EMPLOYMENT TRIBUNALS (Hansard, 8 July 2002)

§ Alan Johnson
I beg to move, That this House agrees with the Lords in the said amendment.

Mr. Deputy Speaker
With this we may discuss Lords amendments Nos. 27 to 30.

§ Alan Johnson
The amendments concern the ability to pay employment tribunal and employment appeal tribunal cost orders and preparation time payments. The other place discussed a recent Court of Appeal case, Kovacs v. Queen Mary and Westfield college and the Royal Hospitals NHS trust, which ruled that a tribunal cannot take into account a party's ability to pay when making an award of costs.
It has long been a feature of the employment tribunal system that ability to pay can be a consideration in deciding whether to make a costs award or in setting the level of an award. The Court of Appeal decision effectively removed the tribunal's discretion in that respect, but we believe that it should be able to take ability to pay into account if it considers that appropriate.
Throughout our deliberations, we heard that tribunal rules and procedures differ from those of other courts because their nature is different and distinct. A large number of applicants may be in a vulnerable position because they have lost their jobs or are pursuing redundancy or wages complaints. We must be careful to ensure that the costs regime takes proper account of that.
Amendment No. 26 provides that tribunal regulations may include provision authorising a tribunal to take ability to pay into account when making a costs award. Amendments Nos. 28 and 30 do the same for preparation time awards and the employment appeal tribunal respectively. A tribunal will have the option of making a full award of costs, no award or a reduced award as it sees fit.
We have provided for a discretion, not a requirement. Making it a requirement that the tribunal must take into account a party's ability to pay when making a costs award would mean that a party of very limited means could bring or conduct a tribunal case wholly unreasonably with absolute impunity. That cannot be right. There would be no deterrent to unreasonable behaviour, we would weaken the tribunal's powers to control such behaviour and there would be no means of compensating a party who suffers as a result.
There may be circumstances, albeit rare and extreme, in which a party of limited means has behaved in such an unreasonable or vexatious way that a costs award may still be justified. I mentioned in an earlier debate that a tribunal concluded that a woman had brought a costs case against her husband purely as an extension of their matrimonial dispute. Such cases are of course rare, but they happen occasionally and tribunals must be able to deal with them.
625 Amendment No. 27 is a technical amendment to the new provision for preparation time awards. It replaces the time spent by that other party in preparing his case to with time spent in preparing that other party's case". It has always been our intention that awards of preparation time that are made to respondents who employ staff should be able to take account of time spent by those staff who work on the case. Although the original wording of the clause would have allowed for that in the case of a corporate respondent because it can only act through its employees, the position of a sole trader who employs staff was less clear because it might imply that the provision for preparation time would apply only to time spent by him or her personally. The wording has therefore been amended to read "that other party's case" rather than "his".
The new wording also refers to "time spent" rather than "the time spent". That is a minor change. It reflects the fact that although parties will have to show that they have spent time on a case in order to be eligible for an award, they will not be required to produce detailed evidence of the actual time spent on it.
Amendment No. 29 is a substantial amendment. It provides that if regulations are made on costs and preparation time, they must include a provision that the tribunal may not award both costs and preparation time to the same person in the same proceedings. Throughout the Bill's proceedings, we heard from a number of highly respected organisations who work with applicants, such as the National Association of Citizens Advice Bureaux, the Law Society and the Trades Union Congress, that the threat of costs is increasingly being used to intimidate applicants into withdrawing their complaints regardless of whether the case is without merit or whether the applicant's behaviour has been unreasonable. They are concerned that awards could be higher as a result of the new provision for preparation time and that representatives would use that to intimidate applicants genuinely seeking redress for an infringement of their employment rights.

§ Mr. George Osborne
Although these individual points may be good ones, the Minister seems to be straying from the original point of the Bill, which is to deter people from bringing various cases to an employment tribunal. Indeed, the Government originally had the idea of charging people to bring a case which they dropped before the Bill was even introduced. Is the Minister aware that he is in danger of watering down the proposals so much that they will not have any effect on the number of cases brought to a tribunal?

§ Alan Johnson
I hope that when the hon. Gentleman has heard the case he will feel differently. As he said, these are laudable amendments. It was never our intention to deter people who have a grievance or a claim against their employer from going to a tribunal, nor was it the intention of anybody in the Standing Committee to frighten people so that they would not pursue their case. The whole ethos behind the Bill stems from the fact that many disputes that go to employment tribunals could be sorted out in the workplace. That was the main thrust of our argument. We felt that between 30,000 and 40,000 cases could be solved in the workplace.
626 On this clause, we argued that in a system designed to discourage legal representation—the whole basis of the system is its informality—it would be ridiculous to award costs only to people who were legally represented, so that people whose time had been equally wasted but who represented themselves would receive no compensation. That is the basis of the amendment.

