Dangers of shares-for-rights proposals highlighted by MPs

13 December 2012

In a Public Bill Committee debate last Thursday (06 December 2012), Business Minister Michael Fallon attempted to defend the government’s deeply unpopular shares-for-rights proposals, which were blasted by opposition MPs in an attack led by Ian Murray.

The government quietly released its official response to its consultation on implementing a new employee ownership status last week, revealing that very few out of the 209 respondents had anything positive to say about the proposals to offer employees shares in their organisation in return for fundamental employment rights, including the right to redundancy pay, to claim unfair dismissal and to request flexible hours and training.

Despite this, the Coalition stated that it would plough on with the legislation, which has been added to the Growth and Infrastructure Bill, and Fallon proved during the session that he would personally also continue to ignore the concerns of the opposition, workers, trade unions, and even business organisations.

“There is no embarrassment about the clause or the amendments,” Fallon told the Committee. “This government consult and listen to the consultation.”

However, all evidence seems to suggest that the Coalition listened to the consultation on its shares-for-rights plans then chose to ignore it.

Indeed, Murray responded: “The Minister gave a robust response, saying that the Government consult and listen, but they have not really listened to the consultation results.”

“There is so little appetite in the business community – in any community, for that matter – for these changes, that we could have finished the entire Bill by lunch if the Minister had withdrawn the clause,” he added.

Although the opposition was forced to accept that the government would stubbornly push through the policy, despite its clear lack of mandate, they had a long list of criticisms of the legislation.

Briefly, these concerns, which the IER shares, are listed below:

Tax avoidance

New amendments to the Clause mean that subsidiary and parent companies can be the holder of the employee-shares scheme and more than £50,000 could be offered in shares, prompting worries among some that it could be used for tax avoidance.

“Where a subsidiary company has shares allocated in it for employee owners, will it actually be the employer of those employees, rather than just an opportunity for tax avoidance and to deal with PAYE and national insurance through a different subsidiary of a parent company?” Ian Murray highlighted.

TUPE arrangements and role changes

There is no mention of TUPE in the Clause itself, in the consultation on the proposals or in the impact assessment, leading the opposition to question how the shares-for-rights agreement would be transferred between employments.

“If someone is on an employee ownership contract and transfers out, do they transfer out with the shareholding, or do they transfer it under a standard employment contract?” said Ian Murray.

Beecroft by the backdoor

As the IER has highlighted, the employee ownership scheme seems to be a way of bringing in Beecroft’s no-fault dismissal recommendations by the back door. Ian Murray stated: “There is little doubt that the Beecroft agenda, which underpins this policy, was cobbled together rather quickly to drive home some ideological point about workers’ rights.”

Fallon responded: “This is not Beecroft by the back door: the new employee owner status is different from Beecroft’s no-fault dismissal proposal, because individuals become shareholders of the company at the start of the employment relationship. After reviewing the evidence supplied in the consultation on Beecroft, the government found no compelling reason to implement the no-fault dismissal proposal, which is why it is not contained in the Enterprise and Regulatory Reform Bill that is currently before Parliament.”

How voluntary is the scheme?

Fallon has been falling back in successive debates about the government’s proposals on the fact the scheme is not mandatory, but the opposition questioned how voluntary it really is. For instance, a person desperate for a job may take one that includes an employee-ownership contract even if they do not want to give up their rights. It is also possible for employers to make workers redundant and reinstate them on an employee ownership scheme. Others may simply feel they are not able to opt-out without risking their job security.

The introduction of “protected” settlement agreements through the Enterprise and Regulatory Reform Bill was also of concern, with Murray noting: ” An employer and an employee can have a conversation about moving someone from a normal employment contract on to a new employee owners contract under the guise of a settlement agreement, without having any of that independent legal or financial advice put alongside it. That is a real danger.”

Andrew Stunnell MP queried whether sanctions would be placed on Job Seeker Allowance claimants who reject an offer on the basis that it is for an employee-ownership scheme rather than a typical employment contract.

Cost to workers

It was also revealed there are hidden costs to workers in the form of income tax on the shares they hold, which would count as an employment benefit, although the government stated that the first £2,000 of shares would not be eligible for taxation.

Murray noted: “The poor employee will have to find a significant amount of money to pay that tax and national insurance, before the value of the shares has even been realised.”

Flexible working, parental leave and the effect on women

Employee ownership also includes giving up the right to request flexible working and curtailed rights for parents. It was raised during the session that this could have a disproportionate effect on women.

Fallon responded with a naively optimistic view of the employment relationship: “While employee owners do not have the statutory right to request flexible working, it does not stop them having constructive conversations with their employers about how they work to best suit the needs of the individual and the needs of the company”.

When it comes to the curtailing of parental rights, the minister’s response was similarly out-of-touch: “Employee owners will want to ensure that their early return from maternity or adoption leave creates minimal disruption to the business,” he stated.

The removal of the right to request training

It was noted that this is an odd choice of employment right to remove at a time the government claims it is attempting to promote greater skills acquisition in the country.

Economic concerns

There were concerns that the lack of job security that could arise from the proposals could damage consumer confidence and thus economic growth – hardly the ideal outcome of the Growth and Infrastructure Bill (incidentally, Murray noted that employee ownership appears to have nothing to do with either growth or infrastructure).

The damage to employment rights

Finally, the largest worry of all: the damage the proposals could do to employment rights. Murray noted: “[The Coalition] are paying lip service to the idea that they are standing up for employee rights”, describing the shares-for-rights scheme as nothing but “a potential tax loophole for wealthy employers and employees to exploit” and an easy way for unscrupulous workers to get rid of staff without good reason.

Fallon’s words on this issue were typical of the weak spin the government has been putting on each of its anti-worker policies. “It was suggested that the proposal takes away rights,” he said. “It does not take away rights; it adds a new right to a new form of employment status.”

However the only people we can see gaining rights are rogue employers and tax avoiders, who are being gifted with extra tools to exploit workers and drain the public purse.

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