Marc Long, a partner at national law firm Clarke Willmott, believes that the owner-employee contracts, unveiled recently at the Conservative Party Conference, could end in a number of law suits against SMEs, which could affect staff relations and business reputations in the longer term.
Under such a contract, employees will be able to take up the option of between £2,000 and £50,000 of shares that are exempt from capital gains tax, in return for giving up their rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training. Female employees signing up to the contract will also be required to provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the eight weeks currently in place.
He says: “As with any new law the devil is in the detail. In particular, the mechanism for buying back shares will need to be looked at carefully. Valuing shares, particularly in small-to-medium sized businesses, can be very difficult and time consuming. This is likely to lead to valuation and share disputes.
Long also pointed out: “These new contracts may be more expensive to draw up and complex compared to existing terms. It also raises the question as to how the shares will be used in a disciplinary case, such as an act of gross misconduct- will employees then still be entitled to their entire shareholding? Furthermore, we could see the emergence of a two tier culture where some employees do want to waive their employment rights and others choose not to.”
However, Long also feels that the announcement could have a positive impact for SMEs and enterprise.
He added: “For SMEs, in particular, an employment dispute or tribunal can literally kill a business. Now, employers can secure a waiver of unfair dismissal and redundancy rights and it will avoid flexible working requests.”
The new contracts will be in use from April 2013. In the meantime, the Government will consult on certain details of the contract later this month.