Employment Law | Rights For Shares Scheme Vetoed By Lords

Earlier this week the House of Lords rejected Government proposals for the so-called “rights for shares” scheme, under which employees would be able to sacrifice certain employment rights for shares in their company.

The proposal had been put to them as a clause in the “Growth and Infrastructure Bill” but had been severely criticised prior to the vote, which resulted in a 232 to 178 defeat.  It will now be up to MPs to decide on whether to reinstate the plans when the Bill returns to the Commons.

The consensus between the Lords and employment law specialists is that the proposal should now be dropped, as it has been described as “ill thought through, confused and muddled”, while no-one apart from the Chancellor seems to be enthusiastic about it and he only announced it as part of a speech to the Conservative Party conference in October.

Mr Osborne proposed that the shares a worker got, which would be valued at between £2,000 and £50,000, would be exempt from capital gains tax and claimed that the owner-employee contract would be ideal for the workforce of fast-growing firms, although companies of any size could use the new contract.

Under the scheme, in return for the shares, staff would have to give up various employment rights, such as cover for unfair dismissal and redundancy, the right to request flexible working and time off for training and would affect maternity notice.

However, despite the humiliating defeat in the Lords, the Chancellor has indicated that he will press ahead regardless of the result and is confident that he will overturn the decision in the Commons.

The former head of the civil service, told the Lords that the plans would be very “harmful to growth”, as they could cost the country £1bn a year in lost revenues and warned that any employer offering this is probably the kind “you do not want to go near”.

In addition, of the 209 businesses that responded to a Government consultation asking if they would be interested in taking the shares for rights scheme up, fewer than five gave it their full support and only a “very small number” welcomed the scheme.

The plan is a variation on employment law proposals put forward by venture capitalist Adrian Beecroft last year, which was widely condemned by business leaders, however, since it is the Chancellor’s ‘pet project’ it may still get through.

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Nigel is the Managing Partner and Head of Litigation and Dispute Resolution in the London office of Mackrell Turner Garrett.
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