Owner-employee contracts ‘A worrying attempt to remove employment rights’

After rejecting the proposals twice, the House of Lords yesterday voted in favour of plans which will see workers give away employment rights in exchange for receiving shares worth between £2,000 and £50,000 in their company.

The Growth and Infrastructure Bill was passed after a further concession was offered by the Government which would ensure that, in order for an employee shareholder agreement to valid, employees have the opportunity to take independent legal advice the reasonable costs of which are paid for by their employer. This final concession was on top of the previous ones:

  • a 7 day “cooling off period”
  • employers must provide a written statement with full details about the shares and the rights they carry
  • any jobseeker who refuses the offer would not forfeit social security benefits
  • the first £2,000 of shares would not attract income tax
  • existing employees would be protected from detriment if they refuse to switch.

Irwin Mitchell’s Head of Employment Law Tom Flanagan has described to the decision to pass the measures as a worrying step which, despite approval from Westminster, is unlikely to find the same favour with either workers or their employers.

Reacting to the latest developments, Flanagan said: “The ‘ping pong’ process which this legislation has been through in the Lords and Commons highlights the divisive and troublesome nature of the key measures in this bill. However, the fact it has been passed by the House of Lords may now set a dangerous precedent.

“It seems evident that there is a drive to establish a principle that universal statutory employment rights are able to be eroded in this way.

“The rights which can be removed by this Bill are something of a hotchpotch. The common thread appears to be that they are UK law rights and not ones which emanate from Europe.

“In other words, these rights are earmarked for removal because they can be without offending the UK’s Community obligations. That, in itself, suggests this is about removal of employment rights, rather than providing any encouragement to business to grow or increase productivity.”

Discussing some specific concerns over the plans, Flanagan added: “The idea of linking employee commitment to the success of a business is an interesting and generally good idea, but this version does not inspire confidence.

“Notably, from an employee perspective, the economic climate means the idea of giving up rights for shares which are not performing well is unlikely to be popular.

“In addition, small businesses may be reluctant to give shares away, for example if they are family or owner-manager businesses. There is no effective open market value for shares in a “closed” company. Companies may not also want to give voting rights over to workers.

“The whole scheme is likely to create a complex web of shareholder arrangements and tax provisions so that smaller businesses – the prime target for this initiative – are unlikely to want to become involved because of an ironic increase in red tape and cost, which is, with further irony, likely to be greater because of the concessions which permitted the Lords to finally agree to the Bill’s passage.

“The final concession of requiring independent legal advice is also likely to lead to many employees being advised that it is not in their interests to agree to the offer, whilst creating the possible involvement of numerous law firms or a stronger trade union presence in the day-to-day interaction between an employer and its employees.

“This initiative has all the hallmarks of creating unintended consequences, largely, I fear, through having been ill-thought out to begin with.

“On research to date, the jury is out on whether the UK’s employment laws do actually inhibit growth and whether, therefore, removing even some of them would have any positive effect on growth. Effort might be better spent providing clearer information and guidance to employers about the real impact of employment law, so that they can understand how to live with it. This initiative is not likely to make that task any clearer or easier.”