George Osborne, the Chancellor of the Exchequer, has announced a new type of employment contract under which employees will be able to give up some of their employment rights in return for shares in the company.

The proposal, which is aimed to benefit start-ups and other fast-growing businesses, allows employers to offer new staff an owner-employee contract under which the right to claim unfair dismissal and a redundancy payment, and to request flexible working and time off for training, is waived in return for shares of a value between £2,000 and £50,000. The shares will be exempt from capital gains tax, and there will be provisions on how the company can buy back the shares if the employee leaves.

Existing employees will not be affected but any company, of whatever size, will be able to offer the new type of contract to new hires.

Staff will also have to undertake to give 16 weeks notice of a date for return after maternity leave.

For this reason, and because of the requirement to give up the right to request flexible working, this type of contract may be less attractive to female staff or those with parental responsibilities.

The owner-employee contract may be of interest to new, entrepreneurial businesses who are keen to limit their liabilities if a team relationship goes horribly wrong.

It is intended that the law to implement these contracts will come into force in April 2013.

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