Call us on:  0808 172 93 22

Government announces controversial plans for new type of employment contract

 

SUMMARY:  The UK Government has announced controversial plans for a new type of employment contract

The government has announced that employers will be able to offer their employees share ownership in exchange for them giving up certain employment rights.  As a consequence, a new kind of contract of employment will be created called an employee-owner contract.   This proposal is part of the government’s campaign to remove the employment right barriers which it considers are preventing employers from taking people on and restricting business growth.

Under the proposals employees could be awarded between £2,000 and £50,000 of shares, which will not be subject to capital gains tax on the profit made on the shares.  Employees who would like to enter into this type of employee-owner arrangement will however be required to give away a number of employment rights:

The wisdom behind such a proposal is giving rise to lively debate amongst employment advisers as well as HR professionals.

One area that will need clarifying relates to when an employer can offer the new type of contract. Whilst the Chancellor has indicated that it would be a voluntary deal between the company, employee and government, a press release from BIS has said that employers will have the option of making all offers of new employment subject to the employee accepting employee-owner status.  Will prospective employees feel welcome when presented with a “take it or leave it” scenario at the start of the employment relationship?  It does not appear to be a step in the right direction for employee engagement or job security.

Generally, it is human nature is to resist change and shy away from trying something new.  If employees are to have confidence in the employee-owner arrangement there will need to be guidance and transparency about what they are getting for giving up their employment rights.  Employees will also want to know how and when their shares can be liquidated.   Will employees consider that a minority shareholding which gives them little say in the running of the business has any value?   Employees are likely to want to know what safeguards are in place to protect their position before proceeding with such an arrangement.

Many small businesses at which this scheme is predominantly aimed will probably be sceptical about its benefits.  There is likely to be a need to introduce a more detailed infrastructure to support the new arrangement, which in turn may involve the need for detailed tax, legal and financial advice.

It is far from clear how attractive the new employee-owner contract will be to both employees and businesses.  For some businesses it may well be a welcome prospect as they perceive it as a means to achieve a motivated and engaged workforce.  There will need however to be careful reflection on whether asking your employees to sign away some basic and fundamental employment rights will achieve this.  Those businesses which have successfully used employee-ownership to grow have invested in strong management and have not taken away their employees’ employment rights.

Until further details of the scheme are published we can only speculate as to how it will work in practice.  We will keep you posted any further developments.

Helen Taylor, Senior Associate

Contact Information

fgmedia@floydgraham.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.

Updated: by FG Solicitors
Call us on:  0808 172 93 22

GOVERNMENT ANNOUNCES CONTROVERSIAL PLANS FOR NEW TYPE OF EMPLOYMENT CONTRACT

 

SUMMARY:  The UK Government has announced controversial plans for a new type of employment contract

The government has announced that employers will be able to offer their employees share ownership in exchange for them giving up certain employment rights.  As a consequence, a new kind of contract of employment will be created called an employee-owner contract.   This proposal is part of the government’s campaign to remove the employment right barriers which it considers are preventing employers from taking people on and restricting business growth.

Under the proposals employees could be awarded between £2,000 and £50,000 of shares, which will not be subject to capital gains tax on the profit made on the shares.  Employees who would like to enter into this type of employee-owner arrangement will however be required to give away a number of employment rights:

  • The right to bring an unfair dismissal claim.  Notably, discrimination claims would not be excluded.
  • The right to be paid a statutory redundancy payment.
  • The right to request flexible working.
  • The right to request time off for training.
  • The right to give 8 weeks’ notice of the intended return to work from maternity leave, which will be doubled to a 16 week notification period.

The wisdom behind such a proposal is giving rise to lively debate amongst employment advisers as well as HR professionals.

One area that will need clarifying relates to when an employer can offer the new type of contract. Whilst the Chancellor has indicated that it would be a voluntary deal between the company, employee and government, a press release from BIS has said that employers will have the option of making all offers of new employment subject to the employee accepting employee-owner status.  Will prospective employees feel welcome when presented with a “take it or leave it” scenario at the start of the employment relationship?  It does not appear to be a step in the right direction for employee engagement or job security.

Generally, it is human nature is to resist change and shy away from trying something new.  If employees are to have confidence in the employee-owner arrangement there will need to be guidance and transparency about what they are getting for giving up their employment rights.  Employees will also want to know how and when their shares can be liquidated.   Will employees consider that a minority shareholding which gives them little say in the running of the business has any value?   Employees are likely to want to know what safeguards are in place to protect their position before proceeding with such an arrangement.

Many small businesses at which this scheme is predominantly aimed will probably be sceptical about its benefits.  There is likely to be a need to introduce a more detailed infrastructure to support the new arrangement, which in turn may involve the need for detailed tax, legal and financial advice.

It is far from clear how attractive the new employee-owner contract will be to both employees and businesses.  For some businesses it may well be a welcome prospect as they perceive it as a means to achieve a motivated and engaged workforce.  There will need however to be careful reflection on whether asking your employees to sign away some basic and fundamental employment rights will achieve this.  Those businesses which have successfully used employee-ownership to grow have invested in strong management and have not taken away their employees’ employment rights.

Until further details of the scheme are published we can only speculate as to how it will work in practice.  We will keep you posted any further developments.

Helen Taylor, Senior Associate

Contact Information

fgmedia@floydgraham.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.