Growth and Infrastructure Bill

Memorandum submitted by Unite (GIB 41)

 

Unite is the UK’s largest trade union with 1.5 million members across the private and public sectors. The union’s members work in a range of industries including manufacturing, financial services, print, media, construction, transport and local government, education, health and not for profit sectors.

Summary

· Unite is strongly opposed to the introduction of "employee owner" status (Clause 23 of the Bill).

· Employment rights are not commodities to be bought and sold. They are vital protections from exploitation and criminality.

· There is no demand for this policy - either from employers or employees - it has not been consulted on [1] and is completely lacking an evidence base.

· The policy amounts to the discredited Beecroft policy of "no fault dismissal" as shares will in practice have little or no value.

· Unite expects this policy to lead to:

o Greater vulnerability and exploitation for workers;

o Increased discrimination;

o More expensive and complicated litigation, both in the UK and through Europe;

o Undermine current successful models of employee ownership.

o Increased tax avoidance and evasion.

· The policy will do nothing to strengthen the economy or increase employment.

· In practice workers will be forced to choose between accepting this status or being unemployed – i.e. no choice at all.

New

1. Introduction

1.1 Unite welcomes the chance to give evidence to the Public Bills Committee. Unite would be willing to give further written or oral evidence on any of the issues covered in this submission.

1.2 Unite is strongly opposed to the introduction of employee owner status, currently being implemented through clause 23 of the Growth and Infrastructure Bill 2012-13. This is ill-thought out political posturing with no benefit for the economy or the public. It has been pulled out of thin air as a political whim during Tory party conference and appears to be being implemented to save face.

1.3 Despite its stated aim there is no evidence that it will do anything to "encourage growth", or "to create wealth and jobs." It will simply mislead some employers into thinking they can sack "employee owners" easily, leaving businesses more open to litigation and lead to further losses to the exchequer through new tax loopholes and increasing numbers of families needing welfare benefits. The only beneficiaries that Unite can see from this legislation will be those taking advantage of the obvious tax loopholes [2] , tax advisers and lawyers, while businesses, employees and the exchequer all suffer.

1.4 There has not been any consultation on the idea, nor a search for the evidence to justify it. The current consultation on "implementing" the policy appears to be an undisguised attempt at back-filling evidence to justify the policy, rather than basing the policy on evidence of need.

2. Public Reception to the policy

2.1 The vast majority of commentators on this policy see no value in it. Both unions and employers have publicly spoken out against it.

2.2 The CEO of the Employee Ownership Association argued that "There is absolutely no need to dilute the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost employee ownership." Justin King, CEO of J Sainsbury has said that this policy "is not what we should be doing" and has asked "What do you think the population at large will think of businesses that want to trade employment rights for money?" John Cridland, CBI Director-General described it as "a niche idea and not relevant to all businesses."

3. Details of the new "Employee Owner" status

3.1 Contrary to Government spin "employee owner" is not a new employment status but rather a crude attempt at removing several basic statutory rights from employees – namely:

· Unfair dismissal rights

· Statutory redundancy pay

· Right to request flexible working

· Right to request training

· Extending the notice periods for maternity or adoption leave

3.2 The policy is sold as a "fair exchange" in return for shares with a monetary value of between £2,000 and £50,000, at the point of the exchange. These shares would be exempt from Capital Gains Tax.

4. Employment rights are universal and non-tradable

4.1 Employment rights do not prevent employers recruiting. Employers recruit when they feel confident in their business model, access to investment and the stability of the economy. Current government policy is doing the opposite making employers more insecure and vulnerable.

4.2 Unite rejects the position that statutory employment rights are tradable commodities. Since the 1970s, UK employment law has included provisions to prevent the contracting out of rights. The relationship between employer and employee is one of unequal power and employment rights are there to protect employees from abuses.

4.3 For example, in her book "Data Protection in the Financial Services Industry" (2006, ISBN-0-556-08662-X, page 25), Mandy Webster expresses it this way:
"There is unequal bargaining power between an individual and an organisation.  It may not amount to duress but it will certainly influence whether or not the organisation is able to establish that consent was freely given.  Nowhere else is this so evident than in the relationship between employer and employee. In the employer/employee relationship it is now doubtful that proper consent can be given by the employee to the processing of personal data relating to them by the employer.  The view has been expressed that in the relationship between employer and employee, the employee is at such a disadvantage in terms of bargaining power, that they cannot ever give consent freely and without undue influence from the employer, simply by virtue of the fact that this is the employer.  The Information Commissioner indicated agreement with this view."

