But signs of limited business interest in new worker status
The controversial ‘employee shareholder contract’ came into effect yesterday, to a mixed reaction from businesses and legal experts.
Also dubbed ‘owner-employee status’, the new rules will enable workers to give up basic employment rights in exchange for shares in their company.
The government has introduced the legislation as part of the growth and infrastructure bill, in a bid to boost hiring confidence and staff productivity.
Businesses can award shares worth between £2,000 and £50,000 to their workers, which will be exempt from capital gains tax.
In return, employees must forgo certain rights, including unfair dismissal, redundancy, training rights and the right to ask for flexible working – although they can still bring discrimination cases to tribunal.
New employees and current workers are eligible, but the status cannot be forced upon existing staff.
However, this new type of employment contract – which was twice rejected by the House of Lords at draft stage – has so far proved an unpopular concept with employers.
A recent survey by law firm Pannone found just that 2 per cent of businesses would consider using the new contracts.
The British Chambers of Commerce has reported that so far, it has not received any enquiries about implementing the scheme.
John Wastnage, head of employment and skills at the BCC, told the Telegraph: “We see it as an experiment. But my guess is it will never be more than a niche tool.”
Tom Flanagan, head of employment law at Irwin Mitchell, added that the proposal had proved “almost universally unpopular”.
“From an employee perspective, the economic climate is still uncertain and share performance is not guaranteed,” he explained. “It is likely that employees would look at current trends and see little potential benefit for them if they chose to give up rights.
“Small businesses may be reluctant to give shares away, particularly if they are family or owner-manager businesses,” he continued. “Also, what types of shares will be on offer? Businesses will not necessarily want to give voting rights. Will there be good leaver/bad leaver provisions on disposal of shares when employees leave?”
But other observers believed the move could help SMEs attract top talent.
“This legislation could be a big pull factor for growing SMEs looking for experienced employees,” said Jacqueline McCluskey, a partner in HBJ Gateley’s employment team.
“They will be able to use this as a marketing tool to high level professionals who might not otherwise choose to work with a small company but can see future success in the business. High earners are unlikely to be put off by the loss of some of their employment rights and will be attracted by the opportunity to have a share in a small or medium sized company with big potential.”
The government has said that it is still too early to assess the level of take-up by UK employers.