PARLIAMENTARY DEBATE
Employment Rights Bill (Eleventh sitting) - 12 December 2024 (Commons/Public Bill Committees)

I beg to move amendment 156, in schedule 2, page 112, line 19, after (b) insert “, (c)”.

This amendment makes the reason that the employee was redundant a reason in relation to the dismissal of an employee during the initial period of employment.

It is a pleasure to serve under your chairmanship, Ms Vaz. This pair of amendments on unfair dismissal stand in my name and those of my hon. Friends from the official Opposition.

Amendment 156 would make the fact that the employee was made redundant a reason in relation to the dismissal of an employee during the initial period of employment. The Bill stipulates that the modified protections against unfair dismissal in relation to the initial period of employment mean that an employee can be dismissed for the reasons listed in section 98(2) of the Employment Rights Act 1996, which include

“the capability or qualifications of the employee for performing work of the kind which he was employed by the employer to do…the conduct of the employee”

or

“that the employee could not continue to work in the position which he held without contravention (either on his part or on that of his employer) of a duty or restriction imposed by or under an enactment.”

The 1996 Act also includes a fourth reason,

“that the employee was redundant”,

which is not replicated in the Bill. This is a probing amendment—we do not intend to press it to a Division—to try to tease out from the Government a little more detail and to establish why that fourth reason is omitted from the Bill.

Amendment 157 is also a probing amendment. We want to understand what steps will be specified in regulations that an employer must follow in order for the dismissal of an employee to be treated as fair. That will come back to the test of subjective reasoning rather than specific guidelines or regulations in the Bill. It is only right that the Committee and businesses out there in the real world can fully understand the scope with which the Government are defining “fair” or “unfair”. Inherent to that is the question, why is it not in the Bill? Why is it not as clear as day in the words printed in this quite substantial tome? I know that the Government want to table more amendments, so perhaps those could be a little more specific. Critical to amendment 157 is the question how burdensome the Government intend this measure to be and how proportionate that burden will be on businesses in relation to the problem that the Minister thinks the Bill in its current form—its current vagueness—will solve.

It is a pleasure to see you in the Chair, Ms Vaz. I refer to my entry in the Register of Members’ Financial Interests and my membership of the GMB and Unite trade unions.

The shadow Minister has posed some questions that underlie amendment 156, which seeks to include redundancy as one of the reasons for dismissal to which the lighter-touch standards will apply during the statutory probationary period. As he has rightly identified, the Bill sets out that the reasons for dismissal to which the lighter-touch standards may apply are the statutory grounds of capability, conduct, illegality and some other substantial reason.

It is important to note that those four areas relate to the individual employee, which is why redundancy is not included. Redundancy can affect entire workforces, whereas the other areas are included because of the overlap between the potentially fair reasons for dismissal in the legislation, particularly suitability for work, and the sorts of issues that might come up in a probationary period. A redundancy situation would not ordinarily come up within a probationary period, because it would be about the wider business condition rather than the individual employee’s performance or suitability for the job. I hope that explains why redundancy has not been included.

I turn to the shadow Minister’s more general points. We are trying to strike a fair balance between strengthening employee protections against unfair dismissal and maintaining businesses’ ability to hire, assess and dismiss new employees. The Government are committed to ensuring that businesses retain the confidence to do so. We do not wish the new procedures to undermine existing fair dismissal processes for redundancy, which already provide a robust, straightforward and fair process for employees facing redundancy.

We will work closely with ACAS, in consultation with businesses and trade unions, to ensure that there is clear, straightforward and easy-to-follow guidance on how to carry out a redundancy process under the new measures. It will be an easily accessible process. One of our concerns about including redundancy is that if an employer decided to make a significant number of their workforce redundant, it would be an additional administrative job for them to identify which employees they did not need to include within a redundancy process because they were part of a statutory probationary period, and which would be subject to the wider process. That would lead to unintended consequences and possibly risk of discrimination claims.

Can the Minister give me an assurance on how microbusinesses will be affected by the change? A very small business might choose to take on one person, and there might be nothing wrong with that person, but within a couple of months the business might realise that it is not working from an economic point of view. The employee would then be effectively redundant, because that small business cannot sustain their employment. Can the Minister assure me that if that small business cannot dismiss that person for the reason of redundancy during the probationary period, there will not be a separate, complex redundancy process to follow?

The hon. Member may be conflating two slightly different issues. I say to him very clearly that existing laws on redundancy will not be changed as a result of the Bill. We expect employers to follow the same processes, regardless of the length of service of the employee. In that situation, I do not imagine that there would be a particularly lengthy process if it involved only one individual and a small employer. There would not need to be a pool for selection, for example, or selection criteria. We would expect the employer to comply with the law in those circumstances.

Amendment 157 questions whether regulations should be able to set steps that an employer must follow for a dismissal to be considered fair when prescribing lighter-touch standards to apply during the statutory probationary period. We have set out clearly our intention to have a light-touch process, and we know that around 9 million employees will benefit from that. The intention behind setting out those steps in regulations is to ensure that we take account of further consultation, which we will undertake not just with employers but with trade unions and civil society, to ensure that we have the right balance of process and fairness in a statutory probationary period. We will be developing that in due course. As is often the case with the ACAS code of practice on disciplinary and grievance procedures, there are already lots of examples of really practical guidance out there, which we intend to replicate. I invite the shadow Minister to withdraw the amendment.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move amendment 155, in schedule 2, page 112, line 23, after “period” insert

“of no less than six months”.

This amendment makes the initial period of employment at least six months in length.

Amendment 155 would make the initial period of employment six months, to align with a standard probationary period. The Government have admitted that they do not have robust data on instances of dismissal for those under two years of employment; in other words, we do not know if there is even a problem with unfair dismissal that the Bill is seeking to solve. Without knowing the problem, how can the Government identify a solution or even know that one is necessary? This is a flimsy basis for enacting a measure that the Government estimate will cost businesses in excess of £40 million a year overall.

It is a pleasure to serve under your chairship, Ms Vaz. I draw attention to my declarations in the Register of Members’ Financial Interests and to my membership of the GMB and Unite trade unions.

