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Employee Shareholders - any takers? Not likely

Meredith Hurst Friday, September 20, 2013

This month saw the introduction of a new type of employee, an 'employee shareholder'.  An employee shareholder receives at least £2,000 worth of company shares in the employer company in return for giving up employment rights.  The grant of the shares may attract tax benefits.  The employee shareholder status only applies if the following procedure has been followed:

  • The individual and the employer must both agree that the individual will be an employee shareholder.
  • The employer must give at least £2,000 worth of fully paid up shares in the employer or the employer's parent company.
  • The individual must not pay for the shares.
  • The employer must give the individual a written statement of particulars including details of what can and cannot be done with the shares etc.
  • The individual must obtain advice from a relevant independent adviser on the terms and effect of the written statement and the employer must pay for that advice (even if the individual then decides not to accept the job).
  • The individual cannot accept the terms until seven days after the advice was received.

Failure to comply with the above steps will not give rise to the employee shareholder status.

The employee shareholder status means, the individual loses the right to the following:

  • Unfair dismissal rights (apart from where the dismissal is discriminatory or is for an automatically unfair reason).
  • Statutory redundancy pay.
  • Request flexible working.
  • Request time off to train.
  • Right to give eight weeks notice to return to work early from maternity, paternity or adoption leave, the individual must give sixteen weeks notice instead. 

There is not likely to many circumstances where a solicitor is going to advise an employee that an employee shareholder arrangement is beneficial to the employee unless there are tax benefits to the employee.  Statistics show that there have not been many takers.  £2,000 worth of shares which may go up or down in value may not be enough to give away employment rights.   Of course, in a competitive market if an individual has the choice of a job with employee shareholder status or no job at all, he or she may decide that since you need two years service for unfair dismissal anyway, the risks are low. 

If an employer wishes to offer the employee shareholder status to current employees (who cannot be forced to accept) or candidates, it is highly recommended that they seek legal advice on the necessary steps to be taken.  The worst case scenario would be for an employee to be paid the shares, but for some technical reason they did not become an employee shareholder.

The government has issued some guidance: https://www.gov.uk/employee-shareholders

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