§ 3.55 p.m.
§ Lord Sainsbury of Turville
rose to move, That the draft regulations laid before the House on 21st November be approved [3rd Report from the Joint Committee].
The noble Lord said: My Lords, the subject matter of these regulations will be familiar to those who took part in the debate on the Employment Act earlier this year. I thank those who contributed to that discussion. The approval of the flexible working hours clause provided working parents with children under six, or disabled children under 18, with the right to request flexible working patterns and for their employers to have a duty to consider the request. Since that time, there has been a three-month public consultation on the draft regulations to ensure that the final details we are debating today are a true reflection of the views and concerns of all interested stakeholders.
There are two sets of regulations for this new right: the procedural requirements which outline the procedures which employers must follow are subject to the affirmative procedure and are being debated today. Once these have been approved we shall lay the second set, which are subject to the negative procedure and detail the eligibility criteria, the breaches of procedure and the level of compensation.
I should like to place those new regulations in the context of the other provisions that the Government have recently introduced as part of a package of measures for helping working parents. These include the extension and enhancement of maternity leave and pay, the introduction of paid paternity leave and the introduction of adoption leave and pay which mirrors maternity provisions as far as possible. Regulations on all those measures were debated and approved by the House last month.
Flexible working was highlighted as a key issue in the workplace when the Government consulted on the Green Paper Work and Parents: Competitiveness and Choice. Both employers and employees wanted flexibility that they could tailor to their circumstances rather than a fixed automatic right for parents to reduce their working hours. This was investigated by the Work and Parents Task Force, whose central objective was to design a legislative approach which built on existing best practice models, and to provide parents with opportunities for flexibility in a way that was both compatible with and beneficial for business. Key to this commitment was a focus on developing a policy designed to be specifically workable for small businesses.
854 We identified parents with children under six and disabled children up to the age of 18 as being the group which faced the most challenges regarding the need to balance work and childcare responsibilities. For them the dissemination of best practice is simply not happening fast enough, which is why the Government are legislating in that area. We are aiming to create a minimum standard across the board and to speed up the process of cultural change in the workplace. However, we recognise that it is not only "natural" parents who face those difficulties. Therefore, those rights will be available to all working parents, including adoptive and foster parents, and their partners.
The regulations set out the detail of the procedure which employees and employers must follow when making and handling a request under the right. They set out the time periods for each stage of the process, allow for mutually agreed time extensions, and an automatic extension of up to 28 days where the employer is absent due to illness or annual leave.
The process is straightforward with both parties having responsibility for ensuring a satisfactory outcome. The employee has the initial responsibility to make their application in writing, specifying how they meet the eligibility criteria and the date from which they would like the new working pattern to start. They must also detail the working pattern that they wish to adopt, stating what effect they think it will have on the employer and how any such effect might be dealt with. The next step is for the employer to arrange a meeting to discuss the request and, if necessary, consider alternatives to the proposed pattern.
The regulations also allow for the employee to he accompanied at the initial meeting, and at any appeal meeting. The companion is defined as,a worker employed by the same employer".That allows for a local trade union representative to be the companion, but not outsiders to the business. This was a key concern of small businesses during the consultation and we believe that this definition is the closest to the recommendation of the taskforce, that the companion be,a fellow employee, friend or appropriate recognised trade union representative".Businesses and unions were unanimous in their concern that "friend" was too vague a term and so that has not been included in the regulations. However, in the interests of reaching a satisfactory outcome and to facilitate productive dialogue, we are encouraging employers through guidance to be as open as possible as to whom they allow as companion. Under Regulation 15, if an employer denies an employee the right to be accompanied, an employment tribunal can award up to two weeks' pay as compensation. This award is separate from the compensation that may be awarded for a breach of the procedure.
Employers can reject an application only on one or more of the eight business grounds specified in the Employment Act. In cases of refusal, the employer must set out his reasons fully in writing to the employee, with an explanation of why the grounds 855 apply in the particular circumstances. Employees have the right to appeal a negative decision and can go to an employment tribunal where the employer has either breached the procedure set out in these regulations or has based the rejection on incorrect facts.