Before we move past the hon. Gentleman’s point about information, which we have talked about a lot, is the core problem not that there is a wider issue with UK labour market statistics? We heard during the evidence sessions from the Resolution Foundation, which said:

“The Office for National Statistics’ labour force survey is in the doldrums”.––[Official Report, Employment Rights Public Bill Committee, 28 November 2024; c. 119, Q125.]

This is not a party political point. The ONS’s collection methods, which broadly worked until the pandemic, have not worked subsequently. The statistics body is going through a period of transforming the labour force survey, but the criticisms that the hon. Gentleman makes of the information available to this Government would have held true for the Government between 2020 and 2024. This is a much wider issue. We could look at that problem and say, “We didn’t even really know what the UK unemployment rate was for some time,” and if that was an absolute barrier, all employment legislation would be on hold. It is important that those practical challenges are acknowledged.

I do not disagree with what the hon. Gentleman says, but where we do disagree is on the conclusions that we draw from that. I would strongly argue that to introduce primary legislation without an adequate evidence base is foolish, whereas he seems to be arguing that it is fine to do that.

I fundamentally agree with the hon. Gentleman that there is often a problem with data collection, particularly on complex things such as overall employment numbers, the number of people in multiple jobs or whatever. He certainly hit the nail on the head about the post-pandemic understanding of the labour market. The pandemic brought about almost a fundamental reset in a lot of working patterns; nobody seems to work quite in the same way as they did before the pandemic. I acknowledge his point, but I suggest that this was actually the time to take a bit of a pause and a step back to think through new measures more carefully, rather than to rush ahead with a Bill in order to publish it within 100 days of the Government’s taking office.

I return to my questions to the Minister. What estimate has he made of the additional cost to business, including salary costs during performance management or disputes, retention costs from tribunal risk aversion, and increased settlements offered to avoid legal claims? Are those costs worth it for a problem that, as we have just discussed, nobody can actually prove exists in the UK market right now?

It is a pleasure to serve under your chairmanship, Ms Vaz. I will speak principally to our amendment 5, but Opposition amendment 155 is also relevant.

We broadly welcome the Government’s intention to clarify some issues around probation. However, we feel that these measures will make it too difficult for small businesses, which we all know are the backbone of our economy, to take staff on. If we are not careful, the Bill, albeit not by design, could be catastrophic for some small businesses.

I would like the Minister to assure me that small and medium-sized enterprises can be confident that they will not be unduly penalised if they need to give notice during a probation period. Our amendment would put a number on the period, albeit that it allows a range. Both amendments aim to find out whether the Government have an idea of the timescale for the probation period.

When I speak to some of my small innovative businesses, especially those in renewable energy, one thing that concerns me is that they are taking staff on who do not have experience in the field. There simply are not enough people with experience, so businesses are taking people on speculatively who they hope to encourage, teach and train on the job. If they realise early on that that is not possible and that the employee is not suitable for the sector, they need to be able to start again and try again without feeling penalised. There is no way they can do this over a 10-minute coffee, as one Government Member suggests, because these people have no experience in the field. They are on a learning curve as much as the employer is. This probation period is vital for both sides to understand whether the sector, which is new to many people, is appropriate.

I am very concerned that the period, which is the only thing we know about, is not defined as a set amount of time to give small businesses confidence that they can continue to take on staff about whom they are concerned. If the timescale cannot be set out in the Bill, I would like some idea from the Minister of when we might hear it.

It is a privilege to serve under your chairmanship, Ms Vaz. I want to unpick another issue on which I would welcome some reassurances from the Minister.

I have spoken to a gentleman from the Torbay Business Forum who supports a charity that works across Devon, particularly by supporting people with learning disabilities into employment. One often finds that it can take a bit longer for people with learning disabilities to find the right place and get a firm contract. What safeguards are there for charitable organisations and not-for-profit companies working in that sector to prevent them from ending up in the difficult position of having people on their books who, sadly, over an extended period of time, they realise are not fit for purpose because of challenges in their lives? There will no longer be the opportunity to offer extended flexibility.

Like my hon. Friend the Member for Chippenham, I broadly welcome the Bill’s direction of travel, but I would like to see some of the rough edges knocked into shape for Torbay residents.

I am grateful to Opposition Members for tabling their amendments and asking a series of questions.

The hon. Member for Chippenham seeks to set the boundaries for the statutory probation period at three and nine months. The hon. Member for Torbay seemed to argue for a lengthier period; I do not know whether he was asking for nine months or beyond, but I take his point. The hon. Member for Mid Buckinghamshire asked us to put six months on the face of the Bill, so there is quite a range of options. We have decided that the best thing to do is work with businesses and consult with them on the detail of the proposal as we move forward. We have expressed a preference for nine months as a result of the engagement that we have undertaken.

As the hon. Member for Mid Buckinghamshire indicated, businesses have said that generally six months is about the right period, but in some circumstances they may need a bit longer to ensure that the person is the right fit. That is why we alighted on the proposal for nine months, but we do not want to tie our hands by putting it on the face of the Bill; we want to continue to work with businesses and trade unions to understand whether that is the right figure. Putting a number in the Bill would be premature, because we will have further conversations. As we develop the light-touch process in our deliberations, that may help people to firm up their views about whether nine months is indeed the right amount of time.

The hon. Member for Mid Buckinghamshire questioned the evidence base. Of course there can be no evidence base for people being unfairly dismissed under two years’ employment, because there is no right protecting them from unfair dismissal before then, except for those who may seek to hang their hat on an automatically unfair dismissal. As we have discussed at length, people sometimes do that because they have a sense of grievance about the way they have been treated, and they may well have a legitimate claim.

Hon. Members generally accepted that the labour force survey statistics are not particularly helpful, but there is quite a lot of evidence about the impact of job insecurity more generally and the fact that the two-year qualification period creates uncertainty for individuals. Business in the Community surveyed 4,000 employees, of whom 66% say that their mental health and wellbeing is affected by their personal job insecurity. In written evidence to this Committee, the Union of Shop, Distributive and Allied Workers notes:

“Being dismissed on spurious conduct or capability grounds, without a fair investigation”—

as can happen at the moment under two years of employment—

“can have devastating consequences for an employee. It can destroy the individual’s morale and confidence and…living standards”.

