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Viscount Thurso: My Lords, before the Minister sits down, perhaps I may take what he said as an assurance that where there is a contract with either an agent or a principal, and one of those persons fails to pay the minimum wage, the other person does not become responsible simply by virtue of the fact that they are available.

Lord Clinton-Davis: My Lords, of course not. The liability has to reside with the person who is liable as a matter of law. That is what we seek to assert.

Baroness Miller of Hendon: My Lords, I shall read the words of the noble Lord, Lord Clinton-Davis, with even greater care than I shall read the words of the noble and learned Lord the Solicitor-General, considering the kind words he said about my husband the lawyer. I was not being derogatory about lawyers--far from it. I should not be derogatory about any profession with which my husband is concerned.

We view the agency from an entirely different point of view. The Minister pointed out how the Government view it. Perhaps I may give a purely practical example as someone who has engaged a cleaning agency--let us say, Busy Bees. After a time I got rid of them because every day it was a different worker. I knew not who they were and I did not employ them. My contract was with the agency and it was down to the agency not only to pay the wages but also the income tax. I believe that the provision will turn the meaning of "agency" on its head.

10 p.m.

Lord Clinton-Davis: My Lords, I am grateful to the noble Baroness for giving way. She is saying that she was clear, as a matter of law, that the contract she entered into in those circumstances was with the agency.

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I do not deny that that occurs. I am saying that one has to be specific as to whom the contract is with: who is responsible for paying the national minimum wage?

Baroness Miller of Hendon: My Lords, I believe that when one has a contract with an agency, the agency is responsible and not the principal. However, as always, I shall read carefully the speech in Hansard, taking note of the response which the Minister gave to the noble Viscount, Lord Thurso. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 52 not moved.]

Clause 41 [Power to apply Act to individuals who are not otherwise "workers"]:

[Amendment No. 53 not moved.]

Baroness Miller of Hendon moved Amendment No. 54:

After Clause 44, insert the following new clause--

Family businesses

(" . A person who is employed by his spouse, parent or child, or by a private limited company of which his spouse, parent or child is a substantial (but not necessarily a controlling) shareholder, does not qualify for the national minimum wage in respect of that employment.").

The noble Baroness said: My Lords, in moving Amendment No. 54, I shall speak also to Amendment No. 55. I said on the previous occasion that I was disappointed with the Minister's response to Amendment No. 54. Having carefully read what the Minister said, as I promised I would, I have brought it back for your Lordships' further consideration.

In his response to me, the Minister referred to the drafting history of this amendment. Frankly, at that time I could not see the relevance of that because what the Committee had to deal with was only the final version. But his observation on that point and his subsequent remarks lead me to believe that he and the Government have misunderstood the whole philosophy behind this new clause.

It is true that in the other place the amendment was restricted to proposals to exempt spouses. Of course, I was not consulted about the amendment at that stage. But with my own experience both as someone who has managed a rather large family business for some 17 years and as someone with a long and close connection with a small business bureau, I know that many small businesses are not merely run by husbands and wives but that children often work in their parents' businesses and sometimes vice versa. Incidentally, for some reason or other, the Minister thought that I was talking about small children. Of course, that was not the case.

After I tabled the amendment, I continued to reflect on the problems of small businesses, something which I believe the Government have singularly failed to do in relation to this Bill. Passing a local newsagent, I noticed from its sign board that it was operated by a limited company. A huge number of limited companies--in fact, the vast majority of those trading in Britain--are run by members of the same family or by what are in

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reality partnerships. To my mind it would be unfair if the wife of Mr. Smith were exempted from the national minimum wage, whereas Mrs. Smith, the wife of the principal shareholder of Smith Limited, were not. That is why I closed up the last loophole; not in order (to quote the Minister) to make the matter as complicated as possible.

It is clear that the Minister may well have misunderstood the objectives of the clause. It is not to exclude as many people as possible, as he put it. It is, however, to exclude a group of people in whose private affairs the Government have absolutely no right or reason to interfere. We are not discussing total strangers becoming employees of some person with whom they have no connection outside the relationship as employer or employee. We are discussing people in the closest possible relationships known to the law; relationships which would exist irrespective of family businesses in which they were both working. I refer to a family business where they could have been partners except for the fact that for whatever reason the business is registered in the name of only one of them. These are not cases where the relationship of employer or employee is intended to be created.

In the old, less politically correct days, that relationship used to be called "master and servants". If we were still unfortunate enough to use that phrase, perhaps the Minister would have better understood the difference I was getting at. In these family employment cases, despite whoever is regarded as the owner of the business, for the purposes of income tax, rates, liquor licences, signing leases and so on, they often operate so as to pay the family household expenses without anyone receiving a formal wage. Sometimes a nominal wage is put through the books in order to take advantage of tax allowances. The essential point is that in reality the spouses or the parents or the children do not regard themselves as employees as such. But the definition of "employee" in Clause 1(2) is, of course, wide enough to catch them.

