Employment Update: Consultation on new employer owner status
19 October 2012
The Chancellor of the Exchequer, George Osborne, recently
announced controversial plans to create a new legal status of
‘employee owner'. Employee owners will receive shares in their
employer's company worth between £2,000 and £50,000 (exempt from
capital gains tax) in exchange for giving up unfair dismissal
rights, statutory redundancy pay, the statutory right to request
training and the statutory right to request flexible working. They
will also be required to provide 16, rather than eight, weeks'
notice to their employer of an intention to return early from
maternity or adoption leave.
Osborne's unexpected proposals have attracted some critical
attention. The unions have argued that the plans represent another
attack on workers and will not create jobs or growth. CIPD have
commented that employees have little to gain by substituting their
fundamental rights for uncertain financial gain and employers have
little to gain by creating a two tier labour market. The British
Chamber of Commerce, however, has described it as an innovative and
imaginative proposal that deserves to be tried out, but one that is
unlikely to be a game-changer.
The Department for Business, Innovation and Skills has now
published consultation documentation
providing further detail about the Government's plans. It
acknowledges that the UK has one of the most lightly regulated
labour markets in the developed world. However, the Government's
main aim, which runs through many of the recent employment law
reforms, is to improve the flexibility of the labour market. It
also wants to remove the perceived barriers around the fear of
being taken to tribunal, which it believes is deterring businesses
from hiring. The key areas subject to consultation are as
Employment status – the proposed employee owner
status is intended to be distinct from existing types of employment
status, including being an employee or worker. Employee owner
status has two defining characteristics: an equity share and
reduced employment rights, as outlined above.
Employers – companies of any size will be able to
use this new status but it is principally intended for fast-growing
companies that want to benefit from the flexible arrangement.
Shares - the Government intends that all types of
shares will be eligible for use. These shares may carry rights to
dividends, voting rights or rights to a share in the company's
assets if it is wound up. The Government expects that this will
take effect as part of a contractual arrangement between the
employer and employee owner. Employers would choose to apply
restrictions on the shares they issue and would be allowed to
include a clause in contracts requiring the employee to surrender
the shares when the employee leaves, is dismissed or is made
redundant. However, the Government notes that, to protect
employees, it will require that if shares are surrendered, the
employer would have to buy back the employee's shares at a
Valuing shares – for the purposes of the limits on
the shares that can be awarded, shares will be valued according to
their unrestricted market value at the time that they are awarded
(i.e. the price that the shares might reasonably expect to fetch on
the open market, disregarding any restrictions). The Government
acknowledges that, depending on the design of the forfeiture and
buy back requirements, and any tax requirements, a further
valuation of the shares may be needed.
Guidance – the Government is seeking views on the
appropriate level of information and guidance that individuals
might need to ensure that they understand how employee owner status
will affect their particular circumstances before they accept or
reject an offer.
Unfair dismissal – employee owners will still be
entitled to claim unfair dismissal where the reason for dismissal
is automatically unfair (e.g. an employee owner could not be
dismissed for whistleblowing or taking maternity leave).
Anti-discrimination legislation is also unaffected by these
Redundancy pay – under the new proposals, an
employee owner would not be entitled to a statutory redundancy
Flexible working - employee owners will only have
the right to request flexible working when they return from
parental leave and it is proposed that the request will need to be
made within four weeks of return.
Training – employee owners will not have the
statutory right to request training that is available to employees
in businesses with 250 or more employees.
Maternity/adoption leave – employee owners will be
required to give 16 weeks' notice of their intention to return
early from maternity or adoption leave, instead of the current
eight weeks' notice. If an employee owner does not give the full 16
weeks' notice, their return can be delayed under the 16 weeks'
notice period has elapsed.
The contrasting and varied reactions to date make it difficult to
predict how many employers will choose to offer this new employee
owner status. The supposed benefit of reduced employment rights may
simply be outweighed by the practical and legal implications of
considering how many, and what types of, shares to offer employee
owners, arranging share valuations and structuring buybacks.
The consultation closes in just three weeks, on 8 November 2012.
Legislation to bring in the new employee owner contact will be
introduced via the Growth and Infrastructure Bill, with the aim of
employers being able to offer the new type of contract from April