HL Deb 10 December 1981 vol 425 cc1482-501

6.32 p.m.

Lord Lyell rose to move, That the draft regulations laid before the House on 26th November be approved.

The noble Lord said: My Lords, I beg to move that the transfer of undertakings (Protection of Employment) Regulations 1981 be approved. They implement a European Community directive on the approximation of the laws of member states relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses. They are made under the enabling power contained in the European Communities Act 1972 and they have been a long time in the making, and implementation of the directive is now overdue. The first draft of the regulations was in fact published under the previous Administration in June 1978.

The regulations do two main things: first, when there is a change of employer they provide for an automatic transfer of the employees along with the business. I emphasise, "where there is a change of employer", because this we take to mean where the identity of the employing company changes. The regulations do not apply to a change of ownership where only the controlling shares in a company change hands. Your Lordships will appreciate that at present if a business is sold as a going concern the contracts of employment are normally brought to an end. No longer will this be so. Secondly, the regulations provided for recognised trade unions to be given information concerning the transfer both by the buyer and the seller, and to be consulted about any measures that the buyer or seller intend to take in connection with the transfer.

Perhaps it might be helpful if I went through each regulation in turn. Regulation 1 provides that transfers taking place on or after 1st May 1982 will be covered. But, as the information and consultation requirements relate to a period prior to each relevant transfer, they will be brought into operation three months earlier on 1st February 1982. Regulation 2 dealing with definitions, is important because the House will see that regulations following the directive do not apply to undertakings which are not in the nature of commercial ventures.

Regulation 3 defines the scope of the regulations and makes it clear that they do not apply where all that is being transferred is the shareholding in a company. They only apply where there is a legal change of employer and where, immediately before the transfer, the undertaking is situated in the United Kingdom.

Regulation 4 is the product of a great deal of discussion and deals with the subject of "hiving down". A receiver or liquidator appointed to handle the affairs of a company will obviously consider whether a part of the concern might be viable. If he does reach that conclusion, he will often transfer the viable part to a wholly-owned subsidiary of the company with a view to its sale as a going concern. Essentially, the liabilities remain with the original company and a clean package free from liabilities can be offered to a potential purchaser. The employees continue to be employed by the original company, but their services are hired out to the "hived-down" company; and if it is sold, the employees are dismissed by the original company, and the purchaser of the "hived-down" company offers re-engagement to those whom he requires.

One can see the problem that would have arisen had a hiving-down transfer been regarded as a relevant transfer within the meaning of the regulations, and thereby caught by them. Liquidators would have had to comply with all the obligations of the regulations when there might have been only a small chance of disposing of the subsidiary company at the end of the day. So a solution was found; and Regulation 4 treats the "hiving-down" operation as a suspended transfer, which becomes a transfer for the purposes of the regulation only when a purchaser has been found. Immediately before a purchaser takes control of the "hived-down" company (either by buying the company or by buying its shares), the operation becomes a transfer caught by the regulations. The employees' contracts are automatically transferred and the information and consultation provisions also come into operation.

Regulation 5 provides that the contract of employment of the employee is automatically transferred from the buyer to the seller. All rights, powers, duties and liabilities under the contract or in connection with the contract are transferred to the new employer—except for criminal liability and liabilities for occupational pension rights, which I will deal with when I come to Regulation 7.

Regulation 6 provides that a collective agreement made by the transferor with a union will have effect as if made by the transferee. But, as the regulation is made without prejudice to Section 18 of the Trade Union and Labour Relations Act 1974, which provides that a collective agreement will be presumed not to be legally binding unless the parties specify that it should be, there is in fact nothing to prevent either side renegotiating or ceasing to observe any such agreement.

Regulation 7 follows the directive by excluding occupational pension schemes from the regulations. Employees' rights established up to the point of transfer are protected to some extent by existing legislation which is the responsibility of the Secretary of State for Social Services. Regulation 8 provides that, where the transfer or a reason connected with the transfer is the reason or principal reason for dismissing an employee, that dismissal shall be deemed to be unfair. The normal provisions governing unfair dismissal, qualifying periods, etc., continue to apply in cases where employees are dismissed because of the transfer. This, however, does not apply where the dismissal is due to an "economic, technical or organisational reason" entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer: in these cases the dismissal will be regarded as having been fair. The employer, however, will still have to satisfy the tribunal that he acted reasonably in treating this reason as a sufficient reason for dismissal.

Regulation 9 provides that a union recognised by the transferor is recognised by the transferee but makes it clear that the transferee is in exactly the same position as the transferor and any recognition agreement may be Varied or rescinded.

Regulation 10 places a duty on the employer to inform and consult, and paragraph (2) says that he has to inform the union representatives of the legal, economic and social implications of the transfer for the affected employees. "Union representatives" is our interpretation of "representatives of the employees provided for by the laws or practice of the member states That is the rather long quotation which is found in Article 6. Furthermore, the words "legal. economic and social implications" come straight from Article 6.

Regulation 11 enables trade unions to present a complaint that they have not been informed or consulted; and where it finds the complaint well-found. the industrial tribunal will make a declaration to that effect and may order compensation to a maximum of two weeks' pay to be paid to the affected employees. Any more would provide a very substantial burden on an employer with a greater number of employees, particularly as compensation may be awarded to all affected employees, not just those who are being transferred.

Regulation 12 provides that any agreement that proposes to exclude or limit the operation of the regulations shall be void. Regulation 13 deals with people working abroad and also dock workers. Regulation 14 makes some consequential amendments to the relevant employment legislation in the United Kingdom. Your Lordships will not wish me to go into further detail on those three last regulations.

In conclusion, may I summarise the main changes. At the moment, when there is a transfer of business, an employee's contract of employment is normally brought to an end. From 1st May 1982 it will be automatically transferred to the new employer. It is a major change in principle; but in practice it will not be anything like as far-reaching as some have assumed. In reality, it will matter little where the responsibility for the employees' contracts of employment lies, since any shift in that responsibility will be reflected in the purchase price paid for the business.

