December 03 2023

Enterprising reform

Enterprising reform

ANALYSIS: On 23 May, the Government published its Enterprise & Regulatory Reform Bill, as trailed in the Queen’s Speech, writes Richard Dunstan. With the aim of ‘improving the employment tribunal system’, the Bill contains welcome provisions to create both a mandatory period for early conciliation by Acas of all new ET claims, and a power for ET judges to impose financial penalties of up to £5,000 on losing respondent employers in cases where there are ‘aggravating circumstances’.

Somewhat to my surprise, the Bill also contains an enabling power for the Secretary of State to establish a ‘Rapid Resolution’ scheme for the speedy determination of simple, straightforward ET claims – the BIS press notice gives the example of ‘holiday pay’ claims – by suitably-empowered ‘legal officers’, rather than ET judges.

This is an idea that Citizens Advice first proposed to Michael Gibbons during his major review of the ET system in 2006-07, and which was taken up by Mr Gibbons in his final report but not by the then Labour Government. We took it up again in our April 2011 report Give us a break, on denial of paid holiday and owed holiday pay, and also in our response to last year’s BIS/Tribunals Service consultation on ET reform, submitted the same month.

Announcing the outcome of that consultation in November last year, Vince Cable indicated that Coalition Ministers were interested in the idea, and that BIS would do some ‘more work’ on it before issuing a consultation sometime this year. I had (perhaps naively) assumed from that that the measure stood little if any chance of inclusion in the then anticipated Bill. But, clearly, I was wrong. And, just for once, I am very happy with that state of affairs.

Somewhat less positively, the Bill also provides for appeals to the Employment Appeal Tribunal (EAT) to be heard by a judge alone (i.e. without two panel members, as now), and creates a power for the Secretary of State to cap unfair dismissal compensatory awards at between one and three times median average earnings (i.e. between £26,000 and £78,000).

Hollow victory
However, if Ministers are genuine in wanting to ‘improve the employment tribunal system’, there are some provisions that they need to add to the Bill: namely, provisions to ensure that all those claimant workers awarded monetary compensation by an ET actually receive that compensation.

In April 2010, largely in response to the Citizens Advice reports Empty justice (2004), Hollow victories (2005) and Justice denied (2008), the then Labour Government established the so-called ET & Acas fast track enforcement regime for unpaid employment tribunal awards and Acas settlements. Under this regime, claimants can – for a fee of £60 – have their unpaid award or settlement enforced by one of the various firms of High Court Enforcement Officers (HCEOs). In each of the two financial years since 2010, some 1,500 individuals paid to access the fast track regime.

However, outcome data for the fast track’s first year of operation, recently released by the Ministry of Justice, show this all-too-rare ‘policy win’ to be, like all-too-many ET awards and settlements, something of a hollow victory.

Of the 1,295 completed cases for which the information is available, the award or settlement was fully or partially enforced in just 533 cases (41%). In the other 762 cases (59%), the award or settlement was deemed to be unenforceable, and the individual paid the (then £50) fast track fee in vain.  Put another way, during the fast track’s first year, the Ministry of Justice pocketed £38,100 in fees from workers to whom it delivered nothing in return.

An enforcement rate of 41% is somewhat disappointing, when set against the 70-80% enforcement rate that, in 2009, we were told  – by Ministry officials and the HCEO firms themselves – that the HCEOs achieve when enforcing High Court judgments. But in recent discussion with some of the HCEO firms and the HCEO association, it has emerged that that figure is not what it seemed.

For it is simply the proportion of the total value of the debt that is recovered in those cases where some money is recovered, i.e. excluding the majority of cases in which no money is recovered. When the latter cases are taken into account, the enforcement rate falls from 70-80%, to less than 20%. Had we known that in 2009, we would simply not have suggested using the HCEO firms to enforce unpaid ET awards.

Some of the HCEO firms have not taken kindly to us seeking outcome data for the fast track regime, with one dismissing Citizens Advice as ‘doom-merchants’ and stating that ‘we find it scarcely credible that stories are now being put about [by Citizens Advice] that the HCEO firms are providing an inferior service under the new regime’.

Clearly, an effective enforcement rate in fast track cases of 41% compares very favourably with an overall enforcement rate of less than 20%.  But, to our mind, 41% is simply not good enough.

More sensible elements within the HCEO association appear to understand this point, and in recent weeks the association has claimed to have conducted a ‘snap survey’ showing that, in the fast track’s second year of operation, the effective enforcement rate increased to 57%.

Official data for the second year is still awaited from the Ministry, but such a dramatic (and very welcome) improvement in the HCEO firms’ effective enforcement rate, if confirmed, would suggest that we were absolutely right to ask searching questions about the fast track’s first year of operation.

Closing a loophole
Moving on, Citizens Advice looks forward to working with the HCEO association and the Ministry of Justice to identify possible reforms to the fast track regime, and to the powers of the HCEO firms, with the potential to further improve the effective enforcement rate.

If, as claimed by the association, the effective enforcement rate increased from 41% to 57% in the fast track’s second year of operation, then there may well be scope to get it to 60 or even 70%.  But we envisage that we are also going to have to look at other ways of ensuring justice for those claimants who still end up with nothing.

For example, we have previously suggested that, in those cases where enforcement action is taken to no avail, then the unpaid award or settlement should be recoverable from the National Insurance Fund, in the same way that unpaid statutory redundancy pay is recoverable from the fund.  Whilst the financial impact of non-payment of an award or settlement on the individuals concerned is significant, the relatively small number of unpaid and unenforceable awards and settlements involved means that the total cost to the multi-billion pound fund would be relatively negligible.

And that’s where the new Enterprise & Regulatory Reform Bill comes in.  What better way to ‘improve the ET system’, and its credibility with both workers and employers, than to close a loophole that allows some rogue employers to profit from exploitation with impunity? A loophole that is grossly unfair not only to those workers who do not receive the compensation due to them, and to the taxpayers whose taxes have paid for highly-paid employment judges to determine the claim to no end, but also to the vast majority of law-abiding employers.