If a case reaches an employment tribunal, employers will need to demonstrate that they have followed the procedure and held a meeting and provided proper written explanation as to the grounds for refusal. The role of the tribunal will be to verify whether the procedure has in fact been followed, and to examine any disputed facts. Tribunals will have the power to send the case back to the employer for reconsideration and to order compensation where appropriate. They will not be able to overturn the business decision.
The level of compensation for a breach of procedure is detailed in the parallel regulations, Flexible Working (Eligibility, Complaints and Remedies) Regulations 2002, which will be laid once these regulations have been approved today. Compensation will be up to a maximum of eight weeks' pay, with a week's pay subject to a cap, currently set at £250. We believe that this level of compensation will provide an incentive for employers to take the request seriously and ensure that it is given reasonable consideration.
It is our aim that most cases where a request is disputed will be solved amicably in the workplace and the procedure looks to facilitate this. Recourse to an employment tribunal is both costly and time consuming, and we hope that this will always be a last resort. In the regulatory impact assessment we estimate that only 1 per cent of all cases will end up at tribunal and that the vast majority of cases will be settled at the initial meeting. As an alternative mechanism to the employment tribunal, we are intending for ACAS to widen its arbitration scheme to cover flexible working and regulations detailing this will be laid once these regulations have been approved.
As I said earlier, these regulations have been designed for small businesses, and the Small Business Council has played a large part in the development process to ensure that their needs and concerns will be met.
I believe that the regulations we are debating recognise that every business and every request will differ. We are not offering a "one size fits all" solution, but through this light-touch legislation, we are aiming to facilitate dialogue in the workplace and build on existing best practice.
Alongside this new right, we will be introducing a package of support to ensure that both employers and parents have a full understanding of the process. A key part of this will be guidance containing a variety of examples of how the right will apply in practice.
We have also considered carefully the costs and benefits to employers of implementing this new right. In the regulatory impact assessment we estimate that this is likely to cost around £296 million a year. This may sound a lot, but spread over the 500,000 requests we expect to be made, this works out at an average of £160 per request. It is likely that many requests will be of minimal or no cost to implement. For instance, a 856 shift of half an hour to an employee's start and finish time each day, to enable him to drop his child off at nursery before coming to work, will probably not cost anything other than the time it takes to read and process the application.
There are many benefits to flexible working. Some are quantifiable: for instance, better staff retention leading to savings on recruitment costs of an estimated £90 million per year; and reduced absenteeism, which costs business around £500 per employee each year. There is also the benefit of reduced sick leave, which in the first quarter of this year cost over 2 million working days each week, equivalent to 2 per cent of the total scheduled working days.
In addition to these benefits, there are others that cannot be measured in the same monetary terms but are nevertheless significant. These include improved employee morale, loyalty and commitment; an increased ability to cope with changing market decisions and to provide better customer service; and improved motivation and productivity.
As an illustration of how simple changes to prescriptive working patterns and the introduction of flexible working practices can have a. huge impact, let me give the example of Rothwell & Sons Limited, a family-owned mushroom-growing business in Lancashire. It was awarded a grant from the DTI's Work-Life Balance Challenge Fund, which gives grants and consultancy advice to businesses wanting to implement flexible working practices. Within six months of receiving this help, it reported a 9 per cent improvement in productivity, a 20 per cent reduction in the cost of overtime, a 44 per cent reduction in staff turnover and a 46 per cent drop in overall absence rates.
To conclude, the regulations we are debating detail the process for making and handling applications to work flexibly. Parallel regulations subject to the negative procedure cover the eligibility criteria, the right to appeal, grounds for complaint and the level of compensation. They will be laid separately.
It is important to see this new right in the broader context of the Government's commitment to provide working parents with more choice and support to balance their work with childcare responsibilities. No one should have to choose between their children and their career. This new legislation endeavours to enable working parents to balance both work and family in a way that benefits business and contributes to the wider economy.
These policies have been developed in close consultation with stakeholders and have received broad support. The regulations are kept as close as possible to the original recommendations of the Working Parents Task Force. I believe that they are both right in principle and workable for all businesses, however small. I commend the regulations to the House.
857 Moved, That the draft regulations laid before the House on 21st November be approved [3rd Report from the Joint Committee].—(Lord Sainsbury of Turville.)
