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Martin Mensah provides an insight into the "employee shareholder"

31/07/13

MM

Employee shareholders

"Shares for rights?"

 

What is it all about?

There will be a new status of employee - the "employee shareholder."

They will be able to dispose of shares in a company without incurring capital gains tax.


When is it happening?

This will come into effect in September 2013.

Who is it aimed at?

Principally, smaller companies and those anticipating fast growth.

It will be available to all new and existing companies regardless of their size.

 

That sounds great. Is there a downside?

In order to obtain these shares, an employee will be required to relinquish some of their employment rights and adopt the new employee shareholder employment status.

Shares acquired up to a value of £2,000.00 will not be subject to tax and national insurance contributions when acquired. Sale proceeds of up to £50,000.00 will not attract capital gains tax. So, the employee shareholder accepts £2,000.00 worth of shares and forfeits their right to claim:

  • Unfair dismissal (apart from the automatically unfair ones)
  • Redundancy payment
  • Right to request flexible working
  • Time off for training (unless at the employers discretion)

They will also be expected to provide their employer with 16 weeks notice and new mothers will have to provide their employer with a fixed date for return from maternity leave.

 

Did I misread that?

No. Employees will give up some of their employment rights in exchange for shares in the company.

 

The good

On the one hand, people argue that this is a clever device from the government to assist entrepreneurs and small business owners - they will be able to recruit talented people without the fear of "onerous" employment restrictions.

This is seen as a new way of offering employment contracts which are a flexible and less risky means of expanding the workforce. It is also seen as a means to address the increasing litigation culture (although tribunal fees will also assist with that issue)

Companies will continue to have the option of including more generous employment rights in contracts with new employee owners. In theory, employee shareholders can get both the shares and the rights afforded to those who do not share that status.

Employers can rest easy in relation to any fear of being taken to the tribunal and employees do not lose all of their rights. Employers will not be able to get rid of employee shareholders if they become pregnant, for any of the protected characteristics, for membership of a trade union or whistleblowing.

 

The bad

It means that bosses can sack staff for minor breaches of conduct and that staff can be removed without expensive redundancy payments.

This could be construed as a wholly divisive piece of employment legislation. Proposing it, Viscount Younger of Leckie said "We want to give individuals more chances to share in the growth agenda and to own shares in their employer."  However, there has been criticism of the proposal:

"When will the Government understand that some things are not for sale? Workers' rights are not for sale. They cannot be traded. Dignity at work is not for sale and cannot be traded. The fight against injustice is not for sale and cannot be raded."  Lord Morris of Handsworth


The ugly

The matter went out to consultation. Of the 209 responses, 3 said they would take up the scheme.

 

Analysis

I wouldn't be keen on giving up my employment rights for £2,000.00. Worse still, it might be less or nothing - these are wholly unquantifiable and uncertain benefits from shares that could might end up being useless and valueless. In return, an unscrupulous employer could feel emboldened to mistreat employees.

It could offer a good way to help business owners reduce the risk of employing staff in return for providing for a greater involvement in the company. In theory, nobody will be forced to accept this employee shareholder status although one can anticipate there being a "take it or leave it" approach at the application/interview stage.

Take-up of the scheme may be minimal or non-existent and so this could mean that the whole debate is a storm in a teacup.

My own view is that Lord Bilimoria of Chelsea got it about right with his analysis -

"This is not just a dog's breakfast; it is a mad dog's breakfast."

 

Martin Mensah

 

This publication is intended to provide general guidance only. It is not intended to constitute a definitive or complete statement of the law on any subject and is no substitute for legal or professional advice in any case.   Any views or opinions expressed in this article are those of the author only.