In a dramatic announcement at the recent Conservative Party conference, Chancellor George Osborne announced that businesses will be allowed to remove what he termed "gold-plated employment rights" in exchange for handing out shares to employees which will be exempt from tax. The value of shares between £2,000 – £50,000 would be exempt from CGT.
Aimed at small and medium sized businesses, in exchange for shares, new employees only would give up their rights under current legislation on:
- unfair dismissal
- the right to request flexible working, and
- time off for training.
Whether these measures are likely to yield any positive impact on the numbers in employment, is a topic for a different article. But this unheralded proposal throws up a number of obvious questions for employment lawyers:
- Assuming these shares are not in a publically-listed company, how would such shares be valued and at what point in the employment?
- Who guarantees their value?
- If an employee accepted shares in lieu, would he or she forever forfeit these rights no matter how long he or she remains in the employment?
- To what extent would the acceptance of shares in lieu be voluntary and who ultimately decides who has the option?
- Would there be a requirement that a minimum value of shares to be offered? Surrendering the bulk of your employment protection rights must be worth quite a significant sum to any employee once they have been employed for 2 or more years.
- What is to prevent directors and partners in firms simply re-designating themselves to take advantage of the CGT-fee enhanced value?
- Would those employees later sacked for (gross) misconduct be entitled to the share benefit?
One effect of the changes will be that employees (and employers) will now be forced to consider exactly how much employment rights are actually worth in concrete monetary terms.
The proposal is certainly a radical one. Employment rights are a creature of statute and – in respect of unfair dismissal, for example, are awarded only after a minimum qualifying period. Presumably, governments of various hues have considered that employment rights have a positive social or economic benefit. The proposal – albeit at this very early stage – involves a employee trading his/her statutory rights for shares the value of which may be significant, or may be almost nothing.
But will the consideration for rights come down to the bargaining prowess of the employees in individual companies? For example, employees in “Widgets Ltd” may trade their rights for a fraction of the monetary share value of employees in “Caxtons Boilerplate Ltd”. Is the court or tribunal going to consider adequacy of consideration? What if the employees allege duress or other economic pressure at a later stage?
My own modest prediction is that the proposal (if ever implemented) will lead to an increase in litigation between disgruntled former employees palmed off with (almost) worthless shares, and are then the first to be selected for dismissal or redundancy over those workers who retained their rights – gold-plated or otherwise.
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