§ Lord Hodgson of Astley Abbotts
My Lords, I am grateful to the Minister for taking us so clearly through this complex but important area of social policy.
The regulations bring us back to the familiar ground covered when we discussed the statutory maternity, paternity and adoption pay regulations which the noble Lord, Lord McIntosh, introduced into the House a month ago. As I said then, it is hard to argue—one should not argue—against regulations which encourage better relationships between parents and children; which help parents care better for disabled children; and which encourage a good life/ work balance. It was not entirely clear from the paperwork and I was pleased that the Minister confirmed that these regulations will apply to adopted and foster children as well.
It may be hard, particularly at this season of the year, but one has to say that these desirable objectives come with costs attached, both direct financial costs and through an impact on competitiveness.
The regulatory impact assessment estimates one-off start up costs of £34 million, of which about 80 per cent, nearly £28 million, will be borne by businesses with fewer than 20 employees. The calculation is based on one person per business spending one hour to become familiar with the legislation and then implementing it. I came cold to this legislation, and I must say you would need to be jolly good to read, assess and implement it after reading it for one hour. The regulatory impact assessment of one hour per firm is low; I calculate it is out by a factor of two or three.
As to complexity, the regulations will come into force in April, as will maternity and parental leave regulations and statutory paternity and adoption pay regulations. Firms will be kept busy getting to grips with the regulations, which cover entirely new areas. To make this tolerable, good guidance will need to be made available early and well in advance of the impact day. In the various discussions we have had during the passage of legislation through the House—most recently on the Licensing Bill—the guidance and regulations have not always been produced in as timely a fashion as one might wish.
To be useful, particularly to smaller firms, the guidance will need to be detailed, with works examples, templates and forms for all aspects of the process.
In particular, I wonder whether the Minister would consider the advantage of an approach requiring that, for an application to be valid under the regulations, it should have to be made on a statutory form. This would ensure that all the relevant information was 858 properly detailed at the first stage of the process. While "best practice" could offer a steer to employees and employers in providing the relevant information, unless the use of a form is mandatory, there is a greater risk of the employee overlooking some of the required information and therefore submitting an invalid application. This would create a "false start" to the process, which is undesirable for both parties. The use of a statutory form would also give employers a clear signal that the request is being made under the legal right to request flexible working and that they are obliged to take appropriate steps without delay. This approach is widely espoused by the Engineering Employers' Federation. I hope that the Minister will consider it sympathetically.
Secondly, in the guidance notes there needs to be a good explanation of what amounts to a "sufficient" explanation for refusal in Regulation 5(b)(ii). We have some doubts as to whether it is right to leave this definition, which is central to the objective of the legislation, to guidance. There is an argument for including it in the regulation. Some comments from the Minister when he replies would be most welcome.
Perhaps I may give a "nitty-gritty" example. A firm of, say, 150 employees might have a human resources department of three people, two of whom might be eligible for flexible working, having young children. One of two makes an application for flexible working arrangements permitting him or her to take Friday afternoons off in pursuance of the objective of this legislation. The second eligible member of staff, seeing the success of this agreement, asks for the same Friday arrangements. Will it be "sufficient explanation" that the firm does not wish to have its HR department denuded of resources at that time?
Or alternatively, a person joins the firm who has a child under six, making him or her eligible for flexible working. At no time during the recruitment process is any mention made of a wish for flexible working. How soon after joining, without any change in personal circumstances—clearly if an employee is going to have a baby, that is another matter—can a person then request a flexible working arrangement?
I do not worry so much about this provision in the case of large firms, which have cover available; or even in the case of micro-firms, where flexible working is almost always a way of life. It is the medium-sized firms that will be hit hardest by these regulations. They will be struggling with the problems of growth, and we need to give them all the help and encouragement that we can.
The Minister has heard me talk about the desirability of this country encouraging the emergence of world-class companies—and I mean world-class, not national champions, before he chides me again on the point. These potential world-class competitors need simple, clear guidance so that they can focus their attention on their economic success, to their benefit and to that of the country.
859 Will the Minister comment on the unfortunate cases where people, sadly, take advantage of the regulations? If, for example, a person who has made a flexible working arrangement is found to have taken a second job during the period in which he or she is enjoying flexible working, would that he grounds for dismissal?
