Clause 23 - Employee owners

Growth and Infrastructure Bill – in a Public Bill Committee at 12:00 pm on 6th December 2012.

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Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills 12:00 pm, 6th December 2012

I beg to move amendment 117, in clause 23, page 28, line 40, after ‘individual’, insert ‘fully paid up’.

Photo of Philip Davies Philip Davies Conservative, Shipley

With this it will be convenient to discuss Government amendments 118, 120, 123 and 124.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills

This is the first of a package of amendments, which we tabled as a result of the consultation on the clause. A number of technical issues have been raised about how it might operate.

Amendment 117 requires that the shares involved—

Photo of Paul Blomfield Paul Blomfield Labour, Sheffield Central

Given the large number of amendments that have been tabled, and in view of the fact that the consultation produced only five positive responses out of 209, clearly there is no support for this proposal. Would it not save the Committee time and the Government embarrassment, and be easier, if the clause were withdrawn?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills

There is no embarrassment about the clause or the amendments. This Government consult and listen to the consultation. A number of points have been made about the clause. The amendments clears up some technical points that have been made as a result of the consultation on a proposal that is, as might be expected of this Government, ground-breaking and has not been considered by the House before.

Amendment 117 will require that the shares are fully paid up before being issued. That is important, because if the shares issued were not fully paid up, the employee owner would be liable for any balance relating to the value of the shares. If that were so, and if the company requested the outstanding amount, or if the company became insolvent, the employee owner would have to pay the outstanding amounts. That would not be fair. The amendment will ensure that the employee owner is not liable to pay any money for the shares issued. It is not the Government’s aim to require the employee owner to pay for the shares.

Amendment 120 will prevent the company from asking the employee owner to provide any other form of consideration, apart from agreeing to become an employee owner, for the shares issued to them under the scheme. The Government do not believe that the employee should pay for those shares in any other way, apart from simply agreeing to the arrangement, and the amendment makes that clear.

Amendment 118 will enable the employer company to grant shares in a parent company to employee owners. In some cases, the employer company may have little value and the Government do not want to prevent employer companies from granting shares in their parent companies—such shares might have more value—and the amendment enables that.

Amendment 124 will define consequently what is meant by “parent undertaking”, giving clarity to those many people considering using that status.

Amendment 123 will extend the type of companies that are able to use the employee owner status to include overseas and European companies. The Government intend to ensure that that status is available to all companies with share capital. The amendment will ensure that we are not inadvertently discriminating against European or overseas companies—I am sure that you will support this, Mr Davies—and will bring us in line with our obligations under European law.

I commend the amendments to the Committee.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

This group of amendments brings together some anomalies in the Bill. My hon. Friend the Member for Sheffield Central, in his early intervention, hit the nail on the head. There is so little appetite in the business community—in any community, for that matter—for these changes, that we could have finished the entire Bill by lunch if the Minister had withdrawn the clause. We are unclear why the clause relates to the Bill, in any case. The Minister gave a robust response, saying that the Government consult and listen, but they have not really listened to the consultation results produced late last night, with only five out of 209 responses even remotely welcoming the proposal.

The Government amendments will resolve the following anomaly. As the Bill stands, employers who take up the employee-owner scheme could be issued with shares that are not fully paid up. The Government’s own consultation states:

“If an employee owner is given shares that are not fully paid up, they could be left with a financial liability if the company becomes insolvent” under company law. As the Minister said, the other amendments in the group expand the availability of the employee-owner scheme to overseas companies and parent companies.

The consultation is yet another perfect example of the mistakes and problems surrounding the Bill because of the Government’s haste in introducing parts of it. The Chancellor stood up at the Conservative party conference and announced a policy that, I suspect, had everyone in the Treasury and the Department for Business, Innovation and Skills holding their foreheads in their hands, as they tried to find a way of implementing it quickly. There is little doubt that the Beecroft agenda, which underpins this policy, was cobbled together rather quickly to drive home some ideological point about workers’ rights. The Department’s consultation response states that, if the amendments were not included, employers would be left carrying the can for any issues with regard to financial liability if the company became insolvent.

