Leon Deakin, Thomas Eggar Associate, shares his views on the employee-owner proposals.
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.
Currently, under the law employees have to seek independent legal advice before they are able to ‘waive’ their employment rights. I presume this will continue to be the case, which begs the question: Who pays for this advice prior to the employee starting? Probably the employer! Alternatively, the law will be changed, which leaves employees vulnerable to signing away their rights without fully understanding the impact of that decision. Given the desperation out there in the job market this is far from ideal.
In addition, if the relationship breaks down and there is a parting of ways how will the shares be valued? Indeed, when advising on a termination of an employee who also has shares in the business, it is difficult and costly to resolve their shareholding as there is rarely agreement on what it is worth. Professional valuations cost money and are usually based on a set of assumptions that are open to challenge by both sides. Good work for the lawyers but not either party. This is not conducive to cutting red tape and lowering costs, especially when the employees will feel they ‘must’ get some value given the fact they waived their employment rights in return for them.
Like the other changes proposed by the coalition, the glaring omission is that the waiver of rights cannot include discrimination claims. These tend to be more costly and acrimonious to deal with than a straight forward unfair dismissal claim. As a disgruntled ex-employee is unlikely to take a dismissal lying down these plans could just see a proliferation of costly discrimination claims instead.
Finally, I am not sure there is a problem to be fixed in terms of incentivising and motivating employees. Employers can already offer bonuses, long term incentive plans or give them shares or options. As a result, what is given here with the one hand does not compensate what is taken with the other.