Employment Bill

Public Bill Committee, 18 December 2001.

Standing Committee F

Clause 30 - Contracts of employment

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 53, in page 35, line 27, at end insert-

'(2A) The Secretary of State shall by regulations prescribe a procedure for certification by the Advisory, Conciliation and Arbitration Service, or by a Tribunal or by the Secretary of State of model agreements to follow procedures other than the statutory procedure as being not inconsistent with the requirements of the statutory procedure'.

Good morning, Mr. Benton. We shall need to make rapid progress today as the guillotine, which the Government outrageously imposed, will fall after clause 41 at 7 pm. That means that some substantial issues that fall to be debated today will have to be raced through at a canter, if not a gallop.

I apologise to you, Mr. Benton, and the Committee for having to leave a little early before lunch-[Interruption.] I am glad to see that Labour Members are disappointed-

Helen Jones (Labour, Warrington North)

Desolate.

Philip Hammond (Conservative, Runnymede and Weybridge)

Desolate, indeed, at my enforced departure. I have been fortunate enough to secure an Adjournment debate on a matter of great importance in my constituency. I trust that I may crave your indulgence, Mr. Benton, and that of the Committee. My hon. Friends will hold the fort admirably in my absence.

Amendment No. 53 is yet another step in my perhaps not quite one-man campaign to try to reduce the earning potential of lawyers. Under clause 30 statutory provisions are written into contracts of employment. The Minister has explained the logic of his position and I do not take issue with the substance of that. However, subsection (2) provides that

''Subsection (1) shall have effect notwithstanding any agreement to the contrary, but does not affect so much of an agreement to follow a particular procedure as requires the employer or employee to comply with a requirement which is additional to, and not inconsistent with, the requirement of the statutory procedure.''

As I understand it-the clause is not easily penetrable-it will not interfere with the wording of the contract to the extent that the contract provides for procedures in addition to and not inconsistent with the statutory procedures. Clearly what the Minister has in mind is that if employers and employees want to agree on a more comprehensive disputes procedure-perhaps if they want to adopt the Advisory, Conciliation and Arbitration Service's code-nothing in the clause should prevent them from doing so.

If the Minister has in mind adoption of the ACAS code, I can see why he has not addressed the problem that I am trying to address. If it is established that the ACAS code

''is additional to, and not inconsistent with''

the statutory procedures, adoption of the ACAS code in a contract will clearly be acceptable. However, there is no specific reference to the ACAS code and it is possible that employers and employees could try to write into contracts other provisions that may be inconsistent with the statutory procedures, which would open the door for yet another lawyers' bonanza.

I have tried to provide a procedure whereby ACAS could pre-clear a contract so that if an employer, a group of employees, a trade union or a group of employers through a trade association or federation wanted to produce a model contract, they would be able to submit it to ACAS and obtain what amounts to a pre-clearance of the wording of the contract as being compliant with the Bill. I am simply trying to avoid unnecessary litigation and to provide some certainty for all parties concerned. I am not committed to the wording or the method in the amendment, but I hope that the Minister will accept the principle that we want to establish certainty so that employers and employees can enter contractual arrangements knowing that they are compliant comply with the law without having to get involved with lawyers. The ACAS route is the obvious one, but I look forward to hearing from the Minister and, if he accepts in principle what I am trying to achieve, whether he can suggest a better method of achieving that.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The clause ensures that all employees have a contractual right to use the statutory dispute resolution procedures. It does so by inserting an implied term to that effect in all contracts of employment so that when employers do not operate more elaborate procedures, the minimum statutory procedures in schedule 2 will be deemed to apply to employees as a default.

The amendment would cover situations in which employers already operate procedures. Those employers will be largely unaffected by the clause, and their procedures will usually incorporate the basic three steps of the statutory procedures. If so, they will not need to amend their existing arrangements. Others may fail at the margin to comply fully; in such cases only small adjustments would be required.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister said that the amendment covers situations in which there is an existing arrangement. Can he confirm that the clause will apply equally to new contracts that include procedures

''additional to, and not inconsistent with''

the statutory procedures?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Yes, they would. The three-step procedure has been designed to be simple for those organisations that do not have a procedure at the moment, and there is no ambiguity. The procedures were designed to be simple and easy to understand. Relatively few actions are involved, they are clearly defined and it should be straightforward for employers to ascertain whether their procedures are consistent with the statutory minimums. Uncertainty should not arise, and I do not believe that there is a strong argument to set up an accreditation system to certify the procedures that individual employers operate. Such a certification procedure would be costly: hundreds of thousands of employers operate procedures, and many of them might wish to gain the accreditation on offer.

There is nothing to stop reputable organisations from drafting procedures that may serve as models. Employer organisations or trade unions may wish to do so and, more generally, ACAS stands ready to advise individual employers on their internal procedures.

In summary, it would be relatively easy for employers to check their own procedures against the statutory minimums. If employers are in doubt, sources of advice are open to them to help with the exercise. I fully share the hon. Gentleman's concern that we do not make more work for lawyers: a Government-funded accreditation system would be unnecessary and wasteful. I hope that the hon. Gentleman will withdraw his amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am interested to hear the Minister's comments. I did not draft the amendment to provide an accreditation system but as a way of delivering to employers certainty that the contract that they offer is compliant. I recognise what the Minister said about ACAS's willingness to advise, provide information and generally support the process. The purpose of the amendment is to flag was to flag up the issue and to ensure that the Minister had considered it. Having heard his comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 30 ordered to stand part of the Bill.

Clause 31 - Non-completion of statutory procedure: adjustment of awards

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 54, in page 36, line 34, leave out paragraph (d).

Joe Benton (Labour, Bootle)

With this it will be convenient to take amendment No. 55, in page 36, line 36, leave out paragraph (e).

Philip Hammond (Conservative, Runnymede and Weybridge)

Clause 31 deals with a penalty system for failure to comply with statutory procedures and a number of issues arise which I am sure Members on both sides will want to explore. That is probably best done on clause stand part.

I suspect that the amendments have been grouped for reasons of economy, not because there is a clear link between them. Amendment No. 54 seeks to leave out clause 31(5)(d), which says that the Secretary of State may by regulations

''make provision about circumstances in which a person is to be treated as not subject to, or as having complied with, such a requirement'',

that is, the requirement to undertake the statutory procedure. The amendment was tabled to probe the Minister as to the circumstances in which he intends to designate a person as being ''not subject to'' such a provision, or as ''having complied with'' it.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

A key part of the Bill is to ensure that procedures are used to try to resolve disputes. Clause 31 and the regulations made under it will encourage completion of the statutory procedures by enabling tribunals to vary an award if a party does not comply with the requirements of the procedure in question.

At the same time, we recognise that there will be occasions when it will not be appropriate or possible for a party to complete or even initiate procedures. One example would be where the applicant has suffered harassment and the person to whom she would have to complain has been implicated in the harassment claim. Another example would be where there was the threat of violence by either party. That issue was raised in an earlier debate. Serious illness could also make completion of the procedures impossible. Nor do we envisage that the statutory procedures should be used when the issue has been handled as a collective process.

When provisions are fleshed out in regulations, a balance will have to be struck between not allowing so many exemptions as to nullify the purpose of the clause and recognising that there will be circumstances in which it would be unreasonable or impractical to expect the procedures to be used or completed.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister has cited as one of the circumstances in which the provisions would not apply a situation in which collective procedures, rather than the statutory procedure, had been used. Is not the import of what we have just discussed in clause 30 that those collective procedures would be additional to and consistent with the statutory procedures? If so, it is not clear to me why he needs to exclude compliance with the statutory procedures. By implication, those would have been complied with because the broader and more extensive procedure that he has in mind had been complied with.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Simply, if, for example, a grievance had been taken up by a trade union and represented collectively-whatever that grievance might be-it would be unfair on employers to expect each individual to go through the grievance procedure when the matter was being dealt with collectively with the employees. We do not want to duplicate the process and force employers to go through a procedure several times when the issue is collective.

A balance needs to be struck. We are determined to get it right, and we will consult on the regulations. I recognise that these are important issues, but I hope that I have given some flavour of what we expect from the provision to which amendment No. 54 refers.

Are we also debating amendment No. 55?

Philip Hammond (Conservative, Runnymede and Weybridge)

Yes.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I am here courtesy of Nurofen this morning, but I will struggle through.

Amendment No. 55 attempts to remove the Government's ability to modify statutory procedures. However, I believe that the provision that it would delete is sensible and necessary. We have no intention of making wholesale modification of the procedures, but we need flexibility in case, when we come to make the regulations, we discover circumstances in which it would be sensible to adjust them.

Let me give the illustration for which the hon. Gentleman asked. We might want to allow for a delay in the disciplinary procedure should an employee under notice of dismissal make an application to a tribunal for interim relief while the procedure is taking place. In such circumstances, the outcome of the interim relief application would be crucial to the decision about the dismissal. That would require a modification to the procedure because under the procedure, the timing of the meetings is required to be reasonable. As hon. Members will know, interim relief is available where the tribunal thinks that the employer may have dismissed for certain reasons that are automatically unfair. Union membership is one example, as is the so-called whistleblower's act of making a disclosure in the public interest.

I hope that those examples give the hon. Member enough substance to be able to withdraw what is, as he said himself, a probing amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am grateful to the Minister. His comments were very useful. However, I have to probe him a little further on collective dealing. Does the Minister propose that where a recognised trade union is negotiating on behalf of its members in a workplace, other employees who are not represented by the union would be prevented from raising a similar matter through the grievance procedure? Is that what the Minister has in mind? Can he assure the Committee that the availability of a separate procedure for collectively represented workers will not in any way exclude the rights of unrepresented workers in a workplace where such a procedure is taking place.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

It would depend on the issue. If there were a collective issue about the absence of a proper catering facility and the union was addressing that collectively with the employer, it would be unfair, given that a recognised union exists to deal with collective issues, to insist that the employer should deal with complaints about the absence of facilities individually as well. That is an important point, because I would not want to take away the rights to pursue a grievance of individuals who are not trade union members. We shall consider the point when we come to the regulations, but I hope that the hon. Gentleman understands the gist of what we are trying to do.

Philip Hammond (Conservative, Runnymede and Weybridge)

I do indeed understand the purpose that the Minister outlined. I am grateful to him for recognising the potential difficulty if the Bill deprived an individual worker of what he would regard as his rights. That would place the worker in an adverse position simply because some of his colleagues were pursuing a collective route to solution of a similar grievance.

I am glad that we have had the opportunity to flag up that concern. I am grateful to the Minister for undertaking to consider it. I hope that we can return to the point later in the Bill's consideration to ensure that we do not inadvertently create a group of second-class employees who have fewer rights than colleagues in a non-unionised workplace, simply because some of their colleagues are unionised. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 56, in page 36, line 45, leave out paragraph (b).

Joe Benton (Labour, Bootle)

With this it will be convenient to take amendment No. 57 in page 36, line 48, leave out paragraph (c).

Philip Hammond (Conservative, Runnymede and Weybridge)

Again, I suspect the grouping of these amendments is more in the interests of economy than anything else. Amendment No. 56 is a probing amendment, to seek the Minister's clarification of just what jurisdictions he has in mind. A list of jurisdictions is contained in schedule 3, and subsection (6)(b) gives the Secretary of State the power to make provision, excluding the application of clause 31 to proceedings, relating to claims of any specified description in relation to any specified jurisdiction. That is very widely drafted, and we are being asked to scrutinise a Bill that contains very wide regulation-making powers. It is appropriate to ask the Minister to explain just what he has in mind and why he thinks he needs that very wide power.

Amendment No. 57 reverts to a familiar theme and a debate that I guess we have already had in relation to another part of the Bill. It is about the power that the Minister is giving himself to define someone who is not an employee as an employee for the purpose of clause 31, and, indeed, to define someone who is not an employer as an employer. Without wanting to go round the loop of the employee-worker debate, I maintain that the power is unnecessary because if at some future stage the Government are determined to extend the definition of employee in general employment protection legislation, a general application change would have to be made to the primary legislation, although I do not know exactly how that could be done. Nevertheless, such changes would affect a wider body of legislation than this Bill.

It is unclear why the Minister needs to take a specific order-making power to deal with something that would arise only as part of a broader decision to change the boundary between employee and worker or the definition of who is subject to or benefits from the Bill and similar legislation. I am unhappy that he is taking a power to do something that could not be done by order if it were to apply generally. If the power was of narrow application to the clause, it would sit oddly with the Secretary of State's confirmation on Second Reading that the question of the worker-employee distinction would be part of the Government's broader review of employment legislation, which will, if she believes it necessary, lead to legislation during the course of this Parliament. I would be pleased to hear the Minister's views on those two subjects and an explanation on my last point.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

On amendment No. 56, schedule 3 lists the jurisdictions to which clause 31 applies. The probing amendment is searching for an example of where we may need the power that the amendment seeks to exclude so that that example may be addressed in the regulations, which returns us to the collective versus individual argument. For example, although unfair dismissal is one jurisdiction listed in schedule 3, it is unlikely to be possible to apply the statutory procedures to unfair dismissals arising out of industrial action because they arise out of a collective dispute. This example relates to a jurisdiction already listed in schedule 3, but subsection (6)(a) enables new jurisdictions to be added to the list. When and if we consider making such additions, it may well become apparent that the statutory procedures are suitable for some descriptions of claims that can be brought under the jurisdiction but not others. It is therefore prudent to be able to exclude the procedures from applying to particular descriptions of claim within a jurisdiction that might be added in future.

Prudence also drives us to oppose amendment No. 57. We have previously cantered round the worker-versus-employees course. It is sensible to retain the flexibility to widen the coverage of the clause beyond employees, should that be considered necessary in the light of next year's employment legislation review. The subsection that the amendment seeks to remove will give us the ability to implement the findings of the review if it recommends an extension of the clause to non-employees. The hon. Gentleman does not know how that could be done, and in that he is at one with me, but we should not pre-empt the outcome of the review. It may lead to changes in some areas, it may lead to no changes or it may lead to the type of blanket change to which he referred, which would have to be dealt with in other legislation.

Philip Hammond (Conservative, Runnymede and Weybridge)

In my opening remarks, I should have asked the Minister to give a categorical assurance that he will not introduce an order under this subsection other than as a consequence of the comprehensive review about which the Secretary of State has spoken. He gave such an assurance the last time we discussed the worker-employee distinction, and if he can give us such an assurance now it would alleviate our concern.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I am happy to give that assurance and hope that it enables the hon. Gentleman to withdraw the amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

The purpose is served as regards amendment No. 57. We may have disagreements about the wisdom of putting such a provision in the Bill, but as long as the Minister uses it only in the context of the outcome of broader review, and as long as contentious issues will be debated and properly scrutinised following review, that is fair enough.

On amendment No. 56, the Minister has once again come up with a circumstance in which it may not be appropriate to apply statutory procedures, and I cannot disagree with him about the possibility of such a circumstance arising. However, it is unfortunate that a simple three-step procedure-some on the Labour Benches may argue that it is too simple-which will be implied and, I hope, spelled out in every contract of employment, will appear straightforward, understandable and comprehensive to an employee but may turn out to be full of all sorts of caveats and exclusions when he seeks recourse to it. Those will have been made by order and will not have been apparent from reading the Act.

I hope that the Minister agrees that that would be a reason for using regulation-making powers sparingly. Part of the attractiveness of having a simple procedure that applies to everyone in every case without exception is that it creates certainty and familiarity. I suspect that one thing that horrifies employers and makes employees reluctant or wary of pursuing their rights is the sheer complexity of wading through reams of statutes, regulations and orders to find out what applies to a case. I hope that the Minister will bear in mind that excessive use of the ability to exclude classes of cases or persons will undermine the purpose, which we broadly support, lying behind the introduction of a simplified procedure. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Tony Lloyd (Labour, Manchester Central)

In passing, I note that invitations from the Opposition to the Minister to set all aspects of Government regulations in aspic have so far been unsuccessful. I hope that he will tell the Committee that the review will now have to proceed apace so that we can unlock those aspects of the Bill.

The clause contains provisions to reduce, or increase, the value of an award depending on how statutory procedures have been complied with. In subsection (4) there is a duty to make a reduction or increase, but that is offset by

''exceptional circumstances which would make a reduction or increase of that percentage unjust or inequitable''.

I ask the Minister to reflect on the words ''exceptional circumstances'' and on whether the subsection would be better without the word exceptional. The turning point would then be the lack of justice or equity, rather than the exceptional nature of the circumstances. In some discrimination cases that appear before a tribunal, such as bullying cases, it is not necessarily reasonable to expect the person being bullied to pursue a complaint when the person making the judgment has been the source of the bullying. That applies where the bullying is of a fairly straightforward kind.

According to a survey by the Equal Opportunities Commission, in one third of sexual harassment cases the perpetrator is the line boss, and in a further third the perpetrator is a director or senior manager. In other words, those who sit in judgment at different points in the statutory process could be the perpetrators of such unacceptable behaviour. The clause need not be changed fundamentally, but the word ''exceptional'' is not appropriate, because although such a circumstance would certainly be ''unjust and inequitable'', it might not be exceptional.

Philip Hammond (Conservative, Runnymede and Weybridge)

I shall want to say something about removing ''exceptional'' in a moment, but the hon. Gentleman's concern would surely be dealt with by exclusions that the Secretary of State is empowered to make under subsections (5) and (6). It would seem inappropriate to empower the Secretary of State to exclude cases such as those involving sexual harassment from a duty to comply with the procedure, and to overlay that power with the ability not to apply penalty provisions in a wide range of cases.

Tony Lloyd (Labour, Manchester Central)

I understand what the hon. Gentleman is saying. Of course, in any case he has persuaded the Minister to freeze the process for the time being. Therefore, even if the Secretary of State were minded to exclude sexual harassment from the provisions in the clause, the exclusion would not necessarily apply when the Bill is enacted.

Philip Hammond (Conservative, Runnymede and Weybridge)

Will the hon. Gentleman give way?

Tony Lloyd (Labour, Manchester Central)

Let me make this point first, so that we can at least agree about what we differ on.

I am arguing not that sexual harassment should be excluded from the clause-in certain circumstances, its inclusion could be appropriate-but that a clear message needs to be sent about cases such sexual harassment and bullying. The hon. Member for Runnymede and Weybridge may be right to say that they could be dealt with under subsection (5), but the phrase ''exceptional circumstances'' has a ring that might not be appropriate, given what we know about the norm in such cases. Two thirds of the perpetrators of sexual harassment are line managers or more senior figures, and it could be argued that it would not be exceptional for certain individuals to want to fall outside the scope of the provisions.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman seems to have interpreted the Minister's concession to me rather more widely than I did. In my view, the Minister has simply undertaken not to use subsection (6)(c) ahead of the Secretary of State's wider review. He offered no commitment not to use other regulation-making powers in the clause ahead of that review.

Tony Lloyd (Labour, Manchester Central)

I am sure that the Minister will be grateful for that interpretation.

George Osborne (Conservative, Tatton)

The hon. Member for Manchester, Central (Mr. Lloyd) is absolutely right: according to Equal Opportunities Commission statistics, sexual harassment cases that do not involve the line manager or the ultimate boss are the exception. I am not sure whether the Minister said that he would exclude all sexual harassment cases from the relevant procedures, or only those involving line managers, bosses and so on. In any event, the majority of the latter will be excluded, as the hon. Gentleman says.

Tony Lloyd (Labour, Manchester Central)

The simple point that I am trying to make is that the Minister should perhaps reconsider using ''exceptional''. It is unnecessary because the driving force behind the subsection is the phrase ''unjust and inequitable''. Tribunals would be able to interpret cases, whether exceptional or not, in a common-sense way that is consistent with the intention behind the clause.