The Opposition do not object to these tidying-up amendments, but I would like to ask the Minister some questions. The amendments extend the scheme to parent companies and overseas companies, so how can he assure us that he will deal with any tax avoidance issues? Where a subsidiary company has shares allocated in it for employee owners, will it actually be the employer of those employees, rather than just an opportunity for tax avoidance and to deal with PAYE and national insurance through a different subsidiary of a parent company?  There is also the case law on establishment, in terms of where an employee works and who they work for. Can the Minister give us some assurances on that?

What guidance will be given about the scheme to make sure that subsidiary holding companies, particularly overseas companies, use the scheme properly, for the benefit of not only themselves but employees who may take up employee ownership contracts in the future?

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government) 12:15 pm, 6th December 2012

My hon. Friend asks pertinent questions. Has he considered whether the amendments could inadvertently lead to pressure being put on employees to move to another part of the parent company, if that is where the shares are being given for? Has he had any reassurance from the Government that that will not happen?

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

That is a critical question, and I am grateful for it. There is a great fear that employees in a particular company or organisation will be transferred en masse to a related organisation, and that that transfer will have attached to it the condition that the employment contract is dissolved and a new employee-owner contract is put in place. An employee in those circumstances will be given little option but to transfer, and it is important to get clarity from the Minister on the guidance that will be given and on what will be put in place to prevent such things. An overseas holding company could set up a separate subsidiary company that deals merely with the human resources part of the holding company. It would then be able to transfer in people with shares that may not have the same value as those of the holding company. That might force employees into a different employment relationship, and the Minister needs to give not only the Opposition but businesses and employees, assurances on that.

Photo of Gordon Birtwistle Gordon Birtwistle Liberal Democrat, Burnley

Would the TUPE arrangements not prevent that from happening? If someone is transferred from one business to another, and they are doing the same job, the TUPE arrangements secure their work programme after they have moved. All the statutory arrangements and contracts of employment they have are transferred under TUPE, so surely that would prevent the things the hon. Gentleman talks about from happening.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

That is a significant intervention, and I hope the Minister heard it, because the TUPE arrangements are not referred to in the legislation. They have not been referred to in the consultation response or the impact assessment, so there is an issue about not only, as my hon. Friend the Member for City of Durham proposes, the transfer of an employee under TUPE into a different holding or subsidiary company, but about the opposite: if someone is on an employee ownership contract and transfers out, do they transfer out with the shareholding, or do they transfer it under a standard employment contract?

There are huge issues relating to transfer, and TUPE may not apply in some instances, if the same holding company that a person is employed by is merely transferring employees from one area of the business to another; because the employer in itself may be the same. That is why I put a question to the Minister about how to  prevent a holding company that directly employs the staff from merely transferring them into another part of the business.

I am delighted with the intervention, because I am unclear about how all those aspects of the matter would operate, and the Minister should give some clarity about how they fit together.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills

Those are perfectly legitimate questions. I want to say first—because the question governs several amendments tabled by the Opposition and by my right hon. Friend the Member for Hazel Grove—that we do not want a situation in which an employee is put under pressure, in any way, to subscribe to the shares or accept a new status.

There will be guidance on the operation of the scheme. It is a new one and that is why, perhaps, it has not yet been universally acknowledged or as widely supported as it might have been.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

I welcome the Minister’s comments about no one being put under pressure; but in the reality of employment the pressures are sometimes invisible. I am interested in what protections the Minister will set up to ensure that accidental as opposed to deliberate pressure is not put on individuals.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills

I understand that distinction, which is addressed in the reference to “consideration” in one of the amendments. We would not want an employee to be told, for example, “All right, you do not have to pay for the shares, but you have to agree now to extra working, or giving up holiday time” and so on. That is what the word “consideration” clarifies.

