My Lords, I think that this is a positively dreadful clause. Perhaps I should declare three interests as a former Minister of Employment, as chairman of a start-up run by my daughter and as someone who has set up a number of businesses in the past. I could not believe the clause when I read it. It seemed to involve two really good things. I have much sympathy with what the noble Earl had to say about the burdens placed on businesses and the costs of going to an employment tribunal, but that is an argument about the extent to which employment protection legislation should apply and the costs associated with sorting out whether there has been an injustice to employees.
Employee share ownership is a very desirable thing up to a point. It can go too far if your salary and your savings are tied up in the shares of the company that is your employer but, as a general principle, giving people a stake or encouraging people to take a stake in the business is part of being a good and successful employer. I very much agree with what my noble friend Lady Brinton had to say about creating a culture in a company where people can feel part of a team and motivated. The idea in this clause has all the trappings of something that was thought up by someone in the bath, taking these two ideas together and believing that they made for a great scheme. In fact, it is damaging to both. I do not propose to reiterate the careful and precise arguments that the noble Lord, Lord Pannick, made in moving this amendment, which I support and which I will vote for if he chooses to divide the House on it.
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The most important thing in all this, leaving aside the details, which the Government have clearly not thought out, is the principle that employment rights, although the noble Earl may feel that they go too far, are enshrined in statute and are not negotiable. They give the employee a position where the employer cannot ask them to give up those rights, because they are enshrined in statute. What I find offensive about the clause is that it does not seek to argue, as I would, that the Government’s proposals to extend maternity leave are costly and unnecessary. I would not go down that track. If those rights are in place, it is essential that the employee is not put in a position where he is under pressure from the employer. The clause is an absolute gift to the Gradgrinds of this world because they will be able to use it to force people to give up employment rights, which are essential, although we might differ over what their extent should be. It is a foolish measure for that reason.
As for the practicalities of the clause, shares are not defined. I am not going to repeat the points that I made in our debate on the previous amendment about the difference between options, shares, shares that vest and the tax implications of that. As a Conservative, I am very proud of some of the employment legislation. The noble Lord, Lord Pannick, referred to the 1992 Act, which says that in seeking compromise agreements, advice is to be taken. Normally the employer pays for that advice up to a certain figure, which is normally up to £500 or £1,000. However, having to go through the whole business of valuing shares of over £2,000 and getting advice will at the end of the day cost more than £2,000. The valuation of shares in unquoted companies is extremely difficult, especially in start-ups where the employer might think that he has the next Google on his hands and that the shares are worth considerably more than the employee. How does one set about that valuation, and what are the implications of taxation?
In his letter, my noble friend Lord Younger says, “Oh well, this is something that would be put on the self-assessment form”. How would you reach a view on what the value should be? If I may switch sides for a moment, if I were an employer, why on earth would I want to give away shares in a company to employees who I had doubts about and thought I might want to sack? Why would I want to give away shares, which are
a very expensive way of raising capital or rewarding employees, especially in a start-up, if I had doubts about the competence of the employee? You would not want to do that. If I were an employee in those circumstances, why would I want to take on these shares and give up my employment rights if I did not feel that my employer valued my contribution and that I was part of the team? Therefore, why would I want to give up these rights?
Another thing that I find extraordinary is the attitude of the Business Secretary, who led a great media campaign when the Beecroft proposals were put forward and talked about how outrageous it would be that people could be dismissed without cause. At least Beecroft did not take away the entitlement to redundancy payments. This proposal is worse than Beecroft from the point of view of the employee, yet for some mysterious reason the Business Secretary has obviously signed up to it.
This is not limited to high-tech start-up companies; it applies to all companies. Let us suppose that we have a high-tech start-up company, it does terrifically well and the founders of the company wish to IPO it and raise more capital to expand their business. What are they going to do when they have perhaps 20 or 30 former employees who they dismissed still hanging on to the shares and pretty angry about having been dismissed? The practicalities, costs and difficulties of making this work have simply not been thought through.
Then we have all the opportunities—you do not need to be a smart accountant or lawyer to start thinking about them—for tax avoidance schemes and the rest, but the final blow for me, if I had any doubts about this, was when the noble Lord, Lord Pannick, said that guidance had been issued, which should have been available to this House at an earlier stage and should certainly have been available to the other place, which says that if someone refuses to take this deal they are no longer able to obtain jobseeker’s allowance. That is absolutely unacceptable, and I am astonished that the coalition would even think of bringing forward such a measure. This is a very ill thought through attack on the employment rights of individuals that creates complexity for small businesses. That is not to say that I do not believe that there is scope for reducing the costs and burdens on small businesses in respect of employment, but this clause is not the clause to do that.