Small Business, Enterprise and Employment Bill
The Committee consisted of the following Members:
Fergus Reid, Committee Clerk
† attended the Committee
Mark Beattie, Company Law Committee Member, The Law Society
Detective Chief Inspector Jonathan Benton, Head of the Met Police’s International Proceeds of Corruption Unit
Peter Cheese, Chief Executive, Chartered Institute of Personnel Development
Sampson Low, Policy Officer, Unison
Dave Mountford, GMB
Kathleen O’Reilly, Chair of Company Law Committee, The Law Society
Martin Smith, GMB National Organiser
Steve Turner, Assistant General Secretary, Unite
Sarah Veale, Head of Equality and Employment Rights, Trades Union Congress
Examination of Witnesses
Q 8282 The Chair: Good afternoon. I welcome the witnesses. We are going to hear oral evidence from the Law Society. For this session we have until half-past 2. Will the witnesses please introduce themselves for the record?
Kathleen O'Reilly: Yes. We first wanted to say that any initiative to highlight and improve the environment for small business is very welcome. We are also grateful for the opportunity to be here to give evidence. In addition, we have had considerable dialogue with the Department for Business, Innovation and Skills that has been very useful. We have been able to raise a number of our concerns and, where appropriate, BIS has taken those on board. We hoped that the paper that we submitted to you in advance of this meeting would be helpful. Its purpose was essentially to highlight the concerns that we still have.
Q 84 Mark Garnier (Wyre Forest) (Con): May I start by asking about the register of people with significant control? Allen and Overy in one of their submissions noted that Sarbanes Oxley in America has been ferociously complex, and that we have been a beneficiary in this country, with people wanting to locate here because of the easier company laws. Do you think that these requirements in terms of significant control individuals and a register of that are likely to have a negative effect on the UK’s attractiveness as a place to locate businesses?
Kathleen O'Reilly: I would say, to some extent, yes, because by their nature they are an additional burden. That is something that we acknowledged in our paper. Having said that, we do appreciate that transparency is also a very important agenda and it is encouraging to
Q 85 Mark Garnier: I am interested that you used the term “burden”. You are looking at the administrative costs both in terms of resources and finance to comply with this, as opposed to the benefit of the legislation, which is to bring out transparency.
Kathleen O'Reilly: I suppose I would say that we have been looking at it from that point of view. That is because on our committee we do not see ourselves as a body that lobbies for particular areas. We see ourselves as a body that looks to assist Government, where we can, to make laws that they want to introduce workable and to make sure that they work for our clients, for practitioners. We see ourselves in that role. Hence we might be seen as only picking up on things that we think need—
Q 86 Mark Garnier: No. It is no criticism of your evidence. I am interested in the fact that from the point of view of your members it is a compliance issue rather than a disclosure issue that you are potentially worried about.
There are two sides to this. Clearly we have quite a lot of financial regulation in this country. We have existing rules surrounding significant control functions within financial and regulated institutions. A lot of that is there to a certain extent already. So this seems to be extending that to the non-regulated world. It sounds like you are suggesting that while this is probably a useful thing, and in that respect it is a very good thing that businesses can now understand what is going on with people they transact business with or enter into deals with, it will increase the burden of compliance on those firms.
Q 87 Mark Garnier: Okay. That is fair enough. What do you think of the definition? The definition of these significant individuals is quite complex. Do you think that is a fair way of assessing it? Do you think they could have done better?
Kathleen O'Reilly: I think it is a difficult task. As we know, it is not as simple as saying how many shares such a person holds in a particular company because there may also be shareholder arrangements and there may be other contractual arrangements. There may be family trust considerations as well. It is a difficult task. It is not unachievable. Certainly what has been achieved so far is good. One of our major concerns is that the legislation and, in particular, any guidance that is alongside it should be as clear and intelligible as possible to the ordinary person in business. A concern that has been raised at our committee is that we do not particularly want businesses having to see their solicitor to find out whether they should disclose their interest in a company, or to ascertain whether they have an interest that they need to disclose. We would like to see a scenario where it is obvious.
Q 88 Mark Garnier: Let me bounce that back at you: would it not be sufficiently obvious to an individual whether they had significant control over an organisation to make it unnecessary for them to go and see a solicitor? I take your point, but that response suggests to me that there are people who have significant control who want to avoid disclosing it and therefore go to a solicitor. To my way of thinking, you can see who runs an organisation. It does not necessarily have to be the person who has the biggest number of shares or the greatest dominance on the board. There can be various reasons why someone controls a company, and you kind of know who that person is, but how can you define that in law? Does this capture everything that you think we should be doing in terms of defining who that significant individual is?
Kathleen O'Reilly: I am not sure that it will always be obvious to them. For example, in the shareholder arrangement behind a company it may not be clear that a particular clause in that agreement has somehow been triggered by a particular event. Do you see what I mean? I am not sure that it will always be clear.
Mark Beattie: Elaborating on that, one example is a case where shares are given as security for private borrowings and the security may become exercisable by the person in whose favour it is granted. No one will necessarily pick up the immediate effect of that, particularly if it is quite complicated and it says that the dividend rights go here and the voting rights go there, and this or that can or cannot be done. There may also be situations where something happens within the company; shares may be surrendered and someone may not do the mathematics or, if they do, they do not relay that to the shareholders.
The difficulty is that the legislation contemplates two things. It quite rightly looks at who owns the shares, but also who actually otherwise controls the company. One has to keep an eye on both scenarios: who owns the shares and everything else going on. Therefore, in every case there may be no one real safe harbour. That is why it is so complicated. You constantly have to keep aware of what is going on in terms of the control over the company, by reference to third-party agreements and by shares.
Q 94 Toby Perkins (Chesterfield) (Lab): Referring back to what you said at the start, and what you also included in your written evidence, it is intended that the Bill—welcomed by you and by all of us—would be an improvement in terms of transparency. Perhaps the UK is taking a lead on this, and the Minister spoke earlier about setting an example to the rest. It sounds like language we have heard in the past, and it eventually gets called gold plated. You raised the suggestion that, in your own words, “there would be a real risk of an adverse effect on UK business” through businesses preferring not to base themselves in the UK. They could go to any of our competitors. We all know how easy it is to trade here in the UK but be based overseas. Have you done any analysis or taken any evidence as to how real that risk is, and how great are the benefits that we get in exchange for that risk?
Kathleen O'Reilly: No, we have not done analysis on that. Again, I suspect BIS may have done some analysis on this. The Law Society has not particularly seen its role as undertaking that kind of analysis, as it were. On the evidence that we have had—I believe it is good evidence. Given the fact that the legislation is not in force yet, to some extent the evidence has been of an anecdotal nature: discussing the matter with colleagues and clients and so on. That has been the nature of what we have been talking about so far, and our own experience as well.
Q 95 Toby Perkins: Can you expand upon the question that was asked earlier? To what extent is it additional compliance requirements? To what extent is it businesses saying, “Who knows what will happen in future? There may be circumstances under which we would be better off being based somewhere else, because the requirements might pose questions—not that we have done anything wrong”? We all know how you can get mud thrown around in some of these cases. Can you expand upon the decisions you think people will face on this question, and the extent to which it might have an impact so that they choose to move elsewhere, or base themselves elsewhere?
Kathleen O'Reilly: I suppose we start off by saying it is an additional burden simply because it is an extra obligation. By virtue of putting an extra obligation on companies, that is an additional burden. We are not saying that it is necessarily a very great burden, but it is one. In terms of why it might deter business, a lot of businesses like to be somewhat private, depending upon what sort of business they are involved in—for example, a tobacco firm. It is not something that is not legal, but it is something that some people have an objection to and others do not. Those sorts of businesses may not wish to have all of their information on public display.