The point that I am trying to make is fairly simple. I hope that the Minister will consider it, although I do not expect him to offer a commitment now. It is important that we get such matters right, and it is also important that he re-emphasise a view that I know he holds, which is that the purpose of the clause is not to make life more difficult for the victims of bullying or sexual harassment.

Philip Hammond (Conservative, Runnymede and Weybridge)

I disagree with the hon. Member for Manchester, Central, in that removing the word ''exceptional'' would change the nature and operation of the clause. The intention behind it is to introduce an automatic penalty for failing to comply with the statutory procedure, and matters such as those to which he has referred by way of illustration could easily be dealt with through an exclusion from the requirement to use that procedure. The point of defining the area to which the statutory procedure must apply is to make it absolutely clear that an automatic non-discretionary penalty will be imposed on a party who fails to comply with that procedure.

I have no difficulty in understanding the hon. Gentleman's argument. In effect, he is suggesting that we sweep away the automatic penalty procedure and operate on a case by case basis in the light of justice and equity. That is a perfectly logical suggestion, but it constitutes not a minor change to the clause but a fundamental unravelling of the intention behind it. On balance, I should be very concerned if abandonment of the automatic surcharge principle and a resort to an inquiry into the justice and equity of charging various amounts were to become a more widespread procedure. Such a change would involve not merely the removal of a partially redundant word, as the hon. Gentleman seemed to suggest; but would be fundamental and would require in-depth debate.

Tony Lloyd (Labour, Manchester Central)

In any case, a tribunal would have a duty under subsection (4) to examine the equity and justice underpinning a waiver. I assume, however, that in normal circumstances the clause would kick in and the tribunal would exercise the right to increase or decrease the penalty as appropriate, subject to the test of equity and justice. My problem with the word ''exceptional'' is that it prescribes something over and above the question of equity and justice. The point is a narrow one, and time and experience will tell, but I hope that the hon. Gentleman and the Minister will consider carefully whether use of the word ''exceptional'' is necessary.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am not sure whether we disagree-I think that we probably agree. I am not a lawyer, but I suspect that use of ''exceptional'' will prove significant in terms of the way in which the clause is interpreted. As the hon. Gentleman has suggested, a tribunal will not routinely look at the equity and justice of a surcharge that it is about to impose. As I understand it, it will be empowered to inquire into the equity or justice of making such a surcharge only in exceptional circumstances. I do not want to initiate a debate now about whether it would be better to have a system based on equity and justice rather than a standard tariff system, except in exceptional circumstances. I think it important, however, that the hon. Gentleman should recognise that what he proposes is not tidying-up or tinkering at the edges but a fundamental re-writing of the way in which the clause would work in practice.

I hope that the Minister will not say that he will consider what his hon. Friend proposes because the Bill, as has been said many times, is a delicately balanced package. Were the Minister to move in the direction in which his hon. Friend the Member for Manchester, Central seeks to persuade him, I suspect that it would change the balance of that package. As the hon. Gentleman has sprung his suggestion on the Committee, I have not considered it in great depth, but, intuitively, I would not want to concede on it readily without examining it in some detail. I hope that the Minister will give a robust defence of the wording in the Bill and will not be tempted to tell his hon. Friend that he will go away and think about his suggestion with a view to possibly taking it on board.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I hope that I can reassure my hon. Friend the Member for Manchester, Central. The correct interpretation of the assurance that I gave to the hon. Member for Runnymede and Weybridge (Mr. Hammond) came from the hon. Gentleman himself. We seek to introduce a system of mitigation of between 10 and 50 per cent. for employers and employees who do not follow the system. That is not meant to deal with cases of bullying, violence and sexual harassment. The regulations themselves will make exceptions in those cases. To take the point that the hon. Member for Tatton (Mr. Osborne) made, those cases will be where, to follow the procedures, the employer or the employee-depending on the circumstances-would have to come into face-to-face contact with the person who had assaulted or bullied them.

We seek to deal with those cases in regulations, not through the ''exceptional circumstances'' subsection. That subsection provides for a tribunal to vary the mitigation below 10 per cent. if there are exceptional circumstances, and it will be a matter for the tribunal to decide on. The subsection covers all jurisdictions, but let us take unfair dismissal as an example. When we come to later clauses, we will find that if an employer fails in any way to implement the statutory minimum procedure, dismissal is automatically unfair and there will be a minimum of four weeks' pay in compensation to the individual concerned. The 10 per cent. mitigation comes on top of that.

However, in some, very rare, circumstances, the tribunal may decide that that amount is disproportionate. It might want to go below 10 per cent. because to apply 10 per cent. would be disproportionate for a small employer who had breached a minor part of the procedure. We think that that will be rare. The tribunal will not have discretion in this regard over bullying and harassment cases because procedures for those will be set out in a separate regulation.

My hon. Friend the Member for Manchester, Central raised an important point about the review, and he has raised that point before. I repeat the assurance that my right hon. Friend the Secretary of State gave on Second Reading that that review will commence early next year. With those comments, I hope that the Committee can agree that clause 31 stand part of the Bill.

Rob Marris (Labour, Wolverhampton South West)

I may have missed this technical point earlier, in which case I hope that the Committee will forgive me. Are the boosted awards-if I may use that shorthand phrase-intended to apply to the employment appeal tribunal as well as to the employment tribunal? I cannot see that the Bill says that. For example, could they apply if an appeal tribunal reversed a decision of an employment tribunal and brought in an award?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Perhaps I will dwell on that for a while and give my hon. Friend the answer later. His point about the employment appeal tribunal is a point of law. We are trying to deal with the statutory procedure for the majority of cases, but he raises a point about which I shall remain clueless for the moment, until I have another Nurofen. I will respond later.

Rob Marris (Labour, Wolverhampton South West)

That is why I referred to, for example, an employment appeal tribunal overturning a decision of an employment tribunal. I am aware that employment appeal tribunals usually examine questions of law rather than questions of fact. Does that assist him at all?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

It gives me no assistance whatsoever, but assistance will come from somewhere. I hope that my hon. Friend will agree that the clause stand part of the Bill; I will respond to his question later this morning.

Question put and agreed to.

Clause 31 ordered to stand part of the Bill.

Schedule 3 agreed to.

Clause 32 - Consequential adjustment of time limits

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 58, in page 37, line 16, leave out paragraph (c).

This is a probing amendment. It seeks to leave out clause 31(2)(c), which allows regulations to

''make provision treating proceedings begun out of time as begun within time.''

I have pondered on that for a while but I cannot see what the Minister is driving at. When will it be right and proper to treat proceedings begun out of time as being timely?

It may be fine to adjust time limits to reflect statutory procedures. That does not seem the same, however, as taking the power to decree that proceedings that are out of time are within time. Can the Minister clarify the exact circumstances in which that power will be appropriately deployed? I hope that it is precisely definable, because otherwise it is a rather sweeping power that could have serious consequences. If it is definable, why can it not be defined in the Bill, rather than being reserved as a regulation-making power?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The short answer is best given in an example, such as a case in which an employee is seriously ill and would have to have started the procedure within the three-month limit. We are making provision through regulation for treating proceedings begun out of time as begun within time. I am sorry: we are talking about beginning proceedings out of time. That would apply when the employee concerned-in, say, a dismissal case-is seriously ill and unable to attend the hearings or respond to the employer's inquiries.

Philip Hammond (Conservative, Runnymede and Weybridge)

Can the Minister be precise about what he means by ''begun''? It seems to me that proceedings would have been begun, even were the employee subsequently, for a prolonged period, unable to attend meetings or respond to the employer's inquiries. My understanding is that the Minister proposes to take a power to allow a proceeding to be begun after a long period, when no steps have previously been taken.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

In exceptional circumstances, that will be the case. Most jurisdictions have a three-month time limit. Let us remember that we are looking to get disputes resolved in the workplace and to end the culture in which the IT1 and IT3 forms are flying about the system and there has not even been an attempt fully to resolve the issue in the workplace.

George Osborne (Conservative, Tatton)

Is there not a paradox here? Schedule 2, which we debated previously, involved no time limits and the Government did not accept the amendments that my hon. Friend tabled to it. Here, however, we are talking about extending time limits for employment tribunal actions. What is to stop an employer or an employee spinning out the procedures to delay going to an employment tribunal?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Gentleman makes a good point, but there is a difference between this debate and those that we had on the basic three-step procedure, when we talked about ''reasonable'' time. If I remember rightly, that debate was about setting a period of a month. It is for the employer and employee to decide that matter.

The precise point that the hon. Gentleman made about the possibility of an employer spinning out the procedures will be discussed when we reach clause 33 on admissibility.

At the moment, most jurisdictions in schedule 3 have a three-month time limit for presenting a claim and the tribunal has the power to extend that time limit, generally where it believes that it was not reasonably practicable to have presented the claim within the time limit. We propose that complaints should not be regarded as out of time if a statutory procedure was begun within the normal period for complaining, but the application is made later, during an extended period of a further three months. Those extra three months would run from the expiry of the original three-month period. In some cases, a statutory procedure may not be commenced until after the expiry of the time limit, which would normally be when the claim itself was also out of time. We want to consider whether there should be any provision for extending the time limit if it was not reasonably practicable to have started the procedure within the time limit-for example, if the employee concerned was seriously ill.

In most jurisdictions, there will be three months to submit the claim, an extension of three months to allow internal procedures to be completed in exceptional circumstances, and a further two months if both parties agree that they have made sufficient progress to be able to resolve the case internally. That moves away from a procedure in which people focus on the employment tribunal almost as soon as the award has been made.

We are trying to deal with exceptional cases, of which the example of serious illness comes to mind and was raised during consultation. Given those assurances, I hope that the hon. Gentleman will be willing to withdraw the amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

Not entirely. I understand and agree with much of what the Minister said, but I still have reservations. Subsection (2)(b) gives him the power to

''make provision about the exercise of a discretion to extend the time for beginning proceedings''.

So in the case of a potential applicant who was seriously ill, the tribunal could extend the time for beginning proceedings. Unless I have misunderstood, subsection (2)(c) will be a retrospective power. Consequently, an employer who believed that he had no outstanding claims, and no potential for outstanding claims because the period for bringing claims had passed, could suddenly find himself subject to claims that were, on the face of it, way out of time. Subsection (2)(c) refers to making provision for

''treating proceedings begun out of time as begun within time''.

The Minister will respond that he would not make such regulations without imposing some backstop time limit-at least, I hope that he will. Nevertheless, if that backstop time limit was, say, five years, is it reasonable that somebody who is expecting a claim to be brought within the normal period of six months could suddenly find, two or three years later, that a claim is popping up from nowhere? I am sure that the Minister would not want to encourage that.

The legitimate situation that he describes, in which a person is seriously ill, would be better dealt with under subsection (2)(b). Subsection (2)(c), which is a retrospective power, appears to be unnecessary. Moreover, it could create a highly unsatisfactory situation for an employer who has had to dismiss several members of staff. He will know, when he does so, that it is possible that a claim will be brought. He will metaphorically hold his breath until the period for the making of a claim has passed, then regard himself as being free of potentially having to answer an application in the employment tribunal.

Can the Minister be more explicit about why he needs the power in subsection (2)(c) and confirm that it would operate retrospectively, unlike subsection (2)(b), whereby a discretion would be exercised before the deadline for extending the time limit? I assume that, under subsection (2)(c), discretion would operate retrospectively, so that an application that was brought after a year would be deemed to have been brought within six months. That would not be a good way to proceed, and I should be grateful for the Minister's clarification.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

We can deal with the detail in the regulations. We want to ensure that a procedure started within the three-month period can be completed through an extension. However, my example concerned a discipline case. In a grievance case, the first time that most employers hear about the grievance is in the employment tribunal. In a grievance case in which the person who has made the complaint has been seriously ill, that person might not be in a position even to start the procedure until after the three-month period has elapsed. We are not talking about six years. We do not envisage that the regulations will stretch it even beyond a year. I hesitate to say what will be in the regulations, other than that it will be the subject of wide consultation.

We have to cater for this eventuality so that we are able to say to the person concerned, ''It's clear that you didn't have the opportunity to commence your claim within the three-month period.''

The hon. Gentleman asked about the backstop. That is a legitimate point, but it can be dealt with in the regulations. I am asking the Committee to accept the principle that we need to cater for people who could not even begin the process within three months.

Philip Hammond (Conservative, Runnymede and Weybridge)

Will subsection (2)(c) operate rigidly? In other words, will the Minister specify circumstances in which proceedings begun out of time would always be treated as having been begun within time, or will he give the tribunal a discretionary power?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I would hope that we can be as tight as possible in terms of giving examples of where it could happen. However, I do not want to remove the tribunal's discretion. We cannot envisage in this Room all the circumstances that could arise whereby someone with a perfectly legitimate case to take to an employment tribunal has been debarred because of a lack of flexibility.

Philip Hammond (Conservative, Runnymede and Weybridge)

With respect to the Minister, if he wants to give the tribunal the power to deem that an application made out of time is treated as having been made within time, the wording of subsection (2)(c) is faulty. It allows regulations to make provision treating proceedings begun out of time as having been begun within time, but does not allow them to make provision to allow a tribunal to treat proceedings begun out time as having been begun within time. The draftsman seems to have in mind a set of circumstances in which proceedings begun out of time would in certain circumstances be deemed to have begun within time.

I am encouraged by the Minister's recognition that there needs to be a backstop date. I shall give him a simple, practical, everyday example of where the provision might be onerous for the owner of a business. When selling a business, it is customary to be required to make a series of warranties about the state of the business, one of which will typically be that there are no outstanding claims by employees and no claims that are capable of being made by employees-in other words, that any event that could give rise to a claim is already out of time. The prudent vendor would have to disclose a circumstance that had occurred at a time that meant that any claim was by then out of time but still potentially within the remit of subsection (2)(c).

It would be helpful if the Minister could throw light on what the draftsman precisely intended in 2(c). The purpose of the amendment has largely been served by focusing the debate on what the period of time, or backstop date, should be. We could have the debate when the regulations are published, but I suspect that they will be chunky and that many similar issues, which are not exactly earth-shattering but are none the less important, will be raised. During a 90-minute debate, not everything will be dealt with, so either on Report or in the other place, the matter should be further probed.

Understandably, the Minister did not want to commit himself to a year, but I sense that he was tempted by the idea that a year might be the right backstop. If, later in the Bill's passage, he were able to give a clearer indication of a backstop so that an employer could know that he was definitely clear of liability for a claim, that would also be helpful.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

In the case of warranties, an employment tribunal has the discretion to extend the time limit-there is no time limit, in effect-where it is not reasonably practicable for the individual to submit the case. That discretion exists and I hesitate to interfere with it; we want to supplement it with defined circumstances and a time limit in the regulations, but we do not want to detract from the tribunal's discretion, which is rarely used at the moment. That will not make the employers' position any worse, as the hon. Gentleman said, and it will make it a great deal better in the circumstances to be defined in the regulations.

Philip Hammond (Conservative, Runnymede and Weybridge)

That is helpful and has thrown light on the issue. I will reflect on it. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 32 ordered to stand part of the Bill.

Clause 33 - Non-completion of statutory procedure: exclusion of claims

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 63, in page 37, line 19, leave out 'may' and insert 'shall'.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss the following amendments: No. 59, in page 37, line 19, leave out 'any of'.

No. 46, in page 37, line 30, at end add-

'(4) Nothing in the regulations shall prevent a claim if there are exceptional circumstances which would make preventing a claim to an employment tribunal or preventing a employment tribunal from hearing a claim unjust or inequitable.'.

Philip Hammond (Conservative, Runnymede and Weybridge)

Interestingly, the Trades Union Congress brief on the Bill expresses the view that the Government would table amendments to clause 33. I will be fascinated to learn whether any hon. Members can throw light on what those might have been. I have no information, but I studied the provisional selection list and the blue pages of the Order Paper on Monday morning in eager anticipation of seeing Government amendments. If the Minister intends to table amendments to the clause at a later stage, it would be courteous of him to tell the Committee. It would be odd to consider a clause that the Government already anticipate that they will amend.

Amendment No. 63 will be familiar to those members of the Committee who have been awake throughout the proceedings. It would replace the word ''may'' with ''shall'' in the first line of the clause, and so make it clear that the Secretary of State will use regulation-making powers to make provision for the purpose of excluding claims in cases where statutory procedure has not been complied with. I understand the preference for using the permissive term in the architecture of the Bill, so this is a probing amendment to ensure that the Minister will use its powers. Without wanting to labour a point that has been mentioned many times, the Bill is a package of measures, some of which will help employees to enforce their rights, others of which will help employers to deal with vexatious or unreasonable claims, or with claims that had not complied with procedures that would have dealt with them better than an application to a tribunal.

To put the point bluntly, if there are six clauses, all of which say that the Secretary of State may do something, three of which will greatly benefit the employees and three of which will benefit the employers, there would be a problem if the Secretary of State implemented the three favourable to one side and did not implement the three favourable to the other side. That is why I seek an assurance from the Minister that he intends to use the powers to make provision for excluding a claim where procedures have not been followed.

Amendment No. 59 would mean that the Secretary of State's regulation excluding a claim where procedures had not been followed would have to apply to all the jurisdictions listed in schedule 3, and not to a cherry-picked selection. It may or may not be right for the Secretary of State to select some jurisdictions as appropriate for exclusion of claims where procedure has not been followed, and for others not to be appropriate. If the Committee is to scrutinise the Bill and understand what its intention, the Minister has to come clean about which jurisdictions he would and would not intend to apply the power to. I look forward to hearing the Minister's response, and in particular, to hearing whether he can throw any light on the suggestion in the TUC brief, that there will be Government amendments.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

Clause 33 gives the Secretary of State the power to regulate to exclude claims to an employment tribunal where there has been a failure to follow any part of the new statutory procedure. We want to promote the use of internal grievance procedures, but we must accept that the use of such procedure is not necessarily appropriate in all cases. We must recognise that fact. We must protect employees who might have a reasonable excuse for not partaking in such an exercise.

The TUC has outlined where internal procedures might be inappropriate in its response to ''Routes to Resolution''.

''We believe that for discrimination cases, it may often be inappropriate for a worker to go through an internal procedure, particularly in a small business where the person hearing the case, may be the perpetrator of the discrimination.

The TUC goes on to point out that , a recent report by the Equal Opportunities Commission, indicated that

''a third of women who had experienced sexual harassment named their line manager as the person responsible, and a third named the director or owner of the organisation.''

In cases where discrimination or intimidation is taking place, particularly in small firms, it would therefore seem inappropriate to expect the employee to go through the statutory procedure with the very person responsible. I am sure that we can all accept that.

Mark Simmonds (Conservative, Boston and Skegness)

I hope that the Committee will forgive my voice today. Does the hon. Gentleman also think it appropriate that in the case of sexual harassment, the position should be mirrored for an employer, if the employer, rather than the employee, had been sexual harassed?

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

Yes, it is absolutely clear that cases such as this are extremely difficult. I recall a similar case during my business life, and it was very difficult. It is a very difficult field indeed. I know that women can speak more strongly on this issue than men because they can feel intimidated by what some people may consider a minor sexual problem with their employer. The amendment reasonably draws attention to that factor, and it is designed to ensure that regulations drawn up by the Secretary of State must be drafted in such a way as not to exclude claims automatically in the exceptional circumstances that I have described.

I urge hon. Members to support the amendment because it would ensure that those who have a genuine grievance but are, through no fault of their own, ''unable''-an appropriate word because it accurately describes the situation such a person would be in-to follow internal procedures are not denied the right to seek redress.

