House of Commons - Explanatory Note
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Clause 18: Maternity Pay Period

47.     This clause amends section 165(1) of the Social Security Contributions and Benefits Act 1992 by extending the period of SMP from 18 to 26 weeks.

48.     Section 35(2) of the Social Security Contributions and Benefits Act 1992 links the MA period directly to section 165 and hence to the SMP period. Consequently, the period of MA is also extended.

Clause 19: Rate of Statutory Maternity Pay

49.     This clause replaces section 166 of the Social Security Contributions and Benefits Act 1992, which sets out the rate of SMP.

50.     The inserted section 166(1) provides that, as before, a woman shall be paid at the earnings-related rate (90% of her average weekly earnings) for the first 6 weeks for which it is payable. But this rate is no longer underpinned by the flat rate. For the remaining 20 weeks, the woman will receive a prescribed standard rate (£100 a week) unless this exceeds her earnings-related rate, in which case, she will receive the earnings-related rate for the entire pay period.

Example:

Woman A earns an average of £200 a week. She therefore receives SMP at £180 for the first 6 weeks, then £100 for the remaining 20 weeks.

Woman B earns an average of £90 a week. She therefore receives SMP at £81 for the whole 26 week period because the earnings-related rate is less that the flat rate.

51.     The inserted subsection 166(2) states that (as now) the earnings-related rate is calculated on the basis of average earnings during the 8 weeks immediately preceding the 14th week before the EWC.

52.     The inserted subsection 166(3) ensures that (as now) the weekly standard rate must not be less than the weekly rate of Statutory Sick Pay.

Clause 20: Entitlement to Statutory Maternity Pay

53.     This clause amends section 164 of the Social Security Contributions and Benefits Act 1992. Section 164 deals with a woman's entitlement to SMP and employers' liability to pay it. In particular:

  • Paragraph (a) amends section 164(2)(a) of the Act. The amendment does not affect the requirement for a woman to have been employed by her employer for a continuous period of 26 weeks into the 15th week before her expected week of confinement. She must also have ceased to work for him but the requirement that she ceases work "wholly or partly because of pregnancy or confinement" is omitted. This restores the original intention which is to safeguard a woman's entitlement to SMP should her employment end for whatever reason after the beginning of the 15th week.

  • Paragraph (b) replaces section 164(4) which sets out the notice a woman is required to give her employer of the start of her maternity pay period. Instead of requiring a woman to give notice of her absence from work because of her pregnancy, she is required to give her employer notice of the date she expects his liability to pay her SMP to start. In addition the minimum notice period is increased from 21 days to 28 days to harmonise with similar changes to maternity leave.

  • Paragraphs (c) and (d) provide a power, as now, to modify the entitlement and notice provisions in certain cases; for example early birth.

Clause 21: Funding of employers' liabilities: Statutory Maternity Pay

54.     Subsection (1) of this clause inserts a new section 167 in the Social Security Contributions and Benefits Act 1992, which provides for employers to recover most or all of the Statutory Maternity Pay they have paid out.

55.     The inserted section 167, as now, provides for regulations to be made so that employers can recover 92% of the amount paid out by way of Statutory Maternity Pay and for small employers to recover all of the SMP paid out plus an additional amount in compensation for the employers' share of national insurance contributions paid on SMP. As now, the meaning of "small employer" will be defined in regulations by reference to the amount of contribution payments made by an employer.

56.     However, subsection (5) of the inserted section 167 provides for regulations to be made so that employers can recover SMP from tax and other payments due to the Inland Revenue and not just from contributions payments as now. In addition regulations will provide for employers to apply for advance payments of SMP if necessary where the amount they have to pay out in SMP exceeds allowable payments due to the Inland Revenue. Regulations (under subsection (5)(c)) will also provide for the Inland Revenue to recover any overpayments generated by such advance payments. This provision aligns SMP recovery with similar provisions being introduced for Statutory Paternity Pay and Statutory Adoption Pay.

57.     Subsection (2) makes corresponding provision for Northern Ireland.

PART 2: TRIBUNAL REFORM

Costs and expenses

58.     The Employment Tribunals Act 1996 authorises employment tribunal procedure regulations to provide for the award of costs or expenses (costs are known in Scotland as expenses). Currently, the regulations provide that where in the opinion of the tribunal a party has in bringing the proceedings, or a party or his/her representative has in conducting the proceedings, acted vexatiously, abusively, disruptively or otherwise unreasonably, then the tribunal shall consider whether to award costs against that party and may do so. Similarly, costs may be awarded where the bringing or conducting of the proceedings by a party has been misconceived (which includes having no reasonable prospect of success). However,

  • Employment tribunals cannot include in any award an amount to reflect lost management time associated with the employment tribunal claim

  • The regulations do not give tribunals a general power to award costs against the losing party, in the absence of the factors mentioned above

  • There is no power to make an award directly against a representative, where his behaviour has been found inappropriate

59.     As far as the Employment Appeal Tribunal is concerned, the power in the Employment Tribunals Act 1996 to make rules dealing with costs and expenses is limited to cases where the proceedings were unnecessary, improper or vexatious or there has been unreasonable delay or other unreasonable conduct in bringing or conducting the proceedings.

