Employees are to be given the chance to take a stake in their company, in return for giving up some of their employment rights, under a scheme launched by Chancellor George Osborne today.
The voluntary scheme will be open to any limited company, but it is expected that it will be taken up mostly by smaller and medium-sized firms in fast-growing markets, as a means of recruiting a motivated and flexible workforce.
The report on employment law drawn up for the Government last year by entrepreneur Adrian Beecroft identified workers' protection against unfair dismissal and rights to redundancy payoffs as key factors making companies reluctant to take on extra staff.
While his plans for "no-fault dismissal" proved unacceptable to the Liberal Democrat side of the coalition Government, Mr Osborne's proposal for a new kind of job contract for "employee-owners" has won the backing of Business Secretary Vince Cable and his colleagues and is expected to be rushed into operation by April 2013.
Under the scheme, employers would be able to offer "employee-owner" status to new recruits or existing members of staff.
The employee-owners would receive between £2,000 and £50,000 worth of shares, which would be exempt from Capital Gains Tax when they are eventually sold.
In return, staff will give up rights including:
* The ability to claim unfair dismissal after two years in a job;
* The right to statutory redundancy payments; and
* The statutory right to request flexible working or time to train.
Employee-owners will have to provide 16 weeks notice to bosses of their intent to return from parental leave after the birth of a child - double the eight weeks required from other staff.
Unfair dismissal claims will remain possible in a few exceptional circumstances, such as when dismissal is linked to the national minimum wage or to an employee's refusal to work on a Sunday.
Businesses will remain free to offer contractual redundancy pay, flexible working and time off to train to employee-owners if they choose to.
It is expected that the scheme will prove attractive to start-up companies, particularly in new hi-tech industries, which may be unable to pay large salaries but can tempt ambitious staff with a share in equity which could potentially gain considerable value.
Exemption from capital gains tax (CGT) on any profits made when the shares are sold would make them more attractive, and the Treasury expects hundreds of thousands of employees to sign up over the next few years, at a cost of around £100 million a year in lost CGT receipts by 2017/18.
Employers would have flexibility to offer the share package on top of salaries or in lieu of pay, up to a maximum total value of £50,000 at the time of issue.
The Government will consult on restrictions to ensure that if an employee-owner quits or is sacked, the company will not be able to take the shares back, but will have to buy them at a "reasonable" price.
