Osborne plan to swap share for rights will create more red tape for business, says Law Society

EMPLOYEE OWNERSHIP

Osborne plan to "swap share for rights" will create more red tape for business, says Law Society

George Osborne’s proposals for new employee-shareholder contracts are “flawed and will lead to more red tape, rather than less”, the Law Society warned this week.

The government reckons the new status will boost employee engagement and productivity and remove the perceived barriers around the fear of being taken to employment tribunal, which some ministers claim is deterring businesses from hiring.

However, the Law Society is concerned that small businesses, which are the prime target audience for this proposal, will be “put off by the complex tax, company law requirements and extra costs”.

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Lucy Scott-Moncrieff, Law Society President, said:

“The new status will cause substantial confusion for employers at the beginning, but particularly on the termination of an employee’s contract. There is potential for costly litigation on a range of complex issues which are likely to arise when an employee leaves, which runs counter to the government’s stated aim of supporting small and medium sized enterprises through simpler regulation.

“The decision to restrict employee shareholders access to maternity rights and flexible working also conflicts with the government’s commitment to family friendly policies. The proposals are likely to have a discriminatory impact as employers may not be aware of the interaction between the rights being sacrificed and those rights governed by domestic legislation, which still apply to them. Employers would have to take this into consideration in order to avoid allegations of indirect sex discrimination.”

In a letter to members of the House of Lords, Scott-Moncrieff said the "proposals to offer employee ownership to workers in return for the forfeiture of employment rights should be deleted from the Growth and Infrastructure Bill".

Background to “shares for rights” scheme

• Speaking at the Conservative Party conference on 8 October 2012, the Chancellor of the Exchequer, George Osborne announced plans for a new kind of employment contract called an employee-shareholder.

• New employee-shareholders will exchange some of their UK employment rights for rights of ownership in the form of shares in the business they work for, any gains on which will be exempt from capital gains tax.

• Under the new type of contract, employees will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax.

• In exchange, they will give up their UK rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training, and will be required provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual eight.

• The plan received little support from employers in a consultation exercise. A report issued on 3 December 2012 by the Department for Business, Innovation and Skills (BIS) said: “a very small number of responses welcomed the scheme and suggested they would be interested in taking it up”.

• The proposals to implement a new employee shareholder status are contained within Clause 27 of the Growth and Infrastructure Bill, which is currently before the House of Lords.

A final word

“The government has not undertaken an adequate assessment of the proposal’s likely costs and consequences. The restricted period of consultation on this proposal has prevented constructive engagement with stakeholders. It is unrealistic to provide interested parties with only three weeks within which to respond to a consultation on what are complex issues covering a number of areas of law.” - Lucy Scott-Moncrieff, Law Society President.

Want to know more?

The Law Society is the “independent professional body, established for solicitors in 1825, that works globally to support and represent its members, promoting the highest professional standards and the rule of law.” For more information visit www.lawsociety.org.uk.