Lord Burnett
Main Page: Lord Burnett (Liberal Democrat - Life peer)Growth and Infrastructure Bill
Lord Burnett Excerpts
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
My Lords, after a touch of verbal Houdini in reading out the Motion, I hope that I can offer some clarity to the contents of the clause. Before I discuss the clause in further detail, I am grateful to those noble Lords who met me earlier today. I draw the House’s attention to a further amendment that we tabled this afternoon, which I hope will provide reassurance to the House.
We believe that it should be up to employers to recruit as they see fit, and if a company wants to recruit an employee shareholder, in the same way as an employer may wish to recruit an employee or a worker, it should be able to do so. As has been made clear, no one will be compelled to apply for or accept an employee shareholder job.
I turn to the clause itself. I remind the House of my remarks on 22 April. In that debate, I stated that I had listened to and heard the strength of feeling in the House towards this clause. I also stated that if the House insisted on its amendment to remove the clause, as indeed was the case, I would ensure that the strength of feeling would be conveyed to my ministerial colleagues. I have conveyed the strength of feeling expressed by this House, and I now turn to the amendments laid today and how we believe they improve the clause and address key concerns expressed by the House.
The package of amendments ensures that individuals entering into employee shareholder status are given the opportunity to fully understand the employee shareholder contract, the benefits and the risks involved. The package ensures that the individual will have the space, the time and the means to receive and weigh up the information in order to make an informed decision that is right for them.
First, we propose that the company must give the individual a written statement of particulars setting out the employment rights that are not associated with this status, and detailing the rights, restrictions and other conditions attached to the shares. This will include whether the shares being provided as part of the employee shareholder status have any voting or dividend rights; whether there are rights to have the shares bought back or redeemed; whether an individual may freely sell the shares; and if there are certain other rights and restrictions attached.
This written statement of employee shareholder particulars is separate to that already required by the Employment Rights Act 1996, which sets out the terms and conditions of the job, and which employee shareholders are entitled to receive within two months of starting work with their employer.
Most importantly, once the statement of particulars has been given to the individual, he must then receive legal advice. This advice can be given by a solicitor, a barrister, a fellow of the Institute of Legal Executives employed by a solicitor’s practice, a certified trade union official or a certified adviser in an advice centre. A person employed by the company, such as in-house counsel, cannot give this advice. It must be independent.
Some advice may be free, such as from a trade union official or an advice centre. Where payment must be made for the legal advice, the company must meet the reasonable costs of that advice. This is the case even if the individual does not take up the job offer. Once the legal advice has been received, the individual has seven clear calendar days to consider that advice. Any acceptance by the individual of an employee shareholder contract is of no legal effect until those seven days have elapsed.
This is about giving the individual the space to consider their position. It gives them time.
Lord Burnett
Will my noble friend assure the House that no advice should be given to an employee by the law firm or firms acting for the company itself or any other law firm connected with the company?
Viscount Younger of Leckie
My noble friend makes an excellent point. That is absolutely true. I can confirm that if any legal firms are connected at all with the employer seeking to employ the employee shareholder, they will not be permitted to give legal advice.
Returning to the individuals, as I was saying, it gives them time not to be pressurised into accepting a contract and an opportunity to think about what the contract will mean to them. An individual cannot become an employee shareholder unless this and all the other criteria set out in the clause are met. This package of amendments means that an individual who has chosen to apply for and been offered an employee shareholder job has the information, advice and time that they need to consider whether the job is right for them.
I now turn to the amendment tabled today by the noble Lord, Lord Lea of Crondall. We do not believe that such provision within the clause is necessary. We believe that it should be up to employers to recruit as they see fit, and if companies want to recruit an employee shareholder, as they already do for employees or workers, they should be able to do so.
I take a moment to clarify points that have been raised repeatedly in both Houses. In the debates about this clause, it has been stated that the shares issued to the individual could be worthless. I should like to make it absolutely clear that shares issued as part of the employee shareholder status must be worth at least £2,000. The shares must be fully paid up by the employer and the clause also prevents the individual paying for them.
