Shareholder Employees

Employee Shareholder status came into force on 1st September 2013. The Growth and Infrastructure Act 2013 introduced a new section into the Employment Rights Act 1996 which provides employers the opportunity to provide shares to an employee (the Employee Shareholder), in return for the employee giving up some of their employment rights.

In exchange for the shares, an Employee Shareholder gives up the right to claim unfair dismissal against his/her employer, unless the employee is making a claim that it was an automatic unfair dismissal or a dismissal on the grounds of discrimination. They will also give up the right to claim a redundancy payment and the right to request flexible working or time off for study/training. In addition, they will be required to give an additional 8 weeks notice (16 weeks in total) if they wish to return early from maternity, paternity or adoption leave.

The Employee Shareholder will receive shares to the value of at least £2,000 in the Company. If the valuation of the shares is less than £2,000 the Employee will not become an Employee Shareholder. HMRC has updated its share and assets valuation manual, so it is now possible to apply to HMRC to have the shares of a business valued, allowing both parties to check the value of the shares before they are awarded to an Employee Shareholder.

To protect the Employee Shareholder, the legislation states that the agreement must be confirmed in a written statement of particulars. The Employee Shareholder is required to obtain legal advice on the written statement of particulars with the legal fees being met by the employer. The agreement cannot be made until seven days have passed since the day on which the employee received the legal advice to provide them with the opportunity to consider the position.

An existing employee cannot be penalised if they refuse to accept the change to Employee Shareholder and are able to bring a claim for automatic unfair dismissal should they be dismissed for refusing to change their status.

The overwhelming response to Employee Shareholders is that the take up will be very low. Where Employee Shareholders are only mainly prevented from claiming unfair dismissal it remains to be seen whether there is any incentive to businesses offering such shares given that the Government has made further recent changes to unfair dismissal claims, including; that employees now need two years service in order to claim it, the amount that can be recovered as compensation has reduced for most people (to the lesser of one year’s salary or £74,200), there is now a fee to issue proceedings and companies can now have confidential discussions about the termination of employment, without those conversations being used in an unfair dismissal claim.

If you would like further advice regarding Employee Shareholders, or any of the points above, please contact Nicola O’Dwyer on 01306 502216.