A Norwich Solicitor’s View: The Pros and Cons of George Osborne’s Shares for Rights Scheme

GordonDean
February 12, 2013

Chancellor George Osborne’s initiative announced at the Conservative Party Conference earlier this month would allow employees to swap some of their employment rights for shares in the company they are working for. Mr Osborne announced that if deemed effective, the policy would be implemented by April 2013.

In a nutshell, employees would create a hybrid employment contract – exchanging their rights such as flexible working, redundancy pay and cover for unfair dismissal for shares in the business, ranging from £2000 to £50,000. As an added incentive, Mr Osborne announced that the shares would also be exempt from Capital Gains Tax.

There has been much controversy in the national press regarding the issue. Many opinions so far have taken an economical or financial angle, as well as criticism based on workers’ rights. As the owner of a firm of solicitors in Norwich specialising in employment law, I’d like to put forward some of my opinions, taken from an employee’s point of view.

Freedom In Employment Contracts Is Nothing New

Firstly, these sorts of hybrid arrangements are actually nothing new in the employment law world. There is no set employment contract that all employees must sign. Obviously there is EU legislation and The Equality Act in place that any employer must abide by, but the arrangements surrounding flexible working, redundancy pay, maternity or paternity leave can be made however is agreed by the employer and the employee.

Employers can already offer an employee any type of contract they wish, so long as it does not conflict with human rights or EU legislation. If the potential employee does not agree to the restrictions of the contract, they can choose to either negotiate different terms or refuse the job.

It is very common for new businesses to offer similar arrangements to employees, sometimes also with an equity share. For example at my Solicitors firm in Norwich , Philip Bazley, head of our wills and probate department, is a partner with equity share in the company.

The John Lewis Partnership

The most high profile example, and a fantastic demonstration of shares for employees is that of the John Lewis Partnership. All employees are essentially partners in the company and reap the benefits of yearly bonuses. Therefore, all members of staff are highly motivated to go above and beyond because by doing so they can earn more money. I think we are all in agreement that in general the customer experience offered by Waitrose is noticeably of a higher level than that of some of their competitors. In this instance however, unlike the new proposal offered by Mr Osborne, they do not lose any of their employment rights.

The idea behind giving employees shares is that they will be happier – feeling more like part of a team and receiving more money, while the employer benefits from harder workers, increased customer experience and more sales as a result. I would hope that George Osborne’s policy would incentivise more employers to follow this example to the benefit of all.

Benefits For Employees

While at first glance it may appear that employees are giving up their statutory rights, they will still be protected by English and European Law – for example they will never have to lose the right to equality in the workplace.

Employees in start-up businesses will be able to benefit from increasing dividends as the business grows. If the start-up fails, there is no loss to the employee other than the loss of their shares which they would not have had otherwise.

It has also been reported that employers will be able to give back rights to employees if they wish to. While I do not have the actual details of how employers will decide which employees have their rights reinstated, in theory a worker could receive both shares in the company and also their right to redundancy pay. This opens up negotiations between employer and employee to the point where both parties are happy. Currently, in many instances, employees simply accept the contract they are given without any negotiation of what could be flexible.

Risks For Employees

With unemployment figures the way that they currently are, there is an argument that some people could feel pushed into contracts they are not wholly happy with. An unemployed person who desperately needs a job but without many job offers may feel pressured to take a contract in which they give up rights in exchange for shares in the business, because otherwise they have no option but to refuse the job and remain unemployed. It gives employers more control over who they hire and how that person will work for them.

Accountants have also warned that there is a tax loophole for large earners in bigger companies whereby they have more to gain from the Capital Gains Tax relief. This could add fuel to the fire in the current political discourse about policies favouring the rich becoming richer.

However, there will always be bad employers unfortunately – this policy is not going to change that or make it worse.

Agency Workers

Agency workers in the UK have very few rights other than those covered by EU and English law. People working under agency contracts are therefore worse off than any employee as they do not have the same employment rights and would also not be offered shares in the company. The same goes for interns – a subject around which there was also a large amount of controversy last year. Could this policy mean that we start to see a rise in the numbers of agency workers?

Current verdict

Overall, I am all for new ideas that benefit employees, business growth and the economy and I think it is very important to explore ideas such as this before launching it.

In the case of bankers’ bonuses, this scheme would be perfect as employees would be working towards the long-term gain and performance of the company rather than to short-term targets so that they can receive inflated bonuses. On the face of it, I think that the scheme would be beneficial to both small and large businesses – the former having more confidence to employ new workers and the latter being able to better incentivise and bring together their team.

The intention of the scheme is to improve buy-in from employees and also ease the strict employment law that can sometimes limit smaller businesses, however until all of the details of the new policy are laid out, we cannot know whether the rights of the individual workers will be protected enough and that loopholes will not be exploited.

Before it can go ahead the policy must first go through Parliament and the House of Lords and I would be very doubtful of it being passed without the current criticisms being ironed out.