PARLIAMENTARY DEBATE
Terms and Conditions of Employment - 14 May 2024 (Commons/Commons Chamber)

I beg to move,

That the draft Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment of Schedule A2) Order 2024, which was laid before this House on 22 April, be approved.

The draft order will increase the deterrent effect of the code of practice on dismissal and re-engagement, which I will refer to as “the code” for the remainder of this debate. The Government have been clear that threats of dismissal and re-engagement should not be used as a negotiation tactic by employers. When the covid-19 pandemic led to cases of dismissal and re-engagement, the Government asked ACAS to conduct an evidence-gathering exercise to help us better understand this issue. The report was published in June 2021. The Government then asked ACAS to produce new guidance to ensure that employers are clear on their responsibilities when considering making changes to employment contracts. The guidance was published in November 2021. ACAS has also published guidance for employees.

The Government then went further to address the use of dismissal and re-engagement by bringing forward a draft code, aiming to ensure that the practice is only ever used as a last resort, and that employees are properly consulted and treated fairly. The code seeks to ensure that where an employer wants to make changes to employees’ terms and conditions, the employer engages in meaningful consultation with a view to reaching agreement with employees or their representatives in good faith.

I am grateful to the Minister for giving way. We discussed this issue upstairs in Committee. Can he confirm whether the motion, which puts the code into practice, would stop Willie Walsh from threatening to fire and rehire 10,000 air stewards, air stewardesses and others at British Airways, or the workers at British Gas—yes or no?

It is wrong to talk about individual cases, because they are all different, with different circumstances. The order is about a financial deterrent against those kinds of actions. Different sanctions are available for the mistreatment of employees, such as civil or criminal investigation by the Insolvency Service. Different measures can be taken forward where rules are not complied with.

I am grateful to the Minister for giving way again. He talked about the extra 25% putting off businesses and employers from going down that route. If it will save businesses a heck of a lot more money than the alternative, surely they will go down the same route. They will potentially price in the 25% if it will save them more money in the long run, particularly in a British Airways situation where it was dealing with legacy contracts and trying to save substantial amounts of money. Surely this is not enough of a disincentive.

The hon. Gentleman raises an interesting point. Most employers treat their employees with dignity and respect. That is what we expect and what we see in the vast majority of cases. An economic environment in which we have virtually full employment means a competitive market for employees. That is the best protection against the kind of approach that some employers take and which we are trying mitigate. We believe the measures strike a fair balance. We believe there are situations where dismissal and re-engagement is appropriate—I can expand on that if he would like me to—so it is about trying to strike a balance, and we think we have struck that balance.

I thank the Minister for giving way on that point. Does he appreciate that many of us think the code looks very optimistic, presuming a best-case scenario in human behaviour and industrial relations, and that the result is really toothless in dealing with companies that might operate outwith the norm?

I do not think so. There is a financial deterrent to going down a route that is not appropriate, and to not following the code. As I say, we are striking a balance. There are situations in which, as a last resort, businesses need to do something more drastic; for example, a business might be in peril and unable to survive without making the kind of changes we are discussing, and such cases have come before tribunals. If the question is whether it is right that everybody shares a small burden—say, a reduction in salary—one person cannot hold out against that, and prevent a restructuring that is in the interests of the many, rather than the few. The provisions have been used in the past to save businesses and therefore jobs. That is what we are trying to protect, while also protecting against a rogue employer using such opportunities irresponsibly and unfairly.

The code will apply to all employers, regardless of size. We expect all employers in relevant scenarios to adhere to it. As I said, employment tribunals will have the power to apply an uplift of up to 25% of an employee’s compensation if an employer unreasonably fails to comply with a code that applies.

In accordance with the Trade Union and Labour Relations (Consolidation) Act 1992, the Secretary of State consulted ACAS on a draft statutory code before publishing it. Between January and April 2023, the Government publicly consulted on a draft code, enabling trade unions, employers and other interested parties to contribute their views. Careful consideration was given to those views, and as a result, changes were made to the draft code. The Government are very grateful to all respondents to the consultation for their considered and helpful responses. An updated draft code was laid before Parliament on 19 February, and a Government response to the consultation was published on the same day. The draft code was then debated in both Houses of Parliament. I am pleased to say that it was approved. The Government will introduce separate legislation to bring the code into force before summer recess.

