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Legal Services Bill: Carrying on of a reserved legal activity (Trade Unions exemption)

15th October 2007

Jonathan Djanogly tables amendments to reverse Government amendments giving trade unions exemption from this Bill.

Mr. Djanogly: I shall speak to amendment No. 35 and other amendments in my name and the name of my hon. Friends on the position of trade unions under the Bill. The purpose of amendments Nos. 35 and 36 is to reverse the trade unions' extremely wide-ranging exemption from the regulatory requirements under the alternative business structure regime of part 5. The exemption, which the Government shuffled in at the last minute in Committee, would mean that trade unions were not subject to any form of regulation under the Bill. Given that the benefit of the consumer has been touted as a key objective of the Bill throughout its stages, I cannot understand why the Government are now prepared to exclude unions from the regulatory framework and subject trade union members to a greater likelihood of receiving poor legal services from providers who are not accountable. Do the Government really think so little of union members that they will allow them to accept legal services of a lower quality than those that non-members would enjoy? It has been clearly highlighted that the behaviour of some trade unions has been wholly unacceptable-for example, in relation to miners' compensation schemes.

Mr. Kevan Jones: Will the hon. Gentleman give way?

Mr. Djanogly: The hon. Gentleman will have his chance to speak. I ask him to let me make my case. The Minister was happy to accept that the behaviour of some trade unions was appalling, but she also states that the purpose of the exemption is to maintain the status quo with regard to the unions. We will not accept such a weak position. We are here to improve things for the consumer, and not simply to maintain the status quo. Perhaps she should think a little more about union members and a little less about union bosses.

I should like to repeat the Solicitors Regulation Authority's opinion on the trade union exemption. It asks hon. Members to reject the amendment, which it says

"will have the effect of exempting trade unions from being regulated in the same way as other bodies who provide legal services to the extent that they provide such services to their membership. The SRA are opposed to any route that would exempt trade unions from part 5 in relation to reserved legal activities. The SRA's view is that trade union members deserve the same protection in relation to reserved activities as any other consumer of legal services".

The SRA goes on to say that it is

"a matter of principle-the principle that the Bill is seeking to achieve for the future, and the principle envisaged by the Clementi Report. This principle is that any organisation 15 Oct 2007 : Column 606providing reserved legal services to the public or a section of the public needs to be properly and proportionately regulated".

In a memorandum of 10 October this year, the SRA again highlighted its concerns about the trade union exemption.

I foresee that attempts will be made to defend the Government amendments by stating that if the unions were to provide reserved legal services to the public rather than to members, advice given by lay officials would have to fall within the alternative business structure licensing regime. The SRA's view, which I quoted, is that members deserve the same protection as any other consumers of legal services. Even if one accepted, for some reason, that trade union members did not deserve such protection, the question of what constitutes a member is open for interpretation. I would like to express our extreme uneasiness about who could be considered a member of a union, and who would therefore not be classed as a protected member of the public.

In a letter to me of 21 June this year, the Minister helpfully clarified her position on the union exemption. She wrote that in Committee

"Members raised the issue of whether a union would be able to grant 'associate membership' to unconnected people and provide services to them within the exception made through the amendments that were passed. I should make it clear that the terms of the amendments are that a union is excepted where it is providing services by virtue of membership. The detailed drafting makes clear that this includes retired members and family members, but it does not otherwise distinguish between classes of membership. It will be up to the unions to determine who is a member and to whom they want to make membership-based services available. If they want to extend services to associate members, that will be a matter for them."

It is astounding that it will be up to the unions to determine who is classed as a member, and therefore to whom they can extend reserved legal activities without needing to be licensed under part 5. That clearly creates the possibility of unions bringing in associate members and providing a poor service to them, as happened in many of the miners' compensation cases. The Minister went on to highlight the weakness of the position under the amendments that the Government proposed in Committee:

"I do not think that similar problems can be tackled by restricting the categories of 'member' to whom clause 15 should apply. If we were explicitly to exclude associated members, unions might instead create other classes of member, or simply give people bogus 'membership'. And even if we did restrict the clause 15 exception, there would still be the deeper problem of the unions not providing a good enough service. The solution to that is regulation: through the authorised persons providing the service and, for claims management, through the framework and code of conduct that we have established".

I find it almost unbelievable that, on one hand, the Minister fully admits that the unions might potentially become involved in dodgy practices such as giving people bogus membership so that they can give them advice while remaining outside the licensing requirements of part 5, and that, on the other, she says that the issue of who is classed as a member is completely up to the unions. That highlights the fact that the exemption is not only unacceptable in principle but simply far too wide-ranging in practice.

The Minister states that the deep problem is with the unions not providing a good enough service, and that the solution to it is the regulation of authorised persons by existing regulators such as the Law Society. Why are we bothering to pass the Bill if sub-standard service on the part of the legal profession can be sorted out by existing regulators under the existing regime? I fully understand that if trade unions were to become fully licensable under the alternative business structure regime, advice on potential employment disputes given by lay shop stewards could fall within the ambit of the regulations. I understand that it might be undesirable, from the unions' viewpoint, for such advice to come within the ambit of legal services regulation, although I think that that should be debated further. What I cannot understand, however, is providing such a wide exemption.