I understand the concerns raised by my noble friend Lord Forsyth in relation to valuing shares. As I have made clear previously, established practices are in place that cover this. Let me repeat, we recognise that for private companies there is no traded market which enables easy valuation of shares. Private company shares are valued for many different reasons—for example, when someone leaves the company and wants to sell shares, or following the death of a shareholder or if the company is to be sold. Practitioners such as actuaries and accountants undertake this work using standard methods to reach a valuation. They will consider such things as examining the company’s performance and financial status as shown in its accounts for a period up to the date of valuation. They may also consider future plans of the company, by looking at order books and analysing future commitments.
If a private company is considering issuing new shares as part of an employee shareholder scheme, it will probably be taking advice from its accountant, who will be able to advise on how best to value the shares to be issued. In this case, the company will be able to demonstrate how the valuation has been made to the individual. In addition, I reassure the House that we will not allow individuals to use this employment status for tax avoidance.
Lord Pannick
My Lords, I am very pleased that the Government have proposed the amendment in lieu in order to impose a requirement for independent advice. I thank the Minister warmly for his efforts in securing this substantial amendment.
For many noble Lords, the absence of a requirement for independent advice was a fundamental defect in Clause 27. Indeed, the absence of such a provision until the 11th hour—in fact, way past the 11th hour—was quite incomprehensible to many noble Lords. As was painfully clear from our debate on Monday night, the Government had no answer, and never have had an answer, to the question of why they are refusing to require independent advice before an employee signs away employment rights when Parliament has required independent advice before a compromise agreement is reached in tribunal proceedings in an individual case concerning the exercise of employment rights. Because this amendment is designed to protect the individual who is being invited to sign away basic employment rights, it is appropriate that the provision should be comprehensive in the protection it confers. For my part, I am satisfied that this amendment is comprehensive.
I should like to draw attention to four aspects of the amendment. First, I note that a Clause 27 agreement will be of no effect unless the employee or prospective employee has received independent advice before the agreement is made. It will not be sufficient that independent advice is available or is offered; it must be received. Unless independent advice is received, the Clause 27 agreement has no effect in removing employment rights.
Secondly, the individual must receive advice as to,
“the terms and effect of the proposed agreement”.
The amendment plainly requires advice on the nature and effect of the employment rights that are lost. It also plainly requires advice on the content of the employment rights that are retained, such as discrimination law rights. However, advice will also be required on the terms and the effect of the shareholding aspect of the agreement. Indeed, the amendment is expressly linked to the statement that the employee must receive by reason of subsection (1)(ca), as set out in Amendments 25C and 25D. That means that the statement must—that is the word used in the subsection—address matters that include,
“whether any voting rights attach to the employee shares … whether the employee shares carry any rights to dividends … whether the employee shares would, if the company were wound up, confer any rights to participate in the distribution of any surplus assets … whether the employee shares are redeemable and, if they are, at whose option … whether there are any restrictions on the transferability of the employee shares and, if there are, what those restrictions are … whether any of the requirements … of the Companies Act 2006 are excluded in the case of employee shares”—
that is, the right of pre-emption—and,
“whether the employee shares are subject”—
the Minister may know what this means; I certainly do not—
“to drag-along rights or tag-along rights and, if they are, explain the effect of the shares being so subject”.
All these matters must be included in the statement and the advice is linked to the statement. It therefore appears very clear indeed that any employee entering into one of these agreements must receive legal advice on each and every one of these technical matters, otherwise the agreement is simply not going to have legal effect. The employer will need to ensure that advice is given on these matters, otherwise the agreement will not be valid.
Lord Burnett
I am most grateful to the noble Lord, Lord Pannick, particularly for all his efforts in relation to this matter. Regarding the matters that he listed, I wonder whether he has considered one further condition that should be added. The valuation of close company or private company shares is an art, not a science, and the valuer acting for the shareholder—the outgoing shareholder perhaps—and the valuer acting for the company may not reach an agreement on price. Presumably, underlying all this must be a provision for arbitration in case of disagreement on price, through either an independent expert or an arbitrator.