Unlike the Minister, I am not on Neurofen, but I am struggling to deal with things, having had a sleepless night. This is an important issue, and there are difficulties in addressing the problems of those who are involved in the workplace, or in any situation in which sexual harassment occurs, in the manner laid down by the law. I hope that he will give a clear and adequate answer to that point.

Tony Lloyd (Labour, Manchester Central)

All Committee members will sympathise with the hon. Member for Weston-super-Mare (Brian Cotter) on his sleepless nights. It is a good job that we have not gone back to the old days when Committees regularly sat through the night, which meant that everybody was guaranteed those delights.

Amendment No. 63 provides me with the opportunity briefly to probe the clause's intentions with my hon. Friend the Minister. He will appreciate that with the addition of the word ''shall'' the clause could become draconian. Even with the word ''may'', it would allow, in the far distant future, a Conservative Secretary of State enormous power to drive a coach and horses through the Bill's intentions. It is important for him to flesh out the circumstances in which the Government would make regulations.

The hon. Gentleman has raised examples of cases in which, as my hon. Friend has made clear, the Government do not want to penalise would-be applicants to a tribunal. Because the Committee is being invited to pass this wide-ranging clause without any example regulations, it would help if my hon. Friend were to tell us exactly what his intentions are and how far and wide that will go. That would help to move the debate on and ensure that Committee members such as myself feel more comfortable.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

This is an important part of our deliberations. We have set up a system under which every workplace must have grievance and discipline procedures. On the previous clause, we agreed that there should be mitigation for both respondents and applicants who do not use those procedures. Now we are discussing whether claims should enter the employment tribunals system if they have not completed the internal procedure. It is an important area, and I understand hon. Members' concerns, which is why I shall take some time to set out the Government's position.

The Bill presents a mutually supporting package of proposals to encourage the use of internal procedures, and clause 33 is an important part of that because it deals with the admissibility of tribunal applications. Employment tribunals already assess applications against a set of qualifying criteria. Most notably, they can rule applications out of time if they are not submitted within a set period, which will usually be three months. Under clause 33, we intend to establish new admissibility criteria against which tribunal applications will be judged. The criteria will be based on the statutory procedures and will be introduced by regulation under the power conferred on the Secretary of State in subsection (1).

It may help Committee members if I explain how the Government intend to use this power. I hope that I can reassure my hon. Friend the Member for Manchester, Central and the hon. Member for Runnymede and Weybridge. We propose to set admissibility criteria linked to the initial stages of the statutory grievance procedure. The applicant should be required to complete at least step one of the procedure, the sending of the written complaint, before the tribunal can admit an application. In addition, a period-say, four weeks-should elapse after the step one letter has been sent before an application can be admitted. That ensures that the parties have time to begin discussing the grievance, which should ensure that the grievance is at least aired and clarified before an application is made. If the dialogue proved productive, I would expect many potential applicants to defer submitting their tribunal application beyond the end of set period while the procedure was used more fully. Clauses 31 and 32 should also encourage them to do this.

Those two admissibility criteria, the sending of the step one communication and the passing of a set period thereafter, would apply to most jurisdictions mentioned in schedule 3. However, we do not intend that they should apply to unfair dismissal, which must be excluded because dismissals are preceded by employer-driven actions under the statutory dismissal procedure. It would be inappropriate to make tribunal applications by a former employee dependent on the action or inaction of the employer. The hon. Member for Tatton, who is not in his place, raised that point earlier.

The Government are mindful that we do not want to create a complicated admissibility system, which is a point that repeatedly came up in our consultations. We do not want to create scope for additional disputes to arise between the parties, especially by the minority of unscrupulous employers who would want to delay the processing of an application. That would potentially clog up the tribunal system with calls for many more preliminary hearings.

We believe that we will avoid these problems because the two criteria are easy to understand and apply, and it should be simple for applicants, employers and tribunals to verify whether they have been met. Our approach should not affect or restrict access to justice. It merely sets reasonable preconditions for the making of applications to tribunals. These criteria can apply to all situations and should not be difficult to meet.

We recognise, however, that there will be rare cases in which the threat of violence or serious personal harassment may make it dangerous or intimidating for applicants to take step one action before making an application. We therefore intend to use the regulations to define circumstances in which tribunals may admit claims where the two admissibility criteria have not been met.

We therefore agree with the point the Liberal Democrats are making in amendment No. 46 that there should be some flexibility in the admissibility regime to allow for special cases. We hope to define these exemptions as tightly as possible in the regulations to ensure that the tribunals are not forced as a matter of course to hold preliminary hearings on the issue. The ''just and equitable'' formulation in the amendment is too wide.

In developing an admissibility policy, the Government have been concerned to strike a balance between the key aims of ensuring that claims are not unreasonably deterred and making certain that there is communication in the workplace between employees and employers.

Far too often we see claims taken to tribunal where there has been no discussion between the individual and their manager. In 62 per cent. of claims surveyed in 1998, there was no meeting between the parties before the claim was lodged. In 37 per cent. of applications, there was no attempt to resolve the problem before the application was made. The Government intend to change that situation because litigation is an expensive and inflexible route to resolution; problems caught early are easier to resolve.

We will make concerted efforts to publicise the new admissibility criteria, but it is inevitable that some individuals will be unaware of them. There will be cases in which, through lack of awareness, people make inadmissible applications. We are keen to ensure that such individuals are not debarred from taking their grievances through the tribunal system. In most cases, we intend to give them a second chance to submit an application meeting the admissibility criteria. That will involve some extension of the normal time limits for making applications.

The regulations are important and the Government will consult widely on them. I hope that my explanation is sufficient and will mean that the hon. Gentleman will not press the amendment. I guess that amendment No. 63 was intended as a probing amendment. If so, I hope that the explanation that I have given will suffice. If not, I can assure the Committee that the Government fully intend to implement the clause and that the amendment is unnecessary.

Amendment No. 59 seems intended to ensure that the admissibility criteria apply to all jurisdictions listed in schedule 3. It will be apparent from my description of the policy in clause 33 that the Government intend admissibility to apply to grievances and not to claims arising out of the disciplinary process. The reason is quite simple: as discussed already, it would be unfair and unreasonable to make an individual's access to an employment tribunal contingent on a statutory procedure being followed when only the employer can initiate that procedure. Access should depend on an individual's own actions, not on someone else's. It would, therefore, be inappropriate to apply the clause to all jurisdictions in schedule 3. I call on the hon. Gentleman to withdraw his amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am grateful to the Minister for his clarification. I do not find anything unreasonable in the principle that he sets out. A provision under clause 31 gives someone a significant financial incentive to comply with the procedure before lodging a claim with the tribunal. As long as tribunals make use of their discretion to go above 10 per cent. and up to 50 per cent. in order to make it clear to applicants that they are expected to use the statutory procedures unless there are clear and good reasons why they should not, that side of things should work very well.

We are discussing an exclusion of the ability to access a tribunal before going through the procedures. Someone might wish to do that for some reason, even though they recognise that they will be taking a financial risk with the size of their award in doing so-they may well be penalised for not having gone through the procedures first. I agree with the Minister that the test should be framed not to exclude claims that reasonably ought to be tested in the tribunal. I am happy with his explanation on that.

I am slightly puzzled by what the Minister said about amendment No. 59. The Minister will correct me if I misinterpret what he said, but I am reading from the TUC brief. I think that he said that in order for a claim to be admissible, the relevant party must first set out in writing the basis of the grievance and then a response would have to be forthcoming. Those would have to be the first two steps. The Minister went on to say that that should not apply to unfair dismissal because-I understand the logic of this-the power lies with the employer to dictate whether the process moves forward.

However, that power surely lies also with the employer in relation to all other jurisdictions if the requirement is for the first and second steps to have been carried out. As I said, and as I read in the TUC brief, those steps are that a grievance would have to have been put in writing and that a response would have to be forthcoming or a disciplinary procedure set in motion within a specified time scale.

It appears to me that that second step lies in the hands of the employer. I do not, therefore, understand the philosophical distinction between unfair dismissal and the other jurisdictions. If the Minister can explain that, I will be very grateful.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I thank the Minister for taking on board what has been suggested. I realise that it is difficult to take account of variable circumstances, especially where sexual allegations of some sort are concerned. I think, however, that it is very important that the suggestion is taken on board and seriously addressed in regulations. Otherwise, a great problem will arise. I welcome the Minister's comments, and will not press the amendment.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I appreciate the points that hon. Members have made.

We do not intend step two of the grievance procedure to be part of the admissibility criteria. We intend step one to be included, which is entirely in the hands of employees. As I said in a previous debate, employers need to know what grievance their employees have before they come to an employment tribunal. By step one, the employee sets out the nature of the grievance. The whole list is set out in schedule 3, including the minimum wage, redundancy pay, discrimination and other things.

After the employee has put the case in writing, we propose to allow a period-we have not decided it definitely, but about four weeks is likely-for the employer to respond rather than sending the letter to the employer and then filling in the IT1. We do not envisage that to include step 2. I hope that that clarifies the point made by the hon. Member for Runnymede and Weybridge. The discipline procedure is entirely driven by the employer through statute, so it would be unfair to include discipline in the admissibility criteria. It is quite fair and practicable to include grievances if we follow the first step.

There has not been a debate on whether that is sensible, but most people seem to see the sense in it. The Institute of Directors said that it welcomed the emphasis that the Secretary of State for Trade and Industry placed on using internal procedures before applying for a tribunal. The CBI said that the most crucial element of the package is the proposal that employees must raise grievances with their employer before going to a tribunal. Employers are in no doubt that the clause relates to grievance. If I have clarified that sufficiently for the hon. Gentleman, I hope that he will withdraw his amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

As I said before, I do not have a problem with the principle at stake here, which I think is perfectly sensible. I was confused because the TUC brief suggested that the TUC is a little confused-employers may understand the matter perfectly well-in talking about a first and second step that will need to have happened. I thought that the Minister mentioned two steps as a prerequisite to accessing the tribunal in such circumstances, but the record will show whether that is correct.

To be absolutely clear, I think that the Minister is now saying that the provision will apply in the case of a grievance procedure, and that the only requirement will be the first step, which is that written notice of the grievance has been given by the employee to the employer. Once that has been done, the employee will have satisfied the requirements for being allowed to apply to the tribunal, notwithstanding the fact that the remainder of the statutory procedure has not been carried out. It is a one-step hurdle, not a two-step hurdle. The Minister nods, so my point is clarified.

I have no problem with what is being sought here, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 61, in page 37, line 27, leave out subsection (2).

This looks like a subsection that definitely needs to be challenged. The Secretary of State will be given a regulation-making power to amend or repeal any enactment. I thought that it was a general principle in this place that we did not give the Secretary of State wholesale power to repeal chunks of primary legislation by regulation.

Following on from the comments of the hon. Member for Manchester, Central in the last debate, we might want to ponder on the possibility that some future Secretary of State might use this regulation-making power to repeal whole swathes of employment protection legislation on the strength of a 90-minute debate in Committee. I take it as a general principle that it is very poor practice to give the Secretary of State unfettered powers to repeal primary legislation by regulation.

If I have misunderstood the power being granted, no doubt the Minister will correct me. My understanding is that the clause will give the Secretary of State the power to repeal any piece of employment-related primary legislation by regulation on the strength of a 90-minute debate in a statutory instrument Standing Committee. I would have to urge my hon. Friends to resist such a power.

Tony Lloyd (Labour, Manchester Central)

I hope that my hon. Friend the Minister will be able to assure the Committee that the intent of subsection (2) is nothing like as wide as the hon. Member for Runnymede and Weybridge suggests.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Absolutely.

Tony Lloyd (Labour, Manchester Central)

My interpretation is that subsection (2) is limited by subsection (1), and, specifically, can only be used in pursuit of primary claims to employment tribunals and the like. It is a wide power even at that, which is why I asked my hon. Friend for clarification earlier on how exactly it would be used. I very much welcome the comment that he put on the record.

I hope that he is able to reassure us further. I know that from his reaction to my comments already that my interpretation is the accurate one, and not that of the hon. Member for Runnymede and Weybridge. Nevertheless, it would be helpful if my hon. Friend could set out the Government's intentions. What do they have in mind and are there particular parts of existing legislation that they would seek to repeal?

Philip Hammond (Conservative, Runnymede and Weybridge)

I am grateful for the hon. Gentleman's clarification. From the Minister's reaction, the hon. Gentleman's interpretation was clearly right. Does the hon. Gentleman not think, however, that it would have been better if the Minister had used schedule 6, consequential amendments and repeals to spell out precisely what other pieces of legislation needed to be amended in order to give effect to clause 33(1)?

Tony Lloyd (Labour, Manchester Central)

I express affection for all manner of improvements in the way that we announce our legislation. Pre-legislative screening would have been very helpful. The Minister himself would probably agree with that, and that is the direction in which we ought to go. If we were not under the time pressure that our present procedure applies, it would also have been helpful to have had the regulations so that we could examine their full impact. The best that we can do is to ask the Minister to do his best to talk us through them at this stage so that the Committee has an idea of the Government's ambitions and the limitations on those ambitions.

As a general point, Parliament has to be extremely careful in giving power to Secretaries of State to make law by regulation. We need be careful not because that power is extraordinary-it has been used by every Government over time-but because it is intended to give note powers that fundamentally alter the law, but powers that amend the law within the spirit of the Bill involved. Important issues are involved.

The whole Committee is sympathetic to the need to constrain future Secretaries of State. We know not when Ministers will come or go. I wish my hon. Friend the Minister many years in office, but I want to tie him to his own words. If he moves on to pastures greater and better, I hope that he will bequeath to his successors a framework that they can operate.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I am grateful to my hon. Friend the Member for Manchester, Central. I do not understand how anyone could move on to a greater job than being in Standing Committee F to discuss the Employment Bill.

We do not intend to repeal large chunks of employment relations legislation. Use of the power must be related to the admissibility regime in subsection (1). Establishing that regime is a major step and the drafting of the regulations will require carefully attention. We shall consult widely on them before they are introduced.

The admissibility criteria will apply to many, although not all, the jurisdictions in schedule 3 and they will apply to many aspects of employment law. It is not a simple task to apply the admissibility regime to such a diverse set of legal rights and requirements and the criteria may fit more neatly into some parts of the legal framework than others. It is prudent to take the power to make any necessary amendments to ensure that the criteria can be clearly and consistently applied across all jurisdictions. That is why we need the power to amend the specific time limit provisions relating to each jurisdiction to be subject to the regime.

The amendment would remove that essential flexibility from the regulation-making process. I have said several times that the regulations will be subject to the affirmative resolution procedure. When initially set, they will be subject to the widest consultation and will relate only to clause 33(1) and not to any other part of the Bill. With those assurances, I hope that the hon. Member for Runnymede and Weybridge will withdraw his amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister has confirmed, as his hon. Friend the Member for Manchester, Central envisaged, that the powers under subsection (2) are more limited than I had thought, and I am glad about that. However, we are discussing a gradual slide down a parliamentary slope. Sooner or later, someone will have to sit down and work out what needs to go into schedules 6 and 7 to amend and repeal other legislation. In general, it is a bad principle to start including a general power to repeal or amend anything instead of working out what needs to be amended or repealed. The issue is not worth going into the trenches for and, because of the timetable, trench warfare is out of fashion in Standing Committees, much to my regret.

The issue is worth noting. Schedules 6 and 7 purport to contain consequential amendments, repeals and revocations, but what is the point of them? Why not have a general power for the Secretary of State to amend, by regulation, anything that needs to be amended to make the implementation of the Bill easier and smoother. I do not like that trend in legislation, and I should have preferred the Minister to have taken the time to decide what he was going to do and then to work out what revocations, repeals and amendments he needed in order to give effect to this part of the Bill.

Having made that point, I shall not press the amendment because the Minister has confirmed that the power will be used narrowly, although that does not make the principle a good one. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 62, in page 37, line 30, after 'Service', insert

'and any other organisation representing persons appearing to the Secretary of State to be likely to be affected by the regulations'.

The amendment repeats an argument that we had on another clause. I would like a requirement for the Secretary of State to consult not only ACAS, but users of employment tribunals. There are defined user groups in all regions of England and Wales and it would be relatively simple for the Secretary of State to consult those user groups. I see no reason why good consultative practice in pursuit of open government should not include consulting those user groups as well as ACAS. I am disappointed that last time we debated the matter the Minister was reluctant to include such a requirement in the Bill, but if he were able to assure the Committee that his intention is that in practice those user groups would be consulted, I would be satisfied at this stage.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

This is a re-run of a similar amendment, No. 45. ACAS represents major figures from all sides of industry, leading academics and even employment lawyers. It has unrivalled knowledge and expertise to help us to frame these important regulations. We shall, of course, consult other organisations about the regulations in clause 33 before we introduce them. We shall consult widely on other changes to the regulations, but there is a practical problem with the word ''used''. It would require us to consult any organisation that represents people likely to be affected, so it would commit us to wider consultation on every single change in future. People ''likely to be affected'' is so wide-ranging that we would be bound to miss someone and any Government would almost certainly fail to meet a statutory consultative requirement drafted in such terms.

Philip Hammond (Conservative, Runnymede and Weybridge)

Can the Minister satisfy me with a specific undertaking that he would include in consultation the tribunal user groups in each tribunal region?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

In terms of the initial application of the regulations, yes. We consulted widely on ''Routes to Resolution'', and we shall consult again on the regulations.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister misinterpreted what I said. The requirement under clause 33(3) is that the Secretary of State must consult ACAS before exercising the powers in subsection (1). I am asking if he will also give an undertaking to consult with the tribunal user groups in each region before exercising those powers. I realise that the amendment is widely drafted and may not be appropriate, but I am seeking an assurance from him that the tribunal user groups will be consulted.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I am not trying to be difficult, but I do not like making legislation on the hoof. If I give that assurance, every future consultation, however narrow, small and pedantic, would have to be widened beyond ACAS. ACAS has considerable experience in dealing with employment tribunal users and the employment tribunal judiciary. I do not want to give assurances that would make life more difficult in future, so I am not willing to give the assurance that the hon. Gentleman seeks. I hope that the hon. Gentleman will withdraw his amendment, and I shall consider what he said to see whether there is a case for stating on Report, without introducing it in legislation, that the user groups should be consulted on every occasion.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister is now going too far. I am ready to concede that the amendment is widely drafted and could cause difficulties. I hoped that he would find it easy to put on the record of the Standing Committee, but not to write into the Bill, that the Secretary of State will, in the narrow set of circumstances in which the powers would be exercised under subsection (1), consult with the clearly defined and limited number of tribunal user groups in each of the employment tribunal regions. The user groups will draw their own conclusions from the fact that the Minister has not been able to give that undertaking. They would expect to be consulted and are right to do so because the issue has been raised. So long as the Government propose to allocate sufficient time to the Report stage, I will ask the Minister to deal with such issues then, as well as with the headline issues to which we must return. I offer the Minister the opportunity to say whether that will happen.

During the passage of the Bill, either on Report or in the other place, I hope that the Minister or a colleague of his will give that simple undertaking. That would entirely satisfy me on the point that lies behind this possibly unwisely drafted amendment. In recognising that it is too wide, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 33 ordered to stand part of the Bill.

Clause 34 - Procedural fairness in unfair dismissal

Rob Marris (Labour, Wolverhampton South West)

I beg to move amendment No. 78, in page 38, line 1, leave out from '(1),' to 'shows' in line 4 and insert

'failure by an employer to follow a procedure in relation to the dismissal of an employee shall not be regarded for the purposes of section 98(4)(a) as by itself making the employer's action unreasonable if he'.

Joe Benton (Labour, Bootle)

With this it will be convenient to take amendment No. 27, in page 38, line 5, after 'procedure', insert

'and the dismissal would have been fair apart from this section.'.

