Commercial
Legal eye on employee share ownership plans
There has been a lot of coverage in the press today of Nick Clegg's plans to introduce a so called 'John Lewis economy' by giving employees a 'right to request' shares in the company that they work for. Here, Catherine Wilson, Employment Partner at leading law firm, Thomas Eggar, provides a legal viewpoint on the plans.
The perceived advantages of employee share ownership have been well documented and include greater employee motivation and loyalty. This in turn should improve employee retention and productivity as well as hopefully discouraging employment claims.
The introduction of such a scheme can raise a number of legal issues. It is clear that if this new ‘right’ is introduced, employers will need to have a formal agreement in place to adequately deal with the allocation and disposal of shares. In the case of an unlisted company then any scheme would need to include the creation of an internal market for the shares to be sold. The costs associated with both the creation and administration of such a scheme could be quite considerable. Employers will also need to define who is entitled to qualify for share ownership, for example, what is an appropriate minimum service requirement and how the scheme should treat women on maternity leave, staff taking career breaks and those absent on long term sickness. Consideration will also need to be given as to the often vexed definition of good and bad leavers.
Other legal implications are unclear at this stage. It is not clear whether employers will be permitted to require their employees to accept a lower salary in return for getting shares, thus requiring a change to the terms and conditions of employment contracts. Smaller employers may also fear a dilution of share ownership and the resultant lack of control over key business decisions. Historically, certain schemes attract considerable tax advantages if they are approved by HMRC but again it is not clear whether these tax benefits will apply to the new style schemes. Even employment law claims relating to dismissals may become slightly more complex as this additional benefit will need to be taken into account when calculating loss.
Finally whilst a scheme seeking to reward those who contribute to the success of the business must generally be welcomed, the devil will be in the detail of the agreements and the legislative framework. Perhaps most importantly, some care will be required to manage employee expectations not least because of the unpleasant truth that shares may go down as well as up!”
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