Back in October we suggested that the Government’s employee shareholder status proposal was a clear case of attaching too much credibility to its own publicity, and was destined to fail – ill thought-out, with insufficient consideration given to how it would actually work in practice, as opposed to party political conference cosmetics.

Since then, much support for our view.  The Government’s consultation paper received a reception chillier than Easter just past – of all the 160 responses, only three were positive and two of those were from employees.   In other words, only one employer in the whole of the UK felt it possible to be pleasant about these proposals.   The official record of UK Parliamentary proceedings, Hansard, reports discussion of this statistic by Lord Bilimoria.  Let us say that he is not a fan:  “I am sorry, but unless I have got something fundamentally wrong, if you get 3 out of 160 you do not go ahead with something.  You either consult further or you bin the idea because it is no good”.

The House of Lords was similarly unpersuaded when the Growth and Infrastructure Bill reached the drafting stage, twice rejecting the Government’s proposals on this front.   A lesser Minister might have taken the hint by now but not this one, dear me, no.    Back the proposals went to the Lords last week and on 24 April they were finally accepted.  We can now expect them to become law later this year.

However, whether by accident or through a cunning plan to get their own way in the end, the Lords have forced a number of concessions out of the Government.  These turn it from a strong probability that these contracts will not be much used into an absolute certainty.   In particular:

  1. No agreement for someone to become an employee shareholder will be valid unless the individual has received independent legal advice, much along the lines of a statutory compromise agreement.    The employer has to pay for that advice whether the person then takes up the role or not.  Given that most sensible advisors will, as matters stand, point their clients as far away from this status as they can (and without my wishing to come across as in any way ungrateful), that is a lot of wasted money.
  2. Even after signing up to employee shareholder status, there is proposed to be a seven day cooling-off period during which it will not be binding anyway.
  3. Employers must provide a written statement about the shares and the rights they carry in relation to voting, dividends, pre-emption, rights on sale or liquidation of the employer, etc.   If we work on the basis that a failure to supply this statement will presumably invalidate the employee shareholder status, one can anticipate endless litigation about what counts as detail enough for these purposes.
  4. Any job seeker refusing a role offered only on an employee shareholder basis will not thereby forfeit his Social Security benefits.
  5. The first £2,000 of shares (i.e. the minimum grant permissible under the scheme) will not be subject to tax.   Any larger grant will therefore create an instant and possibly very substantial tax hit for the individual.
  6. Existing employees will be protected from detriment or dismissal if they refuse to switch to an employee shareholder contract.

So there it is, an arrangement which employers must effectively pay employees to enter, which adds significantly to the administrative burden on the employer and which will mean a material tax penalty for the employee unless he accepts a shares grant at a level so small that on no objective view could he be advised that it was worth giving up his unfair dismissal rights in return.    And, even at the end of it, if all goes well and the candidate does become an employee shareholder, all he has to do in order to circumvent the whole ghastly thing on termination, is to allege discrimination or whistleblowing.  Let us leave the last words to Lord Bilimoria, clearly not a man to mince them: “I guarantee that [the employee shareholder scheme] will not work, that it will not be taken up by business, that is has wasted a lot of Parliamentary time and that it will waste a lot of legislation …this is not just a dog’s breakfast, it is a mad dog’s breakfast”.  Brilliant.