The Government will press ahead with plans for an employee shareholder scheme that allows companies to offer a minimum of £2,000 of shares in exchange for staff giving up some employment rights. One lawyer called the proposals "half-baked".
Yesterday's Autumn Statement included confirmation by chancellor of the exchequer George Osborne that a 'shares for rights' deal, which was originally announced in October, whereby workers forfeit certain employment terms in exchange for a stake in their company, would be pursued.
As part of the scheme, employees will not pay income tax or national insurance contributions on the first £2,000 of shares received, and will not pay capital gains tax on the first £50,000.
The statement said: "The Government is legislating to introduce a new employee shareholder status that will give staff a stake in their ﬁrms' future success and give ﬁrms greater choice about the contracts they can offer to individuals.
"Employee shareholders will have different employee rights and shares worth a minimum of £2,000 in the ﬁrm they work for. The Government will exempt gains on up to £50,000 of shares acquired by employee shareholders from capital gains tax from 6 April 2013."
Bernadette Daley, partner at law firm Mayer Brown, told HR magazine: "The concept of employee ownership schemes has proven controversial and received a fair amount of criticism. Startup enterprises or companies that already offer share incentives to employees might take up this option, but I think the jury is out as to whether these new proposals really will result in a more flexible workplace, encourage more recruitment or achieve the other stated aims."
Daley added: "Although the Government is hoping this will help lift the burden of regulation on employers, in the short term at least it is likely to increase that burden, given the complexities involved and some of the potential areas for dispute."
Richard Fox, partner and head of law firm Kingsley Napley's employment team, said: "Despite widespread concern about individuals losing important employment protections, as far as the Government is concerned it is full steam ahead, and in today's Autumn Statement the Chancellor confirmed that some £340 million would be made available to the project.
"The new category of employer owner has become a new-style 'employee shareholder', but for many the proposal remains half-baked. Before introducing major changes to the way in which we employ our workforces up and down the country, in an attempt to encourage more recruitment, the Government really ought to give more thought to the proposals.
"Encouraging more widespread employee ownership, or even more 'John Lewis'-type workforces, may well have much to commend itself, as might appropriate tax inducements to allow this to happen more frequently, but the question still remains, why should shares be offered to employees in exchange for surrendering significant employment rights, particularly, if there is such little evidence that employers are being put off recruiting because of these rights? It is that question that the Government has failed to answer satisfactorily and it should do a lot more thinking before bringing these proposals into force next spring."
Ed Stacey, head of employment at PwC Legal, a branch of the professional services firm, said: "Removing employment rights, such as unfair dismissal, is not an attractive option for businesses or employees and will not achieve the aim of increasing companies' appetite for recruitment."
The Government yesterday published its response to the consultation, launched in October, on employee owner contracts, which sets out a number of modifications to its original proposals. These include:
The Government has said incentives for employee ownership were being explored, and would be revealed at the next Budget in spring 2013.
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