HL Deb 23 February 2004 vol 658 cc87-101

7.42 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville) rose to move, That the draft regulations laid before the House on 20 January be approved [7th Report from the Joint Committee].

The noble Lord said: My Lords, disputes at work are expensive, stressful and disruptive for all parties involved. But everyone agrees that early, constructive discussion can produce solutions before problems escalate and working relationships break down. With that in mind, the Government introduced, in the Employment Act 2002, new measures to improve the handling of individual disciplinary and grievance issues in the workplace. The main aim of those provisions can be simply put. It is to encourage employers and employees to resolve disputes through workplace dialogue, rather than through litigation.

The new procedures are minimum standards. We are, of course, aware that many employers already operate more comprehensive procedures, and it is not our intention to undermine such existing good practice—far from it. The Advisory Conciliation and Arbitration Service has for many years offered advice and guidance on this matter, in particular through its code of practice on discipline and grievance issues, and that will continue to be of great importance. It is widely respected and followed, but not by all employers. At present, around 800,000 firms have either inadequate procedures in place or no procedures at all, which means up to 7.2 million employees have no clear right to discuss any grievances in the workplace.

Research undertaken by the DTI in 1998 showed that, in more than a third of cases that went to an employment tribunal there had been absolutely no prior discussion of the dispute between the claimant and his or her manager. That is why the introduction of minimum standards is warranted. Employment tribunals should not be the first resort for resolving workplace problems. They should be the last resort, when attempts by the parties to resolve a problem together in the workplace have failed. This House debated the substance of the new procedures, and the principles underlying them, at considerable length during the passage of what is now the 2002 Act, and the Government are convinced that the principles are sound. The regulations before the House today set out the detail of when and how the procedures established in the Act should apply, and it is to those details that I now turn.

The regulations establish that the standard, three step dismissal and disciplinary procedure should be used when an employer contemplates dismissing or taking relevant disciplinary action against an employee. Relevant disciplinary action is defined as action, short of dismissal, which the employer says is based wholly or mainly on the employee's conduct or capability. Suspension on full pay and the giving of warnings—both oral and written—will not count as relevant disciplinary action for these purposes. That is because they are part and parcel of existing workplace procedures to address disciplinary and grievance issues, not the causes of such issues, and can rarely give rise to employment tribunal cases in themselves.

The circumstances in which the modified, two step, dismissal procedure will apply are very narrowly defined. They represent a small subset of gross misconduct dismissals. It is almost always unfair for an employer to dismiss an employee instantly, without first going through some form of procedure or carrying out some form of investigation, even in a case of apparently obvious gross misconduct. That will remain the position. However, tribunals have occasionally found such dismissals to be fair, when they have concluded that prior investigation could not have affected the decision to dismiss. Regulation 3(2) will avoid the new procedures cutting across that in existing case law. However, even in that very small subset of gross misconduct dismissals, the employer will in future have to go through the modified dismissal procedure after the event—otherwise, the dismissal will be automatically unfair, and the employee will receive an enhanced award of compensation. This therefore represents a tightening of the law in relation to gross misconduct dismissals, not a relaxation of it as some might have feared.

The Government recognise that, in certain exceptional circumstances, it would be inappropriate for the parties to have to follow the statutory dismissal and disciplinary procedures. In those circumstances, set out in Regulation 4, the procedures will not apply. I will not go through them one by one, but, in summary, they cover cases when there already exists legal provision for collective dialogue about a particular issue; when the dispute or issue involved is a collective rather than individual one; or when, exceptionally, workplace dialogue may serve no useful purpose.

There are also certain circumstances, specified at Regulation 5, in which the parties will be treated as having complied with the statutory dismissal and disciplinary procedures, even if they have not. These are; first, trade union dismissal cases where the employee presents an interim relief application to an employment tribunal, within the very tight time limit for doing so, before the appeal stage of the applicable statutory procedure has been completed; and, secondly, where there exists a collectively agreed procedure for consideration of dismissal appeals at a level above that of the individual employer, and the employee has availed himself or herself of that procedure.

