Austin Flynn is a corporate lawyer and head of Morton Fraser’s business team where he advises business owners from across the UK. Here, he reflects on the rising popularity of employee ownership and says workers’ rights need not be compromised by this business model.
For more than twenty years I’ve been advising businesses on a variety of corporate and commercial legal matters. For most of that time the majority of my clients have been owner-managed. As a result, the person who’s instructing me not only works for his/her business, but also owns it, has capital tied up in it and sees the business as ‘part of the family’ and inextricably linked with it.
There isn’t the kind of work/life distinction that allows owner-managers to leave work behind when they get home and it certainly creates a different dynamic when compared with taking instructions from someone who is simply an employee and has no share in the business. Interestingly, increasing numbers of my owner-managed clients are now looking at ways of giving their key employees a financial stake in the business.
These range from share option schemes where a small proportion of the company is made available, to more radical and far-reaching re-structurings that in some cases can effectively be a partial exit for the owner. As with anything in life, there’s no ‘one size fits all’ solution when it comes to employee ownership but it’s striking how popular the concept has become, thanks to organisations like CDS spreading the word about the benefits.
On my own weekly blog on the Morton Fraser website I commented last year on George Osborne’s new owner-employee contract under which employers will be able to award shares to staff in return for staff giving up unfair dismissal, redundancy and training rights and also relinquishing the right to ask for flexible working.
I commented at the time that as a fan of employee ownership I couldn’t see any reason why an employee can’t have his/her employment rights and a stake in the company. My guess was that many of the benefits of true employee ownership (increased productivity, innovation and profitability) would be undermined by a structure where the employee is shackled to a company and can be walked over roughshod. Also, the lack of liquidity in the private company share market could make the value of such shares very subjective anyway.
It was therefore interesting that recently in the House of Lords John Gummer declared the plans to be ‘mystifying’, adding “I cannot imagine in any circumstances whatsoever that this would be of any use to any business that I have ever come across in my entire life.”
Lord Pannick QC added: “What is so objectionable is that these employment rights were conferred by Parliament over the past 50 years and they have been protected by Governments both Conservative and Labour precisely because the inequality of bargaining power between employee and employer means that freedom of contract is quite insufficient to protect the employee. To allow these basic employment rights to be traded as some sort of commodity frustrates the very purpose of these entitlements as an essential protection in the employment context.”
I couldn’t have it put it better myself, so I won’t even attempt to do so.
Co-operative Development Scotland is a Scottish Enterprise subsidiary, established to help companies grow by setting up consortium, employee-owned and community businesses. It works in partnership with Highlands and Islands Enterprise.