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Scrutinising shares for rights issue

The introduction of controversial laws which enable workers to give up basic employee rights in exchange for shares in their company were introduced at the start of September.

The introduction of controversial laws which enable workers to give up basic employee rights in exchange for shares in their company were introduced at the start of September.

The proposals allow businesses to award shares worth between £2,000 and £50,000 to their staff. In return, employees give up certain rights, including unfair dismissal, redundancy, training rights and also the right to ask for flexible working.

I have always queried this proposal and questioned whether it is really about encouraging productivity and rewarding effort or, instead, part of a drive to make the removal of employment rights more palatable.

Small businesses may be reluctant to give shares away, particularly if they are family or owner-manager businesses.

There is no effective open market value for shares in ‘closed’ companies and it begs the question as to what types of shares will be on offer? Many businesses, for example, will not necessarily want to give away voting rights. Will there be good leaver/bad leaver provisions on disposal of shares when employees leave?

If this creates a combination of complicated shareholder arrangements and tax provisions, smaller businesses – the prime targets for this initiative – are unlikely to want to become involved because of an ironic increase in red tape and cost. They could be replacing the known quantity of potential employment law claims with the unknown and more complicated quantity of minority shareholder disputes.

Evidence during the Government’s consultation into dismissal said that the UK had some of the most flexible employment laws in Europe already in place and that dismissing staff is not as difficult as it is sometimes made out to be.

In addition, the qualification period for unfair dismissal claims is now two years. That is surely enough time for employers to assess their employees without the risk of an unfair dismissal claim.

There is very little understanding about how widespread these contracts will become. We have just launched our own research into this area within the SME market and hope to report back some key findings over the coming months.

 

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