New Employment Bill Published - Strengthening the minimum wage and replacing the dispute resolution procedures

View the previous news item for Employment Law - General

13 December 2007

On 6 December, the Government introduced its latest Employment Bill into the House of Lords. The Bill will make the following changes to employment rights. Note, however, that any of these measures may be changed or adjusted before the Bill becomes law. The paragraph numbers refer to the numbered clauses of the Bill

1. Statutory dispute resolution procedures: The mandatory "three step" statutory procedures, introduced by the Employment Act 2002 (EA2002), were found by the independent Gibbons Review to have tended to lead to disputes becoming formalised and to encourage the involvement of lawyers at an earlier stage than had previously been the case. Following public consultation, the Government has decided to repeal the statutory procedures. The Bill will repeal sections 29 to 33 and Schedules 2 to 4 to EA2002, thus removing the statutory procedures in their entirety.
   
   
2. Procedural fairness in unfair dismissal: Prior to 2004, the handling of breaches of procedure in unfair dismissal cases was based on case law. In particular, the 1988 House of Lords judgment in Polkey v A E Dayton Services Ltd provided that a dismissal could be unfair purely on procedural grounds but that, in such circumstances, the tribunal should reduce or eliminate the compensation payable (other than the basic award) to reflect the likelihood (if any) that the dismissal would have gone ahead anyway if the correct procedures had been followed.
   
   At the same time as the statutory dispute resolution procedures were introduced in 2004, a new section 98A was inserted into the Employment Rights Act 1996 (ERA), providing that a dismissal is automatically unfair where an employer does not complete the statutory dispute resolution procedures. It also provides that a tribunal may disregard any failure by the employer to comply with other (e.g. workplace-based) procedures in respect of the dismissal if following them would have had no effect on the decision to dismiss.
   
   Following public consultation, the Government has decided to repeal section 98A of ERA in its entirety, thereby returning to the case law developed from the Polkey line of cases.
   
   
3. Failure to comply with statutory codes of practice: In place of the repealed statutory dispute resolution procedures and procedural fairness provisions, the Bill introduces an alternative mechanism to promote good practice. Compliance with a statutory code on disciplinary, dismissal and grievance procedures (to be developed by Acas) will be encouraged by means of discretionary powers for tribunals to increase or decrease awards by up to 25% where the employer or the employee has unreasonably failed to comply with the code. Under the provisions of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), a Code of Practice that has been approved by Parliament, although not legally binding, is admissible in evidence and can be taken into account by an employment tribunal.
   
   The new Code of Practice will apply across almost all of the jurisdictions under which employment tribunal claims are brought, including
   
   
   • unauthorised deductions and payments
   • redundancy payments
   • payment of the national minimum wage
   • breaches of the Working Time Regulations.

   Where a tribunal award also falls to be increased because the employer has not issued written employment particulars, the new adjustment is to be made first.
   
   

4. Tribunals proceedings without a hearing: The existing employment tribunal legislation includes powers to authorise cases to be decided without a hearing. These powers have not been used and tribunal cases are currently decided at a hearing before a full tribunal panel or a chairman sitting alone.
   
   A new fast-track procedure for settling monetary disputes in certain limited jurisdictions is to be introduced, although this does not in general require primary legislation. The procedures will permit cases to be decided without a hearing on the basis of documentation submitted to the tribunal. However, as a protection, the Bill requires that tribunal regulations ensure that all parties to the proceedings consent to the process or are given the opportunity to request a hearing instead of a decision based on documentation.
   
   
5. Conciliation before institution of proceedings: The Bill removes the requirement for an Acas officer to justify the reasons for deciding whether or not to offer conciliation. The intention of the amendment is to enable Acas to prioritise cases where demand for conciliation exceeds resources available for conciliation and to relieve Acas of the obligation to offer conciliation in pre-tribunal disputes where there is no prospect of success.
   
   The Bill also replace the existing mandatory requirement to seek reinstatement or reengagement, or compensation in lieu, in pre-tribunal disputes with a discretionary power to do so.
   
   
6. Removal of fixed periods for conciliation: The duty of Acas to conciliate currently becomes discretionary once the period for which tribunal hearings are postponed for the purposes of conciliation ends. The Gibbons Review of the statutory dispute resolution procedures concluded that the prospect of the loss of Acas' assistance did not serve to promote earlier settlements. Accordingly, the Bill maintains Acas' duty to conciliate in employment throughout the proceedings until the tribunal delivers a judgment.
   
   
7. Compensation for financial loss: The Bill will provide employment tribunals with the power to order employers to compensate workers for any financial loss sustained as a result of unlawful deductions from wages, or non-payment of redundancy awards.
   
   Where an employer has made an unlawful deduction or payment from wages, a tribunal can require the employer to pay, or repay, to the worker the amount of the deduction or payment. There is no provision, however, for the employer to compensate the worker for losses arising from the deduction or payment, e.g. additional bank charges or interest charges. The Bill will empower tribunals to order the employer to make such a compensatory payment of an amount that the tribunal considers appropriate in all the circumstances, thereby removing the need for a worker whose employment has ended from seeking compensation by means of a separate county court claim.
   
   The same provision for compensation is made where an employer has failed to make a redundancy payment to an employee.
   
   
8. National Minimum Wage arrears: When an employer pays a worker at a rate that is less than the relevant national minimum wage (NMW) rate, the employer may be required, by means of an enforcement notice issued by HMRC, to pay the worker the arrears.
   