I turn now to the statutory grievance procedures. The standard three step grievance procedure will generally apply whenever an employee has a grievance about any action by the employer that could form the basis of a tribunal claim under a jurisdiction listed in Schedule 3 or Schedule 4 to the 2002 Act. Failure to initiate the procedure will normally mean that the employee is barred from making such a claim. The modified two step grievance procedure will be reserved for a very limited set of circumstances, when the employee's employment has ended and the parties mutually agree that it should be followed, in preference to the standard procedure, in relation to a particular grievance.

There are, again, a number of exceptional circumstances in which the parties will be treated as having complied with the applicable statutory grievance procedure, even if they have not. These are set out at Regulations 7 to 10. Regulation 7 deals with what have been referred to as "overlapping" disputes. On occasion, separate disputes can become intertwined. The guiding principle we have followed is to avoid the parties having to go through unnecessary multiple procedures, or iterations of procedures, in relation to "overlapping" disputes. It may be helpful if I go into this in some depth, as it is a key feature of the regulations.

When the action taken by the employer is dismissal—leaving aside constructive dismissal—the onus will he on the employer to initiate workplace dialogue under the applicable dismissal and disciplinary procedure. The employee will not, in any circumstances, have to initiate separate discussion under a statutory grievance procedure, before he or she can complain about that dismissal to an employment tribunal. Employers should know that it is incumbent upon them to have a fair reason for dismissal, untainted by any unlawful discrimination, if they contemplate such a serious step. Thus only one statutory procedure will apply where the disputed action is dismissal.

If the employer takes action short of dismissal against the employee for reasons other than the employee's conduct or capability, then the employer will not need to follow any dismissal or disciplinary procedure. Such action would not normally be recognised as disciplinary action. The employee will instead have to initiate dialogue under the applicable grievance procedure, if he or she wishes to dispute the action and it could form the substance of an employment tribunal claim. Again, only one statutory procedure will apply.

If the employer takes action short of dismissal against the employee and asserts that it is on the basis of the employee's conduct or capability, the applicable dismissal and disciplinary procedure will have to be followed, as I have previously described. The grievance procedures will not normally apply in such cases. If, however, the employee either considers that the action is unlawfully discriminatory or disputes that it is on grounds of conduct or capability, we believe that it is right, and in line with the principles underlying this legislation, that the employer should he entitled to prior notice of that before the employee can make it the basis of an employment tribunal claim. Otherwise, the issue might not be aired and there might be no opportunity to resolve it through workplace dialogue.

In such circumstances, therefore, the employee will be required to put the grievance in writing to the employer. Provided that is done before the appeal meeting under the disciplinary and grievance procedure, it will be sufficient, as the matter can then be discussed at that meeting. If that meeting has already taken place, however, the full grievance procedure will have to be gone through in relation to the grievance. That is the only circumstance in which two separate statutory procedures will have to be followed, arising out of the same matter.

Regulation 8 allows for the standard grievance procedure not to be completed but to be treated as such in certain circumstances when the employment has ended and the employee has put the grievance in writing to the employer, but it has since become not reasonably practicable for either the employee or the employer to attend a meeting.

Regulation 9 provides for the applicable grievance procedure not to be completed, but to be treated as such, if the substance of the grievance has been raised collectively—that is, by a trade union official or other employee representative acting on behalf of two or more employees. Furthermore, under Regulation 10, if a collectively agreed industry-level grievance procedure exists, there will be no requirement to go through the statutory procedures.

Regulation 11 provides for a number of general circumstances in which the procedures—in this instance, both the dismissal and disciplinary procedures and the grievance procedures—will either not apply at all or, when they have already been commenced, will be treated as having been completed. These are circumstances in which one of the parties reasonably believes that following the procedures would give rise to bullying, violence, harassment and other intimidation. Regulation 11 also covers cases in which it is not practicable for a party to commence a procedure or take a subsequent step within a reasonable period. That might arise, for instance, when one of the parties suffers a long-term illness or is out of the country for a prolonged time.

Regulation 12 makes clear which party is to be held at fault, and in what circumstances, when a statutory procedure is not completed. Regulation 13 makes allowance for the situation in which a meeting under one of the procedures is arranged, but it subsequently becomes not reasonably practicable for one or other of the parties—or the employee's companion, if the right to be accompanied applies—to attend. The employer will be obliged to rearrange a meeting in such circumstances, but only once. In order to allow time for the parties to go through the statutory procedures, without them being cut short by the employee making a tribunal claim simply in order to avoid being out of time, the normal time limits for making tribunal claims are to be extended by three months in certain circumstances. Those circumstances are specified in Regulation 15.