Mark Beattie: If someone is sitting outside the European Union and wishes to set up a company to trade in, say, the United Kingdom and also France or Ireland, it will look at the regulatory regime that is applicable to a
Oliver Colvile (Plymouth, Sutton and Devonport) (Con): I should like to declare an interest in that I still have shares in a company that I set up in the first place, which dealt with communications within the property sector. When I was doing that I had a job in the constituency of the Secretary of State for Justice. We got planning permission on behalf of the client and helped him through all that. The following day he decided he was going to close down the business and he left us unable to get our money out of the whole thing. I have endless stories from people who come to see me in my constituency who say, “We agreed to do some work on behalf of a company, but ended up finding that we could not get the money we were owed.” How do we actually stop these rather crooked people setting up as directors of companies, further down the road eventually going bankrupt and then, probably two days later, opening up another company and doing exactly the same thing? This is a real concern about how you can get trust in people to do business. The concept of our shaking hands and saying, “Thank you very much indeed for doing business with us” and then not being paid for it is very bad for a lot of small businesses. We need to have some action taken. What would you do?
Q 96 Oliver Colvile: My personal view is that if someone does that on a regular basis it should be flagged up on their company that they have a reputation for not paying their bills when they have asked for work to be done. That is my personal view. It comes down to trust, which is a rather interesting word.
Kathleen O'Reilly: It is difficult to envisage how you would flag up a reputation for failing to pay bills. We do not see the company register as discussing reputation. If there is hard evidence of failure and so on, that is essentially what the court process is there for. Flagging up a reputation is a little vague.
Q 97 Andy McDonald (Middlesbrough) (Lab): Mr Beattie, you mentioned belonging to other jurisdictions as perhaps being more attractive if we are burdened with this declaration of beneficial interests and beneficial ownerships. Have you looked at the Crown dependencies for their experiences? My understanding is that the Isle of Man, Jersey and Guernsey have embraced declaration of beneficial ownership well ahead of the UK. Have you looked at that experience and has that put off companies from locating there?
Q 98 Andy McDonald: My understanding is that it is made open to the public. I am not an authority, but I am aware that when we speak to the Crown dependencies representatives they often say, “You are putting pressure upon us to be much more open and transparent in our dealings; well, look at how we do business compared with what is happening in the UK. We are ahead of you”. I am interested to know whether you have taken that into consideration in formulating your own views to see what the experience of the Crown dependencies has been.
Kathleen O'Reilly: Certainly, in relation to share warrants to bearer I would say that that is the experience to date. A lot of the Crown dependencies have made significant steps. With most of them, they are either no longer acceptable or there is an authorised capital custodian regime to deal with such shares. I would accept that in that respect, we are now in this legislation catching up with some of them. We would have to come back to you on the other point.
Examination of Witnesses
Q 99 The Chair: Good afternoon. Thank you for coming to give evidence. We will now hear oral evidence from the trade unions—GMB, Unison and Unite—and for this session we have until quarter past 3. Will the witnesses please introduce themselves for the record?
Dave Mountford: My name is Dave Mountford. I am here to give evidence on part 4 of the Bill, which relates to pubs. I was a spokesman for GMB until recently and I am a member of the FSB and Fair Pint. I was a tied licensee for five years and currently run a free-of-tie pub. I have been involved in the campaign for a long time—about six years—from before I needed glasses.
Steve Turner: Steve Turner, assistant general secretary of Unite, the union. There are four items I want to cover: zero-hours contracts, employment tribunals, public procurement and the national minimum wage.
Steve Turner: Thanks for that very open question. Zero-hours contracts are one of a series of employment practices that need to be addressed and I think the Bill fails on all counts. I will explain a little why in a moment.
Agency workers, the Swedish derogation, umbrella and personal service companies and bogus self-employment are all issues that we are trying to address right now and which are confronting workers. We need to see measures introduced that will address the consequences of low pay and precarious, insecure and, we would argue, exploitative work.
The measure in the Bill to end exclusivity alone is welcome but in our view is wholly inadequate and will not work. The reason we say it will not work is that there are endless loopholes, whether they be short hours or false self-employment, that will be introduced as a consequence of the ending of exclusivity.
Workers will find themselves removed from contact lists. Our experience of addressing zero-hours workers is that very often they are texted over night as to whether they are available to start work the next morning. If you do not respond to the text or do not do it quickly enough, you do not get the work the next morning. Certainly if you do not respond to the text because you are working for somebody else, you will find yourself quickly removed from that contact list. As you are not an employee there will not be any subsequent claim, even if you could afford it, in an employment tribunal for unfair dismissal or any other claim.
We conducted a survey of more than 5,000 of our members, with a follow-up telephone survey of 900 of them, and found that zero-hours contracts are found in every sector of the economy. They are not exclusive to hospitality, retail or social care, although they are predominantly in those areas. Of those we surveyed, 77% received no sick pay and 36% said they got no holidays and certainly no holiday pay. Some 87% said they did not want a zero-hours contract but had no option in the local labour market, while 30% had two if not three jobs and, in many instances, four jobs in order to make ends meet. Finally, 26% said that they had found real difficulties with child care, mainly due to the unpredictable hours and the short notice of the work offered.
We believe that this is a huge problem for the Treasury. Unite believes that many employers are exploiting not just the workers but also the national insurance thresholds, to avoid paying employers’ national insurance. This is a real issue between unscrupulous employers and decent employers, who want to employ people fairly and with some dignity on a proper employment contract.
Just yesterday, HMRC identified the shortfall in tax revenues given the expansion of employment within the economy. The New Policy Institute has conducted research which says that there is £3.1 billion of tax subsidy due to low pay just in those three sectors where zero-hours contracts are predominantly found. We believe that the avoidance of employers’ national insurance—employing
We believe that there are a whole series of issues with zero-hours contracts, many of which we are very happy to follow up in written form with the Committee. Those are the main ones that we would like to address here.
Martin Smith: From the GMB’s point of view, I endorse those points and would like to take them further. You also asked about the experience of our members on zero-hours contracts, and on minimal-hours contracts, which is exactly the same thing from a worker’s point of view.
The reality is that, as Steve says, in some sectors you sit and wait for a text message. In a lot of sectors it is quite different from that, which is what a lot of our members say. You have to get up at five or six o’clock in the morning and phone in and compete with everyone else phoning in. There are different ways it is done. Some people say that it is as hard getting a couple of hours’ work, or a day’s work, as it is trying to get tickets for the Glastonbury festival. This idea that on a zero-hours contract or a minimal-hours contract you are sitting waiting for work is not the lived experience of a lot of people, unless you happen to have high-value skills in demand—a journalist or an accountant, for example—and the bulk of people on zero-hours contracts and minimal-hours contracts are not that. Their lived experience is that humiliation and competition every day. The humiliation of trying to butter up the supervisor—or whoever it is in their workplace with the power of the next week’s work over them—every working day and every working week creates that tension in the workplace.
The next problem is the obvious point about flexibility. The truth is, in the experience of our members, the only flexibility you get is flexible earnings, or more likely, chaotic earnings. Whether you are on a zero-hours contract or, as for many more people, a minimal-hours contract, of maybe five hours a week, you are maybe working 25 or 30 hours a week if you are good and you keep in with the supervisor and you grovel and beg and scrape. When you try to get a tenancy agreement and they ask to see your contract of employment, of course it says five hours. That is the actual lived experience.
Our concern, although we welcome the move towards banning exclusivity clauses, is that as the Bill is written it talks about zero-hours contracts. We have seen in the past 18 months, certainly in the retail and care sectors, people being moved from zero-hours contracts on to minimal-hours contracts. Unless the Bill specifies that and works out how we define that, we will leave most people affected by the exclusivity clauses out of the scope of the Bill. We are concerned about that.
We are also concerned, as Steve has said, about the minimum wage zone of the economy—that zone where people are permanently on the minimum wage, where the minimum has basically become the maximum wage for people, in the retail sector, the care sector and the hospitality sector. Coincidentally—of course it is not—this happens to be the sector where most precarious employment contracts exist through either agencies, bogus self-employment, minimal-hours or zero-hours. We also believe that tends to be the same sector where major companies operate through or are involved in maximising their wage subsidy from the in-work benefits bill. Also, funnily enough, a lot of those companies are the same companies that get heavily involved in tax avoidance. We have a highly subsidised wages and benefits trap existing for, we believe, 7 million people. If you add up the BIS estimates of the number of people on zero-hours contracts and the numbers that were already existing, plus the same number that we believe are on minimal-hours contracts, plus agency, then you could be talking about between 7 million and 8 million working people in the UK whose employers are massively, heavily subsidised by the welfare bill to employ them on contracts that they cannot live on without benefits.
