George Osborne’s new business boosting initiative is giving workers the chance to become stakeholders in their employers. We speak to business leaders and advisors to find out their reaction to the legislation.
A new form of employment contract entitled an owner-employee framework has been introduced by the coalition government to boost business growth and employee retention.
Under the terms of the new legislation, ’employee-owners’ will exchange some of their UK employment rights for rights of ownership in the form of shares in the business which employs them.
Chancellor George Osborne says that any gains on these shares will be exempt from capital gains tax.
Furthermore, businesses of any size will be able to utilise the new form of contract but the government adds that it is principally aimed at growing small and medium sized companies (SMEs) that have a desire to create a ‘flexible workforce’.
The details of the framework mean that employees will be given between £2,000 and £50,000 of shares. In return, workers will surrender their UK rights to a range of previous perks including unfair dismissal, redundancy and the right to request flexible working and time off for training.
GrowthBusiness speaks to entrepreneurs, business leaders and advisors to find out what they make of the new legislation.
Marc Long, partner at law firm Clarke Willmott
‘The owner-employee contracts, unveiled at the Conservative Party Conference, could end in a number of law suits against SMEs, which could affect staff relations and business reputations in the longer term.’
‘As with any new law the devil is in the detail. In particular, the mechanism for buying back shares will need to be looked at carefully. Valuing shares, particularly in small-to-medium sized businesses, can be very difficult and time consuming. This is likely to lead to valuation and share disputes.
‘These new contracts may be more expensive to draw up and complex compared to existing terms. It also raises the question as to how the shares will be used in a disciplinary case, such as an act of gross misconduct. Will employees then still be entitled to their entire shareholding? Furthermore, we could see the emergence of a two tier culture where some employees do want to waive their employment rights and others choose not to.’
Arnold Ma, digital marketing director at Qumin.co.uk
‘Offering shares as a way of trading off employees rights is based on a negative scenario. Qumin.co.uk does offer employees the opportunity to obtain company shares, but in exchange for good performance. You get something for demonstrating commitment and improving the performance of the company, not giving up rights.
‘Ironically, what George Osborne is putting forward can be interpreted as old fashioned left wing ideology based on a hard line cooperative business model. In other words, you will become part of the organisation and you will give up your rights for the greater good of the group.
‘And what if the company is badly managed and is trading poorly? There is not much incentive in owning a bit of something that is going nowhere. It is far better to enthuse and reward.’
Selwyn Blyth, partner at law firm Pinsent Masons
‘This sounds like a radical proposal because at the moment an employee can only give up rights such as unfair dismissal and redundancy in tightly defined circumstances – so the well-established underlying law against “contracting out” of your rights which has been in place for more than 30 years will have to be changed.
‘There will clearly be challenges for any employer looking to take advantage of these plans. For example, setting the scheme up could be very bureaucratic while dealing with a greater number of shareholders might create a significant new administrative burden.
‘There could also be a cultural shift involved as businesses would be forced – to some degree – to move from a culture of the “managers and the managed” to one where employees have an increasing say over how the business is run.
‘Finally, doing so would not remove employers’ liabilities around discrimination, so they could still face a tribunal claim if these newly-contracted out employees felt their dismissal was discriminatory.’
Dave Chaplin, CEO and founder of ContractorCalculator.co.uk
‘If chancellor George Osborne is so keen to provide a flexible skills base for start-ups and enterprises in the UK, why doesn’t he do more to encourage contractors and freelancers like creating a fairer tax regime for them rather than stripping away employment rights in exchange for shares of dubious value.’
‘Osborne’s plans to create “employees-lite”, who sacrifice employment rights in exchange for a tax-free share stake of up to £50,000 in the business for which they work, threaten to create a new underclass of workers: what the government is disingenuously calling the “owner-employee”.’
‘Like so many policy initiatives that emerge from the coalition, this one provides an unwanted solution to a problem that does not really exist because there is already a solution. If small businesses need access to a particular skill-set to help grow their business but are afraid of the red tape associated with employment, then they can already hire a contractor or freelancer. These are the enablers of entrepreneurship and already deliver small businesses an employment-rights-free, low risk, solution.’
Gerald Poutney of Uncle’s Money
‘I think this is a great idea for new start-up businesses, encouraging employees to share the risk and hard work of starting a new business and, if all goes well, share the rewards, and what’s more they still get paid.
‘However, access to business finance is still the main thing discouraging entrepreneurs from taking the plunge to start up a new business. How many start-ups actually have employment laws as the obstacle to starting a business? Very few I think.
‘For established an business the only advantage I can see would be in the form of staff motivation. As a business owner I’d want to buy the shares of any leaving employee, which could potentially cost more than a redundancy package’
Jeff Hughes, CEO of Omnifone
‘We welcome the government’s desire to improve tax incentives for employees but stripping them of their rights completely in return for a stake in the company is not the answer.
