If you like pantomime it is always best to choose a classic. For some it is Mother Goose, for others Cinderella. For me there is only one – Jack and the Beanstalk – and it is wonderful to see that the government appears to agree. In fact, the government likes it so much that it may have based a newly announced employment scheme entirely on the tale.
The story, of course, begins with Jack taking his family’s only asset (his employment rights) to sell at the market (say the Employment Tribunal/EAT). On the way, he instead meets an old woman who persuades him to sell the cow for some magic beans. And why wouldn’t he? Danger, hilarity and admittedly a golden goose ensue – and let us hope those who may one day avail themselves of the newly announced employee-owners scheme get so lucky.
For those who prefer non-fiction, the brilliant suggestion is that there should be a new type of employment contract under which employee-owners will give up their employment rights in exchange for shares in their employer. Under the plans, which we are told will be implemented in April 2013, employees will be given between £2,000 and £50,000 in shares (any prizes for guessing which end of the scale most will be at); any gains made on those shares later will be exempt from capital gains tax.
In return, all they will have to do is give up their rights to claim unfair dismissal, any redundancy payment and/or to request flexible working and time off for training. Employee-owners will also have to give 16 weeks’ notice of an early return from maternity leave. When an employee leaves or is dismissed, the company will be able to buy back the shares at a ‘reasonable’ price.
Leaving aside those informed employees who like a flutter (and, as always, the clinically insane) most employees would presumably be advised to instead hang on to their employment law rights and wait until they get to the market – though not all will take such advice. Fortunately, employee-owner status will at least be optional for such existing employees. However, the consultation does suggest that employers may be able to choose to offer only this type of contract for new hires, which some feel raises the possibility of a disturbing new world.
Of course, not all employers will fancy or be able to offer such ‘rights’. The deal is apparently aimed primarily at fast-growing small and medium-sized companies who want to create a ‘flexible workforce’. It is proposed though that the new contract should be available for offer by companies of any size. Companies recruiting employee-owners will of course be able to offer more generous employment conditions if they wish, meaning that employees could retain existing rights and still benefit from the tax benefits of the shares. And then we woke up.
It is perhaps not all so controversial. Apparently employee-owners receiving full capital gains relief on the shares awarded as part of their contract will still be eligible for existing employee share ownership schemes, such as Enterprise Management Incentives. Also, while employee-owners will not generally have unfair dismissal rights, the consultation paper reveals that they will still have the right to claim unfair dismissal where the reason for dismissal is automatically unfair. But this itself has limits. For example, employee-owners will not normally have the right to request flexible working. They will not therefore be able to claim automatic unfair dismissal if they are dismissed for making a flexible working request.
However, if they do have a discrimination claim arising from a flexible working request (or its refusal) they would still be entitled to bring that claim. The suggested rules do also appear to include TUPE-connected dismissals. They will not have such rights otherwise, though, and will not be entitled to a statutory redundancy payment should that time come (unlikely I know in this climate).
Employee-owners will still be entitled to 52 weeks’ maternity/adoption leave and 39 weeks’ maternity/adoption pay. However, if they wish to return from maternity/adoption leave early they will have to give 16 weeks’ notice of their intention to do so, rather than the normal eight weeks’ notice. If they do not give the full 16 weeks’ notice the employer will be able to delay their return until 16 weeks’ notice has elapsed.
So what of the shares that an employee will receive in exchange for giving up these rights? Well, the government states that all types of share will be eligible for use under the new employee-owner arrangement. The shares may carry rights to dividends, voting rights, or rights to share in the company’s assets if it is wound up. An employee-owner may be given shares valued between £2,000 and £50,000 – and the proposal is that the shares would be valued according to their unrestricted market value at the time they are awarded.
The contract between the employer and employee- owner can though require the employee-owner to surrender the shares on termination of employment, but the employer would have to buy them back at a ‘reasonable value’. In the consultation, the government seeks views on whether this should be at their full market value or some other level and how a company should go about valuing shares on termination, for example, whether there should be an independent valuation.
Not happy about this? Well sadly the timescale for consultation was very short and responses were required by 8 November 2012, so you may have missed the boat. It does then seem that this will become a hot topic for 2013 when the changes are to be implemented via the Growth and Infrastructure Bill which will make amendments to the Employment Rights Act 1996 (which has not been amended for several weeks).
In a climate in which many employees are all too frequently presented with the bewildering ‘opportunity’ of becoming a member of an LLP (with no set remuneration and often no legal advice), such initiatives will be unwelcome to the gods of employment law.
We may, though, take some comfort however that the lucky few do always escape the Giant, get to replace their iPod with a magic harp and ultimately get to set up a golden egg stall down the market. Not all bad then.
Darren Clayton, Doyle Clayton