It will usually be the intention of the new employer to re-engage the old workforce. If the new employer is of the opinion that he will not require the whole workforce and will have to make some redundant for "economic, technical or organisational reasons" he will pay less for the firm than otherwise he would have been minded to do. Alternatively, the original employer will have made some employees redundant before the transfer to make the business more saleable. He will get more on the sale, but will have had to spend more money in order to get that greater sum. Really, it is as broad as it is long looked at from a businessman's point of view; but looked at from an employee's point of view, he is assured that in normal circumstances he is not going to be separated from a company with which he has perhaps been associated for many years because of a transfer.

The other main change is to require employers to give trade union representatives certain information connected with the transfer—and further to consult the trade union representatives about any measures that may be taken in connection with the transfer. There is understandably anxiety about placing an additional statutory burden on employers at this time. However, in the interests of good industrial relations, many employers contemplating a transfer of business will already be doing something along the lines that I have mentioned. I beg to move.

Moved, That the draft regulations laid before the House on 26th November be approved._(Lord Lyell.)

6.45 p.m.

Lord McCarthy

My Lords, I should like to thank the noble Lord for giving a faithful account of the reasons which the Under-Secretary of State in another place gave on Monday. Indeed, it is quite clear that they read the same brief with a similar lack of enthusiasm. The Under-Secretary of State in another place in the middle of a counter-attack by the Neanderthal men on the Back-Benches of his party, blamed the Labour Government for this nasty little thing because he said that a Labour Minister signed this directive in 1977.

The fact is that this is a progressive and radical directive and it is understandable that when the Under-Secretary of State was recommending it to his colleagues in another place, when, as I say, he was in an altercation with his own Back-Benches, he forced himself to say at column 679 of Hansard of 7th December: Yes, I am recommending them with remarkable lack of enthusiasm. So we know the attitude which the Government adopt towards these directives and regulations.

Of course this is a very limited directive because it applies only to asset mergers, whereas in this country the great majority of mergers are share mergers; and also because it comes from the European Economic Community it is shot through with the competitive assumptions of the European Economic Community. Thus it allows dismissals, as the noble Lord has said, for economic, technical or organisational reasons which entail changes in the workforce. So it is a progressive and in some ways radical directive, but it is not a very far-reaching or far-sweeping directive all the same.

Unfortunately, the regulations which are actually proposed by the Government arising out of this directive do not fully embody the principles of that directive. The fact is that the Government have given in. The Government have given in to pressures from the CBI, pressures from the small employers, and the kind of pressures which the Government usually gives in to. The noble Lord said in his opening speech that this regulation had been unduly delayed. Whose fault is that? The last Labour Government presented the incoming present Government with a draft regulation. That draft regulation was much closer as I intend to show to the 1977 directive and to the spirit of that directive than this little thing that we have here today.

The first question therefore which I wish to address to the noble Lord—and I hope that he will have a reply to this—is: Why this delay? This is especially so since this delay was the reason given by the Secretary of State in a letter to Mr. Lionel Murray of the TUC as an excuse for the fact that there have been virtually no consultations with the TUC over this directive. The Secretary of State said: We would like to have consulted further on these regulations but the Commission were pressing us hard to implement the directive. We therefore had no alternative hut to lay the draft before Parliament without further delay". Therefore my question is: Why has there been such delay? Is it not self-evident that that delay has been the Government's delay? It ill-behoves the Government to say that they cannot consult with the trade unions because they are now being pressed by the Commission.

My second question is this: In any case, why have we gone back on the 1978 draft in a number of respects, and, in particular, why have we gone back in respect of the substantive rights of trade unions? The directive speaks, it is true, of a right to inform and consult", but it also goes on to say, with a view to reaching agreement". I would repeat those words: with a view to reaching agreement". That phrase was in the 1978 draft at Regulation 8(4). The Government merely repeat the formula in the EPA that— the employer will give reasons and listen to objections". But they take out the words: with a view to reaching agreement". Therefore my second queston is: Why? I take it they know why they are doing this and that they appreciate that here is the Commission attempting to introduce something analogous to the United States concept of bargaining in good faith. But it means much more for a trade union if the employer has some kind of legal obligation not simply to inform but to take views into account and maybe occasionally even to move and adjust as a result of what the trade unions say. Therefore, I ask: Why in this respect should we move away from the 1978 draft?

My third question also involves a move away from the 1978 draft, because this 1981 draft refers at Regulation 2(1) to the exclusion of any undertaking—and I quote: not in the nature of a commercial venture". This is a vague and strange term to English law and I am told it is bound to lead to dispute and litigation. The approach in the 1978 draft was a very considerable improvement on 2(1). At Regulation 3(4) it spelt out the actual exclusions which were to count as a noncommercial venture: for example, charitable bodies, government departments, local authorities and so on. The implication—I would say this was fair enough and I should like the noble Lord to tell me why it is unfair—was that, if one did not specify in the draft what was a particular non-commercial venture, then the worker got the benefit of the doubt. If it was not there, then the chances were that it was covered by the regulation; and in any case one was not going to have an endless legal debate about the meaning of profit and the limits of commerce and so on. Therefore, my third question is: Why have we in this respect gone back on the 1978 draft?

My fourth question also refers to the 1978 draft. It refers to the exclusion of protection on grounds of unfair selection for redundancy. The 1978 draft said at Clause 6(2)(b) that, despite the fact that you could dismiss, as the noble Lord has said, for economic, technical and organisational reasons—one cannot complain about that; it is in the directive—it would still he unfair if one were unfairly selected for redundancy upon the provisions specified in the EPA. This is now replaced by the gobbledegook of the new Regulation 8(2)(b). I should like the noble Lord to tell me what the gobbledegook of 8(2)(b) means. My question is: How does the new 8(2)(b) protect against unfair selection for redundancy? Or perhaps it does not. Perhaps it does nothing at all. In any case, why not use the simple words of 6(2)(b)?—unless the Government want to welsh on their obligations under the directive.