Amendments in a later group deal directly with the issue of protection. I may be able to answer a little more fully in discussing them, but I wanted to explain that I do not want employees to be coerced into the status in question, whether that coercion is explicit or implicit. I look forward to discussing with my hon. Friend the Member for Burnley and Opposition Members whether we can make improvements.

The hon. Member for Edinburgh South asked me about tax. I am advised that with any disposal of shares, the tax position would of course depend on the circumstances, including the type of shares and the details of the transfer arrangement. Those are matters for the Chancellor in the Finance Bill and we cannot go into detailed discussion ahead of the publication of draft Finance Bill clauses next week. However, we would obviously not expect capital gains tax to be due if the shares were within the scope of the exemption.

I am happy to write to the hon. Gentleman more specifically about the tax avoidance issue that he raised, and to clarify for him the exact position in relation to TUPE. As I read the clause, and as I am advised, the arrangement falls into the normal category of what is covered by TUPE, but, if I am wrong, I shall certainly get back to him.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

The Minister is being incredibly helpful. If he investigates the TUPE issue and writes to me, will he also investigate it from the other side—the situation of an employee-owner who would transfer out of a business, under TUPE, to somewhere else? What would  the status of that employee-owner be, and what right would they carry with them in relation to the allocation of shares in the business and so on?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills

It is my understanding that the rights would transfer, but again, I am ready to be corrected if I am wrong, and will certainly include the issue in my letter to the hon. Gentleman. I am happy to set out for him in a little more detail than I have time for now exactly how that will apply. There will be guidance, not simply from HMRC, but from the Government, on how the new scheme will operate. As I have said, the scheme is new, so all the companies that wish to take it up and all the employees who may express an interest in it will need some guidance as to how it will operate.

As I understand it from the various points raised, I do not think Opposition Members were querying the intent of the amendments, and in that spirit I commend them to the Committee.

Amendment 117 agreed to.

Amendment made: 118, in clause 23, page 28, line 40, after ‘company’, insert

‘, or procures the issue or allotment to the individual of fully paid up shares in its parent undertaking,’.—(Michael Fallon.)

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills

I beg to move amendment 119, in clause 23, page 29, line 1, leave out

‘and no more than £50,000’.

Photo of Philip Davies Philip Davies Conservative, Shipley

With this it will be convenient to discuss Government amendments 122 and 125.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills

Here are three further amendments from a listening and consulting Government.

Amendment 119 will remove the upper limit of £50,000, thus enabling a person with £50,001 of shares to qualify as an employee owner. The Finance Bill will include a clause allowing employee owners to benefit from capital gains tax exemption for the first £50,000 of shares issued.

More importantly, amendment 122 will enable the Secretary of State to increase the minimum qualifying amount from £2,000. The amendment will ensure that the minimum qualifying amount of shares is not eroded over time and remains a sufficiently significant value.

Amendment 125 details the process by which the Secretary of State may increase—but not decrease—the minimum qualifying amount. That will be done by affirmative resolution, which requires a debate in each House of Parliament.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

The amendments will tidy up some of the Government’s initial proposals regarding the parameters of £2,000 and £50,000. As we have discussed, and as the Minister is aware, many stakeholders have expressed considerable concern that the potential for misuse of the scheme is huge. Therefore, while the Government believe that the cap on £50,000 of shares is arbitrary and are amending that, there could be significant unintended consequences.

By allowing companies to offer shares in excess of £50,000, the Government will open the scheme up to potential tax avoidance by individuals who command such large offers. There are already employee share  schemes in operation that allow employees to gain shares without paying income tax or national insurance on those shares. Most employee owners who are allocated low levels of shares would almost certainly be better off receiving their shares through an existing approved share ownership plan. We therefore urge the Government to consider carefully a cap on the level of gain not subject to capital gains tax. While we oppose the clause in general, it would be remiss of us, as a diligent and listening Opposition, to push the Government on that point, as they are insistent on ploughing on with the clause, despite the woeful response by stakeholders to the consultation. We therefore believe that it is essential to ensure that the proposal will not create opportunities for additional tax avoidance. “Tax avoidance” is a terminology that will run through many of the Government’s proposals. The issue has been raised not just by tax accountants but by many businesses, which have run for the hills when they heard about those proposals.

