The House of Lords last night rejected government proposals for the so-called “rights for shares” scheme, under which employees would be able to sacrifice certain employment rights for shares in their organisation.
The proposal was put to the Lords as a clause in the Growth and Infrastructure Bill, but was severely criticised prior to a vote in which the plan was defeated by 232 votes to 178.
Lord Adonis said: “To my mind, when you have a totally mad idea like the one before us, the best thing is not to test it out but to kill it at birth, and I hope that is what we are going to do.”
He added: “To remove this clause today would be an act of mercy to the Government, let alone to the employees adversely affected by it.”
Lord Forsyth described the proposal as “ill thought through, confused and muddled” and “positively dreadful”.
Following the vote, it will now be up to MPs to decide whether or not to reinstate the plans when the Growth and Infrastructure Bill returns to the Commons.
The “rights for shares” or “employee-owner” plan has been the subject of significant criticism from employment law experts since it was first proposed and commentators have welcomed the Lords’ decision to block it.
Darren Newman, employment law trainer and XpertHR contributing editor, said: “The Government should take note of what the Lords have said and drop this proposal, which is highly complicated, poorly thought out and intellectually incoherent. It’s striking that almost nobody is actually enthusiastic about the measure and most of the arguments in favour come from those who think that very few employers will want to take advantage of it.
“We should remember that the proposal was made by George Osborne in a speech to his party conference. Nobody in business had been calling for this sort of scheme and no-one in business will mourn its passing.
“The lesson of the whole debacle is that changes to employment law need to be carefully thought through and consulted on before they find their way into legislation. The department for Business, Innovation and Skills is the proper department to work on these issues. Ministers from other departments should frankly concentrate on their own policy areas and leave employment law alone.”
Max Winthrop, head of employment at SRF Legal and XpertHR employment manual updating author, agreed that the proposals were flawed, and suggested that mechanisms already exist that allow employers and employees to achieve a similar outcome. He said “The problem with the employee-owner status in my view is that such advantages as there may be for both employee and employer would be much more effectively achieved through partnership or limited liability partnership status.
“These are well-established vehicles for running a business of the type that the employee-owner model appears to be aimed at.”
For more information on the Lords vote and further background information on employee ownership, visit XpertHR.