‘Employee-owner’ proposals

Companies of any size will be able to use this new kind of contract, but it is principally intended for fast growing small and medium sized companies that want to create a flexible workforce.

Under this new contract, employees will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax and in exchange they will give up their rights in relation to ‘ordinary’ (non-discriminatory) unfair dismissal and redundancy. They will also give up their right to request flexible working and time off for training, and will be required to give 16 weeks’ notice to return from maternity leave instead of the current eight weeks.

Employee-owner status will be optional for existing employees, but both established companies and new start-ups will be able to choose to offer only this new type of contract for new hires. Companies recruiting employee-owners will continue to have the option of inserting more generous employment conditions into the employment contract if they want to.

The Government has begun consultation on some details of the new contract and it is proposed that legislation to bring in the new employee-owner contract will come later this year so that companies can use the new type of contract from April 2013.

The initial reaction to the announcement has been generally lukewarm. The proposals have income tax implications and are therefore likely to be complex, and few small businesses will want to tie themselves up in the accompanying red tape.