By Dr. Jeremias Prassl –

Section 31 of the recently enacted Growth and Infrastructure Act 2013 has added a third employment status to the existing categories of ‘employees’ and ‘workers’ in English law: the notion of the ‘Employee Shareholder’. The introduction of this new category, based on Adrian Beecroft’s controversial report on Employment Law reforms, has been the most high-profile change in employment law since the Coalition Government came to power.

During consultation on the proposals in the autumn of 2012, responses from employee and business representatives as well as the legal community were near-unanimously hostile; even a protracted battle between the Houses of Parliament in the spring of 2013, however, did not deter the government from pressing ahead with its plans.

‘Employee Shareholders’

Under the new status, employees who receive capital gains tax-exempt shares in their employer (or a controlling enterprise) valued at £2,000 or more in order to become ‘employee shareholders’ are no longer entitled to the following employment rights:

–          The right not to be unfairly dismissed

(with the exception of automatically unfair dismissals, and those in contravention of the Equality Act 2010)

–          The right to statutory redundancy pay

–          The right to request flexible working

–          The right to request to undertake study or training

–          ‘Employee shareholders’ are furthermore subject to longer notice periods before returning from maternity, paternity or adoption leave (up from six or eight weeks’ notice to sixteen weeks.

Procedural Safeguards?

In the face of significant opposition in the House of Lords, the government was forced to make a series of procedural concessions in creating the ‘employee shareholder’ category. Prospective ‘Employee Shareholders’ need to be issued with a detailed statement of particulars, including the terms at which shares will be issued, as well as list of rights denied. Following receipt of this statement, the worker is entitled to independent advice (at the employer’s expense); the offer can only validly be accepted following such advice and after a seven-day cooling-off period. Provisions have furthermore been made to protect existing employees from suffering detriment in employment and/or unfair dismissal as a result of a refusal to become an employee shareholder. Finally, the government has given an undertaking that jobseekers could not be forced to accept employment as ‘employee shareholders’ at pains of losing their entitlement to receive jobseekers’ allowance.

As these safeguards are primarily procedural, however, it is unlikely that they will bestow significant protection on employees – most importantly in so far as there is no protection for prospective employees, who may be offered ‘employee shareholder’ jobs on a ‘take-it or leave-it’ basis.

A Price Tag for Employment Rights?

The exchange of employment rights for shares is deeply problematic: first, because it suggests that such rights can be clearly valued in monetary terms. Given the inherent inequality of bargaining power in the vast majority of employment contexts, it is highly improbable that employees will be able to bargain for more than the prescribed minimum amount of shares. The fact that employers may stipulate for a compulsory repurchase upon the termination of employment, second, exposes employees to additional risks, such as equity market fluctuations: during periods of underperformance (which will frequently be linked with increased job losses), shares in the employing company, and thus the ‘value’ of key employment rights, will be priced at a significant discount.

An Unnecessary Reform

The reforms are supposedly motivated by a desire to ‘maximise flexibility’ and provide ‘the competitive environment required for enterprise to thrive’. Yet it is unlikely that these goals will be achieved: the new status is marred in complexity, whether as a matter of employment law (How will it relate to other areas of statutory regulation? What would happen in the case of a TUPE transfer?) or company law (In which entity should the shares be issued? What rights, if any, should be attached to the shares?). As Simon Deakin has convincingly argued, it is furthermore ‘completely unnecessary and counterproductive […] to link [employee ownership] to the loss of employment protection rights’. As the recent Nuttall Review of Employee Ownership has demonstrated, existing legislation already provides the necessary framework for genuine employee ownership. It is therefore difficult to see what, if any, benefits could be derived from this new status.

Dr. Jeremias Prassl is a Supernumerary Teaching Fellow in Law at St. John’s College, Oxford.