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Owner-Employee Contracts: will they create jobs/cut rights/avoid tax?

09 October 2012 #Employment

Chancellor, George Osborne, has announced legislation which will introduce a new ‘owner-employee’ contract.  The deal involves employees agreeing to give up various employment rights such as the right to claim unfair dismissal, request flexible working, time off for training and redundancy in return for shares worth between £2,000 and £50,000.  Any capital gains on these shares will be exempt from tax.

According to Mr Osborne, these contracts are principally intended for fast-growing small and medium-sized companies (SMEs) that want to create a flexible workforce, although any size companies will be able to offer such contracts to new recruits.

Whilst some Business leaders have welcomed the plans, ex-Marks and Spencer boss, Stuart Rose calling it a ‘win-win for entrepreneurs and employees’, Union Leaders have criticised the scheme, claiming it will deprive vulnerable workers of essential employment rights and that it is simply an elaborate tax avoidance scheme.


Whilst any attempts to encourage the creation of new jobs in the current economic climate should be welcomed, should this really be at the expense of diluting essential employment rights which have taken years to secure? It is difficult to see the merit in the Government’s claims, that the removal of these rights will help early stage SMEs avoid the risks and costs associated with employees, when many of the rights (e.g. unfair dismissal and redundancy) do not even arise until after two years of service.  By this time, it would be thought that these ‘early stage’ companies are now well established and able to afford  basic employment rights for their staff.

There will be a Government Consultation on these proposals later in October and it is proposed that the new type contracts will be rolled out from April 2013.

The Consultation will include the details of restrictions on forfeiture provisions to ensure that if an owner-employee leaves or is dismissed, the company is not able simply to take the shares back but is able to buy them back at a reasonable price. This is at least one important safeguard of the proposed scheme.


Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
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