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.Now I assume from the above that HMT's part of the deal is tax relief, as I don't see how they could underwrite the share awards themselves (or why) without making a very large and and open-ended commitment, unless we see some qualifications later.
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.
Owner-employee 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 owner-employees will continue to have the option of inserting more generous employment conditions into the employment contract if they want to.
If we take this initiative at face value, perhaps it is aimed at mainly start-ups etc. But if so a) it could simply end up giving more tax relief to people who don't need it (what if the start up is a hedge fund set up by portfolio managers leaving a big asset manager who are on a serious wedge) and b) it will lock in poor employment rights at firms that become big employers (note it doesn't need to be optional for new hires).
But what if this is intended to be bigger than start-up type situations? In simple terms this is a bribe to give up employment rights. There is no reason why a company can't have employee share ownership and decent employment rights after all. You can see various problems ahead. Presumably not all existing employees will take up the offer, so companies will likely end up with a two-tier workforce. If that were not divisive enough, it raises the question of how the employer (which must want to cut rights back to use this option) will look on employees who don't participate. But in the longer term if all new hires go onto these contracts this could have a major impact.
You get the impression that this is a way for the Tories to start chipping away at employment rights. Encourage employers to take them away voluntarily at first, with a token pay-off to employees in return. If it works and you reach a critical mass (perhaps just in a particular sector) you could formalise through some other strategy.
There's also the question of risk. As I've blogged previously, Margaret Blair has done a great job of clarifying that employees already shoulder a great deal of risk relative to shareholders, as they make firm-specific investments in training etc. This initiative means that they lose employment protection in return for a greater firm-specific investment, this time a financial one.
I don't like this at all.