26 October 2012

By Ruth Dukes

The Coalition has boasted of its progress through its ill-conceived and misleadingly named "red tape bonfire", but as it burns good regulation, it is creating exactly the kind of legislation that really does burden businesses. Ruth Dukes explains:

Last week, the Government published its Consultation on the introduction of a new type of worker, the ‘employee owner’. Unusually, the Consultation allows only three weeks for individuals or organisations to make their responses, instead of the standard twelve weeks. The core proposal is to allow an employer and employee to agree that in exchange for shares in the company, the employee will give up certain of his or her employment rights. If the employee makes any profit from the eventual sale of the shares, that profit will be exempt from capital gains tax. The employment rights in question are the right to claim unfair dismissal (apart from where this is automatically unfair or relates to anti-discrimination law), certain rights to request flexible working and training, and statutory redundancy pay. So-called employee owners will also need to give longer notice to return from maternity or adoption leave, 16 weeks instead of 8 weeks.

The Consultation pays some lip service to the ideas of fairness and employment protection. But it is clear that what is driving the proposal is the Government’s wish to ensure greater flexibility for employers and a more "flexible" labour market. The recent history of the Beecroft Report and the Government’s Red-Tape challenge provide the context: workers’ rights are characterised once again as unnecessary obstacles to "flexibility".

In scheming to do away with workers’ rights in the name of greater "flexibility", however, the Government has hit upon an obstacle of a different sort, in the form of European law. The Government is bound to give effect to EU employment rights and equality rights: it cannot legislate them away. When deciding which employment rights an employee owner will have to give up in exchange for shares in the company, it has been constrained by the need to ensure the continued protection of all European employment and equality rights. As a matter of European law, these rights cannot be forfeited by workers, in exchange for shares or otherwise.

The result is a set of proposals which, in places, make for strange reading. For example, the Consultation states that a pregnant employee owner will have to give up her right to claim unfair dismissal, but not where she has been dismissed because of her pregnancy. In any case she will still be able, in such circumstances, to sue for a discriminatory dismissal since her equality rights are guaranteed as a matter of European law and will not have been affected by reason of her becoming an employee owner. Elsewhere the Consultation states that all employee owners will lose their right to request flexible working, except in the very specific situation where they make the request following a period of unpaid parental leave. This is because the right to unpaid parental leave is guaranteed in European law.

If this all seems quite complicated, that’s because it is! Rather than simplifying employment law by getting rid of ‘red-tape’, these proposals, if enacted, would add a new layer of complexity, creating a new category of worker and a new set of rules specific to that category – a new set of rules for HR departments to get their heads around. Rather than serving to reduce the potential for disputes and tribunal claims, they would create new grounds for disagreement, chief amongst these the matter of the value of the shares at the point in time when the employee owner comes to sell them back to the company. From the point of view of employees, there are many reasons to be wary of these proposals. It is perhaps more surprising to discover that they are at odds, in part, with the Government’s own stated policy goals.

Support the IER and receive free employment law publications and reduced entrance fees to our employment law seminars and conferences by subscribing to the IER.