§ Judy Mallaber (Amber Valley)
Will my hon. Friend confirm that, in Committee, those of us who were concerned about preparation costs were seeking to protect not those trying to make a vexatious claim but the most vulnerable people? They would easily be intimidated by somebody with a phalanx of people working for him whose time could be costed, and they would therefore be vulnerable to the argument that they could be landed with a bill for, say, £10,000 in costs.

§ Alan Johnson
My hon. Friend is absolutely right. She, along with other colleagues, raised those concerns in our debates. The amendment deals with them by providing that when the regulations on costs and preparation time are drawn up, they must include provision that a tribunal cannot award compensation for both costs and preparation time. We will consider many of the other points made about the limit on costs, particularly by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris), which will be dealt with in the regulations.
The amendment has been welcomed by the Law Society as being fairer than the existing provisions. It has also acknowledged that given the nature of employment tribunals it may be legitimate to allow tribunals to include awards for non-legal costs". We will consider how best to set that out in the regulations, and we will of course consult on those.

§ Mr. Hammond
As the Minister said, the amendments do two things. They introduce changes that empower tribunals to take account of a person's financial circumstances in setting awards of costs or of compensation for preparation time and, separately, they introduce a prohibition on awards being made for both costs and preparation time.
On the latter point, I understand the concerns, expressed by the hon. Member for Amber Valley (Judy Mallaber) in Committee and again today, that people should not be denied access to a tribunal by the threat of exceptionally high costs being sought against them. The Government have gone about it in the wrong way, and in a moment I shall suggest to the Minister another way in which it could have been done.
4.45 pm
First, I want to deal with the taking into account of a person's financial circumstances. On the face of it, the Minister's case for the amendment sounds reasonable—that in making an award of costs, the financial circumstances of the person against whom the costs are awarded should be taken into account. However, he did not underline the fact that costs are not routinely awarded in employment tribunal cases. We are talking only about cases where the applicant or defendant has acted frivolously or vexatiously: the ordinary applicant with a perfectly reasonable case who happens to lose it will not be clobbered for an enormous amount of costs. The 627 Minister gave us the figures in Committee. In the most recent year for which figures were available, awards of costs were made in about 400 or 500 of the many tens of thousands of tribunal cases. In the vast majority of cases, the issue of costs will not arise, because it arises only where the applicant, defendant or respondent is judged to have behaved frivolously or vexatiously. It is not clear to me that in those circumstances the pecuniousness or otherwise of the applicant should be a principal consideration.
Another issue is involved. The ability to recover an award of costs is a protection for the innocent victim of such vexatious or frivolous behaviour. That could be an employer who is faced with a claim that is scandalously improper—I think that scandalous is one of the terms used, as well as vexatious and frivolous—but he still has to defend it. It could be an applicant with a rock-solid, cast-iron, open-and-shut case who is forced to argue their way through a completely implausible and vexatious defence mounted by the respondent. The ability to recover costs is an important protection for people who are involuntarily caught up in these matters as a result of having been on one end or the other of such behaviour. Employers in particular are forced to defend actions brought against them in the employment tribunal. In Committee, I quoted comments made to me by the chairman of a relatively large publicly quoted company, who would not want to be named for obvious reasons. He said that his company invariably settles any employment tribunal claim brought against it if it can settle it for less than £2,000. The company does that not on the merits of the case brought, but simply on a cold, hard analysis of the fact that it will cost it at least £2,000 to investigate the facts and to allow the employee time to prepare a case and mount a defence.
It is a pretty serious indictment of the employment tribunal system that for some people, at least, it is essentially a free ticket to small claims, because employers feel that they have to settle them. The Minister seems implicitly to have recognised that problem, in that the Bill tightens up on access to the tribunal and ensures that cases that are brought are proper cases. I suggest to him that this provision does not move in that direction by trying to discourage vexatious and frivolous cases.

§ Judy Mallaber
Will the hon. Gentleman give way?

§ Rob Marris
Will the hon. Gentleman give way?

§ Mr. Hammond
I first give way to the hon. Member for Amber Valley.

§ Judy Mallaber
Does the hon. Gentleman accept that the amendment would only authorise an employment tribunal to have regard to a person's ability to pay, rather than requiring them to take account of it, so cases such as those that he described would be taken account of by the tribunal in making its award of costs? There is an aspect of costs that is broader than simply what happens in the tribunal itself. It is involved in cases where someone in the workplace is intimidated by the idea that when they reach an employment tribunal they could be landed with 628 a very high bill, regardless of whether that would be so. Such a person may not have access to advice telling them that they would not in fact be landed with such costs.

§ Mr. Hammond
The hon. Lady is right in that the amendment proposes that the rules should authorise tribunals to take into account the circumstances of the person against whom the award is made.
In the letter sent to my noble Friend Baroness Miller when the amendment was before the other place, Lord Sainsbury seemed to imply that there was no cause for concern because in the really bad cases the tribunal would still be able to award costs against someone without regard to their financial circumstances. The point that I was trying to make is that the question of an award of costs arises only in the really bad cases—only if the case is vexatious, frivolous or scandalous. In the vast majority of cases, win or lose, the issue of costs will not arise.

