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Osborne announces radical employment law changes

At the Conservative party conference today, George Osborne announced plans for a new type of employee, the 'owner-employee'.

The Chancellor said that from April 2013, employers will be able to offer their employees shares worth between £2,000 and £50,000 that will be exempt from Capital Gains Tax. In return for the shares, employees will give up their rights to unfair dismissal protection, redundancy payment and the right to request flexible working or time off for training. In addition, owner-employees wishing to return from maternity leave early must give 16 weeks' notice, rather than the standard eight weeks.

Primarily aimed at small and medium sized fast growing businesses, this will be open to all employers. The contracts may be offered to existing staff and may be a pre-condition of a job offer for new joiners.

The details have yet to be released, but it is striking that the Government has indicated that the plan will be implemented in just six months' time. A number of questions will need to be resolved beforehand. In particular:

  • How will the shares convert into an actual cash value for departing owner-employees?
  • Will there be different rules depending upon the reason for the departure and/or the owner-employee's length of service? For instance, can an employee resign after a week and keep the money, or will the shares be subject to a qualifying period?
  • Will the shares give the owner-employee any degree of control over the business?

While it may be easier to operate this scheme in the context of a listed company where shares may be bought and sold quite easily, it is harder to see how this might work in a private company.

Brendan Barber, the TUC General Secretary, has downplayed the proposals, saying that he doubts that employers will be willing to navigate the complexity of the new rules for the benefit they will bring.

The Institute of Directors has welcomed the plan, saying that it will reduce the employment law burden on companies and make employees better off at the same time. While it is true that the employment law burden may be reduced, a minority shareholder dispute, heard in the High Court, is far more complicated and costly to resolve than an employment claim in the Employment Tribunal.

It is likely that the scheme may be of benefit and interest to those businesses which routinely offer share options to employees as part of the remuneration package (particularly in the technology and financial services sectors), but the devil will, as ever, be in the detail. The Government has announced that it will consult on that detail later this month.

If you have any comment on the new proposals, as we will be responding to the call for consultation in due course, please contact Joanna Blackburn.