A new type of contract of employment was announced last week which means that employers can insist on their employee waiving some significant employment rights in return for shares in the company. What exactly will this mean for employers?

Chancellor George Osbourne announced the new type of contract – ‘owner-employee’ contracts – will be available for all employers to use, though they will be specifically designed to appeal to small businesses.

In exchange for receiving shares worth between £2,000 and £50,000 of shares in the employer’s company, the employee will:

• Not be able to claim unfair dismissal;
• Not be entitled to redundancy entitlements;
• Not be able to request flexible working;
• Not be able to request time off for training;
• Be required to give double the amount of notice of an early return to work from maternity leave (the statutory requirement is 8 weeks, notice)

The finer details of the proposal will be ironed out in time, and will reportedly be subject to a public consultation which will be issued later on this month. The Government intend to have these contracts ready for use by April 2013, though some doubt that this timescale is workable.

On the face of it, owner-employee contracts may sound a good idea to employers who will be free from the risk of carrying out a procedurally unsound dismissal regardless of the employee’s length of service. Bearing in mind that, in most cases, the tribunal award for an unfair dismissal claim can theoretically reach to sums in excess of £70,000, ‘buying’ employees out of their rights may seem favourable.

Claims of automatically unfair dismissals, including dismissals involving discrimination, are unlikely to be excluded by the new contracts.

Claims for all other statutory rights, including pay, annual leave, failure to consult over transfers, less favourable treatment on the grounds of part-time/fixed-term status, statements of main terms, statutory rights to time off for various reasons etc will also not be excluded. It remains to be seen what exactly the Government will exclude in terms of redundancy rights.

Employers will not automatically be able to impose owner-employee contracts on existing employees, but may be able to insist on their use with new recruits.

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