The Law Society commented this week that the proposed new ‘employer owner’ status will create confusion.

In October, George Osborne announced plans for a new kind of employment contract called an employee-owner contract. Under this arrangement new employee-owners will exchange some of their UK employment rights for rights of ownership in the business they work for in the form of shares, any gains on which will be exempt from capital gains tax. Between £2,000 and £50,000 of shares will be given to employees that are exempt from capital gains tax.

In return the employees will forfeit some of their employment rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training, and will be required provide 16 weeks` notice of a firm date of return from maternity leave, instead of eight.

The Law Society’s view is that despite the proposals aims to boost employee engagement and remove perceived obstacles on the fear of employers being taken to employment tribunal, the costs that will be involved in offering employment ownership contracts will discourage employers from recruiting along these lines.

Also envisaged by The Law Society are complexities for both employer and employee at the start of such an employment relationship and on termination.  It is said that managing these new kinds of contracts is likely to be outside the expertise of most firms with the likelihood of businesses needing to seek professional advice which will increase costs. In addition, although such contracts removing some employment rights, employers will still be liable for other claims, including discrimination and whistleblowing.

Employees are also unlikely to find such a scheme attractive where they are surrendering established rights and the certainty that brings for uncertain capital gains benefits.