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Swap Employee Rights for Shares? UK Firms Wary

A murmur of discontent has rumbled round Britain's small and medium enterprises after Britain's ruling party proposed an idea recently that would allow small companies to offer their employees shares in return for lower protections from the country's expansive employment laws.

Matt Cardy

Under the plan, dubbed "rights for shares", George Osborne, the country's finance minister, said employees could waive rights like redundancy payments in exchange for an exemption on capital gains tax on £2,000 to £50,000 ($1,250 to $31,000) worth of shares in the business they work for.

However, business leaders and entrepreneurs have voiced concerns over the scheme with some favoring established employee incentives like bonuses and overtime instead.

Osborne's scheme is definitely a tough sell, Stephen Dootson, group financial director of a plumbing company Hughes Safety Showers told CNBC.

Dootson reckoned his employees would be far too aware of the brutal realities of the recession to be seduced by shares.

"Ninety-five percent of their friends are out of work," he told CNBC. "Try to explain to them that they can give up their redundancy rights for a few shares in the company."

Dootson favored tax breaks on profit-related pay and new hires. He also felt extra pay benefitted the 80 shop workers currently employed at Hughes Safety Showers more than shares would.

"We have employees who have been here for 38 years. They prefer bonuses and overtime to share ownership."

However, the voluntary scheme may appeal more to salaried, office based workers, Dootson added.

Osborne's ideas met with a subdued response from the enterprise sector after he announced them at the Conservative Party Conference ten days ago.

"Workers, owners and tax men all in it together," George Osborne said, before adding "workers of the world unite!" in a knowing tone of voice.

The employee-ownership scheme offers staff a chance to invest in the company they work for, argued Osborne, who once folded towels at London department store Selfridges.

In return, workers must give up their rights over unfair dismissal, redundancy, requests for flexible working hours and give 16 weeks' notice, rather than eight, before they take maternity leave.

Britain's Coalition government desperately needs to turn green shoots in the economy into growth if it is are to lure voters at the next election in 2015, and it is hoping that cutting red tape for small businesses will do that.

But would giving workers shares in the firms they work for do the job?

Only 28 percent of entrepreneurs back the scheme, according the U.K.'s Daily Telegraph newspaper.

Justin King, CEO of supermarket chain J Sainsbury, did not want to "trade good employment practice for greater share ownership," in the grocery sector.

"This is not something for our business," King told the IGD grocery industry conference at which he was speaking. "The population at large don't trust business. What do you think the population at large will think of businesses that want to trade employment rights for money?"

The entrepreneurs CNBC spoke to echoed King's comments and most were less than complementary about the scheme.

Lizzy Playford, who has first-hand experience of using U.K. employment laws to defend her rights, dubbed the scheme "a joke" and accused Osborne of "almost holding people to ransom."

Playford said she needed to use constructive dismissal rights with an old employer when she lost her job a few years ago.

Employment laws protect young people who may be too afraid to speak out, she told CNBC.

"Sometimes as a young person you feel you might have to keep quiet, as you don't want to open up a can of worms."

Playford now works for herself as a fire dancer and stilt walker but warned against employees giving up their hard fought rights for cold hard cash.

Not all entrepreneurs were against the scheme. Zoe Jackson, whose performing arts school, Living the Dream has 750 students on their books, described the idea as a "positive and a negative."

The dancer, who has grown her company into a charity and media company, told CNBC she would want her staff to have access to their full maternity rights.

However, she liked that the scheme meant employees could "feel a part of the business."

James Caan hosts CNBC's new series "The Business Class", which charts the route to success for small businesses. It starts October 17 at 10 p.m. London time.

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