Rob Marris (Labour, Wolverhampton South West)

The amendment seeks to clarify section 98A of the Employment Rights Act 1996. The meaning of new section 98A(2) and the context in which it sits have been the subject of much debate on Second Reading. Several individuals and organisations have expressed concern about the way in which the new regime would operate, particularly in relation to the overturning of Polkey. The amendment would clarify and probe those issues.

Under new section 98A(1), unfair dismissal will take place if there is a breach of the basic procedure of schedule 2. That will lead to four weeks of compensation as set out in new section 112(5). The right to be accompanied under the schedule 2 basic procedure was clarified by the Minister when we debated it; he kindly confirmed that. The right to a fair hearing is implicit in schedule 2, and I hope that he will be able to make that explicit now. If there were no proper investigation under the basic schedule 2 procedure, I hope that he will also confirm that the employer who failed to carry one out would be caught by new section 98A(1)-a breach of the procedure-which would lead to an automatic finding of unfair dismissal.

I understand the Government's desire to encourage employers to adopt at least the basic procedure by introducing it statutorily, but we also need to encourage enhanced procedures-better than those in schedule 2-in the interest of better industrial relations and of having fewer cases come before employment tribunals because differences have already been resolved in the workplace. New section 98A(2) overturns the long-standing case of Polkey in 1998, which was raised on Second Reading. I am anxious that overturning Polkey will lead to employers not using the enhanced procedures and hiding behind the no-difference test. They might say that they would have got rid of the employee anyway and the fact that they did not follow the procedure does not matter because of what is stated in the legislation. I appreciate the Government's desire, encompassed in the Bill, to encourage enhanced procedures and the fact that, if we did not have the new subsection, an employer might be hoist by the petard of a minor breach of an enhanced procedure. If an employer were so hoist, he would be less likely to have an enhanced procedure for fear of going wrong, and would be more likely to fall back on the basic procedure under schedule 2. Nevertheless, proposed new subsection (2) raises questions, some of which I have tried to elucidate today. The Minister mentioned a forthcoming review of such issues. I seek his assurance that, in overturning Polkey, the review will establish whether proposed new subsection (2)-as drafted, or in the light of my amendment-dilutes enhanced procedures that improve on the basic schedule 2 procedure, thereby enabling employers to hide behind the wording, or whether the subsection results in employers moving away from enhanced procedures that operated before the Bill's enactment.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I wish to speak to amendment No. 27. As we know, under current law a tribunal can rule that an employee has been unfairly dismissed on either procedural or substantive grounds. Clause 34(1) changes the conditions relating to procedural fairness. If an employer fails to comply with the minimum statutory procedures, the tribunal will automatically find that the employee has been unfairly dismissed. However, clause 34 seems to go far beyond achieving that aim by excluding the possibility that a dismissal could be substantively unfair even where it is not procedurally unfair. For example, a person could be dismissed on a very minor ground such as turning up for work a minute late.

Amendment No. 27 is designed to tighten up the clause by limiting its impact to the circumstances in which it appears it was intended to apply. Under the amendment, dismissals could be deemed unfair for other reasons, even if they were found to be procedurally fair. I should be interested to hear the Minister's response to that key point.

Mark Prisk (Conservative, Hertford and Stortford)

In principle, I welcome the attempt to minimise the impact of minor procedural changes. In that regard, the Government's effort to reverse the Polkey principle is acceptable, but the clause gives rise to problems, with which the amendments attempt to deal, and to an inconsistency that is at the heart of the clause's relationship with the rest of the Bill.

On the one hand, the Government are using the Bill to promote the idea that businesses and all forms of employers should seek to follow a regular and accepted procedure, whether in general, disciplinary or dismissal situations. On the other hand, in many senses clause 34 reduces the importance of that same procedure. Perhaps the Minister would like to comment on that inconsistency and the message that it sends to employers and employees. I am also concerned that the absolute nature of proposals in relation to awards against a failure to follow minimum statutory procedures is potentially unfair to the smallest of firms. Neither the scope nor the character of the procedures is crystal clear, so the danger of an employer unintentionally falling foul of minor procedural mistakes is all the greater.

The Law Society's much-quoted briefing highlights the point that the hon. Member for Wolverhampton, South-West (Rob Marris) raised earlier, namely that although clause 34 may be intended to be narrow and focused,

''its wording excludes the possibility that even where a dismissal is not procedurally unfair, it could still be substantively unfair. It does this by making the provision applicable . . . to the whole 'Part' of the Employment Rights Act 1996, in which it will be added.''

There is a danger that the clause may have a wider effect than the Minister intends. Will he comment on that?

Tony Lloyd (Labour, Manchester Central)

The concentration on subsection (2) is important. The hon. Member for Hertford and Stortford mentioned the Polkey principle, so he should have no objection to its reversal. This could become an incredibly arcane debate in which only those of us who wear employment law anoraks are entitled to take part, but we risk unsettling some fundamental issues if the Bill stays in its current form.

My hon. Friend the Member for Wolverhampton, South-West said that there are two primary concerns-first, that where an employer fails to meet the basic criterion of a fair hearing, natural justice is put at risk and, secondly, that an employer who fails to pursue a proper and fair investigation can use the current wording of the Bill to avoid the charge that their procedure was inadequate.

At first, I wondered whether common sense says that an employer who makes a tiny procedural slip up should not be charged with that error to the exclusion of everything else. An employer who has made a manifestly fair dismissal in the sense that the charge is of enormous gravity and under any logical terms would warrant dismissal may find that because he failed to put the right postscript on the letter it is deemed to be unfair. Naturally, we do not want that to happen.

Several kinds of cases that tribunals have in the past judged to be unfair dismissal would almost certainly not be so judged in future, because the reversal of the Polkey principle means that they are unable to make judgments on the same basis.

Mark Simmonds (Conservative, Boston and Skegness)

Does the hon. Gentleman think that the reason why not many cases have fallen into this category is because small businesses are exempt, and that that is where problems will arise?

Tony Lloyd (Labour, Manchester Central)

We must look at several issues in the round. One problem is that we know only what tribunals have resolved. Because tribunals sit in geographically dispersed parts of the country there is no central collation of their proceedings. Examples are folklore unless they can be illustrated by real cases. To help the Committee, the TUC has tried to find practical examples where this change in the wording of the law will make a material difference.

British Home Stores v. Burchell is an old case from 1978 in which the tribunal decided that an employer is under an obligation to carry out a reasonable investigation before initiating disciplinary action. Common sense would suggest that reasonable investigation is central to natural justice, a judgment which was confirmed by that tribunal, but that must be placed in context. Although an employer is under that duty, they do not have a duty to have got the case right. All they must demonstrate is that they believed that they were acting in the right way. They could have got it wrong, but only on the basis of proper investigation.

The problem with the schedule 2 minimal grievance and disciplinary structure is that it does not call on the employer to institute a proper investigation. Not only will the employer not have to get it right-it will be a reasonable defence to say that they thought that they got it right-it will not be necessary for them to say, ''I took proper steps to ensure that I got it right''. They can say, ''I believed that to be the case and I acted on it''. Under subsection (2), they will have to show that they would have decided to dismiss the employee if they had followed the procedure.

That is not a tough test; it is an extremely subjective test. How does the employer show that they would have acted that way had they followed the procedure and investigated? They could argue, ''I still would have dismissed the employee because he is a pain in the neck. We have wanted to get rid of him for years.'' The question of investigation is significant.

Last year's case of Midland Bank v. Madden provides another relevant example. Mr. Madden joined the bank as a school leaver and over a period of 11 years had risen through the ranks. He went from being a trainee bank clerk to chief cashier foreign clerk and eventually reached the position of leading clerk. He was a man of some probity within that organisation and up to that point he had an unblemished employment record. In July 1997, three debit cards were stolen from the bank almost certainly by a bank employee. Following a tip off from the bank's police liaison officer, the police raided Mr. Madden's home and he was arrested, but because of a lack of evidence he was released without charge.

Under our criminal justice system that is the end of the story. However, an internal workplace investigation took place, and although Mr. Madden denied any knowledge of the allegations the decision was made to sack him following an investigation of other employees. He exercised his right to appeal, but to no avail. The tribunal found that the tenor of the internal investigation pointed to Mr. Madden as the likely culprit. It also found that the investigation of other employees was not as thorough as the police investigation of Mr. Madden. It decided that the relevant managers had accepted the investigators' conclusions too readily and uncritically, and on that basis it decided that the investigation was inadequate and therefore found in his favour.

If that case were subject to this legislation, the employer would have argued that they would still have decided to dismiss the employee had they done anything differently because they had already drawn their conclusions. They would simply have asserted that they were right, and the tribunal would not have been in a position to decide that that dismissal was unfair. I ask my hon. Friend the Minister to consider that case carefully.

Bentley Engineering Co. Ltd. v. Mr. Mistry in 1978 is the final case that I should like to bring to the Committee's attention, and it concerns the question of how a meeting is conducted. Mr. Mistry was employed as an office clerk and became involved in a fight with another employee. Both men alleged that the other had started the fight, thus placing the blame on the other individual. Statements were taken from other employees who had witnessed the fight, and the assistant personnel officer, who interviewed both men the following day, decided to dismiss Mr. Mistry. He appealed, but neither the other combatant nor any witnesses were at the appeal hearing, so Mr. Mistry did not have the opportunity to cross-examine them. Both the employment tribunal and the appeals tribunal found that the dismissal was unfair because Mr. Mistry had not been given written statements by the witnesses and the other employee involved in the fight. The appeals tribunal ruled that the employer had failed to satisfy the requirements of natural justice, which entails:

''not merely that a man shall have a chance to state his own case in detail; he must know sufficiently what is being said against him so that he can properly put forward his own case.''

That was a fundamental tribunal decision.

Most people would agree with the tribunal that if Mr. Mistry did not have the opportunity to know the basis of the evidence against him or to cross-examine those who brought the case, his right properly to defend himself was abrogated. I contend that under this legislation a tribunal would be unable to consider that case in the same way. Schedule 2 does not contain an employee's right to know the case against them. More narrowly, it states:

''Meetings must be conducted in a manner that enables both employer and employee to explain their cases.''

Explanation of a case is not the same as an opportunity for Mr. Mistry to be confronted by the witnesses who put the case against him and to challenge their testimony. Once subsection (2) becomes law, a tribunal would find it difficult to reach the same judgment as the 1978 tribunal that Mr. Mistry had been unfairly dismissed.

I appeal to my hon. Friend to recognise that those are real cases. My argument is not hypothetical. It is not a knee-jerk, Luddite reaction, or an attempt to use minor slip ups by an employer as a way of conceding cases in which common sense suggests that an employee deserves dismissal. Sometimes there is a narrow gap between procedure and substantive cases, and they can almost amount to the same thing. In the cases that I have described, discovery of the substantive case depended on the procedure being proper and full.

Mark Prisk (Conservative, Hertford and Stortford)

I share the hon. Gentleman's concern that there are cases, some of which he has cited, where the line between what is substantive and what is procedural is unclear. However, would his criticisms not be better directed towards the weakness in the drafting of schedule 2 rather than being expressed through the amendment?

Tony Lloyd (Labour, Manchester Central)

Alas, Mr. Benton, we have passed that point in the Bill. I asked my hon. Friend the Minister whether we could strengthen schedule 2 by adopting, for example, the ACAS code, which would have raised the minimal level. That would have been one way of approaching the problem. My hon. Friend the Minister made it clear that although the Government support the ACAS code, he is trying to establish a minimum and simple threshold that all employers will take on board. Although I still urge my hon. Friend the Minister to look again at raising that threshold, I can understand his intention. With a simple code, as the schedule outlines, no one can really use the defence that it was too complicated and a terrible burden.

Whether the Committee likes it or not, subject to Report and amendments in another place, schedule 2 is what we have. We must try to look at how to preserve the position for those who, at least notionally, are covered by something better than schedule 2 but will find that eroded by the impact of the Bill.

The hon. Gentleman raised an important point. I put another concern before the Committee. Because of custom and practice before tribunals, a range of tests applies to different types of disciplinary action. For example, on dismissals related to incapacity or sickness, an employer is required to give the employee fair warning and an opportunity to mend his or her ways and show that he or she is fit to do the job. On the other hand, in misconduct cases, the employer should investigate the complaints of misconduct fully and fairly and hear what the employee wishes to say in defence, explanation or mitigation. In redundancy cases, the employer should warn or consult any employees affected or their representatives, adopt a fair basis on which to let the redundancy occur and take such steps as may be fair or reasonable to avoid or minimise redundancy by redeployment in the organisation.

The important point is that different tests have arisen, because of different circumstances, by custom and practice over time. That is not unreasonable. Misconduct is clearly very different from redundancy. The test of reasonableness in redundancy is normally about ensuring that there is no arbitrary discrimination. Obviously, the test is different in a case of misconduct because misconduct is specific to an individual or group of individuals.

If we reverse the Polkey decision, the real concern is that those developed tests defined by the case law approach will be thrown out of the window and that, rather than having a refined system that offers fairness to all parties, we will have a much more arbitrary system. In the end, that could lead to injustice and unfairness because tribunals will no longer be able to make decisions in the way in which they have in the past.

I have a high regard for my hon. Friend the Member for Wolverhampton, South-West, but I am yet to be convinced that the amendment is the right way for us to move forward. I appeal to the Minister to reflect on the spirit of the concerns that have been raised and to recognise that there is substance in the remarks made by hon. Members on both sides. He should address those in a way that guarantees not a simple reversion to tribalism and the Luddite approach but that ensures that we will continue to get the benefit of the custom and practice that tribunals have shown, in such cases, in the interests of fairness in the workplace.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

This is one of the most important debates on this part of the Bill. I will address the specific points that hon. Members have raised after I have placed on record the Government's thinking.

Clause 34 has two main effects. First, it will reinforce the new minimum procedural standards by making it automatically unfair to dismiss employees unless those procedures have been followed, while providing for the first time that in such circumstances there will generally be some compensation for the employee. It will also ensure that when an employer fails to follow a procedure that goes beyond the new minimum procedures, or makes an error in following it, that in itself will no longer render the dismissal unfair, provided that he or she can show that following it would have made no difference to the decision to dismiss the employee and that the dismissal is otherwise fair.

Tony Lloyd (Labour, Manchester Central)

Those comments are interesting and helpful. My hon. Friend said that if the employer shows that he would have otherwise have followed the procedure, dismissal would be fair. The Bill as drafted does not have that test.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

That is the nub of the issue. We are drafting new section 98A into subsection (2), and we believe that that makes the right connection in that it remains the employer's responsibility to prove that dismissal was fair. We have spoken about minimum standards, but the minimum will not be sufficient in all cases. The amendment tabled by my hon. Friend the Member for Wolverhampton South-West makes precisely that point about the linkage with the need for the dismissal to be fair in all other respects. I will come to that in a second.

Mark Prisk (Conservative, Hertford and Stortford)

Must an employer ensure that he does what is necessary, or should he do what is felt to be correct under the wider definition? How can employers ensure that they are doing what they should when such uncertainty exists?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

We have spoken about that in our debates on schedule 2. Employers must not think that they need only go through the basic three-step procedure or go through the motions. For instance, if they dismiss someone for alleged theft, they have to go to the trouble of investigating whether there was theft. That is an important example, because it is not in the minimum standards, although it may be in the more elaborate and sophisticated procedure. If they tried to do that, they could not argue that the lack of an investigation made no difference to the decision to dismiss. Of course it would make a difference if there were no examination or investigation into the reasons for that dismissal.

There is some debate about whether ''in writing'' should appear in the procedures, but employers must ensure that they understand-and they must understand it perfectly well-that that is the basic minimum procedure. They should not think that because the investigative part is not in the Bill-and is in the ACAS code-that there is therefore no need to investigate before dismissal. Employment tribunals are not that easy. Both my hon. Friends said that an employer could stand up and say, ''It made no difference to my decision, I would have dismissed that person anyway.'' Employers cannot get away with that in front of an employment tribunal.

That is the test in the Polkey case, where it was decided in 1998 to reverse the decision made in 1979 that there would be no difference, provided that there was no difference to the employer's decision to dismiss. The point rests on the employer's decision to dismiss. That is one problem that the employer has to get over, but the employer has to be fair in all other respects too.

It has been suggested that we have restored wholesale the no-difference test, which was overturned by Polkey, which is the leading case in this area. In fact, where the statutory minimum procedures are concerned, we are strengthening the principle in Polkey. I will give examples in a minute. We looked at cases that were lost by the employer and won by the applicant on the basis of the Polkey test. In the vast majority, the breach in procedure was a fundamental breach that is now covered by the basic three-step procedure. For example, there was no hearing, or employers did not tell the employee the case against them, or they did not have an appeal hearing.

The Bill should not been seen as reversing Polkey. It strengthens Polkey in respect of the basic minimum standards, and if those minimum standards are not kept, dismissal will automatically be unfair. The Polkey judgement made it likely that an employer who did not follow procedures would lose an unfair dismissal case. Our proposal makes it so important to follow minimum procedures that it will automatically be unfair to dismiss employees without doing so. That automatic unfairness will mean an automatic penalty of at least four weeks pay, unless the tribunal considers that that would result in injustice to the employer. It has some discretion.

At the moment, it is not uncommon for a dismissal to be found to be unfair solely on procedural grounds as a result of the Polkey judgment, but for the tribunal to award no compensation because the procedural failure caused no real injustice to the employee. In the great majority of such cases that we have looked at, the failure was in procedures that would have fallen within the new minimum standards and clause 34 will be in line with the Polkey judgment. Less frequently, the procedural breach relates to a procedure that would have gone beyond the new minimum procedures. It is only in such cases that we propose to allow employers to argue that following the procedure would have made no difference to the decision to dismiss.

The hon. Member for Hertford and Stortford (Mr. Prisk) said that that is inconsistent. We do not believe that. We are setting out the minimum procedures and making it automatically unfair to dismiss if the procedures have not been followed. We are encouraging people to look to the ACAS code, which still holds the field, and it would be perverse and a disincentive if we said to employers, ''This is the basic minimum. We want you to move to something more elaborate and sophisticated, but if you do, be careful because the slightest breach of those procedures will make it likely that you will always be found against at an employment tribunal.''

There is consistency and logic in the provision. To have left Polkey in the new situation with basic minimum standards would have discouraged employers from having more elaborate procedures. As the hon. Gentleman said, it was our firm view that to introduce such a brave new world for every workplace, no matter how small, necessitated our introducing a minimum basic three-step procedure.

Only in cases in which employers have procedures over and above the minimum will restoration of the no-difference test apply. It is a partial and strictly defined restoration of the test. I emphasise that even when an employer is able to show that following a procedure beyond the statutory minimum would have made no difference to his decision to dismiss, the dismissal must otherwise be fair. It is not the case, as amendment No. 27 implies, that the employer is excused from acting fairly in other respects. On the contrary, he must have dismissed the employee for one of the potentially fair reasons set out in the Employment Rights Act 1996. We are not changing that clause. In all other respects, the employer must act reasonably when dismissing an employee, as section 98(4) of the 1996 Act requires. We are not changing that either. Clause 34 is not intended to make any changes to the basic principles of fairness and reasonableness. We believe that the current drafting protects that position.

