Employee Shareholders

On 1 September 2013, the government launched its new employment status known as Employee Shareholder status under powers contained in its Growth and Infrastructure Act 2013 and the Finance Act 2013.

The “shares for rights” scheme, attacked by the TUC as a “gimmick” that could end up costing taxpayers over £1 billion, requires participating employees to give up a number of statutory employment rights in return for shares valued between a minimum of £2,000 and a maximum of £50,000. The forfeited rights include:

• the right to claim unfair dismissal (excluding automatically unfair and discriminatory dismissal);

• the right to a statutory redundancy payment;

• the right to request flexible working;

• the right to request time off to train; and

• participating employees wanting to return early from maternity, adoption or additional parental leave must give 16 weeks’ notice instead of the usual 8 (see Chapter 8: Maternity leave).

Under the rules, the shares can be in private limited companies for which there is no external sales market. They are not guaranteed equal voting rights or dividends. There is no guarantee that shares will increase or even hold their value, and the TUC has warned that this means that some individuals could trade basic employment rights for worthless shares.

The “shares for rights” proposals received widespread opposition, including from employer organisations such as the Chartered Institute of Personnel and Development (CIPD). The TUC believes the scheme will be used by wealthy executives to dodge taxes, and there are early indications that this is indeed the case.

Since “employee ownership” can be a joining condition for new staff, the TUC fears that ordinary workers may be forced to give away basic employment rights in exchange for worthless shares. The proposal also enables employers to buy out employment rights cheaply at the start of employment relationship rather than in a more expensive settlement agreement at the end.

Employees have a seven-day “cooling off period” in which to change their mind, and must take independent legal advice. Both developments are likely to make this new employment status unattractive to most small to medium sized employers.

As the TUC notes: “Employment rights should not be for sale. Employers do not want to buy them, and employees will not want to sell them”.