Controversial ‘shares for rights’ employment status

Following a surprise announcement by the UK’s Chancellor of the Exchequer at the Conservative Party conference in October 2012, and a shorter than usual public consultation process, the coalition government is introducing legislation that will enable the creation of ‘employee shareholders’ whose statutory employment rights will be curtailed. Ministers are going ahead with the measure despite only lukewarm support from employer organisations and union opposition.

Background

On 8 October 2012, the UK’s Chancellor of the Exchequer, George Osborne, unexpectedly announced that the Conservative-Liberal Democrat Coalition Government intended to establish a new type of employment status – that of ‘employee owner’. The plan was unveiled at the Conservative Party’s annual conference. Employee owners would receive shares in the business they worked for, which would be exempt from capital gains tax. In return they would forgo a series of statutory employment rights, including protection against unfair dismissal.

Consultation process

The Department for Business, Innovation and Skills (BIS) published a consultation document on implementing employee owner status on 18 October 2012. Legislative provisions on employee owners were also included in the Growth and Infrastructure Bill, published on the same day. The consultation ran until 8 November 2012 – a shorter than usual period for public consultations.

The government published its response to the consultation on 3 December 2012. This reported that, of 209 responses received, only ‘a very small number welcomed the scheme and suggested they would be interested in taking it up’. Key issues raised included ‘a strong concern that individuals were losing important employment protections and that they might be coerced to take on employee owner status’ and that the new status would be ‘complex and costly to operate’. These concerns were viewed as ‘likely to deter take-up’.

The government acknowledged a number of these concerns and brought forward a series of amendments to the bill during its passage through the House of Commons. Among these, the government decided to rename the new status ‘employee shareholder’.

However, in deciding to proceed with the measure, the government maintained its view that:

This new employment status is a novel way for companies to arrange their workforce, and builds on the already flexible labour market enjoyed in the UK today. Principally intended for fast-growing companies, the status will be available to companies of any size that want to benefit from the additional flexibilities offered.

Current position

The Growth and Infrastructure Bill completed its House of Commons stages during December 2012 and was given a second reading by the House of Lords on 8 January 2013. The bill was expected to become law by April 2013.

Key provisions

Under the current provisions in clause 27 of the bill, employees who agree to become employee shareholders would receive shares in their company worth at least GBP 2,000 (€2,330 as at 31 January 2013) but would have fewer than normal statutory employment rights. In particular, they would not have statutory rights to:

  • request training and flexible working;
  • claim unfair dismissal (apart from where dismissal is automatically unfair or discriminatory);
  • receive redundancy pay.

They would also have to give longer notice of 16 weeks to their employer of their intention to return from maternity, paternity or adoption leave.

Employees would be protected against detriment or dismissal on the grounds that they refused to become an employee shareholder.

Employer and trade union reaction

The government’s move received only limited employer support. The response from the Confederation of British Industry (CBI) was lukewarm. Its Director-General, John Cridland, commented:

In some of Britain’s cutting-edge entrepreneurial companies, the option of share ownership may be attractive to workers, rather than some of their employment rights. But I think this is a niche idea and not relevant to all businesses.

According to the Chartered Institute of Personnel and Development (CIPD):

...employees have little to gain by substituting their fundamental rights for uncertain financial gain and employers have little to gain by creating a two tier labour market.

Trade unions were more outspoken in their criticism of the idea, but similarly sceptical that the measure would have widespread impact. In its response to the government’s consultation, the Trades Union Congress (TUC) said it was ‘fundamentally opposed to the government’s proposals [which] will strip employees of basic employment rights’. It has urged the government not to proceed with the measure.

In the view of the largest UK union, Unite, the new legislation would:

...create more red tape for employers rather than reduce it, and will do nothing to boost the economy.

Mark Hall, IRRU, Warwick Business School

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