From 01 September, organisations will have the opportunity to offer their employees shares in the business in return for the employee relinquishing certain employment rights. These changes are allowed by The Growth and Infrastructure Act 2013. As a further incentive to the employee, minimum shares will be £2,000 and these shares will have special treatment for tax purposes – there will be no capital gains tax on the first £50,000 if the employee decides to sell.
So what rights does an employee lose if they agree to become an employee shareholder? Perhaps the two that are most important to mention are unfair dismissal and the right to a redundancy payment, as these are two of the most popular types of claims and can be worth a substantial amount of money. It is important to note, however, that automatically unfair dismissal claims are not excluded. That is to say, for example, if an employee is dismissed for a discriminatory reason or as a result of making a protected disclosure, that employee will still be able to claim unfair dismissal even if he or she is an employee shareholder.
Examples of other claims that an employee shareholder will be giving up rights to are the right to request flexible working, and the right to request time off for training.
Under the legislation, employers will be able to offer shares to current and prospective employees. However, current employees cannot be forced into becoming an employee shareholder, and if an employee is offered shareholdings and declines, there should be no repercussions. If a candidate declines an offer on the basis that it is offered as an employee shareholder role, that person will not lose their benefits as a result of declining the role.
In terms of the benefits of the new scheme, whilst it is clear to see the benefits that this new scheme offers to employers, it is hard to see how employees will be benefited. Fortunately this is optional for employees, and employees must take independent legal advice (to be paid for by the employer) before accepting an employee shareholder role, so they won’t be entering the agreement without truly knowing the implications. Therefore, in theory, any employee agreeing to an employee shareholder role should be doing so fully understanding the rights they are sacrificing and will have made the decision on the basis they consider it to be in their best interests to do so. Further, the employee will also have a virtually guaranteed ‘asset’ in the form of the shares, whereas many unfair dismissal claims can result in no or little compensation.
The disadvantages of employee shareholder status for an employee are clear – an employee is giving up their rights to bring important claims without knowing what their future at the company holds. The employee may be giving up the right to a lucrative claim in return for a small shareholding. Further, the employee may be putting themselves in a vulnerable position be accepting such a role – if redundancies need to be made it seems likely that employee shareholders who have no right to redundancy payment or an unfair dismissal claim will be chosen for redundancy over ‘regular’ employees who will require a payout if they are made redundant. The only real disadvantage to the employer appears to be that it will be giving up a share in the company.
Rocket Lawyer UK offer quick guides on many aspects of running a small business from starting up to accounting and bookkeeping. Our suite of business documents cover the paperwork you’ll need to hire staff.
Melissa works with both employees and employers on all types of employment law matters, including advising on employment contracts, disciplinary and grievance procedures, and compromise agreements to bringing and defending claims in the employment tribunal.