60.     In its consultation document 'Routes to Resolution'; the Government suggested "all concerned - users, their representatives and the tribunals - must play their part in ensuring that time wasting is minimised." Specifically, the document proposed giving the tribunals new powers to make orders for wasted costs against representatives who make a charge for their services; changing the presumption on costs; and allowing any costs awarded to include the time spent preparing the case.

Clause 22: Awards of costs or expenses against representatives

61.     This clause extends the scope for making employment tribunal procedure regulations set out in section 13 of the Employment Tribunals Act 1996 (costs and expenses). It does this by substituting subsection (1) of section 13 with three subsections.

62.     Specifically, the amendment gives the Secretary of State power by regulations to authorise tribunals to make awards of costs directly against a party's representative, because of the way the representative has conducted the proceedings. The award could mean that the representative may not recover his fees from his client, or that he has to pay the other party's costs. It is intended that the regulations will include safeguards to allow the representative the opportunity to put his case on any proposed award. The regulations will also be able to define "representative" so as to exclude those who do not charge for their services.

Clause 22: Compensation for preparation time

63.     This clause also inserts a new section 13A into the Employment Tribunals Act 1996. It gives the Secretary of State power by regulations to authorise tribunals to order that one party make a payment to the other in respect of the time spent by that other party in preparing his or her case. It is not intended that the parties should have to prove how much time they have spent preparing for a case, but that the tribunal should make an assessment based on guidelines to be set out in the Employment Tribunal Rules of Procedure. It is intended that, if a tribunal makes an award under this new power as well as an award of costs which is not sent for detailed assessment, these should together not be able to exceed the current limit on unassessed costs (£10,000). It is also intended that the new awards could be made only in the circumstances in which a costs award may be made at present, that is, where the party has behaved unreasonably in some way.

Clause 23: Costs and expenses in the Employment Appeal Tribunal

64.     This clause amends section 34 of the Employment Tribunals Act 1996, which deals with costs in the Employment Appeal Tribunal. The power is aligned with the power to make costs rules for employment tribunals. Thus the power to make rules for the EAT is no longer limited to certain types of cases, there is provision for wasted costs orders and specific provision for taxation or detailed assessment of costs.

Miscellaneous

Conciliation

65.     The Advisory Conciliation and Arbitration Service's (ACAS) present role is, among other things, to provide an independent and impartial service to prevent and resolve disputes between employers and employees. ACAS conciliators currently have a statutory duty to promote settlements of a wide range of employment rights complaints, which have been made or could be made to an employment tribunal. Clause 24 establishes a fixed period of conciliation for claims to the employment tribunal.

Clause 24: Fixed period of conciliation

66.     At present, ACAS has a duty to continue to seek a conciliated settlement between the employer and employee for as long as the two parties to the dispute want to carry on. This can sometimes lead to an ACAS-brokered settlement being reached at the very last moment before the case comes before an employment tribunal. The Government believes that on occasions this is the result of the parties being unwilling to focus on the importance of agreement until the reality of the tribunal hearing is upon them. But delayed settlements cost time and resource to the parties involved, to ACAS and to the tribunal services. The objective, therefore, is to introduce a system that encourages earlier conciliated settlement where this is possible, without preventing last minute settlements if there is good reason for them.

67.     This clause therefore provides a power for the employment tribunal procedure regulations to introduce a fixed period for conciliation. This is achieved by amending section 7 of the Employment Tribunals Act 1996 to allow for regulations to be made enabling the postponement of the fixing of a time and place for a hearing in order for the proceedings to be settled through conciliation. It is intended that the regulations will set out the length of the conciliation period and will provide for its extension only in cases where the conciliator considers that settlement within a short additional timeframe is very likely.

68.     The clause provides that ACAS's duty to conciliate cases reverts to a power to conciliate after the conciliation period has ended. This preserves ACAS's conciliation role in all of the jurisdictions for which it currently has a duty to act, but means that once the conciliation period is over, this duty becomes a power. The effect will be that once the conciliation period is over, the conciliation officer can judge whether to continue to conciliate the case, or to pass it back to the Employment Tribunal Service (ETS) so that a time and place can be fixed for a hearing.

