Are Employee Shareholders an Attractive Proposition?

The Growth and Infrastructure Act becomes Law

The new employment status of Employee Shareholder received Royal Assent on 25th April 2013 and it is expected that the section related to Employee Shareholders will become law from 1st September 2013.

In simple terms an Employee Shareholder agreement is reached where the employer gives the individual shares to the value of £2,000 or more and the Employee Shareholder in return gives up certain employment rights:
• the right to claim "ordinary" unfair dismissal
• the right to a redundancy payment
• the right to request flexible working (in most circumstances)
• the right to request time off for studying and training

Also, the Employee Shareholder will need to give longer notice in relation to certain entitlements (e.g to return early from maternity leave).

There were a few late changes after the House of Lords raised some concerns, so that there are additional rules relating to the Employee Shareholder status:
• the individual must receive independent legal advice, paid for by the employer, prior to entering into an Employee Shareholder agreement
• there will be a 7 day "cooling off" period after the advice is received and before the agreement has legal effect
• the employer must provide a written statement specifying what rights the individual is relinquishing by entering the agreement and setting out details about the shares that they will receive
• existing employees will be considered to have been unfairly dismissed if the reason for dismissal is their refusal to convert to Employee Shareholder status and they will also be protected from suffering any other type of detriment
• the first £2,000 of shares will be free from income tax or national insurance contributions liability

This is a very significant change to employment laws and employers should give serious consideration to whether or not this is an attractive proposition.  It seems likely that in most cases it will not be attractive, as most employers tend not to unfairly dismiss staff and try to avoid redundancies.

However, it is possible that some employers - particularly new ventures with initial high growth and risk - may be attracted.  They could see this as meaning staff will be more likely to be committed to growth through their share ownership, and some risks will be ameliorated if they will be able to take swift action to fire staff if necessary without worrying about unfair dismissal or redundancy payments.