News

October 12, 2012

Radical shares-for-rights plan divides business groups

The Chancellor, George Osborne, has announced radical plans for employees to give up some of their statutory employment rights in exchange for shares in the business they work for. The new proposals are aimed predominantly at start-ups and SMEs.

Under the proposals, employees would enter into an owner-employee contract, whereby they would receive between £2,000 and £50,000 of shares. Any gain on those shares on a subsequent disposal by the employee would not be subject to capital gains tax.

In exchange for the shares, employees would be required to give up their UK employment rights on: unfair dismissal; redundancy; and the right to request flexible working and time off for training. In addition, women would be required to provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual eight.

When the legislation comes into force in April 2013, employers will be able to insist on owner-employee contracts for new recruits.

The Government will consult on some details of the contract later this month. In the meantime, the proposals have provoked mixed reactions among business groups.

Commenting on the announcement, Simon Walker, director general of the Institute of Directors, said: "This scheme has the potential to reduce the employment law burden on companies and make employees better off at the same time."

The Federation of Small Businesses also gave the proposals a cautious welcome. John Walker, FSB national chairman, said: “We believe it will promote share ownership and loyalty to those companies which offer this initiative, with potential benefits following in terms of greater productivity. However, we suggest that the number of businesses who adopt the scheme may be small and we look forward to seeing the details.”

John Longworth, director general of the British Chambers of Commerce (BCC), said the scheme could be a “useful option for some new and fast-growing businesses” but he added that “it is unlikely to be a game-changer”. Similarly, John Cridland, director-general of the CBI described the scheme as a “niche idea and not relevant to all businesses”.

Other organisations were more critical of the scheme. Mike Emmott, employee relations adviser at the Chartered Institute of Personnel and Development (CIPD), said: “It is far from clear how attractive the offer to give up employment rights in return for shares will be to prospective employees of small firms.”

Paul Kenny, GMB general secretary, said: “Slashing people's employment rights under the guise of ownership schemes won't create jobs, and it won't create growth.”

And Donna Martin, an employment law specialist from London lawyers Mackrell Turner Garrett, warned: “Fast growing and new companies may not want to involve themselves in what looks set to be a complex situation in order to trigger the exemptions.”