21 October 2012

Cash for Rights...

CASH for rights! If you have any rights you don't want or need, or maybe do need but just can't afford to keep, you can now exchange them for CASH! Just sign one contract and you'll receive CASH *
(*disclaimer: cash may not always actually be delivered)

What's this all about then? 

In short it's a new policy from the Government, instigated by George Osborne, to introduce a new employment status called Employee Owner. In their own words:
"Businesses will be able to offer individuals contracts under this new status, whereby employee owners will receive shares in the company between £2,000 and £50,000 which will be exempt from capital gains tax. These people receive the same employment rights as an ‘employee’ except for unfair dismissal (apart from where this is automatically unfair or relates to antidiscrimination law), certain rights to request flexible working and training, and statutory redundancy pay. They will also need to give longer notice to return from maternity or adoption leave." (1)
"The Government believes that this will be a helpful provision for those companies and individuals who want to participate in a mutually beneficial arrangement, and adds to the flexibility that already exists in the UK labour market." (1)
This doesn't actually make sense. Companies who want to engage with their staff in a mutually beneficial arrangement already have plenty of options available to them - and there are many examples of businesses such as John Lewis, the co-op, the Eden project and others doing so very successfully - without needing a new employment status. Mutual benefits are gained through collaboration between staff and employers, however the use of a contract to remove certain rights promotes coercion not collaboration and swings the balance of power even more in favour of employers. It is counter-intuitive to the whole principle of mutually achieved and shared benefits.

If a business truly wants to include its staff, to get them to contribute over and above what is normally expected and contracted, then they should not be looking to take away rights, but being encouraged to work with them to find innovative solutions to that particular businesses needs, a catch all, limited contractual solution is simply not going to get the best out of people or businesses.

The explanation goes on to tell us that:
The Government is mindful, 

however, that businesses – particularly smaller businesses – need 

flexibility and freedom to allow them to grow and take on staff. In particular, 

the Government wants to remove the perceived barriers around the fear of 
being taken to employment tribunal which are deterring businesses from 
hiring." (1)

The list of rights to be relinquished by Employee Owners is:

  • unfair dismissal rights (except for reasons that are automatically unfair or that relate to discrimination); 
  • the right to statutory redundancy pay 
  • rights to request flexible working and time to train (16-17 year olds would still retain the right to training, disabled persons could, under the equalities act, request flexible working as part of a reasonable provision to cater for their disability)
  • employee owners would also have to give 16 weeks’ notice of the intention to return early from maternity or  adoption leave (compared to 8 weeks’ notice for other employees).

The wording of the consultation document above is misleading, it is not freedom to grow and take on staff that these proposals provide, but the freedom to shed staff and either shrink or replace them. This does provide a certain flexibility, however the price of gaining it needs to be considered.

The ability to gain and shed staff at will weakens the need for a business to consider it's growth in a long term, sustainable way. A high staff turnover does not allow a business to develop its biggest asset, its people and there is a real danger that the failings of a business model or practices will be overlooked because of a high staff turnover.

Small businesses, such as the ones this policy is supposedly aimed at have even more of a need to ensure their growth is sustainable and underpinned by a reliable and consistent employee base. Unfair dismissal does not come in to effect now until an employee has been with a company for two years. A small business, which this policy professes to be aimed at, will be far more likely to have an understanding of their staff to a point where they should know, after two years, if they are the right people or not.

A sustainably growing business should not be looking to constantly replace staff, but to carefully select staff and invest in them. This is particularly worrying when one of the rights being lost is the right to training.  

Neither the maternity, flexible working, nor redundancy pay rights provide any additional flexibility. There is however a serious question over equality and maternity leave which would allow men, who do not (currently) return from long term maternity leave, to ignore the effect of losing this right and gain an advantage in the job market.

We also need to consider the implications of allowing employers to effectively buy a persons rights with shares. It is not only a dangerous precedent to set, but it creates another level of competition, one in which those who would significantly benefit from those rights are disadvantaged against those who can afford to sacrifice them.

