06 September 2013

By Roger Welch

Academic Roger Welch explains the shares-for-rights scheme that came into effect on 01 September 2013 and how trade unions should react to its implementation.

The latest attack on workers' rights is in the form of creating a new employment contract which, if agreed to by employees, will result in them surrendering a number of important statutory rights – in particular the right to claim unfair dismissal - in exchange for receiving at least £2,000 worth of shares in their employing company. The new law came into effect on September 1st through the Growth and Infrastructure Act 2013 (Commencement No.3 and Savings) Order 2013 (SI 2013/1766) which adds a new s.205A to the Employment Rights Act 1996. Individuals who agree to contracts giving them employee shareholder status will lose the general right to claim unfair dismissal and the right to claim statutory redundancy payments. However, they will still be able to present claims for dismissals which are automatically unfair or dismissals which are in contravention of discrimination law under the Equality Act 2010. Employee shareholders will not be able to request flexible working and will be required to give 16 weeks' notice, rather than the normal eight, of their intention to return from maternity or adoption leave or additional paternity leave.

A company wanting to use an employee shareholder contract must give an individual a written statement of the particulars of the status of employee shareholder, specifying the employment rights he or she will give up and detailing the rights, restrictions and other conditions attached to the shares. The statement will set out whether the shares have any voting or dividend rights; whether the shares can be bought back or redeemed; whether the shares can be freely sold; and whether certain other rights and restrictions are attached to them.

Once an individual has received the written statement of particulars, he or she will be entitled to independent advice as to the terms and effect of entering into the scheme. Unless independent advice is received, and the individual has been given seven days to consider the advice, the agreement will have no effect in removing his or her employment rights. Acceptance of an employee shareholder contract within that seven-day period will also have no legal effect. Independent advice on the employee shareholder agreement can be given by a solicitor, a barrister, a fellow of the Institute of Legal Executives employed by a solicitors' practice, a certified trade union official or a certified adviser in an advice centre. Under the revised scheme, even if the individual decides not to take up the job offer, the company will be required to meet the 'reasonable costs' of the advice.

Clearly this scheme is controversial as it is in breach of established principles that employees should not be permitted to contract out of their statutory rights. These principles exist precisely to prevent employers from bribing or pressurising employees into giving up their rights. The government argues that no employee is compelled to give up their rights as existing employees, irrespective of their length of employment, will be protected from detriment or dismissal if they turn down an employee shareholder contract and no one, including jobseekers, will be compelled to apply for, or accept, an employee shareholder job.

However, the argument that acceptance of an employee shareholder contract is a matter of voluntary choice is undermined by the government's insistence that companies should be able to choose whether to offer new jobs, using employee shareholder contracts, on a 'take-it-or-leave-it' basis. In short, job offers can be refused or withdrawn if a prospective employee refuses to accept an employee shareholder contract. This may also mean that, where promotion takes place through an employer offering an employee a new contract of employment, rather than simply making an increase in salary, employers will be able to restrict promotions to employees who agree to become employee shareholders.

Unsurprisingly and rightly, trade unions and many employment lawyers are opposed to the introduction of these new contracts, but it is worth noting that they have not been universally welcomed by employers. For example, when the scheme for employee shareholders was first announced, it was given a lukewarm response by the Confederation of British Industry (CBI). John Cridland, Director General of the CBI, stated: "In some of Britain's cutting-edge entrepreneurial companies, the option of share ownership may be attractive to workers, rather than some of their employment rights. But I think this is a niche idea and not relevant to all businesses."

For trade unionists and everyone who believes workers should have effective rights at work the longer term objective must be to secure the ending of the use of employee shareholder contracts. Moreover, repeal of the new law should be accompanied by the implementation of powers that governments already have, under the Employment Relations Act 1999, to extend statutory rights to agency and casual workers, as well as those who meet the technical legal criteria for being regarded by the law as employees. In the immediate term, existing employees need to be fully informed of their rights to reject employee shareholder contracts, and employer practices should be monitored to ensure that employees who refused to be bribed into giving up their rights are then not pressurised into doing so.