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Becky MortonPolitical reporter
Labour’s flagship law on workers’ rights faces continuing deadlock after the House of Lords inflicted another defeat on the government.
The setback comes just two weeks after ministers said they had reached a compromise between businesses and unions on the right to claim unfair dismissal.
The government had argued the agreement would unblock the passage of the Employment Rights Bill and allow it to become law.
But peers have now backed a Conservative proposal to force a review of a Labour plan to abolish a cap on compensation in unfair dismissal cases.
The proposal to abolish the cap – which emerged from talks between unions and business groups two weeks ago – did not feature in Labour’s manifesto, and is being added to the bill at an unusually late stage.
The bill is now due to return to the Commons on Monday, as the parliamentary process known as “ping-pong” continues until the two Houses agree.
Unions have accused peers of “defying the will of the British public” by holding up the bill, but Downing Street has insisted the government was still committed to passing it before Christmas.
The bill – which applies to England, Scotland and Wales, but not Northern Ireland where employment law is devolved – has been described by the government as the “biggest upgrade to rights at work for a generation”.
It includes measures such as giving workers the right to sick pay and parental leave from their first day in a job, banning “exploitative” zero-hour contracts and strengthening the right to request flexible working.
However, some businesses have expressed concerns over the plans, warning they will increase costs for employers.
Last month the government dropped a commitment to offer all workers the right to claim unfair dismissal from their first day in a job, after business groups said this would discourage firms from hiring.
Instead, ministers now plan to introduce this right after six months.
Following talks between major industry bodies and unions, the government also committed to scrapping limits on compensation for financial loss in ordinary unfair dismissal cases.
Currently, awards to former employees who successfully bring a claim are limited to either their annual salary or £118,223, whichever is lower.
This would bring the process more into line with “automatic” unfair dismissal cases – where workers have been sacked for reasons such as discrimination and whistleblowing – where financial loss awards are uncapped.
‘Recipe for the rich’
On Wednesday evening, peers voted by 244 votes to 220 for a Tory proposal which would require the government to review compensation limits before scrapping them.
During the debate, Tory shadow business minister Lord Sharpe argued uncapped compensation would benefit higher-paid workers, adding: “This policy is a recipe for the rich and a wrecking of justice for working people.”
While he welcomed changes on rights to unfair dismissal, the peer said the government’s new proposals on compensation limits had been brought forward “at the 11th hour” without any consultation.
Lord Sharpe insisted calling for a review was “not obstruction” but “the bare minimum that a competent administration should undertake”.
Independent crossbench peer and entrepreneur Lord Londesborough said his email inbox was “awash with anger and indignation” from businesses over the government “sneaking in this clause on uncapped compensation”.
“It is anti-entrepreneurial, anti-enterprise and, I fear, a job destroyer,” he added.
‘Undemocratic’
Defending the move, Business Minister Baroness Lloyd said the current system incentivised claimants to allege discrimination, as this allowed uncapped compensation.
“These types of claims are more complex and take longer for the tribunal to handle,” she said.
“Therefore, by our removing the compensation cap for ordinary unfair dismissal claims, this incentive will be lessened, making it easier for tribunals to reach a judgement more quickly and decreasing burdens on the system.”
She said the government had “worked collaboratively with employers and trade unions to find a compromise” and called on peers to allow the bill to progress so workers could benefit from the reforms without any further delay.
However, the Federation of Small Businesses has expressed reservations about the plan, warning that unlimited settlements “would be difficult and further gum up tribunals”.
“That was not a concession discussed with us or agreed by us in the negotiations,” added executive director Craig Beaumont.
TUC general secretary Paul Nowak said: “Continuing to vote down the Employment Rights Bill, a clear manifesto commitment, is undemocratic.
“This bill has been debated and scrutinised for months. Tory peers are actively defying the will of the British public and their own supporters who overwhelmingly support measures in this bill.”