The remainder of the regulations deal with relatively minor and technical matters, and I will not go into them in detail. The regulations will apply to every employer in Great Britain. They are designed to he operable in all different types of organisation, from the largest to the smallest. Particular thought has been given to the special circumstances of small businesses. We know that the smallest firms are least likely to use proper procedures already.

In preparing the regulations, the DTI has carried out full and extensive public consultation. That process began with some six months of informal pre-consultation, including consultation with key organisations that represent employees and employers. A four-month formal public consultation took place between July and October 2003 on draft regulations. Before, during and after that consultation, discussions took place with an advisory group of 19 interested stakeholders established specifically for the purpose. There were also numerous bilateral discussions with stakeholders. In addition, a "roadshow" seminar event was held in various locations around the country to promote engagement in the consultation. Some focus groups were also held with representatives of small firms and others.

That was one of the most thorough and far-reaching consultations to have been conducted by the DTI, and we are satisfied that, having taken account of the many comments and representations received, we have here a set of regulations that will operate effectively. But that is only part of the picture. We recognise that employers and employees need to be aware of the new rights and responsibilities placed upon them. To ensure that they are, over the coming months, the DTI, along with ACAS, will carry out a well targeted publicity campaign aimed at all businesses and their employees, and in particular those in the small business sector.

A critical element of the campaign will be the provision of user-friendly guidance both for employers and employees. To allow time for that, the Government has laid these regulations before Parliament well before their intended coming into effect date of 1 October 2004. Also coming into effect on that date, to form a coherent package of measures, will be the revised rules of procedure for employment tribunals, revised Employment Appeal Tribunal rules, and a revised ACAS code. Together, that package of measures will, we believe, bring about the biggest improvement in the handling of workplace disputes in decades. I commend the regulations to the House, and beg to move.

Moved, That the draft regulations laid before the House on 20 January be approved [7th Report from the Joint Committee].—(Lord Sainsbury of Turville.)

Baroness Miller of Hendon

My Lords, I thank the Minister for his clear explanation of very complex regulations and for his department's very detailed Explanatory Memorandum. The regulations that we are considering today cover 10 pages, while the Explanatory Memorandum issued by the DTI is 30 pages long. No wonder the DTI, in its paper entitled Dispute Resolution Regulations: Government Response to Public Consultation admitted that they were "not simple, but necessary".

Indeed, that sentiment has been echoed by a senior partner in a leading firm of solicitors specialising in labour relations. She asked whether they were, now too complex to fulfil their original purpose". She went on to comment: Only time will tell whether they will have any effect on reducing"— applications to tribunals.

A specialist partner in another firm wrote that, employers would find the procedures very difficult to negotiate". In the Explanatory Memorandum to which I have just referred, the Government report on the quantified and unquantified costs and benefits. They estimate the one-off implementation costs at between £37 million and £73 million. That gap of £36 million. just 100 per cent up on the lowest part of the range, is wide enough to suggest that they were not too sure and simply came up with a figure.

The annual recurring costs of using the statutory procedures are estimated by the department as being between £35 million and £48 million, without taking into account the time cost of what is described as a "companion" to accompany a claimant.

The Parliamentary Under-Secretary of State for Employment Relations certified in the Explanatory Memorandum that he was satisfied that the benefits justified the costs. The claimed benefits range from "better employment relations" and "lower recruitment costs" on the employers' side to allegedly "improved employment prospects" and "reduced stress" on the employees' side. Let us hope that that is the effect of them.

Ephemeral as the claimed benefits are, the Government claim that they will range from £697 to £922 million a year over the first 10 years. Included in that figure is the number of tribunal applications, which they put at between 74,000 and 75,000 a year—more than 1,400 a week. They arrive at those figures—and I very much hope that your Lordships will be able to follow this—by, in square brackets, multiplying 9.64 per cent by 76 per cent and then by 900,000, then adding 18.06 per cent multiplied by 5 per cent and again by 900,000. I invite those of your Lordships who are better at algebra than I am to review those footnotes on pages 22 and 23 of the Explanatory Memorandum. However, I am sure that someone was scraping the bottom of the barrel in dredging up those figures, because I found them very difficult to follow.

