Rebecca Briam, partner at Gannons Solicitors, comments on the new proposal by The Chancellor of the Exchequer, the Right Honourable George Osborne MP, to introduce a new kind of employment contract called an owner-employee contract (http://www.hm-treasury.gov.uk/press_91_12.htm) , to come into effect in April 2013. In return for this new type of employment contract it is proposed that new employees will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax (CGT) and in exchange they will give up certain rights such as unfair dismissal and redundancy.
“The plan by George Osborne to introduce an owner-employee contract for new hires is unlikely to get off the ground. The proposals will be unpopular with employees because the chances of benefitting are so slim and unpopular with employers, especially privately controlled companies, because of the risks imposed to the share structure. Far from saving on payroll expenses the total costs for an employer may well increase. The detail behind the headline which the Chancellor needs to dwell upon is:
1. An employee will only receive the benefit of this capital gains tax relief if they sell their shares for a profit and, assuming the owner-employees have to pay for their shares initially, it may be several years before any significant profit is made.
2. In addition, whilst the ability to bring a claim for unfair dismissal may have been removed, there could be arguments over what is a reasonable price for the shares when the employee comes to sell his or her shares.
3. Privately controlled companies will need to think carefully before offering this new kind of employment contract to employees since without advice a whole variety of issues which arise when employees hold shares will unfold.”
Gannons Solicitors is an employment law firm offering advice to employees on all aspects of their employment relationship. For more information, please visit http://www.gannons.co.uk