Finally, as I understand it from the debate in another place, the Government plan to review the situation and have specified three measures of success: increased incidence of flexible working; increased employment of parents with young children; and increased satisfaction with the work/life balance—the last is particularly hard to measure. Does the Minister agree that these are slightly narrow and that they do not sufficiently reflect genuine concerns among firms as to the real, as opposed to expected, costs of the regulations?
Therefore, will the Minister make a special study of the impact of the regulations on firms of, say, five to 200 employees? Will he review the number and percentage of cases going to industrial tribunals to see whether the regulatory impact assessment predictions are correct? Will he open a dedicated channel through which firms could report problems with the implementation of the regulations? In answer to recent Questions in the House, the Minister placed stress on the importance of the DTI Strategy Unit and the valuable role it plays. Perhaps he could undertake to follow up the impact of the regulations.
As I explained in my opening remarks, we do not oppose the regulations, for they are well intentioned. But they must be seen in the context of the fact that they are one more burden to add to the parental leave directive, the works council directive, the part-time work directive, the directive on the burden of proof in sex discrimination cases and the fixed term employee directive; to say nothing of the impending agency workers directive.
As the Minister knows as well as anybody, the world does not owe this country a living; therefore, we must keep a careful eye on the balance being struck.
§ 4.15 p.m.
§ Lord Roper
My Lords, from these Benches we welcome the regulations, which we see as a consequence of the Employment Act 2002. We in your Lordships' House, in particular, ought to welcome them because the House is probably the ultimate example of flexible working. We should, therefore, have an interest in welcoming the extension of the benefits we enjoy to others. I hope that the Minister will accept in the spirit of the present season that it is surprising, given the interest that some of his noble friends paid to these matters when the Employment Act 2002 was in Grand Committee and on Report, that they are not here today to welcome the implementation of the proposals. I am sure that they have other important matters to ensure that on this occasion they are a good example of flexible working.
The regulations seem to be a well balanced example of the implementation of something that the House has already decided should be carried out. Of course, 860 as the noble Lord, Lord Hodgson, pointed out, there will be costs. As he said, it is important that they be monitored, and, if there are problems, the department should try to rectify them. We believe that this is an important step forward and welcome the regulations.
§ Lord Sainsbury of Turville
My Lords, I thank noble Lords for their comments. In answer to the noble Lord, Lord Hodgson, there are costs, but there are also very considerable benefits, some of which it is difficult to quantify in terms of reductions in recruitment costs, improvements in the labour supply, or employees' work satisfaction. We must see that there are considerable benefits, as I hope I illustrated in my opening remarks.
As regards the ability of companies to deal with the regulations, the law that the regulations implement has been known about for a long time. There is still plenty of time for businesses to come to terms with them. We are currently testing the guidance with employers.
§ Lord Hodgson of Astley Abbotts
My Lords, I thank the Minister for giving way. The problem is the detail, not the law. The regulations come into force in April, which is 16 weeks from the end of Christmas. Is that fair? It is not a long lime for a smaller business, particularly if we do not yet have the detail. I understand the law; it is the detail that counts.
§ Lord Sainsbury of Turville
My Lords, I very much accept that. Obviously, it is the law that counts. We have been consulting on these regulations, so at this stage they are well known about by those who wish to find out about them. As the noble Lord will know, many businesses leave it until a short period before the legislation comes into force before they take the trouble to look for it. We are currently testing the guidance with employers and the Employers Federation, including advice on sufficient explanations. A set of forms will accompany the guidance to help employers, so we will cover the point that the noble Lord raised.
When we review the legislation in three years, we will look at all the issues that the noble Lord mentioned, including the need for people to go to tribunals. I think that will be done, not by the Strategy Unit or the DTI, but by specialists in such legislation.
I accept that the House of Lords should welcome this as an example of flexible working, although sometimes the flexibility is not as obvious for Ministers as it should be. I do not think that we shall be able to apply for change of hours under this legislation.
I thank noble Lords for their support of the regulations. They have been drafted very carefully, with small businesses in mind. We have tested the regulations with them as we have gone along. I think they will find the end result relatively easy to deal with. On that basis, I commend the regulations to the House.
§ On Question, Motion agreed to.