A consultation by the Department for Business, Innovation and Skills 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.
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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.
Controversial scheme
This was not least because the controversial scheme, which was the brainchild of venture capitalist Adrian Beecroft, would 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 to “micro-businesses and some growing companies”.
Guy Lamber, partner at DLA Piper’s employment, pensions and benefits group, agreed that it remained to be seen how many employers would view the scheme as workable and would take it up.
At the very least, it would cost money to set up and administer, he pointed out. 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.
“Unsurprisingly, this proposed scheme does not enable employers to exclude protection from EU law, which will remain in place irrespective of this approach,” Lamber said.
In addition, because many of the UK’s employment laws – which covered matters such as protection for pregnant women and those on maternity leave – were based on EU legislation, the government was “bound by its European obligations and would, therefore, have to ensure that its proposals are implemented in line with them”, Lamber added.
