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Lord Wedderburn of Charlton: I am grateful for such a positive response from my noble friend. The test is not whether it will happen only once. If one had a Bill which said that X's head would be chopped off it would be highly objectionable, and it would happen only once. That is what one means by going a step further into social affairs. Pathological social events are those where some part of the system has gone wrong. I accept that this type of case will occur mainly or only where part of the system of collective bargaining, CAC

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and all the rest in Schedule 1 goes wrong but people's reactions cannot be limited to that. The case of Rookes v. Barnard in 1964 that I cited sent the trade union movement, rightly, into a great flurry of objection to the direction of the law of tort. I tried to make it clear that I appreciated why the Government have done that.

A contract, agreement or method between the two parties--the employer and the union, to make it clear--is of course a legally binding contract or legally enforceable agreement with a limited remedy. All that is absolutely clear. I have been known to write criticisms of cases. One gets to know cases better when one criticises them. One of the Government's troubles is that they do not like any arguments other than those they have seen, then altered.

A contract made through the CAC procedure is binding between A and B and enforceable only by a specific performance. There are problems about that specific performance remedy. Also, there are many cases involving a contract even of that kind--Torquay Hotel Co. Ltd. v. Cousins was one of them--where the limitation of remedies did not prevent the court saying, "You've broken your contract, which induced further damage to a third party". Of course there must be some degree of knowledge or deliberateness, which is the phrase wisely used elsewhere in the Bill. That does not mean that a case will never arise.

As the Government are reconsidering many important parts of the Bill, I ask them urgently to look at that type of case again. If my noble friend wants me to submit a further reading list, I will do so--although I have tried to avoid that response. Even the three cases that I cited are enough to show that a third party in some cases could get to court under the schedule. Then he would not be limited by the limitation of remedy.

The fact that such a case might happen rarely is neither here nor there. My noble friend cannot predict the response of the trade union movement, CBI, TUC or anyone else to one dreadful decision because they believe that cannot happen. I do not believe that any of the parties that went before the Government with their arguments thought that such a remedy could occur. If the Government want a Schedule 1 that works, I ask them to accept an amendment of this kind. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4.15 p.m.

Baroness Miller of Hendon moved Amendment No. 4:

Page 17, line 39, leave out ("21") and insert ("50")

The noble Baroness said: I would like to speak also to Amendments Nos. 5, 6, 74 to 75A, 163, 165A and 169A. The amendments relate to the number of employees who may form the quorum to initiate the procedures for union recognition under paragraph 6(1)(a) and (b). I have said that I shall be as brief as possible because of the number of amendments. I do not wish to sound churlish towards Ministers and their officials who were so helpful to me before this stage in faxing other amendments and so on. The truth is that the Bill has grown enormously since we set the time, so

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although I made up my mind to be as brief as possible I have rather more to say on this particular amendment which is of great importance to small and even medium-size businesses.

Amendments Nos. 4 and 5 increase the number employed from 21 in the Bill to 50. The original number seems to have been plucked from the air. There used to be a sign on London Transport double-decker buses, "Small dogs may be carried upstairs at the conductor's discretion". I remember the debate about how small was a small dog.

When the Bill was debated in Committee in another place, it was suggested that the number of employees be increased to 50 and that the Secretary of State should have the power to reduce the number to 21 in light of circumstances and on the advice of the CAC--whereas the Secretary of State was proposing to reverse that process by starting at 21 and increasing the number to 50 in light of circumstances. Paragraph 6(6)(b) gives that power of variation. At least we have taken one small step in the right direction. By having that paragraph, the Government have acknowledged that 21 may be too stringent. I go further. I believe that that number could seriously damage small businesses. By the time the Secretary of State is persuaded of the existence of a problem and gets around to resolving it, it could be too late.

For the purposes of this Bill the Government have arbitrarily picked on 21, but in the case of the liability to pay interest under the Late Payment of Commercial Debts (Interest) Act 1998, the number chosen to define a small firm was 50 or fewer. Consistency in legislation would be an advantage. My honourable friend the Member for Daventry told the Committee in another place that the basic test for a small firm in the US was 50 employees or fewer.