It is late, and one could go on giving many more examples of this directive. One could say, for example, that it does not apply to single ships and it says nothing about pension rights, and so on. I want to fasten on to one more case where it is inferior to the 1978 draft, and this brings me to my fifth question. The 1978 draft said at Regulation 4(1)(b) that the regulation covered any other contract—and I quote: which is connected with that person's employment That was intended to cover any other rights, one might say, that could be laying around: common law rights for unlawful dismissal, equal pay rights, non-discrimination legislation and so on-all those rights which are, in the strange ways of English law, embodied by implication. Therefore, there might be some debate about whether they were entailed as a result of the draft, and so the phrase which is connected with that person's employment was put in to make sure—another small benefit of the doubt given to the workers. I should like to know why that simple phrase has been exluded from the 1981 draft at Regulation 5(1), because 5(1) is the 1978 draft's 4(1)(b) without that phrase. I ask, why? Why has that been done?

That brings me to two final questions which are perhaps the most important of all. The noble Lord has spoken about the new paragraph 4 and how it seeks to deal with hiving down—the liquidator's or the receiver's famous neat commercial package, whereby he can save something from the wreck, often at the expense of the employees. This is the practice of hiving down which has been generally condemned as part of the unacceptable face of capitalism, and indeed it was involved in the famous Lonrho case. It is unclear how far the Government really seek in this regulation to protect workers in circumstances of hiving down. It is doubtful how far existing employee rights are protected and how far this part of their regulation is in conformity with the EEC directive.

The Under-Secretary of State has said, and the noble Lord has said this again today, that it does do something by treating hiving down as a suspended transfer where, if a purchaser is found, the contractual and other rights are inherited by the purchaser. But it is unclear, and I should like it spelt out to me why this happens in terms of the actual words used in Regulation 4(1), because 4(1) concentrates on holding back a transfer. It does not specify precisely what rights may he transferred. We are not told whether there is any necessary right to re-engage, for example, as a result of these provisions. We are certainly not told about how others will fare when hiving off takes place. We are not told who is engaged, why they should be engaged, or the criteria on which they will be engaged. I think there is a sense in which this is in direct contradiction to Article 3(3) of the directive which says, and I quote: Member States shall adopt the measures necessary to protect the interests of employees and of persons no longer employed in the transferor's business at the time of the transfer within the meaning of Article 1/". I suggest there is there a general obligation to do something, not simply for those who go into the hiving down but those who do not. Therefore, my question is this: Is that what the Government intend, and, if so, why do they not say so?

The point could be put another way round. In the well-known article on hiving down in the Industrial Law Journal of 1980, Davies and Freedland suggested that one could deal with hiving down by a simple provision: where hiving down occurs the obligations to the employees could be transferred to the transferor. They could be inherited in fact. My question is: Is this the case? Is that what the Government have tried to do? If not, is it not what the directive suggested they should do? If so, how can one reconcile this with the Secretary of State's letter to the Trades Union Congress, or rather the addendum to that letter, when he said: I do not agree that this practice acts against the interests of employees. On the contrary, it enables jobs to be saved (through the preservation of viable businesses) which would otherwise be lost on the winding-up of insolvent companies". He went on to say: Regulation 4 is the result of informal discussions I am told that they were extremely informal and very long— with officials of the European Commission, and we have no doubt that it protects the interests of employees. At the same time, we are confident that it fully implements the intentions of the Directive I do not see how that can be the case, in the light of those passages in the directive which I have quoted.

My final question, question no. seven, relates to the question of compensation where there has been a failure to inform or consult a trade union. The noble Lord said that, in general terms, these regulations, from the point of view of employers in British industry, are as broad as they are long. But, if they are as broad as they are long, how can the noble Lord defend this pitiful compensation because the employers cannot afford any more? The noble Lord cannot have it both ways. This cannot be as broad as it is long from the point of view of inducing changes and mergers and hiving down. The noble Lord says that in order to reassure his own Back Benches and, at the same time, says," Of course, we could not possibly give any more than this pitiful amount of two weeks, which we then deduct from anything else which one gets".

Once again, the 1978 draft is the moral one. In Regulation 9(6), the 1978 draft said: 'Appropriate' compensation means … such sum as the tribunal considers just and equitable, having regard to the ability of the employer to comply with his duty and any loss sustainable". That is not a revolutionary phrase. That is the time-honoured formula, including the need for the employer actually to show that there has been loss and, pre- sumably, to seek to mitigate loss. But the 1981 draft, in Regulation 11(11), limits this compensation to two weeks' pay—although it is as broad as it is long. Why two weeks' pay? And worse, Gradgrind is personified in what follows. In regulation 11(7)(a), we are told that what is obtained in this way goes to discharge any protective award made as a result of the EPA, relating to the absence of notification of redundancy or liability for breach of contract during the period of a protective award.

My final question is: why should this be? There are different liabilities here. There is a failure to inform on the transfer of an undertaking which need not involve redundancy. If it does, this is a separate issue. The truth is, of course, that this is one more example of the sense of equity and justice of these committed Europeans. The fifth directive is not even discussed any more. No one proposes any statutory rights at board level. The draft directive on consultation, which has been discussed in this House, is attacked and is clearly designed to go the same way. This directive is written down in all the ways I have specified, in any way it can be, to produce a regulation; and, of course, this regulation is kept until the EEC demands that something be done about it. Yet, at the same time—as Shakespeare would say, in another part of the forest—if the European Court takes decisions which can be used as a pretence to legislate further about the closed shop, we get immediate legislation.

