Government pursues shares-for-rights scheme despite lack of support

The government has decided to press ahead with its plans for ‘employee-owner’ contracts despite a lack of support from either employers or employees.

A consultation by the Department for Business, Innovation and Skills (BIS) revealed that most organisations would choose not to take up the new rights, which were announced by Chancellor George Osborne in his keynote speech at the Tory party conference and are scheduled to come into force from April 2013.

The new legislation will see the ‘employee-shareholders’, as they will now be called, waive their rights on redundancy and unfair dismissal in exchange for between £2,000 and £50,000 of shares in their employer, which will be exempt from capital gains tax.

They will also be expected to surrender their rights to request flexible working and time off for training and to provide 16 weeks’ notice of a firm date to return from maternity or paternity leave rather than the usual eight.

The move comes even though the BIS consultation indicated “strong concern that individuals were losing important employment protections and that they might be coerced to take on employee owner status”. Respondents were also worried that the scheme could be misused by employers and that tax advantages could be abused.

But “the majority of respondents felt there would not be an impact on recruitment because few businesses would offer the employer-owner option”, the consultation found.

This was not least because the controversial scheme, which was the brainchild of venture capitalist Adrian Beecroft, was seen to be “complex and costly to operate, with uncertainty around valuation and income tax implications for individuals.”

As a result, take-up was expected to be restricted.  At the very least, it would cost money to set up and administer.  Employers would have to undertake share valuations both when hiring staff and letting them go and any disputes were “likely to end up before the courts rather than the employment tribunals.”.

Moreover, while a shares-for-rights law might protect employers from unfair dismissal claims, employees would still be able to sue for other things such as discrimination.

Furthermore, the proposed scheme does not enable employers to exclude protection from EU law, which will remain in place irrespective of this approach.