Chancellor proposes shares-for-rights for growth companies

George Osborne

Fast-growing companies will be able to offer a new type of employment contract that trades workplace rights for share ownership tax breaks, if Government plans become law.

The Chancellor of the Exchequer, George Osborne, announced that a new type of employment contract, called "owner-employee", will allow firms to offer employees shares worth between 2,000 and 50,000 in return for giving up a number of employment rights.

In a statement, the Department of Business, Innovation and Skills said the contracts were "principally intended for fast growing small and medium sized companies". Ministers expect sectors such as technology, with its high percentage of start-up businesses, are expected to be among the beneficiaries.

Staff who sign the new contracts will be able to invest in shares free of capital gains tax, but in return would give up their "UK rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training," according to the BIS. In addition, mothers would be required provide 16 weeks' notice for returning from maternity leave instead of the usual eight weeks.

The Department of Business, Innovation and Skills said the new contracts would be optional for existing employees, but that both new start-ups and existing companies could choose only to offer "owner-employee" contracts to new staff. As yet, though, little is known about how the contracts will be managed in practice, with the Government aiming to hold a consultation before the new contracts are offered, from April 2013.

Trades unions, however, have already warned that the new contracts could see employees give up significant legal protection in return for a relatively small tax break. It is also unclear how workers will be protected from companies using measures such as transferring staff to a new business, in order to force them on to the new-style contracts, or putting pressure on staff to sign them. "People may feel they have a gun held to their heads," the Unite spokesperson said. "It has to be recognised that the UK already has the weakest employment laws of any OECD country, bar the USA."

"It is a small sum in return for the employer running rough shod over your employment rights," a spokesperson for Unite told IT Pro.

But some technology entrepreneurs welcomed the new contracts, subject to more detail on the legislation, and information on proposed safeguards.

"In the tech world, attracting and retaining talent very difficult software engineers have a myriad of career options open to them," said Peter Gradwell, founder of internet services company "This announcement can change that, and encourage those with real tech talent to start their career with other, lesser known but still successful firms."