Lord Hunt of Wirral (Con)

My Lords, as we move to consider Clause 26, I believe Amendments 113ZA and 113B bring essential clarity, balance and proportionality to the Bill’s treatment of contract variation. In last week’s debate, we discussed how recent changes to statutory sick pay might prompt employers to scale back or modify enhanced sick pay schemes. Such adjustments would require changes to contracts, and under the Bill’s current wording could be caught by these provisions. This raises the question: is it really the Government’s intention to classify necessary contractual changes prompted by those reforms to statutory sick pay as grounds for unfair dismissal? The Government’s plan to make work pay rightly criticises cases where these practices have been used to enforce lower pay or to reduce terms and conditions. That is a legitimate concern. However, as currently drafted, Clause 26 goes far beyond this intention. It would cover any contractual change, no matter how minor, technical or reasonable, even those entirely unrelated to pay or benefits. This creates serious practical problems. Employers would be exposed to legal claims of unfair dismissal, even when seeking to modernise contractual terms; for example, aligning shift patterns with contemporary trading hours or updating disciplinary procedures drafted decades ago. In effect, this clause could fossilise employment contracts, preventing businesses from adapting to economic, operational or technological change, unless they meet a narrow and restrictive test. I acknowledge that the phrase “without good reason” in Amendment 113ZA may introduce some degree of ambiguity. However, any dispute from it would fall to the employment tribunals to determine. While we have previously argued—and I maintain—that the Government have no credible plan to resolve the serious backlog and underfunding of the employment tribunal system, the fact remains that these tribunals will be the ones to judge whether a variation was sought with good reason. In the current economic climate, businesses may need to make reasonable changes to pay structures to remain viable. Without these amendments, I believe employers may be deterred from offering pay increases or promotions, unless employees accept other contractual changes, potentially creating a two-tier workforce. In more extreme cases, employers might choose to make roles redundant altogether, rather than risk costly litigation over sensible and necessary variations. I will speak also to Amendment 114 in this group. The clause’s reliance on language such as “the employer’s ability to carry on the business as a going concern” and “financial difficulties” implies that only in the most extreme circumstances—insolvency or imminent closure—can dismissal and re-engagement be considered. That is surely far too narrow a test. Businesses are not static and responsible employers must often adapt to evolving market conditions, consumer behaviour and, of course, technological innovation. These changes are not about survival, they are surely about growth, competitiveness and investment, as we expressed in earlier debates. Medium and large businesses may face particular challenges here. They may need to apply changes to specific segments of the workforce, not the entire business, yet the Bill appears to treat the business as a whole, creating further uncertainty and limiting proportionate action. It would be very helpful if the Minister could explain how the Government define business. The revised wording in this amendment, “could reasonably be expected”, better reflects how responsible employers assess risk and manage their operations. It would give them the legal certainty to act proactively to avoid crisis, rather than reactively once a crisis is already upon them. The existing wording could penalise businesses for prudent foresight, discouraging early intervention and increasing the likelihood of greater harm to jobs and continuity of business.