This is happening to people already, and it is having an impact.

There is also evidence to suggest that there are further advantages for the wider economy. The Resolution Foundation has done some research on the cooling effect of people not moving jobs because they do not have job security. Someone who is considering moving from one job to another may be more likely to take the leap if they have that window of protection, so it is important for individuals as well.

Where does the Minister think the cost to businesses will be borne? Will it mean lower wages for employees, no Christmas bonuses or perhaps pay rises that are not as great as employees might be expecting? Or will it ultimately get passed on to customers, consumers and purchasers of the services that those businesses provide? Where will the cost actually be borne?

I thank the shadow Minister for his questions. Those are exactly the same arguments that we had about the minimum wage, and they did not bear examination in the end. Indeed, the Conservative party eventually decided to support the minimum wage too.

The shadow Minister quoted from the evidence of Jane Gratton of the British Chamber of Commerce. She has actually said that she would favour a nine-month probationary period being set out in regulations, which I think is reflective of comments that I have made. It seems a little odd for her evidence to be used in support of an amendment that seeks a six-month period.

We are committed to working with businesses and trade unions to finalise the period in regulations. Setting it out in the Bill would tie our hands somewhat. It would also go against the spirit of what we are trying to achieve, which is working in a tripartite manner. The shadow Minister has sometimes criticised me for rushing a little bit, so he will appreciate that we are taking our time with this measure because we want to get it right. I urge him and the Liberal Democrat spokesperson not to press their amendments.

I am happy not to press amendment 5.

As I hope I made clear in my opening remarks, amendment 155 is a probing amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move amendment 55, in schedule 2, page 112, line 36, at end insert—

“3A In section 15 of the Enterprise and Regulatory Reform Act 2013 (power by order to increase or decrease limit of compensatory award), after subsection (5) insert—

‘(5A) The power conferred by subsection (1) includes power to provide that, in the case of the dismissal of an employee that meets the conditions in section 98ZZA(2) and (3) of the Employment Rights Act 1996 (dismissal during initial period of employment), the limit imposed for the time being by subsection (1) of section 124 of that Act is a different amount from that otherwise imposed by that subsection.

(5B) Subsections (3), (4)(a) and (5) do not apply for the purposes of specifying the amount of the limit in such a case.’”

This amendment would enable the Secretary of State to specify the maximum amount of the compensatory award available where an employment tribunal finds that an employee has been unfairly dismissed during the initial period of employment provided for by new section 98ZZA of the Employment Rights Act 1996.

Amendment 55 will expand an existing delegated power to enable the Secretary of State to specify a different maximum compensatory award where an employment tribunal finds that an employee has been unfairly dismissed under the new light-touch standards during the statutory probation period. Amendments 56 and 57 will make consequential changes to the provisions for uprating maximum awards for inflation.

In the event of any successful unfair dismissal claim, an employment tribunal will consider compensation as a remedy. Compensation will usually consist of a basic award and a compensatory award. The tribunal will determine the compensatory award by considering what it thinks is just and equitable, having regard to the financial loss suffered by the claimant that has been caused by the employer’s actions. This will include reference to salary and benefits, including pension, until the claimant finds alternative employment. The maximum compensatory award is currently the lower of 52 weeks’ pay or £115,115.

The Government have listened to concerns that changes to unfair dismissal law could lead to an increase in unfair dismissal claims, even where there is no merit, and to an increased burden on businesses and tribunals in having to deal with those claims. We have heard that uncertainty of outcome makes it hard for businesses to judge how much to invest in either defending or settling a claim. The introduction of a lighter-touch standard for fair dismissal during the statutory probationary period aims to reduce burdens on businesses and to create certainty, but it will not apply to all dismissals during the statutory probation period.

Having listened to those concerns, the Government committed in our “Next Steps to Make Work Pay” document to consulting on what a compensation regime for successful unfair dismissal claims during the statutory probation period should be. Although we want employers to pause and make considered decisions about dismissing employees during probation, the Government do not think that employers should face the full potential liabilities of unfair dismissal remedies when dismissing an employee for reasons related to performance or suitability for the role during the statutory probation period.

To have the option of implementing reform once we have consulted, it is necessary to introduce this delegated power. The power is limited to making changes to the compensatory award for unfair dismissal claims during the statutory probation period only, and only where the new lighter-touch standards apply. The Government recognise the importance of employers being able to assess new hires. We are committed to introducing a statutory probationary period in which there will be lighter-touch standards for an employer to meet in order to dismiss an employee fairly if they are not suitable for the job.

The power will not enable the Secretary of State to make changes to the level of compensation for other day one unfair dismissal rights, such as automatically unfair reasons including maternity-related dismissals, or for “ordinary” unfair dismissals such as redundancy. The power will not enable the Secretary of State to make changes to reinstatement or re-engagement as a remedy available to tribunals for unfair dismissal during statutory probationary periods, nor will it allow changes to be made to the additional compensatory award where an employer does not comply with an order of reinstatement or re-engagement by the tribunal. There may be some concerns that the power could be used to undermine enforcement of the day one right to unfair dismissal, but I assure the Committee that this is not the intention.

The Government are making basic protections against unfair dismissal a day one right for employees. They will be able to enforce their rights and take a claim to the tribunal if they have been unfairly dismissed. It is important, however, that employers are able to assess new hires and see whether they are suitable for the job without facing the full potential liabilities of unfair dismissal remedies during this period.

I have a straightforward question. We are back once more with our old friend of not having full clarity and having consultation after legislation. The Minister gave a figure, but it is not clear exactly what the Secretary of State might consider specifying as the maximum compensation that can be awarded under this measure.

I acknowledge that there is a consultation to come, but the reason that we need greater clarity relates to the point about business confidence in making new hires, putting new job adverts out, seeing who applies and trying to recruit. If there is a risk that the figure will be disproportionately high, it will make businesses more risk-averse about growing their businesses and thereby growing the economy and creating more jobs in our country. My only substantive question is “Where is the ceiling going to be?”

