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Consultation on “Employee-Owner” Contracts Launched

At the Conservative Party Conference George Osborne unveiled plans for a new type of employment relationship.  Under the proposed “employee-owner” contracts, which would be entirely voluntary, employees would be given shares in the employing Company worth between £2,000 and £50,000 in exchange for waiving certain employment rights namely the right to claim unfair dismissal and the entitlement to statutory redundancy pay.  The ability to claim automatically unfair dismissal, for example by reason of discrimination or whistleblowing, would remain unaffected.  The Government, who is envisaged as being a silent third party in this arrangement, would exempt the employee’s shareholding within the authorised levels from capital gains tax.

The proposal has been roundly criticised by both business and trade unions.  Whilst the new status would be voluntary and offered at the Company’s discretion, there is nothing to stop Companies only offering this type of arrangement thus effectively forcing would-be new employees to accept the arrangement.  Having said this, the thought of distributing shares and potentially surrendering some degree of control over the Company’s affairs is unlikely to be palatable to many employers.  Instead, employees who enter into these arrangements may find that their shareholding and associated voting powers are diluted with a further issue of share capital.  It is anticipated that the take up of this new relationship is likely to be low and so these plans are likely to have little practical effect.

The Government has launched a consultation seeking all interested parties’ views on the proposed new relationship.  This can be found here. Responses are to be submitted by 8th November 2012.

For more information please contact Martin Sinclair or Nicola Gray or call 01224 632 464

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