That brings me to the second reason for saying that the figure of 21 is unacceptably and unreasonably low. Let us assume that the firm has a bare minimum of 34 employees. The employer must recognise the union if a mere nine employees--40 per cent of the workforce--requires it and the majority vote in support. In other words, if only three bother to vote, it would take just two votes to approve. Even 11 out of 21, although a majority, could be disruptive in a small business where everyone knows everyone else.

If 50 employees were the qualifying number to start the process, 20 employees would have to approve--which would be much more reasonable. It is no use saying that the other employees should have voted. Apathy towards union affairs is one of the factors that unions, in their heyday, relied on to rule an indifferent majority. The fact that an employee does not vote is not an indication that he is in favour any more than against. It simply means that he did not vote. It is not too difficult in a small firm with just 21 employees for union-minded activists to secure a derisory nine votes, especially when personal relationships can be a means of asserting influence. I would not say pressure, although that could be a factor.

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In Committee in the other place, the Minister said:

    "The Government recognise that small firms may be different in that they are often managed on a personal basis and collective bargaining may be inappropriate". That returns me to the question of how small is a small firm. I believe that the answer is 50 employees and hope that the Government will consider accepting that figure.

Amendment No. 6 excludes from the definition of workers those who are directors, the company secretary or any other persons regarded as officers of the company. Common sense suggests that a director could in no way be regarded as a worker for the purposes of the Bill and thus contribute to the quorum when deciding whether a claim for union recognition could be launched. However, I have no doubt that some ambitious trade union organiser would try to establish that directors are to be included in the total number of workers. More relevant than that hypothetical suggestion is the Government's own attitude to the definition and status of directors.

When your Lordships debated the National Minimum Wage Act 1998, I sought to exclude directors on the ground that many directors of small family businesses would choose for whatever reason to pay themselves no wages, especially when the business was experiencing cash flow problems. The Government adamantly refuse that exemption on the ground that they would accept no deviation from the national minimum wage.

Again, on grounds of consistency, clearly the Government are going to hold that directors are workers for the purposes of this Bill and their mere existence may very well trigger the recognition process. Once again, I believe that the Government overlook the special needs of small businesses, those which will almost certainly be most hardest hit by the operation of the Bill.

There are tens of thousands of small family businesses with just two husbands and wives as the directors and perhaps a bookkeeper acting as company secretary. Therefore, they already have five people out of the 21. Of course, they could vote in the ballot and possibly ensure its being lost, but I am certain that the union organisers would say it was unfair that the directors should have a vote in the circumstances. I do not believe that the Government can have it both ways. Either the directors should be excluded or they should have a vote in the ballot. It is our preference, in the interests of commonsense, that directors, using the ordinary everyday meaning of the word, should not count as part of the workforce.

The amendment also excludes some shareholders because in the context of small family businesses, members of the family may have shares and work in the business, possibly just part-time when extra help is needed. Under paragraph 6 of Schedule 1, part-time employees are counted. I have excluded workers who also hold shares in their employing company which are quoted on a recognised stock exchange. Clearly, it would be unfair to an employee that he should suffer a loss of his franchise simply because he has enough faith and interest in his employers to buy shares or to acquire them as part of an incentive scheme.

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However, I recognise that a Government who have an inherent distrust of employers, even those who operate share incentive schemes sanctioned by the Inland Revenue, may suspect that some Machiavellian employers may hand out shares to a few employees in order to reduce the number of qualifying employees. If the Government would accept the principle of excluding persons who are not really employees within the ordinary understanding of the word, I am sure that with a little more specific drafting we may be able to reach an accommodation over this aspect without causing any kind of loophole.

Finally, I have proposed to exclude members of a partnership who as individuals would obviously be working in the business. When we debated the national minimum wage, I postulated the hypothetical large firm of solicitors with, say, 74 partners who the Government insisted were just one legal entity. I am sure that the noble Lord, Lord Clinton-Davis, will remember that discussion. If then they were regarded as workers, the starting line would be crossed before one counted the first typist or the first tea lady. Of course, it would be harder to get the 40 per cent, or a majority of it, but in order to avoid future litigation and in the interests of clarity I feel that it is better to exclude them in clear terms.

This group of amendments is intended simply to provide a fair balance of rights and responsibilities such as was claimed by the Secretary of State during Second Reading in the other place to be the objective of this Bill. That being so, I very much hope that the Minister will feel able to accept them.

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