Growth and Infrastructure Bill

Debate between Lord James of Blackheath and Lord Adonis

Wednesday 6th February 2013 Lords Chamber

[Lord James of Blackheath]

My Lords, it would be extremely helpful if the clause contained a clearer definition of “profit share” and “equity participation”. That is where the confusion will arise and cause the greatest difficulty. Profit share is relatively clear, straightforward, simple and very motivating. I wholly agree with the noble Baroness who talked about that earlier. That is fine, but profit share does not carry with it any of the risks that go with equity. I disagree with the noble Lord; you do not just buy your shares today and sell them. If you are a locked-in minority, especially in a quoted vehicle, you are stuck, you have no way out, and you never will have.

Further, and worse, I have seen this work to the total detriment of the shareholders. I had a company that had a number of ships—we were opening the North Sea oilfields—that were bought and each put into a separate company. It looked like a good, straightforward, long-term profit opportunity, so we had a lot of participation by Scandinavian banks, which would buy a ship and put it into a purpose-built company. The captain might be offered the opportunity of 20% of the equity in that company, meaning 20% of the ship he was going to sail. If that company did not get the contract work, did not make the money and could not service the debts of that bank, the banks in Scandinavia came at those shareholders and took their homes as a condition of their putting in the extra money.

These hazards are not anticipated in what we have here. There are some fearful risks in inviting people to become locked-in minorities, especially in SMEs where you have nowhere to go if there is a problem. Profit sharing does not have any of those problems, so we should be going down the profit-share path, not the equity-participation route, especially where it is given free into unquoted vehicles.

[Lord Adonis]

My Lords, first, I congratulate the noble Lord, Lord Flight, on being the first speaker in more than 50 on the Bill so far to defend this shares-for-rights proposal. His reward will no doubt be substantial hereafter.

I also welcome the noble Viscount the Minister to our debates on the Bill. The noble Baroness, Lady Hanham, is looking mightily relieved that she has an afternoon off. Her time will return only too soon. The noble Viscount has the thankless job of defending the indefensible—another practice that, if I may extend the analogy used by the noble Lord, Lord Pannick, goes back to the Book of Genesis, where Adam had to explain why he had misbehaved in the Garden of Eden. We are rather hoping to expel the entire Clause 27 from the Garden of Eden, but we are first debating some mitigating measures and inviting the noble Viscount to respond.

We start with the issue of coercion. The noble Lord, Lord Flight, said that the issue of coercion had been dealt with, but I contend that it has not. One of the reasons why Clause 27 is fundamentally wrong and flawed is that, contrary to the Government’s own statements and assurances, it is coercive in that it in effect requires individuals to accept jobs without fundamental employment rights. The coercion involved in these shares-for-rights jobs comes in two ways. First, individuals will in some cases have no option but to accept such jobs. We will come to that issue in respect of benefits claimants in the next group of amendments.

Secondly, these shares-for-rights jobs are in all cases potentially exploitative, because there is no requirement for independent advice before an individual signs up. It is therefore likely that individuals, particularly the more vulnerable and low paid, will not be properly aware, or even aware at all as they will not be as informed as the noble Lord, Lord Flight, of the rights they are forgoing in return for shares worth as little as £2,000 at the time they are issued. As the noble Baroness, Lady Brinton, said, these shares could be worth even less or nothing at all if the employees want to sell them at a later stage.

A whole succession of noble Lords, starting with the noble Lord, Lord Pannick, have made a compelling case for there to be protections, including independent advice before shares-for-rights contracts are entered into. The amendment in my name and that of the noble Lord, Lord Pannick, proposes that there should be legal advice on the rights forgone and financial advice on the valuation and prospects of the shares it is proposed to offer in lieu of employment rights. Without such advice, the scope for exploitation is considerable. Such advice should be paid for by the employer, and there should be an explicit agreement between employer—

[Lord James of Blackheath]

Will the noble Lord draw a distinction between the legal advice to be given in the potential sale of a listed company, where the majority shareholders have a separate set of interests and the minority shareholders—the working shareholders possibly have a very different set of interests? Are we to have two separate and parallel sets of lawyers to avoid a conflict of interest between those types of shareholders? That would seem necessary. How is it to be funded?

[Lord Adonis]

My Lords, we are talking about individual employees who are seeking to take jobs, which is a different situation from the one that the noble Lord has described. We are not talking about the takeover of companies, which is the issue he raised. However, the noble Lord is right to point out that two different sets of interests are involved. As the noble Lord, Lord Pannick, said, we have these rights purely because of an imbalance of power in the relationship between employers and potential employees. If the noble Lord is saying that we need two lots of lawyers on the job, I understand the point he is making but it makes the proposal even less workable and even more unaffordable.

[Lord James of Blackheath]

The noble Lord is correct; that is what I am saying—you need two sets of lawyers in any case.

[Lord Adonis]

The noble Lord therefore proposes a system that is even more complex and onerous than is envisaged. Such advice should be paid for by the employer, and there should be an explicit agreement between employer and employee stipulating the employment rights that are being foregone and the value of the shares being allotted.

When similar amendments were debated in the Commons, the Minister, Michael Fallon, said that they would impose,

“an unnecessary cost and burden to the employer”.—[Official Report, Commons, Growth and Infrastructure Bill Committee, 6/12/12; col. 484.]

However, this is not a new principle. As the noble Lord, Lord Pannick, said, it is, in fact, a principle accepted by previous Conservative Governments. The great noble Lord, Lord Tebbit, was Secretary of State when this principle was enshrined in law. Under the legislation of the previous Conservative Government, there are minimum independent legal advice requirements on the surrender of unfair dismissal rights in what are now called compromise agreements—a key element of which is a written agreement upon which the employee has received advice from an insured independent legal adviser or other specified and qualified person.

The noble Lord, Lord Pannick, also quoted the advice and recommendations of the Equality and Human Rights Commission, which could not be clearer. Let me read the recommendations to the Committee. They state that,

“the mere fact of a choice having to be made on which type of employment status to accept could indirectly discriminate against those less likely to be able to make a properly informed or truly ‘voluntary’ decision. This may include those whose first language is not English, those with learning disabilities, or young workers”.

The commission’s recommendations continue:

“In order for objective justification to be established, it is likely to be necessary for the individual to have a right to receive appropriate advice and for the employer to be required to draw this to his or her attention”.

We agree entirely with the Equality and Human Rights Commission’s recommendation. It is now up to the noble Viscount to say why it is wrong.