The government has launched a consultation that sets out its plans for a new employment status, called employee-owner.
The move follows Chancellor George Osborne’s proposal on 8 October that employee-owners would be able to own shares in their company worth between £2,000 and £50,000, which will not be subject to capital gains tax. In exchange, employees will give up certain employment rights, such as wrongful dismissal, the right to redundancy pay and the right to request flexible working.
Jo Swinson, business minister, said: “We know that engaged employees are more productive and motivated. This scheme increases the options for business and brings greater flexibility to companies and employees in determining their employment relationship.
“By responding to the flexible needs of fast-growing companies, it will help them take people on, providing a real incentive for employers and employees.”
Employers of any size will be able to offer this option to staff, but it is principally intended for fast-growing small and medium-sized organisations.
The consultation, which will close on 8 November 2012, sets out the proposal in detail and asks for views on how the government can implement it. This consultation is focused on both employment law and company law issues. The Treasury will be consulting on the tax matters separately.
Legislation to bring in the employee-owner contract was introduced 18 October via the Growth and Infrastructure Bill, with the aim of companies being able to offer the new type of contract from April 2013.
There is not a huge amount of information available about this new kind of employment contract yet. However, when you look at what facts are available, it is clear that in order to gain shares in the business, employees would have to compromise some of their fundamental rights and businesses will not be completely safe from being taken to tribunal.
There are many questions, such as will the shares on offer persuade an employee to accept less salary? How are the shares to be valued and what is there to stop an employer dismissing an employee unfairly as soon as the employee has given up their rights?
I would urge employees to be cautious about accepting this type of contract until it is clear what terms the shares will be given. I also believe it will take many claims to tribunal to establish case law before the full significance of this type of contract becomes clear.
Whatever happens, I cannot see it making any substantial difference to the labour market or the UK employer-employee relationship.