In his speech to the Conservative Party conference on Monday, the Chancellor George Osborne announced a new type of employee share scheme together with a new ‘owner-employee' contract.

The scheme is trying to marry two political aims: encouraging employee share ownership with reducing employment rights.

Under the scheme, employees will give up various UK employment rights, such as unfair dismissal, redundancy, and the right to request flexible working and time off for training. Employees on maternity leave would also be required to provide 16 weeks' notice of the date of their return to work (rather than the normal 8 weeks’ notice).

In return, they would be given between £2,000 and £50,000 of shares that are exempt from capital gains tax.  

It would open to all companies and will be available from April 2013. Existing employees would have a choice about whether to agree to the new contract.  

There are a number of issues that need to be clarified, particularly from a tax point of view. For example:

  • How will the upfront value of the shares be determined?
  • Will the employee still be charged to income tax and NICs on the initial value of the shares?
  • What type of shares could be used, for example could the shares have more favourable rights than those attaching to shares held by other non-employees ?
  • Will there be measures to prevent abuse of forcing employees to leave and sell the shares at “reasonable price” if the market value is assessed to be low?

So is this really win-win for companies and staff alike?

One can imagine that certain companies would be keen to exploit this initiative, as the carrot of not having to deal with employment rights would be significant. The carrot for staff is however less enticing: how many people would willingly give up employment rights for what may turn out to be an uncertain financial benefit?

In other words, is an IOU of as little as £2,000, which may or may not be paid, really the best way to encourage your workers? Yes, if you have an appetite for risk and are comfortable with tricky tax issues; if not, this is probably not for you.

Also, the political premise on which this initiative is based, namely that the economy is being held back by excessive employment rights, is highly contentious and – well – political. One senses Coalition ping-pong being played: Vince Cable blocks the “no-fault dismissal” initiative; George Osborne lobs a new initiative which has a similar effect on employment rights.

Lastly, the Chancellor made no mention of the Nuttall Review of Employee Ownership, which was published earlier this year. One of the key recommendations is to introduce a statutory right to request employee ownership, but without giving up employment rights.

It would make for an interesting stand off if a company wanted its employees to go onto Osborne-type new contracts, whilst the employees were requesting Nuttall-type greater share ownership. Joined up thinking?