Employee shares

Government consults on removal of employment rights for new "employee owners"

News The Department for Business, Innovation and Skills has published a consultation setting out plans for a new employment status called an "employee owner".  Employee owners will give up basic employment rights in exchange for shares in their employer's company of between £2,000 and £50,000.  The shares will be exempt from capital gains tax.   Implications The new proposals have been added to the Enterprise and Regulatory Reform Bill which is currently making its way through Parliament.  It is likely that the scheme will come into force in April 2013.  Closing in early November, the consultation is only open for a very short period and focuses on the practical implementation of the scheme rather than whether or not the scheme should be introduced. The scheme can be used by companies of all sizes, but is principally intended for fast growing small and medium sized companies that would benefit most from a flexible workforce.  The scheme is entirely voluntary. Commentators have questioned how the scheme will work in practice and what safeguards will need to be put in place to avoid abuse.  It is suggested that the new scheme has the potential to lead to an increase in the number of legal disputes over the valuation of an employee's shares.  Presently, it does not appear that the intention is for these disputes to be resolved within the employment tribunal system, but rather through civil litigation.   Details Under the scheme, the employee owners will agree to waive certain employment rights in exchange for shares.  The intention is that employment rights will be varied as follows: Employee owners will not be able to claim unfair dismissal. There will be no right to statutory redundancy payments. The statutory right to request flexible working will be removed except where employee owners are returning from parental leave in which case, the Government proposes that they must request flexible working within 4 weeks of their return to work.  This will not prevent employers from agreeing to other flexible working arrangements, but it will prevent employee owners from bringing tribunal claims where they think their request has not been properly considered. Employee owners will lose their right to request time to train which is usually given to employees in companies with over 250 people.  Again, this does not prevent employers from offering training but removes the requirement for employers to follow the administrative procedures specified in the legislation and the ability of the employee owner to bring a tribunal claim where the procedure has not been followed. Employee owners will have to give 16 weeks' notice of their intention to return early from maternity or adoption leave instead of the current 8 weeks' notice.  This will give employers additional notice of an employee owner's plans and is intended to help them better plan for maternity periods, particularly in small businesses where there is no dedicated HR function.  Employers can agree to an earlier return to work or request that the employee owner does not return until the 16 weeks' notice has expired. Employee owner status would not affect the employee's ability to claim for an automatically unfair dismissal or where the dismissal is on discriminatory grounds.  It is therefore possible that employers may see an increase in discrimination claims as a result of the limitations placed on the right to claim unfair dismissal. The employer can also add to the package of rights that it offers to its employee owners (for instance, by including a right to flexible working). It is intended that the scheme would be implemented through an employees' share scheme.  Employers are likely to place restrictions on the shares offered including the compulsory surrender of an employee's shares on leaving, dismissal or redundancy. The shares will be valued according to their unrestricted market value at the time they are awarded. There may be difficulties in valuing shares in certain cases, particularly for unquoted companies (which are intended to be the primary users of the scheme).  The Government is keen to ensure that companies are not placed under any more stringent valuation requirements than already exist when valuing companies for other tax purposes and is encouraging comments on this point in its consultation. The Government is also keen to strike the right balance between helping businesses and ensuring that individuals taking up employee owner status understand the full implications of the scheme.  In order to do this, it is seeking views on the appropriate level of information and guidance that individuals might need to ensure they understand the contracts they are signing. If you require further assistance, please contact a member of the team.