Owner-employees – Government response to consultation

  • December 20, 2012
  • By Hunters Law

The Government has published its response to a consultation paper on the Chancellor’s proposal for employees to waive employment rights in exchange for shares.

We have previously reported on George Osborne’s plans for a new kind of employment arrangement whereby employees would give up some of their employment rights in exchange for shares in their employer.  Any growth in the value of the shares held by the employee-owner would be exempt from Capital Gains Tax.

In response to the Chancellor’s proposal, the Department of Business Innovation and Skills (“BIS”) launched a consultation and sought views on how the Government would implement the new employee-owner status in practical terms.  Notably, the consultation was not concerned with whether the proposal was a good idea.

A very small number of the completed responses welcomed the proposed employee-owner status.  The majority of the respondents raised concerns about the proposal, including:-

• the loss of important employment protections by individuals;

• possible coercion of employees by employers to adopt the new employee-owner status;

• an increased risk of litigation flowing from uncertainty surrounding the rights of employee-owners and the value of their shares; and

• considerable cost and complexity for employers implementing the new status.

Despite limited support, the Government intends to proceed with the Chancellor’s proposal and introduce legislation setting up the new employee-owner status next year.

One of the overriding concerns of the respondents to the consultation was the risk that employees and job seekers will feel compelled to become employee-owners and, therefore, sacrifice important employment protections without fully understanding the ramifications of doing so.  BIS intends to issue clear guidance so that individuals can assess whether they want to take on the status of employee-owner, but this is unlikely to combat the risk of coercion.

For more information about any employment law matter, please contact a member of our Employment Team.

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