The Government has continued its overhaul of employment law with the recent announcement of proposals to create a new type of employment contract, namely the “owner-employee” contract.

Under these proposals, employees will give up many of their employment rights in exchange for shares in their employer’s business. The rights forfeited by owner-employees will include the right to claim unfair dismissal, right to redundancy pay and the right to request flexible working.

Furthermore, female employees will be required to give 16 weeks’ notice of an early return from maternity leave, increased from the 8 weeks’ notice required at present.

In return for giving up these rights employees will receive between £2,000 and £50,000 worth of shares in their employer’s business. Any gain made on these shares will be exempt from capital gains tax.

This new status is aimed primarily at (although not restricted to) fast-growing small and medium sized businesses that may require a flexible work-force as their business changes and develops. The Government hopes that this increase in flexibility will make employers more likely to recruit new staff. It will also tie employees more closely in with the success of their employer’s business, in the hope that this will encourage the creation of a motivated workforce. If the business performs well, the employee’s share holding will increase in value.

However, reactions to the proposals have been mixed. Unions have categorised this announcement as a perceived attack on work-place rights. Concerns have also been raised about how the shares will be valued and how shares will be sold (and whom to) when employees leave the business.

Under the proposals, owner-employee contracts will be available to both existing and new employees. However, whilst existing employees will have the choice to switch to the new contract, businesses may choose to offer employment to new employees solely on the basis of owner-employee contracts. The Government has also left employers free to vary the terms of the contract offered to employees as they wish. So some employers could still choose to give more generous protection to employees, with the Government proposals setting a minimum standard.

The Government has launched a consultation on this new employee status with the intention that legislation on “owner-employees” will come into force in April 2013. The full consultation document can be read here.