A new kind of employee ownership

Proposals for a new type of employee ownership were announced by the chancellor, George Osborne last October, which would see employees exchanging some of their employment rights in return for shares in their employer company.

The government has now published its response to a consultation paper on the chancellor’s proposal which, despite a lukewarm reception from the business community, will see legislation brought in.

The Department of Business, Innovation and Skills (BIS) undertook the consultation which revealed concerns on the part of both employees and employers. Employees fear the loss of employment rights that flow from the new status, and possible coercion by employers to adopt that status.

Some commentators think the legislation is a back door implementation of Adrian Beecroft’s recommendations (in his report of October 2011) to remove unfair dismissal rights so as to make it easier to dismiss underperforming employees. However, these proposals are also fraught with difficulty for employers. Several respondents raised the issue of an increased risk of dismissal and discrimination claims, while others noted the complexity and cost for businesses of operating the new employee owner status. Employers also raised the need for all parties to be given clear guidance and advice to enable them to make use of employee owner status without requiring extensive professional assistance.

In response, the government plans to reorganise its guidance for businesses as well as individuals. One suggestion is the change of name to ‘employee shareholder’, which is thought to be less confusing. It has also been announced that the shares are to be fully paid up while some of the proposed employment rights which can be exchanged have been modified.

As employment status is already a truly complex issue, particularly with recent cases involving LLP partners, it seems peculiar for a new status to be added into the mix. Although businesses seem unlikely to enter into the employee shareholder scheme in droves, employment tribunals are likely to have to grapple with a new field of potential disputes once the legislation is passed this year.

As always, if you need commercial and pragmatic employment law advice, we’re here to help so please get in touch.

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