The final point we would make is that in those sectors where we organise, we noticed that these zero-hours and minimal-hours contract jobs are not new jobs that have come out of a clear blue sky since 2010 or 2007-08. In our view, what has actually been happening is job splitting, where jobs that were previously 35 to 40 hours a week have been split into many contracts. Again, the lived experience of many of our members is that they remember not that long ago when they used to be able to earn a living doing hours with that employer; they now find that they cannot get enough hours, so have to have separate jobs.
The argument to end exclusivity clauses in zero-hours and minimal-hours contracts makes itself. It is anti-contractual to tell someone, “We are not going to give you any hours but you are not allowed to work for anyone else.” It is self-evident, but it only begins to address a sliver of the issues. If it leaves out minimal-hours contracts, it leaves lots of people alone.
Sampson Low: I will be brief and back up what previous speakers have said. For our members the issue is the uncertain income from week to week, and the fear that that can generate—fear of complaining or falling out with the boss in case they are zeroed. In a social care setting, that often means that workers are afraid to make complaints about care quality issues. For example, very few care workers make minimum wage complaints: although the latest HMRC estimates suspect that about 48% of home care providers might not be compliant with the minimum wage, only 19 formal minimum wage complaints were made on the record to HMRC.
You get a situation in which, in social care, a zero-hours contract is now the dominant form of entry into the social care work force. You get the knock-on effects that our members see in care quality for our friends and relatives who are using care provision. It is about quality of services, but also the uncertain income and the fear of complaining or raising your head above the parapet.
What are your general thoughts on where the Bill as drafted sits in relation to tribunal award penalties, tackling the minimum wage, and whistleblowing? I then want to ask Sampson from Unison about the issues relating to public sector exit payments in the Bill.
Sampson Low: We welcome the increase in penalties for the minimum wage, but there needs to be a corresponding increase in resources for enforcement. As I mentioned earlier, very few formal complaints come through to HMRC, bearing in mind the widespread non-compliance in social care. We would therefore like to see, for example, a third-party complaining right for citizens advice bureaux and trade unions.
We would also welcome anything that staunched the non-payment of tribunal awards. We do not get many in Unison, because we tend to deal with large employers in the public, private and voluntary sectors, but we know that it is a particular problem for minimum wage cases. If an employer does not pay or there is an extra cost to go to county court to try to get an employer to pay, that has a deterrent effect on the rest of the work force, because they do not feel that they can raise complaints having seen someone else be unsuccessful in getting a tribunal award enforced. We would like to see a quicker process for identifying whether a tribunal award is going to be paid. If necessary, particularly for minimum wage issues, we would possibly like to see the state step in and use money from a national insurance fund, in the same way that it would to pay statutory redundancy pay, to ensure that workers get the back pay for minimum wage awards not paid at tribunal as well as possibly the penalties.
On whistleblowing, we welcome the clarity that the Bill brings about the prescribed person, ensuring that complaints are referred to the right person in the organisation—the person named to receive whistleblowing complaints. We also welcome greater transparency and the fact that organisations are required to report on an annual basis. The issue remains that it is still a judgment call for the worker. The onus is on them to decide whether they think it is going to fit the public interest test when they whistleblow.
On public sector exit payments, we have concerns that the issue could spread further down the income scale to clawing back previously agreed contractual arrangements. The problem seems to stem from exit payments in the NHS where widespread fragmentation has led to redundancy payments and managers being re-employed. That is a product of a less co-ordinated NHS. The Department of Health cannot have their cake and eat it on the issue. It could have a far wider cross-NHS HR strategy, with managers at risk of redundancy redeployed. That is the preferable route that it should go down.
Steve Turner: On the national minimum wage—if we are moving to that—increasing the penalty is a welcome move but wholly inadequate. We agree with the points that Sampson made about extending the entitlement to bring a claim beyond HMRC to trade unions and, indeed, to local authorities, particularly environmental health officers, who often engage on a day-to-day basis with the employers who employ people on national minimum wage. We should examine the
You might find it strange for me to say, given that this is about a £20,000 penalty, but we should introduce stronger penalties. Our view is that the £20,000 penalty is a bit of a public relations stunt because it is based on a fine attributable to 100% of the deduction. The reality is that you would have to work a 40-hour week for 77 weeks to lose such an amount of money, so that is not really a deterrent. The average penalty is just over £260 for deduction from national minimum wage. That is, therefore, not nearly a deterrent. As a contrast, if you want to flog a dodgy football shirt outside Old Trafford, you get fined up to £50,000 or could face a 10-year prison sentence.
Q 104 Andrew Griffiths (Burton) (Con): May I come back to something you said, Sampson, about the clawing back of payments, particularly in the public sector—the NHS and so on? Are you saying that there should be a threshold below which there should not be a clawback or that, in principle, you are against the clawing back of those types of payments?
Sampson Low: In principle, we are against because these are contractually agreed payments. The Government are proposing to set the threshold quite high to capture senior managers but it is possible that you relocate and get another job in, say, the NHS. You might have had moving costs to relocate to another part of the country, yet you could lose a redundancy payment. Instead of clawing back payments, we would prefer to see a more co-ordinated HR strategy across the NHS—a pool of managers available to be redeployed from different jobs so that they did not need to be made redundant.
Q 105 Andrew Griffiths: Do you not feel that some of your members would find that a bit difficult to take, if they see somebody who has been heading up an organisation and has failed—a clear failure of management—who leaves with payments of hundreds of thousands of pounds, in some cases? Do you not think that your membership would want a clawback in those kinds of cases?
Q 106 Andy McDonald: I just want to take you back, briefly, to the issue you raised on zero-hours contracts. You describe it as one person’s flexibility is another person’s insecurity. You have set out, with great clarity, the statistical information, which was fascinating. We know that this will involve revenue losses for HMRC, tax and national insurance receipts, but have you got a perspective on the individual impact on the economic engagement of those individuals? Do you have a take on whether that is anti-aspirational, if someone is trapped in that situation? Are you seeing evidence of that impact on people’s inability to plan, to apply for mortgages and so on?
Secondly, will you address the issue about employment tribunals and the financial penalties for failures to pay? It is currently described at 50% of the sum owed with a minimum of £100 and a maximum of £5,000. I am thinking about some of the discrimination cases we heard about this morning. Some of the sums awarded can be quite significant and, with a maximum of £5,000, I wonder whether you think that will be a sufficient deterrent. Should those penalties be paid to the state in any event? It seems that the problem of recovery is visited upon the claimant rather than the state; if the state is going to receive the fees why should there not be recovery? Have you a view on those issues?
Martin Smith: It is an issue we talk to our members about a lot. We have had an ongoing survey for a long time, called “life on the living wage”, about what it is actually like for people to be working in that environment. Many of our members report that they feel absolutely trapped in the minimum-wage, zero-hours, flexible, precarious zone. The way forward for them, more often than not, is not necessarily to seek extra pay within their employment, because the employers, by policy, have people on those terms and conditions, but to try to get extra hours, extra jobs and so on.
In terms of planning, aspiring to a mortgage becomes an impossible dream for many of our members. It also means that people working in a care home, depending on the area—it is complex, depending on housing costs in different parts of the country—are often travelling through the night on two or three buses because they cannot afford to aspire to a house, either rented or with a mortgage, in the area where they work. That is obviously predominantly an issue in bigger metropolitan areas such as London. It does limit fundamentally and, people fear, permanently, the prospects of breaking out of what we call the minimum-wage, precarious work zone. People cannot see a way clear of doing that.
Steve Turner: The survey evidence was important and I will submit the survey as written evidence in any event. Many of our people find completely dehumanising the impact of zero-hours work, and the insecurity of work that it brings to people, when you are waiting for a phone call and you cannot get to the phone to answer that text as quickly as somebody else may be able to and therefore the work is not available; you just missed it, you were too late to get that day’s work, you were not available to pick the phone up or, indeed, you are excluded because you have not got access to the internet. Very often, we find that jobs are advertised via Facebook now, for a few hours a day, and if you are not constantly on Facebook, or some other social media, then, of course, you have not got access to work.