It will not surprise your Lordships to hear that, on the other hand, the costs estimated by the Government are more or less 45 per cent to 50 per cent of the benefits. I shall not comment any more on the figures relating to costs and benefits, except to invite your Lordships to draw on your own experience as to whether the Government's estimates of costs may be generally far too low. Their estimate of benefits may verge on the over-optimistic—but I hope that I am not right.

A major defect in the Employment Act 2000 was the refusal of the Government to accept an amendment that I proposed that an application to an employment tribunal should be accompanied by a deposit against possible costs. In one stroke, this would have deterred the launching of frivolous claims without merit or speculative claims in which the employee hopes that the employer will pay out rather than fight.

The Government's own consultation paper admits that the cost to employers of each claim is around £2,000—I note that the noble Lord, Lord Wedderburn, is smiling as he recalls the debates we had upstairs in Committee. Many employers put the figure considerably higher and that is without taking into account the distraction to management in having to find time to deal with the claim.

Then there is the fact, which is admitted on all sides, including by the Government, that the procedures in these regulations are extremely complex. They contain a number of traps which will lay the unwary employer open to severe penalties by an arbitrary increase in any compensation that the tribunal thinks fit to award of between 10 and 50 per cent. Conversely, an employee would possibly lose the same percentage of compensation for failure to comply with disciplinary or grievance procedures. Problems of precise compliance with the very detailed timetables and procedures will undoubtedly fall heaviest on small businesses whose needs are often ignored.

I quote what the CBI said in its brief on these regulations: The aim should not be to require all employers to achieve the highest 'best practice' for handling disputes which exist in the more advanced firms. Such standards will not be achievable for all companies, particularly those with minimum resources". The regulations do not distinguish between the obligations they impose on a company in the FTSE 100 on the one hand and the corner shop where the employer and the employee work side by side. Employees who do not have the benefit of trade union representation will be disadvantaged in the same way. I can only hope that when deciding whether to inflict penalties for procedural failures on small employers and on unrepresented employees the tribunals will be merciful.

The Government have made an optimistic forecast that their proposals will cut applications by a quarter. This forecast is presumably arrived at by the convoluted calculation that I mentioned to your Lordships a little while ago. Significant costs will undoubtedly fall on small employers. This is acknowledged in the regulatory assessment made in connection with the Employment Act.

This Government have extended employment rights to whole new categories of workers, have shortened qualifying periods before cases can be taken to employment tribunals and have increased the ceiling on compensation payments. At the same time, the newspapers frequently report tribunal decisions that can only be described as bizarre and awards of compensation that are out of all relationship to what is awarded, for example, by the Criminal Injuries Compensation Authority to persons who have suffered serious physical traumas as distinct from merely injured feelings.

Therefore, it is right that employees will be required to use internal grievance to resolve disputes in the workplace before going to the tribunal. The requirements of the new regulations have been significantly watered down from what the unions and Government Back-Benchers in both Houses were advocating when the Bill was first published and found its way through Parliament. We welcome the fact that in these regulations the Government have decided not to implement Section 30 of the Act, which would have required employers—large, medium and small—to make the new procedures part of the specific contractual terms.

I shall take a moment or two to quote what the CBI said on that point: By deciding not to implement Section 30 ensures that businesses have flexibility to change elements of their procedures, for example to keep pace with changes in the business structure, without having to issue contracts of employment every lime, a process which would be a huge bureaucratic burden … and it prevents employees circumventing the one-year qualifying period for unfair dismissal claims by instead claiming 'breach of contract' for failure to follow one of these procedures. This would result in an increase in the number of employment tribunal claims, the exact opposite of the Government's intention". The implication that the laws of the United Kingdom apply to all contracts should be sufficient for anyone. We are also pleased to note that the definition of "relevant disciplinary action" excludes warnings and suspensions on full pay. Otherwise we would find employers dragged through this complicated procedure merely for a severe reprimand on the shop floor or in the office.

