Employee-Shareholders; What are they and what are the requirements?
17th February 2013
The government finally succeeded last month in pushing through its proposals, despite encountering many setbacks from its original plan (including changing the name) to create “employee-shareholders“. They are likely to come into force in September 2013
The Government has effectively created a new “class” of employee. In return for the acceptance of shares in the employer, the employee forfeits key employment rights including the right to make claims for unfair dismissal, for redundancy payments, the right to make flexible working requests etc and become somewhat second class “employees”, essentially having the rights of a worker but the obligations of an employee.
What’s the benefit? For an employer the benefits are that there will be a reduced risk of employment tribunal litigation. For the employee there is shareholding in the employer without having to “buy” the said shares in the conventional manner.
Key points to note are:
- If this is offered to an employee, they cannot accept for a period of 7 days.
- The employee must obtain independent legal advice; failure to do so will see the person become an employee but will not forfeit their rights. The Employer will be liable to pay the reasonable legal fees incurred in the provision of that advice to the employee, irrespective of whether they subsequently take up the role.
- In addition to the statement of particulars of employment under s.1 ERA, the employee must also be provided with detailed particulars which set out:
o the status of employee-shareholder,
o the rights that they will give up and
o details of the rights, restrictions and other conditions attached to the shares.
o whether the shares have any voting or dividend rights;
o whether the shares can be bought back or redeemed;
o whether the shares can be freely sold; and
o whether certain other rights and restrictions are attached to them
- The Shares issued up to the value of £2,000 can be issued without giving rise to income tax liability, and shares issued up to £50,000 will be exempt from Capital Gains tax. These will only apply where the shares are issued in connected companies, and the HMRC has already indicated that these sums shall be “total values” in order to avoid tax avoidance schemes by issuing multiple contracts and lots of shares.
- Whilst employee-shareholders will forfeit some of their rights, they will still be able to claim for discrimination, unlawful deductions from wages, etc. in the normal way.
Employees cannot be dismissed or treated any less favourably in the event that they refuse to accept Employee-Shareholder status. In those circumstances existing employees cannot be forced to accept a such a change.