By Claire West
The introduction of new controversial laws on 1 September 2013 which will enable workers to give up basic employee rights in exchange for shares in their company are unnecessary and potentially damaging to the economy — warns a leading UK employment expert.
The proposals, which are being introduced as part of the Growth and Infrastructure Bill, allow businesses to award shares worth between £2,000 and £50,000 to their staff. In return, employees give up certain rights, including unfair dismissal, redundancy, training rights and also the right to ask for flexible working.
These contracts would be optional for existing employees, but businesses will be able to choose to offer only this type of contract to new recruits.
Tom Flanagan, partner and Head of Employment Law at top 20 UK law firm, Irwin Mitchell, said: “The proposal for owner-employee contracts is almost universally unpopular.
“I have always queried this proposal and questioned whether it is really about encouraging productivity and rewarding effort or, instead, part of a drive to make the removal of employment rights more palatable. There is a fear that this is not about helping employers but something which is ideologically driven.
Tom added: “The principle of boosting employee participation and commitment in line with the success of a business is a good idea, but there are numerous reasons why this version of that concept is unlikely to find favour with either employers or employees.
“From an employee perspective, the economic climate is still uncertain and share performance is not guaranteed. It is likely that employees would look at current trends and see little potential benefit for them if they chose to give up rights. The reference to ‘owner-employee status’ is also misleading, as the status does not change at all; the employees will still be employees and this concept is essentially a repackaging of employee share ownership schemes, which is not a new idea, and, therefore, is unlikely to be used by employers who already provide some form of share participation.
“It would not be too unusual if there were a monetary price to pay for shares, perhaps as part of a benefits ‘menu’, but the idea that an apparent benefit should be paid for by giving up valuable statutory employment rights is very strange, hence my concerns about the real drivers behind this legislation.”
Tom added: “There are also several reasons why employers may not be quick to adopt this new type of contract from the beginning of September. Small businesses may be reluctant to give shares away, particularly if they are family or owner-manager businesses. There is no effective open market value for shares in ‘closed’ companies. Also, what types of shares will be on offer? Businesses will not necessarily want to give voting rights. Will there be good leaver/bad leaver provisions on disposal of shares when employees leave?
“If this creates a combination of complicated shareholder arrangements and tax provisions, smaller businesses — the prime targets for this initiative — are unlikely to want to become involved because of an ironic increase in red tape and cost. They could be replacing the known quantity of potential employment law claims with the unknown and more complicated quantity of minority shareholder disputes.
“Evidence during the Government’s consultation into dismissal said that the UK had some of the most flexible employment laws in Europe already in place and that dismissing staff is not as difficult as it is sometimes made out to be.
“In addition, the qualification period for unfair dismissal claims is now two years. That is surely enough time for employers to assess their employees without the risk of an unfair dismissal claim. This is another reason why this initiative is probably unnecessary.”