That all impacts on family life, on your ability to have a stable relationship, your ability to have children in the first instance or to care properly for your children. In many cases we have evidence to suggest people make a very clear decision about heating or eating, particularly as we now enter another winter period. It is a real struggle for people. Sometimes you cannot get a phone contract, let alone a mortgage, because you have not got any sort of commitment in terms of earnings. It is a week-on-week insecurity, where you do not know whether you are working next week or, even if you are, how many hours you might be working next week, and there
Sheryll Murray (South East Cornwall) (Con): Forgive me if I misheard you, Mr Smith, but I thought you said, when talking about zero-hours contracts, that tenancy agreements require you to submit a contract of employment. Will you give some examples? I have never heard of this before. I have never heard of anyone who goes to rent a property being asked to produce a contract of employment.
Martin Smith: Our members report that it is either a contract of employment, proof of earnings or some way of assuring them that you can pay any fines or rent.
Q 108 Sheryll Murray: If somebody had three different contracts and was earning from three different jobs, they would submit proof that they have an income; it would not actually be a contract of employment.
Martin Smith: Our members say that some letting agencies ask for them. I was going to say—this came up in relation to Sports Direct in the midlands—that if somebody seeks a letting agreement from a letting agent in an area in which the biggest employer is a big, single employer that is known to have a policy of zero-hours or minimal-hours contracts, the agent will ask for a contract of employment and proof of earnings. It depends on the letting agent. If they are looking to let a place and you can make the argument—we sometimes help our members to make the argument that you made—you may be able to have a proof of earnings and a contract of employment. But each letting agency has a different policy, and it depends on the context and the area.
Martin Smith: That is an interesting question, but we have not done a survey of letting agents. We are looking at what our members tell us is the specific problem, and they tend to list either/or, or both. It depends on the policy of the letting agent and the geographical area.
Q 110 Sheryll Murray: Thank you very much. Mr Mountford, you said the current voluntary code on pubcos is not working. Do you have any examples of that, and is it sector specific? For example, is it not working for larger pubcos but working for those that have fewer tenancies?
Dave Mountford: Mrs Murray, I can confidently say that I spend most of my campaign time dealing with tenants on a day-to-day basis, and I have done so for most of the past six years. I assure you that, in my opinion and the opinion of many of the campaigners involved in this issue, self-regulation does not exist.
Dave Mountford: We have many, many examples. If you like, I can give you an example now. Shepherd Neame has 299 tenancy pubs. From the beginning of
Q 112 Sheryll Murray: If you will forgive me for interrupting, you are clearly giving us a lot of information about pubs that have changed hands or have gone out of business, but do you have specific evidence that proves that the voluntary code is not working?
Dave Mountford: Yes, Mrs Murray, we have ample evidence that we can provide to the Committee. Simon Clarke will easily be able to provide that to you on Thursday, and I can provide supplementary evidence with countless examples of how the voluntary code is being ignored or abused. The point I was trying to make about Shepherd Neame is that Jonathan Neame is the chairman of the British Beer and Pub Association. If his business is not acting in accordance with brewery tenancies, in terms of the upkeep of the buildings—he has been criticised by local Conservative parish councils about the state of his buildings—reform of the industry is well overdue.
Q 113 Toby Perkins: I want to come back to Mr Low on the subject of the clawback. There has been significant reorganisation in the health service in recent years and there is a significant amount of anecdotal evidence about people walking away with big payoffs at the conclusion of a contract, but then coming back to be employed by the same or another organisation. Large amounts that most of us would prefer to see used for on patient care has been spent on paying people off and then taking them back on because the Government or the trust discovered that they needed them. It seems to me that we now have a proposal to save the Government’s embarrassment, due to the fact that they were laying off people whom they discovered they needed, which will potentially have the impact that high-calibre people in the public services are effectively barred from working in public service again and therefore go off into the private sector, lost to public service. Would you agree?
Sampson Low: Yes, but the point with management wages is that inequalities in the private sector are often replicated in parts of the public sector. Executive pay has risen faster than average pay in the public sector. We have seen management pay going up generally, but that is of a piece with fragmentation. Academy schools, for instance, pay their heads and senior managers significantly more, and foundation hospital trusts pay more than non-foundation hospital trusts—you could go on and on. In the case of housing associations that have spun out of local authorities, the management usually takes a rise afterwards, often more than the chief executive of the local council. This is what happens with the fragmentation of public services and the lack of co-ordination, which is best exemplified in the health service. Big issues are raised by this question. As I said earlier, a proper, thought-through HR strategy and a more co-ordinated public service strategy for redeploying managers at risk of redundancy would be a far better approach.
Q 114 Toby Perkins: Mr Mountford, the Government have made it clear that they believe that their proposals will bring about a lasting improvement for tenants in the pub industry from the perspective of the transparency of what they are letting themselves into in the first place and the fairness of that relationship. Do you believe that the measures proposed in the Bill will achieve what the Government suggest?
Dave Mountford: We welcome the Bill—there is no doubt that we welcome the Bill. It is a massive stride forward for campaigners who have managed to drag this issue from the darkness into the light. With regard to the overarching objective, which was to make the tied tenant no worse than those free of tie, that will not occur. When that was announced as part of the original consultation, we were overjoyed, because we thought that that could occur only through a readjusting of the market, because at the moment, a market does not really exist; it is an artificial market created by the beer tie—how the beer tie currently exists, I stress. So, unfortunately, the measures will not work. That is because, first of all, the Bill relies on a code of practice. We have seen pretty much consistently for the past 10 years that every code of practice that has been put forward has been largely ignored. Going back to Ms Murray’s point, this was covered a great deal prior to the consultation when the Government investigated self-regulation.
The code of practice is yet to be written. We have not yet seen it and we do not know what it says. We know that when it appears, it will no doubt have to go round a diverse group of people with diverse interests, who will be keen either on pulling things out of it, or putting more things into it, which will take more time. Time is the crucial issue with regards to this point of view.
I know that Ms Swinson was horrified—she made this clear in previous correspondence—that in 2009, I think, some 64% of tenants were earning less than £15,000 a year. Last year’s figures from CGA showed that, over three years, the figure had increased to 80% of tenants earning less that £15,000. It is that inequality of finance that means that tenants have very little time and room for manoeuvre. We have consistently seen evidence of individuals who have raised their head above the parapet being removed from their pubs quite easily. The very sophisticated pub company model tackles and oversees a very unsophisticated tenant.
I personally believe that the groceries code adjudicator, on which I understand the adjudicator is based, is not a particularly suitable model, because it was designed for two businesses: a supplier and a grocery business. However, as I have said, the tenant is very often a one-man band. He does not have the resource or the finance, and in many instances he does not have the knowledge to know where to go to get that resource and assistance.
Q 115 Toby Perkins: People would understand that the industry has been struggling in general terms, but could you explain to the Committee what it is specifically about tenants who work for pub companies, as opposed to those in free-house or other arrangements? Why is it that aspect of the industry that requires the greatest attention?
Dave Mountford: You simply pay more for your beer. The average gross profit margin in tied pubs in the immediate vicinity to myself is 42%. I know that, because
Q 116 Mark Garnier: Mr Turner, perhaps I may turn to you and drag us back to zero-hours contracts. You painted a very Victorian picture about the working conditions of people on zero-hours contracts, and I think you made a comment about people not having any employment rights. Surely if you have a contract, even if it is a zero-hours contract, you have employment rights. Could you perhaps unpack that statement for us?
Steve Turner: I’d love to. I can drag it back to the workhouse, if you like, because that is how many of our people view their employment on zero-hours contracts. Very often, they find themselves without any rights at all, and they are completely unfamiliar with those rights that would be afforded to them. They are not informed of them.
Q 117 Mark Garnier: But I am not sure how you are defining that because, if you have an employment contract, even if it is a zero-hours contract, that carries with it rights, and you are saying they have no rights.
Steve Turner: Well, they have very few rights that have become enforceable. They may have a contract of employment that does not include any hours of work, but your hours of work should be determined in your contract of employment anyway, so it is a bit of a misnomer. Even if it was a one-hour contract, that one hour would be specified in your contract of employment. With zero-hours contracts, people are very often employed ad hoc. You are employed as an agency worker might be employed, or as a self-employed person.
