The Government has responded to its consultation on employee ownership which allows employees to give up some employment rights, such as unfair dismissal, in return for shares. The Government intends to implement the policy, despite 92 per cent of respondents viewing the plans in a negative or mixed way. Among other things, the Government response also confirms that unemployed people may lose their benefits if they reject an offer of work on an employee shareholder basis.
In its response the Government acknowledges that there ‘was a strong concern that individuals were losing important employment protections and that they might be coerced to take on employee owner status’, but reiterates that it ‘has already stated that the new status is voluntary’. However, BIS has previously confirmed to IDS that ‘companies can offer employment on this basis [employee owner] alone to new hires if they choose to. It is then up to the individual to decide whether what is on offer is suitable to them’. In other words, the new contracts will be ‘voluntary’ for employees on a take-it-or-leave-it basis. The Government response also reveals that unemployed people who receive Jobseeker’s Allowance would have to accept reasonable offers of work on an employee shareholder basis unless they have a good reason for refusing. Those who do not have a good reason may lose their benefits for up to three years – what constitutes a good reason is considered on a case-by-case basis. However, the Government will consider this issue further as the law is finalised.
Many respondents to the consultation thought that claims of discrimination or automatically unfair dismissal may increase if the new status is introduced. The Government remains of the view that although discriminatory behaviour might be encouraged, this is not a problem as the Equality Act 2010 requires companies to show objective and proportionate justification of any indirectly discriminatory use of ’employee owner’ contracts. The Government stressed that it is important to note that while ‘there may be varying numbers of individuals from different protected groups that may be impacted by this policy’ and ‘different protected groups may be impacted more or less, or in different ways, this does not necessarily mean that they are discriminated against as a result of the policy’. Nevertheless, the Government will monitor the impact of the new status on discrimination and other types of tribunal claim.
The Government states that it is not appropriate to introduce further regulation on how the shares element of the employee owner status should operate. That would, in the Government’s view, risk negatively impacting on existing employee share schemes, and reduce the flexibility of employers and potential employee owners to negotiate arrangements. Companies using the new status will simply need to satisfy themselves that they have indeed issued shares that have a real value of GBP2,000. The Government also believes that conditions of forfeiture should be left to contractual agreement between the employer and employee owner.
The changes to the scheme (as previously set out in our news story of 26 October 2012) following the consultation include:
• changing the name of the new employment status to ’employee shareholder’
• allowing non UK-registered companies to benefit from the status
• explicitly stating that the shares should be fully paid up and be issued free of charge to the employee owner
• enabling the Secretary of State to increase the minimum share value of GBP2,000
• removing the upper threshold of GBP50,000 on the number of shares that can be offered under the scheme, but not raising the GBP50,000 exemption from capital gains tax
• changing the notice period for return from additional paternity leave to 16 weeks, so it is consistent with change to the notice period for return from maternity and adoption leave, and
• allowing shares to be issued by both the employing company and its parent company.
The Government has also committed to ensuring that there is clear guidance about the new status for companies and individuals.
The Government intends to amend Clause 23 of the Growth and Infrastructure Bill, which deals with employee ownership, at the earliest opportunity. The Government accepts that there may be a need or requests for further changes to this clause as the Growth and Infrastructure Bill progresses through Parliament. The Government is also considering options to reduce income tax and NICs liabilities that arise when employee owners receive their shares. Draft legislation on the CGT exemption will be published for consultation on 11 December.