The complexity and costs associated with offering employee ownership in return for the forfeiture of employment rights is likely to deter employers from recruiting on this basis, the Law Society has warned.
The proposed new 'employee owner' status creates complex issues for employers and employees both at the outset of the employment relationship and on termination, with potential for satellite litigation.
While employer owner status removes unfair dismissal rights as well as certain rights to request flexible working and training, and statutory redundancy pay, employers will still be liable for other claims, including discrimination and whistleblowing.
Responding today to a consultation by the Department for Business, Innovation and Skills, the Law Society said small businesses will be unlikely to take up a proposal which brings with it more, rather than less, red tape.
Angharad Harris, chair of the Law Society Employment Law Committee, warned that: 'Unlike traditional share ownership schemes, this could create a two-tier workforce with different rights according to where workers opt in or not.'
Businesses will need access to professional advice and support because operating these new kinds of contracts will be beyond the expertise of most firms.
The proposed scheme is unlikely to be attractive to employees who will be asked to surrender the certainty of established rights in return for uncertain capital gains tax benefits in the future, especially given that individuals are already entitled to an annual capital gains tax exemption of £10,000.
'Employees can already be given shares in a company as a reward or incentive without needing to give up their statutory rights', says Angharad Harris, 'and in reality this is not creating a new 'employee status' at all'.
Ends
Notes to editors:
In October, the Chancellor of the Exchequer, the Right Honourable George Osborne MP announced plans for a new kind of employment contract called an employee-owner.
The aim of the proposals is to boost employee engagement and productivity and to remove the perceived barriers around the fear of being taken to employment tribunal which the government says is deterring businesses from hiring.
New employee-owners will exchange some of their UK employment rights for rights of ownership in the form of shares in the business they work for, any gains on which will be exempt from capital gains tax.
Under the new type of contract, employees will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax. In exchange, they will give up their UK rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training, and will be required provide 16 weeks' notice of a firm date of return from maternity leave, instead of the usual eight.
The Law Society is the independent professional body, established for solicitors in 1825, that works globally to support and represent its members, promoting the highest professional standards and the rule of law.
Contact: Catherine Reed, The Law Society
+44 (0)20 7320 5902