Partner Article

Osborne's employment contract proposals

Susan Evans, employment partner at Lester Aldridge LLP, provides her take on the latest employment contract proposals.

The change to employment law proposed today by the Chancellor would see employees able to waive some employment rights in exchange for shares in the employer company (and certain capital gains tax relief on this) and could leave individuals more vulnerable.

At present an employer must have a potentially fair reason to dismiss an employee and follow a fair procedure in doing so, otherwise, those employees with the requisite length of service (and is either 1 or 2 years’ service depending on when they were employed) could pursue a claim of unfair dismissal in the Employment Tribunal.

Those electing to work under an owner-employee contract under the new conditions would not be able to pursue a claim for unfair dismissal or redundancy payment and potentially (subject to the details of the scheme) would then have no protection against the termination of their employment without proper process or cause.

Whilst the tax relief and opportunity to own shares will appeal to some, there is risk involved in share ownership and can be complications associated with selling and valuation in private companies.

No information has yet been released by the Chancellor as to how this would operate and the form the election to work under this contract would need to take. There is an indication in the Treasury’s announcement that the consultation on this proposal would include consideration of forfeiture and the ability of the employee to sell the shares on termination and these will certainly be important points. Guidance will be needed as to whether certain information must be provided to the individual before they agree to accept employment under an owner-employee contract and in relation to the mechanism and arrangements for valuing and selling back shares on termination of employment amongst other things. There will certainly be a lot of detail which will need to be worked out in the consultation over this proposal if the rights swap is to be effective and workable in practice – and if it is to be an attractive and viable option to the small and medium businesses it is targeted at.

This was posted in Bdaily's Members' News section by Susan Evans .