Debate Magazine

Swapping Rights for Shares

Posted on the 07 February 2013 by The Great Pub Debate @greatpubdebate

In April Chancellor George Osborne’s backdoor deregulation of the labor market will come into effect. The new employment status of Employee Shareholder will allow employees to trade maternity rights and their right for a fair dismissal in return for company shares.

Osborne hopes that small and medium size businesses will take up the opportunity to give shares to workers worth between £2,000 and £5,000 in exchange for a more flexible workforce. The employees in turn are able to sell their shares with exemption from capital gains tax. The new status will be optional for existing employees but could be a compulsory condition of employment to new hires.

Osborne’s plans seem to have two aims; making it easier for employers to hire and fire workers and allowing employees to share the wealth of the companies they work for. Osborne may be trying to kill two birds with one stone, but his plans risk leaving both birds unscathed.

Many small and medium sized businesses do struggle with uncertainty and unemployment, but the solution to this problem already exists; freelancers and contractors. The creation of a two tier workforce will cause a HR minefield and leave employers and employees bemused by increasingly complex and expensive contracts. A further problem arises in the case of dismissal for gross misconduct; do businesses really want disgruntled ex-employees holding a share in their running and do they want to go through the potentially costly procedure of claiming them back from the former

Ironically the employee shareholder idea comes straight from the political left and the co-operative movement. Although the sacrifice of rights on unfair dismissal, redundancy and maternity leave hardly reflect the Marxist call to arms “Workers of the world unite” flippantly used by the Chancellor. Sainsbury’s chief Justine King agrees that employee share schemes should not be linked to rights. There are also worries that the Employee Shareholder scheme could unfairly hit women as double the amount of notice of a firm date of return from maternity leave is required.

When the scheme is launched the costs may outweigh the benefits as the adoption rate looks like it could be low. 86% of those responding to a poll by the Huffington Post responded that they would not give up employment rights for shares in their company. A survey of small businesses by Prelude found a similar sentiment amongst employers, 72% of whom disagreed that George Osborne’s solution to the problem (swapping new share benefits for reduced employment rights) is a good idea.

The sentiment may be right in George Osborne’s plan but the execution is clumsy and ill thought out. Employees can benefit from share schemes accompanied by tax breaks, which align their interests with their employers. Equally many small businesses do need help with employment and a cut in red tape especially as the country heads for an unprecedented triple dip recession. But a potential administrative nightmare is not the answer.

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