Lord Pannick
Main Page: Lord Pannick (Crossbench - Life peer)Growth and Infrastructure Bill
Lord Pannick Excerpts
Lord Pannick
As an amendment to Motion A, leave out from “House” to end and insert “do insist on their Amendment 25 to which the Commons have disagreed and do disagree with the Commons in their Amendments 25C to 25G in lieu thereof”.
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.
Viscount Younger of Leckie
There is deliberately no determining factor. This is a matter which has to be part of a discussion between the employer and the employee shareholder. The issue remains that the employer has to decide whether the costs are reasonable. If, for example, the costs are not reasonable, the employee shareholder has the right to complain and raise an issue. The ultimate sanction, of course, is that he may decide not to take up the job at all. That of course remains a matter for him.
The noble Lord, Lord Christopher, raised the question of valuation, which I earlier covered to some extent. He also raised the expense for companies in terms of valuing the shares. We acknowledge that it is not easy for private companies to value shares, a matter which I covered in some depth earlier. As I said, if the company is issuing new shares as part of an employee shareholder scheme, it is likely to take advice from their accountant, who will use standard methods to value the company. Again, I covered that earlier.
The House will be aware that the other place has now voted to retain this clause three times, a point made by my noble friend Lord King. I acknowledge the important role of this House, too. I believe that we have more than fulfilled that role. This House has carefully considered and improved the clause, which is evident from the package of amendments that we have discussed today. With your Lordships’ assistance, we have ensured that this clause now contains important protections for individuals. It is now for companies and individuals to use it if it is right for them.
Lord Pannick
My Lords, I thank the Minister for all his considerable efforts in securing the comprehensive amendment on independent advice. I also thank the noble Baroness, Lady Brinton, and the noble Lords, Lord Forsyth of Drumlean and Lord King of Bridgwater, without whose considerable efforts, the House would not have secured this important protection.
The noble Lord, Lord Adonis, exposed the defects in Clause 27 at Second Reading. He has since then, at every stage of the Bill, used his considerable forensic skills to expose each and every defect in this lamentable provision. I entirely agree with the substance of his powerful criticisms of Clause 27. However, the Government are determined to introduce Clause 27. It is impossible to see what further protections this House could usefully add. Therefore, the question, as it seems to me, is whether this House should continue to stand in the way of the Government’s determination to include Clause 27 in the light of the considerable safeguards that this House has introduced.
This House has had its say. It is now time to give way on this issue to the elected House. I therefore do not intend to divide the House further on this matter. I beg leave to withdraw the amendment.