I share some of the shadow Minister’s concerns. Consultation to find out what most concerns businesses is obviously commendable, but if a large amount of the Bill is left to secondary legislation, a lot of it will not come back before the whole House for scrutiny. Can we be assured that decisions that are not taken before the Bill is passed can at least be considered by a Committee when they are finally made?

I take on board the comments that the Opposition spokespersons have made, but if we put something in the Bill now, we would be pre-empting the consultation. It is very important to get this right, acknowledging the balance that needs to be struck and the points that have been made. It is worth bearing in mind that this measure will not be implemented until autumn 2026 at the earliest, which is still a considerable time off. The reason we want to take the time between now and then to engage and consult with businesses is to ensure that we get that figure to a spot that gives justice to individuals and certainty to businesses about the potential liability they may face.

I am grateful to the Minister for that clarification. I understand the point about autumn 2026, but would he acknowledge that the vast majority of businesses are probably already working on their 2026 business plans? They are not just planning for tomorrow, next week and January; they are making medium and long-term plans. Those decisions about creating a new role, filling a vacancy or whatever it might be will already be baked into business planning for 2026, 2027 and maybe through to 2030, so it is not good enough to say, “It’s not coming in until 2026, so don’t worry.” Businesses are already in that planning space.

I take the shadow Minister’s point, but that presupposes that businesses bake into their business plans compensation for unfairly dismissing their staff, and I do not think any business would want to proceed on that basis. This is about a potential liability that might come in at a future point.

Of course, we all want employers to retain their staff and have a productive working relationship, but if they do not, we want them to comply with the law and dismiss employees fairly. There will be a small number of cases where that does not happen, but I would not expect a business to be able to anticipate what might happen in two or three years’ time with an individual employee and whether a process was followed or not. That is probably not on a business’s desk at this point.

Amendment 55 agreed to.

Amendments made: 56, in schedule 2, page 114, line 20, at beginning insert—

“(1) The Employment Relations Act 1999 is amended as follows.”

See the explanatory statement for amendment 57.

Amendment 57, in schedule 2, page 114, line 23, at end insert—

“(3) In section 34 (indexation of amounts, etc)—

(a) in subsection (1)(c), for “124(1)” substitute “124”;

(b) omit subsection (4);

(c) in subsection (4A), for “124(1)” substitute “124”;

(d) in subsection (4B)—

(i) for “124(1)” substitute “124”;

(ii) after “1996” insert “in relation to cases of any description”;

(iii) for the words from “such a sum” to “that date” substitute “, with effect from a day within 12 months before that date, a sum specified in that section in relation to cases of that description”.”—(Justin Madders.)

This amendment and amendment 56 are consequential on amendment 55.

Question proposed, That the schedule, as amended, be the Second schedule to the Bill.

Schedule 2 amends the Employment Rights Act 1996, including the introduction of a statutory probation period. It also removes the qualifying period for the right to written reasons, replacing it with a requirement for the dismissal to have occurred after the statutory probation period ends. By removing the qualifying period, schedule 2 makes basic protection against unfair dismissal a day one right for all employees, ensuring that employees receive a baseline of security and predictability.

By introducing a statutory probation period in legislation, the schedule ensures that employers can continue to assess new hires. It allows the duration of the statutory probation period to be set out in regulation by the Secretary of State, which will follow public consultation.

I will take Members briefly through the elements of schedule 2. Paragraph 1 repeals the two-year qualifying period. Paragraph 2 makes it clear that the right to be unfairly dismissed does not apply to those who have not yet started employment. Paragraph 3 makes provision about dismissal during the initial period of employment, which we have already discussed. It will ensure that the “potentially fair” reasons in section 98 of the Employment Rights Act 1996 will be subject to the light-touch regime where they relate to the employee with the exception of redundancy.

As we have already discussed, the Government intend to consult on the standards, and the schedule repeals the two-year qualifying period. A Government amendment has been made to schedule 2 to include a delegated power to change the maximum compensatory award available during the statutory probation period where the lighter-touch standards apply, as we have just discussed. We will consult on that.

The Minister tempts me, but I will set out our rationale for new clause 28 and amendment 134. I acknowledge that he has published a series of impact assessments, but the Regulatory Policy Committee has not exactly given the Bill a glowing bill of health, and there are a significant number of red ratings in its assessment. I gently push back and suggest to the Minister that the impact assessments need to be looked at again across the piece, so that we can be absolutely certain that the Bill will do what the Government want it to do.

As the Minister rightly said, new clause 28 would require the Government to report on the impact of the Bill’s provisions on unfair dismissal on employers and the economy. That goes beyond the impact assessments that the Government have already conducted, in the sense that the assessment we are calling for must

“include labour market and broader macroeconomic analysis… examine the impact of the measures in section 19 and Schedule 2 …on employment, wages and economic output…consider the likelihood the dismissal measures leading to lower employment, and greater use of temporary contracts, and…examine the likely effect of section 19 and Schedule 2…on productivity…wage growth…equality of opportunity…job security…economic activity, and”—

last but not least—“employment.”

All that work should have been done before the Government proposed this legislation, so the Opposition think it is only right to try to ensure that the Government present the House with the necessary information before the changes to unfair dismissal come into effect. That is the bedrock of a democracy, and it is only right that all Members of this House and, indeed, the other place can see that information before they permit the Bill to complete its passage and gain Royal Assent.

We heard from several witnesses that the provisions will tip the balance of risk for employers, who will choose to not hire people, rather than take a chance on whether a new hire will work out. We also heard that people on the edge of the labour market represent a riskier proposition for employers and are most likely to be disadvantaged by the changes. I do not believe that any Member of this House—of whatever political party or none—wants to see people on the edge of our labour market denied a second or third chance. They deserve the ability to get on in life if, for whatever reason, they have not been able to get on the job ladder and into gainful employment.

All the evidence indicates that the Bill’s provisions on unfair dismissal will have a chilling effect on business growth. How will the Bill support the Government’s first mission of economic growth, when all the evidence—written and oral—and the reports in the press and from other bodies point to the contrary? Even the Government’s own impact assessment cannot provide reassurance that the measures in the Bill will lead to growth. The new clause would introduce safeguards and provide the clarity and detail that all Members no doubt want on whether clause 19 is even necessary for the intent of schedule 2.

