NON-COMPLETION OF STATUTORY PROCEDURE: ADJUSTMENT OF AWARDS (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 it will be convenient to consider Lords amendments Nos. 46 to 55.

§ Alan Johnson
Amendments Nos. 46 to 55 simplify the compensation regime, as originally set out in clause 38, for failure to comply, in certain circumstances, with the requirement to provide employees with a written statement of employment particulars. They necessitate a consequential amendment to clause 31, which is why they are being discussed now.
Clause 38 provides that when an employee brings a successful claim to a tribunal under one of the jurisdictions set out in schedule 5 and the tribunal finds that his employer failed to comply with the written statement requirements, the employer will be liable to a financial penalty for that failure. That policy is unchanged. As the clause was originally drafted, however, the penalty would normally take the form of a 5 to 25 per cent. uplift to the employee's award. If compensation was not the remedy chosen by the tribunal, or was not 642 available for a particular jurisdiction, the employee would instead receive one or two weeks' pay, depending on whether the statement was incomplete, inaccurate or had not been supplied at all.
One or two weeks' pay also served as the floor for any percentage uplift. That was never an easy system to explain, and it was criticised in another place for its complexity. We are confident that the underlying policy is right—the policy of encouraging employers to recognise the importance of the written statement in the employment relationship. Indeed, it was welcomed by the majority of respondents to consultation. On reflection, however, we agree that the penalty regime as originally drafted was needlessly complex.
Taken together, these amendments therefore replace the percentage uplift system with a simple fixed-rate penalty of two or four weeks' pay. As before, the penalty will be awarded if the written statement is incomplete, inaccurate or absent, or if notification of any change to the particulars had not been given. Whether two or four weeks' pay is awarded, however, will not be linked to the particular failure. Whether to award the higher or lower penalty will be at the tribunal's discretion. If the tribunal thought that it was right in particular circumstances, it could award a higher penalty for an inaccurate statement than for failure to issue one at all. We believe that tribunals will find the fixed-rate penalty regime considerably easier to administer than the percentage system. Moreover, we believe that it will fulfil our policy aims just as effectively.

§ Mr. Hammond
As the Minister said, the substantive amendments are to clause 38. I recognise that the Government were criticised in the other place for the complexity of the penalty regime that would apply when an employer failed to deliver particulars of employment as required by the law. The original scheme involved a percentage uplift of the award that was made by the tribunal. The cost that the employer would suffer for the failure to deliver particulars would be determined by reference to the award that was made against him. That seems to have a lot of attraction to it. I accept that it is a little more complex but, as I understand it, the intention is not to fine the employer for having failed to deliver particulars of employment. Were that the purpose, the sensible way to proceed would be to introduce a mechanism into the relevant primary legislation to impose a fine on an employer for failure to deliver particulars—that fine would go to the court and not to the employee in question.
The purpose, however, is to ensure that when an employee has a legitimate grievance, and that grievance is recognised by the tribunal in making an award, the aggravation of that grievance by the failure to deliver a proper statement of particulars is recognised in a percentage uplift in the award. The degree to which the monetary sum by which the employer's failure to deliver the statement of particulars translates into an award to the employee would therefore be related to the severity of the underlying legitimate grievance, if the tribunal finds that there has been a legitimate grievance and it makes an award to recognise it. One would at least hope that the size of the award will reflect the seriousness of the grievance. Moving away from that arrangement, the Government are introducing a fixed penalty for failure to deliver a notice of particulars of employment in the proper form.
643 I have no problem with the Minister's view that employers should deliver the proper particulars of employment. We discussed that in Committee, and the view across the Committee was that, if clearly set out statements of particulars are delivered, there is scope for avoiding significant numbers of disputes by making sure that everybody is very clear about the terms on which they are employed. I am not sure, however, that a fixed fine going into the pocket of the employee—let us say that the employee earns £200 a week, and the fixed penalty is therefore £200 or £400—is particularly appropriate if the substantive grievance is deemed to be worth only £100. It would seem odd if the employee were awarded £100 in respect of the substantive grievance, but had that uplifted by perhaps £200—a week's pay—because the employer has not delivered the statement. Has the Minister thought through how that will work, and the different relationship between the basic award and the amount of uplift that the amendment introduces?
Another point needs to be made. Under the Bill that was originally passed by the House, the appropriate amount was one or two weeks' pay. The Minister, in his remarks a few moments ago, glibly doubled that to two or four weeks' pay. That is a substantial movement of the goalposts. What has caused the Minister to decide that two or four weeks' pay is appropriate now, given that when the Bill left the House on Third Reading some four or five months ago, one or two weeks' pay was the appropriate amount?
Will the Minister also comment further on the abandonment of the concept—which was clearly enshrined in the Bill and considered in great detail in Committee—of two levels of wrongdoing associated with particulars of employment? As he said earlier, the first level is a gross failure to deliver a statement of particulars, and the second, lesser mischief, is delivery of a statement that is inaccurate or that fails to comply with the requirements of the legislation. Suddenly, that is to be swept away, and the two levels—the higher levels of two or four weeks' pay—are to be awarded entirely at the discretion of the tribunal.
A significant change of position seems to have taken place: two or four weeks' pay is now the penalty, instead of one or two weeks' pay, and the two-tier approach has been removed in favour of a single-tier approach, with the tribunal having discretion beyond that. It would be helpful if the Minister could explain further the thinking behind those two changes.

