Rather than create a “flexible workforce”, the government’s plans to allow employers to strip new staff of employment rights in exchange for shares in the firm will simply allow them to fire staff at will, Thompsons says.

The plan is to allow companies of any size to give employees between £2,000 and £50,000 of shares that are exempt from capital gains, in exchange for giving up a raft of hard-won employment rights.

Its analysis of the proposal has flagged up a number of concerns, weaknesses and potential abuses:

  • Employers will effectively be able to operate a compensated no fault dismissal scheme.
  • Businesses can make it compulsory for new staff to accept owner-employee terms, although the government calls it “... a voluntary three way deal”.
  • There is no mention of safeguards for employees thinking of going down this route such as those relating to compromise agreements.
  • As in most cases, the shares will not be publicly listed, there will be issues surrounding how they will be valued, the voting rights they attract, their transferability and how disputes will be resolved relating to the shares.
  • As shares only exist for limited liability organisations, the scheme does not apply to unincorporated partnerships or sole traders.
  • The government’s press release states that the rights to be “exchanged” are unfair dismissal, redundancy, the right to request flexible working and time off for training, as well as providing 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual 8.

But as Thompsons points out, although most unfair dismissal rights are subject to a qualifying period of one or two years, there are a number of circumstances in which employees are entitled to “day one” unfair dismissal rights.

Iain Birrell of Thompsons said: “Would employers seek to exclude day one unfair dismissal rights as well? If so, they could find themselves paying to fend off a claim that could never be bought. Nor will this scheme save employers money as it may be highly detrimental to a company’s cashflow to be expected to find £2,000+ whenever an employee leaves.

“And if the idea is to create a “flexible workforce (a euphemism for getting rid of staff with the minimum of payouts), firing staff under this scheme seems likely to simply result in a higher incidence of payments on share options. Ultimately it would be self defeating.”

The government has said that legislation to bring in the new owner-employee contract will come in later this year so that companies can use the new type of contract from April 2013. It also says it will consult on “some details” of the contract later this month.

Read Thompsons response to George Osborne's plans: Owner-employees: workers united, or trading a cow for a handful of half-baked beans?