Shares for rights could lure talent to smaller firms

Elizabeth Fournier
AS NEW rules came into force yesterday allowing employees to waive certain workers’ rights in exchange for shares in their employer, lawyers have said the legislation could drive top talent towards the UK’s smaller companies.

Under the new scheme, first proposed by chancellor George Osborne last year, employees can exchange certain rights – including statutory redundancy payments and the right to claim unfair dismissal – for shares worth at least £2,000, with the first £50,000 exempt from capital gains tax.

The government suggested the measures would be particularly useful at fast-growing firms, offering experienced professionals the chance to take the risk on the equity of their employer – and the potential to sell it on at a later date and keep the profit.

Though the new rules were twice voted down in the House of Lords, peers eventually passed the proposals after an amendment was included that means companies will only be able offer the contract after staff have received independent advice

Jacqueline McCluskey, a partner at law firm HBJ Gateley, agreed that the rules could help SMEs attract highly-paid employees away from larger competitors.

“High earners are unlikely to be put off by the loss of some of their employment rights and will be attracted by the opportunity to have a share in a small or medium sized company with big potential,” she said.

But others warned that the complexity of the scheme and potential cost to employers might mean it never manages to get off the ground.

“It is questionable whether the shares for rights scheme will garner much popularity with employers or employees,” said Sarah Ozanne at CMS Cameron McKenna.

“Whilst some employers and employees may see it as a practical route to share ownership, many are likely to be put off by the complexities of share valuation, the costs to employers of implementing the scheme and the forfeiture of what many employees view as core employment rights.”