Amendment 122 will allow the Secretary of State to increase the minimum worth of shares. We believe that that is reasonable, particularly given amendment 125, which will require any change to be approved by both Houses of Parliament.

The lower level is important for a number of reasons. The main reason is that the principle of an employee selling off their rights for what is essentially cash—my right hon. Friend the Member for Leeds Central (Hilary Benn) called it, “Cash for repeal”—sets an important precedent. Workers will be giving up many of their hard-fought rights in the workplace for a small cash gain. Therefore, giving the Secretary of State the power to increase that cash gain may remove some of the problems of the scheme. We are glad that the amendment has been tabled, and we are also glad that the power will be subject to the approval of both Houses of Parliament. I have to say, many of our amendments that would bring issues to both Houses of Parliament were rejected. It is interesting to see the contradictory nature of the amendment.

Given the lack of guidance available on current employee ownership schemes, there is a risk that the clause will enable senior executives in leveraged buy-out situations, such as private equity-backed companies, to avoid tax. Typically, those companies are larger, more mature businesses, not the fast-growing start ups that the scheme is most intended to benefit. There is nothing in the clause to restrict the scheme to the high-growth technology sector that many people in the evidence session stated the scheme is designed for. Therefore, anyone can use it, including in the leveraged buy-out situations of private equity-backed companies. The scheme may be rolled out to the whole of business.

The idea of employee ownership is already common with private equity, where funds typically invest alongside a number of board directors and other senior employees. After a few years, the board of directors and other senior employers seek to exit, alongside the private equity house when the underlying business is sold, often to another private equity company. Historically, those individuals are subject to capital gains tax on gains that  are often very large. Under the Chancellor’s plan, those individuals will no longer be subject to capital gains tax up to the £50,000 limit. However, we fear that if the top level of £50,000 is removed, it will be easy for the Secretary of State to change the legislation to increase the capital gains tax threshold. I appreciate that the clause does not mention capital gains tax. That will be in the Treasury’s Finance Bill, which the Minister said will be published in the next few weeks. However, it is important that the Committee puts it on record that the capital gains tax threshold must be robust. If the top level of £50,000 is removed, then it is important that a capital gains tax threshold is robustly put in place in legislation to prevent tax avoidance.

Industry experts have raised the warning flag to the Government. For example, Richard Murphy, director of Tax Research UK, said:

“There are lots of tax abuse opportunities, including contractual abuse, which accountants will want to exploit. Give them any opportunity and they will take it.”

David Ellis, head of the reward practice at accountants KPMG, said:

“If there’s a tax efficient way to give employees equity, you will use it even if you don’t want to take away employment rights.”

Given that the tax advantage would only accrue to those with high-value shares over a period of years,

“That pushes it down a certain avenue about who to offer this to”.

With one hand, the Conservative Government, aided and abetted by their listening partners, the Liberal Democrats, are paying lip service to the idea that they are standing up for employee rights. We saw that with the Enterprise and Regulatory Reform Bill, we saw it with the changes to the qualification period on unfair dismissal, which was put through by statutory instrument, we saw it with the removal of lay members from employment tribunals and with a whole package of measures that they have introduced. The addition of a potential tax loophole for wealthy employers and employees to exploit gives us serious concern.

The capital gains tax threshold of £2,000 at the lower end would have to increase by a considerable multiple for the capital gains tax threshold, which is currently set at £10,600, to kick in. There is no doubt that the benefit to the capital gains tax regime—and therefore the disbenefit to the Treasury and the public purse—is at the higher end of the proposal, not the lower. That point relates to the issues about the Secretary of State having the power to raise the £2,000 limit.

