The legislation to introduce the employee-owner is included in the Growth and Infrastructure Bill, which is currently making its way through Parliament.  Following debate in the House of Lords on 20 March 2013, the Lords voted to remove the relevant clause from the Bill, thereby preventing the introduction of employee shareholders.

A number of issues were raised during the House of Lords debate.  Some Lords expressed concerns that there might be a rise in discrimination claims because such claims will be the only source of redress left if employees cannot cite unfair dismissal or redundancy.  Others felt it should be mandatory for employees to get independent legal advice when deciding on whether or not to become an employee-owner.  There was also the dilemma of how to value the shares.

Baroness Brinton remarked that the legislation “asks the average British employee to give up his or her rights in the workplace in exchange for shares in a company that are likely to yield very little other than an income tax charge at the front and a possible blue skies capital gains tax many years in the future.”

“It asks the average British employee to give up his or her rights in the workplace in exchange for shares in a company that are likely to yield very little other than an income tax charge at the front and a possible blue skies capital gains tax many years in the future.” Baroness Brinton

Despite this setback, the Government appears keen to progress with its plans to implement the employee shareholder.  During delivery of the Budget on 20 March 2013, the Chancellor of the Exchequer announced that employee shareholder contracts will come into force on 1 September 2013.  He also stated that no income tax or national insurance contributions will be payable on shares to a value of £2,000.

The Bill now returns to the House of Commons.  The Government can either accept the House of Lords’ decision, in which case employee shareholders will not happen, or it can try to re-introduce the relevant clause.

Image: Parliamentary copyright images are reproduced with the permission of Parliament

Much like mythological creature the minotaur – who was part-man, part-bull – this new entity will be neither one thing nor the other.  Instead, familiar and recognisable parts of the employee will be sacrificed to create a new hybrid.

It is proposed that the employee will give up statutory rights on unfair dismissal, redundancy, the right to request flexible working, and the right to request training.

However, in return the employer will grant the employee shares in its company, worth from £2,000 to £50,000.  These shares will be exempt from capital gains tax.  Sounds great. But is it?

Osborne’s proposals are primarily aimed at smaller, fast-growing companies that want to utilise a flexible employment arrangement.  But such firms might be put off by the complicated shareholding agreements and tax breaks the arrangement will require.

Employees should think carefully before discarding statutory rights developed over decades in return for shares whose value may be uncertain.  In a worst-case scenario if the company were to fail they might be left with worthless shares and no redundancy pay.

The proposed changes span a raft of contractual and employment law, which the Government must consider and amend in order to give life to the employee-owner arrangement.  The scope of these changes might prove too extensive to implement.

The minotaur met an untimely end after having languished in a dungeon for the majority of its brief life.  It seems likely that the Government’s hybrid creation might suffer a similar fate if its implementation is not properly thought through.

Details of how the employee-owner arrangement will work in practice are yet to be fleshed out, but the Government is rushing to introduce the entity by April 2013.

Photo: Dagrappler, Minotaur at Athens Archaeological Museum