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Plans to allow employees to exchange employment rights for shares in their employer’s business are flawed, according to employment specialists at Black Country law firm George Green LLP.
The proposals, which were unveiled during George Osborne’s speech at the Conservative Party Conference, will give employers the option of offering employees new contracts from April 2013 that could see them exchanging rights to sue for unfair dismissal and redundancy payments, request flexible working and take time off for training for CGT-free shares in the business worth between £2,000 and £50,000.
Tim Lang, partner at George Green, said: “While we welcome measures to reduce the burden on employers and also measures to encourage employee involvement in business, these aims should be dealt with separately and, in attempting to deal with both, the Government has devised a scheme which appears to be unworkable.
“One of the key issues is the fact that, as a scheme aimed at small and medium-sized businesses, the shares are likely to only have a cash value to the employees once the business is sold – which might be years away.
“While the idea of offering shares as an incentive to employees (generally at no cost to the employee) is well established and successive governments have encouraged this, the difference is that under the new scheme employees would effectively be gambling employment rights worth thousands of pounds for shares in a company that are potentially worthless.
“Owners of small businesses also are unlikely to want to relinquish equity as their business grows, particularly in a business where start-up costs were high. What would happen if an employee wanted to leave the business after a short period, such as one month? Would the business be able to buy back their shares? And how would those shares be valued? Employers might find that they end up spending more money on share valuations and shareholder disputes than they would have done in the employment tribunal.”
Tim continued: “Owner employees will also still have protection against discrimination. They could therefore still, for example, make an informal request for flexible working and bring an indirect sex discrimination claim if that request is refused so the practical impact of that change is small. Employers would also still have to worry about disability discrimination claims when dismissing sick employees.”