§ Alan Johnson
I shall try to do so. The important point to remember is that, as the hon. Gentleman said, concerns have been expressed about complexity. He referred to the original proposal for a penalty of one or two weeks' pay. First, that served as the floor for any percentage uplift—it was the minimum. Secondly, as I said in my opening comments, if compensation was not the remedy chosen by the tribunal, or was not available for a particular jurisdiction, the employee would instead receive one or two weeks' pay, depending on whether the statement was incomplete, inaccurate or had not been supplied at all. On top of that, there was a percentage uplift of between 5 and 25 per cent.
The hon. Gentleman suggests that we are punishing employers too much by turning to a simple compensation formula of two or four weeks' pay rather than the old 644 formula, which had a fixed element and a percentage award on top. I do not think that we are doing that. Let us not forget that the maximum payment is £250 a week and is based on the statutory payments written into the redundancy and other legislation. A tribunal will have the discretion to decide to go to the top or bottom end of the range of compensation, and the maximum compensation will be £1,000. Last year, the average award for unfair dismissal was £2,700.

§ Mr. Hammond
The Minister says that the average compensation for unfair dismissal was £2,700, but he suggested earlier that the average award at a tribunal was somewhat lower than that. We therefore need to consider the uplift in the context of the average award made at tribunals and not just for one particular class of action.

§ Alan Johnson
The average cost award was £300, but I am now referring to the average compensation for unfair dismissal. That is not the same. I am referring not to vexatious or even frivolous litigation, but to a clear-cut case found against an employer in which it was discovered that no written statement of particulars was issued. In that context, the average award of £2,700 for unfair dismissal is perhaps more relevant than the average cost award of £300.

§ Mr. Hammond
The Minister is missing my point, but I may be missing something too. Let my try to clarify my question. Claims other than those for unfair dismissal go to tribunals and I was hoping that the Minister would give the House the average award—not the costs and not just the average award made at cases of unfair dismissal-that tribunals made in the last year for which figures are available.

§ Alan Johnson
That is a fair point. I do not have the figures for average awards across the board. However, I know that the majority of cases—about 51 per cent.—are for unfair dismissal. In a sense, however, this issue is irrelevant to the argument.
The argument is whether the system was needlessly complex when it left the House. We were convinced by the debates in the House of Lords that it was and that we could simplify the system. We do not believe that we have taken away a tribunal's discretion to decide, and the provision is not linked as closely as it was to failings in the statement of employment terms and conditions. We have given more discretion to the employment tribunals but in a different way, with the matter being based on between two and four weeks' pay. I urge the House to agree to this sensible amendment.