The Government’s consultation on implementing a new “employee owner” status will close on 8 November 2012. The government plans to introduce these measures through the Growth and Infrastructure Bill, with the aim that companies will be able to offer the new type of contract from April 2013.

So what do the proposed changes mean for employers? Under the proposals, the Employment Rights Act 1996 will be amended to create a third type of employment status of “employee owner” alongside that of employee and worker. Employers would have the option to offer a new type of contract under which an employee owner can be given between £2,000 and £50,000 worth of shares in the employer company in return for surrendering various employment rights.  

All types of shares would be eligible although the government anticipates that employers will apply restrictions on the shares that they issue. Employers may contractually require an employee owner to surrender the shares if he leaves, is dismissed or made redundant. Although the shares will be exempt from capital gains tax they will be subject to income tax and NI contributions. The rights which employee owners would not be entitled to are:

Unfair dismissal rights

  • Employee owners would retain the right not to be unfairly dismissed in circumstances which amount to automatic unfair dismissal, for example if dismissal relates to the employee whistleblowing or taking maternity leave.
  • It would not be automatically unfair for an employer to dismiss an employee owner who requests flexible working, unless he is exercising the right to request flexible working when returning from parental leave. 
  • It would also not be automatically unfair to dismiss someone for having made certain requests for time to train where that employee has been employed for at least 6 months.
  • Employee owners would still be able to bring discrimination claims based on dismissal.

Rights to request flexible working

  • The government plans to restrict the right to request flexible working for employee owners to the EU minimum. This means that employee owners will only have the right to request flexible working when they return from parental leave. They will have to make the request within 4 weeks of their return.
  • Employee owners would still be able to make informal requests to the employer but would not be able bring an employment tribunal claim if the request is not considered in line with the statutory provisions.

Rights to time off for training

  • The removal of this right would not prevent employers from offering training to employee owners but employers would not need to follow the statutory procedures. Employee owners would not be able bring employment tribunal claims if the request is not properly considered.

Rights to redundancy pay

  • Employee owners would not be entitled to any statutory redundancy payment.

In addition, employee owners would have to give more notice to their employer of their intention to return from maternity or adoption leave early (16 weeks rather than 8 weeks as is the case for other employees).

Comment

One view of these proposals is that they are “no fault dismissal” in a different guise. Readers may recall that the concept of no fault dismissal, under which employees could be dismissed without fault on payment of a specified amount of compensation, was the key, and most controversial, aspect of the Beecroft Report on Employment Law which was subsequently shelved by the government.

There are also potential concerns relating to the fact that an employer would be able to contractually require an employee owner to surrender the shares if he leaves, is dismissed or made redundant. If shares are surrendered, the employer would have to buy back the employee’s shares at a “reasonable value”. Whilst the consultation considers how shares should be valued when first awarded, it is not clear how a “reasonable value” is to be assessed. We can foresee that this is an area where disputes will inevitably arise.

Further, the government is seeking views on whether, in certain circumstances, an employer should be able to buy back shares at less than market value. If this operates where an employee is dismissed, then an employee owner who considers himself to have been unfairly dismissed would not be able to seek compensation from a tribunal, nor would he receive the full market value of the shares which were meant to compensate him for the loss of that right.