The Government are going even further by bringing forward this order, which will increase the deterrent effect of the code by adding a protective award where there is non-compliance with the collective consultation requirements in schedule A2 to the 1992 Act. The protective award is compensation awarded by an employment tribunal when an employer does not consult with its employees before dismissing 20 or more of them within any 90-day period at a single establishment. Schedule A2 to the 1992 Act sets out the list of claims for which an employment tribunal can make a 25% adjustment to compensation if one of the parties has unreasonably failed to comply with a code of practice made using powers in section 203 of the 1992 Act. The relevant code of practice that will be impacted by this change is the code of practice on dismissal and re-engagement. The change will mean that where an employment tribunal is making a protective award, and it appears to it that the employer has unreasonably failed to comply with the code, the tribunal may increase that award by up to 25%. The change was called for by respondents to the consultation, including trade unions, and will increase the deterrent effect of the code.

There are calls to ban the practice of dismissal and re-engagement, or to restrict the practice in a manner that effectively amounts to a ban. The Government believe that we must preserve companies’ flexibility, so that they can manage their workforce in times of crisis. The UK’s flexible labour market is key to economic growth and helps business to thrive, so it is right that we have mechanisms to enable us to save as many jobs as possible. The code is a proportionate response to controversial fire and rehire practices, balancing protections for employees with business flexibility. The vast majority of employers want to do the right thing by their employees. For most employers, decisions to change terms and conditions, or to let members of the workforce go, are not taken lightly.

The UK is a great place to start and grow a business. It has a strong labour market, and its success is underpinned by the balance between labour market flexibility and worker protections. It is vital that we continue to strike the right balance, while clamping down on poor practice. The Government intend the code and the order to be in effect before the summer recess. I commend the order to the House.

I call the shadow Minister.

Let me begin by referring to my entries in the Register of Members’ Financial Interests.

I am grateful to the Minister for introducing the debate, and for making the necessary amendments to primary legislation so soon after the code of practice was approved. It has taken us more than two years, but today we see the first actual legislative change to tackle the blight of dismissal and re-engagement—or fire and rehire, as it is more commonly known. We will not oppose today’s motion, but we are clear that the order does not go anywhere near far enough towards ending this cruel practice, or meet the promises made by the Government.

During the two years since we witnessed those disgraceful scenes at P&O, it has continued to benefit from taxpayers’ cash through Government contracts, and fire and rehire hasusb continued to toxify our industrial relations landscape. While the P&O Ferries case itself did not entirely constitute fire and rehire, it bore many of the hallmarks of the practice and exposed the gaping holes in our law—holes that continue to be exploited; in the wake of the pandemic, there has been a jump in the number of instances of employers choosing to fire and rehire workers.

According to research conducted by the Chartered Institute of Personnel and Development, between August 2021 and 2023, the proportion of firms that conducted fire and rehire almost doubled. What was once a seldom-used device has become a mainstream practice, and part of the wider pattern of growing insecurity at work. In short, it has become a first choice, rather than a last resort. A TUC investigation found that about 38,000 employers were still using fire and rehire as a tactic. However, when we were finally given the code that we were promised would tackle this Dickensian practice, we found instead a vague, weak and disappointing document that would not actually prevent another case as egregious as P&O. On that basis alone, the Government have failed to keep the promise that they made more than two years ago.

The element that many people found most offensive about the P&O case, which today’s motion seeks to address, is the fact that the P&O management were able to look at the sanctions for which they were potentially liable and then decide whether or not they wanted to abide by the law. In effect, the cost of breaking the law was considered to be just another business overhead to be factored into decision making, and, as we saw, the management decided that those sanctions were not a strong enough deterrent to prevent rule-breaking. In its response to the consultation, ACAS said that a 25% penalty

“may not always present a significant deterrent when calculated against the financial costs and risks of an alternative approach.”

