Employee/Owner Confusion

The complexity and costs associated with offering employee ownership in return for the forfeiture of employment rights is likely to deter employers from recruiting on this basis, the Law Society has warned.

The proposed new ’employee owner’ status creates complex issues for employers and employees both at the outset of the employment relationship and on termination, with potential for satellite litigation.

While employer owner status removes unfair dismissal rights as well as certain rights to request flexible working and training, and statutory redundancy pay, employers will still be liable for other claims, including discrimination and whistleblowing.

Responding today to a consultation by the Department for Business, Innovation and Skills, the Law Society said small businesses will be unlikely to take up a proposal which brings with it more, rather than less, red tape.

Angharad Harris, chair of the Law Society Employment Law Committee, warned that: ‘Unlike traditional share ownership schemes, this could create a two-tier workforce with different rights according to where workers opt in or not.’

Businesses will need access to professional advice and support because operating these new kinds of contracts will be beyond the expertise of most firms.

The proposed scheme is unlikely to be attractive to employees who will be asked to surrender the certainty of established rights in return for uncertain capital gains tax benefits in the future, especially given that individuals are already entitled to an annual capital gains tax exemption of £10,000.

‘Employees can already be given shares in a company as a reward or incentive without needing to give up their statutory rights’, says Angharad Harris, ‘and in reality this is not creating a new ’employee status’ at all’.
12 November 2012

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