§ Rob Marris
My recollection of the debate in Committee is similar to the hon. Gentleman's, but I seem to remember the Minister citing figures suggesting that, in about one third of cases where costs were awarded, they were awarded against the respondent employer. That employer might be a badly advised small business, or there could have been a personality clash in a small company. Is the champion of small business now saying that we should not have regard for such businesses' ability to pay, and that those businesses might be put out of operation as a result?

§ Mr. Hammond
Although I am happy to be referred to on the record by the hon. Gentleman as the champion of small business, I also like to be thought of as the champion of fairness. We must think very carefully about the person who did not ask to become involved in a process but who must incur costs—either in time or in external costs—in responding. I am grateful to the hon. Gentleman for his intervention because I hope that it will be clear to those listening that I am not making a partisan point. This is not a point made exclusively on behalf of employers.
I can perfectly easily envisage an employer deciding to fight tooth and nail an application which he knows in his heart—and which it is perfectly apparent to everybody else—cannot be defended. It is wholly reasonable that the person making such an application should have the opportunity to recover the costs that they have properly incurred as a result of being put to all the trouble by the vexatious actions of the other party—be it the employer or the employee. In equity, the pecuniousness or otherwise of that other party is not the principal issue.
I am certainly not a blind champion of anybody. I recognise, and have recognised, that there are rotten apples in every barrel, and I would never pretend otherwise.

§ Mr. Tony Lloyd (Manchester, Central)
I completely fail to understand the hon. Gentleman's logic. Had costs been a permanent deterrent and had the possibility of incurring them been known from the beginning, or had costs been a routine way of recovering expenditure by the state and others, it might have been argued that the provision should apply equally to everybody. However, the hon. Gentleman is suggesting rather arbitrarily that 629 those who are super rich—either respondents of claimants—should he able to go to a tribunal knowing full well that they can absorb easily any costs incurred, but that those who are much less well off, because they come from a small firm or they are acting individually, should be penalised disproportionately. I do not see the sense of justice in that. Is not the balance about right?

§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. The hon. Gentleman's intervention is rather long.

§ Mr. Hammond
The hon. Gentleman's old Labour credentials often come through impeccably. Such payments are a fact of life in our society—unless he advocates making every penalty and award proportionate to the income of the person forced to pay it. The hon. Gentleman nods in agreement, but we are straying from the amendment, which would not have any impact on the problem that he raised. He is right: with or without the amendment, a rich employer, determined to go head to head with an applicant with an unanswerable case, would be able to do so with impunity, knowing that he could absorb the award of costs. The point made by the hon. Gentleman is therefore not particularly relevant to our discussion of the amendment.
Earlier in our debate, an important general point was made about the inexorable rise in tribunal applications. The Government's underlying intention in introducing the legislation was not to deter people with well-founded claims from making them, but to ensure, first, that claims that do not need to go to a tribunal to be settled, do not do so, and secondly, that the tribunal does not become the subject of a growing number of vexatious and frivolous claims brought by people who believe that they can test the water. Who knows, perhaps they are in the fortunate position of working for someone like the anonymous employer whom I cited earlier, who will settle anyway to avoid hassle and expense. There is no doubt that a bit of that has been going on.
The Minister has accepted the underlying purpose of clause 22 is not to sweep claims under the carpet so that people do not have access to a settlement, but to achieve settlement in the workplace wherever possible. In our early consideration of the Bill, the Minister talked about reducing the number of tribunal applications, but in more recent exchanges, he has talked about arresting the rise in the number of tribunal applications. That is an important distinction—the Government's original, laudable objective in the provision has been abandoned before the Bill has even completed its parliamentary passage. I should be grateful if the Minister could give the House up-to-date figures on employment tribunal applications, together with the Government's revised target.
Are the Government expecting a reduction in the number of employment tribunal applications as a result of the passage of the Bill, or are they, as I believe is the case, projecting a rise in the number of employment tribunal applications? If so, how many applications are involved? I fear that many of my hon. Friends and many people outside the House will regard that as an acknowledgement of failure of the Government's objectives. Can the Minister confirm that if the trend continues to rise inexorably, he will review the evidence, particularly in relation to vexations and frivolous claims, and reconsider the Government's position if it becomes apparent that such claims are not being adequately prevented by the amendment?
630 The second substantive point arising from this group of amendments is slightly different.

§ Mr. Lloyd
The hon. Gentleman touches on an important point concerning the philosophy of the tribunal. Does he believe that the rise in the number of people applying to tribunals is driven by either vexatious claimants or vexatious respondents? If that is the case, we would need to look into it. However, if the hon. Gentleman believes, as I do, that the rise in the number of tribunal cases may be arrested by more satisfactory procedures, which my hon. Friend the Minister has tried to introduce into the law, and reflects the nature of the modern world of employment, we are faced with a different situation. The hon. Gentleman is speaking about deterring legitimate claims from going to tribunals.