If, next year, the Secretary of State in another place tells us, as he undoubtedly will, that the trade unions of this country are in a privileged position, because their rights take the form of immunities against actions in tort, no doubt we shall he told yet again that, in some way or another, they are better off than their European counterparts. The fact is that now in most European countries, on the whole, there is, from the trade unions' and workers' point of view, a better, a more expansive, a more substantial and, a more firm framework of individual and collective rights. The committed Europeans cannot give us any of these rights, not because trade unions are too powerful, not because giving them these rights would make them too powerful but because it is an essential part of the Government's policy to try to destroy any rights that they have.

So I finish by asking again, so that there shall be no misunderstanding, my seven questions to which I hope the noble Lord will be able to supply me with answers. First why the delay and lack of consultation? Secondly, why no inclusion of Regulation 8(4) with a view to reaching an agreement? Thirdly, why did the Government not spell out the meaning of "noncommercial" in Regulation 3(4)? Fourthly, why was there no protection given for unfair selection against redundancy in Regulation 6(2)(b)? Fifthly, why is there no equal right, as in 1978, in Regulation 4(1)(b)? Sixthly, on Regulation 4 on hiving-off, why not the formula of Davies and Freedland? Seventhly, why this pitiful compensation, and why should we pass these regulations?

7.6 p.m.

Lord Wedderburn of Charlton

My Lords, I apologise to the noble Lord the Minister for missing part of his speech, which was caused by the failure of an under- taking to transfer me here through the traffic. But my noble friend Lord McCarthy has encouraged me in what he has said, and, from what I have been told about that part of the Minister's speech which I missed, that which I wished to say in this debate has not yet been fully dealt with.

This is not a matter which can simply be regarded as a small, end of the day, after-school activity. This is a matter which illustrates, first, how regulations of this kind have profound constitutional dangers by amending the laws of the United Kingdom by orders which are not amendable, not open to the normal processes of Parliament, on a question which is absolutely fundamental. No doubt, the noble Lord the Minister does not appreciate that that is so, but perhaps I could explain why I think that.

These regulations include, as their central idea, the transfer of a contract of employment by law without consent. It is perfectly true that that is done under the directive and the regulations, in the avowed interests of working people where there are transfers; and there can be no doubt at all about the intention of the directive in that respect, if one reads it. Nevertheless, we are offering to the law a principle which detracts from the notion, which Lord Atkins said in 1940 was fundamental to our law, that, without consent, a servant or employee should not he transferred from one employer to another, because that is what divides the employee from the serf.

Here the regulations transfer him in his own interest. That is the theme of the directive, but it is not the theme of these regulations. It was the theme of the 1978 regulations. The Government have mangled and mauled the regulations drafted in 1978 in a way which, at every single point, detracts from workers' rights and, at one point, makes clear that they are increasing employers' rights. They snatch away the rights which were intended by the directive, like some bicycle thief snatching purses in the night.

I ask your Lordships to take consultation and information, to which my noble friend has referred. If the employer fails to consult, what is the remedy?—two weeks' pay. But only the good employer will have to give two weeks' pay. The really bad employer, who has dismissed an employee wrongfully and has failed to consult on proposed redundancies under the 1975 Act, will not have to pay anything at all. There is no extra obligation on him, because those sums which he has to pay go to diminish—as my noble friend suggested they do—the compensation which he otherwise might have to pay under Regulation 11, with the absurd maximum of two weeks' pay.

There are two other ways in which this regulation is defective, under the heading of consultaton. The directive requires that the employer shall inform the employees in good time before the transfer is carried out—Article 6. That clearly envisages time for negotiation while the transfer is at the proposal stage. Indeed, the Government have said many times that their model for these regulations is the pattern laid down by the Employment Protection Act 1975, where the employer must consult about proposals for redundancy. But these regulations say that, long enough before the transfer to enable consultations to take place, the employer shall inform the trade union of the fact that the transfer is to take place. That is not the language of negotiations about proposals. Or if it is, why does it not say "about the proposed transfer"?

It is a scandalous violation of the intent and perhaps the letter of the directive to say in Article 6 that the employer must consult with the trade unions in good time. The directive says, "with a view to agreement". The 1978 regulations also said, "with a view to agreement". Why have the Government dropped the obligation on the employer to have a view to agreement? Because elsewhere they are going to say, as they have always said over the last months, "We are only enacting the words of the directive". Some of the paragraphs and regulations which are gibberish are gibberish because the Government could not be bothered to translate the words of the directive. Euro—jargon sometimes goes well into the law of France and of Germany. It rarely goes well into English law. That is not a point against the directive or the Community. It is just a simple matter of fact. Any lawyer knows that simply to take the words of a directive and put them into an English Act is extremely dangerous. Whether or not that is true, why have the Government dropped it?

If this House accepts these regulations, as I am told that, according to procedure, it must—an illustration of the way in which the function of this House is pretty meaningless on these occasions, but I am going to make the points I want to because they should be on record—then it is accepting a deceitful sleight of hand, a breach of the treaty obligations. Why? Because it does not enact the directive. As one goes through it, one sees how much that is true. As my noble friend has suggested, there is a feeling that the directive is in a sense misdirected in England because more of our mergers take place by way of takeovers of shares than by way of takeover of assets. Elsewhere the proportion is not the same. Therefore to leave out takeover of shares is to leave out the Prince of Denmark in the play.

But having found that the arrangement might be called a bit of a nonsense in Britain, nevertheless the 1978 regulations tried to make the best of it. These regulations do not. As my noble friend said, they exclude undertakings which are not in the nature of a commercial venture. I repeat his question to the Minister: why was the very careful definition in 1978 of undertakings not of a commercial nature dropped from these regulations? The Minister might also like to answer this question: is the London Passenger Transport Board, or the London Transport Executive, as it now is, a commercial undertaking? Or do we have to wait for Lord Denning or the noble and learned Lords in the Appellate Committee to tell us? We should like to know the answer to these questions, together with answers to all the other questions which the TUC has raised. For instance, is the ordnance survey outfit a commercial venture? Why could not the Government be bothered to define something, as was done in the 1978 regulations?

