What do Quastel Midgen make of the “employee shareholder” proposals?

14 February 2013

In October 2012, George Osborne announced proposals for employees to acquire at least £2,000 worth of shares (which will be exempt from capital gains tax) in their employer company in exchange for giving up certain employment rights.

These proposals (if passed) will form part of the Growth and Infrastructure Bill 2013. Under these proposals, an employee will waive employment rights relating to unfair dismissal, redundancy, flexible working and certain maternity rights in exchange for shares in their employer. On termination of employment, the shares will be purchased by the employer for a “reasonable price”.

This has proved to be a controversial proposal which has received little support but the government announced in December 2012 that it will be proceeding with these proposals. On its second reading in the House of Lords on 8 January 2013, one of the Lords remarked “I have never seen such unanimous opposition to a proposal from those whom it is intended to benefit, namely companies themselves”.

The proposals were further debated at Committee Stage on 6 February 2013 and despite strong objections and proposed amendments, the bill passed through without amendment.

We will publish a full report on these proposals once it is clear that they will be implemented. However, it is apparent at this stage that these could have serious implications.

From an employee’s perspective, if their employer is struggling, the employee faces the very realistic possibility of being made redundant (with no redundancy payment) and shares of little value.

Not only are there serious issues from an employee’s perspective, but contrary to its intention, the proposals may also increase employee turnover. This is because (if the business is successful) an employee may decide to “cash in” their tax-exempt gain and move to another employer to start the process again.

We are also likely to see an increase in discrimination claims to compensate for the inability of employees to bring an unfair dismissal claim creating further difficulties for employers.

For further information, please contact our Employment Team.