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Employee share rights: a question of give and take

A very mixed reception for George Osborne's plan to exchange employee rights for shares. Calum Fuller takes stock of reaction

19 Oct 2012

By Calum Fuller

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OF ALL THE PLEDGES, promises and proclamations made by George Osborne in his keynote speech at the Conservative party conference, one in particular spurred both workers and businesses across the country with interest, although not necessarily due to joyous anticipation.

The chancellor's proposal that workers be given shares in the businesses employing them in exchange for basic employment rights was met with reactions ranging from fascination to horror.

Under the plans, workers would sacrifice basic employment rights including the right to declare unfair dismissal; a redundancy pay-off; any right to demand flexible working hours; and time off for training. Additionally, mothers on maternity leave would be required to give 16 weeks' notice of their return date instead of eight. In return, they would receive shares worth between £2,000 and £50,000, which would be exempt from capital gains tax.

"Get shares and become owners of the company you work for. Owners, workers and the taxman, all in it together. Workers of the world unite," Osborne told the party faithful in his conference address.

First put forward in a report by venture capitalist Andrew Beecroft, the aim of the proposal is to strengthen the stake employees have in the success - or, indeed, failure - of their companies.

Legislation is to be drawn up later this year, with a view to its introduction from April next year.

Businesses, predictably, were cautiously interested in the idea, with Confederation of British Industry director-general John Cridland, noting that "in Britain's cutting-edge, entrepreneurial companies, the option of share ownership may be attractive to workers, rather than some of their employment rights".

More enthusiastic, though, was accountancy firm RSM Tenon, with its national head of tax Paul Belsman remarking that "in principle, the idea is attractive and will be of considerable interest to employees of growing businesses". However, he did add a caveat to this statement, remarking that "everything will depend on the detail".

Loud criticism

But critics cried louder, with many saying there was nothing to stop businesses from hiring solely on owner-employee contracts, including Sainsbury's boss Justin King rubbishing the idea.

Speaking at the retail industry's IGD Convention in London, King warned the scheme would harm the public's opinion of industry and that it "was not something" for his business.

"The population at large don't trust business," he said. "What do you think the population at large will think of businesses that want to trade employment rights for money?"

Trade Union Congress general secretary Brendan Barber was particularly vociferous, but also raised doubts over the seriousness of Osborne's plan.

"We deplore any attack on maternity provision or protection against unfair dismissal," he said.

"But these complex proposals do not look as if they will have very much impact. This looks more to be said for effect than because it will make much difference. We will be vigilant to ensure they do not represent the thin end of a future anti-employee wedge."

The BBC's Robert Peston echoed that sentiment on his Twitter feed, observing that, if the proposal should come into force, he "cannot see any City firm hiring on any other basis".

Quite apart from the amount of outright opposition, the government will also have to iron out issues around the workability of the proposal.

Fraser Younson, partner and head of employment at law firm Berwin Leighton Paisner, dubbed the change "ineffectual", noting employees will still be able to bring discrimination claims against their employers, which are more expensive and time-consuming than unfair dismissal claims or flexible working requests.

"Female staff could still achieve flexible working conditions without their right to request flexible working by claiming indirect sex discrimination, i.e. arguing that they are discriminated against on the basis of their gender, because women are more likely to be primary carers for their children," he said.

Not only that, but Younson also holds concerns that the measure would create a two-tier workforce that would be "difficult to manage", with existing employees holding standard rights, while new recruits would have employee-owner status and waive some of those rights. While the proposal suggests new starters would have a choice, the reality could be a stark one: become an employee-owner or forget about the job.

Then there is the scope for abuse of the contract, with some suspecting the share rights afforded to employee-owners could be neutered. That could see limited voting rights or a pre-emption right ensuring that employee-owners must sell their shares back at a fixed price when they leave.

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