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Osborne's Plan for Swapping Rights for Shares Will Scupper Employers and Employees Alike

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On the BBC programme Dragons' Den, entrepreneurs are frequently found wanting by Messrs Paphitis et al for an inability to correctly value their businesses.

This scenario struck me as relevant when the Chancellor of the Exchequer, George Osborne announced plans to introduce a new employment scheme in which workers could be forced to relinquish their statutory employment rights, in exchange for shares in the business they work for.

Solicitors at my firm successfully act on behalf of individuals who may have been unfairly dismissed, and we encourage employers to follow lawful workplace practices so as to avoid exposing themselves to claims. I am confident Mr Osborne's proposals will categorically fail to protect the future of either party in the way he suggests they can.

Under the proposed owner-employee contract, employers can insist on workers relinquishing their UK rights on unfair dismissal, redundancy and the right to request flexible working hours. Workers will also no longer be able to ask for time off for training and will have to give 16 weeks' notice of a date of return from maternity leave instead of the usual 8.

In exchange, employees are meant to receive company shares worth between £2,000 and £50,000. According to Mr Osborne, there will be no capital gains tax on the profits from the shares, so it will be "owners, workers and the taxman all in it together".

However, owner-managers seeking to encourage staff into a waiver of their rights in exchange for shares is a process fraught with problems. With more than half of the UK's workforce employed by small and medium sized enterprises whose' valuations by definition cannot be determined by the market as would be the case for a stock market-listed PLC renders the Dragons' Den analogy eerily possible. How will an employee or group of employees perhaps without any representation or prior knowledge of company equity structure, know that the commensurate value is being 'paid' to them in shares for the rights that they are handing over?

Indeed, equity is very often useless given the fact that one in three start up businesses fail during their first three years of trading.

Meanwhile, for business owners the problems of handing out of shares without careful consideration are substantial. Firstly, diluting capital isn't a straightforward task. Outside investors, lenders and directors may require a larger portion of the company's equity to compensate for a dilution of the capital - after all the business would be creating shares without adding to the underlying capital of the company.

By removing employment rights, companies would be swapping the current inexpensive system of dealing with disputes through the employment tribunal, in favour of what could potentially lead to costly High Court share valuation claims.

Everywhere one looks, the hard fought rights of the individual are being threatened as the Coalition Government seeks ways to encourage private sector growth. Mr Osborne's latest blunt object would certainly enable employers to wield the axe with greater freedom: £2000 worth of shares would indeed be a cheap price to pay to get rid of an employee earning £50,000 a year if the alternative was to spend significantly more than that defending an unfair dismissal claim at the Employment Tribunal. However, all the evidence is currently pointing to a Chancellor whose plans will in fact hit the very companies he is hoping will trade our way out of recession.