The Government has published consultation on its proposal to create a new employment status of ‘employee owner’. Businesses will be able to offer individuals shares in their employing company worth between £2,000 and £50,000.

Although income tax and NICs would be payable on the grant of shares, they would be exempt from capital gains tax. In exchange, employee owners will have to give up the following rights:

  • the right to claim unfair dismissal (unless this relates to discrimination or automatically unfair dismissal);
  • certain rights to flexible working and training; and
  • the right to claim a statutory redundancy payment;
  • they will also have to give 16 weeks’ notice of the intention to return from maternity or adoption leave (instead of the usual 8 weeks).

Employers will be able to include a contractual clause requiring employees to surrender shares when they leave, whether through choice, redundancy or dismissal.

However, the employer would have to buy back the shares at a reasonable value.

The new employment status will be available to all companies, but is mainly intended for smaller, fast-growing companies. It would be implemented through the Growth and Infrastructure Bill from April 2013. There are many legal, tax and practical issues associated with this proposal. For example, smaller companies may find it costly and cumbersome to administer; employee owners may just be encouraged to bring other types of claim (such as discrimination); and it may not be attractive to employees from a tax point of view. It remains to be seen whether businesses or employees will embrace this new employment status.