Initial reactions varied from believing this is the introduction of dismissal at will by the back door, – a substantial erosion of employee rights and an opportunity for unscrupulous bosses to take advantage.
Any business enthusiasm might be premature.
Sweeping aside employment rights that derive from Europe is not that easy. There has been a long-standing and fundamental rule that people cannot contract out of their employment rights, precisely to make sure that employee protections are not whittled away.
Setting up minority shareholdings in a business is NOT a ‘low cost’ enterprise. If it is not carefully and thoughtfully done ( and properly documented), nightmare scenarios and expensive disputes can present themselves when an individual leaves.
Without a good shareholder agreement, that is properly ‘tuned’ to the particular business, unexpected and unwanted consequences abound.
How are shares going to be valued? Who is going to buy the employee’s shares when they leave? What if no-one wants them, or no-one has the money to buy them? Will the founders lose control of the company by granting so many shares they are no longer the majority shareholders? Will existing investors agree? We could go on……..
A minority shareholder in a private limited company is in a weak position unless there is a sound shareholder agreement in place.
As we know from experience, the enforcement of minority shareholder rights is more expensive to mediate or litigate than any unfair dismissal claim. We have seen founders give away too much of their company in exchange for too little and minority shareholders unable to cash in on their investment despite the company going on to be worth money.
Is is the government going to abolish minority shareholder rights on the grounds they are red tape and impede business?
We founded Irenicon in 1980 to help employers make employment law work for them. We were always a mixed disciplinary practice – something quite revolutionary at the time. Over the years we have worked with some wonderful organisations, pushing the boundaries of how employment law can really be made to work without restricting the flow of the organisation.