From the TUC

Shares for employment rights: what employers think about it (answer: not a lot)

25 Jan 2013, by in Labour market

Today, to little fanfare, BIS has published in full all responses to their recent consultation on shares for employment rights. A very brief read through the results reveals very little business support for the plans. A few choice excerpts below:

From the British Chambers of Commerce

We do not expect take-up of the new status to be high and we believe it will only be attractive to a small minority of workers….there are significant disadvantages which put most off using it

Employers have regularly expressed their concern that employees may decide not to apply for a role if forced to accept EO status…employers were universally concerned that only offering EO status would mean limiting the pool of talent from which they were recruiting.

Most small businesses believed that the bureaucracy and cost of offering shares to employees would put them off using the EO status. There was also concern that it might make it more difficult to attract future investment or to sell the business, and that existing shareholders might object.

So, small businesses aren’t too keen on the proposals. But what about larger firms, such as the CBI’s members. Sadly for the Chancellor, there’s not a lot of support here either, with their responses claiming that: 

Employee-owner status is a niche idea likely to be of interest to some growing businesses…it is probable that the proposed set of rights and flexibilities will find favour amongst certain sectors of the business community

The cost to firms – in terms of adminstration, time and external advice – to set up such a scheme is not insignificant….for those without publically available shares the costs are opaque….the uncertainties around what a ‘reasonable’ price for illiquid shares will be when they are realised, as well as around the valuation that HMRC will place on the shares at the point they are received are likely to be daunting.

What about CIPD – the organisation that represents the HR professionals who the Chancellor hoped would benefit from making this flexible new status available to potential recruits:

The suggestion that employers or employees will find it helpful is wholly implausible…there is no evidence to suggest that removing employees’ right to claim unfair dismissal….will have any positive effect on growth or jobs.

There is a danger that it opens up, or is percieved to open up, a tax avoidance loop at a time when the Government has been trying to close these.

The suggestion that fast growing companies might be the prime beneficiaries of the proposed new status is highly implausible. Such companies are likely to be well run, successful and attractive to potential employees. They are less likely than other companies to have difficulty recruiting employees and unlikely to see major problems in offering them the full range of employment rights.

Another significant issue is the complexity facing an employers who might wish to consider taking advantage of the proposals….these proposals are ill-thought out and address a problem that doesn’t exist.

So no luck there.

And our equalities watchdog  also has significant concerns:

The proposal could also potentially lead to potentially expensive and complicated employment tribunal claims. Employee owners who request flexible working but are refused might use the discrimination provisions in the Equality Act 2010 to challenge the refusal.

As does the UK’s main organisation that promotes employee ownership (the employee ownership association) who state that:

Our member businesses and the employee owners within them are alarmed at this Government proposal that seeks to redefine the term employee owner…our members are alarmed partly because these proposals are so disconnected from the advice Government received via the Nuttall Review about how to grow the number of employee owners in the UK and risk appear to have ignored that advice

The return on investment in terms of numbers of employee owners created would be dramatically higher if the estimated £100m of cost associated with these proposals was more widely invested in initiatives to increase employee ownership in the UK.

There are far more negative responses than these to choose from. The Institute for Chartered Accountants are strongly opposed, the IoD (who at first gave support to the proposals) say:

There are some complexities and drawbacks to the current proposals which we believe mean that it is unlikely to be taken up in great numbers by either companies or individuals. There is also some scope for misuse against vulnerable workers.

We also suspect that upfront income tax and NIC liability inherent in being given shares by the company – and shares that may prove to have a limited resale value – will put the great majority of individuals off the idea.

And the Forum for Private Business say that:

The message from our members is that it seems contrary to the model of engaging employees in shared ownership whilst at the same time reducing many employment rights.

Ernst and Young point out potential costs of share valuation and the EEF say ‘there will be no direct benefit for start-up businesses’ . There is hours of reading here, but as yet I have failed to find a positive endorsement – do let me know when you come across one.


4 Responses to Shares for employment rights: what employers think about it (answer: not a lot)

  1. David Timoney
    Jan 25th 2013, 7:59 pm

    I think you’ll find that the employee-owner model has been specifically tailored for hedge funds. The title of the press release from BIS last October said it all: “No capital gains tax on employee share ownership for new employee-owners”.

  2. Ano Nimouse
    Jan 25th 2013, 11:26 pm

    See Martin Fletcher’s response:
    The focus of this question is wrong – the government should ensure the right balance between the employer and employee, and removing employment protection rights from employees can never be right. Employment rights have developed over decades (indeed centuries) and the abuses from employers able to dismiss staff at will – with the abuses during the employment that go with that power are, thankfully, a thing of thepast. Thisproposalwilltakeemploymentlawback,andthegovernmentshouldbeashamedofitselffor considering this. I sincerely hope that it will listen to the responses to the consultation and scrap the idea. It would be bad enough if employees were told that they could only be offered a job if they gave up their employment protection rights in exchange for something of real value. Those needing a job would have to accept the terms on offer, and in the real world would not be able to negotiate better terms for themselves. (At least at the bottom end of the labour market, where the employer abuses will be greatest – which is why the equality impact assessment is flawed). But employees will be offered an illusory benefit in exchange for their rights. It will cost the employing company nothing – new shares will be issued, which will be cancelled when the employee is sacked. The employee will have shares with no dividend rights, and with an unrestricted value of £2,000. That value will not be accessible as the shares will not be able to be sold while the employee is working, and will go backto the company on cessation of employment. The actual value of the shares (taking account of the restrictions) will be nominal – so the fair value received on termination of employment will also be nominal. Of course, there will be a second class of employee using this new tax avoidance opportunity. There will be wealthy employees – probably already connected with the company – who will be looking at this CGT opportunity . £50,000 shares will be free of CGT in exchange for a (possibly temporary) loss of employment protection rights. But for employees at this end of the spectrum no rights will really be given up – indeed rights under employment law could be given up and replaced by equal rights under contract law. The proposal has a double impact – enabling employers to take away the rights of low paid employees, while providing opportunities to enrich wealthy employees. Clearly this is not an accident. But it is not made clear in those terms in the presentation.

  3. Ano Nimouse
    Jan 27th 2013, 9:31 am

    I also liked the department of transport response: “Dreadful idea – totally unworkable”

  4. Is it OK to let people trade in their employment rights for shares? | Inequalities
    Mar 18th 2013, 10:02 am

    […] plan are obvious. If the scheme ends up being attractive to employers (although there are encouraging signs that it won’t be), we could end up seeing these little ‘arms races’ enacted in companies all […]