Shares for Rights? New employee shareholder status set to finally become law

The Growth and Infrastructure Act 2013, which received Royal Assent on 25 April 2013, creates a new type of employment status – employee shareholder status. This will become effective in the Autumn (possibly 1 September 2013).

This is a new type of employment status, under which an employer and employee can agree that, in consideration of the individual becoming an “employee shareholder” (instead of an employee), the company will issue or allot a minimum of £2,000 worth of shares to the individual, with any gains made on the first £50,000 of shares being exempt from capital gains tax.

An employee shareholder will have the same rights as an employee except the following:

• No right not to be unfairly dismissed (except in health and safety cases, automatically unfair dismissal cases, or cases where the dismissal is discriminatory).

• No right to a statutory redundancy payment.

• No right to make a flexible working request, except for employee shareholders returning from paternity leave, who will be restricted to making a formal request for flexible working to the period of 14 days beginning with their return to work.

• No right to request time off for study or training.

• The employee must give 16 weeks’ notice if they want to return early from statutory maternity, adoption or additional paternity leave.

The House of Lords only accepted the new clause on employee shareholder status following certain concessions made by Government including: provision of a written statement explaining to employees the rights they are giving up; employees being given independent legal advice on the offer of an employee shareholder contract (the reasonable cost of which must be met by the employer); and employees being entitled to a seven-day “cooling off” period. Employees are also protected from dismissal or other detriment if they refuse to switch to an employee shareholder contract.

Pam Sidhu, Associate in the Employment department comments: “The Government’s thinking behind this new legislation was to boost employee engagement and productivity, and incentivise businesses to hire by removing the fear of being taken to employment tribunal. However, the new status is so bogged down with red tape that the uptake is likely to be slow. One significant issue is that there are significant carve outs from the employment rights employees give up – employee shareholders can still complain of discrimination, for instance, which are costly claims to defend, as well as other rights like unfair dismissal related to “whistleblowing”. Employees will also need to receive independent legal advice on the offer of an employee shareholder contract, paid for by the employer, irrespective of whether employees actually take up the offer or not. Employers will need to carefully weigh up the pros and cons of the new status to decide whether it is worthwhile offering to their staff.”

For further information regarding employment law please contact Pam Sidhu on [email protected] or 0121 710 5815