Employment Update: Employee Shareholders

16 May 2013

Following on from our comments on the Employee Shareholder proposals in February 2013, these proposals have now received Royal Assent and will be introduced on 1 September 2013.

Essentially the scheme will allow companies to issue or allot a minimum of £2,000 worth of shares to employees in exchange for the employee giving up the following rights:

  • The right not to be unfairly dismissed. This is probably the most substantial right that is being given up. The employee shareholder will still retain the right not to be unfairly dismissed in health and safety cases, automatically unfair cases, or cases where the dismissal is discriminatory under the Equality Act 2010.
  • The right to a statutory redundancy payment.
  • The right to request time off for study or training.
  • The right to make a flexible working request (with the exception of parental leave in which case the employee shareholder will have to make the request for flexible working within 14 days of returning to work).
  • The right to give eight weeks’ notice if they want to return early from maternity and adoption leave and six weeks’ notice in respect of additional paternity leave. Instead an employee shareholder will have to give 16 weeks’ notice if they want to return early from statutory maternity, adoption or additional paternity leave.

A key element of the scheme is that any gains made by the employee on the first £50,000 of shares will be exempt from capital gains tax.

One of the biggest concerns from an employee’s perspective is the fact that an employer can make an offer of employment conditional on the employee becoming an employee shareholder and sacrificing the above rights. The House of Lords rejected the new legislation twice and the government conceded a number of points which were not included in the original legislation taking into account this concern and others. These concessions include:

  • Protecting current employees from being dismissed or suffering other disadvantages if they refuse to become employee shareholders.
  • Protecting potential employee shareholders from losing their jobseeker’s allowance if they refuse an employee shareholder position.
  • Potential employee shareholders must be provided with (along with their offer of employment) a statement which sets out the various rights being given up and the rights which come with the shares.
  • Potential employee shareholders must received independent legal advice on the offer of employment and the reasonable costs of this advice must be paid for by the employer regardless of whether the offer is accepted.
  • Prospective employee shareholders who have accepted an offer will have a week long period from the date legal advice is received in which the acceptance will not be binding and they can withdraw their acceptance.

For further information about the scheme, or if you are an employer and wish to consider offering the scheme or if you have received an offer to become an employee shareholder and wish to receive independent legal advice (paid for by your employer) then please do not hesitate to contact our Employment Team.

Please note that the summary set out above does not constitute legal advice and specific advice should be taken before offering or accepting a position as an employee shareholder.