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At the Conservative Party Conference on 8 October, the
Chancellor George Osborne announced plans for a new employment
status: "owner-employee". Owner-employees would be issued
shares in the company they work for in exchange for waiving some of
their UK employment rights. Any gain arising on a disposal of these
shares would not be subject to capital gains tax.
The new employment status is aimed at helping fast-growing small
and medium sized companies ("SMEs") to achieve a flexible
workforce, which the government believes will promote growth
amongst such companies and in the wider economy.
The new "owner-employee" status has many similarities
with the concept of "no fault dismissals" for SMEs which
was being floated by the Conservative party as part of its
"Red Tape Challenge" following the Beecroft report, but
which was blocked by the Liberal Democrats. In particular, the
"owner-employee" status would enable SMEs to hire and
fire staff at will by only paying statutory minimum notice (unless
the contract provided for greater notice).
Under the new status, "owner-employees" would:
Be given between £2,000 - £50,000 of shares that
are exempt from Capital Gains Tax;
Waive rights to:
Unfair dismissal;
Redundancy pay;
Right to request flexible working;
Time off for training; and
Be required to give 16 weeks' notice of return to work
following maternity leave, rather than the usual 8 weeks.
Owner-employees would still be eligible for existing employee
share ownership schemes such as the Enterprise Management
Incentive.
In the event that the employment is terminated either by the
company or the owner-employee, the company would be required to buy
back the shares at a "reasonable" price. The government
will consult on how to achieve this. The proposed rules will permit
a company to require the employee to transfer the shares, but only
for a "reasonable price". It will be interesting to see
if the new legislation sets out a valuation mechanism, otherwise
there may well be an increase in disputes between employers and
owner-employees about what is a "reasonable" price.
The status would be optional for existing employees but both
established companies and new start-ups would be able to choose to
require new employees to enter into this type of contract (although
employers will be able to insert more generous employment
conditions into the contract if they wish to do so).
It will be interesting to see what procedures employers are
required to go through when asking employees to take on this status
and what information they are required to give to staff before they
can sign up to the owner-employee status, particularly in light of
the duty of trust and confidence owed by an employer to its staff.
To date it has been notoriously difficult for employees to waive
their rights (and illegal for employers to coerce their employees
into waiving their rights).
This may well become a new battleground, in which
owner-employees later turn around and say that the employer did not
fully explain the implications of the new status at the outset and
therefore they should not be bound by its consequences.
Whilst we welcome moves by the government to promote economic
growth and flexibility for employers, especially within the SME
community (many of whom are technology companies), we question the
effectiveness of the plan and whether it will meet its intended
goals.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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