LRD guides and handbook May 2017

Law at Work 2017

Chapter 2

Employee shareholders 



[ch 2: pages 69-70]

In September 2013, the government launched a new employment status – Employee Shareholder status.


Participating employees must forfeit specific statutory employment rights in return for shares valued between a minimum of £2,000 and a maximum of £50,000. They must forfeit the right:


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



• to claim a statutory redundancy payment; 



• to request flexible working; 



• to request time off to train; and



• anyone wanting to return early from maternity or adoption leave must give 16 weeks’ notice instead of the usual eight (see Chapter 9). 



The shares can be in private limited companies, for which there is no external market; they are not guaranteed equal voting rights or dividends; there is no guarantee that the shares will increase or even hold their value, and the TUC has warned that some individuals may trade employment rights for worthless shares. 



Since employers can make job offers conditional on new joiners accepting work on an “employee ownership” basis, there is a risk that employees could be forced to exchange basic employment rights for worthless shares. One of the benefits for employers is the opportunity to “buy out” employment rights cheaply at the start of the employment relationship, rather than in a more expensive settlement agreement at the end.



Employees have a seven-day “cooling off” period to change their mind, and must take independent legal advice. 



The change to the law met with widespread opposition, including from employer organisations. At its inception, the TUC correctly predicted that the scheme would be used by wealthy executives to avoid taxes. Take up has been very low and has largely been exploited for tax planning by high earners. In the Chancellor's Autumn Statement 2016, the government announced that from 1 December 2016, the tax benefits associated with the scheme are no longer available to new entrants and that the scheme is to be closed to new entrants “at the next legislative opportunity”.


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