Nothing is to stop the employee shareholder proposals...

5 December 2012

...coming into force next year, least of all a lack of support for their rationale.

In the space of a 3-week consultation period the new category of employer owner has become a new style “employee shareholder”, but for many the proposal remains half baked.

None of us were prepared for the Chancellor’s announcement on October 8 to the Conservative Party Conference that there was to be a new category of employee, to be known as the “employee owner”. In return for giving up certain (pretty fundamental) rights, individuals were (in return) able to accept shares in their company worth between £2,000 and £50,000. These would be entirely free from Capital Gains Tax.

The proposal went out for “consultation”, albeit of the most abbreviated variety. The period allowed was 3 weeks, and not the more traditional 12 weeks as we had in the past. Amazingly, 209 replies were received. Given the time scale the Employment Lawyers Association’s response was particularly impressive, running to some 32 pages.

Earlier this week the Government released its own response to the replies that it had received. Right at the start they had not made clear they were consulting on whether the idea was a good one, but rather on how it was to be implemented. Nonetheless, even the Government conceded that only a “very small number” of responses actually welcomed the scheme. At the same time it accepted there was a huge amount of concern about individuals losing important employment protections, and it also accepted that employee owner status and the tax advantages that were to be made available, could be open to abuse.

Nonetheless, as far as the Government is concerned, it is full steam ahead.  However, in a change of significance, they have altered the name of the new status. No longer will it be called “employee owner”, for that, presumably, would have misrepresented to employees the actual value and significance of the shares they were to receive. They would now be called “employee shareholders”.

And what of all of the concerns about how employers, particularly small, less well-resourced businesses, were going to acquire the knowledge and experience of administering the scheme? The answer, apparently, will be in the “guidance” that will be produced to show the way through for employers who wish to adopt this new concept. Unfortunately, the “guidance” is nowhere to be seen at present. But its contents will be critical. If it is as concise, and as comprehensive and user-friendly as the ACAS Code of Practice on Disciplinary and Grievance procedures, with the accompanying advice document, then this may be a step in the right direction. If it is as opaque and decidedly un-user-friendly as some of the “guidance” that has been produced so far on, for example, the Equality Act, the Government may have to think again...

Given the time that the Government has given itself for considering the proposal and offering it up for consultation, it is not, perhaps, altogether surprising that they have seemingly failed to absorb (or at least accept) the views of the majority of employment lawyers. To take just one example - the section in the Government’s report dealing with unfair dismissal. The proposal is that the right to claim unfair dismissal may be bought out by the employer with an offer of shares in the company. The question the Government asked was this: “What impact will allowing individuals limited unfair dismissal protection and equity shares have on employers’ appetite for recruiting?” The issue is critical. Much of the rationale behind the proposal is to encourage employers to recruit more readily than they are at present. This is on the basis that so-called “employment red tape”, including employees’ ability to claim unfair dismissal, is dissuading employers from doing so. On the Government’s own statistical analysis, no less than 81% of those responding to this specific question consider there would be “no impact” on the desire of employers to recruit. Indeed, only 11% thought it would have a “positive” effect.

So that’s one in the eye for the Government’s policy on “red tape” then. But not only is it the case that the proposal may well not achieve what the Government is looking for (in terms of future recruitment), but in addition, allowing for different categories of employee within a single workforce may in itself lead to problems. We have seen this before with agency workers, and with employees who have been “TUPE’d” across with better protected, ring-fenced “terms and conditions” than the workforce into which they are placed.

Everyone understands the Government’s concern at the failure of the UK economy to recover in the way that it had hoped. But it does seem to me that 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), it really ought to give more and deeper thought to such proposals before they are introduced. The new category of employee shareholders is a case in point. Encouraging more wide-spread 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 actually being put off recruiting because of the existence of these rights. 

It is that question the Government has failed to answer satisfactorily and I would suggest they really do need to do a lot more thinking before bringing these proposals into force next spring.

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