The New 'Employee Owners'

As part of the Government's long-term plan to stimulate the growth of small and medium-sized enterprises (SMEs) and to generally boost the UK economy, it is proposing to create a new class of employees, "Employee Owners," who in exchange for forgoing certain employment rights will receive shares in their employer companies. To make this concept more viable, the Nuttall Review recommended that the regulatory regime for share buy-backs under the Companies Act 2006 be relaxed.

On 30 October 2012, the Department for Business Innovation & Skills (BIS) published a consultation paper which invited opinions on the relaxation of the current share buy-back regime. Draft amendments to Part 18 have been laid before Parliament with the intention of bringing the revised regime into force on 6 April 2013. However, with this date looming and with no formal response to BIS's consultation published, the details of how Employee Ownership will work in practice remain unclear.

Employee Owners - the concept explained

The concept is simple. In exchange for forgoing their employment rights to:

statutory redundancy pay; claim unfair dismissal (except in limited circumstances including TUPE); request flexible working hours or time off for training, and by agreeing to provide enhanced notice of an early return from maternity leave, Employee Owners will receive shares worth between £2,000 - £50,000 in the company that employs them. Should Employee Owners wish to dispose of their shares in the future, such disposals will not attract capital gains tax (CGT).

Whilst existing employees cannot be forced to become Employee Owners, employers can make this a condition of employment for new recruits. Note, however, that employees cannot be given shares in an employer's existing share scheme when giving up these rights. Instead, a new share scheme must be set up if employers are to adopt the Employee Owner concept.

Amendments to the current share buy-back regime

Share buy-backs are key to the Employee Owner concept since companies will be keen to avoid becoming majority-owned by ex-employees. To encourage participation and to provide companies with comfort regarding departing Employee Owners, a simple and effective share buy-back regime was seen as essential by Government. However, the Nuttall Review found the current regime to be 'over-burdensome' and recommended that:

the current requirement for off-market share buy-back agreements to be approved by 75% of a company's members...