Plans have just been announced for a new kind of employment contract. It will be available to companies of any size from April 2013. Employees will receive shares worth between £2,000 and £50,000 and will not pay capital gains tax on any gains when they sell those shares.
Participation in any other share schemes, for example EMI schemes, will remain unaffected.
The catch for employees is that, in return, they must relinquish rights in respect of unfair dismissal, redundancy, flexible working requests and time off for training. Maternity returners must also give 16 weeks’ notice, rather than the usual 8 weeks’ notice of early return to work.
Companies will not be able to insist on existing employees signing up to the new contracts, but can insist on them for new joiners.
The next steps will be consultation on the details of the contracts later this month, followed by legislation to govern the new contracts later this year.
This is good news for an employee whose circumstances make maternity and flexible working rights irrelevant, who trusts the employer not to dismiss unfairly (or who does not plan to stick around for the two years required to qualify for unfair dismissal protection anyway), who is offered a shareholding closer to the £50,000 end of the spectrum and expects the company to prosper without delay.
With unfair dismissal claims potentially worth up to around £70,000, employees take a gamble in swapping legal rights for shares worth £2,000. The initial announcement suggests that employers will not be able to adopt provisions which require employees to forfeit their shares on termination of employment, as is often the case with employee share schemes. The suggestion is that the company would buy them back at a reasonable price. That, presumably, could sometimes be less than £2,000.
This won’t be attractive to all employers, either, but is expected to appeal to small to medium start up companies. Note that the rights to be eroded are those with their roots in domestic law. European legal requirements have been left alone. Employees on the new contracts will, therefore, retain other important rights, for example, protection from discrimination.