I will try to put the shadow Minister’s mind at ease. I point out that not just is there an overall impact assessment for the Bill, but there are 24 separate impact assessments for different measures. That shows the amount of work that has been put in. The RPC has approved two thirds of those assessments, and it was looking only at the evidence base, not the policies themselves.

The impact assessment for day one rights covers everything we would expect an impact assessment to look at: the business environment, the wider economic impact, trade implications, wages, labour mobility, productivity, and sectoral and regional impacts. As the evidence base is firmed up, we will continue to refine and develop it. It deals comprehensively with many of the shadow Minister’s concerns, and I invite him not to press his amendments to a vote.

Question put and agreed to.

Schedule 2, as amended, accordingly agreed to.

Clause 20

Dismissal during pregnancy

Question proposed, That the clause stand part of the Bill.

Clause 20 amends an existing power in section 49D of the Employment Rights Act 1996, which allows the Secretary of State to make regulations

“about redundancy during, or after, a protected period of pregnancy.”

Regulations made under that power took effect in April, bolstering the protections against redundancy for pregnant women. However, redundancy is just one of five reasons for which an employee can be fairly dismissed. The changes delivered by clause 20 are required so that regulations can be made in regard to dismissal more broadly beyond redundancy, both during and after pregnancy.

The existing provisions for redundancy allow regulations to set out three things. The first is how the protected period of pregnancy is to be calculated. The regulations can provide that the protected period begins after a pregnancy has ended, which means that protection can be extended to a woman who has miscarried but has not yet told her employer that she is pregnant. The second is that employers must offer alternative employment to pregnant women at risk of redundancy. The last is the consequences of a failure to comply with any protections, including stipulating that this will result in the dismissal being treated as unfair. Those provisions for redundancy will all be extended, and therefore made available for dismissals for reasons other than redundancy, through this clause. This approach is necessary to then deliver enhanced dismissal protections in the regulations for pregnant women.

A 2016 Equality and Human Rights Commission survey found that 1% of mothers were dismissed following their pregnancy each year. Analysis by the Department for Business and Trade estimates that that equates to around 4,100 mothers—that is how many women could benefit from the new dismissal protections annually. Using secondary legislation to set out the policy detail is a standard approach in this area of employment law and supports working with stakeholders to further shape the policy before confirming the final approach in the regulations.

Clause 21 amends existing powers that allow the Secretary of State to make regulations concerning dismissal during several kinds of family-related statutory leave. The amended powers will continue to allow for regulation of dismissal during the period when an employee is away from work on maternity leave, adoption leave, shared parental leave, neonatal care leave or bereaved partners paternity leave. The amended powers will also apply to a period after the employee has returned from one of those types of leave.

Additionally, clause 21(5)(b) clarifies that parents looking to take bereaved partners paternity leave who have adopted from overseas or had their children via a surrogacy arrangement can be included in regulations creating protections against redundancy, as well as the new protections against dismissal for other reasons. It also makes it clear that the cohort of parents taking bereaved partners paternity leave can be included in the regulations allowing access to keeping-in-touch days, which allow an employee on statutory leave to be able to do some work for their employer without that leave coming to an end.

Our primary focus with the enhanced dismissal protections is supporting pregnant women and new mothers during and after maternity leave. However, as is the case with clause 20, we want to consult and work closely with stakeholders on whether new parents more generally should be covered by the enhanced dismissal protections. The final policy design will then be reflected in the regulations, as is typical in this area of employment law.

Before I commend the clause to the Committee, I put on record my entry in the Register of Members’ Financial Interests, including my membership of USDAW and the National Education Union.

I think this is one of the least contentious parts of the Bill, and we do not seek to oppose in any way the important protections for pregnant women and new mothers. I note that what the Government are really doing with these clauses is building on the regulations that, as the Minister rightly said, came into force in April off the back of legislation brought forward by the hon. Member for Barnsley North (Dan Jarvis) and my noble Friend Baroness Bertin in the other place.

Again, we have the challenge of consultation after legislation. It is important that the Government move quickly to ensure that the protections for pregnant women and new mothers are not left to drag out as part of that consultation. Although consultation is important, the objective that the Government are trying to meet is quite clear. The desire to build on existing legislation should make it less controversial, and it should make getting it right quickly less of an open-ended question. That will enable pregnant women and people who are trying to conceive and start a family—or to have a second, third or fourth child, or whatever it may be—to plan with the confidence that those protections will be in place. I am not in any way speaking in opposition to this measure; I am just urging the Government not to let the consultation drag on.

It is an honour to serve under your chairship again, Ms Vaz. I draw the Committee’s attention to my declaration of interests and my membership of Unison and the Writers’ Guild of Great Britain. I associate myself with the shadow Minister’s comments about the positive results that the legislation will have when it comes into force.

I will speak briefly about the importance of clauses 20 and 21, which will afford considerable extra protections to women who are pushed out of their jobs from the point at which they get pregnant, while they are pregnant, while they are taking maternity leave or just after they return. We heard at our evidence sessions that under the coalition Government, a report was done by the Equality and Human Rights Commission, which found that it was possible that 54,000 women a year lose their jobs in this way. That report was published in 2016. We also heard the Fawcett Society call for a new report because the data is so out of date. I refer to the comments made by my hon. Friend the Member for Birmingham Northfield and the shadow Minister about the lack of data.

Nobody can argue with the fact that so many women suffer maternity discrimination, however. From January to September 2023, 832 complaints were brought to employment tribunal for detriment or unfair dismissal as a result of pregnancy, and we know that that is the tip of the iceberg. Back in 2022, there was a high-profile example when Morrisons was told to pay a mother £60,000 for discriminating against her when she returned from maternity leave. Donna Patterson, who returned to work after having her second child, was asked to fulfil the responsibilities of a full-time job, despite only being contracted to work part-time hours.

Ms Patterson was supported by the charity Pregnant Then Screwed, the founder of which, Joeli Brearley, told us that

“the dial has not moved very much”––[Official Report, Employment Rights Public Bill Committee, 26 November 2024; c. 84, Q79.]

in 10 years, so this Bill will mark a significant step forward. When women suffer maternity discrimination, not only does it take them a long time to recover personally, but it damages their careers and their mental health, and it is a big contributor to the gender pay gap. These clauses will tackle maternity and pregnancy discrimination, and it is necessary to do that to avoid having more women leave the workplace.

