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Growth and Infrastructure Bill
Clause 27: employee owners
House of Lords, committee stage
Equality and human rights impact statement
February 2013
Contact details:
Angus Cleary 0161 829 8234
angus.cleary@equalityhumanrights.com
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Clause 27: Employee owners
Background
Clause 27 of the Growth and Infrastructure Bill proposes to introduce a
new employment status of "employee shareholder". An employee
shareholder will be given shares in the employer company. They will
have the same rights as other employees, excluding:
- unfair dismissal rights,
- certain rights to request flexible working and training,
- rights over statutory redundancy pay; and
- they will be required to give longer notice periods to return from
maternity or adoption leave.
The government consulted on the proposals from 18 October to 8
November 2012. The Equality and Human Rights Commission's
response to the consultation is at:
http://www.equalityhumanrights.com/legal-and-policy/consultationresponses/response-to-government-consultation-implementingemployee-owner-status/
The Commission has sought a legal opinion from leading Counsel on the
compatibility of clause 27 of the Growth and Infrastructure Bill with
European Union law and the Human Rights Act. This advice is set out in
the annex to this briefing.
The opinion was obtained in furtherance of a number of the
Commission’s statutory and non-statutory duties. First, the Commission
is responsible for monitoring the effectiveness of the equality and human
rights laws and advising on the effectiveness of laws, as well as the
likely effect of a proposed change of law1. Second, as a UN accredited
National Human Rights Institution, the Commission is required to
‘promote and ensure the harmonisation of national legislation,
regulations and practices with the international human rights instruments
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Equality Act 2006, section 11.
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to which the State is a party’.2 This includes the European Convention
on Human Rights, incorporated in the Human Rights Act 1998.
Summary of legal opinion
In summary, the Commission's legal opinion concludes that:
 Although the employment rights from which employee
shareholders will be excluded are not generally derived from EU
law, the proposals will be contrary to the relevant EU Equality
Directives if they are indirectly discriminatory.
 The proposals would be indirectly discriminatory if they have a
disproportionately adverse effect on people with protected
characteristics, (for example, on women compared to men), and
the government could not establish that the proposals are
objectively justified.
 The government has put forward a fairly convincing case that the
proposals do not in fact impact more heavily on those sharing a
protected characteristic. The voluntary nature of employee
shareholder status is likely to be an important factor against a
finding that the proposed legislative change gives rise to unlawful
indirect discrimination.
 However, the mere fact of a choice having to be made on which
type of employment status to accept could indirectly discriminate
against those less likely to be able to make a properly informed or
truly “voluntary” decision. This may include those whose first
language is not English, those with learning disabilities, or young
workers.
 In order for objective justification to be established, it is likely to be
necessary for the individual to have a right to receive appropriate
advice and for the employer to be required to draw this to his or
her attention.
 There is a tension between the government’s proposals and the
effect of Transfer of Undertakings (Protection of Employment)
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Principles relating to the Status of National Institutions (The Paris Principles), Adopted by General Assembly
resolution 48/134 of 20 December 1993.
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Regulations (TUPE). On the face of it, post-transfer the employee
owner would retain shares in the transferor company, and would
have no shares in the transferee company, for which he or she
now works.
 The proposals do not contain any obvious incompatibility with the
European Convention on Human Rights.
The Commission's analysis
Based on the legal opinion, the Commission's analysis is that:
 The key concern will be to ensure that accepting employee
shareholder status is a properly informed and truly voluntary
decision. A failure to include effective safeguards in the proposals
would make it strongly arguable that the proposals indirectly
discriminate against those less likely to be able to make a properly
informed or truly voluntary decision, for example, people whose
first language is not English, those with learning disabilities, or
young workers.
 The proposals will not be indirectly discriminatory and contrary to
relevant EU Equality Directives if they are shown to be objectively
justified. To establish objective justification, the government would
need to show that the proposals pursue a legitimate aim and that
the means of achieving that aim are appropriate and necessary.
 Providing additional flexibility for employers so as to encourage
economic growth is likely to be accepted as a legitimate aim. The
decisive issue is whether the means to achieve that aim are
appropriate and necessary.
 In deciding that, a court would have regard to safeguards included
in the legislative measures to protect against the risk of individuals
giving up valuable employment rights, without making a properly
informed and voluntary decision to do so. It is strongly arguable
that in order to establish objective justification and so avoid a
finding of indirect discrimination, it would be necessary for the
individual to have a right to receive appropriate advice and for the
employer to be required to draw this to his or her attention.
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Concluding recommendations
The introduction of a new status of employee owner should not result in
a reduction in individuals’ rights to protection from unfair dismissal,
access to flexible working or the notification of return from parental
leave. Employers, if they wish to, may offer share ownership options to
employees and at the same time offer the same rights and benefits as all
other employees in the UK. This will make employers more attractive to
skilled and talented recruits, who wish to work in a modern flexible
workplace with full protection of employment rights. The John Lewis
Partnership is an example of an employee owned business that offers a
range of benefits including the protection from unfair dismissal, right to
request flexible working arrangements and so on to its employee owners
or ‘partners’3.
About the Equality and Human Rights Commission
The Equality and Human Rights Commission is an independent statutory
body established under the Equality Act 2006. The Commission works
to reduce inequality, eliminate discrimination, strengthen good relations,
and promote and protect human rights.
As a regulator, the Commission is responsible for enforcing equality
legislation on age, disability, gender, race, religion or belief, sexual
orientation or transgender status, and encouraging compliance with the
Human Rights Act.
The Commission has achieved ‘A’ status accreditation as a National
Human Rights Institution, enabling us to participate in the United Nations
Human Rights Council, and to undertake monitoring of the UK’s human
rights obligations.
We also give advice and guidance to businesses, the voluntary and
public sectors, and to individuals.
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‘Model growth: do employee owned businesses deliver sustainable performance?’ Cass Business School,
2010. http://www.employeeownership.co.uk/publications/model-growth-do-employee-owned-businessesdeliver-sustainable-performance/
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Find out more about the Commission’s work at:
www.equalityhumanrights.com