In an attempt to reduce red tape and allow small and medium sized business (SMEs) to increase hiring rates, UK Chancellor George Osborne has introduced a shares-for-rights scheme where employees receive ₤2,000–50,000 worth of tax-free shares in exchange for giving up some of their employment rights. Companies could opt to offer this kind of contract solely to new hires. From both a legal and business perspective, the merits of this proposal are questionable.
A key feature of employment contracts is the lopsided power relationship they create. Employees agree to terms that are mostly, if not wholly, dictated by their employer. Concerns over an employee’s potentially vulnerable position are partially dispelled because employment law offers some basic protections. For instance, in the UK, women only have to give eight weeks’ notice if they are returning early from maternity leave. Furthermore, since a company’s success relies on attracting talented staff, businesses are likely reluctant to implement practices towards their employees that would damage their reputation.
By removing these mitigating factors, however, Osborne’s scheme exacerbates the existing power imbalance. Mothers, for instance, must now give 16 weeks’ notice instead of eight, diminishing their rights. Moreover, when companies could only previously implicitly pressure mothers to announce their return as early as possible, this could now be done openly as the law seems to condone such practices.
Not all British companies have welcomed the scheme either, possibly because the flexibility gained over hiring staff is offset by the costs of implementation. Boilerplate employment contracts could no longer be used as agreements would need to be tailored for each new hire depending on the shares gained and the rights given up. Although trivial for multinationals, this would only burden SMEs.
The exact nature of the shares-rights relationship also remains ambiguous. If a new hire was only willing to give up her rights on unfair dismissal, should she receive fewer shares than a counterpart who was keen to exchange all of her employment rights? Alternatively, could different classes of shares be created depending on the rights given up? Another unsettled area relates to their transferability. It is unclear whether these shares can be sold, and if they can be, it is unknown whether employment rights could be regained upon sale. If such issues have to be resolved in court, the legal expenses will outweigh any short-term benefits gained from reduced red tape surrounding hiring staff.
Furthermore, this scheme may not result in happier employers. If restrictions on their liquidity prevent employees from selling their shares for a profit, their motivation will be reduced, since the payment of dividends on these shares remains a discretionary decision by the company’s board. That is, employees may have gained nothing from the “initial investment” of giving up their rights. This is also the proposal’s most disconcerting aspect: its attempt to monetize rights that have been enshrined in labour law. Although the schemes would not directly affect most Canadians, its multitude of problems should make us wary of attempts to introduce such proposals here.
Adrienne Ho is currently studying law at U of T.