Tony Lloyd (Labour, Manchester Central)

Will my hon. Friend concentrate on the case that I referred to him earlier-Bentley Engineering Co. Ltd. v. Mistry. The matter was investigated and statements were taken from witnesses, but the tribunal held that the dismissal was unfair because Mr. Mistry was not given adequate opportunity to know the witnesses' case against him or to cross-examine the witnesses. That is important. I accept what my hon. Friend said about the provision being not intended to catch such cases, but that may be its consequence. The employer would have the defence of saying that, having investigated the matter and carried out the procedures adequately, it drew the conclusion that Mr. Mistry had instigated the fight, so it would still have dismissed him even if Mr. Mistry had cross-examined the witnesses. The employer would be entitled to insist that that was the case and, under case law, would not have to prove that he was right in that, merely that he believed that to be the case. The employer believed that Mr. Mistry was the instigator of the fight and, having investigated the matter, dismissed him. However, the tribunal found that because Mr. Mistry did not have the opportunity properly to cross-examine, his rights under natural justice had been violated. The important point is that, although both parties have the right to put their case, nothing in schedule 2 procedures provides the right to cross-examine. That might seem like a narrow technical point, but it is fundamental to obtaining truth and, ultimately, justice. Perhaps Mr. Mistry would have been dismissed had proper cross-examination taken place, but because it did not, we will never know whether the case against him was well founded.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

This is a crucial point. None of us can be absolutely sure how the examples to which my hon. Friend referred would have concluded in the new scenario, but the Government believe that dismissal would probably still have proven unfair. My hon. Friend mentioned the link with fairness, and gave examples of an investigation not being carried out and a meeting being conducted improperly. In keeping with the Polkey principle, an employer might say that such factors made no difference to his decision, but he would still have to prove that the decision was fair and reasonable in the light of the remaining protections for applicants.

These points are of fundamental importance. If concerns remain that the clause is unclear, we are happy to consider spelling it out that partial restoration of the no-difference test will not excuse employers from acting reasonably in other respects. We are prepared to accept amendment No. 78, which similarly points out that, where a procedure has not been followed, a no-difference line of defence does not of itself guarantee that an employer acted reasonably. In other words, an employer must have acted reasonably in all other respects, and if he did not, a dismissal will still be unfair. According to parliamentary counsel, the amendment achieves the desired effect, and on that basis, we will accept it.

Amendment No. 27 would not have the required effect, although I understand the underlying concerns. It would introduce the concept that

''the dismissal would have been fair apart from this section'',

but the concept remains undefined. That would create uncertainty for tribunals, and risk their developing a test of fairness for proposed new section 98A that would be different from that otherwise applied in unfair dismissal cases. That is undesirable.

My hon. Friend the Member for Wolverhampton, South-West asked about the right to a fair hearing. Schedule 2 grants the right to a meeting-in other words, a hearing-but no more than that. However, unless dismissal without a fair hearing made no difference, it would be likely to be found unfair. My hon. Friend also asked about reviewing the clause to establish whether it had the desired effect. I can assure hon. Members that, over time, we will look closely at the practical effects of the change. During consultation, many employer groups told us that current law is a disincentive to putting in place more detailed procedures, and we shall want to establish whether the change has altered their practices.

My hon. Friend the Member for Manchester, Central rightly referred to employment law anoraks-indeed, some of us are well on the way to becoming cagoules. In any event, it is likely that all his examples would have constituted unfair dismissals, but I shall give the further example of the employer who dismisses a number of employees for racially harassing their colleagues. He loses the case solely because of a procedural error, even though the tribunal acknowledges that it made no difference to the outcome and awarded no compensation to the employees-

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

Standing Committee F

Clause 34 - Procedural fairness in unfair dismissal

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I was in the middle of my rather feeble peroration. Just to recap, we were talking about the effects of Polkey and I explained how the new regime will strengthen that judgment. Most cases that we examined, which fell under the Polkey judgment, applied to breaches in procedure that are now covered by the minimum standards—the three-steps procedure. I also explained that, crucially, there remains a requirement for the dismissal to be fair, which is what new section 98A addresses. However, there was some perceived ambiguity so I explained that, having checked amendment No. 78 with parliamentary counsel and having had it confirmed that it achieved the desired effect, we were prepared to accept it. We were not prepared to accept amendment No. 27 because it does not have the required effect, so I urged hon. Members not to press it.

Philip Hammond (Conservative, Runnymede and Weybridge)

It comes from the wrong party.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

That is true, but that is not why I asked hon. Members not to press it. A number of examples were given to show the way in which the Polkey judgment has worked and why the restoration of the no-difference test would, in my hon. Friend's view, be damaging. I explained that those examples would still have been unfair dismissals because they would not have met the basic need to be fair in all other respects.

I gave another important example of the way in which the current procedures do not work adequately. An employer who dismissed a number of employees for racially harassing their colleagues lost his case solely because of a procedural error, even though the tribunal acknowledged that it would have made no difference to the outcome. It applied the only measure that it is allowed to apply, which was an award of no

compensation to the employees—the worst of all possible worlds. Although the case was classified as unfair dismissal, there was no compensation and no one felt satisfied with the outcome. The background to the case was that the manager who had been charged with hearing the initial appeal decided to double check the complainants' point of view. Because the dismissed employees did not see transcripts of those second interviews with the complainants—they had had full opportunity to consider and comment on the original witness statements—the tribunal found that dismissal was unfair on procedural grounds. Under the new proposals, the tribunal would have discounted the procedural error since it made no difference to dismissals that were fair in every other way.

The Bill meets the requirement to ensure that dismissals are fair in every other respect. Amendment No. 78 seeks a spelling out of the fact that a no-difference line of defence where a procedure has not been followed does not, by itself, mean that the employer has acted reasonably. The drafting is fine and we are prepared to accept the amendment, but hope that amendment No. 27 is not pressed.

Philip Hammond (Conservative, Runnymede and Weybridge)

I apologise if this was covered when I was not in Committee before lunch, but can the Minister explain what will be the practical impact of the opening phrase of new subsection (2), ''Subject to subsection (1)''? I can understand how things might work if subsection (1) said,

''An employee who is dismissed shall''

subject to subsection (2),

''be regarded for the purposes of this Part as unfairly dismissed''.

However, I cannot understand what ''subject to subsection (1)'' at the beginning of subsection (2) means. It appears to me that it could undermine the entire purpose of the subsection.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I do not think that that is the case. It reinforces subsection (1), making it absolutely clear that the fact that a procedure has not been followed does not by itself mean that the employer has acted unreasonably. Amendment No. 27 was designed to do that, but failed, for the reasons that I gave this morning. Of course, the whole point of Polkey is whether the procedural error, in procedures over and above the minimum standards, would have made any difference to the decision to dismiss. That is the acid test that has to be passed. With that clarification, I urge that amendment No. 78 be accepted, and that amendment No. 27 should not be pressed.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister, in his closing remarks, referred to procedures ''over and above'' the minimum standards. Are we to understand that subsection (2) applies only to procedures over and above the minimum statutory procedures? Is that what the Minister is trying to explain?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Yes. That is what I explained at some length this morning. I understand that the hon. Gentleman could not be here.

Tony Lloyd (Labour, Manchester Central)

I have listened carefully to the Minister's explanation. Much of the argument turns on points that are difficult to interpret in such an exchange. In the end, it will be decided on what tribunals do and do not do in practice. The difference between the position of those concerned about the abolition of the Polkey test and that of the Minister is that he says that the tribunal will inevitably have to have regard to fairness anyway, even if subsection (2) is used. In other words, even if the employer can demonstrate that unfair dismissal is not automatic because of procedural failure, he will still have a duty to demonstrate that the dismissal is fair. That is not necessarily the view of all those who have looked at the position.

The suggestion is that once the Bill becomes law, the tribunal will be guided by a different test, that which is in the Bill. Nowhere is there a duty on the tribunal to examine the question of fairness. More to the point, nor is there the opportunity for it to use the test of fairness. Much will turn on the decision made about that. The Minister is right to argue, with regard to the tribunal's judgment in, for example, cases of racial harassment, that it is unfortunate if matters proceed simply because of non-relevant procedural detail. I do not think that anyone is arguing for that. However, it is not such an unsatisfactory judgment if the tribunal rules that technically the dismissal is unfair but, in practice, no award is made because it is a hollow victory, of a kind that the courts more generally are used to giving. At best, a hollow victory is an indictment of those who took the case forward.

I hope that the Minister can reflect on the serious points that have been raised, although I do not think that he will change his mind this afternoon. This is not, as I said this morning, a question of people digging themselves into trenches and trying to defend the indefensible. It is a concern generated by real cases that have been through the tribunals and have been found to be unfair. There is a strong fear that there will now be no basis for tribunals to deliver the judgments that were delivered in such cases.

We have time before Report, and certainly before the Bill goes to another place, to consider such matters. I hope that Ministers will continue to listen to the debate. It is an important one that is causing anxiety outside.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I shall not press amendment No. 27.

Amendment agreed to.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I beg to move amendment No. 49, in page 38, line 12, leave out 'Chapter 1 of'.

Clause 34(2) states that a tribunal will find that there has an unfair dismissal where the employer has, by their own fault, failed to follow the ''relevant statutory procedure''. That is achieved by amending the Employments Rights Act 1996. Schedule 2 sets out the relevant statutory procedure, which is known as the standard dismissal and disciplinary procedure. However, clause 34 fails to make an explicit reference to the modified procedure found in chapter 2 of part 1 of schedule 2. The modified procedure is therefore

outside the remit of clause 34. That means that if the employer uses the modified procedure, which may be appropriate to his circumstances, he can still be judged to have unfairly dismissed the employee even if all steps have been taken correctly to adhere to the modified procedure.

That has important implications, as according to the Library notes accompanying the Bill the modified standard is intended for use in cases of gross misconduct where summary dismissal is justified without notice. So, for example, I as an employer may have decided automatically to dismiss an employee because he has assaulted another employee. In doing so, I have ensured that I have conducted the dismissal in an appropriate manner by following the modified procedure set out in schedule 2. However, because clause 34 does not cover that modified procedure, I can still be deemed to have unfairly dismissed my employee.

The amendment would ensure that if an employer dismisses an employee for gross misconduct, the modified procedure, correctly followed, will protect him from claims that he has unfairly dismissed them.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Well spotted, as someone might recently have said at Athens airport.

I am grateful for the amendment, which highlights a significant oversight in the drafting of clause 34 relating to protection against unfair dismissal where the modified dismissal and disciplinary procedures set out in chapter 2 of part 1 of schedule 2 have not been followed.

Clause 34 inserts new section 98A into the Employment Rights Act 1996, making it unfair to dismiss an employee without completing the new statutory procedures. That means that employers will have to carry out the standard three-step procedure when dismissing an employee in order to avoid liability under new section 98A(1). Therefore, if an employer complies only with the modified two-step procedure set out in chapter 2 of part 1 of schedule 2, he will always automatically be found to have dismissed unfairly, as the hon. Member for Weston-super-Mare (Brian Cotter) said.

We intend to make regulations under clause 31 to provide for the modified procedure to apply where an employee has been summarily dismissed—in other words, dismissed without notice on the grounds of gross misconduct. It is important that in such circumstances employers should not be required to complete the full standard procedure.

However, much as I welcome the amendment because it draws attention to the problem, it would not achieve the desired end. The matter is more complex, in that further revision of the clause is needed to ensure that under new section 98A(1) there will be a finding of unfair dismissal in cases of summary dismissal only when the modified procedure has not been completed and that any question about the application, completion or failure to comply with either procedure is judged by the same criteria that will be used for the purposes of clause 31. That is best achieved by ensuring that the regulatory powers in clause 31, which deals with mitigation, apply equally to clause 34 so

that there is complete consistency. That will be essential if employers and employees are to have a clear understanding of when the modified two-step procedure, rather than the full three-step procedure, needs to be followed. I therefore intend to table an amendment on Third Reading and invite the hon. Gentleman to withdraw the amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

Can the Minister explain why he is about to invite us to vote that the clause stand part of the Bill when he has just said that it is flawed, understood to be such by the Government and requires amending, although he has failed to table the necessary amendments? That is a serious abuse of the Committee's procedures. We cannot possibly vote that a clause stand part if the Minister says that it is flawed.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I have served on many Committees in which similar things have happened, including Committees on Finance Bills with the hon. Gentleman. If, during the proper scrutiny of a Bill, a member of the Committee spots a technical error, it is perfectly reasonable for the Minister to say that it will be amended at the first available opportunity and to ask the Committee to agree that the clause stand part on that basis. The wording of the amendment is faulty because it does not apply consistently to clause 31, and we shall ensure that our amendment does so.

Norman Lamb (Liberal Democrat, North Norfolk)

I want to press the Minister a little further on his response to my hon. Friend the Member for Weston-super-Mare. We are pleased that he recognises that the clause needs further amendment, and appreciate that it is sensible to ensure that that has the desired effect. However, will he say more about when the modified procedure will apply? That procedure entails dismissal without any hearing at all, and only the right of appeal following dismissal. During the sitting on Thursday 13 December, the Minister said that it would apply only in extreme cases of gross misconduct.

I find it hard to imagine in what circumstances it would be appropriate to dismiss someone without any hearing, and with only the right of appeal following dismissal. In cases of violent misconduct, for example, the right way to deal with the situation immediately is to suspend the employee, not to dismiss them without the right of a hearing. There may be all sorts of reasons, such as provocation, that need to be investigated to determine whether dismissal is the right sanction. Will the Minister clarify the hopefully limited circumstances in which it would be appropriate to dismiss someone with no hearing?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

We touched on this when we debated schedule 2 and its relevant clauses. For the absence of doubt, under the two-step disciplinary procedure for gross misconduct an employer may legally be entitled summarily to dismiss an employee without notice if his or her misconduct has been so serious as to amount to a fundamental breach of contract. That is often described as gross misconduct. The law does not specify what conduct justifies summary dismissal, and it is for the courts and tribunals to decide in the light of all the circumstances whether it is justified in a

particular case. We envisage that the modified dismissal and disciplinary procedure will apply in such special cases. That requires employers only to write to the employee after dismissal, but gives the employee an opportunity to appeal the decision.

Norman Lamb (Liberal Democrat, North Norfolk)

Is the Minister saying that in all cases of gross misconduct it will be fair to dismiss without a hearing, allowing the employee only the right to an appeal?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

In my experience, if someone in the Post Office was watched for a period of time and was accused of stealing letters or interfering with the mail, that would be classed as gross misconduct, as would severe violence against an employer. There is no disagreement about that and there is nothing new about the procedures. We have already debated and agreed the fact that there needs to be a modified procedure for discipline in such cases, and that in cases involving grievance procedures, where an individual has already left the employment for various reasons, it would be illogical to ask them to go back and reform a bond with the employer, which has already been broken, to go through the third step.

Norman Lamb (Liberal Democrat, North Norfolk)

Does the Minister agree, especially in the light of his experience with the Post Office, that in many cases of alleged gross misconduct the facts are complex and that it is essential in the interests of natural justice to have a hearing before reaching a decision to dismiss? If he is saying that the modified procedure will apply in all cases of gross misconduct, then in all those complex cases where the facts need to be canvassed at a proper hearing, the employee will have no right to such a hearing.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

We are talking about workplaces where there is no procedure whatsoever and where a procedure is being applied for the first time. We accept the need for a different approach to cases of gross misconduct. We have already debated that at some length. Under the modified discipline procedures in schedule 2, the employer must set out in writing the employee's alleged misconduct that has led to the dismissal and the employee's right to appeal against dismissal, and send a copy of the statement to the employee. The employee must inform the employer of his or her wish to appeal and the employer must invite him or her to attend a meeting.

What is missing is a provision relating to the case having to be properly investigated. This morning—when the hon. Gentleman was not here—we discussed the case of an employee who had been dismissed for theft in the context of the lack of an investigatory clause in the basic two and three-step procedures. I explained that if the employer had not taken reasonable steps to investigate the allegations made against the employee, the employment tribunal would be unlikely to agree that the dismissal was fair. That plays a part in the case having to be reasonable in all other respects.

Rob Marris (Labour, Wolverhampton South West)

Does my hon. Friend agree that some cases of gross misconduct justify summary dismissal and some do not, and that the Government's proposed regulations could clarify those two categories?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

That is exactly why we intend to set out in regulations the kinds of cases to which the modified two-step procedure could apply. Those would be subject to the affirmative resolution procedure.

The amendment, which relates to chapter 1, but not chapter 2, identifies a technical fault in the Bill. We are pleased to concede that it was well spotted, and we shall table an amendment on Report.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I do not intend to labour the point because the Minister has graciously accepted our argument. It is gratifying when we raise a point in Committee that needs to be addressed. On the Minister's assurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I beg to move amendment No. 28, in page 38, line 16, at end insert—

'(c) references to 'a procedure' or to 'the procedure' in subsection (2) refer to non-statutory procedures that the employer is obliged to follow.'.

The amendment would further clarify the types of procedures to which new subsection (2)—in lines 3 and 5 of page 38—refers. The new subsection refers to the fact that an employee shall not be considered to have been unfairly dismissed because of a failure to follow procedure, if following it would still have resulted in dismissal. On reading the explanatory notes, the Government seem to intend that to apply to any procedures outside the minimum statutory ones. For example, the procedure referred to in lines 3 and 5 is assumed to include additional procedures such as those included in the employee's contract, or those based on union agreements. However, as it is currently unclear that those are the procedures to which new subsection (2) refers, the amendment is designed to tighten the wording of the Bill and ensure that the procedures that the employer is required to follow are the non-statutory ones. It would make it explicitly clear that the principle is intended to apply to procedures outside the statutory minimum, such as those used in the workplace taken from the employer's handbook.

Lines 3 and 5 of the new subsection refer only to ''a procedure'' or ''the procedure'', so it is not explicitly clear that the procedures referred to are those outside the statutory minimum. The amendment would ensure that an explicit reference is made to them and I look forward to the Minister's response.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The amendment is unnecessary. One effect of clause 34, which inserts new section 98A, is to reinforce the new minimum disciplinary and dismissal procedures by making it automatically unfair to dismiss employees without following the procedures. That is achieved in new subsection (1). The affect of new subsection (2), is that it will not be unfair to

dismiss an employee without following a dismissal procedure if the employer can show that following it would have made no difference to his decision to dismiss. That new subsection begins with words that are relevant to a comment made by the hon. Member for Weston-super-Mare: ''Subject to subsection (1)''. An employer will be able to escape a finding of unfair dismissal only by showing that following a procedure would have made no difference to the decision to dismiss, and only if it was a procedure that is not covered by new subsection (1)—a procedure other than the statutory procedure.

Failure to follow statutory procedures will always be unfair and the wording achieves the desired effect. The minimum procedures, which will always be unfair, and the no-difference test, which is a partial reversal of Polkey in some respects and a strengthening of it in others, will only apply to disciplinary procedures over and above the basic minimum.

Norman Lamb (Liberal Democrat, North Norfolk)

To return to the point that I was making, I understand the Minister's comments to mean that a large organisation might have complied with the modified procedure in a case of gross misconduct—a complex case with complex facts. The organisation might have chosen to dismiss without a hearing; the employee has gone and an appeal has been allowed, and then dismissed. In those circumstances, an employer could go to a tribunal and say that the person would have been dismissed anyway, thereby establishing that the procedure followed had been fair.

A large organisation such as the Post Office will be able to dismiss people for all the different and complex types of gross misconduct without having had a disciplinary hearing if it can establish that conducting such a hearing would have made no difference.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

We went through the issue this morning. The Polkey judgment was made in 1979 and reversed in 1988. The question is whether the employer would have made the same decision had the procedures been followed. We cannot get away from that.

As I went to great lengths this morning to explain, the words ''not automatically unfair'' do not mean the same as ''fair''. If an employer says at an employment tribunal that they would have made the same decision anyway, the tribunal will not say, ''Okay, that is fine''. The employer must prove that the procedural errors, which by definition will be procedural errors over and above the basic minimum, would have made no difference to their decision to dismiss.

