Employee shareholders – from speech to legislation

by Laurie Anstis on April 25, 2013

The government’s plans for employee shareholders were first announced by George Osborne in his speech to the 2012 Conservative party conference:

“This idea is particularly suited to new businesses starting up; and small and medium sized firms. It’s a voluntary three way deal. You the company: give your employees shares in the business. You the employee: replace your old rights of unfair dismissal and redundancy with new rights of ownership.

And what will the Government do? We’ll charge no capital gains tax at all on the profit you make on your shares. Zero percent capital gains tax for these new employee-owners.

Get shares and become owners of the company you work for. Owners, workers, and the taxman, all in it together. Workers of the world unite.”

The idea seemed to be a marriage of Conservative and Liberal Democrat policies – on the one hand, Conservative de-regulation, and on the other, Liberal Democrat employee ownership.

Apart from the broader policy considerations involved, employment lawyers were immediately concerned about what “voluntary” meant in this context, and the detail of how the scheme would operate.

The speech was made on 8 October 2012, and was followed up the same day by a BIS press release. The press release said that employee ownership contracts could not be forced on existing employees, but could be the only type of contract offered to new employees.

Reaction at the time was collected in Storify by Tribunal Watch.

A couple of weeks later, the formal consultation document was published. At the same time, the Growth and Infrastructure Bill was introduced to pave the way for employee owners. Clause 23 added a new section 205A to the Employment Rights Act 1996:

“(1) An individual who is or becomes an employee of a company is an
“employee owner” if— 

(a) the company and the individual agree that the individual is to
be an employee owner, and

(b) in consideration of that agreement, the company issues or allots to the individual shares in the company which have a value, on the day of issue or allotment, of no less than £2,000 and no more than £50,000.

(2) An employee who is an employee owner does not have—

(a) the right to make an application under section 63D (request to undertake study or training),

(b) the right to make an application under section 80F (request for flexible working), 

(c) the right under section 94 not to be unfairly dismissed, or

(d) the right under section 135 to a redundancy payment.

(3) The following provisions are to be read in the case of an employee who is an employee owner as if for “8 weeks’ notice”, in each place it appears, there were substituted “16 weeks’ notice”—

(a) regulation 11 of the Maternity and Parental Leave etc. Regulations (S.I. 1999/3312) (requirement for employee to notify employer of intention to return to work during additional maternity leave period), and

(b) regulation 25 of the Paternity and Adoption Leave Regulations 2002 (S.I. 2002/2788) (corresponding provision for additional adoption leave).

(4) The reference in subsection (2)(c) to unfair dismissal does not include a reference to a dismissal—

(a) which is required to be regarded as unfair for the purposes of Part 10 by a provision (whenever made) contained in or made under this or any other Act, or

(b) which amounts to a contravention of the Equality Act 2010.

(5) The reference in subsection (2)(c) to the right not to be unfairly
dismissed does not include a reference to that right in a case where
section 108(2) (health and safety cases) applies.”

Responses to the consultation were submitted from, amongst others, the Law Society, CIPD, and TUC. I could not find responses from an employer’s organisation online, but here are the initial reactions from the CBI and BCC.

On 3 December 2012 the government published their response to the consultation. This brought with it some minor changes of detail, a promise of guidance for businesses and a change in the name of the new status from employee owner to employee shareholder.

By the middle of December, the employee shareholder clause of the Growth and Infrastructure Bill had become clause 27. Employee owners were renamed employee shareholders, and for the first time there was provision preventing existing employees from being forced into employee shareholder arrangements.

In early 2013 the proposals faced considerable opposition in the House of Lords, and the Bill was returned to the Commons by the Lords without the employee shareholder provisions.

On 14 March 2013 BIS’s employment law “progress on reform” document said that employee shareholder status would be introduced in Autumn 2013.

On 20 March 2013 the Chancellor’s budget made provision for the first £2,000 of shares to be issued free of income tax and national insurance contributions, and said that the proposals would be implemented from 1 September 2013.

In April the Bill went through the “ping pong” procedure, shuttling between the Commons and Lords, and each time the Lords rejected the employee shareholder provisions. The government initially conceded that turning down an employee shareholder contract would not affect an individual’s entitlement to benefits. Then, faced with the imminent end of the Parliamentary year, on Tuesday the government made two amendments in the Commons, providing for detailed information to be given to employees, and also that no acceptance of an employee shareholder agreement would be valid unless it was made more than seven days after the offer was made.

On Wednesday a further amendment was made in the Lords requiring the employer to pay for the employee to take independent advice on an employee shareholder agreement. With this amendment in place, the Bill was approved by the Lords, and is expected to receive formal royal consent today.

5 comments

Very concise and informative indeed.

by Bharat Handa on 25 April 2013 at 9:42 am. #

When I see again that “workers of the world unite” quote I cringe (a lot).

by Craig on 25 April 2013 at 10:27 am. #

Agree with Craig above. Disgusting. The employee already ‘gives to the company’ by working for it according to his contract. Giving up his rights not to be unfairly (not just dismissed but unfairly dismissed) or treated unfairly/wrongfully/unlawfully, by selling them for a future option in a company which may or may not succeed, subject to its owners and managers, is not ‘being in” it” together’. Whatever ‘it’ is, it certainly isn’t equality. The employee will not get his shares back if he gets sacked so there is no incentive for the employer to retain him. In any case, the Tories changed the law to make the qualifying period 2 years, so why should the empoyee have to sell his protective rights by law when he has not yet acquired them? this is exploitation by the company. The employee should always have the right not to be unfairly dismissed regardless of the company. Once the employee has left, the disputes arising in regard to obtaining the share value will cause more problems than the simple rights the Tories have so voraciously dissolved.
The Lords should have stuck to their beliefs and stopped it again.

by Veronica on 25 April 2013 at 10:54 am. #

I shouldn’t worry too much

Firstly, these types of contract already exist in the real world, albeit they are more akin to people who are engaged on a “contract for services” basis, and have no employment rights anyway.

But the main point is I think employers will avoid this like the plague. As one big employer put it, this just makes it look like business wants to do bad things. Good employers like John Lewis give their employers a share in the business and the employees retain their employment rights. Result? John Lewis are particularly successful, and I would also like to see the amount of Employment Tribunal claims brought agauinst John Lewis. I’d hazard an educated bet it’s very low – because everyone is happy and there is no need for any employee to exercise the minimum floor of employment rights.

And it’s got more holes than your aunts crotched curtains. For instnace, what if the employer goes bust? What happens to your shares? There’s no money, the employer can’t pay (in fact they have probably ceased to exist) – where does the money come from? You can’t claim to the state – you have no employment rights. It’s a half-baked, half thought out idea which by the sounds of it employers and employees alike will ignore anyway.

A severe waste of time and public resources.

by David Popple on 26 April 2013 at 9:14 am. #

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by Employment Law Solicitors | Top employment law blogging this week 22.04.2013 to 28.04.2013 on 28 April 2013 at 9:48 am. #