The Government have also sensibly, in our opinion, excluded, in Regulation 3, dismissals where collective consultation is already required by redundancy regulations.

Despite the complexity of the regulations, which the Government admit, and the cost to business, which perhaps they do not, in the interests of giving effect to the Employment Act, we shall not oppose the regulations. Indeed, we believe that any measures that help to resolve more disputes in the workplace without the need to go to litigation are truly to be welcomed.

Lord Razzall

My Lords, I thank the Minister for giving a clear exposition of the background to these regulations. Listening to the noble Baroness, and seeing the noble Lord, Lord Wedderburn, in his place—welcomed, I am sure, by all of us—brought an awful sense of déjà vu about the endless discussions we had on the Bill itself.

Before I make one or two comments, I wish to remind the Minister that, as he will remember, we on these Benches were fundamentally in support of the Government's proposals, which was not the case for the Conservative Opposition and not always the case for the noble Lord, Lord Wedderburn, who was normally coming from a slightly different perspective from that of the noble Baroness.

Having put in that slight admonition, on this occasion I agree with a good deal of what the noble Baroness has said, particularly with regard to the costs. Having studied the numbers in the regulatory assessment in some detail, I have doubts. It may significantly underestimate the costs to employers and significantly overestimate the savings to the taxpayer. As an aside, when we debated a number of these issues in Committee, the noble Lord, Lord Wedderburn, endeavoured to persuade us, and I listened with interest, that the major motivation for the Government with regard to this legislation was to reduce the number of cases going to tribunals and to bring a saving to the taxpayer by fewer tribunal claims. I have no knowledge whether that was the Government's objective; in debate, the Minister denied that it was. I share the noble Baroness's scepticism. I do not think that they will succeed. For reasons that the noble Baroness has indicated, I suspect that the figures on savings from fewer tribunal claims, given in Table 2, on page 19 of the regulatory assessment, are significantly overstated.

The most fundamental reason is set out in paragraph 50 on page 15 of the regulatory assessment—which the Minister has touched on—regarding the position of small businesses. A policy decision has been taken, which I support, that these regulations and the procedures they set out should apply to every company, from the Shell oil company down to the corner shop. I think that that is absolutely right. But I also think there is a danger that the Government will underestimate the impact that it will have on the myriad small businesses which, as indicated in paragraph 50, do not have a specialised personnel function. The type of situation covered by the regulations will often arise only when something peculiar arises in their business such as—example given in paragraph 50—parental leave following an adoption.

Paragraph 51 states that the DTI, recognises the need for user-friendly guidance and standard forms to reduce the implementation costs, particularly for small firms". I think the Government will find that although that is an easy sentence to write, it will be a very difficult sentence to implement. Although we listened with interest to the Minister's very clear exposition of the regulations' meaning and implications, I suspect that it will be very difficult and defy even the best brains in the DTI to reduce them to a form that is easily understandable by every small business.

That is going to be a significant challenge for the department. This is really the first time that anything like this has been attempted in this country. I applaud the intent to do so because there is no reason why an employee in a small business should be treated any differently in terms of employment rights from an employee of the Shell oil company. However, it will be a serious challenge to explain business obligations and employee rights to the corner shop owner—I do not know why we are picking on the corner shop owner—or to any other very small business in a way which achieves the effect that the Government seek.

It may be difficult for the Minister to give a definitive answer to my final question. However, it would be useful if we could know what were the especially difficult areas on which there was significant disagreement among consultees in the consultation exercise. I absolutely accept that these regulations result form an extensive consultation exercise with employers' organisations, representatives of small business and so on. It would be helpful if the Government could indicate the difficult areas. On which issues was there no real agreement among consultees? The Government had to take key decisions on matters such as Section 30, to which the noble Baroness referred. Clearly the consultation exercise led the Government to decide that they were not going to implement Section 30. It would be useful if the Minister could indicate those areas. I am perfectly happy for him to write. It would help if we could have the background to these areas of controversy by the time we reach the implementation phase of the regulations.