An employer may say that their failure to follow an investigation set out in the disciplinary code of the Post Office made no difference to their decision, but they are hardly likely to get away with that at an employment tribunal. Indeed, we said this morning that in most cases that we have seen, the failure was in carrying out the basic three steps. An appeal was not held, the employee was not told of what they were accused and so on. We also said that if we did not have a change to Polkey and introduce the no-difference test over and

above the minimum standards, we would be discouraging employers from having more elaborate and sophisticated procedures than the basic minimum.

The fear that the hon. Gentleman raises has been expressed to me many times, but is not well founded. The Bill will ensure what we mean it to ensure. The basic minimum standards must be met, otherwise the dismissal is automatically unfair. We take a judgment on procedural issues over and above the minimum. That in no way detracts from the need for the employment tribunal to judge that the dismissal was fair in all other respects.

I hope that I have reassured hon. Members that the amendment is unnecessary. I ask the hon. Member for Weston-super-Mare to withdraw it.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 64, in page 38, line 26, leave out 'be required to'.

Joe Benton (Labour, Bootle)

With this we may discuss the following amendments: No. 66, in page 38, line 28, at end insert

'and in determining whether such an award would result in injustice the tribunal shall have regard to the resources available to the employer to enable him to ensure compliance with statutory procedures'.

No. 67, in page 39, line 10, at end add

'and in determining whether such an award would result in injustice the tribunal shall have regard to the resources available to the employer to enable him to ensure compliance with statutory procedures'.

Philip Hammond (Conservative, Runnymede and Weybridge)

Clause 34(3) states:

''An employment tribunal shall not be required to make an award under subsection (5) if it considers that such an award would result in injustice to the employer.''

The tribunal will therefore not be required to make an unjust award, but it will not be prevented from making one. Removing the words ''be required to'' would make it clear that the tribunal would not make an award if it would result in injustice to the employer. It is difficult to imagine how the Minister will justify leaving in words that will allow a tribunal to make an award that would explicitly result in injustice to the employer. I hope that he recognises the need to deal with that.

If I may stretch the scope of my amendment, the same point applies to new subsection (1B), where the words ''shall not be required'' are found again. An amendment that dealt with that subsection was technically imperfect and was not selected, so if the Minister deals with the substantive point, I will be happy to withdraw the amendment and see if it can be covered later.

Amendments Nos. 66 and 67 would add to the definition of injustice to the employer. I seek an assurance that there will still be a size or sophistication test and that when the tribunal examines questions of injustice to an employer in making an award, it will take into account the size of the employer and the

resources that are available. It would not necessarily have to judge the size of the employer. A small law firm that specialised in employment law might be expected to have the resources, but a motor repair workshop, to use an example that we have used before, that employed three people might not have enough resources to ensure compliance.

Again, these are probing amendments. I will be happy to hear the Minister tell us—as I believe that he may—that the existing procedures will remain unaltered and that size, sophistication and employer resources will be taken into account. I should be grateful for that confirmation.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

As the hon. Gentleman explained, amendment No. 64 is designed to ensure that tribunals will never give a financial award on reinstatement or re-engagement if they believe that it would result in injustice to the employer. Subsection (3) already states that tribunals are not required to give the award if it would result in injustice to the employer. It is almost impossible to imagine a situation in which the tribunal would make an award that it considers to be unjust when it is under no statutory obligation to do so. I fail to see the necessity for such a change.

Amendment Nos. 66 and 67 would appear to lessen any burden on a small employer by directing tribunals to have regard to the resources available when deciding whether applying either the minimum award or award on reinstatement or re-engagement would result in injustice. It would be wrong to attempt to guide tribunals on what constitutes injustice. Circumstances will vary enormously, and tribunals will want to consider all relevant factors when considering whether it is just to make the award. I would not want to fetter their discretion, but it is likely that they might want to take into account the potentially greater impact of a fixed award on a business of limited resources. I repeat that it is right that tribunals should decide.

The suggestion that small employers—including our famous garage in Hull—will struggle to put the core procedures in place and follow them whenever necessary underestimates small firms and overestimates the complexity of the procedure. We have ensured that the statutory procedures represent basic and fundamental fair minimums and are not pitched at a level where following them will create difficulties for any employer of any size. Small employers that do not use procedures can only benefit from adopting the statutory minimums, because doing so will increase the likelihood of resolving a dispute before it reaches a tribunal.

I acknowledge that there clearly will be circumstances in which it will be reasonable for the employer not to follow the minimum procedures, or not to follow all of them, as we have discussed on various occasions during the Bill's consideration. We will make provision in regulations to ensure that employers will not be penalised in such circumstances, but in the vast majority of cases it is right that employers who do not meet their obligations to complete the basic procedures should face a penalty, except when a tribunal considers that such an award

would be unjust. That may well have taken into account a minor breach of the statutory procedures that apply to small businesses, whose resources would be severely affected by the penalties in the clause. I therefore invite the hon. Member for Runnymede and Weybridge to withdraw the amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

For two and a half weeks I have listened to the Minister handing himself enormous powers by regulation to fetter the discretion of the tribunal in every imaginable direction. It is therefore a bit rich for the hon. Gentleman now to say that he would not want to fetter the discretion of the tribunal. That is not the tenor of what the Government propose to do with the regulation powers they are giving themselves in this part of the Bill.

I am not persuaded by the Minister's argument. I am anxious about the direction and the packaging of clause 34, which is perhaps the most sensitive clause in the Bill. Some Back Bench amendments have been accepted and the Minister said that others need to be made, but unfortunately he did not tell us precisely what those amendments will be. I had hoped that the Minister would be more robust in suggesting that he would not expect small and less competent employers to be treated harshly and that the provisions would take into account a genuine lack of capacity and the innocent failure to comply, as we discussed earlier.

In view of the Minister's determined resistance to the uncontroversial proposal that the words ''be required to'' be taken out, I will not press the amendment to a vote. We shall return to the matter when we discuss the general issues in the clause stand part debate.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Philip Hammond (Conservative, Runnymede and Weybridge)

The Question before the Committee should include the words ''and as to be amended''. At the risk of repetition, which does not worry me much, I say that clause 34 is a sensitive part of the Bill and I am surprised that the Government have accepted amendments that may upset its delicate balance. It was not apparent to me that the hon. Member for Wolverhampton, South-West (Mr. Marris) tabled a Government-planted amendment or, indeed, one that the Government agreed to in advance. I am not sure that that was understood outside the House, although it may have been understood by the TUC.

The hon. Member for Manchester, Central (Mr. Lloyd), who is back in his place, urged the Minister to go still further and revisit some of the essential issues in clause 34 at a later stage of the Bill. The Minister has already embarked on the slippery road of accepting amendments and he has been urged by his hon. Friend to make more changes. The slightly grudging consensus about this part of the Bill will be

undermined if changes are slipped in now as a result of pressure from Government Back-Bench Members or from outside bodies.

Tony Lloyd (Labour, Manchester Central)

For understandable reasons, the hon. Gentleman was not with us this morning. If he had been, he would have heard several of his hon. Friends sympathising with the Minister's objectives. The debate concerned whether the Bill will achieve what we want it to: there was no difference in objectives or ambitions. The hon. Gentleman should agree with fairness in industrial relations.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman knows that I am in favour of fairness. One of the principal objectives of all legislation is that people should be treated fairly, and I abhor unfairness in all its forms. However, the hon. Gentleman's approach is slightly naive. This is the most sensitive clause in this part of the Bill, and it is, unfortunately, being tampered with. If the Minister is tempted to tamper with it any further, as has been suggested, he will provoke a reaction.

Since the debate, I have examined the briefing from some of the small employer organisations. It may surprise the Minister to learn that the significance of the words at the beginning of proposed new section 98A(2), ''subject to subsection (1)'', has not been fully appreciated by those outside the House. Some commentators have interpreted it as restoring the state of affairs before the Polkey judgment. Clearly, that is not the Minister's intention, so some people will be disappointed that they over-egged the pudding in their interpretation of the Government's actions. They will also be disappointed that the Government are to retreat further from their previous position, which they defended vigorously.

I made unkind comments about the Law Society's amendments earlier, so I am delighted that its efforts today seem to have achieved a 1-1 draw against the Government's draftsmen. I am disappointed that the Minister has not produced the amendments that he says will be necessary for this clause and for clause 31. I find it strange that we debated clause 31 without the Minister mentioning that it has a fundamental flaw. After the debate, and clause stand part, he tells us that he will amend it.

This morning, I mentioned parliamentary sloth. The Liberal Democrat amendments that deal with the Law Society's points, which the Minister has accepted, were tabled on Friday. I would have thought it possible that the parliamentary draftsmen—with guidance from Ministers and civil servants—could have made amendments available today. They would have been starred, Mr. Benton, but you could have used your discretion if you felt it useful for the Committee to consider them.

I am disappointed that the Government have not tabled those amendments that they described as essential. They could have been considered today, but will now come at a stage when detailed consideration will not be possible. As we all know, the Report stage of the Bill will be timetabled. New clauses will be considered first. It may be the case—it often is—that we will not reach amendments in time to debate them

and that they will simply be voted on at the end of the allotted time. That is unfortunate. As there has been a clear failure in the Bill's drafting, the Government should concede that detailed scrutiny of this part of it and of any further amendments would be appropriate and beneficial. That would avoid unanticipated pitfalls requiring further changes to the legislation at a later stage.

I am concerned about tampering with this delicately balanced part of the Bill and I am disappointed that the Minister has not tabled the necessary amendments for us to consider.

Norman Lamb (Liberal Democrat, North Norfolk)

I endorse the comments of the hon. Member for Runnymede and Weybridge (Mr. Hammond) about the importance of proper scrutiny of the amended clause. As it is not available, that opportunity will be missed. I am grateful that the Government have recognised the merit of our amendment, even though it does not achieve the required objective and so a further amendment is necessary. I share the concern about the lack of scrutiny.

I stubbornly stick to the view that the combination of the effective reversal of the Polkey case and the modified procedure will result in a substantial weakening of the protection for employees facing allegations of gross misconduct in certain circumstances. I urge the Minister to look carefully at the potential impact on fairness to employees. It is fine in certain cases where the evidence is stark and obvious, but in the more complex cases there is a weakening of the protection for employees, who can be dismissed under the modified procedure without a prior hearing. I urge the Minister to consider whether that issue could be addressed by an amendment or by the regulations limiting more than has been so far indicated by the circumstances in which the modified procedure would apply. I would expect there to be grave concern among Government Members on the implications of the loss of the right to a hearing before dismissal in complex cases of allegations of gross misconduct.

Rob Marris (Labour, Wolverhampton South West)

I should like my hon. Friend the Minister to summarise one or two of the issues to which we have referred during consideration of this part of the Bill, as clause 34 is the linchpin. He has clarified that under the basic procedure the existing right to be accompanied will continue and that under schedule 3 there will be a right to a fair process rather than a fair hearing. I confess to being unclear as to whether there is a duty on the employer to investigate and I hope the Minister will clarify that.

I turn to the contribution of the hon. Member for North Norfolk (Norman Lamb). Will the Minister clarify a time frame for a review of the procedures in clause 34 and schedule 2 to see whether the problems posed by the hon. Gentleman are realised? I asked this morning whether the change in emphasis of Polkey leads to a dilution of existing procedures that are better

than the schedule 2 minimum, and whether subsection (2) of new section 98A would lead to employers simply not following the enhanced procedures.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Member for Runnymede and Weybridge must have had a bad time at the Adjournment debate, as he is not his usual, charming self. Understandably, he could not be with us in Committee this morning.

I struggle to see what great concessions I have made on the clause. We have had a good debate, and we went into the matter in some detail. My hon. Friend the Member for Wolverhampton, South-West called the clause the lynchpin of the Bill. We discussed clause 29 and schedule 3 and agreed that there should be a statutory minimum procedure. We agreed that there were cases where even those statutory procedures would not apply, such as cases of bullying, harassment and violence, which will be set out in regulations. We also agreed that a modified procedure is needed to deal with certain cases of grievance and discipline.

Clause 34 deals, in effect, with the no-difference test. This morning's debate made it clear that we have introduced those basic provisions and that employers are expected to comply with them. If they do not, a dismissal will automatically be unfair. We also discussed the fact that the change to Polkey referred to discipline procedures above the minimum.

Several Opposition Members, including the hon. Member for Hertford and Stortford (Mr. Prisk), expressed concern that there may be an inconsistency in having minimum procedures, encouraging people to abide by them and then making it seem as if they did not have to abide by them because the no-difference test would be restored. I explained that we were setting a minimum standard, encouraging people to move to a more sophisticated system and taking account of the ACAS code. If we did not reverse the no-difference test, employers would rightly wonder why they should move to a more sophisticated code if they could be found to be wrong on a minor error of procedure, irrespective of the fundamentals of the case.

I accepted the amendment tabled by my hon. Friend the Member for Wolverhampton, South-West on the basis that we had made it clear that nothing in clause 34 changed the requirement of the employment tribunal to ensure that the case of unfair dismissal was fair in other respects. That obligation is placed on the tribunal. My hon. Friends believed that that was not clear enough in relation to clause 34(2)(c), and I therefore accepted the amendment in the spirit of making clear what we had set out to do. We are criticised for accepting sensible amendments and for not accepting them. The amendment is sensible, and we accept it. I reassure the hon. Member for Runnymede and Weybridge that that makes no difference to the fundamentals of the Bill, to the issues on which we consulted or to the message that we sent out to employers and employees about the new rights and responsibilities in the Bill.

I also accepted the other amendment. Once again, we are damned if we give no warning of forthcoming amendments and we are damned if we listen to a carefully argued amendment and respond by saying

that we will table an amendment. The amendment does nothing other than point out, as the hon. Gentleman did, that there was an error in the drafting. Because of that error, an employer who followed only the modified procedure that we agreed last week under clause 29 would automatically be found to have dismissed unfairly. We must deal with that and we are doing so through an amendment. It is no big deal. Employers' organisations are unlikely to be marching on Downing street tomorrow. This part of the Bill does not fundamentally change anything.

The concerns of my hon. Friend the Member for Manchester, Central are understandable and other Government Members have also asked me to think again. However, I believe that the balance is absolutely right. This morning, my hon. Friend the Member for Wolverhampton, South-West asked whether we would keep the process under review. Once it has been implemented and has had time to take effect, we will consider the employers' argument that reversal of the no difference test will encourage participation in the fuller procedures. As to my hon. Friend's concern—shared by my hon. Friend the Member for Manchester, Central—we would obviously examine the position carefully, but we believe that the balance is just right. None of the amendments—neither the one we accepted, nor the other intended for Third Reading—disturbs the balance. Clause 31 is not being amended. Clause 34 is being amended to make it consistent with clause 31. We are therefore talking about two, not three, amendments here.

If members of the Committee have listened carefully to the debate and examined the explanations offered, they should feel happy that we are amending the provisions for the better, without fundamentally changing the principles. The error pointed out by the Liberal Democrats needs to be addressed.

The hon. Member for North Norfolk articulated his concerns about summary dismissal. On the basis of my long experience of these matters—I know that he has had experience too—I do not share those concerns. If we get the regulations right—there is at present no requirement for these procedures—it is wrong to insist that employers have to keep someone on the premises—

Norman Lamb (Liberal Democrat, North Norfolk)

The problem of the employee being on the premises is dealt with, as now, by suspending that employee. That is not a problem: the person is moved out of the way and a hearing is arranged. There is no need to move straight to a dismissal without going through the proper process. As I argued earlier, the employee's rights are reduced.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The ACAS code recommends precisely that an employee should be suspended. We have already been over the argument about setting basic minimum standards. Employment tribunals will still be considered, but as to insisting that the person stays in the workplace, I am pleased that the hon. Gentleman agrees that we need a modified code. His argument is similar to that expressed by some of my

hon. Friends—why do we not implement the ACAS code. We have been round the course on that long enough. I hope that the Committee will accept that clause 34 stand part of the Bill.

Question put and agreed to.

Clause 34, as amended, ordered to stand part of the Bill.

Clause 35 ordered to stand part of the Bill.

Clause 36 - Removal of exemption for small employers

Charles Hendry (Conservative, Wealden)

I beg to move amendment No. 68, in page 39, line 31, leave out from 'procedures,' to end of line 32 and insert

'subsection (3) shall have effect so that the note need not comply with the specified provisions where the relevant number of employees was less than six'.

The amendment is straightforward. It is designed to take account of the pressures facing small businesses and reduce the impact of these measures on companies employing five people or fewer. At present, the position is that 20 people are enough to allow a company to be exempted. We have not pressed for that because our main concern is with the smallest companies, the micro-firms, which are most vulnerable to the bureaucracy entailed by the provisions.

The sort of companies that we are talking about, with five employees or fewer, find it most difficult to survive, even in good times. They face a welter of rules and regulations. We need to go back to how people start a business. They do so not because they want to be tax collectors for the Government or to fill in forms all day, but because they have an idea that they want to pursue. They may not have run a business before and it is quite a brave step. They are not ready for the volume of paperwork that comes their way.

The most difficult time for that new business, as I know from experience, is taking on the first employee. It represents a significant act of faith. That person's salary will probably not yet be covered and so one assumes that one can bring in enough new business to cover it, other costs and make a profit. A range of other factors also come into play. One may be paying national insurance contributions for the first time and filling in pay-as-you-earn returns. It may push the business above a value added tax threshold. There may be additional insurance implications and one is taking on responsibility for that person and possibly his family.

Perhaps all that is best illustrated by a couple of brief examples. A plumber who has worked on his own and takes on a mate will often not just have to go through the elements that I have described, but may have to buy a new van. He has his mind on a whole range of different things. He may have to train that person and will be distracted from the job in hand while he does so. He then must work that much harder to find new business to ensure that the business survives and prospers. He may have left school at 16 and not be

particularly well educated. The minefield of forms and requirements to fill in bits of paper will be alien to him. He is certainly not a lawyer and probably not even a great wordsmith. He is simply someone who wants to run his business as well as he can. Micro-businesses like that do not need an additional level of bureaucracy.

The second example is a small corner shop. The guy gets up at 4 am when the papers arrive and is still there late into the evening filling in his books. He will find that his whole life is taken over. When he takes on his first employee, he takes on those additional responsibilities and he does not want further legal requirements. There may also be language problems. While he may know how to run a business hugely successfully, English may not be his first language and he will be dealing with legislation. Although some small firms, particularly lawyers and accountants, may specialise in dealing with details, the overwhelming majority of companies that employ five people or fewer are not in that category. They are small businesses that are often struggling to survive. We should bear such people in mind and try to make their lives that much easier.

Norman Lamb (Liberal Democrat, North Norfolk)

There seems to be an inconsistency here. Last week, the Opposition argued rightly that it was important for things to be in writing for small businesses. We talked about the corner shop at length and the fact that if things were not in writing, it left scope for ambiguity and uncertainty about what was intended. Yet today, the hon. Gentleman seems to argue that those things should not be in writing. Is there not an inconsistency between the arguments last week and this week?

Charles Hendry (Conservative, Wealden)

Not at all, last week we argued that the people who most need things in writing are small business people who are most vulnerable. Today we are saying that there is a category of companies that should be exempted completely.

George Osborne (Conservative, Tatton)

We pointed out that the measures should not apply to businesses under the five-employee threshold. The Minister conceded that many micro-businesses, which he defined as businesses employing between one and four people,

''will not use written communication to any great extent. Indeed, some may have limited clerical facilities.''—[Official Report, Standing Committee F, 13 December 2001; c. 160.]

We accept that argument, which is why we want to exclude micro-businesses from the procedures.

Charles Hendry (Conservative, Wealden)

I am grateful to my hon. Friend for that further clarification. I hope that the hon. Member for North Norfolk accepts that there is no inconsistency between the two positions.