§ Mr. Hammond
I very much hope that the hon. Gentleman is right and that the Bill achieves the original objective set out by the Government—to reduce the number of applications to tribunals by improving the procedures for dealing in the workplace with what might otherwise become employment tribunal applications.
I believe I am right in saying that the Minister has already acknowledged—he will clarify this when he speaks again—that we will not see a reduction, and that the best we can hope for is a diminution in the rate of growth. I do not have the figures. [Interruption.] The Minister is chuckling on the Bench; perhaps he has them now. I am not suggesting to the hon. Member for Manchester, Central (Mr. Lloyd) that the increase that we have witnessed is driven entirely by vexatious or frivolous claims, in the technical sense in which the employment legislation defines those. However, I do think, and I am not afraid to say this, that there has been an element of gold digging.
There is a perception in some quarters that some employers will buckle in the face of modest claims, because of the expense and disruption of defending themselves against claims. As I understand it, the Government recognise that phenomenon and, while wishing to protect the right of the genuinely aggrieved party to have access to the tribunal, do not wish to encourage frivolous or trivial use of the tribunal in the hope of making a quick buck. I should not have thought that the hon. Member for Manchester, Central wanted to encourage that either.
The second substantive point to which the present group of amendments gives rise relates to the ability to recover legal costs and own-preparation time. The Government are right in the original drafting of the Bill to remove any discrimination against parties who prepare and mount their own case, rather than using expensive external legal resources. That will benefit parties on both sides of the industrial equation, and we welcome it.
However, the Government in their wisdom have now decided that people can be awarded costs in respect of only one or the other form of expense—external third-party costs, typically of engaging a lawyer, or the person or firm's own costs in mounting a defence internally. Almost invariably, there will be both forms of cost. Even if an employer faced with a claim immediately engages a law firm to act for him, as many do, he will find that the law firm is unable to act without a great 631 deal of information being collated internally in the firm, a considerable amount of time and energy being spent to produce basic information, and probably somebody from the firm attending the tribunal.
The proposal in the Government amendment is particularly disadvantageous to smaller businesses. In practice, a large firm will be used to receiving and dealing with employment tribunal applications, not because it is a bad firm or because it has particularly litigious employees, but by its nature as a large firm. It will have a procedure in place, and will probably have in-house lawyers who can deal with the matter. If not, it will have a retained external law firm to which it will immediately pass the matter. In either case, the large majority of its costs will fall under one of two headings—own costs or third-party legal costs—and it will therefore be able to cover them under the amendment.
Let us consider a typical small business such as a sole trader. On receiving an application from an employee in respect of an employment tribunal, the employer in such a business will probably seek first to deal with the issue himself. Small businesses are usually reluctant to incur external costs and especially to hire lawyers, because they know that lawyers typically do not come cheap. The employer will probably struggle with the case for some time on his own, but if it becomes apparent that it will be tested in a tribunal, he may well feel that he does not have the presentational and adversarial skills and so on that he requires to appear there in person as the principal representative for the respondent. When it becomes apparent that the matter is serious and will go to a tribunal, he will therefore be likely to engage a lawyer.
I suggest to the Minister that many smaller firms will find that they have costs under both the headings to which I referred, as they will have started by trying to deal with the matter themselves and to keep their legal costs down by doing as much of the work as they can, but will still have had to engage expensive legal support in the latter stages, bearing in mind that nobody knows in preparing a response to a tribunal application whether they will be awarded costs. The statistical evidence suggests that it is more than likely that they will not.

§ Mr. Kevan Jones (North Durham)
Surely, if the employer thinks that the claim is frivolous and vexatious, the law allows them to ask for a pre-hearing assessment before the chairman of the tribunal. The chairman can determine that the claim is frivolous and vexatious, and direct that, if the case is taken forward, the other party will have to cover the costs if they lose.

§ Mr. Hammond
The hon. Gentleman is right; I think that the law currently allows a deposit to be requested at the pre-hearing. I think that the deposit is typically £150, although perhaps I am wrong, in which case the Minister will correct me.
Such remedies may be available, but I am seeking to make a more general point. As I said, I am not indifferent to the point made by the hon. Member for Amber Valley. I have firmly lodged in my mind the example cited in the Standing Committee involving a lawyer sending out a threatening letter suggesting that costs could be as high as £50,000, in an attempt to scare an applicant off. Such behaviour is clearly unacceptable.
632 If the Minister recognises that there is a problem, he must address the issue of the maximum quantum of costs that can be incurred in mounting a response to an application. It seems perverse and illogical to suggest that it is okay to incur £10,000 of legal costs by going to an expensive legal firm for advice or £10,000 of own costs by using one's internal resources, such as an in-house lawyer, but that an employer who spends £4,000 internally and another £4,000 by taking the case in its latter stages to an external lawyer will be eligible only for reimbursement of a maximum of £4,000. If the Minister wants to address the concerns of the hon. Member for Amber Valley, he would best do so by introducing some means of capping the total cost and not by imposing a grossly unfair and discriminatory prohibition on firms or applicants who incur costs under both headings and may therefore suffer by comparison with someone who has incurred all their costs under one head.
I urge the Minister to think very carefully about his logic for introducing such provision, as it does not seem fair, equitable or appropriate.

