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Column Number: 553

Standing Committee F

Tuesday 22 January 2002


[Mr. Derek Conway in the Chair]


Clause 45

Fixed-term work

Amendment proposed [this day]: No. 215, in page 47, line 33, at end insert—

    '(1A) For the first two years of an employee's fixed term employment the regulations will not apply to occupational pension schemes.'.—[Norman Lamb.]

4.30 pm

Question again proposed, That the amendment be made.

Mr. Philip Hammond (Runnymede and Weybridge): When we ended the morning sitting, I was dealing with amendment No. 215, having outlined our principled objection to the Government's gold-plating of a European Union directive, and having speculated on their possible purposes for doing that.

Amendment No. 215 has highlighted a serious practical concern beyond the objections that we have to the inclusion of pay and pensions within the scope of the clause. That serious practical concern particularly relates to pensions. Pensions are a long-term benefit, and it is questionable whether it is appropriate for a long-term benefit such as an occupational pension scheme to be available to someone who is working on a short-term fixed basis within a company. We recognise that issue, but we have chosen to address it in a different way by seeking to emphasise and underline the fact that the no-detriment rule must apply to the whole package, and should not be looked at as relating to any one part of it.

Our view is that it would almost always be inappropriate to offer occupational pension scheme membership to a fixed-term employee, partly for the reason outlined by the hon. Member for North Norfolk (Norman Lamb) that it would not be in that employee's interests to do so. He raises an interesting point because when we look at equivalence between permanent employees and fixed-term employees, are we looking at equivalence of the end benefit from the employee's point of view, or are we looking at equivalence of cost from the employer's point of view? In the case of an occupational pension scheme, incurring the same cost in respect of a fixed-term employee would not necessarily deliver the same benefit to that fixed-term employee as to his permanent counterpart, and there is a possibility of confusion.

The right way in which to look at this in terms of the no-detriment rule is that the fixed-term employee, by being excluded from a benefit such as membership of an occupational pension plan, should be no worse off than he would have been had he been included in that benefit. The hon. Member for North Norfolk has

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shown how the benefit to the employee might be nil in many such cases. I hope that the essence of my concern is clear, and perhaps the Minister can address that specific point. The next group of amendments contains our substantive solution to the problem, which is to emphasise the Government's clear intention that all benefits, including pay and pensions, should be treated as a package when looking at the no-detriment principle.

The Minister for Employment and the Regions (Alan Johnson): Good afternoon, Mr. Conway. The amendment aims to prevent the equal treatment principle from applying to fixed-term employees in respect of occupational pensions during their first two years of fixed-term employment. The effect would be to deny many fixed-term employees access to occupational pension schemes, even where, as the hon. Member for North Norfolk mentioned, they would benefit from access. The exclusion could have an adverse effect on pension provision, encouraging employers to exclude fixed-term employees from such pension schemes even where it is in their interests to take part. Employees on long fixed-term contracts, or on a long series of such contracts, may derive benefit from exercising the right to join an occupational pension scheme even if the scheme has a vesting period.

The amendment could result in such employees being admitted to the scheme only after two years' employment, when the opportunity to accrue benefits is reduced. Not all occupational pension schemes have vesting periods; the amendment could have the effect of imposing a waiting period solely on fixed-term employees. The amendment is not necessary. The draft regulations for fixed-term employees provide considerable flexibility for employees and employers to agree employment packages that suit their circumstances. It will not always be appropriate to include all fixed-term employees in occupational pension schemes, but that should be looked at on a case-by-case basis to achieve the right balance between business requirements and employee protection.

We realise that there might be occasions when, as the directive allows, an employer can justifiably treat fixed-term employees less favourably than similar permanent employees. The employer might be able to justify excluding an employee on a very short fixed-term contract from an occupational pension scheme if including him or her has a disproportionate cost and/or is of no benefit to the individual employee. That employer will not have to provide alternative compensation, but may choose to do so.

Norman Lamb (North Norfolk): I am grateful to the Minister for that explanation, and put a question to him. Would a fixed term of, for example, six months provide a circumstance in which there was an objective justification for the organisation or employer not to provide the employee with access to the occupational pension scheme?

Alan Johnson: Yes. I was just going to mention that. If it were not in a fixed-term employee's interests to join an occupational pension scheme, he or she might not wish to join, because of the probable need to make employee contributions. The regulations will require

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employers to offer access to occupational pension schemes to fixed-term employees on the same basis as permanent ones unless different treatment is objectively justified. They will not require an alternative reward to be offered if the employee chooses not to join. In the circumstances that the hon. Gentleman described, that will often be the case. There is no question of a package approach or offering alternative arrangements. The employee has simply chosen not to join the scheme for good reasons.