Clause 25: Power to delegate prescription of forms etc.

69.     Section 7(2) of the Employment Tribunals Act 1996 provides that proceedings must be instituted in accordance with employment tribunal procedure regulations. Currently, the main Employment Tribunal Rules of Procedure stipulate that tribunal applications must be in writing and include the applicant's and respondent's details and the grounds on which relief is sought. A respondent's notice of appearance must be in writing and must give the respondent's details, state whether or not he intends to resist the application and if so, the grounds for doing so. The ETS produces two forms, one for use as an originating application (IT1) and one for use as a notice of appearance (IT3). However, the forms have no particular status under the rules.

70.     This clause amends section 7 of the Employment Tribunals Act 1996 by inserting a new subsection (3ZA). It provides a power for the rules to delegate to the Secretary of State the authority to prescribe a form, which is required to be used to institute proceedings in a tribunal. Alternatively, the clause enables the Secretary of State to include the requirements of the form partly in the rules and partly outside the rules. (Existing powers would enable a form to be prescribed in the rules themselves). The same powers apply in relation to the appearance to be entered by the respondent to the proceedings. It is anticipated that the mandatory form and notice will provide more information to the tribunal, and to the other side, at an earlier stage. This will help the tribunal in deciding whether the application would benefit from a pre-hearing review, preliminary consideration or case management hearing, and the length of time required for the hearing. An assessment of the strength of the other side's case could also be made, which could encourage settlement. The clause also enables the rules to delegate to the Secretary of State the power to prescribe that certain documents (such as the written statement of particulars of employment) must accompany either form.

71.     Finally, the clause enables the rules to include provision to ensure the publication of any requirements prescribed by the Secretary of State by virtue of this clause.

Clause 26: Determination without a hearing

72.     This clause provides for employment tribunal procedure regulations to authorise cases to be determined without a hearing in the circumstances prescribed by the regulations. It is intended that the circumstances in which a case may be determined in this way would be where both parties have given their consent, by signing a form waiving their rights to an oral public hearing, following independent advice. This would be subject to the tribunal deciding that there should be an oral public hearing notwithstanding the parties' agreement to the contrary. This is achieved by substituting a new subsection (3A) for the existing subsection (3A) in section 7 of the Employment Tribunals Act 1996.

Clause 27: Practice directions

73.     Unlike the President of the Employment Appeal Tribunal (EAT), the Employment Tribunal Presidents do not have the power to issue practice directions. That was confirmed by the EAT in the case of Eurobell Holdings Plc v Barker. However, the EAT noted that it was undesirable that employment tribunals should adopt different practices and procedures in different regions and that, if need be, the President should be given statutory power to make practice directions which apply countrywide. It was noted in the 1994 Green Paper 'Resolving Employment Disputes - Options for Reform' that some tribunal chairmen favoured the issuing of formal practice directions by Tribunal Presidents, to guide them on how discretions ought to be exercised. Examples of such discretions include rule 4 of the main Employment Tribunal Rules of Procedure, which says that a tribunal may issue directions, or rule 17 where it may extend certain time limits.

74.     By providing Tribunal Presidents with the power to issue practice directions, the Government's objective is to ensure that tribunals adopt a consistent approach to procedural issues and to the interpretation of their powers under the Employment Tribunal Rules of Procedure. It is believed that such consistency will lead to an increase in confidence among users of the tribunal system that cases are being dealt with in a uniform way regardless of where they are heard.

75.     This clause inserts a new section 7A into the Employment Tribunals Act 1996, giving a power to amend the employment tribunal procedure regulations so that Tribunal Presidents can issue practice directions. There are currently two Presidents in Great Britain - one for England and Wales and one for Scotland. The Presidents will be able to issue these directions in respect of Employment Tribunal Rules of Procedure and the exercise by tribunals of powers under them. In addition, the procedure regulations may contain provisions about securing compliance with practice directions and their publication. The procedure regulations may also refer to provision made or to be made by practice directions, instead of making such provision themselves.

Clause 28: Pre-hearing reviews

76.     Employment tribunals may currently carry out preliminary considerations (pre-hearing reviews) and if it is found at the review that the party's case is a weak one, a deposit of up to £500 can be required as a condition of proceeding to a full hearing. Only on refusal to pay the deposit can the case be struck out. Although rule 15 of the main Employment Tribunal Rules of Procedure permits the strike out of certain cases, including weak cases, it is arguable that the current rules do not allow the strike out of weak cases at a pre-hearing review.

