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?Owner-employee? contract exchanges shares for worker rights

George Osborne MP, speaking at the Conservative Party conference on Monday morning, announced a new scheme for what the Treasury has called an “owner-employee” contract. The arrangement will mean employers are required to give their workers shares, in a similar model to John Lewis which gives staff ownership of the company they work for, although workers will not be given all shares. Employees will also have to give up certain rights, and they will be exempt from capital gains tax when they sell company shares allotted to them.

The Treasury released details of the new contract, which can be used by companies of all sizes, although SMEs are the main target for the scheme. Firms will be enabled to create a flexible workforce from April 2013. Workers will receive between £2,000 and £50,000 worth of shares, and will relinquish their rights on unfair dismissal, redundancy and flexible working requests. The required period of notice before maternity leave will be extended under the contract from 8 weeks to 16 weeks, and the right to request time off for training will also be removed.

Both start-ups and existing companies will be allowed to take on owner-employee status, although staff currently employed will not be forced into the contract if their workplace takes the scheme on. Organisations that adopt the system will retain the option to offer “more generous” contracts to employees.

CBI and the Institute of Directors (IoD) had contrasting reactions to the Chancellor’s announcement. John Cridland, CBI director-general, said: “In some of Britain’s cutting-edge entrepreneurial companies, the option of share ownership may be attractive to workers, rather than some of their employment rights. But I think this is a niche idea and not relevant to all businesses.”

Conversely, the IoD said the scheme was “innovative” and “could make a real difference to jobs and shareholding.” Simon Walker, director-general of the IoD commented: “This scheme has the potential to reduce the employment law burden on companies and make employees better off at the same time. The key to the success of the idea will be in encouraging employers and workers to make use of it.”

A consultation on the legislation will be carried out later in October to determine the details of changes that will be introduced in the Spring next year, and to ensure that bought back shares will be priced reasonably if an owner-employee leaves or is dismissed.

David Gibson, partner at DWF law firm and employment law specialist commented: “This marks a further stage of the UK governments attempt to create greater flexibility in the labour market. A number of member states in the EU are utilising different methods and tools in order to reduce the level of statutory burden on employers in order to reduce labour costs and therefore stimulate growth. Such methods do not always meet expectations and sometimes offer only palliatives. The recent proposals aim to tackle long held concerns within the government about the perceived negative impact on business planning and productivity in affording employees with unfair dismissal rights and the level of protection for pregnant workers.

“Certainly for some employees this will be a good opportunity to come into a company and, because of the financial incentives, push the parameters to ensure growth. For the employer this has the benefit of knowing that they will not be facing expensive claims if things do not go to plan. However, employers should not be lax in how they deal with such employees. They are only potentially signing away rights in relation to unfair dismissal and redundancy, the rules regarding discrimination still apply. Whether there is a significant take up remains to be seen.”

This was posted in Bdaily's Members' News section by Miranda Dobson .