Employee owners

The Government has reported on the outcome of the consultation relating to proposals to create a new status of employee owner.

The proposal

As we reported in our October article ‘Shares in exchange for employment rights’, the government was intending to consult on its proposal to introduce legislation to create a new category of employee – the employee owner. In return for giving up rights to claim unfair dismissal and redundancy pay, the employee would be allocated shares to the value of between £2,000 and £50,000 which would be free of Capital Gains Tax.

Although 92% of the responses to the consultation expressed negative or mixed views about this proposal, the government has announced that it intends to proceed and it seems likely this will be effective from April 2013.

There have been some changes to the original proposals:

the new employment status will now be called ’employee shareholder’
shares should be fully paid up and issued free of charge to the employee owner
the minimum value will remain at £2,000 but the Secretary of State will have power to raise this sum
there will be no upper limit but the relief offered from CGT will only apply to the first £50,000
shares may be issued in the employee’s parent company although not a subsidiary
non-UK registered companies will qualify

As before, existing employees will be free to accept the offer of shares or reject them and remain on their existing terms. Some extra teeth are proposed in respect of new employees:

positions may be offered only on an employee shareholder basis; and
if a person in receipt of Jobseekers Allowance refuses an offer of a job on an employee shareholder basis ‘without good reason’ it may result in the loss of that benefit for up to three years.

The government does not intend to provide any further regulations as to the terms on which shares may be issued requiring only that they have a “real” value of at least £2,000. Matters of voting and dividend rights will be left to the individual employer. Circumstances where shares may be forfeited will be left to contractual arrangements between the employer and employee shareholder. Guidance will be published on issues of employment status and the tax consequences of employee ownership.

Commentary

The government’s response to the consultation confirms its determination to implement this new proposal despite its negative reception. The relevant legislation is currently at Clause 25 of the Growth and Infrastructure Bill which has just gone through its Second Reading in the House of Lords.

We now await the promised guidance to go along with the legislation.