§ Ms Joan Walley (Stoke-on-Trent, North)
I do not wish to detain the House long on this issue. I am relieved that there is an amendment from the other place that will require or at least give discretion to an employment tribunal to have regard to ability to pay. I welcome my hon. Friend the Minister's acceptance of the amendment. These issues are at the core of the way in which we are taking forward employment tribunal procedures, and relate as much to regulations that were introduced some 12 months or so ago that changed the way in which costs were introduced so that any case that was unreasonable, as opposed to vexatious or frivolous, could incur costs. How can we say that something is reasonable or otherwise without the benefit of hindsight? How else can case law be established?
At the heart of this debate are the changes that were introduced a year ago, which increased the upper limit in respect of costs. I do not think that we would be having this precise debate now, with the statements that the shadow Minister has just made to the House, if we had not had those changes.
The changes in the regulations still give me some concern as to whether the Government's proposals will deal with people being deterred from taking cases to employment tribunals, or ensure that more is dealt with within the work force itself. Of course, we want particular concerns to be dealt with in the workplace. We do not want them to have a go to a tribunal, but there is still some failure to tie up the implications of those changes.
Comments have been made about how many cases are going to tribunals. How is the Minister monitoring the cases that are going to tribunals? Have we seen a change in the number of cases going forward since those regulations were introduced last July?
I am relieved that we have this amendment from the Lords. I wrote to the Minister on 26 June 2001 pointing out that there was still no requirement on tribunals to have regard to the ability to pay and drawing attention to the Kovacs case. In his response in a letter dated 16 July, the Minister said that that was correct but case law has established that in making a costs order it will usually be desirable to look into the means of the party concerned, and of course tribunal chairmen are well aware of this. 633 As the Minister has pointed out, we now have the decision of the employment appeals tribunal, which sets out that there is no way in which a chairman of an employment tribunal could have any discretion as to whether costs should or should not be awarded—there is no way in which that could take place. Therefore, I am relieved that, finally, after 12 months of correspondence—and having raised the matter on Second Reading—we have an acknowledgement in the other place that that has to be taken into account.
The Minister said that chairmen of employment tribunals and indeed employment tribunals themselves should take into account ability to pay where it is appropriate to do so. Given that we do not have a requirement—we have only a discretion—I still have some concerns. I wonder whether the Minister could spell out in a little more detail for the record exactly which circumstances he is thinking of in which the chairman could have regard to ability to pay. That is a critical point.
The changes brought in 12 months ago could do far more to deter people from taking claims to employment tribunals because they were afraid. I am not thinking about the businesses, the employers; I am thinking about those who have valid cases, but who may he deterred from taking their cases to tribunals simply because they fear substantial costs may be awarded against them. I should be grateful if the Minister would give further attention to that when he replies.

§ Mr. Lloyd
May I say to my hon. Friend the Minister that I welcome the amendments and the fact that the Government want to see them incorporated into the Bill? I think that it was the hon. Member for Tatton (Mr. Osborne) who talked about deterrence. Let us make it clear that, while most of us would accept the legitimacy of deterrence to prevent frivolous, vexatious or, indeed, scandalous claims—although these are sometimes quite subjective concepts—there is always a concern that deterrence will be applied to legitimate claimants. Not only might such claimants be deterred when they find themselves saddled with costs but they might not even dare to exercise their right of access to the tribunal. While we want to deter those who abuse the system, we certainly do not want to deter those who should have proper recourse to the tribunal. I hope that my hon. Friend the Minister will make it quite clear that that is the Government's approach, and that we are not here to deter legitimate claimants.

§ Mr. George Osborne
The Minister said in Committee that it was his objective to reduce by 30,000 or 40,000 the number of cases coming before employment tribunals. Does the hon. Gentleman share that objective? It is not entirely clear from what he is saying that he does.