The matter of capital gains tax that was raised by Richard Murphy is also relevant to starter companies that have become successful very quickly. That is why in a later amendment we shall be pressing the Government for a full analysis of the PAYE contributions to employees. The current share ownership and employee ownership schemes have a particular exemption for PAYE national insurance, and that has not been dealt with under the Bill or by what the Minister has said. We shall not be voting against the Government amendments, but we have serious concerns about tax avoidance and the way in which such measures may be used in the future.

Amendment 119 agreed to.

Amendment made: 120, in clause 23, page 29, line 2, at end insert ‘, and

() the individual gives no consideration other than by entering into the agreement.’—(Michael Fallon.)

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

I beg to move amendment 105, in clause 23, page 29, line 2, at end insert—

‘(c) the employee has entered into such an agreement on a voluntary basis.’.

Photo of Philip Davies Philip Davies Conservative, Shipley

With this it will be convenient to discuss the following:

Amendment 106, in clause 23, page 29, line 2, at end insert—

‘(1A) Before entering into an agreement with a company as set out in subsection (1), an individual is entitled to seek advice and assistance from anyone of the following—

(a) a trade union official;

(b) a workplace representative; or

(c) a legal representative; and the costs of that advice and assistance shall be met by the company.’.

Amendment 115, in clause 23, page 29, line 2, at end insert—

‘(1A) The Secretary of State shall make such regulations or issue such codes and advice as is necessary to provide that no employee who declines to enter into a voluntary agreement under subsection (1)(a) shall suffer any consequential detriment.’.

Amendment 116, in clause 23, page 29, line 31, at end add—

‘(7) The Secretary of State shall issue such guidance as is necessary to provide that refusal to enter a voluntary agreement under subsection (1)(a) by any person shall not be grounds for reducing or withdrawing any state benefit to which they are entitled by virtue of their current employment status.’.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

We have tabled this key set of amendments to tease out whether the new employee ownership scheme will be voluntary. In his introduction to the first set of amendments, the Minister—with all due respect—might have been wearing rose-tinted glasses in respect of whether the scheme would remain voluntary. There are several instances whereby it can be demonstrated that the scheme will not be voluntary.

Amendment 106 would ensure that an employee who is taking on the status of employee ownership receives the best possible advice. It is important that it is given by a trade union representative, a workplace representative or, indeed, a legal representative, and is paid for by the company. I am delighted by the amendments tabled by the right hon. Member for Hazel Grove, which the Opposition thoroughly endorse. I am sure that he will speak to them later, but it is important that, if the scheme were shown not to be voluntary, the consequences of such action will be dealt with through the proper channels such as unfair dismissal or constructive dismissal proceedings. The Government have changed many rules in respect of unfair dismissal measures under the Enterprise and Regulatory Reform Bill, but if it can be shown that there is a problem with the scheme not being seen to be voluntary, we want such a position to be dealt with.

When the Chancellor announced the scheme in October, everyone questioned how the Government could possibly ensure that the scheme would be voluntary. That is not clear under the Bill. Many of those who have written to the Committee have said that they do not know how it could possibly be enshrined in statute that such a scheme would remain voluntary. While we are against the proposal, which is bad for employees and also potentially bad for business, if the Government are adamant and want to  push forward the measure, they must make sure that employees throughout the United Kingdom have protection so that the scheme is genuinely voluntary.

The Confederation of British Industry has called the scheme a niche and does not consider that many businesses will use it. The Minister will be pleased that we are friends of the CBI and Canary Wharf this morning. Ultimately, companies will decide if they want to use the scheme and, judging by the response to the Government’s consultation, the chance of that is slim to none. Businesses will be able to offer the new type of contract as an option to existing employees but, as drafted, the Bill does not make it clear if they will be able to force that on new recruits.

Ministers have been at pains to stress that the proposal will be completely voluntary. However, upon its announcement, a Treasury source told the political news website, PoliticsHome, that employers

“would be able to specify that rights would be traded for shares in job descriptions, effectively making the scheme mandatory for some positions.”

