Rights for shares controversy

Employment lawyers have raised questions about Chancellor George Osborne’s proposal for employees to trade in some of their statutory rights for shares.

Under Osborne’s proposal, scheduled to come into force in April, employees would be able to accept between £2,000 and £50,000 of shares in return for giving up their UK rights on unfair dismissal, redundancy, flexible working and time off for training. Female employees would be required to give 16 rather than eight weeks’ notice of a firm date of return from maternity leave. Discrimination rights would remain. Employees would be exempt from capital gains tax for any increase on the value of the shares.

Employers would be able to insist on the new type of contracts for new employees.

Rob McCreath, partner at City employment firm Archon Solicitors, says the proposal is “eyecatching—in rather the same way as a motorway pile-up”.

“It will not deter people from bringing employment tribunal claims if they wish to, as they will still have a raft of other (largely EU-based) rights to rely upon. The legislation will be complex. It will have to provide for share valuations and buybacks in private companies and to prevent potential abuse by employers, for example through the creative use of different classes of shares. This complexity will generate additional disputes and litigation.

“For the vast majority of small and medium-sized private companies, the administrative, practical and legal implications of having substantial numbers of minority shareholders (with associated rights) will be unpalatable.

“If the plan disproportionately affects the rights of employees taking maternity leave (as currently appears to be intended) that aspect is likely to be challenged as being in breach of EU law.”

James Hall, associate at Charles Russell, says the proposal leaves “many questions unanswered”, including whether the shares would be given or purchased and whether they would carry voting rights; whether the “employee-owners” would be classified as employed or self-employed for tax purposes, and how much information they would be given as to the health and prospects of the company; and whether their shares would be “commensurate with their position and the rights they will be giving up”.