Regulation 3(4), in a long series of words, speaks about the transfer, in two or more transactions, of an undertaking, or a part of it. I should like the Minister to tell me—I can think of one—how many instances he can think of where there are two or more transactions where each does not transfer one part of the undertaking. This is a new regulation. Why is it there? And why is it in the form that it is? I understand it for two transactions for the whole undertaking, but two transactions transferring one part is very difficult to understand. It will give rise to litigation. It is not made at all clear whether the part also is to be a going concern. These matters were debated around the 1978 regulations which, in my view, were defective and needed amendment. They had not been finalised. The Government had the advantage of the discussions which went on at that time and I am sure that the noble Lord read them carefully.

In regulations which purport to transfer obligations of the employer and employees' rights from transferor to buyer, the directive requires—this is a fundamental point—that the rights concerned arise from a contract of employment or from an employment relationship. The conjunction is all from an employment relationship —Article 3. But the regulations do not do this. The 1978 regulations on this were not perfect. Regulation 2 that we are being asked to consider defines a worker only in relation to contracts of service or apprenticeship. This leaves employment relationships outside the contract of employment, except apprenticeships. Why? That violates the directive. Even for employees, the regulations contain an absurd ambiguity. At Article 3 the directive speaks throughout of "employment relationship but Regulation 5 of these regulations transfers rights and duties, under or in connection with the contract of employment". It is the plain intention of the directive that all workers' rights which are within the employment relationship should be transferred.

This matter has been raised again and again with the Government. Some statutory rights are plainly not under a contract of employment. That is, workers' rights under safety legislation are statutory and do not come within the contract of employment area, so these will not get transferred. Why not? Some are within the contract of employment. Rights under the Equal Pay Act are, by statute, within the area of contractual rights. There are others—rights to redundancy and unfair dismissal in particular—where in the last few years the employment appeal tribunal has left the law, unhappily, rather in doubt. In one case in 1977 they spoke of unfair dismissal rights as arising, altogether outside the existing contractual relations between employers and employees", whereas in another case in 1978 the employment appeal tribunal, speaking of the rights to unfair dismissal said: The rights, though creatures of statute, in our judgment depend on, or arise from the contract just as do … common law rights". There is an ambiguity in the law and very important rights are at stake.

Why did the Government not make it clear? It is not clear in the language used. I know of no lawyer in this area who thinks that the language is clear. I know that there are others who hold a different opinion, but that is just good for litigation, not for law. Why did not the Government make it clear and say that the rights arising from the employment relationship under statute were to be transferred, too? This is yet another example, as is the regulation dealing, as my noble friend mentioned, with the exception from the rights of workers not to be unfairly dismissed. They not only are not automatically to be unfairly dismissed but the employer has to give a substantial reason for dismissing them when he dismisses for economic, technical or organisational reasons entailing changes in the work place.

It is the Government's case that they must enact that Euro-jargon. I say to them that it is a perfect example of what, over the last three years, most people have come to understand should not be put on the English statute hook. It will give rise to a line of obscure judgments and considerable litigation. Although the Government are right in saying that these are the words of the directive it is the job of the Government, faced with the directive, to make sense of it in their own jurisdiction. It is slovenly and it is idle simply to take the words from the directive and put them on the statute book.

If one looks at the recognition of trade unions—my noble friend did not deal with this point, so I will, though I shall omit some of the points with which he did deal—one finds that the regulations pick and choose between the various possible ways of enactment in such a way that workers' rights are to be put aside and industrial relations left to flounder. Under Regulation 6 there is to be a transfer of collective agreements. With that, under Regulation 9 there is to be a transfer of recognition arrangements with trade unions. At first sight this may sound fine. The directive requires that there should he transfer of collective agreements and transfer or recognition, but what does the Government intend should come from that?

In another place three days' ago the Minister said that his right honourable friends need not worry about this (cols. 679 to 681, Hansard, 7th December) because the collective agreement was not legally binding, and so it could just be ignored if they could get away with it; and on recognition after the 1980 Act, which repealed the powers of ACAS in such situations as gave rise to Grunwick, there is no legal obligation to recognise and he could of course revoke recognition anyway if he could get away with it.

So really the right honourable gentleman suggested that the directive in our case of the regulations did not change anything at all. That is a very shocking argument, because the directive means to change something and most certainly it is wrong, because very often the collective agreement will be incorporated into contracts of employment and those contracts of employment will contain collectively agreed terms. Those cannot be put aside if the contract of employment is transferred. I ask the noble Lord the Minister whether he does not accept that Regulation 6 could have been improved if it was made clear that it allowed for the normal case of the incorporation of collective terms into the individual contracts which are being transferred.

I must add—because it is necessary to say it and I doubt whether the noble Lord the Minister said this, and I know that my noble friend has not—that these regulations are typical examples, also, of introducing more and more confusion into labour laws. This is an extra reason why the matter should have been dealt with by a Bill. It should not have been dealt with by regulations. They have the right to deal with it by regulations, but that gives them the argument they have used extensively; that is, we cannot do more than we are obliged to do by the directive. Once it is done by regulations, Parliament cannot amend it and the Government always have the answer when one asks, "Why did you not put in this to make sense of it"? They answer, "In a regulation, under the 1972 Act, we can put in only what we are obliged to enact", and so Parliament gets the worst of both ends of the stick, and so does industrial relations.

If I may give an illustration of this, there are at the moment three different definitions which one has to look at if one is concerned with the transfer of business. There is one under the 1978 Act which concerns redundancy rights. There is a slightly different definition concerned with continuity of employment in the same Act and schedule. There is a different definition for the successor employer for various purposes relating, for example, unfair dismissal, in the 1974 Act. We can just about get by with those, although they are in a bit of a mess and they need consolidation. But these regulations add yet a further concept of the transferee of a business, which no one has even bothered to relate in a sub-paragraph, which could be very easy to draw up, to any one of those definitions. We do not know exactly how they overlap and when they do not.

