IN early October, Chancellor George Osborne announced proposals for a new type of employee ownership arrangement and a consultation paper has now been launched.
The proposal is to introduce a new type of employment status called the “employee owner”.
In summary, employees would give up some of their employment rights in return for being issued with shares in their employer worth between £2,000 and £50,000.
If the value of those shares increased, employees would not be liable to capital gains tax as is the case currently.
The proposals are part of the Government’s ongoing drive to “maximise flexibility for both parties while protecting fairness and providing the competitive environment required for enterprise to thrive”.
As employee owners, individuals would firstly not be entitled to a statutory redundancy payment if they were to be made redundant.
Only in limited circumstances (where discrimination is claimed or the dismissal is automatically unfair) would an employee owner have the right to claim unfair dismissal and there would be limited rights to request flexible working.
Finally, there would be enhanced notice requirements relating to early returns from maternity or adoption leave.
With regard to shares which the employee may be offered, it would be possible to issue all type of shares.
There would be no restriction on the rights attaching to those shares; it will be at the company’s discretion as to whether they carried the rights to dividend or voting rights, for example. Employers would also be permitted to insert a term in the contract of employment requiring the purchase of the shares by the company on termination of employment for a reasonable value.
It is unclear what interest there would be from employees and businesses in this new arrangement.
The disadvantage to the employee is that tax is paid on the original gift of the shares or, if the shares are bought at value, the cost of that purchase.
This will not be attractive to employees and not only will they be having to make a payment at the outset of the relationship, they will also be giving up employment rights so the benefit to the individual is deferred for some time.
It is not clear whether or not there would be a reduction in the charge to tax to take account of the fact the individual is giving up his employment rights.
There is also of course the risk that the shares decrease in value which will be unattractive to employees and many businesses will be reluctant to give up any control of the business by offering ownership to employees.
The consultation closes on November 8, 2012, and the results are expected to be published shortly.