On 18th December, the Growth and Infrastructure Bill sponsored by the Department for Communities and Local Government continued its smooth progress through Parliament with its’ first reading in the House of Lords.
Amongst a raft of provisions reforming the regulatory provisions relating to planning permission, power stations, highways and villages greens, is appended an amendment to Section 205 of the Employment Rights Act 1996, allowing employees of certain companies the ‘right’ to become ‘employee owners’.
Having already enacted legislation to increase the qualifying period for an employee to gain protection from unfair dismissal from one year to two, the Government continues apace in its desire to make the workforce more ‘flexible’ meaning that effectively there is more flexibility to order an employee to clean out their desk, without having recourse to whether there is a fair or justifiable reason for doing so.
It is not clear how the trade off of a ‘flexible’ labour market producing more jobs is achieved, although presumably the Government will point to a further reported fall in unemployment figures to support their stance. Of course what isn’t taken into account is the actual claimant count (those claiming job seekers allowance) which fell by only 3,000 in the last quarter, meaning that the total fall in unemployment is more likely due to a number of other factors. These other factors could include people dropping out of the labour market altogether to claim other benefits or pension credit, or taking short term part time jobs after being unable to secure anything more permanent.
So let’s examine the implications of becoming an ‘employee—owner’.
The full text of the proposed section is detailed below. Basically, an employee signs away their rights in a Faustian deal to not be unfairly dismissed, or to claim a redundancy payment, or to request study leave or flexible working hours. In exchange for surrendering these important safeguards, the employee-owner receives ‘no less than £2,000- £50,000 worth of shares in the company (so that will be £2,000 then). The shares may have with them rights usually accorded to shareholders under a company’s articles, such as voting rights, a capital share of the company’s assets on winding up and a right to receive dividends.
What then becomes of the employee-owner who is dismissed? It is proposed that the ‘shares’ are bought back by the employer at a ‘reasonable’ rate. If a company has been wound up or is shedding staff because of liquidity problems or downsizing, it is not inconceivable that the ‘reasonable’ rate will be next to nothing.
Furthermore, presumably such employee-owners will fall outside of the statutory scheme for the Government to make redundancy payments if a company is insolvent, as they would have signed away their rights to claim a payment.
The Nutall Review of Employee Ownership 2012, cited in the Department for Business Innovation & Skills Impact assessment, claims that one benefit of employee ownership will be ‘enhanced employee well-being, by cultivation of a sense of engagement with management’.
Whilst this warm glow of a sense of engagement may be optional for existing employees, and we doubt any would readily take it up, there does not seem any reason why it will not become a standard arrangement in all new employment contracts entered into, therefore slowly reducing the business of the Employment Tribunal to cases involving those employers who have discriminated against their staff or sacked them for an ‘automatically’ unfair reason.
This may mean the employee has less rights, and could also be treated in a quite undignified way by his bosses without recourse to the law, even after many years of diligent service, but at least there will be ‘flexibility’ for the sacked employee to leap to another short term or part time station sooner than before.
By Stephen Ogden.
All information is correct on the date of posting.