Since 1 September 2013, it has been possible for employers who are limited companies to agree with employees that they will give up some of their employment rights in exchange for shares in the employer’s company.

Whilst this new employee status is still in its infancy, it has been in the press since it received approval in April 2013 and (perhaps unsurprisingly) there has not been a stampede of employers interested in exploring this new frontier. I myself have received absolutely no enquiries on the subject and understand this to be demonstrative of the lack of interest across the nation.

But what does the new employee status involve?

In order to qualify for the scheme, the employer must allot to the employee a minimum of £2,000 worth of shares (any gains made on the first £50,000 of shares will be exempt from Capital Gains Tax).

In return, the employee will accept the status of employee shareholder – this means that they will have the same rights as an employee save for the following exceptions:-

1. They will lose the right to bring a claim for unfair dismissal save for where the unfair dismissal arises in connection with health and safety, arises in circumstances where it is automatically unfair dismissal (e.g. a dismissal in connection with a TUPE transfer, a dismissal resulting from the employee shareholder asserting their statutory rights, etc) or arising from discrimination.

2. They will waive their right to receive a statutory redundancy payment in the event that they are made redundant.

3. They will have no right to make a flexible working request.

4. They will have no right to request time off for study leave or training

5. They will be required to give 16 weeks’ notice if they wish to return to work early from statutory maternity, adoption or paternity leave (the requirement for employees is to give 8 weeks’ notice).

The scheme was rejected twice by the House of Lords and a number of concessions had to be made before they would approve it. As a result the new scheme comes with the following provisions:-

1. The offer of employee shareholder status must include a clear statement explaining the employment rights that will be sacrificed and any additional rights attaching to the shares.

2. The individual offered employee shareholder status must receive advice about the offer from an Independent Legal Adviser or Trade Union Official and the employer must meet the reasonable costs incurred in the individual receiving this advice regardless of whether or not the offer is accepted.

3. Where an individual agrees to an offer of employee shareholder status, they will be entitled to a seven day cooling off period following the receipt of legal advice.

4. Existing employees who refuse to become employee shareholders will be protected from any detriment or dismissal arising from their refusal.

5. Unemployed job seekers who refuse to accept employment as an employee shareholder will not have their Job Seeker’s Allowance withdrawn.

Given the very limited relaxation of employment law provisions, and the hoops that the employer would be required to go through, it is perhaps understandable that there has been little interest in the new employment status so far. There are also a number of questions that remain unanswered. For example, the value of the employee shareholder’s shares may fall below £2,000 if there is a change in the fortunes of the company or if further shares in the employer’s limited company are issued, it is not clear whether in those circumstances the employee shareholder will have an opportunity to reclaim their employment rights.

If you would like to know more about the new employment shareholder status, or want to let me know your views on it, please do get in touch on 01484 821309 or at katebooth@eatonsmith.co.uk
Posted Friday 15th of November 2013