I hope that the Minister will consider the issue carefully. I know that he has an interest, as we do, in ensuring that the welter of bureaucracy that small businesses must deal with is alleviated. The Federation of Small Businesses told us that the measure may be the last straw for small businesses. They say that they are also concerned that overly prescriptive regulations soon become outdated and damage relationships in

small firms, where most proprietors do their utmost to help in times of emergency. They are profoundly concerned about the volume of legislation and regulations that already apply. I hope that the Minister will look favourably upon the amendment.

Rob Marris (Labour, Wolverhampton South West)

I seek clarification. If I read the amendment correctly, it would set a trap for small employers. Let us take the example of the plumber who employs his mate. The mate is the only employee; therefore, because there are fewer than six employees, the plumber does not have to give his mate a note of the statutory minimum procedure under schedule 2, on which the Committee has agreed. They fall out, the mate goes to the citizens advice bureau and finds out about the minimum procedure, of which the plumber was not aware. The mate then wins an employment tribunal case under section 98A(1), as inserted by clause 34, because the plumber did not comply with the statutory minimum procedure in schedule 2.

The amendment would make the cure worse than the disease. When someone becomes an employer, whether a plumber or an accountant, they should get it right and learn good habits from day one. That way, they would not be subject to traps such as the one that the amendment would set.

Mark Prisk (Conservative, Hertford and Stortford)

I apologise for not being with the Committee earlier this afternoon, Mr. Benton.

I support the amendment because I believe that it would restore the principle of exempting the smallest enterprises from the burden of prescriptive disciplinary procedures. That may relate to the argument of the hon. Member for Wolverhampton, South-West.

The Bill attempts to change existing procedure under the Employment Rights Act 1996. I do not think that anyone in the Committee doubts the need for good management practice, especially in personnel matters. As a former small business man, I know that an organisation is only as good as its staff. I understand that some firms merely pay lip service to treating their staff appropriately. However, in my experience, the vast majority of businesses, large and small, recognise that only good personnel management will enable them to prosper.

Is it right, therefore, to impose on small businesses a prescriptive solution for what may be a sensitive issue? I refer to an excellent submission on the Bill by the Industrial Society. It raised several questions about the balance between the efficacy of legislation and good management practice. It states:

''The best means of ensuring management improves its performance is to promote awareness of the cost benefits of good management and to provide guidance on good practice, especially among small employers. It is very relevant in considering the numbers of tribunal claims involving small firms to remember''—

my hon. Friend the Member for Wealden made this point earlier—

that many of them do not have expert employment relations or HR''—

human resources—

advice to hand. Consequently, they can react without knowledge or rashly. Saying that a procedure must be followed is of itself no guarantee of quality.''

That is an important point, because the quality of the measures that clause 36 would impose has been called into question. We have heard how the three-step procedure in some ways falls short of the existing ACAS code and might, in some ways, conflict with it. To reinforce my hon. Friend's point about the perception of the changes from the point of view of the small employer—whether a business or a charity—we should remember what would be involved.

First, the small employer would be asked to draft a new written statement for each member of staff. Then, not having expertise in the matters in question, he would be required to take legal advice to ensure that the statement that had been drafted complied with the Bill. The employer would then be required to establish whether he had been able to comply in every respect with the ACAS code or the three-step procedure. We debated earlier whether employers would have to bear in mind the nature of the ACAS code and not just the statutory procedures. There was some uncertainty on that point. The worry arises before all the procedures are required, and even before a case comes to fruition or a dispute takes place, when the three-step procedure comes into force.

For all the reasons that I have given, amendment No. 68 provides protection for the smallest of employers. The Federation of Small Businesses has, in recent correspondence, stated:

''The Federation of Small Businesses is concerned that the Bill proposes the end to exemptions for small businesses with one single stroke. Our view is that this will have a devastating effect on the ability of Small Businesses to create jobs.''

All members of the Committee would want to bear that in mind. I understand why people sometimes want to know why there is constant concern about how measures will affect small business. There is a danger that hon. Members who have not worked in a small business—a one or two-man operation—will ask, ''What is the problem? Why is it so difficult?''

First, it has been proved that new regulations place a disproportionate burden on the smallest firms, particularly with respect to staffing and payroll. As an example, the administrative costs of the working families tax credit fall on businesses, as we have heard. The firms that the amendment is intended to protect, which employ from one to five members of staff, face yearly costs of about £25 million to administer the working families tax credit. Yet nine out of 10 of those micro-businesses do not employ and have never employed anyone to whom the tax credit is relevant. That type of regulation has a disproportionate effect and the use of clause 36 to remove the exemption would lead to similar problems.

Secondly, as a simple matter of practicality, such regulation seems right and proper in a large organisation of perhaps 50 or 100 people, where there may be a gap between the employee and the manager. One can understand the need for a clear procedure there to avoid confusion. However, in a place where up

to five people are employed, that seems an unnecessary intrusion. Also, there is a danger that the Government base their proposals on shaky foundations. I point to the recent survey by the Forum of Private Businesses, which states:

''Only 60 per cent. of small firms have a written statement of employment, so this is a shaky foundation on which to build formal dispute resolution procedures''.

The amendment is essential because the clause is bad for jobs. Sole traders need to be encouraged to employ more people. We must do whatever we can in politics and in government to ensure that hurdles to the creation of employment are reduced wherever possible. By not amending the clause and allowing the burden to fall again on micro-businesses, we will affect the most vulnerable on the labour market—those who are on its edge and might need a job the most.

Rob Marris (Labour, Wolverhampton South West)

I confess that I am unclear as to whether the hon. Gentleman is arguing that the schedule 2 minimum procedure should not apply to micro-businesses, as he termed them, or whether it should apply, but that those with fewer than six employees should not tell the employees that it did so. Could he clarify his argument?

Mark Prisk (Conservative, Hertford and Stortford)

The amendment is clear to me, although I do not have the legal training that the hon. Member for Wolverhampton, South-West enjoys. It would exempt organisations that employ fewer than six people, so it does not have the dangers that the hon. Gentleman seems to expect.

The 900,000 micro-businesses to which the Minister has referred several times would find the burden onerous and disproportionate. It would be bad for those that they might employ or want to employ. For both those reasons, I strongly support the amendment.

Mark Simmonds (Conservative, Boston and Skegness)

I apologise to the Committee for my voice, which seems to be deteriorating rapidly this morning. I will make it last as long as I can. In the excitement of making interventions on the first Standing Committee on which I have served, I forgot to declare the fact that I am an employer. I hope that the Committee will accept my apologies.

I have consulted widely with small and micro-businesses inside and outside my constituency. I am sure that many other hon. Members visit small businesses and find that a consistent golden thread runs through the points made by all small business men. They all ask us to remove existing regulations and not to apply further ones to their businesses. No one has said, ''Please, Mr. Simmonds, go and talk to that nice Mr. Johnson and get him to increase the employment legislation on my small business. Get him to make more regulation to create an even more inflexible labour market.''

As my hon. Friend the Member for Wealden said, many small businesses struggle to survive even in what is now a generally healthy economic climate. The great thing about small businesses is that they grow into medium-sized businesses and large businesses, thereby

creating employment, moving from one status to another and generating wealth to be distributed among their employees.

Even before the Bill has been enacted, many small business men are reluctant to take on additional staff. Existing legislation makes them nervous that if a member of staff proves inappropriate for the business and does not behave properly in some way, they cannot get rid of him quickly enough. One of the benefits of small businesses is that they are quick on their feet and can react to economic and social circumstances at any time. That will change.

Government policy and legislation has some serious contradictions. Under stakeholder pension legislation, companies with fewer than five employees rightly did not have to implement stakeholder pensions. Some small companies and micro-businesses in the economy deliberately keep the number of employees below that level so that they do not have to implement them. Ladies returning from maternity leave are not affected by the same regulations in companies with fewer than five employees. The amendment is consistent with some existing Government legislation.

The Federation of Small Businesses has said that small businesses cannot take any more regulation without their ability to hold on to jobs, or to create new ones, being compromised. To my mind, that is the crux of the clause. It negates the ability to create new and additional jobs.

Rob Marris (Labour, Wolverhampton South West)

Perhaps the hon. Gentleman could rest his voice a little. I pose the question that I asked the hon. Member for Hertford and Stortford. Is he making a speech about clause 30, which he should have done when we debated that clause, the first part of which states that every contract of employment shall have the statutory minimum procedure from schedule 2? On the other hand, is he saying that the schedule 2 procedure should apply to all employers, regardless of how many employees they have, but that employers should not tell their employees about the application of that schedule 2 minimum procedure if they employ fewer than six people?

Mark Simmonds (Conservative, Boston and Skegness)

I refer the hon. Gentleman to the answer given by my hon. Friend the Member for Hertford and Stortford. Businesses with fewer than five employees should be exempt from the raft of regulations in the Bill. I am not advocating a pick-and-choose situation. In a very small business, a small number of people work closely together—more closely than those in a medium-sized or large business. The additional procedures may create an atmosphere of animosity and tension that does not exist at present, which cannot be constructive if we aim to allow successful small businesses to fructify.

I have some questions for the Minister. First, how will a small business deal with a persistent applicant, given the bureaucracy and work load that will be placed on the employer?

Secondly, what impact will the clause have on temporary workers, especially those on fixed contracts—bearing in mind clause 45, which we have yet to debate? In my constituency, around Boston,

many jobs are tangentially or directly involved with agriculture and are on either fixed contracts or a less permanent basis. In Skegness, a large number of employees work in tourism. I am concerned that, to avoid being caught by the provisions in clause 45, employers will avoid giving fixed contracts, and people will be employed on a daily rather than a longer-term basis. We will return to the situation of 100 years ago on the docks in London: people will turn up to find work on a daily basis because the small employer will not be prepared to employ them on a longer-term basis.

Thirdly, how will the collective dispute that circumvents procedures in clause 29 operate in practice in a small business? Will two employees with the same disgruntlement become a collective? Is there a de minimis number that needs to apply?

From my understanding of earlier debates, it seems that for small businesses caught by clause 34, after a minimal procedural fault by an employer, not only does dismissal become automatically unfair but the fines are increased. That may have a dramatic, if not fatal impact on the future of the small business.

Joe Benton (Labour, Bootle)

Order. May I point out to the hon. Gentleman that he has gone a little wide of the amendment?

Mark Simmonds (Conservative, Boston and Skegness)

Thank you for your guidance, Mr. Benton. My final suggestion is that the small code for small businesses should exist on a voluntary and informal basis, because small businesses must retain their flexibility to enable them to react to circumstances.

Tony Lloyd (Labour, Manchester Central)

I cannot resist intervening—my hon. Friend the Member for Dudley, South (Mr. Pearson) will probably devastated by this, but I am astonished. We had a wonderful piece of nagging from the hon. Member for Runnymede and Weybridge, who spoke of this carefully crafted Bill that we all grudgingly accept is just about right. However, Opposition Members are now trying to unpick the whole thing by introducing one, narrow amendment, in order to do away with almost all industrial relations applying to firms employing fewer than five people.

I hope that my hon. Friend the Minister will resist this very silly amendment. To talk about this being part of the inflexibility that so ties up small firms as to prevent their growth is nonsense. It is narrow in scope; it is about the need to inform employees of their rights—it is about information. It is interesting that nobody has picked up the valid point made a number of times by my hon. Friend the Member for Wolverhampton, South-West that it is not about exempting such people from the provisions of the Bill as a whole, it is solely about publicising it. In fairness, the hon. Member for Wealden seems to know that. I am not sure that his colleagues do.

The hon. Member for Boston and Skegness (Mr. Simmonds) argued that there is disincentive to grow from five to six. The same would apply if we built in this cut-off. It is anti-competitive between the slightly larger firm and the small one. That is an inflexibility and an unfairness and we should not include it in

legislation. However, not all small firms are destined to become the great and the grand. The little corner shop will remain a little corner shop, and it is true that the majority of small businesses stay small, want to stay small and do not intend to grow beyond the small employment limits.

Philip Hammond (Conservative, Runnymede and Weybridge)

Given that this is a probing amendment to address the impact of legislation not on small businesses but on micro-businesses, does the hon. Gentleman accept that the biggest hurdle to be cleared is that of going from zero to one employee? At that point, under what is proposed, the whole panoply of employment protection legislation and the requirement to follow procedures comes down on the new employer. I am sure that he will recognise that that is a very real and frightening barrier for a person who has been used to working alone, as a sole trader, to break through. That is the issue on which my hon. Friends and I are anxious to draw the Minister.

Tony Lloyd (Labour, Manchester Central)

There is a general argument about the ''burden of regulation''. However, Conservative Members will probably not be surprised if I say that we hear that on every occasion, whether the legislation is good, bad or difficult. The plea is always that small businesses cannot take one more step. However, small businesses have responsibilities as well as rights. They have a responsibility to operate as part of society. They incur responsibilities by taking on the right to employ, because that right has duties attached. Within that, giving minimal information to employees is not such a terrible thing.

A number of businesses have fewer than five employees. They are not little micro-businesses, just out of the incubator. Some of them are well-established businesses of many years' standing. Some of them are very dynamic businesses that enjoy considerable turnovers and make extraordinary profits. The small business sector is often highly efficient in specialised areas. To say that in industries as diverse as print and information technology, firms will never grow and should be permanently exempt from the need to demonstrate their obligations to their employees is ridiculous.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman makes a sensible point. Perhaps he should have tabled an amendment to amendment No. 68, proposing a different threshold. Is he suggesting that there is an argument for going easy on new employers who have, perhaps, one employee, for a period of time after they first become employers? I readily accept that there are some very small firms of highly remunerated professionals who are not in the unfortunate position of the window cleaner who has just managed to take on his first employee.

Tony Lloyd (Labour, Manchester Central)

Opposition Members should remember that size is not everything. That is important in all aspects of life, but particularly in employment legislation. The amendment is the wrong way to

approach the issue and it is counter-productive because it fails to recognise that small firms have obligations, just as large firms do.

Mark Prisk (Conservative, Hertford and Stortford)

I do not want to take the phrase ''size does not matter'' too far, but does the hon. Gentleman not recognise that it is important, wherever possible, to remove hurdles to small firms taking on their first members of staff? We should remember that small firms often deal with those who are struggling to find a job, particularly in the current jobs market. We want to probe the issue with the Minister so that the Government understand it. We may constantly talk about small businesses, but without constant pressure, their needs will sometimes be forgotten.

Tony Lloyd (Labour, Manchester Central)

The educative process that the Opposition are going through is very instructive. Of course we should consider the arguments about how we help firms to make the transition and how we help growing businesses, but even new businesses must recognise their obligations, particularly to others who are vulnerable. The employee in a small business is as vulnerable as the employer. Theirs is a mutual relationship, and their rights and obligations are counterbalanced. It is therefore wrong to approach the issue on the basis of size.

It is important that information is available to the employee, and there are different ways to ensure that the small employer is aware of their obligations and to assist them in making information available to employees. If Opposition Members considered such approaches, I would support them, as I am sure the Government would.

Philip Hammond (Conservative, Runnymede and Weybridge)

At the risk of rerunning the entire Second Reading debate, may I ask whether the hon. Gentleman recognises that micro-businesses, which may be taking on their first employee, often face the unfortunate problem of competition with the informal sector? Their competitor is not a firm with five or 10 employees that does what it should do, but the chap round the corner who pays no tax or VAT and has no cognisance of his obligations as an employer. Our concern is that the small man who tries to run a legitimate business is not hampered in a way that makes him vulnerable to competition from the black economy.

Tony Lloyd (Labour, Manchester Central)

The hon. Gentleman will probably be pleased to know that that was one of the best points to be made on Second Reading, and it is very important. However, we must be careful not to respond to the black economy by eroding standards in the formal economy. It is right to call those who compete by avoiding their obligations to society cheats. We must establish that they indulge in a form of cheating, which is not noble or acceptable. They cheat society of what it should receive and they certainly cheat the honest employer, who tries to conform to acceptable standards. I recognise the need to consider measures to assist growing businesses, and all hon. Members hold that aim in common, although we might disagree about individual aspects of it. I certainly concede that

we must deal with the black economy, although I would do that by stamping down hard on it. I hope that Opposition Members would be at one with me on that.

My contribution has been much longer than I had planned, and I conclude by urging my hon. Friend the Minister to stick to his rather robust approach, reject the Opposition's blandishments, ignore their nagging and confirm that small firms will have to meet their obligations, just as slightly larger firms will.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

This has been a fascinating debate, but much of it was not about the amendment. I shall not get involved in a debate about small businesses—

Philip Hammond (Conservative, Runnymede and Weybridge)

Oh!

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Are Opposition Members seriously suggesting that no employment rights—that would presumably also include the minimum wage because that is included in schedules 3 and 4—would apply to companies with fewer than six employees? Come along to Third Reading, when I shall be pleased to engage in that debate. The problem is that Opposition Members are under a misapprehension. The reason why I will not answer the five questions or unravel the golden thread of the hon. Member for Boston and Skegness is because I would run into the same problems as the hon. Gentleman and step outside the remit of the clause and the amendment.

The hon. Members for Wealden, for Hertford and Stortford, for Boston and Skegness and, it seems, for Runnymede and Weybridge are under a dreadful misapprehension if they think that the amendment would help small businesses. I hope that they will agree to withdraw the amendment.

First, let me remind the Committee of the purpose of the provisions in the Bill that deal with written statements. Most employees who work for their employer for one month or more have the right to receive a written statement of the main particulars of their employment. The clause will not change that, apart from in respect of the exemption. The amendment would not change that. Why should not employees be entitled to that information? Employers and employees need to know the basic terms and conditions on which the employee is engaged. After working for an employer for two months, employees are entitled to receive a written statement, and the amendment will not change that at all. The written statement sets out the key features of the employment relationship, which is fundamental to understanding rights and responsibilities in the workplace. In an environment where 48 per cent. of businesses who come before employment tribunals do not have internal procedures, employment tribunals complain, time and time again, that their work is dogged by the problem of getting to the core of the employee's terms and conditions. Whether a dispute is about holidays, redundancy or pay, both sides need to know what the basic terms and conditions are.

George Osborne (Conservative, Tatton)

The Minister implies that small employers do not have to give any notice of disciplinary procedures but, as I understand it, when

they employ someone, they must indicate to whom a complaint should be referred and how the complaint should be dealt with. He is now proposing that that should be included in a lengthy document, which sets out all the details in schedule 2, although he admitted in a previous debate that many of the 960,000 micro-businesses do not use written communication very much. Indeed, some may have limited clerical facilities. There is already a procedure whereby the window cleaner who employs an assistant says, ''If you have a problem, come to me.'' That can be delivered orally or in writing. The Minister is now suggesting that that window cleaner must also give his assistant a formally set out copy of schedule 2, even though he may not have access to a typewriter or word-processor. The Minister is misleading the Committee if he is suggesting that small businesses do not already have to comply with certain procedures, and those procedures are adequate.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I am not implying anything of the sort. I am merely stating that one of the things that bedevils employment tribunals is the absence of a written statement. The law already insists that an employer should give an employee a basic written statement, and the amendment will not change that. That is fundamental to an understanding of rights and responsibilities in the work place. It forms a record of the basis of the relationship between employer and employee, clarity on which is essential to prevent disputes from arising.

As matters stand, all written statements must include information about handling grievances, but only those issued by employers with 20 or more staff are required to cover disciplinary procedures. That is not to say that disciplinary procedures need not exist in the case of other employers, but that there is no obligation on the employer to include them in the written statement. It is arguable that that situation is anomalous, but it would be more so in the light of the changes that the Committee merrily agreed, which is that the basic three-step and two-step procedures should apply in all workplaces. That is not in dispute. It has already been dealt with.

