Employee Shareholders; what does it mean for you?

As of 1 September 2013 there is a new Section 205A inserted into the Employment Rights Act 1996 allowing an employee and employer to agree that in return for the employee becoming an ‘employee shareholder’ they will waive some of their employment rights.

The minimum number of shares that can be allotted is £2,000, with any gains made on the first £50,000 of shares being exempt from Capital Gains Tax. The employee shareholder has the same rights as a normal employee but with some exceptions, these are:

  • No right not to be unfairly dismissed (subject to some exclusions such as discrimination and automatically unfair dismissals).
  • No right to a statutory redundancy payment.
  • No right to request time off for study or training.
  • No right to request flexible working (save for those returning from parental leave who may request flexible working for up to 14 days immediately following their return to work).
  • The employee must give 16 weeks notice if they want to return early from statutory maternity, adoption or additional paternity leave.

You cannot force an employee to become an employee shareholder and there are protections in place preventing any dismissal arising out of any refusal.

Any person considering accepting this status will initially need to take independent advice in respect of the offer and the employer must meet reasonable costs incurred regardless of whether the offer is accepted. In addition there is a 7 day cooling off period in which the employee can change their mind following receipt of this advice.

The benefits to employers are clear, there is a reduced risk of any tribunal claims or liabilities arising in respect of redundancy pay, however the correct procedures do still need to be followed to avoid any dismissal becoming automatically unfair. The benefits to employees are also clear, the capital gains tax exemption on any profits from the shares could amount to a significant payment at the end of each year, however this should be considered by reference to the waiving of certain rights, hence the need for independent advice.

If you are an employer considering offering an employee shareholder scheme, or an employee wanting advice in respect of the implications of joining your employer’s scheme, please contact Stephen Stewart on 01238 526200 or email Stephen.Stewart@elselaw.co.uk

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