Let me pick up on the point about the consultation. We very much recognise the urgency, so the consultation is expected to take place in 2025—this coming year—after which we will introduce secondary legislation. It has been noted that clauses 20 and 21 build on previous measures that received cross-party support, and I commend them to the Committee.

Question put and agreed to.

Clause 20 accordingly ordered to stand part of the Bill.

Clause 21 ordered to stand part of the Bill.

Clause 22

Dismissal for failing to agree to variation of contract, etc

I beg to move amendment 160, in clause 22, page 33, leave out lines 11 to 2.

It is a pleasure to see you in the Chair, Ms Vaz. Fire and rehire is one of the most contentious issues that we have heard about over the last years, and I will speak to it in some depth.

First, I want to welcome the measures within this Bill, specifically those in clause 22, that tackle fire and rehire by considering a situation to be an unfair dismissal where an employee is dismissed for refusing to accept contractual variation, or where they have been dismissed to enable the employer to employ another employee, or to re-engage a dismissed employee on inferior terms. Over recent years, there have been several egregious examples of fire and rehire from large and very successful companies in the UK. In January 2021, the TUC found that

“nearly 1 in 10 workers…had been told to re-apply for their jobs on worse terms and conditions since the first lockdown in March”—

that is, March 2020. That is 10% of the working population. Notably, almost twice as many black workers faced fire and rehire as white workers.

The SNP completely opposes fire and rehire, which is an appalling and abusive practice, and I am sure that most members of the Committee feel the very same. It must be outlawed. We have long campaigned to ban fire and rehire tactics and ensure that workers are not the victim of bosses looking to cut costs. I pay tribute to my former colleague, Gavin Newlands, who twice brought forward Bills in previous Parliaments to outlaw the practice, which had the support of over 100 MPs and the backing of all major trade unions, including Unite, the British Airline Pilots’ Association and GMB Scotland. I also commend the work of Chris Stephens who, on a regular basis, stood up for workers against the previous Tory Government and called for an immediate end to fire and rehire.

However, there appears to be a loophole, and amendments 160 and 161 seek to remove it. Amendment 160 would delete subsection (4) to proposed new section 104I, which provides an opportunity for fire and rehire to continue where

“the reason for the variation was to eliminate, prevent or significantly reduce, or significantly mitigate the effect of, any financial difficulties which at the time of the dismissal were affecting, or were likely in the immediate future to affect, the employer’s ability to carry on the business as a going concern or otherwise to carry on the activities constituting the business, and…in all the circumstances the employer could not reasonably have avoided the need to make the variation.”

Along with many others, I have reservations about that. If employers can point to their likelihood of financial difficulty, they will deploy fire and rehire tactics.

Let me ask some questions. Does the Minister agree with Martyn Gray, who gave evidence to this Committee just a couple of weeks ago? He is the director of organising at Nautilus International, and he made it clear to the Committee how high the bar should be set when he said:

“Quite simply, if directors can sign off the business as still remaining as a going concern, fire and rehire should not be an option…I would set a really high threshold and then allow for scrutiny from the relevant bodies.”––[Official Report, Employment Rights Public Bill Committee, 26 November 2024; c. 65, Q61.]

Employers’ unions have encountered those who have threatened or implemented fire and rehire to reduce workers’ pay and/or conditions, including companies such as British Airways, Heathrow Airport, Argos, Weetabix, Tesco, Asda and British Gas. All members of the Committee know all those names and are very familiar with them. In fact, more than half of those are in my constituency of Dundee and employ a large number of people.

I want to give an idea of the scale of the profits that those companies have made just this year. Asda made £1.1 billion—we are right in the middle of a cost of living crisis, and that is over £1 billion profit for a retail store. Tesco made £2.3 billion profit, and British Gas’s parent company has said that its profits have fallen to a humble £2.8 billion. Those are just three examples and the others—Heathrow Airport, Argos and Weetabix—are also all in profit. One simple cereal company made £368.8 million. Those are hardly companies in dire financial straits. Can the Minister explain how many of the high-profile fire and rehire cases known since 2010 would fall foul of the requirements within the Bill, and how many would be exempted under this loophole?

I think we all know that although the Bill is well-intended—and we fully support it—if it is not revised, it will fail under that loophole. As Andy Prendergast, the national secretary of GMB, explained in his evidence to this Committee:

“We have seen lots of financial engineering. We see inter-company debt. I think there is a concern long term that we may find cases where companies have engineered a financial position that allows them to do something they otherwise would not. That will have to be dealt with on a case-by-case basis.”––[Official Report, Employment Rights Public Bill Committee, 28 November 2024; c. 131, Q135.]

That is twice this Committee has heard evidence that should make us really think about the purpose of the Bill, which I totally agree with on fire and rehire, to ensure that it is watertight.

Can the Minister outline what changes the Government will make to the Bill and what regulatory regime will be put in place to prevent the provision from being exploited in the manner described? For example, will employers have to evidence the financial difficulties before making any decisions on firing and rehiring, or will they need to be evidenced only if an unfair dismissal claim is brought forward? We can clearly see now who holds all the cards. If it is the latter, and claims of financial difficulties are discovered at a tribunal to be unfounded, will employees who have been affected be reinstated on their original terms? These are important questions we need to ask.

In the absence of the detail and guarantees sought, the amendment seeks to remove the loophole altogether. We cannot allow this aspect of the Bill to pass without cast-iron protections against fire and rehire. We cannot wait and see how it plays out in reality, with people’s jobs and lives at stake.

If the provision is to remain—I can clearly see and many others so far have seen that it is a loophole—it is important that further amendments are proposed, not just to clarify definitions of financial difficulties and processes on establishing their veracity, but to ensure that there are further protections to strengthen an employee’s position in relation to any consultations and negotiations that take place when the employer is in financial difficulty. Does the Minister agree that the employer should take all reasonable steps prior to cutting workers’ wages and altering other terms and conditions? Does he agree that all material information should be provided to each union and that as much time as possible must be made available to consult? Does he agree that the employer must comply with any procedural requirements for varying contracts of employment or collective agreement?