Yet again, we see that BIS and the Treasury are at odds about what will be delivered by the proposal.

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government)

Has my hon. Friend also looked at the evidence given to the Committee by Paul Callaghan? He said:

“This proposal is clearly only optional one way. If a job can be made conditional on accepting an owner-employee contract, that is only optional to the extent that eating and drinking are optional. If you need a job, you have to take whatever terms are offered. It is a fallacy to suggest that that is optional.”––[Official Report, Growth and Infrastructure Public Bill Committee, 20 November 2012; c. 122, Q272.]

Does he agree with Mr Callaghan and does the Minister need to take that on board?

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

Mr Callaghan was robust when giving evidence about whether these contracts are voluntary. He is a very senior partner who told us that he deals particularly with the high-growth technology businesses that the measure is designed to be used by. Not only was he robust about the voluntary nature, but the Under-Secretary of State for Communities and Local Government, was equally robust in his response to Mr Callaghan when he said that he did not think that these contracts were optional. The phrase that it is

“only optional to the extent that eating and drinking are optional” is a good way of putting it.

The Chancellor called it

“a voluntary three way deal” and yet it is unclear what measures will be taken to prevent employers abusing the scheme, such as by dismissing an entire work force and imposing the contract as new terms and conditions on re-engagement. That goes back to some of the concerns we had about the holding companies and subsidiaries. There is no reference to safeguards, such as compromise agreements or a requirement for independent legal and/or financial advice, for employees thinking about going down this route.

There is a connection between this measure and some of the clauses in the Enterprise and Regulatory Reform Bill, because the new settlement agreements allow for an employer and an employee to have a combination of  without prejudice, protected conversations about certain aspects of their employment relationship that cannot then be used for unfair dismissal. While compromise agreements were used when a dispute was in place, settlement agreements can be used where no dispute is in place. An employer and an employee can have a conversation about moving someone from a normal employment contract on to a new employee owners contract under the guise of a settlement agreement, without having any of that independent legal or financial advice put alongside it. That is a real danger. I am sorry to mention cocktails with my hon. Friend the Member for North Tyneside here, because I know espresso martinis were her certain favourite last night—I am bringing back all those memories already—but this cocktail of changes to the Enterprise and Regulatory Reform Bill alongside some of the changes in this Bill have to be taken into account so that we can look at how it impacts together.

There is no genuine choice over whether to sign up for fewer rights at work, if the employer decides to move employees on to employee owner contracts. Employers would be free to decide to employ all new recruits on employee owner contracts, and individuals would have no choice but to contract out their basic employment rights if they want that particular job. We can see the number of people—particularly young people—who are unemployed in the current economic climate. If a job is advertised as an employee owner-only job, any perfectly reasonable person would deduce that that is no longer voluntary. Yes, that young person could decide that they do not want to apply for that job. Alternatively, they could apply for a job on the understanding that it is not an employee owners contract, but it could come forward as such and that voluntary element would be taken out of it.

There will be nothing to prevent employers from threatening existing employees that they will only retain their jobs if they agree to sign new employee owner contracts. That could be done through a process of collective redundancy discussions with trade unions and the like. If existing employees refuse to agree to the new contracts, what is there to stop rogue employers dismissing them and offering them reinstatement on new employee owner contracts? If the employee refused, it may be difficult to convince an employment tribunal that they had been unfairly dismissed. In any event, they would have lost their job and their livelihood in the process. There seems to be no provision to protect an employee who is offered employee ownership but does not want to accept it.

For the agreement to be truly voluntary, the employee needs to have a right to refuse the employer’s offer, with protection against unfair dismissal and detriment, equivalent to the protection given to an employee refusing to sign an opt-out from the 48-hour working time directive. Are the provisions to be introduced at a later stage in the Bill’s progress?

