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New scheme to exchange employee rights for share ownership

Chancellor George Osborne has unveiled plans for a new employee share ownership scheme, under which employees will exchange some of their existing employment rights for the right to own shares in the business.

The scheme offers owner-employees between £2,000 and £50,000 of shares, which are exempt from capital gains tax (CGT). However, in return, employees must give up their UK rights relating to unfair dismissal, redundancy, flexible working and time off for training, and will have to give 16 weeks’ notice of a firm date of return from maternity leave.

Employees who receive full CGT relief on shares awarded as part of their contract would remain eligible for existing employee ownership schemes, such as the Enterprise Management Incentive.

The scheme will be available to all employers, but it is hoped that small and medium-sized firms will benefit from the additional flexibility afforded by the new contracts.

While employee-owner contracts will be optional for existing employees, businesses can choose to offer only this type of contract when taking on new staff.

Businesses will be able to build more generous employment conditions into their contracts, should they wish.

Legislation is set to come into force later this year, allowing companies to use the new contracts from April 2013.

Business groups have given a mixed response to the plans, with many arguing that the plans will not be relevant to all businesses and will result in too much additional red tape.

Meanwhile, the TUC and some employment lawyers have called the morality of the plans into question.