In this round-up of recent employment law news, we report on the Government’s consultation on the employee-owner scheme (shares for employment rights).

Government launches consultation on employee-owner scheme

In our last e-bulletin, we reported on George Osborne’s announcement regarding a new employment contract and status of “employee-owner”. [September news round-up] The Government published its consultation paper on 18 October, with responses due by 8 November, containing some of the following details:

  • The arrangements will be voluntary for current employees but can be offered to new employees on a “take it or leave it” basis.
  • Employee-owners will receive between £2,000 and £50,000 worth of shares in their employer and, in return, employee-owners will sign away their rights:
    • to claim unfair dismissal (except automatically unfair dismissal);
    • to receive a statutory redundancy payment;
    • to request flexible working and time off for training;
    • to give only 8 weeks’ notice of return from maternity leave – instead they will need to give 16 weeks’ notice.
  • The shares will be exempt from capital gains tax but income tax and NIC would be payable on acquisition of the shares.
  • The employer can require the employee-owner to transfer the shares on termination of employment for a “reasonable value”.

The effect of the new status will allow employers to “fire at will” by paying statutory minimum notice (unless the employment contract provides for greater rights). Potential issues to be resolved include: how the shares would be valued upon termination and what would happen with “bad-leavers” (i.e. employees dismissed for conduct or capability issues). Employee-owners will still be able to bring other employment law claims, for example, discrimination claims. 

Whether individuals will be interested in accepting employment on this basis, where they have to meet an income tax and NIC liability on acquiring the shares, and where there is the potential for the shares to perform badly, and where there could be issues over the valuation of the shares when they come to dispose of them, remains to be seen.  Whether employers will be interested is also unclear. Most commentators believe the scheme is unattractive to both the employers and employees it is intended to appeal to.

What sort of discussions will need to be had with potential employee-owners and what guidance and support will be available to them when the offer is made to ensure that they know what they are giving up should they agree to the new status is also an issue the Government will need to address before this policy becomes law.

We await the Government’s response to the consultation and note that the Government proposes that the new arrangements will come into force from April 2013 (to be aligned with the new tax year).

The consultation document can be accessed here: http://www.bis.gov.uk/assets/biscore/employment-matters/docs/c/12-1215-consultation-on-implementing-employee-owner-status.pdf