There is one place where the Government took time. My noble friend has said something about this, but I wish to support him with a few words. It is, of course, hiving down; the practice which has mushroomed, whereby the business or a part of it is sold to the wholly—owned subsidiary but the employees remain with the parent company until it is profitable to those who are buying, and in some cases those who are selling, to transfer them or not transfer them as the case may be. Regulation 5, if unamended, would have forced their transfer on to the purchaser. I can quite see that the complications of hiving down may well demand some special consideration of the regulation. But Regulation 4 is doing nothing but weeping crocodile tears for the concern of workers' rights. This regulation allows with only marginal greater difficulty the hiving down operation still to do what the Employment Appeal Tribunal in 1978 so severely criticised.

I am sure that the noble Lord the Minister will have in his papers the judgment of the Employment Appeal Tribunal in the Brentford Nylon case in 1978. The Employment Appeal Tribunal very gently, and with some hesitation, suggested ways in which workers' rights should be protected. Would the Minister deny that the proposals and safeguards even made there hesitantly by the court and made by others such as Davies and Freedland, which my noble friend cited, are not in the regulations? Would he deny that it is only marginally more difficult now, by dismissing or arranging to dismiss workers rather earlier than in the normal hiving operation, for their rights not to be safeguarded by these regulations? Would he deny that it was the intention of the directive to protect workers' rights in a manner which the regulations singularly fail to do? The one place where they have really gone to town with new law is on hiving down. It does not benefit the workers, and that is true of the rest.

These regulations do not satisfy the directive. They invite litigation in the European Court. They create a nightmare of confusion in various areas—in more than I have cited. In employment and industrial relations law, they restrict the rights which the 1977 directive expressly wants to give workers. They are put forward in a manner either of ignorance or effrontery or both, because, on the basis of four years' study and the 1978 regulations draft, which is not perfect, the Government could have produced a reasonable document, even allowing for their own constituencies and preferences. They have not done so and these regulations are hopelessly mis-titled as being concerned with the protection of employment.

7.27 p.m.

Lord Lyell

My Lords, I am sure that your Lordships' House will be very grateful for and fascinated by, if I can so put it, two 20-minute tutorials explaining the very close details of the regulations that I have attempted to present to your Lordships tonight. Even with the relationship that the noble Lord, Lord McCarthy, and I enjoyed 21 years ago, I hope that he will bear with me when !attempt to answer as many of the points as possible made in what he generously described as seven questions. f just wish that the noble Lord had been here yesterday to hear about things known as multiple independent re-entry vehicles, because the noble Lord attached five or six separate points to each of his individual questions to me. Nevertheless, I shall attempt to take those questions in order. Certainly so far as some of the questions which have been raised by the noble Lord, Lord Wedderburn of Charlton, are concerned I shall do my best to take some of them, but I hope he will forgive me because at least three went over my head. We shall have to study his remarks and I hope that he will, in his usual courteous way, allow us to be in touch with him later.

The noble Lord, Lord McCarthy, started by blaming what he called the Neanderthal man or Members of another place who sit on various Benches—I assume on all sides—who dare to blame the labour Minister for the delay in implementing the directive and bringing in these regulations. Indeed, the gist of the remarks made by the noble Lords, Lord McCarthy and Lord Wedderburn of Charlton, was to highlight the differences between the 1978 draft regulations and the regulations which we are discussing this evening.

If I may take the first question put to me by the noble Lord, Lord McCarthy, the delay in presenting the regulations which we see before us tonight was for the one very good reason that the previous Administration did not hand the present Government the final draft. The delay before that was due mainly to further consideration of the 1978 regulations and, of course, the particular problem of what we still believe to be the valuable practice of hiving down. I would say further that the 1978 draft is dated June 1978 and, as your Lordships will be aware, an election followed in May 1979. If the Administration which was supported by both the noble Lords who have spoken this evening believed that this was of the paramount importance which both noble Lords have indicated, I suggest to them both that it behoves them not to cast aspersions on this Government for failure to implement the 1978 draft agreement with all its imperfections. I believe this Government have fulfilled their obligations under our European commitments. We have come up against one or two problems; and I freely admit that in regard to hiving down, which does have very great advantages to workers who might otherwise be unemployed, we have had problems.

The noble Lord, Lord McCarthy, raised the problem —Regulation 8(2)(b)—of what he called economic technical and organisational reasons. This is taken straight from the EEC directive and certainly it covers redundancy, and the employees' usual rights to redundancy payments will apply in this particular case.

Lord Wedderburn of Charlton

My Lords, may I ask—

Lord Lyell

Well, my Lords, may I attempt to finish with the points that have been raised by the noble Lord, Lord McCarthy? I hope the noble Lord, Lord Wedderburn, heard those points in spite of the vagaries of the London Passenger Transport Board. I fear that we shall be here much longer than we would want to be if I deviate from the track I am attempting to follow in trying to answer Lord McCarthy's questions. Some of the answers may cover points raised by the noble Lord, Lord Wedderburn. If he could wait until I have covered Lord McCarthy's questions we might obtain clearer answers, and. I would hope, save a little time. I hope the noble Lord will bear with me.

The noble Lord, Lord McCarthy, raised the point of why we have a change in the definition of undertaking "and why we are excluding those undertakings not in the nature of a commercial venture. I hope this might also go some way to helping Lord Wedderburn in regard to whether various organisations are covered under this particular definition. Regulation 2 follows the EEC directive, which applied to all activities of a commercial or economic nature. I scarcely need remind the two noble Lords that the effect of the 1978 draft was similar, since Regulation 3 then contained provisions excluding undertakings which were carried on "otherwise than with a view to profit" by government departments and local authorities as well as charities. Since then we have been advised that all activities of a non-commercial nature are outside the scope of the directive.

