Osborne’s ‘owner-employees’: reaction to the new employment contract

Chancellor George Osborne announced yesterday that a new employment contract for “owner-employees” could be in place by April 2013, but the plans have quickly been attacked by employment lawyers, employer groups and the unions.

Designed to appeal to small businesses, but available to all employers, the employee-owner would receive shares worth between £2,000 and £50,000 in their company. In exchange, owner-employees would give up their rights around unfair dismissal, redundancy, the right to request flexible working and time off for training. Women would also have to give 16 weeks’ notice of their date of return from maternity leave, instead of the usual eight weeks.

What do you think? Do you believe the owner-employee contract could work?

Here, we give an overview of the reaction to Osborne’s announcement.

“While I applaud George Osborne’s intentions and the desire to help businesses grow, I simply do not believe this will work. Leaving aside the moral arguments being advanced by the unions, I think the legal and practical problems will render the plans unworkable in practice. In addition, I suspect the scheme will cost employers time and effort rather than reducing bills and cutting red tape, what is given here with the one hand does not compensate what is taken with the other.”

Leon Deakin, associate, Thomas Eggar

“While it should not be ignored that the ’employee-owners’ could be in a position to make significant gains on their ‘investment’, questions should be asked about how much information they will be given as to the health and prospects of the company, not to mention whether or not the number of shares that they will own will be commensurate with their position and the rights they will be giving up.”

James Hall, associate, Charles Russell

“As recipients of the shares will be required to forego some of their employment rights, I can only see this being worthwhile at the higher end of the scale where an employee is given up to £50,000 of shares rather than the base of £2,000. I think it would be most relevant to managing directors and other decision makers in a business rather than the staff as a whole. It will be interesting to see what enforcement rules will be put in place to prevent this becoming a way of unfairly dismissing staff with no comeback.”

Chris Blundell, employment tax partner, MHA MacIntyre Hudson

“Will there be good and bad leaver provisions governing what happens to the shares, depending on the reason why the employee’s employment terminates (eg resignation, dismissal for misconduct etc)?

Caroline Carter, head of employment, Ashurst

“It is unlikely to get off the ground. The proposals will be unpopular with employees because the chances of benefitting are so slim and unpopular with employers, especially privately controlled companies, because of the risks imposed to the share structure. Far from saving on payroll expenses, the total costs for an employer may well increase.”

Rebecca Briam, partner, Gannons Solicitors

“The employee would need to be persuaded that the shares were worth more than the potential claims they were required to surrender, notably unfair dismissal and redundancy. We were told the shares would be valued at between £2,000 and £50,000 – whereas the maximum claim for unfair dismissal is between £73,640 and £86,100, depending on length of service and age, albeit the average award is far lower. One wonders whether the administrative hassle would be worth the candle for small employers.”

Anthony Fincham, employment partner, CMS Cameron McKenna

“The company would have quite a job showing in any subsequent tribunal proceedings for sex discrimination – which could still be claimed – that the employer hasn’t made assumptions that female staff are more likely to request flexible working.”

Stephen Simpson, senior employment editor, XpertHR

“Few men or women with family responsibilities would want such a contract, and we would advise [employees] to think long and hard before accepting such a one-way deal. Shares can go down as well as up. You could end up with no job security or employment rights and worthless shares.”

Sarah Jackson, chief executive, Working Families

“I don’t know whether this will turn into a ‘thing’ or not. But one thing I do know with absolute and piercing certainty: these contracts will not be ready for use by April 2013 as the [Government’s] press release claims. No way. Absolutely not.”

Darren Newman, employment law trainer, from his blog

“Existing, highly successful mutually owned firms do not thrive on employee ownership alone, but on the high trust, high engagement, all-pulling-in-the-same-direction cultures they have. Employee ownership works best where it is accompanied by great management, rather than enhanced job insecurity.”

Mike Emmott, employee relations adviser, CIPD

“We deplore any attack on maternity provision or protection against unfair dismissal, but these complex proposals do not look as if they will have very much impact as few small businesses will want to tie themselves up in the tangle of red tape necessary to trigger these exemptions.”

Brendan Barber, general secretary, TUC

“In some of Britain’s cutting-edge entrepreneurial companies, the option of share ownership may be attractive to workers, rather than some of their employment rights. But I think this is a niche idea and not relevant to all businesses.”

John Cridland, director-general, CBI

“The IoD applauds [Osborne’s] innovative proposal on employee ownership, which could make a real difference to jobs and shareholding. This scheme has the potential to reduce the employment law burden on companies and make employees better off at the same time. The key to the success of the idea will be in encouraging employers and workers to make use of it.”

Simon Walker, director general, Institute of Directors,

“Osborne’s crafted a plan which, at a stroke, gives employers the ability to dodge tax on their companies, while dodging the responsibilities they have towards their employees. It’s almost impressive.”

Alex Hern, Current Account blog, New Statesman

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