George Osborne, the Chancellor of the Exchequer, announced the introduction of a new contract of employment, known as an ‘owner-employee’ contract, at the Conservative Party conference this week.
Essentially, workers would be given shares valued between £2,000 and £50,000, which would be exempt from capital gains tax, as long as they forfeited certain statutory rights, such as unfair dismissal and redundancy claims, the right to request flexible working and time off for training, and the requirement for new mothers to give 16 weeks’ notice of the date they are due to return from maternity leave (rather than the current eight).
It is anticipated that any size of company will be able to use the ‘owner-employee’ contract from April 2013. Under the current proposal, the new contract of employment could be offered to existing staff or solely to new staff.
The government proposes to consult soon on some of the details of the contract, which is set to include restrictions on forfeiture provisions to ensure that if the worker leaves or is dismissed, the company cannot just take the shares back but must ensure that they are able to buy them back at a reasonable price.
There are obvious advantages to employers, in that they will not face unfair dismissal and redundancy claims or have to spend time dealing with the internal processes that lead to those claims. The increased notice for mothers due to return from maternity leave will also make planning easier for the employer.
Further, employers may have a certain degree of influence over the valuation of shares, perhaps to their benefit, should the contract end.
Breach of contract
On the flip side, employers may face increased claims for breach of contract, as well as arguments over share valuation and what would be a reasonable buy back price. It is therefore possible to imagine that dismissing an ‘owner-employee’ could in some circumstances be as complex or costly as fairly dismissing an ‘ordinary’ employee.
Presumably the new ‘owner-employees’ would also have the right to bring claims for discrimination and be entitled to paid annual leave, which means that employers could still face some Employment Tribunal claims.
This could lead to those workers pursuing claims in the High Court or County Court or discrimination claims in the Employment Tribunal, potentially at considerably greater expense to the employer.
For more information on the issues raised in this article or on employment law matters in general, please contact our Employment Law team or call us on 0117 904 6000.