The Employee Shareholder

Liam Hastings of Hastings & Co Solicitors based in Chelmsford, Essex takes a look at the new class of employee – the “employee shareholder”.

Background

As of 1st September 2013 the government has introduced a new type of employee – the employee shareholder. Section 31 of the Growth and Infrastructure Act 2103 makes it possible for employers to offer new recruits or existing employees the chance to become employee shareholders in return for signing away certain employment rights.

How does it work?

To create a valid employee shareholder the employer must give the employee a minimum £2,000 worth of shares (which the employee must not pay for). The employee must also  sign a written agreement and must have independent legal advice on the agreement before it is binding.

The first £50,000 worth of shares will be exempt from Capital Gains Tax. However, this will not apply to anyone who has a “material interest” in the company (defined as anyone with 25% of the voting rights in the employer or parent company).

What rights are signed away?

  • The right to make a claim for “ordinary” unfair dismissal.
  • The right to a redundancy payment.
  • The right to make request study or training.
  • The right to request flexible working.

In addition, the notice requirements for employee shareholders taking maternity leave will be different.

What rights are not taken away?

Aside from the above rights, all other rights remain the same. This includes, for example, discrimination claims and claims for unfair dismissal for reasons where the dismissal is automatically unfair (eg for whistleblowing dismissals).

What other issues are there to consider?

There are a number of issues to consider including:-

  1. Valuing the shares.
  2. Whether the company’s articles of association need changing.
  3. The type of shares to be offered and the rights to be attached to those shares.

Comment

We understand that enthusiasm and take up has been very poor and we are not surprised.

We doubt there will be much take up from small companies on account of the not insignificant set up costs and the need to give away a sizeable chunk of shares. We doubt it will become common practice for small businesses employing non-key staff.

However, the exemption from capital gains tax could be significant and might be attractive to key employees in high growth companies.

Hastings & Co Solicitors specialise in employment law. Please telephone Liam Hastings on 01245 835 305 for further advice or assistance.

Disclaimer: this blog is intended to give a brief overview of the law and does not substitute for independent legal advice.

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