By Daniel Hunter

The Chancellor of the Exchequer, the Right Honourable George Osborne MP, has announced plans for a new kind of employment contract called an owner-employee.

New employee-owners will exchange some of their UK employment rights for rights of ownership in the form of shares in the business they work for, any gains on which will be exempt from capital gains tax.

Companies of any size will be able to use this new kind of contract, but it is principally intended for fast growing small and medium sized companies that want to create a flexible workforce.

Under the new type of contract, employees will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax. In exchange, they will give up their UK rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training, and will be required provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual 8.

Employee-owner status will be optional for existing employees, but both established companies and new start-ups can choose to offer only this new type of contract for new hires. Companies recruiting employee-owners will continue to have the option of inserting more generous employment conditions into the employment contract if they want to.

Legislation to bring in the new employee-owner contract will come later this year so that companies can use the new type of contract from April 2013. The Government will consult on some details of the contract later this month.. Employee-owners receiving full capital gains tax relief on the shares awarded as part of their contract will still be eligible for existing employee share ownership schemes such as the Enterprise Management Incentive.

"In some of Britain's cutting-edge entrepreneurial companies, the option of share ownership may be attractive to workers, rather than some of their employment rights," John Cridland, CBI Director-General, said.

"But I think this is a niche idea and not relevant to all businesses."

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