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Employee Owners – less employment law burden but at what cost?

What is it?
Following the Government Employment Law Review, it is proposed that a new ‘employee-owner’ status of employment will come into effect from April 2013. It is hoped that such an arrangement will maximise flexibility for both the employer and the employee in order to encourage a more enterprising culture in business.

Key features
It is thought that employee-owner status will be of most benefit to fast growing businesses (although it is available to all businesses) who would gain most from the flexibility of the proposed new class of employee. The key features of this new employment status include:

  • An employee owner receiving between £2,000 and £50,000 in shares (thought to be any type of share which will be exempt from Capital Gains Tax) 
  • Shares will be issued in exchange for the removal of the following employment law protections: 

Unfair dismissal;
Right to statutory redundancy pay;
Right to request flexible working and training time; and
Requirement to provide 16 weeks’ notice of intention to return to work after maternity/adoption leave (as opposed to 8 weeks).

Advantages
The new status will:-

  • Allow employers greater flexibility to determine which employment status suits the needs of their business;
  • Provides fast growing businesses greater protection from some of the legal burden of employment law whilst enabling their employee owner to gain from the financial reward shares can offer; and
  • Potential to boost contribution, commitment and loyalty as employee owners will own part of the business.

Disadvantages
However there will be some drawbacks:-

  • Employee owners will only benefit from the share arrangement when the business is succeeding;
  • Such an arrangement could increase the red tape associated with share arrangements; and
  • A start-up business offering such status as a condition of employment may ultimately fail, in which case the employee owner has little to gain financially or in terms of employment law protection.

On the face of it, the employee owner status has potential to reduce the employment law burden currently dissuading employers from recruiting whilst also opening the door of opportunity to employee owners. However it is likely that this will only benefit a minority of employee owners as businesses may be reluctant to offer shares to new starters in the current economic climate.

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