Lord Pannick
I would anticipate that when the employee is given advice, one of the terms and effects of the agreement in relation to which he will need to be given advice is as to what happens if and when the shares are to be sold or the company goes into liquidation. No doubt some advice will have to be given—I doubt in very great detail—as to what the mechanisms are. In any event, this is, as I say, a very extensive requirement for legal advice. These are very complex matters.
The third point I want to emphasise is that the amendment also specifies the identity and characteristics of the person giving the advice. It does so by incorporating the requirements in Section 203(3A) and (3B) of the Employment Rights Act 1996, which states who is an “independent adviser” for the purposes of Section 203(3). The categories are: “a qualified lawyer”; a person certified by,
“an independent trade union … as competent to give advice”,
in this context; an advice centre worker,
“certified … by the centre as competent to give advice”,
in this context; and a category of,
“a person of a description specified in an order made by the Secretary of State”.
The statutory requirements also state that the adviser must be independent of the employer. Again, I am grateful to the Minister for the assurance that he gave earlier in this debate in relation to the criterion of independence.
I am very doubtful indeed that any trade union or advice centre would wish to certify someone as competent to give advice on all the aspects of the terms and effects of the agreement which I have mentioned. My understanding—I should be grateful if the Minister could confirm this in due course—is that it is entirely a matter for the employee as regards from whom he or she seeks the legal advice. Given the complexity of the matters on which advice must be given, I cannot imagine that any sensible employee would choose to see other than a lawyer and I would be astonished if any trade union or advice centre gave advice to any employee not to go and see a lawyer on these matters.
The fourth point I want to emphasise in relation to this extensive amendment, which I welcome, is that the reasonable costs of the advice otherwise incurred by the individual must be met by the company. What costs are reasonable must of course be determined in the context of the breadth and complexity of the advice which needs to be given. The employer must pay the costs, so the amendment says, even if the employee or prospective employee decides not to take up the job offer on Clause 27 terms. I should also be grateful if the Minister would confirm my understanding that if necessary—it may not be necessary—the Treasury will bring forward legislation to ensure that the benefit of the legal advice is not treated as a taxable benefit in the hands of the employee.
Lord Myners
The question is whether we give credit to the noble Lord’s noble friend or to your Lordships’ House. I think it is the latter that deserves credit for the improvement in this provision. We will see the statute book and regulations getting thicker and thicker as the Government try to head off all the strategies that will be developed to seek to take advantage of this provision. We have come up with something that is of infinitesimal consequence to the economy but that will nevertheless lead to huge red tape. I am afraid that the experience of previous Governments, including the Government of which I was a member, and of this Government is that tax avoidance continues to be sharper and more effective than HMRC and others will ever be in stopping it.
I am happy acknowledge that the Government have said that they will seek to address this issue—they need to—but it will be a nigh-on impossible task.
Lord Burnett
I wonder why, when he was in government, his Government did not introduce a general anti-avoidance rule of the sort now being introduced by the coalition Government. That should aid and assist the very matters to which the Minister has referred.
Lord Myners
I welcome the general avoidance rule, which of course is not the matter that we are discussing. Even there, though, while I was not directly responsible for HMRC or Inland Revenue matters when I was a Minister, we all knew that the agility of tax planners should never be underestimated. We need to be slightly careful that a general tax avoidance rule is not going to create a new nirvana and will not suddenly change things. It is a good thing and I welcome the Government’s proposal; indeed, I think that the Opposition have supported it, so I do not think there is a political point here. However, on this subject we need to be realistic about what will be achieved. We are up against mighty forces in tax planning. One has only to look at structured finance unit at Barclays Bank, which appeared to help people avoid billions of pounds of tax. It really is quite a challenge.
This small proposal will create a huge loophole that tax avoiders will, quite correctly in their view, seek to exploit.