Government rights 'trade in' scheme too complex and expensive to work, warns expert

Out-Law Analysis | 22 Oct 2012 | 8:00 am | 2 min. read

OPINION: The Government's plans to allow employees to 'trade in' some of their rights in return for company shares are misguided and ineffectual. Worse, they will prove costly and confusing for companies that try to implement them.

The Government's central idea is simple: employees can give up certain rights in return for company shares worth £2,000 or more. The trouble is that in reality the rules will be far from simple.

Much employee protection legislation comes from the EU and it is not in the Government's gift to offer companies the chance to opt out of those laws. That means that companies will give up equity to staff in return for an odd mix and match of concessions that most firms and employees will find it hard to keep track of.

Because employment rights are closely inter-mingled with one another even the rights the Government has identified cannot be given up so easily. Take unfair dismissal – someone may give up their right to take an unfair dismissal claim but in many cases these claims are also linked to discrimination claims. Discrimination is covered by EU law so any company that signed up to this plan would still face action from a sacked employee.

The right to request flexible working is governed by UK law and is one that the Government wants employees to be able to forfeit. But if an employer dismisses someone for requesting flexible working then this is very likely to lead to a claim for indirect sex discrimination, making the original flexible working right concession meaningless in practice.

The Government wants the new rules to encourage businesses to hire workers free from worries about employee protection. But many employment rights now do not come into effect until the employee has been with a company for two years so this proposal does not actually change very much at the point of hiring.

The idea will only work if it makes life easier for businesses, and on the face of it it seems to do just that – the idea of being protected from unfair dismissal claims and redundancy liabilities is attractive.

But not only will it be the case that many everyday employment rights won’t be affected at all, but there will be costs to implementing the plan. Administering the system and creating the shares will cost time and money. If someone leaves the company employers may have to buy shares back at full value, even in cases of termination for gross misconduct.

And these costs will be there for all new employees who are asked to participate in the scheme. That means that costs will attach to employees who would never have ended up making claims against the employer.

The plan is based on an exaggerated sense of the cost of employee action. The average unfair dismissal award is £4,560 but most cases settle earlier with no formal action and for far less. So employers must think carefully: will administering a scheme for all employees that only guards against some employee actions really be cheaper?

Most employers will probably decide that it won't and that the scheme is too complex, too uncertain and just too expensive to be of any real use. 

Christopher Mordue is an employment law expert at Pinsent Masons, the law firm behind