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'Shares for rights' scheme gets the green light

Tom Newcombe , 06 Dec 2012

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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:

  • Renaming 'employee-owner' contracts 'employee-shareholder' contracts.
  • Making it explicit that shares should be fully paid up and free to employee shareholders.
  • Creating a power for the secretary of state to increase the minimum threshold of £2,000 on the value of shares that must be offered.
  • Removing the upper limit on shares (of £50,000) to be an employee shareholder, stated in the Growth and Infrastructure Bill, although this limit will apply for the capital gains tax exemption.
  • Allowing the rules to apply to non-UK registered companies and parent company shares.
  • Extending the requirement to give 16 weeks' notice to return early from additional maternity or adoption leave to additional paternity leave.

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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What lies behind this scheme?

Bay Jordan 06 Dec 2012

As someone who regularly bemoans the lack of innovation or original thinking by government at a time when it is clearly called for, this would appear to give lie to that criticism. Yet upon reflection this begs the question as to whether any real thought at all has gone into the proposal. Let's forget "policy" for a moment and look at principles (after all shouldn't policies be driven by a sound underlying principle?) No principle is immediately obvious here unless it is to reduce employee rights. Because in order to sacrifice their rights any interested employee would need to some sort of guarantee that their shareholder rights would be more than an adequate compensation for the employee rights foregone. Yet this seems extremely unlikely and the best they are likely to get out of it in a conflict situation is compensation for the shares. And how is the employee to ensure that he gets the full value for their shares anyway? There is ample evidence that ownership does make people more engaged and thus better employees. However, this approach perpetuates the view that employees are servants, rather than taking a more constructive approach and seeing them as assets and a vital part one grand team. In doing so, it starts from the wrong premise and so will certainly fail to deliver the key benefits that ownership is intended to provide.

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