On various occasions in our debates the Minister has sought to refer to a contract of employment as if that is necessarily some formal written document, but I do not believe that it has to be. The employer is supposed to give the employee,

    "a written statement of particulars of employment",

in accordance with Employment Rights Act 1996. However, that provision is often more honoured in the breach than in the observance. The contract between the employer and the employee exists whether or not the employer has complied with his obligation to furnish written details.

I believe that the Government cannot have it both ways. Either spouses, children or parents are not employees merely because they work in the family business--in which case why will the Government not agree to make that clear beyond all doubt by saying so in the legislation?--or the Government contend that they are employees and that they claim the right to interfere in the purely domestic arrangements of very close relatives--interference which, by the actions of an over-zealous official whom the Act describes as an

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"enforcement officer", could result in someone being penalised and acquiring a criminal record because he failed to give his wife sufficient house-keeping money. That interference will simply result in the bureaucratic process of transferring money from one family pocket to another, with of course the Inland Revenue and the Contributions Agency taking a large bite out of it in the process. There is part of the reason for the Government's intransigence over logical requests for exemptions from the operations of the Act.

The Treasury stands to gain considerable sums of money from the stringent effects of the legislation. The amendment is not intended to create exemptions just for the sake of doing so; its intention is to exclude from the Act people who I do not believe should have been caught by it in the first place. The Government must either say that the state definitely intends to interfere in private arrangements between close relatives, or they must say that they have no such intention and concede that the very carefully drafted amendment would prevent this from happening.

I now turn to Amendment No. 55, which involves precisely the same principle as Amendment No. 54. The majority of limited companies are controlled by their directors; in other words, the company which employs the directors is owned by the directors. I shall return to the employment aspect in a moment. What the Government are trying to do is to tell a director how much he should pay himself. If the directors decide that for some reason they cannot afford to pay themselves during a particular pay reference period, or if they decide for some reason that they do not want to pay themselves, they should not have to do so. It is a free country--or at least it used to be before this legislation was introduced. However, if an enforcement officer discovered that the directors were committing the heinous offence of not transferring their own money from one of their pockets to another, it could bring the whole panoply of the enforcement procedures down on their heads.

I turn now to the question of whether a director of a company is an employee. When speaking on the point in Committee, the Minister said that,

    "a director of a company ... would not normally be entitled to receive a national minimum wage because the legal status of the director ... is that of an office holder".--[Official Report, 22/6/98; col. 59.]

However, with the greatest possible respect, I believe that to be a totally specious argument. There is absolutely no reason why the status of being an officer of a company means that someone cannot simultaneously be an employee.

I notice that the Minister did not cite any authority, whether judiciary or statutory, for that statement. However, on the other hand, I did cite an authority; namely, the Secretary of State for Trade and Industry v. Bottrill. Despite this being a case involving his own department, the Minister said that he was not familiar with it. In the month that has passed since the last debate, I hope that the noble Lord has had a chance to look into the matter. The point is that this is the latest in a long line of cases which say that a director is an employee. Even noble Lords who, like me, are not

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lawyers will recall seeing innumerable reports in the press of directors going before employment tribunals complaining of wrongful dismissal. They were able to do so precisely because they were employees.

The Minister went on to claim that the definitions in Clause 54 make it clear who is covered by the Bill; indeed, that is so. In Clause 54(1) it says that an employee,

    "means an individual who has entered into or works under ... a contract of employment".

Moreover, subsection (2) says that a contract of employment,

    "means a contract of service ... whether express or implied, and (if it is express) whether oral or in writing".

Noble Lords should note the words "express or implied", and whether or not the contract is in writing.

The Minister conceded that a director who is an employee of his own company could claim the national minimum wage from that company. I admire his courage in making that point. I would certainly not have dared to advance the argument that a director who had decided to forgo his salary could or would, schizophrenically, lodge a complaint against himself with an enforcement officer. The Minister also conceded that a director who is the employee of his own company may claim other employment rights. Precisely, but the fact is that every director, as I have already pointed out, is an employee as well as being the holder of an office.

The Minister finished his remarks by inviting me to read them carefully. I always pay rapt attention to every single word he utters. I am sorry the Ministers are talking because I very much want them to know that it is rapt attention that I pay to every single word of wisdom that they utter. That is why I was utterly astounded by the Minister's final point, so much so that I could hardly believe my ears. That is why I did not respond on the spot but waited until I was able to read his comments. He said that he could not envisage an enforcement officer taking action against a director employee who did not pay himself the national minimum wage. We are not in the business of passing laws involving criminal sanctions and then approaching the responsible enforcement authority, "Nudge, nudge, do not take any action over this". That is an astounding proposition. If the Minister concedes, as he clearly does, that an anomaly could arise, or that there is a potential ambiguity, or even that there is merely scope for misunderstanding, it is Parliament's job, and the Government's responsibility, to see that it is corrected.

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