George Osborne plans for new type of Employment Contracts

Wednesday 10 October 2012

“Get shares and become owners of the company you work for. Owners, workers and the taxman, all in it together” George Osborne optimistically declared.

The Issue

Earlier this week the Chancellor of the Exchequer, George Osborne, announced the introduction of a new type of employment contract that could potentially alter the legal landscape for employers next year.

Mr Osborne plans to introduce the “owner-employee” contract from April 2013.  Under this new type of contract, employees will be given the opportunity to receive between £2,000 and £50,000 of shares in its prospective employer with a tax benefit.  In exchange, the employees will be required to give up their UK rights on amongst other things, unfair dismissal, redundancy, some maternity rights and the right to request flexible working.

Owner-employee status will be optional for existing employees but both established companies and new start-ups can choose to offer only this new type of contract for new recruits meaning that they are completely free from the shackles of potential unfair dismissal claims.  This new type of contract will be available to companies of any size but according to department for Business, Innovation and Skills Press Release, it is principally intended for fast growing small and medium sized companies that want to create a flexible workforce.

The Government intends to consult in respect of the new contract over the coming months.  John Longworth, Director of the British Chambers of Commerce welcomed the proposal as an “innovative and imaginative proposal that deserves to be tried out”.  Conversely, the Trade Union Congress General Secretary, Brendan Barber stated “we deplore any attack on maternity provision or protection against unfair dismissal”.

Companies that do recruit owner-employees will also have the option to insert more generous employment conditions in to the employment contract should they wish to do so. This would create an employment relationship similar to that used by the John Lewis Partnership, which has given it great success over the years.

Our view on it all

The proposal appears to be in line with previous government rhetoric to give employers a greater degree of flexibility with their workforce, with the trade-off being the erosion of employment rights for employees. However, the reality of this proposal is that it is unlikely to work in practice or be implemented on a wide scale.  It is unlikely that small businesses will want to tangle themselves up with the red tape required to issue new recruits with shares, ironically the plans are as a result of a report by venture capitalist Adrian Beecroft that made suggestions about reducing red tape.

There is also a big question mark over how attractive this offering is to “owner-employees”. Essentially, new recruits would be sacrificing their employment protection for shares of potentially unknown value in a company. Much consideration will need to be given to the mechanism in place for departing owner-employees and share valuations.  If the offer is not enticing to new recruits then employers may not exert a pull on the most capable of applicants. We find it highly unlikely that employees will want to give up their employment rights for share ownership, unless those shares have true and real value.