Government issues response to consultation on employee-owner contracts

The Government has published its response to its consultation on employee-owner contracts, which it intends to rename "employee-shareholder" contracts. 

On 18 October 2012, the Government launched a consultation on its proposals for a new type of "employee-owner" contract of employment under which employees would be given shares in exchange for waiving certain employment rights. Under the proposals, a new tier of employment status would be created, 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. Clause 25 of the Growth and Infrastructure Bill (on the Parliament website) amends the Employment Rights Act 1996 to create the new tier and restrict the relevant employment rights. 

Under the initial proposals, employee owners would not have "ordinary" unfair dismissal protection after two years' continuous service. However, they would be protected from being dismissed for nearly all of the automatically unfair reasons, such as making a protected disclosure. Employee owners would also retain protection against discrimination, including in relation to dismissal. Employee owners would be unable to make statutory requests to work flexibly or in relation to study or training, and would not be protected against dismissal for making either of these statutory requests, except in relation to a flexible working request on return from parental leave, in accordance with the minimum EU requirement. Nor would employee owners be eligible for statutory redundancy pay, and they would also have to give 16 weeks' notice to return early from additional maternity or adoption leave, as compared with eight weeks for employees. 

On 3 December 2012, the Government published its response to the consultation. It set out a number of modifications to its original proposals, including:

  • renaming employee-owner contracts "employee-shareholder" contracts;
  • making it explicit that shares should be fully paid up and free to employee owners;
  • creating a power for the Secretary of State to increase the minimum threshold of £2,000 on the value of shares that must be offered;
  • removing the upper limit on shares (of £50,000) to be an employee owner, stated in the Growth and Infrastructure Bill, although this limit will apply for the capital gains tax exemption;
  • allowing the rules to apply to non-UK registered companies and parent company shares; and
  • extending the requirement to give 16 weeks' notice to return early from additional maternity or adoption leave to additional paternity leave. 

Amendments will be made to the Growth and Infrastructure Bill to effect these changes. In addition, the Government has said that it will provide guidance on the employment law and tax consequences of employee-owner contracts. 


The XpertHR employment law manual explains how an individual's employment status can impact on his or her employment rights.