Chancellor George Osborne's announcement that a new employment contract for owner-employees could be in place by April 2013 have quickly been attacked by employment lawyers, employer groups and the unions.
Designed to appeal to small businesses, but available to all employers, the owner-employee 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.
Reaction to the proposals have been generally critical.
Stephen Simpson, Senior Employment Editor of XpertHR has commented "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."
Mike Emmott, Employee Relations Adviser for the Chartered Institute of Personnel and Development (CIPD) dismisses the proposed benefits to small businesses adding "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."
Simon Walker, Director General of the Institute of Directors, said "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."
Legislation to bring in the new owner-employee contract will come later this year so that companies can use the new type of contract from April 2013. The Government will consult on some details of the contract later this month.
Consultations include owner-employees receiving full capital gains tax relief on the shares awarded as part of their contract being eligible for existing employee share ownership schemes such as the Enterprise Management Incentive, and restrictions on forfeiture provisions to ensure that if an owner-employee leaves or is dismissed, the company is not able simply to take the shares back but is able to buy them back at a reasonable price.
What isn't apparent is how much information owner-employees 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.
And as recipients of the shares will be required to forego some of their employment rights, this can only be 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. This is most relevant to managing directors and other decision makers in a business rather than the ordinary 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.
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. It is a concern that they might not have Union or legal advice at the time of making such a decision.
We are 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.
The proposals will be unpopular with employees because the chances of benefiting 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.
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.
Brendan Barber, General Secretary of the TUC passively said "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."
Solidarity's David Kerr took a stronger stance: "The Tory conference has unveiled plans that will inevitably lead to the widening of the divide between the working class and the elite. Dismissing plans to tax the rich Osborne has gone straight in at the lower end of the scale with promises to pamper the businessmen and wealthy and secure their support. This conference has pretty much secured the fate of the Tories and we most certainly will have to endure another Labour government after the next election."
We see new Tory plans involving limiting the amount of children in a family that can be supported on benefits, limiting housing benefits for the under 25's, further cuts to child tax credits, and benefit increases below the rate of inflation.
David continues "Some of these issues really do need tackling such as the benefit culture we are all aware of. However this has the hallmarks of a design rolled out by an incompetent, out of touch Toff who has never done a days real graft in his life. Radical change thourgh the promotion of employee share ownership through workers trusts, co-operative ownership and industrial democracy is not even on the agenda."