Employment Law Update October 2013

EMPLOYEE SHAREHOLDERS

In HR we have become used to the distinction between employees and workers. Employees have the benefit of all employment rights and all employees are workers. There are, however, some people in work who are not employees but are workers and have workers’ rights such as the right not to suffer unlawful discrimination.

From 1st September 2013, however, there is a 3rd category called ‘employee shareholder’. Here in return for shares in the employing company, the employee agrees to give up certain employment rights.

There are 6 conditions that must be met to become an employee shareholder whether as a new hire or an existing employee. The employer and the individual share responsibility to meet these conditions.

  • The individual and the company must both agree that the individual will be an employee shareholder.
  • The employer must give the individual fully paid up shares in the employer’s company or employer’s parent company, and they must be worth at least £2,000.There is no upper limit.
  • The individual must not pay for the shares in any way.
  • The employer must give the individual a written statement of the particulars of the status of employee shareholder.
  • The individual must obtain advice from a relevant independent adviser on the terms and effect of the written statement. The company is required to pay for that advice whether the individual accepts the job or not.
  • The individual cannot accept or agree to an employee shareholder job until 7 days have passed following receipt of the advice. The 7 days commence on the day after the advice has been received.

If the individual or the company do not undertake or comply with all 6 of these conditions, the individual will not be an employee shareholder.

The written statement must include:

  • the employment rights that an employee shareholder does not have
  • that the employee shareholder must give a minimum of 16 weeks’ notice of an early return from maternity, additional paternity, or adoption leave
  • Information regarding the rights attaching to the shares.

The employment rights which are given up are:

  • Right to claim unfair dismissal (but the employee shareholder can still claim for automatic unfair dismissal e.g. for sex discrimination)
  • Right to redundancy pay
  • Right to request flexible working (but the employee shareholder can still request it within two weeks of returning from parental leave)
  • Time off for training

COMMENT

The proposals stem from a commitment given by Chancellor George Osborne at the Conservative Conference in 2011 to reduce the burden of employment law for small employers. Commentators have claimed that the proposal is more about satisfying a political objective than making any real change to employment. The CIPD saw little value in it and it is not considered that it will be taken up by many employers. From an employer’s point of view it may not seem a good deal as a dismissed shareholder-employee can still bring a claim under any one of the automatic unfair dismissal provisions. New employees can’t claim for 2 years anyway. It might be worthwhile an employer considering it for existing employees with over two years’ service.  From an employee point of view, however, a gift of £2,000 worth of shares today (which could go down in value) would not be worth giving up the right to a future redundancy pay which could be worth up to £13,500.

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