We have had a good and reasonably balanced debate about the merits of the new employment status created by clause 25. I fully accept that there are concerns about it. Some of them are genuine and I hope to address them a little later. Some are based on a misunderstanding of the intent behind the new employment status and others take no account of the Government amendments that have already been tabled.
I will try to address all the points raised by hon. Members, but I first want to resist the casting of the hon. Member for Edinburgh South (Ian Murray), who suggests that I represent Scrooge in “A Christmas Carol.” Perhaps I could refer him to a better character, Scrooge’s older employer, Fezziwig, who was noted for the magnanimity he displayed towards apprentices and young workers and for the generosity of his Christmas party. Such generosity, I suggest to the House, is reflected in the new opportunities we are extending for share ownership and in the very generous tax relief that comes with it.
Clause 25 creates a new employment status—employee shareholder—in addition to the existing employment statuses of worker and employee. The United Kingdom already has differing types of employment status with different levels of rights and different obligations, to allow businesses and individuals to choose the right type of contract that suits their particular circumstances. It is important, therefore, before we come to consider the new status, that the House understands the differences between existing employment statuses, because each has different employment rights.
Employees, for example, have all employment rights, whereas workers do not have unfair dismissal rights, do not enjoy the right to statutory redundancy pay and do not have other statutory rights. Workers, however, do have the right to the national minimum wage and do have protection against unlawful deductions from their pay, paid annual leave, rest breaks and protection against discrimination, including on the ground that they work part-time. The statuses of worker and employee are distinguished by the level of control and obligation that the employer has over the individual. The employer has a higher level of control over an employee—he can dictate how, when and what an employee does, whereas an employer cannot dictate in the same terms how a worker carries out his work.
The new status that we are considering carries the same level of control as an employee, but links employment with shareholding in the company. Individuals in the new status will have similar rights to employees, but they will not have the right to statutory redundancy pay, the statutory right to request flexible working unless they have returned from parental leave, time off to train, or unfair dismissal rights except for automatically unfair reasons. The new status is designed to give companies more choice in the type of employment contracts they can use to structure their work force. But the flexibility
that businesses have is not restricted to different types of employment status. Businesses may already choose to take on somebody as part-time, full-time, permanent or for a fixed period. The important principle underlying the Government’s approach is flexibility. We want to allow businesses a choice of which type of employment contract to use. This new status gives companies an additional option, should they wish to use it. They do not have to use it if it does not fit their business model.
We consulted in October and November on how we could best implement the new employment status. Our consultation lasted for three weeks and we received more than 200 responses. Those were very helpful, along with the discussions that we had on Second Reading and in Committee, and helped us address the areas of the policy that need improving with the set of Government amendments before us. Before I deal with those, let me consider the points raised on the other amendments.
The hon. Member for Hayes and Harlington (John McDonnell) tabled amendments 37 and 60, which would limit how companies can use the new employment status so that, in effect, they could offer it only to existing employees with at least two years’ service. The Government are creating a further employment status to provide additional flexibility and choice for companies in managing their work force. Allowing businesses greater flexibility in how they manage their work force encourages growth and confidence, and the difficulty that I have with the hon. Gentleman’s amendments is that they are restrictive and remove choice from employees and employers.
The employee shareholder status is a novel way for companies to arrange their work force. From its inception, it was principally intended—I think this was the point made by my hon. Friend the Member for Burnley (Gordon Birtwistle)—for fast growing new companies. The amendment to limit the new status to existing employees would deter or even prevent many newer companies from making use of this innovative and flexible model. It would also prevent new or newly recruited employees from taking advantage of the status that existing employees might already enjoy. As I have just reminded the House, we decided to create a new employment status to give companies additional choice about the contract types they can use for those who work with them and for them.
Amendment 61 would cause inflexibility in the decision-making process for companies by giving their existing work force a veto over the type of employment status which the company may choose to use. The result of the inflexibility caused by amendment 61 would come at a time when companies need to be agile and innovative to respond to changing economic circumstances. Furthermore, we do not force companies to consult in this way if they decide to take on people as workers or as employees. I suggest to the hon. Gentleman that the new status should be no different. The decision on how to structure a work force is for companies to make. They are the ones best placed to determine how they go about employing staff, and the responsibility for deciding which employment status to offer should rest with them. Nor would the amendment be fair to employees in the work force who may wish to take up the option.
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Amendment 62, also in the hon. Gentleman’s name, links the minimum amount of shares needed to qualify for an employee shareholder contract to the amount of time that an existing employee has spent in the company. That would introduce a heavy burden on companies wishing to use the new status and is contrary to the objective of the measure, which is designed to create flexibility and choice. We want companies to be able to offer the amount of shares that they consider will enable them to attract or retain the right person. We do not want to prescribe the amount of equity each company should give to employee shareholders. That should be at the discretion of the company and for agreement with the individuals.
However, I am grateful to the hon. Gentleman in one respect. The amendment helps us to remind the House that the value of the shares must not be below £2,000. This is a very important point. If a company issues shares worth less than £2,000 for an employee shareholder contract, the criteria for the contract would not be fulfilled and the person is likely, therefore, to have a normal employment contract. This is an important safeguard, and companies must be confident that the shares are worth at least £2,000 when they are granted to the employee shareholder.
The amendment would have two detrimental effects, first on the company, and secondly and more importantly on the individual. It would force companies to offer employee-shareholder contracts only to newly hired employees or those who have been in the company for less than three years. That would tie the hands of companies when choosing who they wanted to share their equity with. Under the amendment as drafted, an individual who had been working with the company for a long time would be far too expensive for a small company wishing to share its profitability and growth prospects with its work force.
The second problem with the amendment is that it would also hurt existing employees. An individual who had worked for a company for many years might be excluded from taking up the opportunity of becoming an employee shareholder as the company may not be able to grant such a significant number of shares to one individual. That is unfair on people, and would have serious negative consequences for how companies structure their work force and share their equity when they wish to do so.
I turn to the hon. Gentleman’s final amendment, 63. If I understand the amendment correctly, its aim is to require the Government to make a significant change to the constitution of companies and corporate governance more generally. The change would give employee shareholders the right to appoint a director. That goes against the general thrust of all company law by forcing a company to structure itself in a particular way. That is unnecessary. Company law in the United Kingdom is designed to be flexible. It allows companies to choose the structure which best meets their needs.
Under current law, a company may have directors who are appointed by employees or employee shareholders. We consider that a responsible company will have the directors it needs to operate the company effectively. The means of appointing those directors will be set out in the articles of association of the company. There may
also be agreements between shareholders which determine how individual shareholders will exercise their rights when appointing directors.
I have said on many occasions and I repeat that it is not the Government’s intention with this new status to force a company to use it, but rather to offer flexibility and a new and creative option for companies. We do not want to force companies to appoint any director in a particular way, but if a company believes that it would benefit from a director appointed only by employee shareholders, that is entirely an internal matter for the company and UK company law permits that.
Let me now turn to the Government amendments.