I raised exactly those concerns at the time in relation to P&O. The hon. Gentleman is making a powerful argument—and, incidentally, I congratulate the Minister on the motion—but the critical factor is the size of the business involved. A very large business can absorb all kinds of costs that a small local firm cannot. That has been the change, and the regulations that we put in place need to reflect that change, because otherwise those large businesses will behave with impunity.

I will refer to other comments made by ACAS in response to the consultation, which I think will pick up some of the right hon. Gentleman’s observations.

We now have a clear indication that unscrupulous employers cannot get away scot-free with breaking the law, but there are concerns that a 25% uplift will not be enough to deter bad employers who are determined to do what they feel is necessary. Once P&O had calculated the maximum penalty that it could face in compensation for each employee, it priced that into its decision. In effect, it was able to treat the law on consultation—a law that is there to protect workers’ jobs and their dignity—as optional. Today’s motion means that breaking the law will remain an option; it just might be a slightly more expensive one now.

Laws are only as strong as their enforcement. We believe that sanctions should reflect the egregiousness of the transgression. If an employer decides to break the law, the sanction should not be capped, but instead should be decided on the basis of the facts. That would mean that any employers who were tempted to brazenly flout their legal obligations, having calculated the cost of breaking the law, would no longer be able to do so, because the cost of the sanction could, in the most serious cases, be much higher than the cost of complying with the law. Smaller transgressions would be treated accordingly by a tribunal. As things stand, the most egregious abuses have a cost ceiling, so those with ill intent can still price in the cost of acting unlawfully.

In its response to the consultation, ACAS said that there were

“grounds for considering whether additional or alternative financial disincentives might help…the government’s policy objectives”,

including

“greater uplifts of awards where this is just and equitable”

or

“where there are especially egregious breaches of the Code.”

It also suggested—this is relevant to the intervention from the right hon. Member for South Holland and The Deepings (Sir John Hayes)—that when deciding appropriate awards, courts and tribunals might be required to consider, for example, whether the employer ought to have known better than to breach the code, the degree of legal advice readily available to it, and its financial resources. We agree with those suggestions. The arrogant, uncaring and deliberate trampling of workers’ rights requires a stronger message from this place that those actions will no longer be tolerated. Bad employers should not be able to buy their way out of doing the right thing, but instead we see the status quo preserved.

Thankfully, many good employers understand the importance of working collaboratively with unions. We commend those employers, and we know that they already go above and beyond the legal requirements, but there is no evidence that the 25% uplift is likely to prove a deterrent to those who do not. The Government do not know how often the compensatory uplift is used in other areas of employment law where there is a similar penalty for transgressing a code of practice, which prompts us to ask on what basis it has been decided that this measure will be effective in preventing employers from failing to follow the code of practice.

We welcome the fact that the order extends the scope of compensation to any situation in which a protective award under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 is applicable. I understand that to mean that more traditional redundancy situations will be covered, but there are limitations. There must be 20 or more employees at the same establishment for the obligations to be activated, which means that many smaller employers—and, probably more pertinently, many more employers whose workforce may be spread across many different settings, retail being an obvious example—can still be excluded. The measure also only protects “employees”, which means that some of the most insecure workers in the labour market will not benefit one jot; and, of course, the Government intend to reintroduce employment tribunal fees, which, as we know from experience, inhibit people from enforcing their rights.

The regulations also provide for a 25% reduction in compensation when an employee unreasonably fails to comply with the code of practice. During last month’s debate on the code, I asked the Minister what elements of the P&O case, or indeed any recent mass redundancy exercise, had led him to believe that such provisions were necessary. I am afraid that I did not receive a satisfactory response then, so I will ask the question again. Is it not the case that nothing in recent high-profile examples of fire and rehire redundancy has made it necessary to give tribunals the power to take away compensation from employees?

