New Type of Employment Contract

The Chancellor of the Exchequer, George Osborne, has announced plans for a new type of "employee-owner" employment contract.   Under this contract, employees will be given between £2,000 and £50,000 of shares in their employer which will be exempt from capital gains tax.  In exchange, employees will have to give up various employment rights such as protection against unfair dismissal, redundancy pay and the right to request flexible working and time off for training.  

The proposals have come as a surprise to HR and legal professionals and generated a significant level of interest and debate.  The consultation to date has provided few details about how they will work in practice and there are some areas of concern.  For example, employers may not want employee shareholders, particularly if they have a small shareholding; employers' costs on termination may not be reduced given that discrimination and whistleblowing protection remains unaffected; employee-owner terms are also expected to require the employer to buy back the shares for a reasonable price on termination, resulting in a potentially problematic financial burden, particularly where shares have risen in value.  That said, Business Secretary Vince Cable has stated that while the scheme may not be appropriate for most ordinary businesses, it could be very attractive for start up and growth companies due to the capital gains tax advantages.

The government intends to legislate on this soon so that employee-owner contracts can be used as early as April 2013. We will keep you updated.