New employee ownership legislation could see top business talent choose to work for British SMEs over larger competitors, says law firm HBJ Gateley.

The new legislation, which will come into force on September 1 2013 and allow workers to exchange certain employment rights for equity in their employer, could make joining SMEs a much more attractive prospect for experienced professionals.

Under the provisions set out by the UK Government, among the employment rights that can be traded are the right to a statutory redundancy payment and the right to claim unfair dismissal in most circumstances.

Employees will be able to exchange these rights for shares worth at least £2,000 in their employer, with the first £50,000 of shares issued exempt from capital gains tax.

Business owners will decide what kind of shares in the company staff are offered, while individuals will be able to sell the equity on at a later date and keep the profit.

Jacqueline McCluskey, a partner in HBJ Gateley’s employment team, said that this could prove a tempting offer for potential employees of high growth SMEs and start-up companies.

Jacqueline said: “This legislation could be a big pull factor for growing SMEs looking for experienced employees. They will be able to use this as a marketing tool to high level professionals who might not otherwise choose to work with a small company but can see future success in the business.

“High earners are unlikely to be put off by the loss of some of their employment rights and will be attracted by the opportunity to have a share in a small or medium sized company with big potential.

“This could make SMEs more attractive as employers, particularly to those who are willing and able to take the risk on the equity.”

Jacqueline also pointed out that the Government hopes this could be a boost to the wider economy, with SMEs making up the vast majority of companies in Scotland and the UK. Scottish Government figures estimate that 99.3 per cent of businesses in Scotland are small and medium sized enterprises with 249 employees or less, while Federation of Small Businesses’ (FSB) statistics suggest 99.9 per cent of all private sectors businesses in the UK are SMEs, accounting for 59.1 per cent of private sector jobs.

Jacqueline added: “The Government also hopes this legislation will offer a significant boost to the economy by encouraging individuals to invest in their employer with the result  that small and medium sized companies may benefit from a  workforce committed to the success of their company. Whether or not this will happen remains to be seen.”