Many of the zero-hours contracts people who we come across daily are now being forced into bogus self-employment. They now employ themselves to do the work that three or four months ago they would have been employed to do on a zero-hours contract. Zero-hours contracts have now become such an obsession—in a bad way—with both the media, and indeed here in the House at Westminster, that many of these employment strategies that some of the most unscrupulous employers
Steve Turner: Very much so. We oppose zero-hours contracts full stop, wherever they may be found. It is fine if you are a consultant, a lecturer or whatever you may be—Martin made a point earlier about that—but the vast majority of people employed on zero-hours contracts are not in that position. They are not in a position to be self-employed, or to dictate their own terms or, indeed, their own working patterns.
Q 121 Mark Garnier: Can I just refer you to the Office for National Statistics labour force survey of 13 August, which came up with 622,000, or just 2% of the working population, on zero-hours contracts?
Steve Turner: As I said before, I am happy to provide you with the information. Our survey would indicate that of the people we surveyed in the north-east—we broke this down on a regional, geographical spread as well—50% knew someone directly who was employed on a zero-hours contract. These are widespread. We calculated that up—
Q 125 Mark Garnier: I appreciate that. Perhaps the ONS has slightly better access to data. I do not mean to show disrespect to your survey, but with the best will in the world, when such a massive discrepancy is thrown up between a Government organisation that has a reasonable amount of respect in terms of its ability to
Steve Turner: I am very happy to do that but, of course, even Government bodies like the ONS get it drastically wrong, in relation to its initial under-valuing of zero-hours contracts. Every evaluation that has been done subsequently has seen a substantial, significant increase in the number of people employed on zero-hours contracts.
I would quickly like to ask Martin Smith a question that is also on the gathering of data. You made a profound comment when you said that part of the reason that we have seen this massive increase in zero-hours contracts was job-splitting. You will have to forgive me for being slightly boring about the analysis of this type of stuff, but can you share with us the process by which you came to that conclusion?
Martin Smith: Yes, absolutely. It was through negotiations, campaigns and organising working. We found that most in the care and retail sector, where we have been advising our members in large groups and as individuals, and they have physically received a communication.
Q 127 Mark Garnier: What survey company have you had go out and get specific data on this? I am trying to pin down whether it is anecdotal conversations with people—important though they are in giving you a steer on what is going on—or whether you have done any proper, scientific statistical analysis based on what the position was before and what it is now. Can you share with us the methodology that led you to make that important statement?
Martin Smith: Our methodology is large groups of members. By the time we got to the fourth large well-known retailer in the UK where we had anything between several dozen and several hundred illegal cases that we were processing on the issue of job-splitting, we came to the conclusion that this must be a trend. We now talk about it to other people in the retail sector who recognise it. To answer your question, no, we have not done a scientific study. It is not our role to do that; our role is to try to help people.
Q 128 Mark Garnier: But it kind of is. If you are going to make a comment like that, which is a pretty profound statement, in a Committee such as this—I am not trying to take away the importance of it—it is
Martin Smith: I have chosen my words carefully. Our experience is that in most cases—certainly those four and elsewhere—this is a result of job-splitting. I was illustrating that these are not just new jobs that have come out in some kind of new economy. I was not proposing to give you an exact figure that we could not give you on an analysis. I was saying that that was our experience. Our experience is talking directly to the hundreds of thousands of people affected, and I think that is valid.
Q 129 Oliver Colvile: Dave Mountford, you talked about the evidence of abuse among some of the brewers. Are those the big brewers, or do you also come across abuse by independent, small brewers? I have some micro-brewers in my constituency.
Dave Mountford: Well, micro-breweries and family breweries are two different things, if you will forgive me for that. There is no doubt that there has been a wealth of evidence, which was considered during the discussions that Ms Swinson organised during the consultation. It was agreed, and it is accepted, that the image of the small family brewer as very cuddly and lovely was far from the truth. I am certainly not in a position to say that every small family brewer operates the tie in the same way as the large pub companies—that would be unfair of me, and it would not be accurate—but we have plenty of evidence of a number of small family brewers who operate the tie in just as an abusive and systemically unpleasant manner as has been said of some of the large companies. That evidence was put forward during the consultation.
Q 130 Andrew Griffiths: I shall be as quick as I can so that I can squeeze these questions in. Dave, could you be brief in your answers too? First, you mentioned the failure of the previous voluntary codes. Do you accept that the difference is that, for the first time, the Government are legislating for a statutory code enforceable in law by an adjudicator with powers to fine and impose decisions?
Dave Mountford: Yes, I agree that this is a massive step forward, but as has been said by the Groceries Code Adjudicator—touching on the point you have just made—there is no agreement, five years after its inception, on the actual level of fine that will be levied against grocers, so we have very little confidence in that.
Q 132 Andrew Griffiths: But isn’t it true that, under the adjudicator and the statutory code in law, if a tenant feels that they are paying too much for their beer or their rent, they can take that grievance to the adjudicator, who will rule on it and has the power to change decisions and to fine companies? Isn’t the remedy in the statutory code and the adjudicator?
Dave Mountford: The remedy is there—there is no doubt about it—but I am simply stating that the process will not be long enough to protect a tenant who has raised those issues. PICAS—the Pubs Independent Conciliation and Arbitration Service—is the obvious example. In the two years it has been in operation, it has heard nine cases, and 70% of the people who won or lost those cases are no longer in their pubs.
Q 134 Andrew Griffiths: Do you also accept that the London Economics report requested by, and compiled for, the Department for Business, Innovation and Skills indicates that your suggestion for a free-of-tie arrangement, which does not deal with the problem but changes the whole business model, would lead to the closure of 1,700 pubs, with 7,000 job losses as a result?
Dave Mountford: Not at all. The London Economics report was deeply flawed. Greg Mulholland put forward a riposte to it, which pulled it to pieces. I do not have the report in front of me, and it is not my area of expertise, but I know it was deeply flawed, and I know it was criticised heavily. No, I do not think anybody from the campaign would even slightly agree with the London Economics report. It was very one-sided, and it did not take account of the views of tenants or tenants’ representative bodies.
Q 135 Andrew Griffiths: Finally, you have talked about a number of indicators of how tenants feel. Do you accept that, in January this year, The Publican’s Morning Advertiser—the trade newspaper—sampled 10% of tenants across the country in an independent survey, and the satisfaction rate came out at 7.2 out of 10. That is not perfect, but do you accept that, as a snapshot, a satisfaction rate of 7.2 out of 10 with the way the business model is operating is pretty reasonable?
Dave Mountford: I would just counter that by saying that I am not familiar with where the information came from or how it was organised. I will say that when the FSB undertook a survey, 98% of tenants said they would prefer to go free of tie than to be tied. I cannot really comment any more than that.
The Chair: That brings us neatly to the end of the time available for this panel. I thank the witnesses. We will have a short break—partly due to illness and the fact that one of the next witnesses is not here. We might
Examination of Witness
Q 136 Toby Perkins: Welcome, DCI Benton. First, can you outline for us the ways in which you think the Bill’s provisions on persons with significant control would help to avert the misuse of companies by persons engaged in criminal activities?
DCI Benton: First, apologies for my late arrival. To put matters into context, on the 25% significant control issue, for us—in corruption, organised crime, money laundering, economic crime, and even tax evasion—we see repeatedly, in much of the work that I and my teams do, shell companies, or companies that are registered both here and overseas, being used as the vehicle to hide illicit assets. The key for us is to understand who is in control, and by declaring who is in control and who actually runs the company, it helps us to work out, and will help us to work out, whether this is effectively a mechanism to harbour stolen money or the proceeds of crime. Of course, it is not the case that it will always be directly in the name of the person who is responsible for the crime or for the organised crime group or for the corruption. In the corruption arena, which is where I come from, it may not be the Minister in a foreign state who has stolen state assets and laundered them through the UK and overseas, although it is in their name, but it is about exactly understanding who their network is, who is controlling that money and working out whether it is legitimate or illicit.
Certainly from our perspective, the control piece and understanding who has control—who the controlling mind is—is important. When you lift the corporate veil, who is actually behind this and who is the beneficiary? To understand who that is is significantly important simply because it helps us understand who the company really is. What is it and who does it belong to?
