A new type of employment status will be created under regulation 2 of The Growth and Infrastructure Act 2013 (Commencement No. 3 and Savings) Order 2013, providing the new section 205A of the Employment Rights Act 1996 (ERA) comes into force on 1st September 2011.

The status of employee shareholder will allow employees to give up a bundle of employment rights (e.g. unfair dismissal and statutory redundancy) in exchange for an award of shares worth at least £2,000.

The employee will have a right to a statement detailing the shares, a requirement for the employee to take legal advice (the employer will pay for this up to a “reasonable” level) and a seven day cooling off period.

What does this mean for employers?

The practical impact of these changes is unclear.

Any company with share capital can enter into an agreement with an employee to allow them to become an “employee shareholder”.

An employee shareholder will receive fully paid-up company shares that have a value of no less than £2,000 on the day of issue.

In exchange for these shares the employee shareholder will give up the right to: 

  • request flexible working;
  • request to undertake study or training;
  • not to be unfairly dismissed (unless it breaches the Equality Act 2010, or breaches H&S legislation or is automatically unfair under ERA); and
  • a redundancy payment.

If an employee shareholder goes on maternity, paternity, adoption or parental leave the notice that they will need to give to return to work will increase to 16 weeks. 

Employers will be able to make a job offer conditional on an applicant agreeing to become an employee shareholder. If an applicant refuses the employer can lawfully withdraw the offer.

The statement that the employer must provide the employee shareholder with must contain the following:

  • the rights that the employee shareholder is giving up;
  • the rights attached to the shares, e.g. voting and dividend;
  • whether there are any restrictions on the transfer of the shares; and
  • whether the employee shares are subject to drag-along or tag-along rights.

The employee must not suffer a detriment for refusing to accept the offer to become an employee shareholder.

It is not clear how the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) will apply to employee shareholders or indeed existing Share Scheme arrangements.

Employers will also need to be careful that the introduction of employee shareholders in their company does not create a two-tier workforce of employee shareholders and non-employee shareholders.

If you would like to discuss the introduction of employee shareholders or any other employment-related matter please do not hesitate to contact Laura Allanson or Katie Stephenson at BHW Solicitors in Leicester.

Laura Allanson is an Associate Solicitor and Head of the Employment Department at BHW Solicitors in Leicester. Laura can be contacted on 0116 281 6237 or by email at laura@bhwsolicitors.com.

Katie Stephenson is a Solicitor in the Employment Department at BHW Solicitors in Leicester. Katie can be contacted on 0116 281 6227 or by email at katies@bhwsolicitors.com.

For a Leicester Mercury article on the topic of employee shareholders, please click here.

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