In a letter of 10 September to Lord Kingsland, the Law Society stated that

"Under the current formulation, trade unions will be able to provide reserved legal services of any sort to members, without requiring to be regulated under the Act as all law firms (and not for profit organisations) will be. Trade unions could, for example, provide conveyancing services or representation in divorce proceedings, as well as advice in relation to employment disputes. Indeed, because the question of membership of a trade union is simply a matter for the trade union's own rules, there would be nothing to stop a trade union from offering membership to the public at large and then providing reserved legal services to those newly recruited members. I should say that there is no reason to suppose that any trade union currently has plans to develop its services in that way. But that hardly seems a justification for creating such a wide potential regulatory gap".

The Law Society stated that it thinks that the problem could be easily solved if the exemption for trade unions applied only to services that are ancillary to the trade unions' main function of representing employees in relation to their employer. That would mean that a trade union would be exempt from regulation under the Legal Services Act if it was providing representation in relation to, say, a contractual dispute with the employer, or an accident at work, but not when it provided legal services on an unrelated matter. If trade unions wish to provide reserved legal services unrelated to main functions, they should be able to do so only by obtaining an alternative business structure licence under part 5. The inherent weakness of the decision to exempt trade unions is highlighted by the Minister's letter to me of 21 June:

"If a union extends services to anyone other than members, it has to be regulated as an entity and licensed as an ABS body. But the key to members' protection is, as I took pains to explain at Committee, that reserved activities still have to be carried out by authorised lawyers, who still have to be regulated by approved regulators. If a regulator concludes that the public interest requires that lawyers in these situations work in a regulated environment it will be able to make appropriate rules. This will of course be subject to the Legal Services Board being satisfied that those rules are proportionate to the problem and consistent with the regulatory objectives. I made this clear in the debate and I am happy to confirm it now. If the circumstances warrant it, a regulator such as the Law Society will be able to introduce a rule that allows a solicitor employed by a union to practise only through a regulated entity. Alternatively, it will be able to limit the services that lawyers are allowed to provide while working within a union."

Mr. Kevan Jones rose-

Mr. Djanogly: May I just finish this point, as it gets more interesting?

That means that a regulator such as the Law Society could determine, if the public interest requires it, that a trade union should be subject to the ABS licensing regime in certain circumstances. The exceptionally wide-ranging nature of the trade unions' exemption is highlighted by the fact that the Minister went on to say:

"I must clarify that this does not necessarily mean that rules could force any particular trade union to opt in to the ABS framework or to create a subsidiary that operates under the ABS framework. Under Part 5 a body is licensed to carry on reserved legal activities. But an independent trade union that carries out services as described in the new clause 15 provision would be considered not to be carrying out a reserved legal activity. Similarly, a subsidiary body of the union may find that it falls under clause 15(4), which would mean that it would not be carrying out reserved legal activities either. In those circumstances there would be neither an obligation to be licensed nor a possibility of a licence, because there is no reserved legal activity for which to provide a licence.

Mr. Kevan Jones: I am sorry that, even after lengthy discussion in Committee during which I explained to the hon. Gentleman the way in which legal services are provided by trade unions, we should return to this old chestnut. Can I clarify the position that he has just set out? If a trade union employs a solicitor directly and they are legally qualified, his opening statement that trade unions will not be regulated is not true. As a qualified solicitor, that individual would be regulated under the existing law and, under the proposals, as a member of the legal profession.

Mr. Djanogly: The problem with that argument is that in the rest of the Bill, it has been decided that entities should be regulated, so there is a carve-out from the very principles that the Government introduced in the Bill. Let us face it: the provision was not in the Bill when it was first introduced in Parliament-it was included after union lobbying. To give an example, if a trade union provides for its in-house legal team litigation and advocacy services relating to occupational disease cases, and evidence comes to light that a union employee has been acting improperly, it may not be clear whether the in-house lawyers providing the litigation and advocacy services were aware of, or complicit in, any improper action. If the SRA regulates only the in-house solicitor, and not the union, the SRA's investigatory powers in seeking information from union officials and interviewing others to find out whether a solicitor was involved would be limited. Any investigation would be compromised, and it may not be possible for the SRA to determine appropriate responsibility and take the relevant disciplinary or regulatory action.

Mr. Kevan Jones: As someone who used to run a legal department for a trade union, may I tell the hon. Gentleman what happened on my watch when bad advice was given, not by a solicitor, but by a trade union official? The individual sued the trade union because they had been given bad legal advice, and it is still open to people to take any trade union to court for any advice that they are given. In that respect unions are more open than any other public body I know of.

