A new type of Employment Contract

George Osbourne, the Chancellor of the Exchequer, announced on October 8 that the government intends on introducing a completely new type of employment contract called owner-employee contracts.

This new contract will allow owner-employees to have £2,000 to £50,000 worth of shares that will be exempt from capital gains tax, in exchange for giving up some of their employment rights.

The owner-employees will give up their rights on unfair dismissal, redundancy, right to request flexible working and time off for training. An owner-employee will also have to give 16 weeks’ notice of returning from maternity leave rather than the usual 8 weeks.

The new type of contracts will be optional for existing employees as well as new starters and can be used by any size of firm, although it is intended for use by small and medium sized companies that want a flexible workforce.

How these contracts will work in practice and how they will sit alongside current employment rights still needs to be decided. The government are to consult on these proposals and aim to legislate later this year with use of the new contracts coming into force in April 2013.

The new proposals may well prove beneficial for start-up companies, particularly if it allows owner-employees to feel more involved in the companies where they work, with the added benefit of capital gains tax exemptions.

Although owner-employees will be giving up some of their employment rights, the discrimination laws contained within the Equality Act will still apply.

The proposals are designed to reduce the burden on employers by allowing greater fluidity and ease in the hiring and firing of owner-employees while potentially making the owner-employees better off.

If you would like to discuss this, or any other employment law matter, please contact our Employment team on 01772 258321