Q 137 Toby Perkins: Do you think that the information requirements in the Bill that must be recorded on the register are sufficient, or are they areas in which you think that the Bill should have gone further or could usefully have gone further? Alternatively, are pieces of information being recorded that will not be of any particular value to your work?
DCI Benton: The basic information that will be there will undoubtedly be significant and will help. Of course, more details will help us understand exactly who we are dealing with—Fred Smith, Paul Smith or something like that. There are lots of things, but the reality is behind the layer of what the public can see and effectively
Q 138 Toby Perkins: Finally, to what extent should the information be available to purely the law enforcement agencies, or should it be more widely available? Will you, first, give us your perspective on that and, secondly, let us know whether there might be any benefit to your inquiries in that information being more widely available? If the public were able to become super-sleuths in their own regard in cases that they might have an interest in, might there be some value to you in other people having access to more publicly available information?
DCI Benton: A balance has to be struck. Personal information will be on a public register and I have no doubt that there will be concerns in some quarters about that information and what will be there. My assessment is as a practitioner and based on what I see done not only by us in the law enforcement arena, but by business in customer and due diligence and in their risk management—they are trying to work out who they are dealing with.
This is more information than is already available. There are some commonly used commercial databases out there that are used by all the big banks and by the commercial sector in effect to establish who they are dealing with—“Are they who they say they are?”, “Is this someone who will get us into trouble in respect of money-laundering regulations?”—and to ask, “Is our risk appetite up for dealing with this person?”, or “Are there sufficient red flags that, no, we should not be dealing with them?” This is yet another layer of information that will add to that process and help understand things. When people have a company name, and that company says it is trading in a certain business or on behalf of a certain person, they can look at the name of the individual. There are a lot of other commercial databases that will then help them build their picture.
There is an element of that in the benefit, but what it will add to is that piece of business conducting its regulatory requirements, policing itself. When we look at the spirit of the money-laundering regulations and how they are applied, an element of them is about business understanding who it is dealing with, whether it should be dealing with those people and whether it is committing a crime if dealing with them, unwittingly having not done correct due diligence.
This is another layer that will help businesses to understand who they are dealing with. In effect, a business could work out whether a company is actually, for example, a percentage shareholder in an oilfield that has just been sold in west Africa, the funds from which are being distributed, and is in fact owned by a serving politician, making it in fact a disguise to hide illicit money and to build a pot of money elsewhere in the world, to be used for lavish lifestyles and so on. So the benefit is there as well, not only for us in law enforcement understanding the information and that we can go behind it, using our orders to gain more information, but also on the business side.
DCI Benton: It is not an area in which we have a great deal of experience. In our research in preparation for the Bill, we looked carefully at evidence of where beneficial ownership and hiding behind beneficial ownership are effectively a vehicle for crime. I can certainly undertake to work out—
Q 140 Mark Garnier: As I understand it, if you own registered shares or bearer shares, you still have to disclose that you own those shares, but do not worry too much about that. Another point, which was made a bit earlier by the Law Society, is that—I am curious about your thoughts on this—to have this controlling person disclosure, a fair amount of cost goes to businesses in the UK. It is the cost of compliance, as it were. From your point of view, looking at the cost balance sheet, presumably it will result in your expensive investigations going down in cost, because there will be so much more information out there. There could be a commensurate reduction in costs for police investigations.
DCI Benton: Of course. One thing that it will do is make the UK a more difficult place to open shadow structures and shell companies that are not what they say they are and are a vehicle to conduct criminal business.
Q 142 Andrew Griffiths: A simple question, Chief Inspector. Does the Bill go far enough? Is there anything else that you would like to see in the Bill that it does not contain, or does it give you the tools that you need to do your job?
DCI Benton: The reality is that, in respect of this very specific area of beneficial ownership and understanding who the controlling mind is of the company we are dealing with, the Bill goes a significant way in helping us to achieve that.
DCI Benton: It gives us what we need now. It will be interesting. At this stage, it is difficult to assess empirically the impact it will have on business being able to report to us. I can only see an increase in reporting—not necessarily an increase, but an extra layer of quality in the reporting from business to us to say that they have suspicion or concern. Suddenly, the banks, where there is a regulated process, will report concerns to us.
Examination of Witnesses
Q 145 The Chair: Good afternoon. We will now hear oral evidence from the TUC and the Chartered Institute of Personnel and Development. We have until 4.15 pm for this session. I ask the witnesses to introduce themselves for the record.
Peter Cheese: Good afternoon. I am Peter Cheese, chief executive of the Chartered Institute of Personnel and Development. We are the professional body for human resources and people development. We have some 135,000 members across all sectors—public and private.
Q 146 Ian Murray: May I start with zero-hours contracts? I am not sure whether you heard our previous session with the trade unions. I wondered, Mr Cheese, whether you could run through zero-hours contracts from a CIPD context. We have had a lot of discussion with the officers from National Statistics about what they measure zero-hours contracts to be, and with the trade unions as well. It would be very useful for you to give us a quick canter through where you sit as CIPD. Do you think the Bill goes far enough in terms of what it is proposing?
Peter Cheese: Yes, I would be happy to. We did some fairly extensive research around a year ago on zero-hours contracts, the nature of them and the number of people on them. We pointed out that some of the ways that it has been measured historically through ONS were not right. That has now been updated and we have a clearer picture of how many people are on zero-hours contracts. It is a little bit more than a million.
Our view is that zero-hours contracts have their place in the modern working environment. They are a description of a flexible working arrangement. Our research to understand the nature of that employment and how people feel about it has generally shown that people have just as high job satisfaction on a zero-hours contract as those on other forms of contract. Indeed, in some cases, they would report a higher level of satisfaction because of the nature of flexibility that many of these people have. So we would say that it has its place and there is no question of that in our minds.
However, at the same time, we would also support some of the developments in the Bill, so for example the clause on banning exclusivity. This is something we specifically highlighted in our own research and recommended should happen. I think there are a couple of other areas that we might consider as well. First, we see that many workers do not fully understand all of their rights and terms and conditions. We think it is a good thing—and we saw evidence of companies doing this as a matter of course—for businesses to give their contract workers their terms and conditions, which should call out some of the things that we are describing
Secondly, another area where we could see there were some concerns amongst people on zero-hours contracts was if they were called in to work at short notice and that work was then not subsequently provided. So, for example, they had to travel for half an hour, arrive for work and then be told, “Really sorry, but the shift is not available.” We think there should be some form of compensation for that. Again that is a reflection of what we saw as good practice around zero-hours contracts. We see a number of employers that already do that as a matter of course.
Sarah Veale: I completely agree with that. My only problem with this is that Peter’s organisation, and the sort of workplaces where trade unions are recognised, tend to be the better end of the labour market. There is nothing not to support in that at all, including the two recommendations that Peter makes, and we would completely support that.
Our worry is with the unscrupulous employers who use these contracts deliberately as a means of cutting wages and having people available, the flexibility being to their advantage and not so much to the advantage of the worker. We very much welcome what is in the Bill. Our fear is that employers could quite easily get round some of this by simply specifying a minimum number of hours in a contract, which would render it no longer a zero-hours contract. Then you get back into a position where they were allowed to introduce exclusivity clauses, which are not new. They are quite common in terms of safeguarding employers’ commercial interests at what I might call the higher end of the labour market. A lot of work will need to be done with the regulations for this to ensure that there are no easy avoidance tactics used by unscrupulous employers.
Sarah Veale: Absolutely. That is one of the weaknesses in the Bill. It is all very well an employee knowing that the employer should not have done it. If they have the guts—which a lot of them will not have—to raise that matter with the employer, they will not get anything back to compensate them for the employer having broken the law. That is a very important point that we would want to see inserted into any regulations.
Peter Cheese: I do know that there is some consultation on this and we are involved with that. We are talking with our members to understand the extent to which exclusivity clauses could be bypassed and other things of that nature. I think there is obviously serious intent behind ensuring that workers are protected through things like exclusivity clauses, but we need to understand how that would actually be enacted in practice.
Sarah Veale: We welcome both the clauses in the Bill. One of the most frustrating things for a lay trade union rep who has to get time off to represent a member in the tribunal—we are all for trying to ensure as far as possible that tribunals do not involve too many lawyers, so it is good to have the rep and the HR person in there—is that if you get to the tribunal having got your time off work and the tribunal says, “I’m really sorry; we’re postponing it until Thursday morning next week,” you are high and dry. So we would welcome anything that avoids that kind of uncertainty.