The noble Lord also raised the question as to why the definition of "the employee" and the "contract of employment" are different. The directive covers "employment relationships"—that is how it is mentioned in the directive—as well as "contracts of employment". These wider definitions of "employee" and the "contract of employment" are to embrace the wider concept of what appears in the directive as "employee relationships". I would stress that the 1978 draft, admitted by Lord Wedderburn to be not entirely perfect, certainly did not cover this particular point to any great degree.

The noble Lord, Lord McCarthy, made reference to "a view to seeking agreement". In Regulation 10 we have dealt with what is classified as consultation under the regulations, in just the same way as consultation was dealt with under the redundancy handling provisions of the Employment Protection Act 1975. I am sure that will be more familiar to the two noble Lords than to many others in your Lordships' House. This particular Act of 1975 implemented the Community directive on collective redundancies. These were introduced by the previous Labour Administration.

Lord McCarthy

My Lords, is the noble Lord really suggesting that two wrongs make a right?

Lord Lyell

My Lords, I would never for one moment suggest that. But the noble Lord's Administration brought this in in 1975. It may be there were some imperfections. Well, they had every reason and all the time in the world to correct them. Above all I would stress that the Employment Protection Act 1975 implemented the Community directive on collective redundancies. This particular directive required that consultation should be "with a view to reaching agreement". I think that is a very important point. Doubtless it will be fastened on to by the noble Lord, Lord Wedderburn. I dread to think of it being fastened on to outside this House and bandied about in law journals. But I understand that the Community directive on collective redundancy mentioned "reaching agreement", not "seeking agreement". This particular phrase "reaching agreement" does not appear in our redundancy handling provisions, but instead Section 99 of the 1975 Act sets out some guidance as to what consultation should at least consist of.

We have taken an entirely similar approach in these regulations as the previous Administration took with the redundancy handling provisions. We share with the previous Administration the view that, agreement with a view to seeking or reaching is unnecessary. If the previous Administration took that view, and presumably they were satisfied with that section of the 1975 Act, we would be happy enough with it as well.

The noble Lord, Lord McCarthy, further asked me about the transfer of employees' rights. We certainly do not think there is any room for doubt that the statutory rights—such as equal pay and rights relating to sex discrimination—will be transferred by virtue of paragraph (2) in Regulation 5, since such rights are covered by the wording, in connection with any such contract of employment". The provision in the 1978 draft about joint and several liability was omitted because it was thought that such a provision would be ultra vires the enabling power in Section 2(2) of the European Communities' Act 1972. The enabling power only permits implementation of an obligation under the directive. The second limb of Article 3, para. (1) does not create an obligation, and therefore this particular provision would have been null and void.

The noble Lord, Lord McCarthy, in his comments on Regulation 4, dealing with hiving down, believes that it fails in several instances to implement the directive. That was among several criticisms that he expressed. I would remind him and his noble friend, and indeed all your Lordships, that the transfer to the hived down subsidiary is only significant if the subsidiary is sold, in which case of course the regulations apply in full. Both noble Lords mentioned this and clearly appreciated that the regulations apply when a subsidiary is sold and when there is in fact a different employer. But if no purchaser is found, of course the employees' jobs will inevitably be lost. They will be protected by the redundancy payments provisions and indeed the insolvency provisions of current employment legislation. But without the provision that we are introducing in Regulation 4, hiving down—the practice which noble Lords who have spoken seem to find so objectionable—would cease.

However, I would remind them—and they have great responsibilities since they wish to criticise this particular practice—that, if this process of hiving down were to cease, there would be a consequent loss of jobs. Solvency practitioners are convinced of that and, indeed, the whole practice of liquidators and receivers is bent to seeing that, so far as possible, the business can be continued in fresh hands. Above all, if the business can continue, then those employees' jobs would be saved which would otherwise have been lost.

The noble Lord, Lord McCarthy, continued his attack upon Regulation 4 and he even mentioned that it was a bad practice. Certainly the noble Lord, Lord Wedderburn of Charlton, suggested that I should consult the judgment in the Brentford Nylon case. Certainly we have looked into this matter and the judgment very carefully. But I would reiterate that hiving down saves jobs by keeping going the viable businesses which otherwise would be wound up. Of course receivers and purchasers of the hived down business will not be able to avoid their responsibilities under the directive, and the employees are protected both under the regulations and, I stress, under the existing employment legislation. There would be no point in trying further to protect employees if the result was that no hiving down took place and they simply lost their jobs. That is why we believe that Regulation 4 and the practice of hiving down is very valuable as far as the employees are concerned.

The noble Lord, Lord McCarthy, raised a point—and I think he used some quite colourful language—about the compensation which we find in Regulation 11, paragraph 11, which, as we can see, is up to two weeks' pay. We have found that tribunals, above all industrial tribunals, needed clearer guidelines on which they could base compensation. We think that the amount which we have specified now draws the right line between providing sufficient additional compensation for the employees and placing too great a burden on employers, especially in cases where many employees are affected.

The noble Lord, Lord McCarthy, also mentioned a Paul Davies article in the Industrial Law Journal, with which I have to admit I am not familiar. I am sure that your Lordships will forgive me. I try to keep up with some law but not necessarily with specialist articles in the Industrial Law Journal. I understand that the article in question, far from being entirely critical of our treatment of the technique of hiving down, contains some useful comments which accord with the drafting and the principles of Regulation 4.

I can say quite definitely that I have gone as far as I can in answering the seven main questions which were fired at me by the noble Lord, Lord McCarthy. But I would stress to him and indeed to your Lordships that everything that he and his noble friend have said tonight will be very carefully studied and if I have missed some points—as I undoubtedly must have done—we shall do our very best to give them full satisfaction probably in writing.

