Employment Rights Reform: Why Shareholder Power Matters

The government’s long anticipated Employment Rights Bill is expected to become law later this year, in what has been described by ministers as the ‘biggest upgrade in employment rights for a generation’. Indeed, the measures contained in the bill appear promising: a curbing of zero-hours contracts, the banning of ‘fire and rehire’, the introduction of day-one protection from unfair dismissal, and a strengthening of redundancy consultation rules.

However, as the analysis in our pamphlet Shareholders’ Rights v Workers’ Rights argues, the promise of the government’s bill is inherently limited. Whilst the reforms are welcome, measures to meaningfully advance employment rights must address the deeply imbalanced context of corporate law and shareholder rights within the firm.

We point to the legal structuring power conferred on the owners of capital through corporate law which consistently works to legally privilege the interests of financial investors over those of workers.  Without adequately confronting this imbalanced playing field on which labour relations play out, new legal rights granted to workers risk being undermined by the structuring power of the corporation.

The Corporate Employer

Labour rights only matter where they can be made effective against an employer. As we show, what this means is that the legal form that an employer takes has a significance that is often downplayed in employment and labour law debates.

In labour law, the employer is typically treated as a single, unitary entity. However, the vast majority of workers in the UK are, in reality, employed in by corporations that sit within sprawling corporate structures, shaped by shareholders, private equity fund managers, and complex networks of subsidiary corporations.

Functionally, this results in decisions about working conditions, pay, and job security being made not by the worker’s direct employer, but by shareholders and fund managers with no legal relationship with the worker themself. Consequently, without this legal relationship, workers are often left with no countervailing legal power with which to meaningfully negotiate with corporate decision makers.

This, we argue, creates a significant structural imbalance for the effectiveness of labour rights. Shareholders enjoy extensive rights and privileges over enterprises, whilst workers’ legal protections are narrowly confined to the employment contract. As such, our analysis demonstrates the ways in which corporate law systemically privileges the interests of capital over labour, to the detriment of the effectiveness of labour rights.

The Corporation in Law

In making this case, our pamphlet unpacks and demystifies the corporate form and shows how the core features of the corporation work to produce this structural imbalance. These features include:

• Corporate Legal Personality, which allows corporations to act as ‘legal persons’, allowing shareholders to pool corporate property, whilst protecting themselves from liability.
• Limited Liability, which works to ensure that shareholders are personally protected from the debts of corporations, forcing workers and communities to bear losses in the event of insolvency
• Delegated Management, which formally separates ownership of corporate property from control over the corporation — although in practice produces corporate officers whose interests closely align with those of shareholders.
• Shareholder ‘Ownership’, which grants shareholders rights to a portion of corporate profits and the exercise of control via voting rights, without liabilities that normally attach to ownership.
• Free Transferability of Shares, which allows the ownership of shares to transfer at will via takeovers, without consultation with workers whose jobs are often at stake.

Taken together, we show how these features render the corporation not simply a neutral vehicle for commerce, but a powerful legal tool for value extraction, which shapes labour conditions and security in ways that labour law does not redress.

The Corporate Share and Value Extraction

Our analysis therefore pays particularly close attention to the legal form of the share, which we argue has become a key mechanism for concentrating wealth and extracting value.

The particular legal features of the share, we show, fuels an aggressive corporate takeovers market. This market works structurally via hostile takeovers and leveraged buyouts to discipline corporate officers to prioritise shareholder value maximisation above any other corporate concern. This process has particularly stark implications for workers, with the profit generated in corporate takeovers often being financed through job losses, asset stripping, and wage suppression. In spite of these implications for workers, our analysis shows that workers’ legal rights to resist these processes are minimal.

The rise of private equity as a business model lays bare this dynamic. As our analysis shows, using leveraged buyouts, private equity firms are able to acquire companies with borrowed money, loading the acquired firm with the debt accrued. Workers themselves must then shoulder the risks of this debt loading, facing deteriorating conditions, and endless restructuring as firms struggle under debt repayments.

The logic of limited liability means private equity partners face no personal risk if companies collapse. Rather, it is workers, creditors, and communities that bear the costs. This model, we argue, has entrenched precarity across the economy, particularly in sectors like retail and care work.

The Need for Collective Power

A recurring theme in our analysis is this apparent mismatch between the expansivity of shareholder power and the narrowness of workers collective bargaining rights. Whilst capital operates across entire sectors of the economy and global value chains, trade unions are legally restricted to bargaining with individual employers.

Because of this, our pamphlet makes the case for the extension of sectoral collective bargaining across the whole economy, which we believe is the only way to rebalance the labour relationship in the face of the legal structuring power of corporate law.

Our recommendations include:

• Challenging shareholder privilege: We argue that unions should campaign not only for stronger employment protections but also for fundamental reforms to corporate law.
• Reform takeover regulation: Our analysis shows the TUPE Regulations should apply to share takeovers, and that workers should have meaningful voting rights in takeover processes.
• Reforms to private equity: We make the case that reforms are needed to the effect of limited liability protections for private equity firms. Debt-funded dividends should be curbed, liability for private equity fund debts should attach to controlling General Partners.
• Expansion of Consultation Rights: Our analysis clearly shows the need for workers to be informed and consulted, not only in relation to redundancies, but in relation to changes to corporate capital structures and debts, which might act as an early warning system for crises.
• Extend Collective Bargaining: The Rolling out of collective bargaining across the economy would help workers to counterbalance the scale of corporate and financial power.

We believe the need for reform here is clear. As TUC analysis has shown, since 2008, shareholder payouts have soared £440 billion above inflation, while wages have lagged £510 billion below. This, we argue, is evidence that workers are bearing the costs of corporate restructuring, debt loading, and value extraction, while a handful of institutional investors reap the rewards.

Thus, whilst the Employment Rights Bill will certainly provide important protections, without addressing these deeper structures of corporate law, its reforms risk being blunted by these legal structures that empower shareholders to undercut the effectiveness of workers’ rights.

If we meaningful rights at work are our aim here — rights to ­security, dignity, and a fair share of value — we believe that we must go beyond piecemeal reforms. And as our pamphlet shows, this will mean confronting shareholder power directly, expanding collective bargaining, and rebalancing the foundations of corporate law.

You can read the new IER publication, ‘Shareholders’ Rights v Workers’ Rights’ here.