Government announces proposals to allow employers to offer employees shares instead of employment law rights.
Earlier this week the government announced plans for employers to offer employees an alternative type of employment contract which grants employees ‘employee-owner’ status in the employer’s business.
Under this new type of contract, employees would be required to give up some of their UK employment law rights, such as the right not to be unfairly dismissed, in exchange for between £2,000 and £50,000 worth of shares in the company for which they work. While employee-owner status would be optional for existing employees, it is proposed that employers would have the option of offering new starts this new type of contract only.
Employers of any size would be able to use this new type of contract. However, the government’s intention appears to be to assist primarily small and medium sized employers to grow by allowing for the creation of a flexible workforce.
It has yet to be made clear whether or not voting rights will sit alongside the shares on offer, or whether there will be good leaver/bad leaver provisions on disposal of shares when employees leave. This has left some commentators to speculate that small businesses may be reluctant to give shares away, particularly if they are family or owner-manager businesses.
In addition, under existing UK law, an employee cannot contract out of their existing employment law rights without entering into a compromise agreement (soon to be renamed a ‘settlement agreement’) in respect of which they have taken independent legal advice. Given that settlement agreements are still on the government’s agenda (see our article in the Journal of the Law Society of Scotland), it will be interesting to see how the government approaches this matter.
Consultation on the details of this proposal and the legislation required to bring it into force is scheduled to be unveiled later in the year. The aim is for companies to be able to start offering employer-owner contracts as early as April 2013.
Just Employment Law will keep you updated on the status of this matter as it progresses.
More information here.