Employee owner status – Business democracy or Beecroft by the back door?

24 October 2012

By Roger Jeary

The government is pretending to offer employee enfranchisement through their shares for employment rights proposals, but all they are doing is making it easier for employers to fire their workforce at the drop of a hat.

Last week (18th October 2012) the government launched the consultation period for its shares for employment rights proposals, giving just 3 weeks for interested parties to respond. It is difficult to understand the exceptional circumstances of this piece of legislation which requires the government to break its own rules about consultation time, which is normally 12 weeks, but I will leave readers to work that out for themselves.

Under this new employee owner status, employees will be entitled to between £2,000 and £50,000 of shares, which will be exempt from capital gains tax, in exchange for giving up their unfair dismissal rights (although they are still protected from being automatically unfairly dismissed), certain rights to request flexible working and training, and statutory redundancy pay. Employee owners will also need to give longer notice to return from maternity leave or adoption leave. It is unclear from the consultation document how the amount of shares offered will be determined, but I guess this will be a matter for the employer and will depend on how much he/she wants the employee to join them.

There has been little enthusiasm shown for this initiative either from employers or trade unions and a fair degree of scepticism expressed by employment lawyers. A kind view of this proposal is that it is Osborne’s version of Thatcher’s home owning democracy: a business owning democracy. However, most people see it as really being Beecroft in Thatcher’s clothing: no fault dismissals dressed up as the enfranchisement of employees.

What makes the whole process appear even more ludicrous than usual is that the consultation document talks about the need to improve the effectiveness and flexibility of the labour market, thus encouraging the business world (particularly small and dynamic businesses) to employ more people, creating wealth and growth. I find that objective confusing when I go on to read that part of this will be achieved by restricting the right to request flexible working – a proposal which will clearly impact most heavily on those with caring responsibilities (i.e. women in the main). The government’s rationale for this approach described in the consultation document is that whilst it is committed to extend the existing right to request flexible working to all employees during this parliament, this extended right will not apply to employee owners. Confused? Me too.

And then there is the right to request training or, in the case of employee owners, the right to request training but no right to any remedy if the employer refuses.

By this time, I am beginning to wonder whether the title “employee owner” (my emphasis) is really very useful. “Owner” suggests some proprietary rights but it seems to me that nothing could be further from the mind of government. This is just another, albeit poorer, system of share ownership scheme already available for companies to offer, and the consultation document makes clear that both types of scheme can run alongside one another. This is clearly not about ownership, as the DBIS website itself makes clear when it describes employee owner status as giving “businesses greater choice about the contracts they can offer to individuals, whilst ensuring appropriate levels of protection are maintained”. This concept is repeated throughout the consultation document and provides the clarity of intent of this new proposal to give businesses choice about the level of statutory protection their employees have rather than to provide employees with a greater share of the business they work for.

So these proposals are clearly designed to restrict the already limited employment rights available to UK employees. Nobody really believes that any additional jobs are likely to be created as a result of such provisions and the only flexibility being introduced is for employers to hire and fire at a whim without fear of being accountable to the law.

The most important question contained in the consultation document is Question 6. It invites views on the level of advice and guidance that individuals and businesses might need to be fully aware of the implications of taking on employee owner status. Might I suggest that for employees tempted to go down this route the old Latin maxim might be the most appropriate guidance – Caveat Emptor – Let the buyer beware!

Support the IER and receive free employment law publications and reduced entrance fees to our employment law seminars and conferences by subscribing to the IER.