Yesterday George Osborne announced that the Government will be introducing a new type of employment contract, known as an “owner-employee” contract.
The basic idea is that employees will give up some of their employment rights in return for a stake in the business they work for. In particular, employees will be entitled to receive between £2,000 and £50,000 worth of shares in the business (which will be exempt from capital gains tax on any gains made) in exchange for forfeiting their rights to claim unfair dismissal, a redundancy payment, flexible working and time off for training. Moreover, women will be required to give 16 weeks’ notice of their intention to return from maternity leave, instead of the normal 8.
Although companies of any size will be able to use this new type of contract, it is largely aimed at new hires in small and medium-sized companies that want (in the words of the Government’s press release) “to create a flexible workforce”. Is this not the same Government which just removed a chunk of the “flexible workforce” through the Agency Worker Regulations? And yet also the same Government which is consulting about expanding the flexible working regime far beyond the currently eligible population? Right hand, meet left hand.
At the moment we are very light on detail. Apparently the Government will be consulting on the new contract later this month, with the aim of introducing it in April 2013.
Will this new type of contract be of interest to employers? In theory, maybe (the CBI has made some positive noises), but as with many of the employment proposals that have been put forward recently, the reality of entering into such contracts with your new staff is likely to be much less attractive and probably more hassle than it is worth. The trade unions are dead-set against the proposal and while that is in no sense an automatic sign that it is a bad idea, it is hard not to have some sympathy on this occasion. After all, employers are unlikely to be able to persuade employees to give up their rights in return for a very minor stake in the business. What is £2000 (which, as shares, could go down as well as up) compared to an unfair dismissal claim? How do you stop employees resigning and taking the shares after only a short period of employment. What if the dismissal is for gross misconduct? Why will this not encourage even more employees to allege their dismissal to be discriminatory and so fall outside the waiver? Who on earth thought that denying an employee a statutory redundancy payment based on just £430 per complete year of service was worth the effort?
Furthermore, things have the potential to get messy on termination when it comes to valuing the shares, with the prospect of shareholder disputes possibly replacing tribunal disputes. A very small minority stake in a private company may be more or less impossible to dispose of on the open market, so it is to be hoped that the scheme would include some form of buy-back obligation on the part of the employer.
Overall the whole idea sounds at present like conference sound-bite material and not remotely a sensible idea for the long haul, but we will be in a position to comment further once we have seen the detailed proposals later this month.