Critically, does the Minister agree that the employer should have reduced the remuneration of partners, directors and managers at least to the extent equivalent to that which applies to the workers subject to variation of contract? After all, if an employer is struggling with his company, we cannot have the managerial class carrying on as if it is not affecting them while others have their contracts reduced and their terms and conditions worsened. Does he agree that the employer should have stopped paying dividends to shareholders, buying back shares, or making loans to partners, directors or shareholders, as soon as the financial difficulties became apparent, and renegotiated, to the greatest extent practicable, loans to third parties?

If the Minister does agree, will he give assurances that he will support such amendments being made to the Bill?

I will speak briefly to amendments 160 and 161, standing in the name of the hon. Member for Dundee Central and the Scottish National party. These amendments seek to make the fire and rehire provisions more restrictive, saying that employers cannot vary contracts or re-engage staff on different contracts

“to eliminate, prevent or significantly reduce, or significantly mitigate the effect of, any financial difficulties which at the time of the dismissal were affecting, or were likely in the immediate future to affect, the employer’s ability to carry on the business as a going concern or otherwise to carry on the activities constituting the business,”

and remove the ability for the employer to do so if in the circumstances

“the employer could not reasonably have avoided the need to make the variation.”

I appreciate that it is quite a convoluted position, but it is clear to me that the SNP is siding with the trade union position that Martyn Gray set out, which is that

“if directors can sign off the business as still remaining as a going concern, fire and rehire should not be an option.”––[Official Report, Employment Rights Public Bill Committee, 26 November 2024; c. 65, Q61.]

But we heard from almost every witness—

I will re-declare that I have been an employer in the past, as well as an employee, and have employed staff; this is not just a union position. I have talked about companies. I can appreciate small businesses and even microbusinesses being really concerned about such issues, because they would impact them directly.

Typically, small businesses keep a very keen eye on where things are going in the future. If people want a good team in their employ, they make sure that their employees know very well what is going on with such issues. We had this debate earlier. I will list again, just to remind people, the relevant companies: Asda, Tesco, British Gas, Argos, Weetabix and Heathrow Airport. They are big companies, with billion-pound profits, that are taking advantage of the current situation. They have already taken advantage up until now—why will this loophole mean that they will not do it in the future?

I understand the hon. Gentleman’s point. He likes to point to the profit lines of many of those businesses. Just because a business is making a substantial profit does not necessarily mean that it does not have to go through significant change in businesses practices in meeting market demands, manufacturing processes as technology moves on, or whatever it might be. I am really not seeking to advocate for anybody to be abused in the way he talks about. I am trying to acknowledge that things change in lots of businesses all the time. No one should be unfairly treated as part of that process, but sometimes, even for the very largest companies, significant change happens—as I say, to manufacturing processes or whatever—that requires a fundamental shift in job descriptions.

I am sure that most of those businesses want to keep their workforces on, but if the contract under which the employee was originally employed talks specifically about processes or ways of manufacturing, or uses of particular bits of equipment, that just do not exist anymore because technology has moved on, there is a requirement for contracts to change. Ideally, that will always be done in a consensual, negotiated manner, but the amendments put forward by the hon. Gentleman and the SNP go too far in shutting down that restriction. I agree with his point about small and microbusinesses, which really will struggle, in an ever-changing world with technological advancement and so on, to meet the conditions he is putting down.

We are not talking about technological changes, though, are we? We are not talking about advances that would mean changes to the structure of a business. We are talking about the language that is being used about the likeliness of financial difficulties. To any lawyer, the word “likely”—how long is a piece of string? Someone could argue the case that “likely” means this, while someone else could argue it means that. The language is lax, which is part of the issue.

In terms of financial difficulties, what is a financial difficulty? Does it mean, “We can’t afford the loo roll in the staff toilets so we will fire and rehire,” or something more structural? What I seek from the Minister is assurances that the purpose of the Bill on fire and rehire is very specific: we want to end fire and rehire. Given the current loophole, we have already heard not just from trade unions, by the way, but from businesses—

I apologise. I just wanted to remind the shadow Minister that we are already hearing from businesses. They are clearly looking at this loophole as an opportunity for them in the future.

Of course there will always be some who look for loopholes, but I gently suggest that the vast majority do not. They are good employers who care for their workforce, because, as we have discussed many times over, no business is anything at all without both parts—the workforce and those who risk their capital and so on to make those jobs happen, and to produce the products and sell the services in the first place.

The intervention from the hon. Member for Dundee Central neatly leads on to where I was going anyway. The Committee heard from almost every witness who was an employer or who represented employers that the dismissal and re-engagement provisions in the Bill were already too restrictive and would lead to staff being laid off. The SNP amendments make those even more restrictive, so it is not hard to work out where those witnesses would have gone on this front. Given that risk of lower employment and higher unemployment, I gently ask the hon. Gentleman to consider how the SNP would actually answer that challenge were the amendment to go through.

As ever, it is an absolute pleasure to serve under your chairmanship, Ms Vaz. As usual, I draw the Committee’s attention to my declaration in the Register of Members’ Financial Interests, and particularly to my membership of the USDAW and GMB trade unions.

I am sure it will not surprise the hon. Member for Dundee Central to hear that I share some of his concerns about the practice of fire and rehire, and I welcome the significant steps taken in the Bill to outlaw the practice. However, I disagree with his amendment 160. What might be seen by some as a loophole is actually an important safeguard against the perverse potential for the law to mandate redundancy when there might have been other options on the table. I am sure that none of us would want to be party to including that in the Bill.

As I said, I share some of the hon. Gentleman’s concerns, and I hope the Minister will look closely at proposed new section 104I(4) of the 1996 Act, because the words

“likely in the immediate future”

are doing some precariously heavy lifting. However, if the amendment were accepted, the focus on a business being a going concern, which is the most important part of that subsection, would be removed completely. When we are passing legislation that protects jobs and promotes good employment, we absolutely cannot allow the unintended consequence of mandating redundancy when there are other options.

I look forward to the Minister’s comments. I understand the concerns of the hon. Member for Dundee Central, but this is a sledgehammer of an amendment to crack a nut of a possible loophole, with significant potential consequences.