I turn next to the noble Lord, Lord Wedderburn of Charlton. I am sure that your Lordships were fascinated by the additional critique, indeed I would call it a free tutorial. The noble Lord raised the problem of "Euro-jargon"—it might even be attributed to him not just in your Lordships' House but in law journals and in other learned organs of communication. "Euro-jargon" is uncomfortable but certainly we have made the very greatest efforts to equate our own regulations with the directive both in content and in clarity of expression. Indeed, the noble Lord may have his own opinion about what he described as and I think I quote him—"the deceitful sleight of hand". I do not think that that is a charge which will stick certainly on the Government in attempting to equate the directive with the regulations that are before us today.

One of the first points raised by the noble Lord, Lord Wedderburn, was that we are giving effect to the directive—and again I would quote him—"by order". He pointed out that orders were not amendable. I understand that this is the practice in your Lordships' House and I would give my humblest apology if he was not aware of that fact. But I understand that that is the custom and that it has been the practice for many, many years. So I hope that the noble Lord will bear with me on that particular line.

The noble Lord, Lord Wedderburn, raised one more point as regards Regulation 10, paragraph 2. He wondered whether mention of the word "fact" means that the transfer has to have been settled. Certainly an employer would not be able to argue that he had been unable to fulfil his obligations to inform and to consult because the transfer had not become an established fact. Certainly the trade union would be likely to complain if it is quite clear that the proposals had been around for some time. Indeed, I am sure that the noble Lord, Lord Wedderburn, would recognise that if this case came before any tribunal, that tribunal would take due account of that particular fact and what had been said and, indeed, the knowledge that a transfer was likely to take place.

The noble Lord, Lord Wedderburn, also raised a point—and again he used some fairly colourful language—about Regulation 3 paragraph 4. He spelled out his point of view and said that this covers transfer by more than one transaction. I would hope to try and assist him by mentioning that this was included to prevent employers from avoiding any of their obligations if they might wish to do so, by transferring their assets in small parts each of which in itself could not be considered to be an undertaking as defined in the regulations. I am a trifle surprised that the noble Lord should complain about this regulation which increases employees' protection in this particular way.

As far as Regulation 5 is concerned, the noble Lord, Lord Wedderburn, asked about the transfer of statutory rights. I am happy to confirm to him and to the noble Lord, Lord McCarthy—indeed to all your Lordships—that statutory rights are transferred. I think that the noble Lord, Lord Wedderburn, also raised the question of safety regulations. Clearly, he has in mind different regulations from what I understand to be the case, and I suspect the rest of your Lordships, in that it seems as plain as a pikestaff to me that safety regulations would not be transferred with the employee, but they certainly would exist at that place of work—wherever the employee went to work. The noble Lord disagrees with me. I have no doubt that he is right. I would defer to his great knowledge, but I would stress that the statutory rights about which he was asking, are transferred and certainly the regulations do not affect existing legislation. Above all I would mention paragraph 17(2) which he will find in Schedule 13 to the 1978 Act. That provides for continuity of employment for statutory purposes in the circumstances covered by the regulations. But I would stress that the regulations provide for contractual continuity as well.

The noble Lord, Lord Wedderburn, spoke quite strongly about Regulation 6. I would confirm to him that any provisions of collective agreements which related to individual employees will continue to apply, and this would, of course, include such things as disciplinary procedures, grievance procedures and so on, but not the agreements relating to pension arrangements, which your Lordships and, indeed, the noble Lord, Lord Wedderburn, w ill see are excluded under Regulation 7.

However, we would also stress that collective agreements are not normally—and the noble Lord w ill know this very well himself—legally enforceable in the United Kingdom. The regulations put the new employer in the same position as the old employer, so that he can withdraw from an agreement or he can renegotiate it at any time. I have attempted to cover the myriad of questions which have been asked of me by both noble Lords who have spoken. I have no doubt that I have missed one or two points: I crave the indulgence of your Lordships' House for missing the points. I would stress again that everything that has been said by both noble Lords will be very carefully noted, and, if I have missed any points, we shall certainly do our very best to cover them and, I hope, give some satisfaction.

Lord McCarthy

My Lords, before the noble Lord sits down, will he allow me to say that he has mentioned, though not answered, my questions one, two, three, six and seven, mainly by repeating the examples from his speech, but he has made no attempt to answer my questions four and five. Would he think again and give me answers in writing particularly to questions four and five? The noble Lord is very fond of referring to our long ago tutorials and the essays that he read to me. Perhaps he w ill recall that after he had finished reading an essay I sometimes said to him, "What did you read for that essay?". Well, he did not read the directive.

Lord Lyell

My Lords, I should like to thank the noble Lord very much for the spirit in which he has glossed over the errors and omissions that I made this evening. I also recall that the noble Lord very frequently said to me, "You have done a great deal of work, but you have not really answered the question". That might be true. I have certainly done much better than I used to 21 years ago. However, given that, I would thank your Lordships for your forbearance and tolerance for listening for so long this evening.

Lord Wedderburn of Charlton

My Lords, before the noble Lord finally sits down, as I restrained myself and did not interrupt him when he preferred to go through his speech, perhaps I could put to him a point of which no doubt he will want further notice. Could he perhaps in some way clarify the question which I understood my noble friend put to him when he answered a different question? In regard to Regulation 8(2)(b), he said that there was no question about compensation for dismissals by reason of redundancy. But that is not the point. The point is whether or not this regulation does implicitly what the 1978 regulations did explicitly, and that is safeguard the rights of the employee who is dismissed unfairly by reason of an unfair selection in a situation of redundancy. That is a totally different point—unfair selection in a redundancy situation and not dismissal by reason of redundancy. The 1978 regulations dealt with this. It is the view of many, many people that these regulations do not. I did not include that in my speech, but my noble friend did. I do not think that the Minister has answered the point, so perhaps he could give some undertaking to look at it again.

Lord Lyell

My Lords, I shall gladly give that undertaking. I repeat: I shall glean every word that has been spoken tonight; I would stress to your Lordships that the comments which have been made have been colourful and useful, and I shall gladly give undertakings to both noble Lords that, to the best of our ability, we shall answer their points.

On Question, Motion agreed to.