In future, under the Bill, all employers will have to operate statutory minimum disciplinary and grievance procedure, or something better, but that is not because of changes to the written statement requirements; other clauses imply those procedures, and they give employers and employees incentives to follow them. For example, they provide for awards to be increased or reduced when the procedures are not followed. The changes to the requirement for a written statement ensure only that employers have to inform employees about their disciplinary and grievance procedures.

It is important that all parties are familiar with the procedures. When we come to clause 37, the Committee will see that we have made them easier in several respects. At the moment, the employer cannot include the procedure in the contract of employment; it has to be made as a separate statement. Furthermore, the law implies that it cannot be handed to the employee until after he has begun his employment; that prevents it being sent with the letter

agreeing to employ that person. We are using clause 37 to sort out such ridiculous anomalies. However, it does not change the responsibility of employers to ensure a basic procedure.

One of our arguments has been that in 62 per cent. of cases no one in the workplace has discussed the issue. That is why small businesses without such procedures find themselves dragged before employment tribunals when they could have resolved those disputes in the workplace. The right place for such clarity to be provided is through the written statement; as all employers will in future be obliged to operate the procedures I believe that it is right that they should all be obliged to spell them out.

My hon. Friend the Member for Wolverhampton, South-West was right in his persistent questioning. Removing the 20-employee threshold will not create a new requirement on smaller employers to issue written statements. That is already required. Nor will it oblige them to introduce minimum procedures, as that will be required under other clauses. It will merely ensure that, when issuing the written statement, the employer must include information about its discipline procedures as they apply to the employee.

The effect of the amendment would be that employers would have to have a discipline and grievance procedure; and that they must issue a written statement. Those procedures would exist, but there would be no obligation on employers of fewer than six employees to tell those employees what the procedures were. With the best will in the world, it is a ridiculous amendment. I hope that it will be withdrawn.

George Osborne (Conservative, Tatton)

Will the Minister concede that the clause will require very small business to have much more complicated employment contracts? Indeed, when he was resisting a powerful argument made by the hon. Member for Wolverhampton, South-West about written statements at different stages during the schedule 2 procedure, he made the precise point that small businesses do not have access to the sort of clerical facilities that may be required to produce a more complex employment contract. I return to the example of the window cleaner. Is the Minister saying that a window cleaner employing a window cleaning assistant now needs a complicated employment contract that sets out all the details of schedule 2?

Charles Hendry (Conservative, Wealden)

The Minister's response was disappointing. The amendment was essentially intended to probe the Minister and giving him a chance to talk about the effect of the Bill on micro-businesses—an opportunity that he declined to take. Specific points put to him were entirely in the spirit of the relevant provisions. For instance, my hon. Friend the Member for Boston and Skegness asked whether the clause relates to part-time workers, but Minister did not give any guidance or clarification on those matters. That was particularly disappointing.

We responded to a plea for help from the Federation of Small Businesses, which has spoken to us eloquently about the pressure of legislation and regulation and

has sought to have some of its smaller members spared from further regulations. Again, the Minister has turned a deaf ear.

We sought to offer a degree of compromise to the hon. Member for Manchester, Central and to try to find a place where he and we can meet in the middle. We are not set on particular numbers, but we feel that the Minister should have dealt more thoroughly with some serious issues. We must recognise that the Minister seems reluctant to move further, but I will seek leave to withdraw the amendment.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

With the best will in the world, I cannot see this as a probing amendment. An amendment that simply excluded businesses of fewer than six employees from the statutory minimum procedures might, at a stretch, have been a probing amendment. We could have discussed why the Government believe, as do 86 per cent. of respondents, including the Small Business Council and the Forum of Private Business, that it is in the best interests of small businesses not to be left subject to employment tribunals without having the help that they need to resolve disputes in the workplace.

If Opposition Members were being honest, they would agree that the amendment is not probing in nature. The measure is purely about written statements, and nothing else. I do not want to be discourteous; I usually try meticulously to answer questions. The hon. Member for Boston and Skegness asked a relevant question, which I will answer. Yes, the measure would apply to part-timers, because part-timers will be treated in the same way as full-timers.

The hon. Member for Hertford and Stortford asked whether the measure would mean that every employer had to draw up and issue a new statement to employees. That is not how we envisage matters working. We intend to bring the measures into force in such a way that they can be issued as a statement of change. We do not intend to revise the whole procedure for businesses that do not already have a disciplinary procedure; we just want to add to the written terms and conditions.

That brings me on to the point made by the hon. Member for Tatton (Mr. Osborne), who suggested that the measure would be burdensome because it would involve employers putting tons of paper in front of an employee. We toyed with the idea of saying that the contract of employment should be the written statement. We backed away from that for the reasons given to us by many employers and trade unions. They pointed out that some contracts of employment run to a couple of volumes.

The idea of a concise written statement setting out the basic terms and conditions, which already exists in law and will not be changed by the Bill, was felt to be right. The measures add the basic minimum procedures to that. I do not want to return to the argument of the other day about the garage in Hull having to produce everything in writing.

The Committee has ensured that the procedures are simple. It would have been onerous to add 56 clauses from the ACAS code to the contract of employment. Employers, many of whom will have procedures already, have only to attach such procedures to terms and conditions. If they do not have disciplinary and grievance procedures, they need to introduce and apply such regulations. If they have disciplinary procedures but are excluded by the get-out clause for those with fewer than 20 employees from putting that in the statement, they need to change that and put those procedures in the statement. I do not think that that is onerous.

Having made that distinction, I should say that I do not agree that the Bill will add to burdens on business. Let us discuss other measures as we come to them. I am perfectly happy to debate the fixed-term workers directive, maternity leave and paternity leave when we get to those issues. However, to try to discuss those broad issues in a debate on a narrow clause that relates purely to written statements would not get us far, even in terms of the arguments of Opposition Members.

Mark Prisk (Conservative, Hertford and Stortford)

Part of our point is that every brick in the wall is another burden for small businesses. Sometimes they will be perceived as tiny, but the cumulative effect is often—I must mix my metaphors with care—the straw that breaks the camel's back.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

We are extraordinarily sensitive to the argument that we are burdening businesses with regulation of any kind. That is why we set up the Small Business Service and why we have introduced the various regulatory regimes. The argument in terms of these tribunals is that micro-businesses end up in front of employment tribunals. It costs them money and time and very often they could have sorted out their disputes through a clear written statement and by disciplinary and grievance procedures in the workplace. That is the kernel of this part of the Bill.

Charles Hendry (Conservative, Wealden)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 36 ordered to stand part of the Bill.

Clause 37 - Use of alternative documents to give particulars

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 87, in page 39, line 41, leave out 'meet' and insert 'discharge'.

Joe Benton (Labour, Bootle)

With this it will be convenient to take amendment No. 85, in page 40, line 8, leave out 'met' and insert 'discharged'.

No. 86, in page 40, line 12, leave out 'met' and insert 'discharged'.

No. 88, in page 40, line 31, leave out 'met' and insert 'discharged'.

Philip Hammond (Conservative, Runnymede and Weybridge)

It is generous of the Minister to place it on the record that he is willing to debate the remaining areas of the Bill. I look forward to discussing maternity and paternity leave in due course.

After the heated discussion of the previous amendment , I am pleased to return to matters purely semantic. I had doubts about tabling the amendments, but the more I looked at the Bill, the more I concluded that I have never come across the concept of meeting an obligation. One discharges an obligation, and as far as I am aware, that terminology has been used in other legislation. The clause would be much more elegant and much more readily understood if it said at line 40 on page 39, ''the document contains information which, were the document in the form of a statement under section 1, would discharge the employer's obligation under that section,'' and so on. The remaining amendments repeat the change of the word ''meet'' to the word ''discharge''. I should be fascinated to hear which professor of etymology or whichever science is relevant here—I have probably got that completely wrong and am inadvertently talking about the study of insects—has determined this radical departure in drafting language so that we now have the bizarre concept of meeting an obligation. Where does one meet this obligation? In the street? In the pub?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I do not know whether I shall satisfy the hon. Gentleman, but I shall have a go.

First, clause 37 helps employers to comply with the requirement to give an employee a written statement of employment particulars. At the moment they have to supply a document that is such a statement, even if they have also issued a contract of employment or a letter of engagement; they have to do it twice. To meet the requirements of the legislation, they probably have to do so after the employee starts work. We propose that a contract of employment or a letter of engagement containing the necessary particulars, given before or after the employee starts work, will meet the employer's obligations under the Employment Rights Act 1996.

The hon. Gentleman asked who is behind the choice of words. Parliamentary Counsel is my plea, and I am assured that the words ''meet'' or ''met'' mean that the employer has done what he is obliged to do and that nothing further is necessary. If hon. Members are concerned that those words mean anything less, I am happy to reassure them. Changing ''meet'' to ''discharge'' and ''met'' to ''discharged'', as the amendments propose, would add nothing. The amendments are unnecessary, and I ask the hon. Gentleman to withdraw them.

Philip Hammond (Conservative, Runnymede and Weybridge)

The amendment would add nothing but elegance. This stuff is dreary enough.

Philip Hammond (Conservative, Runnymede and Weybridge)

The amendment would add nothing but elegance. This stuff is dreary enough.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

We don't do elegance.

Philip Hammond (Conservative, Runnymede and Weybridge)

Well, he should try. Elegance in the language of parliamentary drafting is to be sought after. It occurs to me that ''satisfied'' would have done

just as well as ''discharged''. I am disappointed that there is not a more substantive reason for departing from what I understand to be a conventional use of language, but clearly I do not want to dig in over the matter if the Minister feels so strongly. Reluctantly, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 37 ordered to stand part of the Bill.

Clause 38 - Failure to give statement of employment particulars, etc.

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 80, in page 41, line 21, after 'document', insert

'purporting to be a document'.

Joe Benton (Labour, Bootle)

With this we may take the following amendments: No. 81, in page 41, line 28, after 'document', insert 'purporting to be a document'.

No. 82, in page 41, line 33, at end add 'and,

(d) the breach is material to the proceedings in question before the tribunal'.

Philip Hammond (Conservative, Runnymede and Weybridge)

I will not say that this amendment is a probing one, because a substantive point is involved, but perhaps it has been dealt with in a way that I have not understood. The matter is complicated. The purpose of clause 38(4) is to distinguish and deal with two classes of defaulter: the employer who delivers a statement that turns out not to be the requisite statement, being defective in some way; and the employer who delivers no statement at all. Common sense tells us that there is a difference between the offence of thumbing one's nose at the rules and saying, ''I am not going to do what is required'' and the probably lesser one of having a stab at the task but making a hash of it and delivering a defective statement.

Subsection (4)(a)(ii) refers to an employer who

''has not given the employee a statement purporting to be a statement under that provision''.

The important point is that the statement may or may not discharge the employer's duties under the provision, but it at least purports to do so. The sub-paragraph continues the definition,

''or a document capable under section 7A . . . of performing the function of such a statement''—

a substitute document.

It seems to me that to be consistent, and for symmetry, the latter passage should refer to ''a document purporting to be a document capable under section 7A . . . of performing the function of such a statement''. Anything less treats the substitute document, or the document delivered as capable of being used as a substitute document, differently from a statement that is delivered as a statement under the provision, but which is not one.

It is difficult to make the argument concise, but there is a clear lack of symmetry between the reference to a statement purporting to be a statement and the lack of

a matching reference to a document purporting to be a document. If I have missed something about this, perhaps the Minister will clarify the matter.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Clause 38 requires employment tribunals, when an employee has successfully complained about the breach of another employment right, to consider whether the employee was given a written statement of employment particulars by his employer. If not, or if the statement is incomplete or inaccurate, the tribunal must increase the compensation; alternatively it must award compensation if the relevant jurisdiction does not allow compensation or the tribunal has not chosen it as a remedy. A mitigation of between 5 per cent. and 25 per cent. is applied.

It is at this point that matters become complicated. Subsections (4)(a)(ii) and (4)(b)(ii) refer to

''a statement purporting to be a statement''

under that section, which means the relevant section of the Employment Rights Act 1996, or

''a document capable under section 7A of that Act . . . of performing the function of such a statement''.

Those final words relate to the earlier phrase

''a statement purporting to be a statement''

in that section. Section 7A of the 1996 Act refers to a document, either a contract of employment or a letter of engagement, capable of performing the function of a statement purporting to be a statement under the Act. It is not necessary to add the words

''purporting to be a document''

in either case, as amendments Nos. 80 and 81 propose. The hon. Gentleman is right; he is doing his job, which has forced me to re-examine the clause. I took another Nurofen as a result, but I am satisfied that the clause relates to the 1996 Act. As in the previous amendment, we have agreed that the contract of employment and the letter of engagement can be written statements. That makes it easier for small businesses because they do not have to produce a third statement.

Amendment No. 82 is different from, although correctly grouped with, the other amendments. We have deliberately not limited compensation to occasions when an employer's breach of the written statement requirements is relevant to the matter complained of by the employee, but such would be the effect of amendment No. 82. The clause allows the tribunal to vary the award and it would be free to relate that to the effect of the employer's breach. It would be wrong to restrict tribunals to awarding compensation only when there is such an effect.

The written statement is a key document in clarifying the relationship between employer and employee, and in helping to avoid workplace disputes. If a dispute prompts an employee to complain successfully to a tribunal and it is found that the employer has not met his written statement obligations elsewhere, the employer should incur some penalty regardless of whether the breach is material to the case being heard. I am therefore unable to agree to the hon. Gentleman's amendment and I hope that he will withdraw it and not press the rest of the group.

Philip Hammond (Conservative, Runnymede and Weybridge)

I simply do not agree with the Minister on the first two amendments, but I accept that the matter is complicated. The Minister has the drop on me at the moment because he has the wording to which the clause refers. It is not obvious that a document purporting to be capable

''of performing the function of a statement''

is the same as a document capable

''of performing the function of a statement''

purporting to be that statement. I think that is right, and I shall reflect on it. If that is how the clause works, fine. That is not immediately obvious because it is not the statement that we are examining in the latter part of the subsection: it is the document capable

''of performing the function of a statement''.

A statement purporting to be a statement is not strictly relevant.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I have lost the will to live.

Philip Hammond (Conservative, Runnymede and Weybridge)

I have performed my function admirably, Mr. Benton, and profess myself well pleased with today's proceedings.

Kevin Hughes (Labour, Doncaster North)

Is the hon. Gentleman a lawyer, or just purporting to be a lawyer?

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman has touched on my Achilles heel. I am not a lawyer, but there is something of the frustrated lawyer in me.

The language of the Bill is impenetrable. Many Bills that we consider depend on references and amendments to other legislation, which can make it impossible to discern the end effect from a reading of the Bill. That is unfortunate. I was struck by that peculiar lack of symmetry and I shall go away and reflect on it further.

I am not surprised that the Minister did not accept amendment No. 82; I am slightly surprised that I forgot to speak to it in my opening remarks, but we shall let that pass. However, there is an idea—it lies behind much of today's discussion—that breaches of procedure must be material and have some impact before people are penalised in respect of them. There was a huge sigh of relief from employer organisations, especially small business organisations, when the Minister decided to tackle the matter head on and say that issues of fairness in dismissal and in the way in which people are dealt with at work must be about substance, not form. The issue cannot be minor nit-picking over whether procedures have been followed and whether, for example, the correct word has been used; it must be something more substantive.

However, the Minister then introduced the minimum statutory procedures to which he does not extend that logic. He says that if someone fails to comply with those procedures to the letter, they will be penalised regardless of whether that failure has any impact. That is slightly out of keeping with the his general tone and approach to the clause, and I tabled the amendment to probe his thinking on the issue. That said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 83, in page 42, line 15, leave out paragraph (b).

Joe Benton (Labour, Bootle)

With this we may discuss amendment No. 84, in page 42, line 18, leave out paragraph (c).

Philip Hammond (Conservative, Runnymede and Weybridge)

Paragraph (b) gives the Secretary of State the power by order to

''make provision, in relation to a jurisdiction listed in Schedule 4, for this section not to apply to proceedings relating to claims of a description specified in the order''.

That is a wide power for the Secretary of State to disapply clause 38. If the Minister wants such a wide power, I should like him on the record to constrain his use of that power by limiting its effect. I imagine that he has in mind specific cases in which he intends to use the powers. I suspect that my hon. Friends share my belief that it is far too wide an order-making power to give the Secretary of State without some explanation of why it is needed and how the Minister intends to use it on the Secretary of State's behalf.

Amendment No. 84 will be so familiar to Committee members as scarcely to require an explanation. It deals with the Secretary of State's ability by order to provide that a person who is not an employee is an employee and a person who is not an employer is an employer. Again, I find deeply disturbing the idea that something can be what it is not merely because the Secretary of State says so. We have had that discussion before.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The jurisdictions set out in schedule 4 are the same as those in schedule 3. There may be occasions on which it is inappropriate for statutory procedures to apply to a jurisdiction in all circumstances, so schedule 3 would need to be amended. We would ordinarily expect to modify schedule 4 to reflect such changes. They would be rare and, although I always like to give an example, I have unfortunately not got one for the hon. Gentleman.

The measure is prudent. We have taken the power to amend schedule 3; as schedule 4 sets out exactly the same jurisdictions, it would be wise to hold that in reserve. The hon. Gentleman asked for an assurance that we will not use the power often. It will be used rarely; nevertheless the power that amendment No. 83 would exclude, and the power to amend those jurisdictions to which adjustment of awards apply, are equally necessary. We will consult on what exclusions should be made by regulation under either power, and consider carefully before finalising them.

Subsection (10)(a) gives a power to add new jurisdictions to the list in schedule 4. When and if we come to consider making such additions, it may become apparent that the written statement penalty should apply to some descriptions of claims that can be brought under the jurisdiction, but not others. It is therefore only prudent to be able to exclude the penalty from applying to particular descriptions of claims within a jurisdiction that is added.

Amendment No. 84 is an old friend. The hon. Gentleman mentioned that we had been around this course several times. He asked for assurances that we

would not want any change in advance of the worker-employee review, which we intend to conduct next year. I am happy to give that assurance again on this amendment, as with the others.

Philip Hammond (Conservative, Runnymede and Weybridge)

Cue the hon. Member for Manchester, Central.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

As it is coming up to Christmas, I will save my hon. Friend the Member for Manchester, Central from making his intervention. As in the previous debate, I will respond to the intervention before it is made. The Secretary of State has given a firm assurance that that review will be carried out next year.

I urge the hon. Gentleman to withdraw the amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

I have heard the Minister's comments. I am disappointed that, even with the assistance of his substantial resources, he has been unable to come up with an example of why he might need the power. I am reluctant to give Secretaries of State wide powers to act by order in any case, but when the combined resources of the Department of Trade and Industry and parliamentary draftsmen, despite

racking their brains over the weekend, cannot come up with a single example, it suggests that the Minister is gold-plating the facilities available.

I suggest strongly that we should impose the example test as a minimum requirement. If even the Minister cannot think of the weirdest and most outlandish example of when he might need to use the power, it is probably a power that he should not have. I am sure that my noble Friends in the other place will have noted the Minister's inability to provide a single example and will want to see whether his noble Friend, given a couple of months' notice, will have come up with something. In the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 38 ordered to stand part of the Bill.

Schedule 4 agreed to.

Clauses 39 to 41 ordered to stand part of the Bill.

Ian Pearson (Labour, Dudley South)

Despite the ritualised protests from the hon. Member for Runnymede and Weybridge about the timetable motion, we have given the Bill detailed and thorough consideration. We have proceeded at a measured pace and agreed an amendment to clause 34 and the basis of a later amendment. We have done some good work.

Further consideration adjourned.—[Mr. Pearson.]

Adjourned accordingly at one minute to Seven o'clock till Tuesday 8 January 2002 at half-past Four o'clock.