Lord Wedderburn of Charlton

My Lords, I rise to welcome the regulations and to ask my noble friend the Minister three questions. I preface them by acknowledging that the regulations contain many directions of approach to the complexity and difficulty which arose on the way in which the Bill was drafted, by including improvements that go beyond some of the suggested answers to the difficulties made by Ministers in the rather long Grand Committee and on Report. They are certainly far better than any of the suggestions made by the official Opposition whose industrial relations policy, as we have heard again this evening, goes back to demands to keep workers away from employment tribunals by imposing deposits. That arises not from what they said on the Bill a year or two back, but from their demands of 1983. They do not make much progress, and I congratulate the Government on not listening to such industrial relations chatter.

I also congratulate the Government on insisting that the procedure demanded of employers and employees should apply across the board. They have not given way to pressure from some quarters to allow small employers to continue to be bad employers, as suggested by the noble Lord, Lord Razzall.

My first of three questions relates to the figures in Annex A on pages 21–23. My question comes not from a failure to understand the algebra, as has been suggested, but it is about the figures themselves in their estimate of the number of employment tribunal applications.

The 2002 Act was predicated on the basis that there had been, and continued to be a dramatic rise in the number of tribunal applications. By the year before, the figure had reached 130,000. My noble friends and I tried to convince the Government that that year was a rather unusual one. It might be thought that there was some merit in that argument as, in the two subsequent years after the 130,000 figure, the number of tribunal applications fell by 25 per cent each year. By the time we reached 2003, employment tribunal applications were down to 98,600.

In that event, is the Minister entirely happy with the calculation that there will be roughly 110,000 employment tribunal applications per year, including 10,000 from new jurisdictions? That is based on the same research that the Government disclosed to us only two days before the Bill was debated on Report, and which they relied on before. Is it the case that the calculations of the number of tribunal applications that will be saved, which they say will be 35,000 to 36,000, is based on a very good assessment of the research, especially as they appear to quote the survey on employment tribunal applications of 1998 and onwards, when everyone in their position said that the number of tribunal applications was rising and would rise?

Leaving aside new jurisdictions, it has been shown that apart from the Act, which is not in force, the number of tribunal applications has fallen. How far have the Government taken account of that fact and the reasons for the fall? I shall not try to explain that now, but plenty of explanation in the debates in Committee and on Report of the Bill appear to have been justified.

My second point is to express surprise that Government statements and explanatory notes omit all reference to a series of issues of which the most important is Section 30 of the Act. The Bill proposed by the deliberate choice of the Government, which we asked about again and again, to make disciplinary and grievance procedures implied terms of every contract of employment in the land. The debate on the Bill took place on that desire—to make the procedures part of the employment contract.

Yet the Government suddenly leapt backwards into the arms of the CBI when they saw the response to their consultative document, and they refused to bring Section 30 into effect at all. The noble Lord, Lord Razzall, perhaps was not wholly fair to the Government because they published in response to the consultation the reasons why they took their sudden new view.

I shall quote only a few words of paragraphs 121 to 123 of the response document in which the Government say that the, CBI was concerned that making the procedures an implied term would open the door for a large number of breach of contract claims". We have heard the same argument from the official Opposition. The Government also say: The Employment Lawyers Association commented that implementing the implied right would give rise to a number of complex legal issues". We had much debate during the passage of the Bill on the complex legal issues that might arise, but the Government never told us that they would not implement Section 30.

The view of the CBI was, strongly opposed by the TUC and individual unions". That is all we are told in terms of the arguments. The Government's conclusion stated: The Government does not intend to commence section 30 of the Employment Act 2002 at this time". They go on to say that, the Government believes it would be sensible to see how … [the regulations] operate in practice". But Section 30 will not operate in practice. Section 30 gave workers the right to say, "These procedures are obligatory and if you, the employer, do not implement them, you are in breach of contract". It gave the employer the right to say to employees, "If you do not implement the procedures, you are in breach of contract". The mere fact that it might give workers a right to sue in the tribunals as well as in the ordinary courts is no reason for completely emasculating and destroying those rights. At the very most the logic of the argument is that those rights should not exist in the tribunals where the one-year period applies. The one-year period does not apply to breach of con tract actions in the courts. Why have the Government suddenly destroyed the rights of workers to enforce the obligation to have the procedures properly observed?