§ Mr. Lloyd
Let me make it quite clear. If no one ever exercised their right of access to a tribunal because the internal mechanisms worked well, we would all be delighted. Conservative Members should not work themselves into a frenzy saying that the existence of the tribunals is, of itself, a bad thing, or that the use of an existing tribunal is a bad thing. Sometimes a society such as ours needs such provisions—I do not want to use the term "case law", because it would almost give tribunals too much of a legalistic nature, which we want to avoid. 634 We need the tribunals to examine where the balance lies in industrial relations in our society; they perform an important role above and beyond the simple resolution of individual cases. We do not want the idea to go out from the Chamber tonight, or from anywhere else, that we regret either the existence or the operation of the tribunals. They are a necessary part of a modern, efficient society.
We are talking about how we should fine-tune the tribunals' function, and make them work better. In that context, the Minister has genuinely made progress. The opportunity for the tribunals to reflect on the ability of an individual to pay—whether it be the claimant or the respondent—is an important one, and the Minister is right to put it into the Bill and into regulations. It is also right that we should cap the number of avenues under which costs of different kinds can be given, because the whole idea of the granting of costs should not involve fines or penalties. The provisions may be there to deter the vexatious, but they are not there to say, "This person got it right, and the other one, who got it wrong, is therefore subject to this fine."
It is important that the ability to pay—even for the vexatious—is taken into account. We all have constituents who are, quite frankly, obsessive. Of course it is right and proper that we should deter them, and my hon. Friend the Member for North Durham (Mr. Jones) correctly pointed out that the pre-hearing scrutiny normally provides the most efficient way of taking out those cases. However, we do not want to end up with a fundamentally ridiculous situation in which even an obsessive is so burdened by debt that they cannot pay, which would make a mockery of the system.

§ Judy Mallaber
rose—

§ Mr. Hammond
rose—

§ Mr. Lloyd
If the hon. Gentleman will forgive me, I shall give way to my hon. Friend first.

§ Judy Mallaber
Does my hon. Friend recall the cases that were brought before us in Committee, which showed that this is not just a question of cases being vexatious and frivolous? We were told about a number of cases that it would have been perfectly reasonable for the applicant to think were well founded, but that were found to be vexatious or frivolous. Those applicants would not necessarily have thought that that would be the outcome when they entered the tribunal. We were told of several cases that illustrated that point.

§ Mr. Lloyd
That is an important point. We are not trying to saddle people with debts; that is certainly not what the tribunal process is intended to be about.

§ Mr. Hammond
I think that the hon. Gentleman just described the award of costs as a fine. Is that how he sees such awards throughout our tribunal and legal systems? I see them simply as compensation paid to injured parties for costs they have incurred.

§ Mr. Lloyd
If the hon. Gentleman had been listening, he would have heard me say that awards should not come to be seen as fines. Of course they can constitute recompense to injured parties.
635 Let us consider the origin of the tribunal. It was about low-cost justice; it was not about encouraging highly paid lawyers to represent one side or the other. The aim was to retain common sense and a sense of proportion, and I think the Minister has tried to strike that right and proper balance.
I hope, though, that the Minister will reflect on concerns that have been expressed throughout about the deterrent effects. It is in everyone's interests for fewer cases to go to tribunals, but only if that is because disputes are resolved at an earlier stage or, even better, because an industrial relations climate develops in which problems do not arise in the first place. What we do not want is a fall in the number of tribunal cases that merely masks injustice and unfairness. That is why I want the Minister to monitor the situation. We need to be sure that people who really need access to tribunals, in order to resolve genuine problems in the workplace, are not deterred.

§ Mr. Hammond
The hon. Gentleman has succinctly identified what needs to be done, but I can think of no method of distinguishing between the two possible causes of a fall in the number of applications to tribunals. Has the hon. Gentleman any ideas for how the Minister might undertake the monitoring that he has suggested?

§ Mr. Lloyd
There are many ways of doing it. Opposition Members will disagree profoundly with this, but I believe that a growth in trade unionism would provide a much better way of determining whether workers are being treated properly. If the number of applications falls, it will of course be possible to note the number of successful claims and the number of unsuccessful claims. A massive rise in the number of unsuccessful claims, or a proportionate rise against the background of an overall reduction, would tend to suggest that something was going wrong—that people with real claims were not going to tribunals.

§ Mr. Kevan Jones
Might not one way of reducing the number of applications be to educate small business and other employers to use proper procedures?

§ Mr. Lloyd
Absolutely. We can argue later about whether the code mentioned elsewhere in the Bill will prove effective, but, as my hon. Friend says, it may be possible to resolve many problems long before even mentioning tribunals if employers and, indeed, employees work within the context of properly structured grievance and disciplinary procedures.
The Government have made progress. They have taken an important step, but we need to make it clear that we do not intend to deter legitimate claimants, and we need to monitor the situation to ensure that the spirit of what the Minister wants to achieve is translated into practice throughout the country.

§ Rob Marris
I begin by declaring that, among my registered interests, I am a non-practising solicitor. I want to ask the Minister about two disjunctions. First, under amendment No. 29, an award could be made either for legal costs or for preparation time in respect of 636 employment tribunals. Can he assure me that that provision will also apply to employment appeal tribunals? Secondly, clause 23 states: For section 34 of the Employment Tribunals Act 1996 (costs and expenses) there is substituted a new clause 34, subsection (1) of which states: Appeal Tribunal procedure rules may include provision for the award of costs or expenses. Will the Minister clarify that wording, which suggests that such a tribunal could award either costs or expenses?

