The government’s employee ownership proposal has passed in the House of Lords.
The Growth and Infrastructure Bill, commonly known as ‘rights for shares’, passed by 275 to 168, a majority of 107, after Chancellor George Osborne made a key concession.
The legislation means that employers will be able to allow employees to swap employment rights, including unfair dismissal and redundancy rights, for shares in their company worth at least £2,000.
The government has now added the clause that employees will only able to swap rights after receiving free independent advice and that they will have seven days to decide whether to take up the share offer.
The scheme is intended to help encourage organisational growth during hard economic times, but the proposal has been caught up in legislative ‘ping-pong’ between the House of Commons and House of Lords.
The peers previously voted the scheme down on 22 April 2013 and on 20 March 2013 after it was passed in the House of Commons.
Len McCluskey, general secretary at Unite, said: “Government concessions to save face are meaningless.
“They will do nothing to protect vulnerable workers and will only saddle businesses with costly legal bills.
“Those desperate for work will still face the invidious choice of signing their rights away to get work and put food on the table.”
Iain Hasdell, chief executive of the Employee Ownership Association, added: “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 work, 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.”
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The news follows the 2013 Budget, on 20 March, in which the government announced that it will invest £50 million annually from 2014-2015 to incentivise the employee ownership sector, as well as announcements that the first £2,000 of share value that any employee receives under the new status will be free from income tax and national insurance (NI) contributions. The government will also fund capital gains tax (CGT) relief on the shares.
Having been rejected twice by the House of Lords, many felt that the fundamental flaws in this proposal were only too obvious. However, the House of Commons appear to have finally addressed one of the main concerns: that of employees receiving proper advice.
Now, employees being offered employee shareholder status will be required to get independent advice that is funded by the company regardless of whether the individual takes up the offer. This advice will come after the individual has been given specific information as to the employment rights they will be giving up (broadly being unfair dismissal rights, the right to request flexible working and some amended parental leave provisions), as well as on the shares they will receive and the rights that these will carry.
Having taken this advice, the employees will then have a seven-day cooling-off period to consider their position before they are able to accept any offer.
This provision for proper advice is undoubtedly a good thing. Interestingly, the advice can be sought from unions (in addition to lawyers or legal advice centres). While similar advice would normally given to individuals free of charge as part of union membership, it seems likely that unions will seek to capitalise on their ability to request fees from employers.
Despite their concessions, the government have not properly addressed the issues around the valuation of shares upon exit, or what arrangements there will be for adequate disposal. While this may on the surface appear be a good thing for employers, this aspect is undoubtedly something that will be raised by a competent adviser, particularly if they are a union. Pressure may therefore be applied to employers to outline the exit provisions, possibly even in the contracts themselves.
It remains somewhat of a mystery as to why the government has been so keen to push this new status into being. Both employees and employers alike have shown a distinct lack of interest. The Employee Ownership Association, the self-proclaimed voice of co-owned businesses, has been vocal in its opposition, stating on its website this this new status is ‘hugely disappointing’ and that there is ‘absolutely no need to dilute the rights of workers’.
With high profile businesses, such as the John Lewis Partnership among its members, which have a long history of employee ownership, the EOA clearly knows its market. As they are condemning it and there are potential risks to the employee owners themselves, it begs the question of whether anyone will really want this new status at all.