Complex legal issues arise in all parts of the Bill. The only argument mentioned was that of the CBI, which was strongly opposed by the TUC. The Government have given no extra reason at all for not implementing Section 30. My second question is: do they have some new unstated and unknown mysterious reason whose objective is simply to deny the right of workers to enforce the employers' obligations in the courts?

My third question is a very simple one: what is the meaning of Regulation 3, especially paragraph (2) of Regulation 3? Regulation 3(2) deals with the modified dismissal procedure. That is important for a worker. My noble friend the Minister said—I think that I am right in summarising his words as follows—that the modified procedure, which is scarcely a procedure at all, would apply where the employer could dismiss for misconduct. But with respect to him, Regulation 3 is a little more difficult than that and raises all sorts of issues which, like so many of the other problems, we were told would be clarified in the regulations when we raised them as problems during the passage of the Bill.

For example, to take one of the many difficulties, the employer is permitted to use the modified procedure when, the dismissal occurred at the time the employer became aware of the conduct or immediately thereafter". We were told almost precisely that during debates on the Bill. The Government then said, "Oh, that will all be clarified in the regulations", like so many other issues. One could make a list of them, but I refer to this one because it is perhaps the most important to the workers concerned; namely, whether they can simply be shoved out on the spot with no procedure—the modified procedure is scarcely worth anything—when, the dismissal occurred at the time the employer became aware of the conduct or immediately thereafter". We do not have greater clarification than we had an the Bill; we do not have greater clarification than we had in the debates.

I give that one example, but in a more general sense is not Regulation 3(2) so uncertain in its terms that it will be very difficult for a worker to challenge the use of the modified procedure by the employer? It is no good saying, "Oh well, that can all go to the tribunal" because what the worker wants to know is whether he can challenge the use of an immediate dismissal or a summary dismissal at which he loses his job, which has not merely employment but also social security implications and results. If my noble friend could say a word about such problems, not forgetting that I have paid tribute to some of the improvements that one finds in the regulations, my welcome for the regulations would be even greater than it is.

Lord Sainsbury of Turville

My Lords, I have listened with interest to all the points that have been made and I am grateful for them. I shall endeavour to respond to as many of them as I can. However, I make the point that these regulations offer a positive way of improving dispute resolution in our workforces. We can all agree that it makes sense to discuss problems at an early stage before they escalate out of control.

The noble Baroness, Lady Miller, referred to the complexity of the regulations. Of course, they will apply to all workplaces and to all situations that arise in workplaces. Inevitably, employment disputes can be highly complicated and dealing with them appropriately necessarily requires some complexity. However, the regulations were drafted with input and support from a wide range of stakeholders and the Government have tested them during a lengthy period of consultation to ensure that they meet the needs of a full spectrum of workplaces and employment disputes.

The noble Baroness raised the issue of deposits on costs. A better way to deal with the problem is to get people to talk, rather than to have a system of deposits. In 2001 we consulted on whether tribunals should charge users, and the strong response from the consultees was that charging would deter claims from applicants. The Government accept that position. In spite of what the noble Lord, Lord Razzall, said, in this case it is not our objective simply to reduce tribunal work. On the contrary, we want to improve industrial relations. We believe that an employment relations system is better if people talk early on. It is better for the employer in terms of keeping experienced workers if problems can be sorted out; it is also better for the employee in terms of keeping a job if problems can be sorted out.

The noble Baroness, Lady Miller, made the point that the regulations do not distinguish between small companies and large companies. The whole point of the regulations is that we have set a minimum standard, and we have applied them so that they bring in a large number of employees who are not currently protected by adequate dispute resolution procedures in their workplaces. We accept, right from the start, that many companies will quite rightly have more complex and more detailed arrangements. We have not applied those arrangements to all businesses because we believe that that would not be possible or right for small business. I believe that is the right way to approach the matter.