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government) 12:45 pm, 6th December 2012

Is it worth suggesting to the Government again that they might look at their report on the consultation, which showed that more  than two thirds of respondents said that there would be no benefits or only benefits to unscrupulous employers? That seems to be an important consideration.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

That is an important consideration. We cannot be under any illusion that unscrupulous employers are not out there. As I say regularly when talking about employee rights, the vast majority of employers in this country look after their employees and they go to work every day to run their businesses with the prime goal of looking after employees because they know that employees are their biggest asset. In actual fact, however, as we know through case law and experience, that is not always the case, so we have to ensure that we are protecting people.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

Is it not true that if unscrupulous employers do unscrupulous things, they disadvantage not only their employees but scrupulous employers?

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

That is a critical point, which I think the chief executive of Sainsbury’s was making when he responded to the Chancellor’s statement on employee owners. He said that the reputation of business had been damaged because of the current economic crisis and that the potential was for decent employers to be damaged even further by use of such schemes and people being offered cash to sell their rights. What happens if a pay rise, promotion or any other aspect related to an employer-employee relationship is conditional on changing to an employee owner’s contract?

No one will decide to leave an employment—perhaps having worked there for a considerable amount of time—on the basis of being moved on to a different contract. If people have been in a particular employment for less than 24 months, they will have no protection against unfair dismissal in any case, unless there is a discriminatory or whistleblowing element. There is a real issue about being able to switch people on to such contracts when that is not clearly voluntary, if attached to another part of the relationship. The Opposition cannot emphasise enough, and I continue to state, that the proposal is not only bad for employees but catastrophic for employers if they get it wrong. There is no clear policy on offering such an arrangement to all staff, and there is a risk of it giving rise to discrimination claims, which are costly.

Any lawyer in the City or, to return to Canary Wharf—at the moment, the Minister’s favourite location in London—the many lawyers there that deal with the relationship between employee and employer in private business might have legal advice sought from them by someone who loses a job over such an arrangement. I suggest that any legal officer worth the fee likely to be earned on such a case would run a double-track tribunal with a discrimination case at the same time. That is the only protection left, from day one, that an employee can take forward. If people refuse to go on to that kind of contract or there is a relationship breakdown with the employer, the only option left open to the employee is to attempt a discrimination or whistleblowing case. Surely that is bad for employers in this country, potentially to put them at that risk.

If we set aside all the legal issues that might arise from the schemes not being voluntary, it is important that anyone who wishes to enter into one of those  complex contracts should be given the appropriate advice. Amendment 106 merely asks the Government to install in the Bill a mechanism that allows employees, at the employer’s expense, to seek some guidance and advice from a legal or other work-place representative, to ensure that they fully understand the consequences of entering into one of those complex arrangements. Section 203 of the Employment Rights Act 1996 imposes minimum independent legal advice requirements on the surrender of unfair dismissal rights. The shorthand for that was “compromise agreement advice”, although of course they are now called settlement agreements, and the key element was a written agreement upon which the employee has received advice from an insured independent legal adviser. That adviser may only be a lawyer, certain trade union officials or certain advice centre workers, as we suggest in our amendment. There is no provision for that in the Bill, so the unscrupulous nature my hon. Friend the Member for City of Durham mentioned earlier could come into play.

Will the Minister tell us who he will consult on the guidance when putting this scheme together? Will employers have to refer prospective employees to where they can seek advice if they decide to go down this route? How will the Government enforce this? If there is no proper enforcement mechanism, it cannot truly be voluntary, because, as the right hon. Member for Hazel Grove is probably just about to tell the Committee, the employee must have some kind of insurance. The only way it can truly be voluntary is if an employee can turn down the offer of an employee owner contract without any consequences for their relationship with their employer. Unless that is guaranteed in the Bill, we could be going down a very dangerous path.

Photo of Andrew Stunell Andrew Stunell Liberal Democrat, Hazel Grove

I want to speak to amendments 115 and 116. Throughout proceedings I have approached the Bill in a spirit of helpfulness, and I hope Ministers would accept that. Today, I am going to go up a gear and try robust helpfulness, which is why I have tabled the amendments.

