(12) The Secretary of State may make regulations to allow a penalty notice under this section to include a provision for the publication of the name and other particulars of those naming employers who do not pay the relevant sum as per the conditions of the notice.’—(Ian Murray.)

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 9.

Division number 25 Decision Time — Clause 136 - Financial penalty for failure to pay sums ordered by employment tribunal etc

Aye: 6 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Amendment proposed: 233, in clause 136, page 118, line 41, at end insert—

‘(12) Any payments made under this section by the employer shall reduce the liability of the employer for the relevant sum prior to being allocated to any sums payable under the penalty notice.’—(Ian Murray.)

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 9.

Division number 26 Decision Time — Clause 136 - Financial penalty for failure to pay sums ordered by employment tribunal etc

Aye: 6 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Photo of Jo Swinson Jo Swinson Parliamentary Under-Secretary of State (Department for Education) (Women and Equalities) , The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I beg to move amendment 28, in clause 136, page 119, line 3, leave out from ‘lies’ to end of line 5 and insert ‘to an employment tribunal.’

This amendment changes the venue of appeal against a penalty for the non-payment of an Employment Tribunal award or an ACAS conciliated settlement from the county court in England and Wales, or the sheriff in Scotland, to an employment tribunal.

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

With this it will be convenient to discuss Government amendment 29.

Photo of Jo Swinson Jo Swinson Parliamentary Under-Secretary of State (Department for Education) (Women and Equalities) , The Parliamentary Under-Secretary of State for Business, Innovation and Skills

We have obviously had two lovely little Divisions. I hope that the hon. Member for Edinburgh South will not consider that I have been “2 Faced”, if we want to continue with the Louise Redknapp song title references, in welcoming the spirit of amendment 232 but voting against it. I think that I put it clearly on the record that I did not think that legislation was needed in order to create a naming-and-shaming scheme. I am certainly considering the substance of the proposal, but that is the reason why I did not feel that amendment 232 needed support. I do not know whether anyone else will be able to shoehorn any Louise Redknapp song references into the rest of the debate. Perhaps they will have to check with the hon. Member for Hartlepool for the entire catalogue if he is such a fan.

Clause 136, as we have discussed, is about issuing a penalty to employers who fail to pay an employment tribunal award. Of course, as with any penalty, the employer will have the right to appeal if they consider that it has been issued in error. Government amendments 28 and 29 are designed to change the venue where such appeals will be heard.

Currently, the Bill suggests that the penalty appeals should be heard in the county court in England and Wales and by the sheriff in Scotland. However, we have undertaken further consideration since the Bill was introduced and have decided that the employment tribunal would be a more suitable venue. The hon. Member for Edinburgh South asked why that was. The county court and sheriff court are, unfortunately, much more sensible  in terms of debt recovery, but this appeal is against the administrative process—the issuing of a financial penalty—which is why the employment tribunal is more sensible as a location for it. Of course, that is also consistent with the way in which appeals against a penalty for non-payment of the national minimum wage are heard. For those reasons, the change makes sense. Of course, because it is the employment tribunal, the fee, a type A fee, will be payable in the same way as would apply to an employer in relation to a national minimum wage notice of underpayment.

Those are the reasons why we have made the change. I hope that the Committee will support the change, which is sensible and consistent with the other appeal on penalties.

Amendment 28 agreed to.

Amendment made:29, in clause 136, page 119, line 14, leave out

‘the county court or sheriff’

and insert ‘an employment tribunal’.—(Jo Swinson.)

This amendment is consequential on amendment 28.

Clause 136, as amended, ordered to stand part of the Bill.

Clause 137 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Mel Stride.)

Adjourned till Thursday 6 November at half-past Eleven o’clock.

Written evidence reported to the House

SB 61 Pre-school Learning Alliance

SB 62 Justice for Licensees

SB 63 Mr Ron Piper and Miss E. Piper

SB 64 Fair Pint – supplementary

SB 65 Paul Crossman

SB 66 Luke Howell

SB 67 Public Concern at Work

SB 68 Charity Law Associates

SB 69 Alan Yorke