The noble Lord, Lord Razzall, challenged the DTI to produce simple material; it is a challenge that we accept and we shall seek to do that. He also asked what were the stakeholder responses to the regulations consultation process. As always, it uncovered a wide range of opinion from key stakeholders. This is an important and challenging area of law. Employer and employee organisations often take very different viewpoints. We have tried to take those on board; for example, the CBI has broadly supported the aim behind employment dispute resolution reforms; it felt that the procedure was generally sensible; it thought that the exemptions were appropriate; and said that the changes were timely and broadly acceptable. The TUC welcomed the extension to time limits for grievance cases, as one would expect, and approved of the ability to resolve collective grievances. Small businesses councils generally endorsed the Government's approach in that area. The two major issues, particularly for the TUC, were, first, that we were not implementing the implied contractual right and, secondly, the definition of disciplinary action.

I turn to the three questions raised by the noble Lord, Lord Wedderburn. I thank him for his thanks—they are much appreciated in the light of all the comments he made during the 40 hours of debate. He raised the interesting question of the movement of employment tribunal caseload figures. We always accepted that the figures were particularly high in 2000 and 2001 because of the raised level of cases caused by new European part-time pension rules. The noble Lord was right to say that in 2001–02 the figure went from 130,000 to 112,000, and then down again in 2002–03 to 98,000. But the latest figures look likely to be around 113,000 in 2003–04, so they appear to be increasing again. The main reason that we were concerned was not the peak year of 130,000 cases, but that between 1990 and 2003 the caseload roughly trebled. I return to the point that I made to the noble Lord, Lord Razzall. This is not simply about keeping down tribunal costs but about improving the employment relations system.

The second question raised by the noble Lord, Lord Wedderburn, related to the implied contractual right and why we were not bringing that in. I shall try to make the Government's position clear. These statutory procedures will be a major change for many workplaces. So that their impact is controlled the Government do not at this time intend to commence the provision contained in the Employment Act 2002, which would make the statutory dispute resolution procedures an implied contractual term for all employees. There are those people, of whom I believe the noble Lord, Lord Wedderburn, is one, who fear that not commencing that provision will emasculate the procedures because there will be no sanction if the employers do not follow the dispute resolution process. Of course that is not the case.

If employers do not follow the procedures and the dispute subsequently escalates to employment tribunal proceedings, they will suffer the adverse consequences provided for in the 2002 Act. In dismissal cases they will face a finding of unfair dismissal. In all cases, if a failure to start or complete a statutory procedure was the employer's fault the tribunal will increase any award by up to 50 per cent if it finds in the employee's favour. It is important to recognise that these statutory procedures will be a major change for the 800,000 or more firms that have inadequate or non-existent procedures in place at the moment. Because of the burden of applying new operating procedures, the Government's view is that it is best to proceed in stages, starting with these regulations, which apply procedures to disputes that involve employment rights.

I should make clear that our approach is not set in stone. The Government are committed after two years to a review of how the procedures operate in practice. If there is evidence to suggest that the procedures have not been universally adopted, then it would be appropriate to consider introducing the implied term, so that the employees can make breach of contract claims if their employer fails to follow the procedures. The decision to proceed in such a way was strongly endorsed by a majority of the respondents during consultations.

The noble Lord, Lord Wedderburn, also had concerns about using the modified dismissal procedure. But, as I explained in my opening remarks, the modified dismissal procedure will apply only in a limited subset of gross misconduct dismissals. Extensive feedback during consultation has helped us to tighten up the drafting of the provision to ensure that we do not create a loophole to allow unscrupulous employers to sack instantaneously. Of course, for the most severe gross misconduct cases, it is surely right that employers retain the right to sack instantly, especially as tribunals can find that to be fair. In those cases, the shortened procedure must be followed after dismissal.

In conclusion, the draft regulations laid before the House today set out a sensible, and I believe valid, way of encouraging dialogue in workplace disputes. They are based on rational, reasonable principles. Employers and employees should discuss problems before acting hastily. I believe that this is an evenhanded package which balances rights with responsibilities for both employers and employees. The regulations are practical and workable for even the smallest employers and, above all, they will ensure that up to 7.2 million employees are covered by basic dispute resolution procedures.

I should also say that the regulations have been tested in a very thorough consultation exercise supported by extensive discussions with key stakeholders and 16 weeks of public consultations. Implementation will be supported by an extensive guidance and awareness campaign. We are working with ACAS, the TUC, the CBI, small firm representatives and citizens advice bureaux to ensure that they meet the needs of all end-users.

On Question, Motion agreed to.