Compensation for financial loss

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

I want to say a brief word about this final clause dealing with dispute resolution. It inserts a new provision into the Employment Rights Act 1996 to empower employment tribunals to order employers to compensate workers for the full financial loss they have sustained as a result of unlawful deductions from wages, including failure to pay the national minimum wage, and non-payment of redundancy awards.

For the moment we should put ourselves in the shoes of a worker entitled to the national minimum wage who does not receive it. We all have constituents who may be in that position and we have some understanding of just how difficult it is for someone in that position to make ends meet. The denial, contrary to the law, of perhaps a couple of hundred pounds, is something that we could probably all deal with. It would not make us become overdrawn, but to those on the minimum wage it can make the difference between just getting by or ending up in real trouble. That is what this clause is about.

If someone incurs bank charges for going into overdraft as a result of such an unlawful non-payment, the clause would be available to the tribunal to help compensate for that. I stress that it is as a direct result of the non-payment and it is drawn tightly, but it is recognition that financial loss can result from things like unlawful deductions from wages or non-payment of redundancy awards.

This all looks very well on paper as we debate it here, but what is the application of this in reality, particularly for casual workers from eastern Europe who are subject to gangmasters? How can this be enforced in that respect?

It is enforced by the tribunal. We will discuss migrant workers and the gangmasters, agencies and so on in the following clauses, but if I continue I may be able to enlighten the hon. Gentleman.

Employment tribunals already have powers to extend awards to full financial loss arising out of claims for holiday pay and breach of contract. The clause will allow workers to bring a combined tribunal claim covering both breaches of the law in all these areas, and claims for compensation for financial loss arising from such breaches. At the moment, workers can obtain the compensation in the claims covered by the clause only via a separate claim to the civil courts. The clause will remove the need for claimants to make a separate claim. It is also designed to encourage employers to make the correct payments in the first place.

The payments that an employment tribunal may currently order the employer to pay or repay under these circumstances are limited to the amount arising from the employer’s direct liability. This means that financial losses incurred by a claimant, which are over and above  the amount owed but which can be attributed to the non-payment, can be pursued only through the civil courts. Such losses might include, for example, charges incurred if a direct debit has failed or punitive interest on bank accounts that go into the red.

I will refer later to the work of the Government’s vulnerable worker enforcement forum, which I have chaired over the past year. One of the issues raised time and time again in that forum is just how marginal the existence of some workers is. Such workers are dependent on timely and correct payments, so it is absolutely right that financial loss, which occurs as a result of them not receiving those payments can be taken into account by the tribunal.

May I welcome you to the chair, Mr. Bercow? May I also congratulate the hon. Gentleman on his well deserved elevation? We welcome the clause, but we have expressed concerns about how financial compensation should be calculated, particularly interest on the total outstanding amount. It is welcome to hear the Minister talk about bank charges incurred as a result of not paying moneys in a timely way, but how feasible will it be for a tribunal to calculate the award? He rightly points out that many of those affected will not have been paid even the national minimum wage. Using bank charges to give fair restitution to employees might not help a considerable number of those affected. My hon. Friend the Member for Brent, East (Sarah Teather) has previously raised the issue of using interest charges. Where it is not possible to get an idea of bank charges—perhaps if the relevant person does not even have a basic bank account—could a similar interest charge payment be used to ensure that there is fair restitution?

I wish to speak about this because we are all considering the issues of people who might be facing unemployment and redundancy, and the measure is extremely relevant in the current financial situation. It is abhorrent that someone should seek to avoid paying legitimate redundancy payments to any employee. In such a situation, the failure to pay appropriate redundancy moneys can be the sort of financial interruption that leads ultimately to someone defaulting on their mortgage, thus leading to foreclosure and a dramatic effect on their whole life. Even if such a person could get back into employment within three or four months, the non-payment of redundancy moneys might precipitate the loss of a family home. I am delighted that the clause puts in place appropriate compensation for people who have suffered financial loss as a result of such events. It should be welcomed by both sides of the Committee, and I congratulate the Government on introducing it.

Let me begin by acknowledging the comments of my hon. Friend the Member for Brent, North. He is absolutely right that the clause is timely—more so than in recent years, given some of the problems that our constituents face.

The hon. Member for Solihull is right that the hon. Member for Brent, East raised the issue of interest on Second Reading. However, if my memory serves me correctly, and it may not, she was talking about minimum  wage arrears, which we will deal with shortly, in clause 8. As for the question of how someone would prove that losses are directly related to the non-payment, the provision is not new. It already applies to holiday pay, so tribunals are used to it. We are simply extending it. I should like to point out the key phrase in the clause. Subsections (7)(1) and (2), propose a new subsection (2) in section 24, and a new subsection (5) in section 163, of the Employment Rights Act 1996. The last line of new subsection (5) will read

“to compensate the worker for any financial loss sustained by him which is attributable to the non-payment of the redundancy payment”.

It must be directly attributable and, of course, there must be evidence, but that is for the chairmen of tribunals to judge. We are extending provisions for holiday pay to other matters, in recognition of the fact someone who is unlawfully denied money, and who is dependent on every pound of their wages, could incur other charges through no fault of their own, as well as lose their wage.

Will there be an appeal system and, if so, how will it work? If someone is made redundant and does not receive the proper compensation to which the tribunal says they are entitled, they could default, for instance, on child support payments. People with a tight budget could have other commitments, such as standing orders, mortgages or whatever, but they could choose not to pay to maintain the Child Support Agency payments. The plaintiff could argue that they were unable to maintain their child support payments because of a reduction in the amount of money to which they were entitled, but they could at the same time maintain payments on white goods or mortgages. Who will adjudicate on whether someone has found a clever way around a commitment or whether it is a genuine entitlement to the plaintiff?

The answer to the hon. Gentleman’s second question is that the tribunal chairman or members would adjudicate. On the first question, all tribunals have an appeal mechanism to the Employment Appeal Tribunal. It tends to judge appeals on points of law rather than reconsider a whole case, but there is an appeal process in tribunals.

Does my hon. Friend agree that in relation to the financial loss that has been incurred, the tribunal will look not at what has resulted from the loss—the non-payment of one bill rather than another or the reallocation of funds—but whether there has been a directly attributable financial loss? Therefore, the points made by the hon. Member for East Devon are not relevant to the clause.

As I said in response to the hon. Member for Solihull, it is set out clearly in proposed new subsection (5) to the 1996 Act, which clearly refers to

“financial loss sustained by him which is attributable to the non-payment of the redundancy payment”.

I hope that I have clarified the matter.

Question put and agreed to.

Clause 7 ordered to stand part of the Bill.