Like my hon. Friend, I have intense sympathy with many of the arguments put forward by the hon. Member for Dundee Central, but the “Make Work Pay” document published earlier this year, which was subsequently endorsed in the Labour manifesto, stated:

“It is important that businesses can restructure to remain viable, to preserve their workforce and the company when there is genuinely no alternative, but this must follow a proper process based on dialogue and common understanding between employers and workers.”

We all want to see both parts of that carried through, and I look forward to the Minister’s comments on that. If amendment 160 were accepted, would it not have the effect of invalidating that part of the Government’s manifesto commitment?

It will come as no surprise to my hon. Friend that I agree with him. It is important that we keep our focus on the reality of work and the need to provide workers with protections and good-quality employment. The Bill has been brought forward in the context of “Make Work Pay” and the “Next Steps” document, and I look forward to what I am sure will be illuminating comments from the Minister.

I thank the hon. Member for Dundee Central for tabling the amendment, which has drawn out a potential loophole that I hope the Government will look at carefully. We so often see legislation introduced with good intentions, and then 90% of businesses—especially smaller businesses—comply with it to the letter, because they think that is the right thing to do, but the larger corporations find a way around it.

I am grateful for the contributions in this debate, which deals with one of the central issues we have been grappling with. On this side of the Committee we certainly want to see fire and rehire consigned to the history books. Equally, we do not, as my hon. Friend the Member for Worsley and Eccles said, want to see businesses feel they have no option but to make people redundant because they do not feel they can take any other course of action. It is about trying to ensure that that is still available without opening a loophole, as it has been described, for abusive fire and rehire tactics to continue. There is an awful lot in the Bill as it stands that will make it a very high threshold indeed for any employer to want to take that step. There will, of course, be further guidance in regulations, where we will home in on the kinds of concerns that have been raised.

I appreciate that there is a lot in the Bill, and I appreciate that some Government Members on the Committee think this is a nut to crack. I have asked questions—I hope to hear some of the answers to them—and I want to add another. I raised the issue of “likely”, which is the language used. Will the Minister remark on whether the Department intends to advise on how the word “likely” should be determined? Will he consider whether that will reflect what was set out in the Trade Union and Labour Relations (Consolidation) Act 1992 and a subsequent tribunal judgment, which came to define “likely” as a need to show

“a significantly higher degree of likelihood than just more likely than not”?

I am not familiar with the particular case law the hon. Gentleman refers to, but I will take that away.

It is fair to say that employment tribunals currently do not have the kind of inquiries into a business’s finances and general condition that we are trying to achieve with this legislation. At the moment, there is a fairly broadbrush approach, particularly in terms of redundancies, to inquiries about the business reasons. It is important to draw the hon. Member for Dundee Central’s attention to the words after “likely” in the Bill. It is about an

“employer’s ability to carry on the business as a going concern”.

That means the alternative is insolvency or redundancies, which is the eventuality that I am sure we all want to avoid. It will ultimately be a question of fact for an employment tribunal to determine whether it genuinely was the only option available to the employer, which is what the Bill will require the employer to demonstrate.

There are a legion of examples of trade unions working constructively with businesses to avoid those kinds of insolvency situations, as a result of which terms and conditions have changed. The hon. Member for Dundee Central quoted Andy Prendergast who, in respect of what happened in the 2008 financial crisis, said in an evidence session:

“It was heartbreaking, but we had to do it because it was the right thing to do.”––[Official Report, Employment Rights Public Bill Committee, 28 November 2024; c. 131, Q135.]

He was talking about changing terms and conditions in agreement with employers to avoid redundancies and potential insolvencies.

The hon. Gentleman’s amendment would take out all of subsection (5) of proposed new section 104I, which is the requirement for the employer to engage with trade unions and have the dialogue that we think is so important in industrial relations. It would say, “That does not matter any more.” The dialogue we are seeking to develop—the tripartite approach—and the move to make the arbitrary take-it-or-leave-it approach that some employers have adopted in fire and rehire a thing of the past, would not matter.

The hon. Gentleman has asked some important questions about what we would expect of employers; I think subsection (5) answers many of them. Further regulations and codes of practice will also deal with them, because we want to make sure we have a situation in which the bar for passing this test is extremely high, but in addition to that—in addition to there being no alternative but insolvency—the employer has to then demonstrate that they have carried out a full consultation with the trade union. That will involve a full explanation of the financial situation. As we develop the regulations and codes of practice, we will flesh that out in some more detail.

I am listening carefully to the words the Minister is using. When does the employer carry out that process? Ultimately, they have two options. They can carry it out well in advance to ensure that employees are kept up to speed early on. Some employees may wish to leave under those circumstances and find employment elsewhere. But often, in past cases of fire and rehire, employees have heard at a very late stage or not at all. There is currently no provision in the Bill to say what the timetable should be. I would like to get an indication of the Minister’s thoughts about potential future amendments relating to that subject.

I hear what the hon. Gentleman is saying, but subsection (5) does set out the requirements on an employer to consult. It would be normal for further detail about consultation to be considered to be in good time when proposals are at a formative stage, as has traditionally always been the case. I see no reason why it would not also take the same form in that instance.

What we are really talking about is a situation in which there is a sudden change in a company’s financial circumstances and it has to act quickly. In that situation, we do not want to force it to go insolvent or make people redundant, if there is an opportunity to save jobs. That is why subsection (5) is so important: because it will encourage and compel the dialogue that we are seeking to achieve. I accept that there is more to be done in terms of honing some of the detail, but I urge the hon. Gentleman to withdraw his amendment because it would, I am afraid, have unintended consequences.

I thank the Minister for his comments. It is helpful to know that there will be further consultation and, potentially, amendments—which may even come from his own side—to tighten up this bit of the legislation. It is critical to the wider Bill and the SNP understands its importance; we just want to see it made tighter—not to put employers in impossible situations in which they cannot negotiate, but so that it is not exploited as a loophole. As it currently stands, employers are already discussing that.

I appreciate the Minister’s response. In that context, so long as it is something that can be further considered and, particularly, brought forward on Report, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned. —(Anna McMorrin.)