6.45 pm

Mr. Djanogly: The hon. Gentleman should be concerned that the union is not regulated. In previous debates on the Bill-and I am pleased that he did not repeat this-it was said that the lawyer should take the hit. That is quite right. If a lawyer has provided bad advice, they should be regulated and take the rap from the SRA. If the union just gets rid of that solicitor and carries on doing the things that it should not be doing with the new solicitor, because it is not regulated, that is unacceptable.

Mr. Kevan Jones rose-

Mr. Djanogly: I shall not give way, as we have covered the point pretty well.

I simply do not understand how the wide-ranging exemption for trade unions can be regarded as acceptable. It could lead to a situation whereby a union provides conveyancing services, for example, to its members and the Law Society believes that it requires further regulation. As the Minister pointed out, further regulation under the ABS regime to which other legal service providers are subject would not be a possibility. There is no justification for exempting trade unions completely from the ABS licensing regime when providing services to their members, particularly as "members" is such a loose term, the definition of which is completely at the discretion of the trade unions. Perhaps, as the Law Society suggested, a solution can be found by limiting the exemption to services that are ancillary to the unions' main function of representing employees in relation to their employer, and therefore ensuring that lay advice on employment issues is not caught, but that would still drive a coach and horses through the principle of the Bill that applies to all other entities.

We can see that that principle applies to all entities from the concerns set out to me in a letter of 26 June from the Medical Protection Society. MPS is a mutual, not-for-profit organisation that has offered expert medico-legal support and advice, as well as discretionary indemnity for civil claims to doctors, dentists and other health care professionals on matters arising from their professional practice, for more than 100 years. It stated:

"The Legal Services Bill makes no special provisions for membership organisations such as MPS. Instead such organisations would be required to set up Alternative Business Structures. We believe that this approach is disproportionate to the level of risk presented by membership organisations...We believe that there is a clear case for MPS to be classed as one of the bodies eligible to apply for special licences in which the statutory requirements would be waived or otherwise modified."

That point highlights the unjustified special treatment of trade unions and the unsatisfactory nature of the legislation in relation to genuine not-for-profit organisations such as MPS. Perhaps the Minster can enlighten us as to why groups such as MPS will be forced to go through the full ABS licensing process while trade unions will not be regulated at all.

Amendment No. 152, which was tabled by the Liberal Democrats, addresses that anomaly by giving not-for-profit bodies the exemption enjoyed by unions. That may be fairer to not-for-profit bodies but, as the hon. Member for Birmingham, Yardley (John Hemming) said, it may be a hammer to crack a nut, and it would still be inconsistent with the basic thinking behind the Bill. It would certainly not improve the position for consumers. The Government's position is as confused as it is unacceptable. The matter needs a thorough rethink, and our amendments provide an opportunity for that to happen. On that basis, we shall urge the House to divide on amendment No. 35, which removes the exemption, and I hope that hon. Members will support it.



Mr. Djanogly: Does the hon. Gentleman think that unions will be adequately regulated?

Mr. Jones: If the hon. Gentleman is referring to the broader issue concerning the trade union movement-

Mr. Djanogly: Yes or no?

Mr. Jones: There is not a yes or no answer. If the hon. Gentleman took the time to understand the subject that he talks about, it might help. I thought that we covered much of the argument in Committee. I am confident that the legal services are properly regulated within the terms of the Bill. Beefing up the powers of the certification officer is a different matter. I would not try to do that by seeking to destroy trade unions, like the hon. Gentleman. I would try to ensure that individual trade union members are protected in their relationships with the trade union. That is the fundamental difference.


Mr. Djanogly: The hon. Gentleman is right inasmuch as the miners' compensation scheme refers to incidents that happened before the Bill, so I suppose that he could say it is irrelevant. However, the issues involved in the scheme are directly relevant to the issues in the Bill, as I made clear-if he had been here for my earlier remarks, he would understand that.

Tony Lloyd: The hon. Gentleman simply digs a bigger hole for himself. The simple truth is that, as my hon. Friends the Members for Bassetlaw and for North Durham (Mr. Jones) demonstrated, there was a remedy, which has been sought and taken in some cases. To that extent, there was no relevance in the charge made by the hon. Member for Huntingdon. I hope he will accept that that leads us to the view that this is rather more a splenetic attack on trade unions than a considered assault on real events upon which a case could be made for the need for further regulation of trade unions. Neither the hon. Gentleman, in the remarks of his that I heard, nor the hon. Member for Somerton and Frome (Mr. Heath) gave us any examples of where there is a problem caused by representatives of trade unions-shop stewards or others-that would be remedied were the amendments to be accepted. That is a very important point. I hope that my hon. Friend the Minister takes this strongly on board, because it would be absurd to move unions along a track that is not necessary at this time.


Mr. Djanogly: The Minister discussed how alternative business structures would apply to trademark attorneys and patent attorneys: small bodies that provide a good service quite separate from mutual societies. They will all have to be licensed and regulated because the Clementi vision was all-encompassing. Why are the Government carving out trade unions from the process?

Bridget Prentice: To be fair to the hon. Gentleman, I have already answered that question with regard to the different role that trade unions play in our society.

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