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Employee Owner Contracts Consultation Launched

Tuesday, 13 November 2012

The Chancellor of the Exchequer, George Osborne, announced proposals for a new kind of employment contract at the beginning of October. The so called ‘employee-owner’ contracts will seek to give shares to employees in exchange for them giving up some of their employment rights.
Numerous issues in relation to both corporate and employment legislation were raised by the proposals and a consultation has begun to see if they can be ironed out.
The Proposals
Under the proposals, employers may be able to offer employees shares valued between £2,000 and £50,000 that are exempt from capital gains tax. In exchange for this employees would agree to give up certain of their employment rights in relation to unfair dismissal, redundancy and the right to request flexible working time and time off for training. Currently most employees automatically qualify to claim for unfair dismissal after 2 years employment. In addition employees would be required to give 16 weeks notice for their maternity leave instead of the standard 8 weeks.
The proposals would be widely applicable although they are aimed more at assisting smaller and start-up companies. The provisions would be optional such that the employer could provide for more generous terms to be included in employment contracts. The contracts would also be optional for existing employees but new hires could be offered this type of contract when they are recruited.
Although the proposals are purported to be an attempt to slash red tape and give start-up and small businesses more freedom, it is questionable as to how effective this might be in practice. Stripping away employee rights on one front might seem appealing to employers but European legislation offers considerable protections for employees, particularly regarding issues such as discrimination.
From a legal perspective, it is not uncommon for claimants to have multiple causes of action when it comes to employment disputes. Removing rights in one form may simply see the same employee complaints dealt with via a different legal route. This may make the proposals ineffective from the outset if employers are not convinced they will work.
From an employee perspective, groups supporting employee rights such as unions have heavily criticised the proposals on principle. In addition, many HR experts and employment lawyers are not convinced that the proposals will be workable in practice.
The extent of the tax breaks applied to the shares also need clarification.
If you are a business or an employee with questions about these measures, Rollingsons has experienced lawyers who can assist you. For more information please contact Aneil Balgobin via e-mail or by telephone on 0207 611 4848.