October 18, 2012

Employment e-Brief – The new type of employment contract

The big news last week seemed to be George Osborne’s announcement of plans for a new type of employment contract, “the owner-employee contract”.

The proposal, which appears to have received a lukewarm welcome at best from employers, involves a new contract under which employees will give up some of their employment law rights in return for tax-efficient shares in the employer’s business. The owner-employee status will be optional for existing employees but may become obligatory for new employees at the request of the employer.

THE MAIN FEATURES OF THE OWNER-EMPLOYEE CONTRACT

  • The employee will receive £2,000 – £50,000 of shares exempt from capital gains tax if the shares are later sold at a profit;
  • The employee will give up their rights concerning unfair dismissal, redundancy, the right to request flexible working and time off for training;
  • The employee will also be required to provide 16 weeks’ notice of return to work from maternity leave, in contrast to the usual 8.

The proposal is aimed at allowing fast growing businesses to recruit a more flexible workforce. However, for some the promise of possible future tax free gains if the business is successful, may not be sufficiently attractive to encourage new joiners to firms who only offer the new style contracts of employment. Equally, many employers may have no desire for employees to access equity in their company and certainly, the potential for lots of disputes without carefully drawn up shareholders’ agreements is considerable. Also, whether firms will want the added expense and headache of considering such documentation is not yet known. Before jumping in therefore, both employment and corporate law advice would be essential.

It is suggested that legislation will introduce the new contract of employment later this year, with Companies able to use the contract from April 2013. Whether that is possible in the available time is anyone’s guess!

If you have are questions about this e-Brief or employment law in general you should contact the Employment Team.