We will not oppose the motion, because it is a step, albeit a small one, in the right direction, but let me make it absolutely clear that what is before us will not prevent another case as egregious as that of P&O. It has taken us two years to reach this point—two years in which we have seen growing insecurity at work, and have come no closer to providing the protections that workers in this country deserve. When the Government committed themselves to responding to the outrage of P&O, there was a moment of consensus across the business world, across the political spectrum and indeed across the whole country that this disgraceful practice should be consigned to the history books. Epitomising that consensus, the then Business Secretary, the right hon. Member for Welwyn Hatfield (Grant Shapps), said:

“we will not allow this to happen again…where new laws are needed, we will create them…where legal loopholes are cynically exploited, we will close them, and...where employment rights are too weak, we will strengthen them.”—[Official Report, 30 March 2022; Vol. 711, c. 840.]

Those legal loopholes remain as open as they did two years ago, and there is nothing, absolutely nothing, to prevent the outrage of P&O happening again. That is yet another example of the long list of wrongs that will need a Labour Government to put them right. It is time to end the race to the bottom. It is time to end fire and rehire.

I, too, refer to my entry in the Register of Members’ Financial Interests.

When I saw the Order Paper and an item titled “Terms and Conditions of Employment”, I thought that it was good news—after the 20 times the Government have committed to an employment Bill, perhaps we would actually see it. I thought that nearly seven years on from the Taylor review, of which almost 50 recommendations have not been enacted or brought before the House, we would have an opportunity to create dignity, fairness and an inclusive labour market, leading to a fairer and more equal nation. But what we have today is a snail step, albeit one that I will welcome, with some qualifications.

The reality is that for thousands of workers across these islands, terms and conditions of employment see too many working people become victims at the mercy of bosses looking to cut costs, which is exactly what fire and rehire is about. It is also about zero-hour contracts, bogus self-employment and short notice of shift changes, leaving workers with additional transport and childcare costs, but I want to concentrate on the evil practice of fire and rehire.

My hon. Friend the Member for Paisley and Renfrewshire North (Gavin Newlands), who has had to go to a Committee, has tabled two private Member’s Bills that seek to outlaw fire and rehire practices. The Bills are supported by over 100 MPs and the trade unions Unite, the British Airline Pilots’ Association and GMB. I listened carefully to the Minister’s exchanges with my hon. Friend and the hon. Member for Edinburgh West (Christine Jardine), and my scepticism about the order being approved today relates to what would happen in a tribunal case for unfair dismissal where a re-engagement order is placed on an employer following a dismissal, and the tribunal orders a reinstatement. We all know that very few cases in which a tribunal tells an employer to reinstate a worker who has been dismissed leads to a reinstatement, because employers will absorb the additional costs for failing to reinstate. I welcome the fact that there will be a penalty where fire and rehire has taken place, but the same principles are at play here.

I am afraid my scepticism relates to the fact that, as those on the Labour Front Bench have said, this order will not end the practice of fire and rehire. Large employers will get their calculators out and absorb the costs, like we have seen with British Airways and P&O. I saw the Business and Trade Committee’s extraordinary exchanges with P&O’s chief executive last week. I want to see real sanctions, so I ask the Minister to write to us and tell us how many tribunal cases where there has been an order to reinstate have actually led to a reinstatement. I understand that the rate could be as low as 3%, but I would be curious to know the figures, because I suspect that they could tell us what would happen with fire-and-rehire practices.

I agree with my hon. Friend, but will not companies such as British Airways, P&O and Asda, which have indulged in this behaviour, look at this as a balance sheet exercise and conclude that the penalty is so small that they can ride it out? Does that not make the case for the Government bringing forward an employment Bill to deal with the issue?

I agree that there should be an employment Bill but, exactly as my hon. Friend has outlined, our concern would be that large employers will get the calculator out and decide to absorb the cost. They will then, as they see it, take a smaller financial hit from paying a penalty than they would for fire and rehire. It is an evil practice, and I hope the Government will now consider ending fire and rehire.

I thank hon. Members for their contributions, and will address their specific points. As we have discussed this issue before in separate venues, I fully understand that the shadow Minister, the hon. Member for Ellesmere Port and Neston (Justin Madders), does not feel that this order goes far enough. It is interesting to consider the briefings that came from recent discussions in the Labour party about its new plans for the workplace. There was a briefing that the party accepted some situations where dismissal and re-engagement may be needed. That may be a vicious rumour, but it seems to me that those on the Labour Front Bench decide their policy on the basis of whom they have talked to last—whether that is a business, employers or employee representatives.

