The Government continued its overhaul of employment law this week with the announcement of a new type of employment contract – the “owner-employee” contract.

At face value, this contract gives employees the opportunity to own shares in their employer’s company and looks set to create a new category of employment status. But at what cost? Owner-employees must give up many of their employment rights in return for share ownership.

The rights forfeited by owner-employees will include unfair dismissal, redundancy, the right to request flexible working and the right to time off for training. In addition, owner-employees will be required to provide 16 weeks’ notice of a firm date of return from maternity leave. So far, it is unclear why this particular maternity provision has been targeted. Perhaps it suggests an underlying intention to increase certainty for business in succession planning should a woman decide not to return to work after her period of maternity leave.

In order to encourage employees to opt for this new type of employment contract (and thereby arguably lose job security and employment protection almost altogether), the Government revealed that employees may be offered between £2,000 and £50,000 worth of shares and any gains made on those owner-employee shares will be exempt from capital gains tax. With this in mind, it is clear that the scheme is aimed primarily at small and medium-sized enterprises with the scope to grow over the years and therefore (hopefully) increase their share value significantly, making it a worthwhile “investment” for owner-employees. For businesses, one positive here is the creation of a motivated workforce, driven to increase profits in the knowledge that they personally have the opportunity to benefit financially.

If the shares offered are worth the minimum value of £2,000, employers might well view this as a form of insurance policy against the risk of unfair dismissal claims.

Reactions to the announcement have been mixed. Somewhat unsurprisingly, the unions (such as the TUC) have criticised this announcement as an attack on workers’ rights. In a more scathing response, the GMB declared that owner-employee contracts will create neither jobs nor growth. However, the Federation of Small Businesses suggested that this was an “innovative policy”, with the British Chambers of Commerce agreeing that it was a policy which “deserves to be tried out, but is unlikely to be a game-changer”.

Interestingly, the Government suggested that owner-employee contracts will be available to both existing and new employees. However, whilst existing employees will have the option to take owner-employee status, businesses may choose to offer employment to new employees solely on the basis of owner-employee contracts.

It is expected that the Government will consult on the details of this proposal later this month and publish draft legislation before the end of the year, with the intention that the legislation will come into force in April 2013.