George Osborne has this month proposed a new type of “employee ownership” arrangement where employees will be given shares in return for them giving up certain employment rights, such as redundancy, unfair dismissal, and certain rights related to flexible working.  Simple so far, but the proof will be in how it is to be implemented which could prove to be a bit of a Nightmare on Elm Street.

Before we all Scream, let’s look at the basic principles and see if we take a Shining to them:

• an employee “will be given” shares worth between £2,000 and £50,000 that will be exempt from Capital Gains Tax;
• in exchange, an employee owner will give up their UK rights:
• to unfair dismissal;
◦ to a redundancy payment;
◦ to request flexible working and time off for training;
◦ to have to give only 8 weeks’ notice of return from maternity leave, but instead will have to provide
16 weeks’ notice.

The Omens are not necessarily good for this, some may say, Alien initiative, with lots of questions having been voiced.  Many employees may Grudge giving up key employment rights for as little as £2,000.�
Employers may not want employees as shareholders from the outset of their employment, and may find that a large proportion of their shares are owned by employees. They will need to determine how employees are allowed to dispose of the shares and may need to buy them back at market value when the employee leaves. So, with so many questions this is clearly not going to be Childs Play.

Whilst a lot is made of the tax advantage to the shares, given employees already have a yearly capital gains allowance of £10,600, if £2,000 worth of shares are given, the value of them would have to increase over 400% before the existing tax exemption was exceeded anyway.

The Chancellor is looking at introducing these shares in April 2013, so we will have a better idea 28 Weeks Later than now, by which time we will be Out of the Dark.

David Israel