The Government/Employee Owner Contracts

25th March 2013

The Government is to press on with Employee-Owner

In October 2012 the Government launched a consultation on its proposal for a new type of contract of employment of “employee-owner”, under which employees would be given shares in exchange for waiving certain employment rights.

Under these proposals a new tier of employment status would be created namely employee-owners who would receive shares of between £2,000 and £50,000 (exempt from Capital Gains Tax) in return for giving up specified employment rights (such as ordinary unfair dismissal).

In December the Government published its response for the consultation, and despite mixed views from those taking part in the consultation, it wishes to proceed albeit with certain modifications. For example the employee-owner contract will be renamed “employee-shareholder” contract and the upper limit of shares (£50,000) will be removed (but will remain for Capital Gains Tax exemption). Amendments will be made to the Growth and Infrastructure Bill accordingly. The Government is also set to issue guidance on these laws and the tax consequences of “employee-shareholder” contracts. In particular the Government acknowledges that there is already uncertainty amongst employers as to the differences between the two existing types of employee status of workers and employees, and that adding a new status of employee-shareholder with different rights again could add further to the confusion.

Daven Naghen, head of our Employment Team, commented as follows:-

“I don’t know yet whether the new scheme will be workable in practice, more information and detail is going to be required. Watch this space!”

If you want to keep up to date with developments on employee-shareholder contracts then stay subscribed to our Employment Newsletter

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