Future 50 Comment: Adrian Possener on new employment laws
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SURELY, most of us take great interest in the high-octane employee-employer bust ups that occasionally feature on the pages of the EADT.
Other than for this, attitudes to employment protection rights vary enormously. But some businesses have for a while criticised employment legislation as being a costly burden imposed on UK companies by misguided Europeans. For those that hold such a view, the coalition will provide a partial remedy in legislation expected to be enacted during April 2013.
This will allow employees to waive certain employment protection legislation on being recruited by agreeing to adopt the new status of “Employee Shareholder”.
The status of Employee Shareholder requires the individual to hold shares worth at least £2,000 on issue. So, the individual will have the benefit of being a shareholder, and therefore presumably incentivised in a beneficial way, but have the disadvantage of lesser employment protection rights.
To sweeten the pill, the shares will be free of capital gains tax following a disposal on gains made from up to £50,000 of shares issued to them.
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An employee shareholder will be excluded from most unfair dismissal rights, rights to statutory redundancy pay, certain rights to request flexible working and to request training.
In addition, an employee shareholder will have to give 16 weeks’ notice to return from maternity or adoption leave, rather than the normal eight weeks.
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Not all rights to bring a claim will be given up by an employee shareholder, who will, for instance, still be able to bring a claim based on breach of contract or for discrimination.
This initiative is part of the government’s policy of encouraging greater participation of employees in the ownership of companies.
There is much controversy on whether the relaxation of some of the employment protection legislation will make companies more willing to recruit or otherwise assist in the expansion of a company’s workforce.
But it is possible that increased flexibility, together with some tax advantages, will be welcomed by some companies, particularly smaller-emerging companies with the prospect of rapid but higher risk growth.
The government has also announced some relaxations in relation to so called tax-advantaged tax schemes.
These schemes can offer some very attractive tax advantages for shareholders in companies that increase in value. With many shareholder valuations being at a relatively low point, now could be an advantageous time to introduce new schemes, especially with the relaxation of some of the restrictions.
Of particular note is the extension of entrepreneurs’ relief to enterprise management incentives without a requirement to hold 5pc of the shares of the company. Entrepreneurs’ relief reduces capital gains tax to just 10pc on qualifying disposals of up to a lifetime amount of gains of £10m. One of the requirements to qualify for the relief on the disposal of a company is that you own at least 5pc of the shares of the company. This ownership requirement will not apply to EMI options.
In certain circumstances, this relaxation will make the relief extremely valuable and generous, as it will apply in many situations where EMI options are exercised immediately prior to the sale of the EMI company.
Employees holding EMI options that are exercisable now or are holding EMI options acquired since April 6 2012 may wish to postpone any sale of the shares until after April 2013 to take advantage of the relief.
: : Adrian Possener is a partner and head of company commercial at regional law firm Birketts LLP, a sponsor of the EADT Suffolk Future 50 listing of up-and-coming businesses with high growth potential.