"Employee-Owner" Contracts

The Government’s response to the consultation on the proposed “Employee-Owner” contracts has now been published.  Despite an overwhelming lack of support for the proposal, the Government has decided to press ahead with what they describe as a “novel way for companies to arrange their workforce”.  92% of respondents to the consultation had negative or mixed reactions to the planned scheme with most voicing strong concerns about the loss of significant employment protections and the possibility for coercion of new start employees to accept an “Employee-Owner” contract instead of a traditional employment contract.  Whilst the use of “Employee-Owner” contracts will be at an employer’s discretion, it can be used as the sole means of offering work and so prospective employees may find themselves being presented with it on a “take it or leave it” basis. 

In a recovering economy with high unemployment still rife, there are reservations that individuals may be forced to accept these contracts and so forfeit key employment rights simply to find work.  Concerns also remain as to the practicalities and costs of implementing such a scheme. In an effort to resolve these concerns and encourage take up when it comes into force, the Government is considering a reduction in income tax and national insurance where “Employee-Owner” contracts are used although any concession is expected to be restricted to smaller or start-up businesses. 

Having reviewed the responses to the consultation, the Government has made a number of refinements to the scheme such as the removal of the limit on the number of shares that can be issued.  However, given the reluctance to adopt such a scheme demonstrated by the majority businesses which responded to the consultation it is unlikely that such tweaks will be enough to engender a drastic change in attitudes.  Whilst the Government remains, at the moment at least, determined to continue with their plans it still appears that, in reality, it is highly unlikely to have the radical impact the Chancellor is hoping for.

For more information please contact Martin Sinclair or Nicola Gray or call 01224 632 464.