It’s that time of year again when
media headlines are buzzing with proposals from the recent political Party
Conferences. One proposal that has attracted column inches and is very likely
to interest those working in the Employment Agency sector are George Osbourne’s
plans to introduce new owner-employee contracts of employment. Indeed, if
implemented, it could impact you directly as an employer but it will almost
certainly also affect the way your end user clients engage with individuals.
Under the radical new plans,
employees will effectively give up certain rights in return for shares in the
business (of between £2,000 and £50,000). It is intended that the rights to be
sacrificed will include the ability to claim unfair dismissal, to be entitled
to a redundancy payment, to make a request for flexible working and also to
request time off for training. In addition, women will be required to provide
more notice of their intention to return from maternity leave.
At first glance the concept and the
stated reasoning behind it appear attractive, particularly the argument that employees
would feel more engaged in a business (as they would have a personal interest
in how well it performs). A point
further boosted by the indications that there will be associated tax
incentives. In addition, giving up certain rights surely means a more flexible
relationship with less expensive and time consuming claims which has to be a
good thing surely?
Unfortunately, digging slightly
deeper I think it is clear that the proposals will actually be unworkable both
practically and legally and will also end up costing many employers more in the
long run. All this without even going down the road the Unions have as to
whether it is ‘morally right’ to allow employers to get round basic rights or
how you increase flexibility by removing an employee’s right to seek flexible
working!
For starters, employers will need
to consider the cost benefit in offering shareholdings against the cost of
implementing such a scheme. Recent
statistics have indicated that the average unfair dismissal award is £9,000 and
so it is arguable whether employers will actually save money by preventing
employees from bringing claims (particularly where they are granting shareholdings
towards the £50,000 mark).
Another real concern centres on
whether employees will be required to take advice before signing away their
rights. Currently, the law requires
employees to seek independent legal advice before they can agree to waive their
employment rights. It is not clear if
this will continue to be the case and if so who will pay for the advice
(although it is likely this will fall to the employer). Alternatively the law may be changed which
will no doubt leave employees in a vulnerable position particularly in light of
current the desperation in the job market. Another point the Unions are worried
about.
The preparation of the
owner-employee contracts is also likely to increase red tape as opposed to
cutting it, as employers will not only need to deal with the employment
relationship in the contract but also the shareholder relationship. This leads
on to questions as to whether owner-employees will be able to sell their shares
if they leave the business and if so at what price. This point will particularly problematic
where the parting of ways is acrimonious as the employer and employee will
almost certainly have very different ideas as to what the shares are worth.
Valuations generally cost money and it is likely to be just one more point to
argue over. All good business for lawyers but not for the parties involved.
The biggest issue may however be
the fact that employees will still be able to bring claims in respect of
discrimination and automatically unfair dismissals (for example for blowing the
whistle). In practice it is difficult to see an employee who is particularly
aggrieved at the manner of parting not seeking to exploit any other route for
redress open to them. As anyone who has ever been involved in a discrimination or
automatically unfair dismissal claims knows, they tend to be more costly and
difficult to deal with. Accordingly we could just be swapping a more straight
forward dispute for a more difficult and costly one.
So whilst I think credit should
be given to the Government for at least trying to find a solution to the red
tape faced by businesses and a way out of the current economic difficulties I
think they may need to go back to the drawing board on this one.
Leon Deakin
Associate
for and on behalf of Thomas Eggar LLP
TEAM - The Employment Agents Movement UK Limited
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