77.     At present the power to strike out is limited and rarely used. This clause therefore clarifies that rules may permit tribunals to strike out a case at the pre-hearing review. The objective is to limit the number of very weak cases reaching a full hearing by confirming the tribunals' power to strike cases out at this stage in the process. The aim is to improve the efficiency of case handling and restrict the amount of time that tribunals spend on considering obviously weak cases. However, the power to demand a deposit remains and is likely to continue to be the main sanction used against weak cases at pre-hearing reviews.

78.     Examples of cases where it could be appropriate to exercise the strike out power include:

  • Cases in which the facts have already been litigated and the applicant has no fresh or different evidence but insists on pursuing the case;

  • Cases where the facts are not in dispute, but the interpretation placed on those facts by one party is clearly wrong;

  • Cases in which a party's application is not itself sufficient to lead to a successful outcome for him, and the party has stated at the pre-hearing review that no further evidence or witnesses would be called;

79.     As the sanctions of imposing a deposit or making a costs order are also available, the power to strike out will only be used where it is appropriate. Since evidence is not considered at the pre-hearing review, the strike-out option will only be appropriate in cases where the tribunal is satisfied that there is no need to consider the evidence, or where there is no conflict of evidence.

80.     This clause amends section 9 of the Employment Tribunals Act 1996. It works by removing from section 9(1)(a) the implication that pre-hearing reviews are "preliminary" hearings, and therefore necessarily followed by a full hearing. It makes it clear that a pre-hearing review will not necessarily be preliminary, so that the powers which the tribunal can exercise in connection with the pre-hearing review may include a power to strike out the claim.

PART 3: DISPUTE RESOLUTION ETC.

Statutory Procedures

81.     Around 90% of larger employers have disciplinary and grievance procedures in place. Most are written and included directly or indirectly in employees' contracts. Under a disciplinary procedure, an employer can complain to an employee about his conduct or performance. Sometimes, such procedures are termed "dismissal procedures" where they deal with complaints or issues that can lead to the dismissal of an employee. Grievance procedures operate in the opposite direction and deal with formal complaints initiated by an employee against his employer.

82.     Under current law, employment tribunals consider the existence and use of disciplinary procedures in unfair dismissal cases. A failure by an employer to use procedures appropriately can result in a determination by a tribunal that a dismissal was unfair. Tribunals must also take account of the ACAS Code of Practice on Discipline and Grievance Procedures and any internal procedures the employer may have, when determining the reasonableness or otherwise of the employer's decision to dismiss. The use of procedures can also affect the size of an award an employee may receive when unfairly dismissed. Under section 127A of the Employment Rights Act 1996, if a dismissal is found to be unfair a tribunal has the power to make a supplementary award of up to two weeks' pay where the employer prevented the employee from appealing against dismissal under the employer's procedure. Conversely, where an employee does not utilise the employer's appeal procedure the tribunal has the power to reduce any award by up to two weeks' pay.

83.     Grievance procedures have no equivalent role under current law and employment tribunals do not generally take their use into account in determining complaints under their various jurisdictions. However, under section 10 of the Employment Relations Act 1999, a worker is entitled to be accompanied by a fellow worker or a trade union official at hearings held under a grievance procedure, provided the grievance is non-trivial in nature. Section 10 also provides for a similar right to be accompanied at hearings during disciplinary procedures.

84.     Clauses 29-34 will bring in:

  • Provisions setting out statutory dismissal and disciplinary procedures (DDPs) and statutory grievance procedures (GPs).

  • Powers to make these statutory procedures an implied term of all contracts of employment.

  • Provisions to enable tribunals to vary compensatory awards by up to 50% where the employer or the applicant has failed to use the minimum statutory procedures. The provisions contain powers enabling the Secretary of State to specify by regulation how the statutory procedures will apply for these purposes. These provisions will in effect replace section 127A of the 1996 Act, which will be repealed.

  • Powers to extend, and to enable employment tribunals to extend, the time limits within which claims need to be made, to allow the relevant statutory procedure to be completed.

  • Powers enabling regulations to be made preventing complaints from being presented to tribunals before part or all of the relevant statutory procedure has been completed.

  • Provisions which will make it unfair for employers to dismiss an employee without meeting their obligations under the relevant DDP. They will also ensure that tribunals disregard any failures by an employer to take other procedural actions outside the framework of the statutory procedure, if taking such additional procedural actions would have had no effect on the decision to dismiss.

  • The affirmative resolution procedure applies to the making of all regulations under these clauses.