We remain committed to banning fire and rehire, but if the Minister wants to debate our policies properly, let us have a general election and see what the public think.

Why wait? Let us have the debate now.

The shadow Minister mentioned P&O, as did many other hon. and right hon. Members. Clearly, that was not a situation involving fire and rehire. There is an ongoing investigation, and we believe that P&O broke the law. Following that situation, we introduced the Seafarers Wages Act 2023 to ensure that any company that operates vessels in British waters will pay the national living wage, which will be an effective measure.

The hon. Member for Glasgow South West (Chris Stephens) described fire and rehire as an “evil practice”, which is not the right kind of language. There are situations where sometimes employers do the wrong thing by their employees, but most employers do the right thing. There are businesses that have no alternative other than fire and rehire in order to save the business and save jobs. To describe every situation involving dismissal and re-engagement as an “evil practice” is entirely the wrong kind of language.

The Minister is being typically generous in giving way. Surely dismissing people and re-engaging them on worse terms and conditions, and in many cases on lower wages—many multinational companies try to get away with that, and some did get away with it during the pandemic—is an evil practice.

There are cases where these opportunities are abused—I do not deny that—but the hon. Gentleman is operating on the basis that it is the exception rather than the rule. It is our view, which he may disagree with, that the vast majority of employers do not treat their employees that way. There have been cases where a court has upheld the right of an employer to fire and rehire. Where the employer tries to restructure the company to save jobs, through a salary reduction of a few per cent. for everyone in the workplace, that is better than the business going down. The hon. Gentleman must see that there are some situations in which it is the only option for an employer, which operates in the interests of the wider workforce. It was the right thing to do in those situations. His describing it as an “evil practice” is wrong and misses the point, although there are abuses of the system, as he describes.

Unusually, I find myself disagreeing with my hon. Friend the Member for Glasgow South West (Chris Stephens). Are there not scenarios in which the Government think that it is perfectly fine for somebody to be sacked and re-engaged? For example, when the Government led by the right hon. Member for South West Norfolk (Elizabeth Truss) were collapsing, Ministers resigned and were then reappointed afterwards. Sometimes it is in the Government’s interest to have that option, isn’t it?

Well, there is no recourse to an employment tribunal in that situation, and there is certainly no uplift in the compensation that might be received.

I say to the shadow Minister that he should frame the order in its context. The majority of businesses in this country do the right thing by their employees, because they are run by honourable people and treating employees well is the right thing to do for business reasons. His approach of banning dismissal and re-engagement would cost jobs, as would having day-one rights in the area of unfair dismissal. Bringing forward a single category of worker would also cost jobs, and would create huge difficulties for many sectors. It is not just about the situations that arise in individual circumstances; it is about the fear of those situations arising for businesses when they are trying a new employee. That situation will strike fear into the hearts of many businesses across this country, and will cost jobs. The hon. Member for Glasgow South West (Chris Stephens) asked me how many people had appeared before an employment tribunal and then been reinstated. I do not know those numbers but I would be happy to see what numbers we can find for him on that basis.

This order will increase the deterrent effect of the code by adding the protective award for non-compliance with collective consultation requirements to schedule A2 of the 1992 Act. That will mean that where an employer is found to have unreasonably failed to comply with their collective consultation requirements, as well as unreasonably failing to comply with the code, the employment tribunal may increase the employee’s protective award by up to 25%. Subject to the approval of both Houses, the code and the order will be enforced before the summer recess.

The Government are committed to making the UK the most dynamic place in the world to work and to launch, grow and do business. The UK’s flexible labour market is key to economic growth and helping businesses to thrive. However, labour market flexibility must be balanced with appropriate safeguards. The House should be left in no doubt that this Government will always continue to stand behind workers and stamp out unscrupulous practices where they occur.

Question put and agreed to.

Resolved,

That the draft Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment of Schedule A2) Order 2024, which was laid before this House on 22 April, be approved.