Shares for Rights

This Government seems intent on tinkering with (for ‘tinkering’ read ‘annihilating’) employment rights.  The latest idea, which is intended to be law by April 2013, is for newly hired employees to be able to trade their workplace rights, including some maternity rights, for shares.  Provided such employees accept that they may be fired at will without redundancy pay, they may be awarded shares in the company with a value of up to £50,000.  Any increase in the value of such shares would be tax free.

Clearly, flesh needs to be put on the bones of this proposal but the main issues with this which spring to mind are as follows:

1.  Not all employers are limited companies.  Surely, if the idea is to encourage business growth without the fear of litigation, the “one man bands” and business partnerships are in as much need of such encouragement as limited companies.

2.  Will the employer be obliged to purchase the shares on termination of employment and, if so, at what value?  Employees are certainly unlikely to be able to sell the shares on the open market.  Furthermore, £50,000 is significantly less than the current cap on compensation for unfair dismissal and takes no account of the uncapped level of compensation which can be awarded for other types of claim.

3.  Making employees shareholders of their employers is no bad thing as it may well improve employer/employee relations.  Should this not be something which can be implemented without eroding employment rights further?  Already employees need to be employed for two years before they can claim unfair dismissal.  Why should they be prevented from claiming it at all?  

4.  What about discrimination claims?  Does the Government intend that the issues of shares will mean employees cannot claim discrimination either?  If so, it doesn’t seem like a very good deal for employees and effectively gives employers the green light to act with impunity.

5.  Will employees be forced to take shares in return for reneging their rights?  Even if not forced by legislation, will employers be able to make the taking of shares a condition of an offer of employment?

So many questions and so few answers which, giving the proposed timing of this new legislation, is a little concerning.  

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About Belinda Lester
I am the managing director and founder of Lionshead Law a specialist employment law and HR consultancy company.

6 Responses to Shares for Rights

  1. In addition to your point about exit value, I wonder what protections there will be to prevent abuse by the employer when shares in private companies are taken up. One can envisage a situation where a company has fallen on hard times (the shares may even be worthless) and the company restructures or goes bust shortly afterwards. Who will be the arbiter of the valuation and the percentage of shares received by the employee?

    I also find the timing of the announcement “interesting” as the government has only recently widened the scope of audit exemption in private companies. Perversely even more private companies will have no third party scrutiny!! *

    While moves to align the motivations of shareholders and employees would be welcome this does seem to be a rather blunt instrument!!

    * (While shareholders can require an audit, how many employees will know that they can or want to go down that path- especially when they’ve no employment rights).

  2. I think the whole thing sounds like it was scribbled down on the back of a fag packet after a few too many drinks. It is ill thought out and I just don’t see how it is going to be workable (or even desirable for either employers or employees) in practice.

  3. Strangely enough I was saying exactly the same thing to a solicitor yesterday evening.Maybe we are psychic?!

  4. Howard Lederman says:

    October 24, 2012

    Thank you for posting this item on employers offering shares to employees in exchange for employees giving their statutory and other rights. I recognize that the aim is to turn employees into “stockholders,” so that they will not longer be employees. Thus, employers can violate laws, like anti-discrimination and civil rights laws, with impunity. This situation reminds me of turning employees into “independent contractors” to accomplish the same aim.

    Howard Lederman

  5. Actually Howard, they will still be employees and it seems that the intention is not that they will give up all their statutory rights, just their right to claim unfair dismissal. The Equality Act 2010 (which is the anti-discrimination legislation) will still apply as will other statutory protections. Nevertheless, it seems ill thought out and I can see it throwing up all sorts of problems if, as is anticipated, it is introduced with effect from April next year.

  6. Pingback: Employment rights – would you give them up for shares? – Parental Choice UK

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