What is an ’employee shareholder’?

Essentially it is an employee who has agreed to give up certain statutory rights in return for shares in the company for which they work.

What statutory rights do they have to surrender?

Employee shareholders will have signed away rights to claim unfair dismissal or redundancy pay and they will not be entitled to make any request for flexible work or time off for training and study.

Does this mean that the employee shareholder will never be able to bring a claim for unfair dismissal?

No. Employee shareholders will still have the right to bring a claim for unfair dismissal if the reason for dismissal means it is automatically unfair, for example dismissal if they were dismissed for whistleblowing. A claim could also be brought where the dismissal was on grounds of a protected characteristic, for example, the employee is dismissed because of their race. Employee shareholders retain the right to bring claims for discrimination in the same way as any other employee.

Is this new type of contract for job applicants only?

No existing employees can agree to sign up to be employee shareholders too. However an existing employee cannot be forced into the new agreement.

What is the cost to the employer?

The employee must be given a minimum of £2,000 worth of shares. There will be further costs though as it is a requirement that the employer pays for the individual to have independent legal advice on the terms and effect of the proposed employee shareholder agreement.

When were the Employee Shareholder contracts introduced?

Employers and employees have been able to enter into these agreements since 1 September 2013.

Are we likely to see most employers recruiting only employee shareholders now?

No it is unlikely that this new form of contract will have a big take up. Whereas the employee is given a tax incentive in that the first £50,000 worth of shares are exempt from capital gains tax the limited benefits for the employer are not so appealing given that there is already a two year qualifying period before employees gain the right to claim unfair dismissal or a redundancy payment.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.