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Employee Shareholder Status

7th October, 2013

The Chancellor, George Osborne, originally announced proposals for a new type of employee ownership arrangement on 8 October 2012.

The suggestion was that employees would give up some of their statutory employment rights in exchange for shares in their employing company worth between £2,000 and £50,000. Any growth in value of the shares would be exempt from capital gains tax. The original Treasury and Department for Business, Innovation and Skills press release stated that the new arrangement would be available for all sizes of companies, but was principally intended for fast-growing small and medium-sized companies that wanted a flexible workforce.

The basic idea behind the new concept of Employee Shareholder is that individuals receive at least £2,000 worth of shares in their employer (or a parent company of their employer) in return for giving up some employment rights (in particular the right to claim unfair dismissal in most cases and the right to a statutory redundancy payment).

In order to become an employee shareholder, an individual must satisfy all of the following conditions:

• be an employee of a company. The employee can be one who was already employed by the company before agreeing to become an Employee Shareholder, or an individual who agrees to be recruited as an Employee Shareholder;

• receive a written statement from the company which includes the particulars of: the status of Employee Shareholder and the rights which attach to their shares;

• make an agreement with the company that they will be an Employee Shareholder, after receiving the written statement discussed in the previous bullet and independent legal advice paid for by the company. There is no requirement that the agreement is in writing (although that would clearly be a sensible approach);

• the company must issue to the individual fully paid up shares in the company, or procures the issue or allotment to the employee of fully paid up shares in its parent undertaking, which have a market value of no less than £2,000. If the shares are not worth £2,000 then the individual will not be an Employee Shareholder; and

• the only consideration given by the individual is entering into the agreement to become an Employee Shareholder. (If the individual is found to have given any other consideration they will not be an Employee Shareholder.)

In becoming an Employee Shareholder, the individual gives up certain employee rights. Employees will give up:

• the right to a statutory redundancy payment;

• the right to request flexible working;

• the right to time off for study or training; and

• the right to claim unfair dismissal. However, this does not include:

• automatically unfair dismissals;

• dismissals in breach of the Equality Act 2010; or

• dismissals where section 108(2) of the ERA 1996 (health and safety cases) applies.

Some statutory employment rights are slightly different for Employee Shareholders in that an Employee Shareholder must give 16 weeks’ notice (rather than eight weeks) to the employer of their intention to return to work during the maternity leave period, adoption leave period and additional paternity leave period.

Additional rights have been given to existing employees to protect them from feeling pressured by their employer into becoming an Employee Shareholder. These protection measures include:

• the right not to be subjected to a detriment on the ground that they have refused to accept an offer to be an Employee Shareholder; and

• that a dismissal will be automatically unfair if the reason or principal reason for the dismissal is that they refused to accept an offer by the employer for the employee to become an Employee Shareholder. As the dismissal will be automatically unfair, there will be no requirement for a qualifying period of employment.

For further information on becoming an Employee Shareholder or how Employee Shareholders could be introduced in your company, please contact Helen Watson on 01244 405565 or send an email to [email protected].

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