For the record, the TUC believes that the time has come for a pretty serious wholesale review of the whole employment tribunal system, right from the eye end of the telescope in the workplace up to the higher courts, because it clearly has some serious problems. Non-payment of awards is a particularly difficult issue and I know that Citizens Advice has also been deeply concerned about that. Many employers simply do not pay and it costs a lot of money to chase the employer through the county court system. They often just disappear or change name or become insolvent. Something needs to be done about that. The other issue is that although under the employment tribunal fee system, which the TUC intensely dislikes, there is the provision for the fee to be paid back if the tribunal tells the employer that that is what is going to happen because the employee has won the case, you are not going to get that back from the sort of employer who is not going to pay the award in the first place. There are some really big issues here and the Bill is really only just chipping away at what is a much, much bigger problem.
Peter Cheese: First, we support early conciliation. There is no doubt that good practice in any organisation is to conciliate, to discuss and to mediate and so forth before things get to an employment tribunal. Obviously, the change in law in terms of charging for employment tribunals is still relatively new and further research is still required really to understand its impact. We would certainly support the provisions of the Bill that mention trying to enforce payment of tribunal findings.
Q 150 Mark Garnier: Sarah Veale, may I pick up one point that you mentioned? You broadly said that zero-hours contracts have their role to play, but also that there are unscrupulous employers at the dodgy end of the market that exploit such contracts. Is that peculiar to zero-hours contracts or is it just that any unscrupulous employer will be unscrupulous whatever the contract, whether zero-hours or full-time?
Sarah Veale: The problem with unscrupulous employers is that they make the whole pitch difficult for everybody. They have jumped on zero-hours contracts, which have been around for a long time and can be used for professional work, such as for IT consultants and so on, in quite a fair way where people have proper parity of position in terms of the contract. The trouble is that unscrupulous employers, as you suggest, will use any
There is a huge issue with a whole range of employment status problems. I could go on for hours—you will be glad to know that I will not—but there are issues such as bogus self-employment, which is becoming common in the construction industry, whereby people are told by the employer that they are self-employed and their tax arrangements behave as though they are, but the Revenue is being robbed because they are not self-employed and are under the control of the contractor. There are some huge issues about employment status, and it is good that the Government have now offered to do a big review of employment status, in which we will certainly participate fully.
Q 152 Mark Garnier: I do not know whether you were here for the previous witness session, but the representative from Unite painted a pretty bleak picture of zero-hours contracts and rattled off a whole load of statistics that it had obtained from a survey of 5,000 people. It was pretty dismal and he likened it to a workhouse, which was slightly surprising because I thought that the point of a workhouse was that it was 16 hours a day at the coalface as opposed to no hours a day. None the less, his point is pretty stark. The CIPD does a great deal of surveying. Does that ring true? Did you recognise what he was saying at all?
Peter Cheese: No, not to the extent that has been painted—I did hear some of the summary comments. We stand very much by the view that, as I said before, zero-hours contracts have their place in a modern, flexible work force. We saw many instances of people, for example, with caring responsibilities—single mothers and people with disability, interestingly. We had the chief executive of the Leonard Cheshire Association saying this was really important to people with disabilities, who had variable levels of ability to work, which changed over time; there are lots of conditions. There were academics, students, people with other study responsibilities.
We could see, first of all, there are a lot of circumstances where this works extremely well, and a lot of very good reasons we could all understand why it would work well; but that is not to say whether there are certain conditions where it can be exploited, as we have already explored. Bad practice is bad practice. We do not believe that zero-hours contracts of themselves cause bad practice, but I would reiterate that the things we have in the Bill, with a couple of additions, help to support the workers in these sorts of circumstances.
Q 154 Mark Garnier: So you are saying that they need to publish what those are specifically, so they know what they are. I think the other thing was wasted journey compensation. Would you agree with that, Sarah Veale?
Sarah Veale: I would, to an extent, but the problem is that a lot of people do not know what their rights are, and would not have the nerve to enforce them. If you are in a one-to-one situation with a line manager and there is not a proper HR system, which I am afraid is the case in quite a few businesses, you are simply not going to be aware that you have a right not to do certain things, and, even if you do know, you either do not know about going to an employment tribunal, or do not want to stump up the fee, or are simply too nervous about not being given any more work. If that is your sole income, that would be quite a frightening proposition, I think, for an individual worker.
Q 155 Toby Perkins: On this point about the way zero-hours contracts are exploited, a constituent of mine was effectively laid off by his company, but his contract was never ended. He simply never got any work. We talk about the rights that people have and what they know of their rights, but surely the reality is that in many cases if an employer simply stops giving them work that is not laying them off. They cannot have unfair dismissal or anything like that; they simply stop getting any work. So, yes, this is sometimes about the exploitative relationship and employees not knowing their rights.
Also, there is a sort of Bermuda triangle in the middle, where people are still employed but not actually earning anything, unable to claim dole because they are still on a contract, and unable to take action against the employer that has laid them off. Is not that one of the real problems with this?
Sarah Veale: It is; and one of the things the TUC would want is some sort of provision of minimum paid hours, even if the hours are not worked, so that a contract would be void unless it specified something—and you could argue about the number of hours that that should include, but it would at least mean the person was guaranteed an income and had an active contract. In that situation, they would be free to look for another job and they should be free, as well, to work for another employer part-time if that became available to them.
I would agree with you—there is a kind of Bermuda triangle in the middle of all this—and again people are often not aware of their contractual obligations, or the employer’s contractual obligations. Employment lawyers make a lot of money out of explaining all these things, so I think some sort of simplicity in regulation would be good; but you have got to give people some certainty, because otherwise it spills over into their everyday lives and you end up with the state subsidising people who are sometimes not able to get any work and are sometimes able to get some work. It is just not fair; it is wrong.
Employers have to be reined in on some of this and accept their responsibilities. We all accept that they are going to make profits out of employing people, but it has got to be done within reasonable constraints. Otherwise, in the end, this is going to kick back and do damage to the whole of the economy.
Peter Cheese: Yes, I am very much in accord with the view that not all employees, workers or self-employed people understand their rights. That is part of the BIS
Sarah Veale: We want it extended. We have put a submission in, which I hope everyone has had the chance to look at. It suggests that you do need some sort of minimal provision—not all that minimal, actually—so that the contract has some meaning. It is extraordinary in employment law that you could end up with a contract that effectively has no consideration. It would not happen in other areas of law. It is a peculiarity of our employment law system, and we really need a bigger review of employment status.
Q 157 Chris White (Warwick and Leamington) (Con): I have been listening to the discussion and the concerns that you have both raised are very real. Would you agree that the clause for non-exclusivity would change an awful lot of things that have just been discussed about only being able to work, not being able to work and not being able to earn. If you are not tied to one employer, which the Bill aims to change, would some of those issues change?
Peter Cheese: To some degree, they would. I was just looking for the numbers. It was not a huge number of people who were held back because of exclusivity clauses, but clearly there were some; I think it was around 10%. We felt strongly that that was no reason why somebody on a zero-hours contract should be prohibited from working anywhere else. If an employer says it is because you can see secret information or whatever, they should write a different contract or have a different employment relationship. Exclusivity is a particular issue. Some of the wider issues being raised are about the wider understanding of workers’ rights, and terms and conditions, not all of which are just about exclusivity.
Q 158 Andrew Griffiths: Could we just go back to the rights of workers on zero-hours contracts? There was some confusion earlier with some of the evidence that we were given about workers on zero-hours contracts having no rights. Could you clarify what rights zero-hour workers have?
Sarah Veale: There are all sorts of rights that you have as a worker in the UK. You have a right to all sorts of health and safety protection and to protection against discrimination on prohibited grounds in the Equality Act 2010. Some protections do not come into effect until you have worked for a period of time. You would not get any protection against unfair dismissal until you had worked for that person for two years. There are a lot of rights that accrue to the individual, but the big issues are ignorance—people do not know their rights—and enforcement. Even enforcing the national minimum wage, which is largely done by Her Majesty’s Revenue and Customs, effectively relies on a whistleblower, which
Q 159 Andrew Griffiths: Thank you for clarifying. Could you clarify a point you made earlier about people being on zero-hours contracts and not getting benefits? My understanding is that the roll-out of universal credit solves that problem. Is that not correct?
