Employee Shareholders: Government to press on

Back in the Autumn the Government announced proposals to introduce a new employee status. Originally called ‘employee owners’, they have already been rebranded as ‘employee shareholders’ and the aim is (where employer and employee so choose) to allow employees to receive shares in their employer in exchange for waiving certain employment rights.

The Government ran a relatively short consultation exercise on the proposals the results of which were published before Christmas. The general feedback from the consultation suggests there is not much enthusiasm for the plans and some concern they will introduce additional complexity into an area that is quite complex enough already.

In summary, the new proposals provide for employees to give up certain unfair dismissal rights, rights to statutory redundancy pay and certain rights to request flexible working or training. Employees will also have to give 16 weeks notice to return early from maternity leave, as opposed to the norm of 8 weeks. In return, the employee will receive “free” shares in their employer with a value of at least £2,000 which will be CGT exempt up to a value of £50,000 (although employers can grant shares worth more than this if they choose to do so).

The scheme will be available to overseas companies and, for employees employed by a subsidiary, they may receive shares in a parent company.

From reading the responses to the consultation process you would be forgiven for thinking this was a solution to a problem which did not exist: while employers are not great fans of unfair dismissal claims, they do not generally decide not to recruit staff because of the risk of a claim from their new recruit. It is also difficult to see many small companies with relatively small share capitals wanting to take this up not least because of the requirement to agree a value of the shares with HMRC. There are also a number of thorny issues raised by the proposals in the context of tax and national insurance treatment and what happens to the shares on a sale of the business and how this new legislation will interact with TUPE. Quite how these issues will be addressed remains to be seen.

Having said that, the Government appears to have the bit between the teeth and, despite the proposals’ lukewarm reception, is committed to pressing ahead with the proposals and is aiming to implement the new legislation in spring 2013.

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