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Shares for Rights... Another example of the Osborne ingenuity?

View profile for Howard Robson
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Recent proposals from the Chancellor, George Osborne, for a new type of employee-employer relationship have Howard Robson, Employment Partner, wondering what impact, if any, these could have on employees and employers around the country.

In October 2012, the Chancellor proposed an extension of the current ‘employee owner’ status to ‘employee shareholder’ status, which would require employees to give up some of their statutory employment rights in return for shares in the company. The sacrifices employees would have to make in terms of their statutory employment rights include the right to bring an unfair dismissal claim, and the right to a statutory redundancy payment.  This would be in return for shares worth between £2,000 and £50,000 – aptly referred to as “peanuts” by one opposing MP.

“It is apparent that there are more difficulties with the proposals than positives,” says Howard.  “The first, obvious, problem is the fact that it seems very unlikely that the UK Government could legalise discrimination and whistleblowing claims to be waived in return for shares in the company, as they are imposed by European law. Such claims are usually brought as an unfair dismissal claim, and the Government would face an uphill struggle to legalise the waiving of such claims. In any event, it seems unlikely that many employees would be willing to sacrifice their right to bring an unfair dismissal claim in exchange for shares.”

A further difficulty arises on termination of the employees’ employment.  “Employee owned shares would have to be purchased at a ‘reasonable price’ when an employee leaves the company,” continues Howard. “The valuation and re-purchase of the shares could prove very costly, onerous and complex for the employer.  It is likely that they would be required to pull in professional expertise to conduct regular valuations of the shares for both offering them to employees and buying them back, adding further burden on the employer, particularly those with smaller companies who already find employment law hardest to deal with.”

What, then, can be said for the benefits of these proposals?

The first benefit would seem to be for those employees who don’t feel they need protection from unfair dismissal or redundancy, as shares for rights contracts may seem attractive to them.  Howard advises however, “All things considered this would seem a rather risky stance to adopt from an employee perspective.  If relations deteriorate between the employee and the employer and the employee is unfairly dismissed, he or she is left without a real remedy and the decision to part with his or her employment rights, may, with hindsight, seem a foolish move to have made.”

Howard adds, “Employees who may be interested in the scheme are those who wish to possess some of the value of the company.  The shares in question must be worth between £2,000 to £50,000 so whether or not the contract is worth the risk depends on the specific numbers involved.  It seems that employers stand to benefit the most from the proposals, as the shares for rights contract effectively allows the employer to swap the danger of a potential unfair dismissal claim in return for (what would possibly be) a very low stake in the company.”

So then… a ‘pearl of wisdom’ from the coalition or a(nother) ‘sinking lead balloon’?

“The shares for rights contract is still some way off being available to employees,” concludes Howard.  “There seem to be a number of disadvantages to it and these, at least at first glance, clearly outweigh the advantages.  We shall wait to see what the Chancellors next move will be!”

For more information on shares for rights contracts or if you need assistance dealing with your own employment contracts, contact Howard Robson or the Employment Team on 02380 717717, or email employment@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.