The draft regulations provide that less favourable treatment in relation to particular contractual terms will always be justified where the fixed-term employee's overall package of terms and conditions is no less favourable than that of the comparable permanent employee. Providing that that is the case, employers will be able to balance a less favourable condition against a more favourable one. An employer and a fixed-term employee could therefore agree an employment package in which other benefits compensated the employee for lack of access to an occupational pension scheme.

The same qualifying period for employment benefits will have to apply to fixed-term as to permanent employees unless different periods can objectively be justified. If permanent employees have to serve a waiting period before they have access to occupational pension schemes, the same period may be applied to fixed-term employees, unless a longer period is objectively justified. That gives some explanations of how that will work in practice.

I cannot resist making some comments in answer to the hon. Member for Runnymede and Weybridge (Mr. Hammond), who, in making a point about gold-plating, said that we were acting at the behest of the Trades Union Congress. I want to put it on the record that in the summer we were accused by the Confederation of British Industry of being too close to the TUC. Indeed, the president of the CBI said that there were reds under the bed at the Department of Trade and Industry, and that the same bed was being shared with the TUC. We were also accused recently of being the provisional wing of the CBI. Given that we are being attacked from both sides, we must be getting matters just about right.

Norman Lamb: I am largely reassured by the Minister's explanation, particularly of the flexibility that the directive appears to provide for two parties to agree a package that will ensure no less favourable treatment. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Hammond: I beg to move amendment No. 231, in page 47, line 41, at end insert

    'and any regulations made under this paragraph shall take into account all benefits and remuneration received by the relevant employees in fixed-term employment and by comparable employees in permanent employment with the employer in determining whether any such employees are treated less favourably than employees in permanent employment.'.

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The Chairman: With this it will be convenient to discuss amendment No. 229, in clause 49, page 52, line 12, leave out 'or 33' and insert ', 33 or 45'.

Mr. Hammond: The hon. Member for North Norfolk said that he was reassured by the Minister's comments, but in fact he offered no more than a reiteration of the draft regulations. Having moved this amendment, I suspect that I, too, will be reassured by the Minister's telling me no more than what is in the draft regulations. Does that not underline the significance of the plea, which we always make, for the early issuing of draft regulations to inform our debates and take a great deal of steam out of them? We spend an inordinate amount of time posing questions that Ministers tell us will not arise once we see the regulations. In this case, we received the regulations, but unfortunately not early enough to prevent us tabling amendments that they largely answer. If anything has ever underlined the case for producing draft regulations before Bills are considered in Standing Committee, this is it, and I want to put on the record the Committee's gratitude to the Minister for supplying the regulations now. They have certainly proved very informative.

Amendments Nos. 231 and 229 merely emphasise the fact that, as the Minister says, the regulations will provide for the taking of a package approach, as I describe it. Not every single element of the compensation package or the terms and conditions for a fixed-term employee and a permanent employee must match, but they must be comparable and of equal value overall. Employers who were dreading the complexity of this issue will be greatly reassured by the regulations. Of course, in many cases certain benefits would be inappropriate for a fixed-term worker. There is not much point in providing someone with a car if their contract is for only six months and they already have one. They certainly will not want to sell theirs and take on the company car, only to have to buy a new one six months later. In such a situation, they would probably prefer some form of agreed alternative monetary benefit.

Although the original purpose of my amendment has been largely overtaken by the publication of the draft regulations and the Minister's explanation, I want to take this opportunity to probe him on one issue. In talking about treating fixed-term workers equivalently to permanent workers, can we be clear that we are talking about a permanent worker who has been employed for the same length of time as the fixed-term worker? What I am driving at is that employers may, and probably should, seek to recognise length of continued service by ratcheting up benefits. It is quite common for certain benefits to be available to people on the basis of duration of service. I would not want a fixed-term worker on a six-month contract to be entitled, as of day one, to benefits and compensation that were available to permanent workers in that workplace which had been ''earned'' by the period of time that they had served in that position.

Some benefits are clearly and routinely available to people only after a certain length of service. It will not apply in all cases, but many fixed-term workers are not managerial, professional or highly qualified technical

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staff. In the case of companies that offer share options to employees after a certain period of employment, it would clearly be inappropriate for a person to go in on a fixed-term, six-month or one-year contract and on day two say, ''What about my share options then?'' It is perfectly legitimate for an employer to say that share options are available after two or three years of service, or whatever the in-house rule is. Can the Minister confirm that the comparator permanent employee will have a similar length of service to the fixed-term worker and will not have a great deal more service?

I shall not at this stage seek to withdraw my amendment, because that would deny the Committee the pleasure of hearing the Minister's no doubt carefully crafted response, which might be useful to us anyway, but the purpose of the amendment has been largely overtaken by events.

4.45 pm


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