85.     A large proportion of complaints to employment tribunals involve employers without any internal disputes procedures. Many occur where employers or applicants have failed to use whatever procedures exist. Litigation to resolve employment disputes is costly and can often weaken employment relations and the employability of applicant workers. These provisions aim to encourage parties to avoid litigation by resolving differences through the proper use of internal procedures. They will, in effect, require all employers to have minimum procedures and give incentives to both employers and employees to use them.

  • Clause 29 and Schedule 2 - Schedule 2 specifies the statutory DDP and GP procedures. Under both types of procedures, there is a 3 step standard procedure involving meetings to consider complaints and appeal processes. The Schedule also specifies a short modified version of the DDP and the GP involving just two written steps. Clause 29 introduces the Schedule and contains provisions enabling the Secretary of State to amend these statutory procedures by order, following consultations with ACAS.

  • Clause 30 makes it an implied term of every contract of employment between an employer and an employee that a statutory procedure is to apply in circumstances specified by the Secretary of State in regulations. The Clause prevents employers and employees from contracting out of this implied term.

  • Clause 31 and Schedule 3 - Clause 31 contains provisions requiring employment tribunals to vary compensatory awards for failures to use the statutory procedures before applications are made to employment tribunals. Unless there are exceptional circumstances, the variation must range between 10% and 50% of the award. However, in exceptional circumstances where a variation on that scale would be unjust or inequitable, tribunals may vary the award by less than 10% or they may decide to make no variation at all. Schedule 3 lists the jurisdictions covered by the clause. Together, the listed jurisdictions cover the overwhelming majority of tribunal claims. Clause 31 also gives powers to the Secretary of State to add or remove jurisdictions from the list. The clause also gives the Secretary of State powers to make provision as to how the statutory procedures will apply for these purposes. These powers enable the Secretary of State in particular to specify circumstances where an employee or an employer is to be treated as having complied with a statutory procedure, even though none or only some of the required actions have been taken. In other words, the regulations could provide for exemptions from some of the requirements of the statutory procedures in particular circumstances.

  • Clause 32 gives the Secretary of State the power to make regulations about the time limits for beginning certain proceedings in an employment tribunal. In particular, regulations may cover extending the time for beginning proceedings, the exercising of discretion to extend the time for the beginning of proceedings and treating proceedings begun out of time as having been begun within time. The purpose of the powers is to allow time for the relevant statutory procedure to be completed before a complaint has to be presented to a tribunal.

  • Clause 33 gives the Secretary of State the power to introduce regulations preventing complaints from being presented to employment tribunals before part or all of the relevant statutory procedure has been completed. ACAS must be consulted by the Secretary of State before exercising this power.

  • Clause 34 - Currently, if an ex-employee complains to a tribunal that he has been unfairly dismissed, then the former employer needs to meet two tests in order to show that the dismissal was fair. First, he must show that the reason for the dismissal was one of the five reasons, which count as potentially fair reasons for dismissal (as set out in Sections 98(1) and (2) of the Employment Rights Act 1996). Second, the dismissal itself must be reasonable in the circumstances. This second point has given rise to a large amount of complex and sometimes controversial case law around the question of whether or not the employer has to have followed internal disciplinary procedures in order to establish reasonableness. This culminated in a House of Lords decision (Polkey vs A E Dayton Services Ltd, 1988) reversing earlier case law which said, in effect, that if an employer failed to follow appropriate disciplinary procedures before dismissal, then he generally cannot justify this on the basis that it would have made no difference to his decision to dismiss if that procedure had been followed. It has been argued that this judgement, by removing the so-called 'no difference' test, forces tribunals to put undue weight on questions of disciplinary procedure, rather than on the actual reasons for the dismissal.

  • The Government consulted in the 'Routes to Resolution' document and in its reply to the consultation, the Government confirmed that in the light of representations it had received, it intended 'to act to ensure that tribunals disregard procedural mistakes, beyond the minimum standard, in unfair dismissal cases, if following full procedures would have made no difference to the outcome.'

  • Clause 34 achieves this by inserting a new Section 98A into the Employment Rights Act 1996. The new section contains provisions that oblige tribunals to disregard failures by employers to take procedural actions outside the framework of the relevant DDP, provided that following such additional procedural actions would have had no effect on the decision to dismiss. The new section would, however, make it unfair for an employer to dismiss an employee without meeting their obligations under the relevant DDP, and provides that an employee will receive a minimum of four weeks pay as compensation where they are found to have been unfairly dismissed and the DDP has not been complied with.

 
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Prepared: 8 November 2001