§ Alan Johnson
The hon. Member for Runnymede and Weybridge (Mr. Hammond) said that, in principle, the Opposition accept the thrust of the Government's efforts in respect of preparation costs, but he suggested that there is another approach. The basis of the Bill as debated in Committee was that some money could come from preparation costs, and some from actual legal representation. Various arguments have been advanced time and again. The point made by my hon. Friends—that in addition to having costs awarded against them, people could also have to bear the huge expense associated with a company's putting time and effort into defending a case—was raised by the Law Society and the National Association of Citizens Advice Bureaux.

§ Mr. Hammond
Yes, but the Minister has not dealt with it. Under the amendment, a company could still rely entirely on its own resources, and its internal costs could still be the subject of an award.

§ Alan Johnson
Yes, but the fear that considerable costs would be imposed on top of legal charges was a separate issue. The central argument is that, in a system that tries to discourage legal representation, it is ludicrous that those who sit at their kitchen table night after night, prepare their own case, represent themselves and win should get no recompense. On that central point, people said to me, "Why don't you introduce one thing or the other?" If the issue is ensuring that those who do not use legal representation are no worse off—we must remember that, in terms of wasted costs, we are talking about 4 per cent. of cases—surely the award should be made in respect of either preparation costs or legal costs.
The hon. Member for Runnymede and Weybridge mentioned frivolous cases, but I should rebuke him mildly. In fact, because those who chair employment tribunals thought that the word "frivolous" was entirely inappropriate to the legal profession, it was removed. It was replaced by the word "misconceived", and in respect of wasted costs, reference is now made to misconceived, vexatious and unreasonable claims.
My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) is absolutely right: last year, a third of recipients were respondents, not applicants; in fact, the year before that the ratio was 50:50. Some 50 per cent. of such costs were awarded to businesses—probably small businesses—which, if they represented themselves, could not claim back the costs incurred.
It is important to get the matter into perspective. We have not sought to widen the basis of costs awards, and nor should we. The existing definition—which refers to misconceived, vexatious and unreasonable claims, and to abusive behaviour during a tribunal—presents no problem and relates to only 4 per cent. of cases.

§ Mr. Hammond
The Minister has addressed his remarks to the own costs element. He painted a picture of the fear of the own costs that a vast firm might incur internally as a deterrent to the applicant. In the next breath, he talked of an own costs applicant slaving away at his kitchen table night after night. I thought that the Minister's objective was to encourage people not to be legally represented at tribunals. Would not the simple and logical approach have been to limit the award of costs to own costs, not legal costs?

§ Alan Johnson
No, I think that we have got the balance right. We will consult on the regulations and take into account the points that were made about putting a cap on costs, although that will be less necessary if the House accepts the amendments. If the central argument is that those people who are not legally represented cannot claim wasted costs, we shall give them the choice between own costs and legal costs. That has met the requirements of the Law Society and the National Association of Citizens Advice Bureaux. We all duck and dive with our arguments, but I mentioned small businesses because—as my hon. Friend the Member for Wolverhampton, South-West pointed out—they made up a third of the parties that were awarded costs last year, and 50 per cent. the year before.
The hon. Member for Runnymede and Weybridge also asked for some indication of the number of cases. In 2001–02, there were between 115,000 and 120,000 applications. In the year before, there were 130,000. However, I would counsel hon. Members against drawing any conclusions from those figures, because in the year before last many one-off cases were brought, including EU cases in which a whole group was settled at a time. Those included some famous cases that my hon. Friend the Member for Wolverhampton, South-West will remember. It is those special circumstances that have led to that reduction, not my year as the Minister responsible for employment relations.
We believe that the Bill will mean that some 30,000 to 40,000 cases will be settled outside employment tribunals which would have otherwise gone before them. Part of that reduction will be those disputes settled in the workplace, and part will be those settled during the fixed period of conciliation. Part will also be accounted for by those cases that were struck out at the pre-hearing stage, as my hon. Friend the Member for North Durham (Mr. Jones) mentioned. At the moment, vexatious, misconceived or unreasonable cases cannot be struck out at the pre-hearing stage and the tribunal can only require a deposit of £500—an increase from £100. A later amendment will allow cases to be struck out at that stage.
Hon. Members have asked how we may further reduce the number of cases, and we have introduced the ACAS arbitration scheme, which was agreed by both sides of the House. It has not been totally successful so far, with only 14 cases using the scheme, but we can do much more work to advertise its availability.

§ Mr. George Osborne
The Minister was careful in the way he put his estimate. He said that he hoped to reduce by some 30,000 to 40,000 the number of cases that would otherwise have gone to an employment tribunal, but he did not say that he hoped for an absolute reduction in the 638 number of cases going to employment tribunals. Given that other provisions in the Bill, such as flexible working rights, may lead to an increase in cases going to employment tribunals, can he clarify whether he hopes to see an absolute reduction in the number of cases going to employment tribunals, and by how much?