   The amount due is the difference between the amount paid in a particular reference period (i.e. the worker's pay period) and the amount that would have been paid if the NMW rate in force at the time had been used. As a result, where the underpayment has continued for a long period of time, during which the NMW rate has increased several times, the arrears can be considerably less than they would be if they were calculated at the current NMW rate.
   
   To prevent workers losing out in this way, the Bill introduces a new method of calculating the arrears. For any particular reference period, the arrears due are the higher of
   
   
   • the arrears, calculated as described above, and
     
     
   • the arrears, calculated by dividing the amount of the underpayment by the NMW rate in force at the time (giving a notional period of unpaid time) and multiplying that by the NMW rate in force at the time the arrears are determined.

   This comparison formula accommodates the situation of the current NMW rate being lower than the rate at the time of the original payment, as could occur if regional NMW rates are introduced in future. Currently, however, the new calculation would always give the same or a higher arrears figure. However, the arrears figure based on the earlier NMW rate has further significance, as explained in Clause 9 below.
   
   The new calculation method applies retrospectively to arrears that arise before the Employment Bill comes into force.
   
   The Bill also makes corresponding change to the Agricultural Wages Act 1948, so that agricultural workers in England and Wales also have the same entitlements. However, no changes are made to the equivalent agricultural wages legislation for Scotland and Northern Ireland as agricultural wages enforcement is a devolved matter for those countries.
   
   

9. National Minimum Wage enforcement: If an employer is served with an NMW enforcement notice and fails to respond within 28 days, HMRC may take further action through the courts or tribunals, and/or issue a penalty notice. The Bill replaces the separate enforcement and penalty notices with a single "notice of underpayment".
   
   The new notice will require the employer to pay the NMW arrears to the worker(s) involved and, in all cases, pay a financial penalty. The Bill includes appeal procedures and provides for HMRC to withdraw an underpayment notice and, if necessary, to issue a replacement notice.
   
   The penalty will be 50% of the amount of the arrears due to the worker(s) specified in the notice, using the arrears figure based on the earlier NMW rate. It will be subject to a minimum of £100 and a maximum of £5000. However, the penalty will not take into consideration any underpayments arising before the date the Bill becomes law. The penalty must be paid within 28 days of the notice being served but, if payment is made within 14 days, it is reduced by 50%.
   
   An underpayment notice will be suspended if criminal proceedings may be or are instituted against the employer. If the proceedings are withdrawn the underpayment notice is reinstated; if the employer is convicted the financial penalty is cancelled.
   
   
10. Copies of NMW-related documents: HMRC officers are given powers to remove an employer's pay records in order to copy them and to take copies of all documents without first having to determine whether they are relevant. All such documents must be returned to the employer as soon as is reasonably practicable.
    
    
11. Mode of trial for NMW offences: NMW offences, e,g. refusal to pay the NMW, keeping or producing false records, or obstructing an officer, are currently triable only as summary offences in magistrates' courts. The Bill makes them alternatively triable on indictment before a jury. On conviction, the penalty is a fine, not imprisonment.
    
    
12. Powers to investigate NMW offences: The Bill gives HMRC officers powers to investigate NMW offences as criminal offences, e.g. to apply for production orders and search warrants or to arrest a person suspected of committing an offence.
    
    
13. NMW exemption for Cadet Force Adult Volunteers: The Cadet Forces are national youth organisations, supported by their own charities and attached to each of the armed forces. The Bill will exempt from the NMW members of the Cadet Forces who are assisting in the delivery of the Ministry of Defence sponsored cadet force programme.
    
    
14. Mode of trial for employment agency offences: Offences under the Employment Agencies Act 1973 (EAA), i.e. failure to comply with a prohibition order, failure to comply with measures contained in the Conduct of Employment Agencies and Employment Businesses Regulations 2003, and requesting or receiving a fee for providing work-finding services (except where permitted), are currently only triable as summary offences in magistrates' courts. The Bill allows them to be tried on indictment in the County Court. This is the same provision as for the NMW in Clause 11 above.
    
    
15. Inspection power of the Employment Agency Standards Inspectorate: Inspectors of the Employment Agency Standards Inspectorate (EASI) will be given extended powers to request financial records and documents and a new power to require in writing the provision of records and documents at a specified time and place. Records may be taken away to be copied and returned as soon as is reasonably practicable.
    
    
16. EAA offences by partnerships in Scotland: The Bill provides that, where an offence under the EAA is committed by a partnership in Scotland with the consent or connivance of a partner, or attributable to the neglect of a partner, the partner may also be prosecuted. English law does not treat partners as a separate legal entity to the partnership, so this provision is not required in English law.
    
    
17. Exclusion or expulsion from trade union membership: In the 2007 case Aslef v UK, the European Court of Human Rights decided that a union member, who was expelled because he was a member of a particular political party, infringed his right of association. The Bill accordingly removes the provision in TULRCA that makes it unlawful for a trade union to expel or exclude a person on the grounds of membership or former membership of a political party.
    
    The various provisions of the Bill will, when enacted, come into force:
    
    
    • two months after Royal Assent - clauses 10, 13 and 17
    • a date to be appointed - clauses 1 to 9, 11 and 12
    • 1 October 2008 or, if the Bill is not passed by then, 6 April 2009 - clauses 14 to 16.

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Further information:
Employment Bill
Explanatory Notes on the Employment Bill

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