The Implications Of Employee Ownership

The Chancellor of the Exchequer, George Osborne is proposing to fast track legislation that enables employees to trade in some of their employment rights in return for shares in the company in which they work.

Details are still sketchy but it appears that employees will be able to take stakes worth between £2,000 and £50,000 in the company for which they work, free of capital gains tax. In return the employee agrees to give up their employment rights including the right to claim unfair dismissal, statutory redundancy pay and some maternity and flexible working rights.

Here are some issues as we see them:

  • Employee-owners will be those members of staff who take up the offer of shares, which it is believed will be optional for existing staff but may be mandatory for all new hires once the legislation takes effect. The downside is that this is likely to create a two-tier workforce potentially leading to in division and conflict at work.
  • A major disadvantage for employers is that it is likely to be a rather costly exercise to seek legal advice on how to set up a relevant programme. In addition employers will need advice from tax and accountancy experts as to how to value the shares. Contracts of employment will also need to be re-written.
  • There is also the increased likelihood of litigation in the High Court and County Court in the event that disputes arise over the value of shares.
  • What happens if the business becomes insolvent and the shares become worthless? This could be a thorny issue.

The proposals – should they end up on the statute book – could also run foul of discrimination laws. If an employer bases share options on length of service then this could be indirect sex discrimination as most female employees tend to have less continuous service compared to men. Also, if a pregnant employee returning from work after a period of maternity leave makes a request for flexible working arrangements, and this is refused then is this not indirect sex discrimination?

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