At last week's Conservative party conference the Chancellor George Osborne announced plans to introduce a new kind of employment contract for "employee-owners". The idea is that employees will exchange some of their employment rights for ownership of shares in the business they work for, any gains on which will be exempt from capital gains tax.
All employers would be able to offer the new contract, although it is principally aimed at small and medium sized companies. One significant aspect of the proposal is that employers will be allowed to offer only this new type of contract for new hires.
The way the contract would work is that employees would be given between £2,000 and £50,000 of shares, exempt from capital gains tax on a later sale. In exchange, they will give up their rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training, and will be required to provide 16 weeks’ notice of a date of return from maternity leave, instead of the usual eight.
However, crucial details such as when employees would be able to sell their shares and what happens when they leave or are dismissed are not yet known. There will be a consultation but the only specific issue that the Government has flagged up is the need to ensure that if an employee leaves or is dismissed; the company is able to buy back the shares "at a reasonable price". Shares in small businesses are notoriously difficult to value, of course, so this will be one of a number of tricky problems that will need to be addressed. There will be wider issues too, notably whether rights derived from European legislation (where an unfair dismissal claim arises from maternity is one example) will have to be excluded from the employee "opt-out".
There is little time for these problems to be addressed; the consultation process is to take place this month and the Government will fast track the legislation so that the new type of contract will be available from April next year.