Speaking at the Conservative Party conference yesterday, the chancellor George Osborne announced a new type of employment contract called an "employee-owner" that will be available to companies from April 2013.

Owner-employees will relinquish rights including unfair dismissal, redundancy, flexible working and time off for training; they will also need to give 16 weeks' notice of a firm date of return from maternity leave, rather than the usual eight.

In exchange they will be given shares worth between £2,000 and £50,000 in the business they work for, which will be exempt from Capital Gains Tax.

In his conference speech, Osborne said: "This idea is particularly suited to new businesses starting up; and small and medium sized firms. It’s a voluntary three way deal.

"You the company: give your employees shares in the business. You the employee: replace your old rights of unfair dismissal and redundancy with new rights of ownership.

"And what will the Government do? We’ll charge no capital gains tax at all on the profit you make on your shares. Zero percent capital gains tax for these new employee-owners."

While the new contracts will be optional for existing employees, both established and start-up companies will be able to choose to offer only this new type of contract for new hires.

The government plans to fast-track the proposal, bringing in legislation to enable the new contracts later this year so that companies can start using them from April 2013. A consultation will begin on some details of the contract later this month.

The Treasury has said that the contract is principally intended for fast-growing small and medium-sized companies that want to create a flexible workforce, but that it will be available to companies of all sizes.

Companies recruiting under the new contract will be able to insert more generous conditions into the contract if they want to, while eligibility for existing employee ownership schemes such as the Enterprise Management Incentive will not be affected.

Business groups cautiously welcomed the new contracts. John Longworth, director general of the British Chambers of Commerce (BCC) described the move as "an innovative and imaginative proposal that deserves to be tried out".

However, Longworth added that while the contracts could be "a useful option for some new and fast-growing businesses" they were "unlikely to be a game-changer".

His views were echoed by CBI director-general John Cridland, who said: "In some of Britain's cutting-edge entrepreneurial companies, the option of share ownership may be attractive to workers, rather than some of their employment rights. But I think this is a niche idea and not relevant to all businesses."