We heard a lot of negative words when taking evidence, and, of course, the consultation has revealed the same lack of support for this proposal. It is fair to say that the CBI was at least polite about it, describing it as a “niche” product. My issue, and the point I wish to make with my amendments, is not really about whether the proposal is good or bad overall. Social enterprise is not for everyone, co-ops are not for everyone, and employee share ownerships are not for everyone, so I am not concerned about it being niche. I am not concerned about it being useful in only a small minority of cases, for instance, IT start-ups or other, perhaps professionalised, businesses where it is really a route into partnerships. That is fine and does not give me any difficulties, as long as it is safe and secure for those who use it.

My questions, like my questions to the Minister at our evidence session, focus not so much on what happens if nobody uses the scheme, but on what happens if it becomes more commonplace, particularly if it becomes more commonplace where the power relationship between the employee and the company is unequal. As the hon. Member for Edinburgh South said, employers want to ensure that their employees do not just contribute to the business, but feel enjoyment and fulfilment from their work. That is commonly the case, but we must recognise  that it is not universal. In the evidence session, I put a question to the Minister of State relating to the possibility that a cleaning company, with staff employed at a very low level, may decide to transfer to the new structure. How would that be dealt with? He replied:

“I obviously understand that concern. No one wants to see employees pressurised into making a choice that may not be in their own best interests.”––[Official Report, Growth and Infrastructure Public Bill Committee, 13 November 2012; c. 9, Q5.]

In the light of my understanding of where the Minister wants the Bill to be, I have tabled two amendments that deal with two different situations, and I want briefly to explain them.

The first relates to an employee who receives an offer while employed by that company, but does not wish to take it up. The amendment provides for the Secretary of State to make regulations, or to provide codes or advice to establish clearly that an employee who enters into a voluntary agreement will not suffer any consequential detriment.

The second, amendment 116, deals with a very different situation when a vacancy is advertised by such a company, and the jobcentre sends an individual to attend a job interview at that company, the individual is not content to accept the job offer on those terms and returns to the jobcentre saying that they have not accepted the job. The current situation is that that would lead to a suspension of benefits, because it would be a refusal to take up employment. Amendment 116 specifies:

“The Secretary of State shall issue such guidance as is necessary to provide that refusal to enter a voluntary agreement…shall not be grounds for reducing…any state benefit”.

The Minister may properly and correctly say that neither amendment captures the issue in the necessary legal language, but the House and the other place will want to be assured that the intention behind my amendment has been fulfilled before the Bill finishes its course through Parliament.

I hope that the Minister can give me an assurance on, if not the words in the amendment, what words, and how to secure what we all want. Obviously, I want to hear some words from the Minister today, and I will be happy with some assurances, but Ministers and circumstances change, and assurances given in Committee may not transfer to the desk at the jobcentre in Stockport when one of my constituents finds that their benefits have been suspended. They may not transfer back to the situation when a small company in my area decides to transfer to the new scheme and a constituent in my office is saying that they have consequently been disadvantaged, and perhaps even dismissed for failing to take that on.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

The right hon. Gentleman raises a very important point, and I hope the Minister will give a written assurance that it is not the case. About six weeks ago, all MPs received an update from the Department for Work and Pensions about sanctions that can be placed on individuals. One was on voluntarily leaving employment, and another was on voluntarily not accepting employment. As MPs have had that guidance, I hope that transferring it down the supply chain will be dealt with properly.

Photo of Andrew Stunell Andrew Stunell Liberal Democrat, Hazel Grove

I do not want to be left with one more sentence to say at our next sitting this afternoon. I have made my point in essence. I want to hear what the  Minister has to say, and I may want to ask questions on that. I think my case is clearly understood, and I hope the amendments are clear to the Committee. I look forward to hearing the Minister’s response, probably this afternoon.

Ordered, That the debate be now adjourned.—(Karen Bradley.)

Adjourned till this day at Two o’clock.