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Employers Say Share Rights Are Wrong

Despite almost universal opposition from employers, the Government has managed to push through its latest “great” idea – the issue of employee shares in return for a reduction in certain employment rights. The proposal is set out in the Government's Growth and Infrastructure Bill. This week, after two previous rejections, it managed to get through the Lords – by the merest whisker - and now awaits Royal Assent.

The scheme was announced at the Conservative Party Conference in October last year. Effectively, in return for some shares, employees would sign away some employment rights: the ability to make an unfair dismissal claim; waiving the right to a redundancy payment; the right to request flexible working or time off for training; and an early return from maternity leave.

After a short consultation which clearly indicated employer concerns, the Bill was produced. The Chancellor George Osborne described it as a way of reducing risk for employers and encouraging them to recruit and giving employees a stake in the business. The clear reaction (from all parties) has been lukewarm. Most employers took the view that these waivers would have no real impact on employment issues. Additionally, employers say that one size doesn’t fit all. What might be workable in one business scenario, may well not work in another. Small business owners (who make up a large proportion of employers) take the view that employee shareholding will make management decisions less flexible, and less dynamic. They don’t want to share corporate decision-making with employees. The general view is that while there are serious employment issues which need to be addressed, this is not the way to do it.

In order to get the Bill through the House of Lords, the Government had to make a number of amendments. There is now a requirement that employees receive a written statement setting out in full details of both the employment rights they will not have and the rights and restrictions attaching to their shares - for example, dividends, voting, winding up, redemption, how different classes of shares are treated and transfer restrictions. There has to be a seven-day cooling-off period. There has to be assurance that job seekers who refuse the offer would not forfeit social security benefits; the first £2,000 of shares will be tax free; and there will be protection for existing employees who choose not to adopt the scheme.

Before entering into the contract the employee must take advice from a "relevant independent adviser”. This could be a solicitor but could also be a union or the Citizens Advice Bureau. The employer has to pay the reasonable costs of that advice, whether or not the employee accepts the role.

Will it work? As one member of the House of Lords put it after the Bill wheezed through: "I have yet to meet an employer who thinks that it is appropriate to reduce employment rights in return for sharing in growth in the future."

From the perspective of this small business owner, I will not be introducing it for a number of reasons:

  • It takes a long time to get to know each other.
  • Employees may find they have ownership in a failing, badly managed business; or
  • employees may be feckless and incompetent, and wholly unsuited to the responsibilities of share ownership.

Even if I approved of undermining employment rights (which I don’t),the reduction in risk would be too small to achieve any sense of security. The right to lodge discrimination claims need no service qualification and it’s likely that in the absence of the right to complain of unfair dismissal, that would be relied on.

Business owners are from Mars, employees are from Venus. Even the best of them just don’t usually understand what it takes to run a business. Hell! Many business owners don’t get what it takes to run a business which is why business attrition is so high in the first ten years. Years ago, I can remember a very successful franchisee (one of my suppliers then and now though she has moved her business from the franchise model) saying to me that her business was held up an example of excellence by the franchise company. She said “So many of the other franchisees thought that they could start work at 9.30am, finish at 3.30pm, take the weekends off and simply didn’t bother to get to grips with basic business requirements. And then they honestly didn’t understand why their businesses failed”. Having a stake in the business doesn’t make an employee reasonable, intelligent, hard-working, competent or a suitable business co-owner. Indeed, I contend that employee share ownership could seriously damage some businesses.

That said, it’s essential to reward, recognise, motivate and encourage employees and there’s no reason why you can’t link reward to business performance. If you have the front-end stuff right (good recruitment, setting, communicating and monitoring of standards, providing feedback and training, tackling problems immediately),employees can be rewarded with profit share. Employers can put aside some money from the net profit and tie it into performance. That gives employees (those who are motivated by such things) the impetus to try harder. But don’t give away the family silver. No one else will treasure it as you.

If (after all the warnings) you do decide to implement an employee share ownership scheme, you will need to take advice and tread carefully to manage the last minute statutory protections, as well as the handling of employment and shareholding rights.

If you need help with managing sticky employment situations, or any other aspect of HR, get in touch.

Russell HR Consulting provides expert knowledge in HR solutions, employment law training and HR tools and resources to businesses across the UK.

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