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SHARES FOR EMPLOYMENT RIGHTS. BRAVE NEW WORLD OR WHITE ELEPHANT?

PUBLISHED: 16:56 30 October 2012 | UPDATED: 22:15 20 February 2013

SHARES FOR EMPLOYMENT RIGHTS. BRAVE NEW WORLD OR WHITE ELEPHANT?

SHARES FOR EMPLOYMENT RIGHTS. BRAVE NEW WORLD OR WHITE ELEPHANT?

Darren Sherbone talks on new employees to become part owners but with fewer rights. The practical and ethical issues of this appear to have been missed as we sleepwalk towards a new form of employment partnership

SHARES FOR EMPLOYMENT RIGHTS. BRAVE NEW WORLD OR WHITE ELEPHANT?


Darren Sherbone talks on new employees to become part owners but with fewer rights. The practical and ethical issues of this appear to have been missed as we sleepwalk towards a new form of employment partnership, apparently unaware of the ramifications.


This October, the government has announced its intention to introduce new contracts of employment from April 2013, aimed at assisting small and fast growing businesses. The essence of the proposal is that new staff, can be given contracts which mean that they do not have a future right to claim unfair dismissal or redundancy, along with the removal of some more peripheral rights. In return, the employee must receive between 2,000 and 50,000 worth of shares in the business which are exempt from Capital Gains Tax, and must be purchased by the employer when the employee leaves at a reasonable price. On the face of it, making new employees part owners.

I am the first one, (and often quoted as such) to say that employers are too frightened of employment law and its not good for business. The question as to whether the fear is justified is another matter entirely. The fact is that its not justified in most cases. In an effort to kick start things, we now have a proposal which in my opinion will do little or no practical good for the people its aimed at. Of course, we are in a period of public consultation before the measures are introduced in April next year. So while the new plan lumbers through consultation like a pale pachyderm, it is worth looking at how much difference it actually will make.

In terms of whether it will make it more likely that people will get hired in the first place, I personally struggle to see the value. Small firms on the whole, cannot afford to give away 2,000 worth of shares to a new starter. This is doubly so for 2 new starters, and 10 times the case for 10 new starters. If a company uses this as a means of recruiting a workforce, the original owner will very quickly lose control. In reality, the same could be said for medium sized business (but to a lesser extent). It would seem therefore that the real benefit of this will be to large companies. Many of these have already said that they are not interested. In any event, with the qualifying period for unfair dismissal changing to two years service, most employers feel they have plenty of time to assess the value of a new employee.

The obvious area where utilising this new option appears a benefit, is on recruitment of high paid staff, senior management if you will. These salaries are usually far higher and on the face of it, the ability to remove such directors and senior managers without facing unfair dismissal claims should be an advantage to any company. But (and you were expecting a but) when removing senior people, the value of the claim is in breach of contract, not unfair dismissal. This is because, 6 months notice for example, for someone on 90,000 per year, means a payment of 45,000. This is considerably more than the average unfair dismissal award. Indeed its considerably more than the usual unfair dismissal award. As an added kick in the teeth, the employer now has to purchase back the shares (remember them, they were given to the employee at the outset). In addition, we also have to value the shares. If we assume that the employee has not welcomed this termination (as is usually the case) just how likely is it that the share price is going to be agreed sensibly? Its hard then to see a benefit to anyone excepting possibly a very small group of employers and a very small group of employees.

If there is only a benefit for a very small and unique band of employers, if its no harm, why not introduce this, at least its a benefit to someone?

Far be it from me to be seen as some loony lefty. I make my living advising on dismissals from employment and fighting the cause of employers when unjustly pursued by often unsuitable employees. It doesnt mean that we should not have the right to work as part of our society. Indeed, there is an internationally recognised body, a sort of United Nations for the regulation of employment, called the International Labour Organisation (ILO), which enshrined this right in a convention signed up to by all developed countries with the exception of 2. (One of those was America, and the other one we invaded due to human rights abuses.)

In short, if we want the right to walk the streets without beggars dogging our every step, without children being hungry and all those other things we take for granted, we have to give our own people the right to work, unless they are for some reason unsuitable. This is where the concept of unfair dismissal comes from.

Personally I am proud to be from a country where the quality of life for even the poorer sections of society is comparatively good, (lets face it; poverty in most of our minds is having only one television). Of course we owe this in part to the hard work and drive of entrepreneurs and businesses of all shapes and sizes, but we also owe it to the fact that people in work feel secure enough in their jobs to spend their money on the businesses of our hard working entrepreneurs. Take that security away, and people stop spending.

So whats my point? My point is that this is the first piece of legislation which, with little discernible benefit, moves away from the principle that an employer must have a reason to dismiss an employee. There will be little good in this for employers, it will give no real boost to the economy and it will attack the very principle which, while unpopular at times, contributes to the overall wealth and stability of society as a whole. This is the very essence of a political white elephant.

Sherbornes Solicitors LLP

10 Royal Crescent, Cheltenham GL50 3DA

T: 01242 250039

www.sherbornesllp.co.uk


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