‘If the government is serious about encouraging small businesses to prosper and wants to restore the market back to its previous vibrancy, it should consider cutting Capital Gains Tax (CGT) rates to 18 per cent or less.
‘Lowering CGT will incentivise investment and drastically increase SMBs ability to compete on a global scale, ultimately creating employment making it a stronger, more beneficial move. It will also allow those companies to reward employees for the long-term success of the business in a more reasonable and tax efficient manner.
‘Omnifone, along with many growing technology companies in the UK, has been offering employees equity in the company for many years. We do so without asking our employees to give up their rights and plan to continue with this policy.’
Paul Callaghan, partner in the employment team at Taylor Wessing
‘George Osborne is potentially forcing all new employees to waive all main employment rights including unfair dismissal and redundancy rights in exchange for £2,000 of shares. This makes Adrian Beecroft’s fire at will proposals look moderate.
‘From April it may become the norm for job offers to require this waiver which will also involve the loss of flexible working rights and stricter maternity rights. This is likely to have a disproportionate effect on women. The main problems for employers will be amending their share schemes, valuing the shares on termination of employment and the risk they have wasted their time if a new Labour government repeals the measures.’
Darren Fell, owner and MD at Crunch accounting
‘With this new proposal the government are really grabbing at straws. This is an HR minefield. Yet more headaches for small business owners, and endless consultancy fees for HR firms.
‘The question is what are they trying to achieve? An American-style workplace where you can fire your employees at will, or a more powerful work ethic for employees through sharing of wealth? This isn’t the way to achieve either.’
Pushkar Jha, lecturer in Strategy at Newcastle University Business School
‘An empty promise of employee ownership is being put forward as a trade-off for employment security. With this announcement firms will get a means to generate capital while weakening employment security, which means a win for businesses and the government but astonishingly not for employees.
‘There is no talk of furthering employees’ role in governance, which is crucial for employee ownership to be orientated around the ‘employee’. Notwithstanding, the sheer idea of a trade-off of employment security for share ownership demonstrates a very poor acumen. Employment security and share ownership both have their pros-and-cons, but this trade-off is rather ill conceived.
‘We have shown through our research, cited in the Nuttall Review, that employee ownership is a potential panacea in these tough times. The momentum towards employee ownership for sustainable growth and equitable wealth distribution will be adversely affected by this policy move.’
Chris Gee, executive commercial director at SilverDoor
‘If the coalition has decided that certain rights are bad for jobs, because they increase the cost and risk of employing people, then why not reform them across the board?
‘Why attempt to combine ownership and deregulation in one go – it just feels clumsy.
‘The current annual tax-free capital gains tax limit is £10,600; so the value of the minimum share amount handed over would have to increase substantially for the tax incentive to mean anything.
‘It is hard for privately-owned companies to operate with lots of small employee shareholders unless there is a prospect of a float or trade sale. Most small firms don’t want to give up equity.
‘The risk of unfair dismissal litigation could be replaced by another threat: arguments over what is a reasonable price for the shares when the employee comes to sell his or her equity.’
Guy Cookson, co-founder of Azullo
‘While I agree with the principle of making it easier for employees to gain shares in the business they work for, I think tying this together with a loss of employee rights is counter-productive. If you treat good people well they will be more likely to help make your business succeed. It’s that simple.’
Daniel Todaro, managing director at Gekko
‘This latest initiative from George Osbourne of a new owner-employee contract is at best ridiculous and at worst quite dangerous.
Allowing employers to award shares worth up to £50,000 to their staff, in return for the employee giving up their unfair dismissal, redundancy and training rights and also the right to ask for flexible working seems to be little more than more short-termism to save Tory votes, at a much greater cost to the nation. It would encourage worrying precedents and damage the progression of positive cultures within businesses.
‘The focus should be on relaxing employment law, not bargaining with staff to allow employers greater freedom to dismiss/save money. In our litigious society, it’s too common and easy for employers to be sued or taken to an industrial tribunal.
‘Of course, this is quite right if the employer has deliberately been negligent, but I think it’s fair to say a culture is developing where far too many trivial matters are having to be dealt with externally, costing a fortune in administration. Therefore the focus should be on reducing tribunal procedures by relaxing laws ensuring they are not detrimental to employees, but rather fair and realistic in such an economic climate – which is another matter altogether.
‘Would George Osbourne’s family give up equity in of their successful interior decor business to benefit the companies employment options? Now that’s an interesting question to ask!’
Paul Thomas, partner at Gresham Private Equity
‘Individual parts of the concept are, separately, heading in the right direction and addressing some of the issues businesses face; there is a lot of red tape and wider share incentives are a good idea.
‘However it hasn’t been properly thought through. The concept is flawed: yes, shares incentivise workers, but taking away rights does not, so the two concepts are opposing. Those who should benefit from the share incentives are likely to be demotivated by the idea that their employer sees the trade as worthwhile. I find it hard to believe that, even if this idea becomes legal, employers will introduce it.’