The rights to training are most needed by those who are most in need of training due to low skills or levels of education, and the right to flexible working is most needed by people with children or caring responsibilities. In other words, those who will be put at a disadvantage are the very people we need to be supporting the most.

It is unfair to ask potential employees to decide whether they want to retain certain employment rights when the very nature of rights are that you do not need them until circumstances, which are usually unforeseen, make you vulnerable to abuse by others. This is of course assuming they even have a choice, the threat of losing Job Seekers Allowance if you fail to take a job offered, along with the ability of employers to offer only this type of contract could well leave people with no option but to accept it. Even without the threat of losing JSA the job market is already ridiculously competitive.

What about the shares?

"The Government intends that all types of  shares will be eligible for use under this arrangement. These shares may carry rights to dividends, voting rights, or rights to a share in the company’s assets if it is wound-up.

The Government anticipates that employers would choose to apply restrictions on the shares that they issue, as is common practice with employee share scheme arrangements, in order for employers to protect their companies.  The employer would be allowed to include a clause in contracts requiring the employee to surrender the shares when the employee left, was dismissed or made redundant.   
However, to ensure that employees are also protected, the Government will require that if shares are surrendered, the employer would have to buy back the employee’s shares at a reasonable value.  
For the purposes of the limits on the shares that can be awarded under this status, shares will be valued according to their unrestricted market value at the time that they are awarded. This is the price that the shares might reasonably expect to fetch on the open market, disregarding any restrictions." (1)

So the shares would neither guarantee a chance to participate in the decision making of the company, nor any additional income throughout the time of employment. The restrictions placed upon the shares makes this essentially an employee share scheme arrangement that you have to buy in to by surrendering your employment rights.

The idea of employee share schemes is to give employees a stake in the company and a reason, beyond their employment contract, to see it succeed and make an emotional and material investment. This is completely at odds with the idea of removing employees rights, especially the right to unfair dismissal which creates uncertainty about their employment and less inclination to make the same level of commitment.

In difficult financial times, is it really right that money from shares in a company doing well should be immune to capital gains tax, irrespective of who holds them? If a company is not doing that well, then the benefit of not paying capital gains tax is minimal at best anyway.

Which leads to the final concern. The ability for abuse cannot be overlooked. A notional job role, at minimum wage,  could be given to a family member or friend, with employment rights that would never be needed traded in for a large amount of dividend paying shares, which would be immune to capital gains tax.


It is not at all clear how these proposals are supposed to help small, fast growing businesses other than to give them the ability to hire and fire at will. Whilst this may indeed help a business grow in the short term, there is a very real danger of creating an unstable business that will collapse in the future. 

At the time of the Beecroft report, Vince Cable wrote:
"One of Mr Beecroft's recommendations was a suggestion to bring in no-fault dismissal. In my daily conversations with businesses, this has very rarely been raised with me as a barrier to growth." (2)
If this was the case in May 2012, why is it, only months later on, there are "perceived barriers around the fear of being taken to employment tribunal which are deterring businesses from hiring"? The list of rights to be lost is incredibly similar to those which the Beecroft report asked for and it is clear this is another attempt to implement those widely criticised proposals.

In fact the increase to two years for unfair dismissal is to be brought in along with a whole raft of other changes, designed to help businesses, in the 'Enterprise and Regulatory Reform Bill'. The effects of this bill is not known yet, and it is very premature to be talking about yet another measure to tackle an issue which is, from all accounts, not that significant in the first place, and may well be resolved already by changes that have are now going through parliament.

Responding to Beecroft, Vince Cable also wrote:
"At a time when workers are proving to be flexible in difficult economic conditions it would almost certainly be counterproductive to increase fear of dismissal" (2)
Well, we still have difficult economic conditions and these proposals will certainly be just as counter-productive.

The consultation on this proposal is currently in progress. The Government has allowed just three weeks for it, which in itself is disgraceful for such an important topic; I would urge everyone to take the time to read it and respond.