Shares for rights changes could cost employers more

Key concessions in the government’s employee ownership proposals could result in increased costs and work for employers.

The government had to make several concessions to its original proposals before the Growth and Infrastructure Bill, commonly known as ‘shares for rights’, was passed by Parliament.

Under the new legislation, employers will be able to allow staff to swap some of their employment rights, including unfair dismissal and redundancy rights, for shares in their organisation worth between £2,000 and £50,000.

The law was passed only after Chancellor George Osborne made the concession that employers must provide employees with free independent legal advice before they are asked to give up any employment rights.

Mirrick Koh, an associate in Jones Day’s labour and employment team, said this could prompt employers to question whether the scheme is right for them. “If employers know they’re going to have to incur costs by implementing the scheme, they may not want to spend that money.”

Koh also explained that employers can promote employee ownership within the existing legal framework.

He aded: “All those aims can be achieved through the current share option scheme, which are already in place. They also have the advantage of not having the employee sacrifice their employment tights and the employer doesn’t have to incur costs to set it up.”

Caron Gosling, an associate in Wragge and Co’s employment division, also questioned how easy the scheme is to introduce for employers.

Gosling said: “We haven’t got any legislation on how the scheme’s going to work. The rights that the employee share holders will be able to give up, such as the right to statutory redundancy pay, are quite limited. That’s a right that kicks in after two years, anyway.

“Employers will still be able to claim discrimination rights, which is potentially much more valuable for employees.”

Other concessions ensure that no employee can be forced to accept such arrangements. Employers must also provide written information to clarify the value of the shares being offered.

Paul Griffin, head of employment and labour at Norton Rose, said: “The scheme is most likely to be used by senior managers, who can receive £50,000 worth of shares at a very low value. If they hang around for 10 years and the employer makes a lot of money, all the gains are tax-free.”