Financial penalties, deposit orders and whistleblowing debated in the Lords

12 December 2012

On Monday (10 December 2012), the Lords discussed further employment tribunal changes proposed as part of the Enterprise and Regulatory Reform (ERR) Bill, including financial penalties for employers, changes to deposit orders for employees and plans for whistleblowing legislation.

This follows last week’s discussion on tribunal reform, also as part of the ERR Bill.

Financial penalties for unscrupulous employers: not as good as it sounds

Labour peer Baroness Hayter of Kentish Town criticised Clause 14 of the Bill, which legislates for the government’s plans to impose financial penalties on employers who are in breach of their responsibilities to their workers. Although the intention to provide a deterrent to unscrupulous employers is a good one, she noted that workers could in fact lose out in some cases due to the extra financial burden on insolvent companies.

Workers could lose out

In the case of insolvency, it is the administrators and not the employers responsible for breaching their workers’ rights that are in charge and with a limited cash fund, paying out financial penalties could eat into the cash available for compensation and back-payments for workers, she noted, particularly in companies with a large workforce such as large businesses in the retail industry.

Even if there are allowances made for tribunal judges to act with discretion, it is still worded in the law that an employer – or administrator in the case of insolvent companies – could be liable to pay up to £5,000 per employee to the treasury. Providing legislative certainty to administrators could increase their likelihood of trading an insolvent company, which may reduce job losses, she noted.

She advocated amending the Company Directors Disqualification Act 1986 to allow for the fact an employer would have received a financial penalty for breaching employment rights had they not been made insolvent to be taken into account when considering their conduct.

What real difference will it make?

In a related debate, Labour peer Lord Young of Norwood Green noted that the imposition of financial penalties against employers was a weak move by the government at a time they are attacking workers rights from several angles.

“When considered in context of the main thrust of the government’s changes to the employment rights landscape, such as the increase in the unfair dismissal threshold to two years and the extension of new settlement agreements, all of which will make it easier for employers to get rid of workers without following proper process, I am not optimistic about the difference this will make,” he stated.

He also called for the government to make it clear what they mean by “aggravating features” in terms of the employer’s conduct toward their employees, as it has been left vague.

Why not tackle employer conduct at its root?

Lord Young went on to advocate the government focuses on managerial training in grievance and disciplinary procedure to encourage businesses to follow the rules on dismissing employees correctly. To provide a deterrent to companies providing inadequate training, the knowledge of managers about such issues should be taken into account when levying financial penalties, so that employers understand it is “unacceptable” not to operate high-standard and formal grievance and disciplinary procedures.

“We believe that stripping away employment rights is fundamentally misconceived and stems from a real lack of understanding of how the law works in practice. Contrary to what the Government claim, it is not difficult to dismiss an employee, but the employer must follow the proper disciplinary procedure,” he argued.

A review into unpaid compensation

Lord Young went on to bring up the very real issue of unpaid compensation for employees, and suggested a deadline should be enforced by when employers must have paid their wronged workers.

Lord Marland told the Lords research will be commissioned into this issue before Christmas and someone will be appointed to report on the subject by April.

Deposit orders

Deposit orders are issued by a judge when they consider an entire claim is weak and can total up to £1,000. However, the government, in Clause 16 of the ERR Bill, wish to introduce deposit orders even if judges only think part of a claim is weak.

Baroness Turner of Camden argued that there are already sufficient deterrents in place to avoid weak cases going to tribunal and advocated that fees paid by claimants should be returned to them if they decide to withdraw all or part of their claim.

Attacks on the Public Interest Disclosure Act (PIDA)

The ERR Bill also includes attacks on the Public Interest Disclosure Act (PIDA), with proposals that whistleblowers should have to be able to prove they were acting in the interest of the public. Clause 15 of the Bill states that disclosures that are not believed to have been made in the public interest are not protected, and thus neither is the worker.

It was these plans that drew the most debate in the Lords, with major criticisms of the act coming from crossbenchers, Liberal Democrats and Labour peers.

False PIDA claims are not common

Lord Young described the government’s approach to this issue as “worrying”. In response to claims by the Coalition that that they are legislating against the wrong use of this part of the law to protect personal rather than public interests, he noted that Whistleblowing claims account for less than one per cent of all those lodged with the Employment Tribunal Service and that very few of these are deemed weak.

In response to the government’s argument that they are legislating against trivial claims going to court, he questioned the use of the word trivial. “Issues that at one point seemed trivial may in fact be indicative of underlying problems in an organisation and could be the tip of the iceberg”, he noted. Thus these so called, “trivial” issues – such as missed medication in a care home – could be early warning signs that, if reported, could avert disaster.

Whistleblowers are already discouraged from speaking out

It was also noted by several peers that many potential whistleblowers are already discouraged by the treatment of others in their position from speaking out and this change in the law could add another obstacle to their path. The Lords spoke at length about the problems with bullying and harassment of whistleblowers, both by their employers and their co-workers. It was highlighted by Lord Touhig, a Labour peer, that “vicarious liability” – the liability of the employer for the conduct of its workforce – was absent from PIDA and thus whistleblowers are not sufficiently protected against harassment from their co-workers.

Blacklisting

Lord Young also brought up the issue of blacklisting – an area which the IER has covered extensively.

He called for PIDA to make it clear that it is against the law to blacklist whistleblowers.

The “evil” of secret justice

It was also argued by Lord Young that PIDA cases should be reported to the public, as often they are conducted in private and the general public never get to hear about what has occurred in their interest. Lord Borrie (Labour) agreed with Lord Young, stating: “Secret justice is inherently evil unless there is some very strong argument the other way such as public security”.

Support the IER and receive free employment law publications and reduced entrance fees to our employment law seminars and conferences by subscribing to the IER.