Sarah Veale: Yes, it is. The problem that we have with it is that people are jumping in and out of different levels. If you have to be means-tested more or less every five days to see whether you are entitled to this, that or the other benefit—I am no expert on universal credit—it provides a huge amount of uncertainty in your life. If you are trying to get a mortgage, arrange your child care, and all the other things that we do in our private lives, it becomes very difficult if you are not sure week by week exactly what you are going to be earning, if anything. That is probably the point about the interaction with the benefit system.
Peter Cheese: We are consulting on that as well with members—a lot about universal credit and some of the practicalities if people have various contracts, work with different employers and how that all adds up. I agree that, as a principle, you can claim benefits up to a certain level of employment. That could cover a number of these instances. As with so many things in legislation—for example, the enforcement of minimum wage and so forth—it is often about the follow-up and the ability to hold organisations and employers to account on some of the issues.
Sarah Veale: I think that, in reality, it would be impossible. It is a very important rhetorical device. I understand that and I completely get the instincts behind what is obviously a bit of a slogan. The sentiment is absolutely right. I know we have some members in the TUC who work as freelancers in the entertainment industry and elsewhere, are on zero-hours contracts and have been for the past umpteen years. The reason that they are not a problem is because they are a strong group of workers with a good union, they come to an agreement with the employer about how and when they are going to work, and they do not complain. They have said to us that they would worry about an absolute ban on zero-hours contracts, quite apart from the fact that bans are quite difficult to police and to enforce. However, we want to see a guarantee of paid hours for people who are not in those kinds of freelance professions—people such as care workers, who in some situations in some local authorities are literally working by the quarter of an hour or 20 minutes that they spend with the person they are caring for, are then off the contract and then back on again. That sort of thing is wrong.
In some areas of work, there is a very strong case for a ban, but we would like to see a very careful dissection of the labour market to see where a ban is necessary,
Peter Cheese: We have always been of the view that the practice should not be banned; it has its place. To echo Mark Garnier’s thoughts, in the end it is not about the nature of the contracts, but about how people are managed and building good organisational cultures and management. That is the wider issue. Zero-hours contracts have their place.
I want to touch on enforcement, compliance, penalties against unscrupulous employers and communication about rights. Can we put into the Bill anything practical about those issues that you think would help with zero-hours contracts?
Peter Cheese: As we have said, there could be some tightening up, and in certain areas we have added a couple of additional thoughts about what you can tighten up, but you are really asking about how you enforce and follow on—is that the question?
Sarah Veale: Yes, I think we should. It is actually quite extraordinary to have a breach of employment rights proposed in a Bill without any kind of penalty—or rather, without any compensation for the individual, because that is largely the way it works in employment law. We would very much want to see that with some robust enforcement mechanisms.
The point about information for the employee is also very important. I am a member of the Government’s regulatory policy committee, so I have to be careful about this and I do not want to add to employers’ regulatory costs, but none the less I think it behoves an employer to ensure that the people they have on their books have a basic understanding of their rights and what they can expect, as well as of their obligations. There is sometimes a bit of slackness about that. There should be some obligation on employers to do more to ensure that employees understand the conditions under which they will be working.
Q 163 Sheryll Murray: May I turn to you, please, Sarah? You mentioned that a lot of people were unaware of their rights and said specifically that a lot of workers with zero-hours contracts are not aware of their rights. Do you have any evidence to back up the idea that it is only people on zero-hours contracts? Surely, a lot of employees out there are not aware of their rights. I wondered because you seemed to connect people being
Sarah Veale: We pick up our information from all sorts of organisations, and some of it is anecdotal, but we have detected an increased likelihood that someone on a form of contract that, quite honestly, people do not really want will be ignorant about employment rights.
Q 164 Sheryll Murray: Can I just say to you that I know of a lot of single parent mothers and mothers with children at school who do want zero-hours contracts? Do you have anything to back up that statement?
Sarah Veale: The only thing is, people want these things and are happy with them, until they hit a problem. Supposing one of these people trucks along quite merrily, but after three and a half months they go off sick and suddenly realise that they are not entitled to anything at all. There is no work for them and there is no compensation for the fact that they cannot go into work. That uncertainty is a specific feature of zero-hours contracts. I said earlier I think there is a much wider range of employment rights issues that a broader swathe of the working population have problems with. I do phone-ins sometimes on “Money Box Live” and you get real people, nothing particularly from the unions, and this is the big issue. They say, “The employer has told me this. Is it true? Can it be believed?” You have to say, “I’m afraid it is. They are not behaving illegally. They may be disreputable.” The people are horrified and they had not realised it. There are lots of examples out there.
Q 165 Sheryll Murray: Do you have any evidence on how many unscrupulous employers there are compared with up-front, scrupulous employers? Have you got anything to back that up? Are 60% fine and 40% unscrupulous? You clearly have done a lot of work on this. It would be useful for you to share those figures with us.
Sarah Veale: We submitted them to the Committee. I am happy to send them to you separately. We have commissioned some work that is being done for us at the moment on the use of food banks and zero-hours contracts, and the use of various proxies to link particular issues to zero-hours contracts. We will be happy to share that academic research as soon as it is done.
Q 167 Sheila Gilmore (Edinburgh East) (Lab): Is there a substantial difference between zero-hours contracts and part-time work? For example, a very reputable department store in my constituency wanted to change its part-time workers to zero-hours contracts and one of my constituents had to give up work because of that. It was very different having fixed part-time hours and zero-hours contracts.
Sarah Veale: We are fully in favour of part-time work. For a lot of people, particularly carers and women returning to work, it is absolutely essential that they are able to work part-time, but the key issue is the certainty. If you have a part-time contract and you know that you are going to be working 11 to 3, which would be ideal for a lot of working parents, and that that is the work pattern and the employer has to give you notice if they are going to change it, that is fine. But as soon as you are put on a contract that does not specify the hours, everything goes to pieces.
For 12 weeks, it might work perfectly well, but the employer maybe hits a bit of bad period and thinks those six zero-hours contract workers are going to have to be stood aside for a couple of weeks. That is pretty difficult if you are entirely relying on that for your means of financial support. There is no problem with part-time work, which is quite well-regulated through EU law, as are fixed-term contracts. Those are relatively well-protected areas. It is when you lose the hours and the pay in the contract that you get into this kind of difficulty.
Q 168 Sheila Gilmore: To what extent do people lose their ability to qualify for contributory benefits? Someone wrote to me recently, incensed because they discovered they did not qualify for any contributory jobseeker’s allowance because they had not worked enough hours, although they had had two different jobs. They did not qualify for income-related benefits because they had a partner in work.
Sarah Veale: That is a huge problem as well. You have hit on something massive actually. If your earnings go below the lower earnings limit and you are not paying enough national insurance, you lose out on maternity pay, contributions to pensions, sick pay and a whole range of those in-work benefits that you simply will not get if you are not accumulating enough money in the set reference period to trigger your right to those benefits. The ramifications of this are considerable if you are on the receiving end. That is a big social issue as much as anything else. That is a very good point.
Sarah Veale: There are all sorts of ways of doing this. I hope that with this consultation on the regulations things like that are looked at. To be honest, my daughter was at university and worked on those casualised contracts. That is fine if you are doing it for a short time, it is not your only means of income and it is understood and up front. She knew exactly what she was signing up to. Students tend to be quite well educated by definition. As I said earlier, we do not want unintended consequences of all this. We have had discussions with the National Union of Students about how all this can be worked out, so that you do not stop students who want to work in that way for a very short period in their lives from doing so. This all needs to be looked at very carefully, so that all the layers can be unpacked and addressed.
Peter Cheese: I will reiterate from our own research that almost half the people on zero-hours contracts say that they are quite happy with that arrangement. I think we all agree that greater clarity and understanding of terms and conditions, whether you are a self-employed contract worker or a full-time employee, are important. I certainly reiterate also that we are supportive of keeping zero-hours contracts as part of a modern, flexible working environment.