Swap Shares in your business for Employment Rights?

October 11, 2012

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As small business owners I am sure you will have heard the latest proposal being put forward by the government to encourage business to take on staff and play their part in the economic recovery.  This proposal comes towards the end of a year in which the government has been consulting with employers on changes to employment rights, and indeed making some piecemeal changes to legislation to help employers who wish to take on staff but have been too scared to do so in the past for fear of being unable to end the employment relationship without entering into costly disputes and possible litigation.

The proposal is that as business owners you will be able to enter into an agreement with your employees whereby you offer them shares in your business in exchange for them relinquishing their rights to make a claim against you for unfair dismissal, maternity leave and pay and redundancy rights and pay.  Both parties being happy with this deal, you will then enter into new employment relationships more readily and your business will grow and flourish as a result.

These proposals are another example of the government developing workplace policy on the premise that we are over-legislated in the area if employment and it is this that is preventing the growth of the private sector which should be leading us out of recession,  rather than the external economic forces that are preventing employers from generating the growth that would enable them to recruit more staff.

Whilst employers, particularly small employers, would no doubt welcome a redress by the government of the perceived imbalance of rights in favour of employees, these proposals do not appear to have been thought through and raise many questions about the status of employees who hold shares in the business, the rights of employees when the employment relationship ends, and the very real possibility that such shares may lose their value over time or be sold by employees in advance of this happening, that makes a nonsense of the government proposals.  We already have a number of examples, the obvious one being John Lewis, where all employees have a share in the business AND retain equal employment rights with all other non-shareholding employees.  So what on earth would be attractive in such a proposition for employees or prospective employees in the future?  And the other question has to be, would you want to give up a share in your business in return for reduced rights for your employees?

As with previous legislation that has hit the statute books this year, the proposals being promoted by George Osborne deal only with a limited number of rights of employees and suggests that the relinquishing of these rights will be sufficiently attractive to employers to encourage them to offer this sort of deal to prospective employees in the future.  What the proposals ignore, however, is that employers are far from protected by this proposal or the piecemeal reduction of unfair dismissal rights for employees.  There is a whole area of discrimination law that would be outside these proposals, and together with contract law and other exemptions, employers will still be exposed to expensive claims if the employment relationship goes wrong.  So yes, enter a deal with an employee in which they agree to give up their maternity rights.  They may then make a potentially more expensive claim against you for discrimination when it transpires that you have not approached other employees with the same deal.

As we have previously blogged in response to the Beecroft Report and other recent proposals to overhaul employment rights, we believe that the government is tackling these issues from the wrong end.  We firmly believe, and have witnessed with many clients, that entering into a fair and open relationship with employees, adopting best practice and ensuring that both parties understand their obligations to each other is far more likely to lead to a successful and productive employment relationship.  This, in turn, will motivate employees to be the best they can be which will, in turn, improve the bottom line for businesses.  Adopt the very best recruitment practices and get the right people for the job. Get your employment policies and procedures right and implement them.  Respect your employees and train and support them and then see how your business benefits and your bottom line improve.  All of this without reference to the unlikely possibility that you will end up in court should the employment relationship fail, is the key to business expansion and future success.

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