Government Consults on Proposal for ‘Employee-Owner’ Contracts

October 19, 2012

Government Consults on Proposal for ‘Employee-Owner’ Contracts

Following plans recently announced by the Chancellor of the Exchequer to introduce a new type of employment contract, whereby employees will give up some of their employment rights in exchange for shares in their employer’s business, the Government has now launched a consultation on the issue.

Under the proposed new employment contracts, ‘employee-owners’ will receive shares worth between £2,000 and £50,000 in their employer’s company. These will be exempt from Capital Gains Tax. In exchange for this, they will forego the right to:

  • claim unfair dismissal, except where this is automatically unfair or relates to discrimination;
  • receive statutory redundancy pay;
  • request flexible working; and
  • request time off for training.

Employee-owners will also be required to provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual eight.

Companies of any size will be able to offer employee-owner contracts, although the proposal is principally aimed at fast-growing small and medium-sized companies wishing to create a flexible workforce. Employers will be able to offer only employee-owner contracts to new employees, although the scheme will be optional for existing staff.

Companies will have the option of providing more generous employment conditions to employee-owners if they wish, and employee-owners will still be eligible for existing employee share ownership schemes.

The consultation seeks views on how the proposals should be implemented, with a particular emphasis on ensuring that there are no unintended consequences.

The consultation closes on 8 November. Legislation to introduce employee-owner contracts is expected later this year, with the scheme coming into effect in April 2013.