§ Alan Johnson
As I said on Report, people are more aware of their rights now, which is healthy. They have more rights to be aware of.

§ Mr. Prisk
Absolutely.

§ Alan Johnson
Indeed, but it is not absolute. Given that we are committed to tackling discrimination on the grounds of age, disability, religion and sexual orientation, it would be crazy for me to predict an absolute fall in employment tribunal cases. I picked my words very carefully. Of the disputes that might go to employment tribunals, about 30,000 to 40,000 can be settled outside, and I think that that is a worthy ambition.
My hon. Friend the Member for Stoke-on-Trent, North (Ms Walley) expressed her concerns eloquently. I recognise that she has long been concerned about the £10,000 costs award. Of course, awards could go as high as £10,000 before, but it needed a separate court order and could not be done at the employment tribunal.
My hon. Friend asked how we will gauge or monitor the situation in relation to the introduction of the £10,000 award last July. That was last July—a year ago today—so we have 12 months' worth of information. We are expecting to begin a study of the employment tribunal cost regime in the next year, and we will look very closely at the result. Some evidence has already emerged at the employment tribunal system taskforce, but we will certainly look at it again.
My hon. Friend also spoke about ability to pay, which is the other important issue in this group of amendments. We made it a discretion rather than a requirement in order to restore the status quo. It was always a discretion, not a requirement, until the time of the Court of Appeal case. We did not make it a requirement because, as I said earlier, there could be circumstances in which someone of limited means knew that they had absolute indemnity to raise these cases. We believe that the discretion should be placed with the tribunal. The hon. Member for Runnymede and Weybridge asked whether that should be a principal consideration. We are not saying that, but the employment tribunal should have the ability—the discretion—to make a full award, no award or a reduced award. We are simply returning to the previous situation.

§ Ms Walley
In view of what my hon. Friend has just said, does he anticipate issuing guidance to employment tribunal chairmen on how the discretion is to be applied, following the decision of the Court of Appeal?

§ Alan Johnson
We will certainly issue guidance and it will be part of the regulations. However, the judiciary and the employment tribunal chairs will be very familiar with the regime, as it existed until just a few months ago, following the Court of Appeal decision. I do not think that there will be any problems there.

§ Mr. Hammond
I sense that the Minister is coming towards the end of his remarks. Have the Government any 639 evidence to suggest that the total sum of costs is higher in cases where both internal and external resources have been brought to bear, compared with those where the matter has been dealt with entirely by an external law firm or in-house? If not, I do not believe that he has made the case for refusing to recognise a mixed base of costs.

§ Alan Johnson
No, I do not have that evidence, but we know that the average award over the past year has been £300. There is a big gap between £300 and £10,000. That suggests three things: there are not many of these cases; tribunals take into account ability to pay; and the fact that the award is only £300 but could go as high as £10,000 is part of the fear factor about which we hear time and again from people who deal with these cases day in, day out. The hon. Gentleman made a valid point and his argument is logical. We considered the establishment of a mixed system but were persuaded to move away from it—hence the amendment.
My hon. Friend the Member for Manchester, Central (Mr. Lloyd) pointed out that we were not dissuading people from going to employment tribunals. I said that earlier—as I have on other occasions—and I am happy to repeat it: we are not about denying people justice. To be fair to the Opposition—certainly those Members who sat on the Committee—I do not think that was their objective either.
My hon. Friend the Member for Wolverhampton, South-West asked, first, whether the provision would apply to the employment appeal tribunal. There is no provision for preparation time in the tribunal, although there is provision for litigants in person, so we need to apply the provision either for preparation or legal costs.
My hon. Friend's second point—

§ Rob Marris
rose—

§ Alan Johnson
If my hon. Friend wants to intervene, perhaps he could remind me of his second question.

§ Rob Marris
My point referred to page 33 of the Bill and the revised section 34 of the Employment Tribunals Act 1996, which states: Appeal Tribunal procedure rules may include provision for the award of costs or expenses. Expenses are different from preparation time—they relate to the cost of a witness attending a tribunal hearing or, in this case, an appeal tribunal. Given that on page 32 there is a reference to costs and expenses, I wanted to ensure that no problem would arise. It might help those in the judicial system who have to interpret the measure if the Minister could give some clarification.

§ Mr. Hammond
I may be mistaken but my recollection of our discussions in Committee is that the word "expenses" relates to Scotland. Is that correct? The hon. Gentleman is a lawyer, so he may be able to assist us.

§ Rob Marris
A Scottish lawyer.

§ Alan Johnson
The hon. Member for Runnymede and Weybridge helps me enormously. As I said, there is no preparation time in the EAT and the Scottish term for costs is indeed expenses.
640 On that note, I hope that the House will support the motion.