5. UK employment law is a mess

5.1 This "new status" will further complicate UK employment law leading to more exploitation, litigation and abuses.

5.2 The reality is that the UK’s current employment statuses are already a complicated mess that have led to a huge amount of litigation, confusion for employers and employment law abuses. The law creates numerous loopholes for unscrupulous employers and criminal organisations to exploit workers and avoid paying tax. Unite has been involved in a number of such cases, including Autoclenz v Belcher [2011] UKSC 41, where the Supreme Court confirmed that in deciding on employment status the relevant evidence was not confined to the written contractual "agreements" between the parties. If enacted the risk of judicial scrutiny should not be underestimated.

5.3 Unite has regularly highlighted to BIS the plight of workers in bogus self-employment, gangmaster labour, agency workers abuses and even cases of forced labour. This "new status" will add to that mess and is likely to make many UK workers more exploited and vulnerable, as well as adding to the uncertainty for employers.

6. Value of shares

6.1 The receipt of shares will in practice, either have little or no value for "employee owners", or they will be in on the scam to exploit the tax loophole. For those not in on the scam, not only is £2,000 (the most likely value to be given) nowhere near the combined value of removed unfair dismissal and statutory redundancy payments, but the consultation makes it clear that this value could be meaningless in practice.

6.2 Small and medium companies are most likely to be dismissing workers if their fortunes are going down and their business model is failing. In these situations the share value will also be plummeting leaving employee owners with little to show for the absence of their rights.

6.3 It is envisaged that employee owners will be obliged to sell back their shares if dismissed and employers will be given the option to buy the shares back at a fraction of market value. In a publicly listed company this will mean that the employee owner would only get a small fraction of the £2,000 offered.

6.4 Similarly in companies that are subsidiaries of a large corporate chain this value will be difficult to ascertain as companies can transfer capital between the different subsidiaries. Worse still, in private companies there would be no way to define what "market value" would be, except with external (and costly) valuation or as a whim from the employer. Again this would lead to a huge amount of further legal disputes and judicial scrutiny.

6.5 In Unite’s view this is as bad as the widely discredited Beecroft idea of "compensated no fault dismissal" [3] and boils down to "non-compensated no fault dismissal". Unite urges the Government to abandon this idea.

7. Undermining current systems of employee ownership

7.1 As noted, the business community have expressed frustration at the idea. The policy was not part of the Nuttall Review of Employee Ownership launched by the Deputy Prime Minister. It appears that employee owner status will actually be detrimental to current successful systems of worker share ownership as the Nuttall Review has highlighted the benefits of share ownership coupled with "employee engagement" that "drive[s] higher performance".

7.2 This position was echoed by Mike Emmott of the Chartered Institute of Personnel and Development (CIPD) who said "it is highly doubtful whether inviting employees to sign away basic employment rights will deliver the motivated, driven, high performing workforce that small firms need. Existing, highly successful mutually owned firms do not thrive on employee ownership alone, but on the high trust, high engagement, all-pulling-in-the-same-direction cultures they have. Employee ownership works best where it is accompanied by great management, rather than enhanced job insecurity." Removing employment rights is hardly positive engagement with employees.

7.3 If a company is going to issue shares to its workforce it should do so on the same basis as any other shareholder, with full legal and economic entitlements of company owners. This should include voting rights, dividends, preference shares and all other entitlements given to normal shareowners.

7.4 This new status will confuse employers wanting to use current systems of share ownership as a benefit for their employees and risks toxifying and undermining the use of such schemes. It therefore may contradict the Government’s own policy, suggesting major tensions at the heart of government.

8. Exemption from Capital Gains Tax

8.1 The exemption of shares from capital gains tax (CGT) will have very little value to most potential employee owners. Any individual is currently exempt from CGT for up to £10,600 per year. Thus, unless the shares’ value rocket by over 430% in a year, an employee owner with £2,000 worth of shares will see no benefit.

8.2 There are currently employee share schemes that allow employees to gain shares without paying income tax or national insurance on their value. This would almost certainly be better for any potential employee owner.

8.3 Unite believes that the CGT exemption will simply be used as a tax loophole for the unscrupulous, setting themselves up as "employee owners" in order to avoid capital gains tax.

8.4 Not only will employees lose out, but the Exchequer will also lose tax income, especially serious in this time of austerity.

