Government’s Concession Allows Employee Ownership Scheme to Pass

The coalition government’s proposal for employee ownership has finally passed through the House of Lords, after Chancellor George Osborne made a key concession to allow the bill to go through.

The Growth and Infrastructure Bill, which is known in the media as “Shares for Rights”, was passed by the House of Lords and now means that employers will be able to allow employees to waive their employment rights (which could include unfair dismissal and redundancy rights) in return for shares in their company.

It appears the only way that the Growth and Infrastructure Bill got through the House of Lords was through the addition of a clause by the government. This amendment states that employees will only be able to waive their rights after they receive free independent legal advice (paid for by the employer) and that subsequently they will have a 7-day cooling-off period to decide whether to take up the share offer.

The Employee Rights for Shares scheme is part of the government’s strategy to encourage organisational growth during the recession. However over the last few months the proposal has been stuck in legislative purgatory between the House of Commons and the House of Lords, who were originally not so keen and frankly couldn’t see the point.

This has been a pet project of George Osborne and his finance team, despite the general consensus that this scheme will only apply to a very small minority of employers and employees, and could indeed be used by higher paid employees at director level to avoid income tax and National Insurance contributions.

The key concession which George Osborne offered to get the Bill through relates to independent legal advice for the employee, which will be funded by the company regardless of whether or not the individual takes up the offer. After the individual employee has been provided with specific information as to the employment rights they are being asked to waive (which would normally be unfair dismissal rights, flexible working rights and some parental leave provisions) and information relating to the shares that they will receive, the company will provide this advice at no cost to the employee. The employee will then have 7 days to decide whether they want to take up the offer and waive their employment rights.

There are a number of issues which have not yet been addressed by the government and these include the valuation of shares upon exit, or how an employee will dispose of the shares, particularly if they are no longer employed.

Iain Hasdel, Chief Executive of the Employee Ownership Association, commented on the new legislation “the decision to allow clause 27 of the Bill, in which worker rights on such matters as redundancy and unfair dismissal have to be sacrificed by employees in order for them to be allowed an ownership stake in the business in which they worked, is hugely disappointing. There is absolutely no need to dilute the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost employee ownership”.