A creative use of equity to encourage workforce flexibility
06/11/2012
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Other governments, including Australia’s, could look to the UK in trying to coax additional workforce flexibility and productivity.

On October 8 the UK government announced plans for a new kind of employment contract, named the “employee-owner” contract, that will be available to companies of any size from April 2013. Under the new contracts, employee-owners will receive shares worth between £2,000 and £50,000 and will not pay capital gains tax on any gains when they sell those shares.

Participation in any other tax advantaged share schemes will remain unaffected.

But there is a catch. Employees, in return, must relinquish rights in respect of unfair dismissal, redundancy, flexible working requests and time off for training. Maternity returners must also give 16 weeks’ notice, instead of the usual 8 weeks, for early return to work.

Companies will not be able to insist on existing employees signing up to the new contracts, but can insist on them for new hires.

The next steps will be consultation on the details of the contracts later this month, followed by legislation to govern the new contracts later this year.

Unfair dismissal claims can potentially be worth up to around £70,000, so employees may be taking a gamble in swapping legal rights for shares worth £2,000.

The initial announcement suggests that employers will not be able to adopt provisions that require employees to forfeit their shares on termination of employment, as is often the case with employee share schemes. The suggestion is that the company would buy them back at a reasonable price.

Some believe that the arrangements are expected to appeal to small start up companies. However, we see no reason for why large and medium enterprises would not be interested. 

It is interesting that the UK has moved to adopt more creative methods to improve workforce capability and flexibility in the face of very difficult economic times. Many in countries such as Australia, blessed with better economic circumstances, may wish it need not come to the UK’s dire economic straits before similar creative methods are considered.

The UK announcement can be seen HERE.

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