Employee-owner consultation

Following on from the Chancellor’s announcement on 8 October that ‘employee-owner’ contracts are to be introduced by April 2013, BIS has published a consultation document providing further details of the proposals.

Given that the expressed aim of the consultation is to ‘understand the implications for employers, individuals, and the labour market in general [and] ensure there are no unintended consequences’, it does seem a little perplexing that the draft legislation implementing this change was published the next day. There is a very short three-week period in which to respond (by 8 November). The concept of ‘employee-owner’ contracts is to be effected by adding a new s. 205A into the Employment Rights Act 1996, see s. 23 of the Growth and Infrastructure Bill.

Such employee-owners would receive shares of between £2,000 and £50,000, exempt from capital gains tax, in return for giving up various employment protection rights:

• the right not to be unfairly dismissed – but they would be protected from being dismissed for all the automatically unfair reasons (e.g. on certain health and safety grounds and whistleblowing) and would retain protection against discrimination (including in relation to dismissal)
• the right to make a statutory request to work flexibly or in relation to study or training – but employee-owners would still have the right to request flexible working when they return from the European-derived entitlement to 18 weeks’ unpaid parental leave per parent per child (and its proposed that any such request would have to be made within four weeks of a return to work), and
• the right to statutory redundancy pay

Employee-owners would also have to give 16 weeks’ notice to return early from maternity or adoption leave, as compared with eight weeks for employees.

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All types of shares will be eligible for use under this arrangement which will take effect as part of a contractual arrangement between employer and employee owner. To protect the employee-owners if they are required to surrender their shares when they leave, are dismissed or made redundant, the employer will be required to buy the shares back at a ‘reasonable value’.