George Osborne, the Chancellor of the Exchequer, has announced proposals to introduce a new type of employment contract from 2013: a so-called “Owner-Employee” contract.

Under the new plans, employees will give up their rights on unfair dismissal, redundancy, the right to request flexible working and time off for training, and will be required to provide 16 weeks’ notice (rather than the existing eight) of a maternity leave return date.  In return, their employers will provide them with shares worth between £2,000 – £50,000 – any growth in value of these shares will be free from capital gains tax (CGT).

Note that employers will not be able to require employees to give up rights regarding discrimination, which are protected under EU law.  There is also nothing to stop employers from granting more beneficial employment rights under the contract, notwithstanding the proposed new statutory position.

Importantly, while employers can choose to offer this type of contract to new employees, the scheme is optional for existing employees, who can choose to remain working under their original contracts.

The Chancellor has said that the proposals are principally intended to benefit fast-growing small to medium sized companies by creating a flexible workforce.  The theory is that employees will be incentivised to work harder for a firm in which they have an active stake, and that the trade-off is a fair one.

There are many practical difficulties which will hopefully be addressed before the law is introduced.  For example, will the shares retain their CGT exemption if the employees transfer out of the company pursuant to TUPE?  Is the right to share ownership absolute, or can they be subject to the type of “leaver” provisions commonly seen in management incentive arrangements?

Legislation to bring in this new type of contract is expected later this year so that companies can use the new type of contract from April 2013. A Government consultation on details of the contract is to be held later this month.