9. Impact on workers - loss of employment rights

9.1 Unite is strongly opposed to the loss of each of the rights proposed. They will lead to increased litigation, discrimination, greater exploitation of workers and less certainty for employers. Taking each proposal in turn:

9.2 Unfair dismissal: The loss of Unfair Dismissal will essentially be the Beecroft proposal for compensated no fault dismissal without the compensation (see 6 on why the shares are likely to have little or no value). This will be a bullying charter and give employers carte blanche to sack workers they don’t like.

9.3 It will also lead to an increase in costly discrimination claims and legal cases on automatically unfair criteria as employee owners seek to get their just compensation. There is also likely to be serious challenges to the status both in the UK courts and through Europe. This status will therefore lead to an increase in legal cases and costs.

9.4 The employers benefiting from this option will lead to financial problems for the families of those dismissed and a greater burden on the Treasury in the form of welfare benefits.

9.5 Statutory redundancy pay: Statutory redundancy pay will be significantly higher than any payment that employee owners are likely to receive from their shares. This is especially true for small to medium sized businesses where the most likely cause of redundancy will be insolvency and business failure. In these cases the shares will have little value but the employee owners will also not have the right to any payment from the Redundancy Payments Office (RPO). Again, the Treasury will be subsidising the employers if poverty strikes the redundant employees and their families.

9.6 Right to request flexible working: This is likely to be discriminatory against women and parents who are much more likely to request flexible working. A significantly greater proportion of women than men request flexible working (28 per cent compared to 17 per cent – BIS, 2012). This will lead to a major loss of talent from the British labour market as women are forced out of work.

9.7 This is contrary to the Government’s stated policy as in May 2011, BIS stated "The existing right to request has been a success…but we want to go further. We think we can spread the benefits flexible working brings to all parts of society and the economy" with an estimated benefit to business of £52.4m per year. Those being refused flexible working are more likely to claim for sex discrimination.

9.8 There is no evidence base for this "u" turn. It is political posturing intended to disadvantage working people, but also adding to the risks and costs for business.

9.9 Right to request training: This will discourage employee engagement and initiative to improve their skill levels and add value to the businesses they supposedly now "own". The result will be negative for the UK economy as a whole and act as a disincentive to overseas investors. This will particularly affect young workers and black, Asian and ethnic minority workers.

9.10 Extending the notice periods for maternity or adoption leave: This is discriminatory as it forces women to take longer maternity leave than they might otherwise have wanted and will make it more difficult for many to return to work. Sex discrimination claims will follow.

9.11 By doubling the notice period women face significant barriers to returning from maternity leave. The increase will add to the pressure on women at a time when they should be able to focus on their new baby and on their recovery from the birth. Many women will find it difficult to plan for their arrangements for return to work 16 weeks in advance as they will need to finalise childcare and resolve flexible working arrangements. This unnecessary pressure is likely to result in more women resigning their jobs during maternity leave. This will reduce women’s labour market participation and increase the gender pay gap.

9.12 As with all the rights abandoned in return for "employee owner" status, BIS are of the view that EU based rights are not compromised and assume that these will not be invoked in disputes, but they are misleading employers. Legal arguments on grounds of status, alternative remedies and the power imbalance referred to above, as well as referring to the EU Social Charter and European Convention on Human Rights and ILO Conventions, will be raised so that employers seeking to rely on this idea will not be as secure as they might be led to believe.

10. Choice for workers?

11. Although BIS state "It will be entirely voluntary for the employer to offer the new status – and for an individual to choose to accept it", this is unlikely in reality. As with the "opt out" from the working time directive the worker will face the choice between signing away their rights as an employee owner or being unemployed. In practice this is no choice at all, especially for the poorest and most vulnerable workers. Given the unequal power relationship between employees and employer these workers will be forced to lose their rights.

12. Concluding remarks

12.1 Far from giving employees increased choice and fairness, this policy is yet another attack on the rights of ordinary working people. As with all these policies, the reality is that the most vulnerable and discriminated against will be hardest hit. It is also clear that employers are either against or indifferent to this initiative.

12.2 This new proposed status is unnecessary, will do nothing to stimulate the economy and will do serious damage to workers’ and employers’ interests. It will lead to an increase in litigation costs including through EU law. Unite urges the Government to drop this awful policy.

November 2012


[1] The policy was announced on 8 October 2012 and inserted into the Growth and Infrastructure Bill at Second Reading on 6 November 2012

[2] Some referred to in the Commons Library research Paper published on 1 November 2012: http://www.parliament.uk/briefing-papers/RP12-61

[3] Although we note that the Enterprise and Regulatory Reform Bill is being developed to contain “ Beecroft by the back door”.

Prepared 27th November 2012